Prospectus
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-84082
[LOGO]
FLORIDA SAVINGS BANCORP, INC.
Up to $5,000,000 4% Convertible Debentures
Due March 31, 2009
Florida Savings Bancorp, Inc. is offering 4% convertible debentures,
due March 31, 2009, to holders of record of its common stock and to the general
public. The debentures will mature on March 31, 2009 and will accrue interest at
the rate of 4% per annum upon issuance until maturity or earlier conversion or
redemption. Interest on the debentures will be paid semi-annually in arrears,
beginning on the date that is one calendar year from the date of issuance. The
amount of each interest payment will include amounts accumulated up to the date
the interest payment is due. The debentures are convertible into shares of
Florida Savings Bancorp common stock as described in this prospectus at a
conversion ratio of 90.91 shares of common stock for each debenture (equivalent
to an initial conversion price of $11 per share of common stock). The debentures
are redeemable, in whole or in part, at the option of Florida Savings Bancorp as
described in this prospectus. We do not intend at this time to list either the
debentures or the common stock of Florida Savings Bancorp on a national
securities exchange or the Nasdaq Stock Market.
In the event this offering is oversubscribed, debentures will be
allocated first to subscribers that are shareholders of record in proportion to
their percentage ownership in Florida Savings Bancorp. All remaining debentures
will be allocated to the public at the discretion of Florida Savings Bancorp
management. No prospective investor through this offering, however, other than
Bernard Janis and the Andrea Green 1991 Irrevocable Trust, may beneficially own
or acquire, or through purchase of debentures have the right to beneficially own
or acquire, 10% or more of the common stock of Florida Savings Bancorp. The
minimum purchase is $10,000 of debentures.
The offering will commence on May 6, 2002 and will end at 5:00 p.m.,
Miami, Florida time, on July 5, 2002 unless extended at the sole discretion of
the board of directors of Florida Savings Bancorp. All extensions, if any, will
not go beyond September 3, 2002. SunTrust Bank will hold all funds of
subscribers in an interest-bearing escrow account at SunTrust Bank until the
offering is completed or terminated. The offering will be terminated if the $2.0
million minimum is not sold. Any funds received will be returned promptly with
interest if the offering is terminated.
Kendrick, Pierce Securities, Inc. will use its best efforts to assist
Florida Savings Bancorp in selling the debentures, but does not guarantee that
the minimum number of debentures will be sold. Kendrick, Pierce is not obligated
to purchase any debentures in the offering.
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See "Risk Factors" beginning on page 7 to read about the risks that you
should consider before buying these debentures.
These debentures are not deposits or accounts and are not insured by
the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or
any other government agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these debentures or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is committing
a crime.
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Price to Public Underwriting Commissions (1) Proceeds to Issuer
--------------- ---------------------------- ------------------
Per Debenture ..... $ 1,000 $ 60 $ 940
Total Minimum ..... $ 2,000,000 $ 120,000 $ 1,880,000
Total Maximum ..... $ 5,000,000 $ 300,000 $ 4,700,000
__________________________
(1) Underwriting commissions may be lower based on the terms of the sales agent
agreement. Total expenses of this offering are estimated to be $295,000 at
the minimum of the offering and $480,000 at the maximum of the offering.
For assistance, please contact Kendrick, Pierce Securities, Inc. at (866)
254-2265.
Kendrick, Pierce Securities, Inc.
The date of this prospectus is May 2, 2002.
TABLE OF CONTENTS
Page
----
Summary ................................................................................................... 3
Risk Factors .............................................................................................. 7
Selected Consolidated Financial and Other Data ............................................................ 12
Recent Developments ....................................................................................... 14
Use of Proceeds ........................................................................................... 16
Ratio of Earnings to Fixed Changes ........................................................................ 18
Capitalization ............................................................................................ 18
Dilution .................................................................................................. 19
Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 19
Business of Florida Savings Bancorp ....................................................................... 28
Business of Florida Savings ............................................................................... 30
Other Subsidiary Activities ............................................................................... 44
Management of Florida Savings Bancorp and Florida Savings ................................................. 45
Security Ownership of Management and Certain Shareholders ................................................. 51
Regulation and Supervision ................................................................................ 52
Federal and State Taxation ................................................................................ 57
Federal Income Tax Consequences to Debenture Holders ...................................................... 58
The Offering .............................................................................................. 60
Description of Debentures ................................................................................. 61
Sales Agency Arrangements ................................................................................. 66
Description of Capital Stock of Florida Savings Bancorp ................................................... 67
Experts ................................................................................................... 68
Legal Matters ............................................................................................. 68
Consolidated Financial Statements ......................................................................... 69
FLORIDA SAVINGS BANCORP, INC.
Main Office
8181 Southwest 117th Street
Pinecrest, FL 33156
(305) 235-1750
Proposed Branch Offices
(1) Miami Beach
(2) Miami - Coral Way
[Map of Florida with inset of Miami-Dade County with
locations of the main office and the proposed branch offices.]
2
SUMMARY
The following information is a summary of the significant terms of this
offering and of the debentures. You should carefully read this prospectus and
the financial statements and the notes thereto, to understand fully the terms of
the debentures, as well as the other considerations that are important to you in
making a decision about whether to invest in the debentures. You should pay
special attention to the "Risk Factors" section of this prospectus to determine
whether an investment in the debentures is appropriate for you.
The Companies
Florida Savings Bancorp, Inc. ........... Florida Savings Bancorp is a community-oriented financial services
8181 Southwest 117/th/ Street company dedicated to serving the financial needs of the consumers and
Pinecrest, Florida 33156 businesses in and around Pinecrest and Miami-Dade County, Florida. Since
(305) 235-1750 opening in 1999, Florida Savings Bancorp has grown to $63.3 million in
assets, $51.2 in net loans and $52.9 million in deposits. Florida Savings
Bancorp has shown improvement in operating results since its inception
and achieved profitability for the three months ended December 31, 2001.
The centerpiece of Florida Savings Bancorp's operations is Florida
Savings, which provides personal, consumer and commercial banking
services to individuals and businesses in its market area. In
addition to Florida Savings, Florida Savings Bancorp plans to provide
insurance products, investment and brokerage services, trust services
and real estate related activities through its operating subsidiaries.
Florida Savings Bank..................... Florida Savings opened for business on April 26, 1999 and is
a community-oriented financial institution dedicated to serving the
financial service needs of consumers and businesses within its market
area. Florida Savings currently operates out of its sole office in
Pinecrest, Miami-Dade County, Florida.
FSB Development Corp. ................... FSB Development acquires property for the purpose of constructing and
selling one- to four-family homes. FSB Development has begun the
construction of two luxury estate homes located within the Village of
Pinecrest with the intent to sell the properties. FSB Development
continues to evaluate properties for acquisition, construction and resale.
The Offering
Securities Offered....................... Up to $5.0 million in aggregate principal amount of 4% convertible
debentures due March 31, 2009 (principal amount $1,000 per debenture).
Offering Price .......................... $1,000 per debenture.
The Offering ............................ We are offering the debentures to shareholders of record as of April
26, 2002 and to the general public. In the event of an oversubscription,
debentures will be allocated first to subscribers that are shareholders
of record in proportion to their percentage ownership in Florida
Savings Bancorp. All remaining debentures will be allocated to the
public at the discretion of Florida Savings Bancorp management.
3
Acceptance of Subscriptions .............. Once the $2.0 million minimum of debentures has been sold, Florida
Savings Bancorp may conduct an initial closing and issue the
debentures sold as of that date. Following the initial closing,
Florida Savings Bancorp may continue the offering and accept
additional subscriptions for debentures, up to the maximum of $5.0
million.
Deadline for Subscribing for Debentures .. The offering will expire at 5:00 p.m., Miami, Florida time, on July
5, 2002 unless extended at the sole discretion of the board of
directors of Florida Savings Bancorp. All extensions, if any, will
not go beyond September 3, 2002.
Offering Range ........................... Florida Savings Bancorp is offering between a minimum of $2.0 million
and a maximum of $5.0 million of debentures equal to 2,000 and 5,000
debentures at a purchase price of $1,000. If the $2.0 million minimum
is not sold by the expiration date, your funds will be promptly
returned to you with interest. Purchases by officers and directors
will be included in determining whether the minimum number of
debentures have been sold.
Purchase Limitations ..................... The minimum purchase is $10,000 of debentures. The minimum purchase
limitation may decrease, subject to the board of directors'
discretion. No prospective investor through this offering, other than
Bernard Janis and the Andrea Green 1991 Irrevocable Trust, may own or
acquire, or through the purchase of debentures, have the right to own
or acquire, 10% or more of the common stock of Florida Savings Bancorp.
How to Subscribe for Debentures .......... You may subscribe for debentures by completing and signing your
debenture order form and delivering it, together with payment of the
subscription price and any other required documents to SunTrust Bank,
the escrow agent, by the expiration date. It is very important that
you read carefully "The Offering - Procedure for Subscribing for
Debentures" and the debenture order form and related instructions for
more information regarding the methods of delivery and payment.
Escrow Agent ............................. SunTrust Bank will act as the escrow agent for the offering.
Interest Payment Dates ................... Purchasers will be entitled to receive interest at the annual rate of
4% of the principal amount of the debentures. Interest payments will
accumulate from the date Florida Savings Bancorp issues the debentures
and will be paid semi-annually in arrears, beginning on the date that
is one calendar year from the date of issuance. The amount of each
interest payment will include all amounts accumulated up to the date
the interest payment is due.
4
Ranking .................................. The debentures will be unsecured
general obligations of Florida
Savings Bancorp ranking junior to
all Florida Savings Bancorp's
existing and future senior secured
indebtedness and ranking equal in
right of payment to any existing or
future unsecured and unsubordinated
indebtedness of Florida Savings
Bancorp. As of December 31, 2001,
Florida Savings Bancorp had on a
consolidated basis senior secured
indebtedness of $3.3 million, a line
of credit of up to $1.5 million, of
which $600,000 was drawn upon at
December 31, 2001 and constitutes
senior indebtedness, and no other
indebtedness of equal ranking with
the debentures.
Rights of Acceleration ................... If an event of default has occurred,
a holder may elect to accelerate the
principal amount of each debenture,
together with accrued but unpaid
interest, so that the debenture will
become immediately due and payable.
Conversion ............................... The debentures will be convertible
at the option of the holder at any
time prior to maturity beginning one
year after the date of original
issuance into shares of common stock
at a conversion ratio of 90.91
shares of common stock for each
debenture (equivalent to an initial
conversion price of $11 per share of
common stock), subject to adjustment
in certain events. If Florida
Savings Bancorp calls the debentures
for redemption, the conversion right
will terminate at the close of
business on the business day
immediately preceding the date fixed
for redemption. If you want to
convert a debenture, Florida Savings
Bancorp will exchange your debenture
into shares of Florida Savings
Bancorp common stock. You will
receive cash in lieu of fractional
shares. You will also receive cash
equal to any accrued but unpaid
interest payments or other
distributions on the debenture
through the time of conversion.
Sinking Fund ............................. None.
Mandatory Redemption ..................... None.
Absence of Trading Market ................ The debentures, and the common stock
into which the debentures are
convertible, are not traded on an
exchange or any other trading
market. There are currently 47
shareholders of record of Florida
Savings Bancorp common stock. There
can be no assurance as to whether
any markets will develop for the
debentures or Florida Savings
Bancorp's common stock in the
future.
5
Maturity and Optional
Redemption .......................... The debentures will mature on March
31, 2009, unless Florida Savings
Bancorp redeems the debentures prior
to that date.
Florida Savings Bancorp may redeem
the debentures at any time, in whole
in part, with at least 30 days'
notice but no more than 60 days'
notice, together with any accrued
and unpaid interest to, but
excluding, the redemption date, at
par without the payment of any
premium amounts under the following
circumstances:
. at any time after a date three
years from the date of issuance
of the debentures; or
. at any time prior to the
date three years from the date
of issuance of the debentures,
provided the average sales price
of Florida Savings Bancorp's
common stock in arms-length
trades, known to Florida Savings
Bancorp management, equals or
exceeds 140% of the then
effective conversion price for
at least 30 consecutive business
days, provided at least 10 bona
fide trades have occurred within
the 30 business day period.
Use of Proceeds ....................... Florida Savings Bancorp intends to
use the net proceeds resulting from
the sale of the debentures for
general corporate purposes,
including, but not limited to:
investment in Florida Savings and
Florida Savings Bancorp's other
wholly owned subsidiaries; increased
working capital; and possible
diversification of business
activities through newly-formed
subsidiaries; or through
acquisitions of financial
institutions as well as other
financial services related
companies. In addition, Florida
Savings Bancorp and Florida Savings
may use the proceeds to fund new
loans, invest in securities and
support the opening of new Florida
Savings branches. Florida Savings
Bancorp also will retain net
proceeds equal to two years' of
interest payments on the debentures.
Florida Savings Bancorp has a $1.5
million line of credit from a
commercial bank that had an
outstanding balance due of $600,000
at December 31, 2001. A portion of
the proceeds from this offering will
be utilized to repay any outstanding
balance remaining due on the line of
credit as of the closing date.
Subscription by Insiders .............. Our directors, executive officers
and the beneficial owners of more
than 10% of our common stock
currently intend to subscribe for
approximately $2.5 million of the
debentures. No individual has
entered into a binding agreement to
purchase these debentures and,
therefore, actual purchases could be
more or less than indicated.
6
RISK FACTORS
You should carefully review the information contained elsewhere in this
prospectus and should particularly consider the following factors, which do not
necessarily appear in the order of importance. Investors should consider all of
these factors to be important.
Risks Related to Your Investment in the Debentures
Banking laws and regulations could limit Florida Savings Bancorp's access to
funds from Florida Savings, Florida Savings Bancorp's primary source of
liquidity, which are needed to make payment under the debentures.
With the proceeds from this offering, Florida Savings Bancorp will have
sufficient liquidity to pay its corporate expenses and pay interest on the
debentures until March 31, 2004, after which Florida Savings Bancorp expects to
rely on dividends or borrowings from Florida Savings to pay principal of and
interest on the debentures. At the present time, Florida Savings is the only
subsidiary expected to have sufficient net profits in order to pay dividends to
Florida Savings Bancorp. Florida Savings Bancorp cannot assure you, however,
that Florida Savings will be able to pay dividends to Florida Savings Bancorp in
the future, which may prevent Florida Savings Bancorp from satisfying its
obligations under the debentures. As a unitary savings and loan holding company
regulated by the Office of Thrift Supervision, all capital distributions by
Florida Savings directly or indirectly to Florida Savings Bancorp, including
dividend payments, are limited. As the subsidiary of a savings and loan holding
company, Florida Savings must file either a notice, which is subject to
disapproval, or an application with the Office of Thrift Supervision prior to
each proposed capital distribution. In addition, other laws and regulations may
limit Florida Savings' ability to pay dividends.
The debentures are unsecured obligations of Florida Savings Bancorp, meaning
that Florida Savings Bancorp currently has, and is likely to have in the future,
indebtedness that must be repaid before the debentures can be repaid.
The debentures are not secured by Florida Savings Bancorp's assets or other
collateral, rank junior to all Florida Savings Bancorp's existing and future
senior secured indebtedness, and will rank equal to any of Florida Savings
Bancorp's future unsecured indebtedness. As of December 31, 2001, Florida
Savings Bancorp on a consolidated basis had senior secured indebtedness of $3.3
million, consisting of a Federal Home Loan Bank advance, a line of credit to
Florida Savings Bancorp and construction loans to FSB Development Corp., which
Florida Savings Bancorp fully guarantees, and no other indebtedness of equal
ranking with the debentures. On December 31, 2001, approximately $692,000 of the
construction loans had been utilized by FSB Development. In addition, at
December 31, 2001, Florida Savings Bancorp had the ability to borrow a total of
$1.5 million on a line of credit. At December 31, 2001, the line of credit had
an outstanding balance due of $600,000, which is secured by the common stock of
Florida Savings. All amounts drawn on the line of credit represent senior
secured indebtedness.
Creditors of Florida Savings Bancorp's subsidiaries have priority over debenture
holders in the event of a distribution of Florida Savings Bancorp's
subsidiaries' assets.
The debentures will be obligations of Florida Savings Bancorp only and will
not be obligations of or deposits in Florida Savings. Florida Savings Bancorp is
a holding company and is the sole shareholder of its subsidiaries, including
Florida Savings. As a result, the rights of Florida Savings Bancorp if a
liquidation, reorganization, receivership or insolvency of Florida Savings or
the other subsidiaries were to occur would be as a shareholder and would be
junior to the claims of the creditors of Florida Savings (including depositors)
and the other subsidiaries. Therefore, it is unlikely that holders of the
Florida Savings Bancorp debentures would be able to participate in any resulting
distribution of the remaining assets of the subsidiaries.
7
The debentures are not insured deposit accounts and therefore the holders will
not be able to rely on Federal Deposit Insurance Corporation insurance to
recover their investments.
The debentures are securities issued by Florida Savings Bancorp and are not
insured deposit accounts at Florida Savings. Accordingly, holders of the
debentures are not entitled to any of the benefits or protections of Federal
Deposit Insurance Corporation insurance or any other insurance. Instead, the
debentures are subject to investment risks, including the possible loss of the
principal invested.
The debentures are not being issued under a trust indenture and, therefore,
there will be no trustee to protect the rights of the debenture holders.
There will be no independent trustee appointed to protect the rights of the
debenture holders, nor will the debentures be issued pursuant to a trust
indenture, which is a trust agreement between the issuer of the securities and
the security holders that provides for various protections for the security
holders. As a result, if Florida Savings Bancorp were to default on its
obligations under the debentures, debenture holders would be required to seek
their own remedies and could not rely on a third party to act on their behalf.
The terms of the debentures do not limit the ability Florida Savings Bancorp to
incur additional debt that may be senior or equal in rank to the debentures.
The debentures do not contain any provisions that will restrict Florida
Savings Bancorp from incurring, assuming or becoming liable for any additional
indebtedness or other obligations, whether secured or unsecured and whether
otherwise ranking senior or equal to the debentures. As a result, if Florida
Savings Bancorp were to incur additional debt and was not able to meet all of
its debt obligations, there may be significant additional creditors whose rights
are senior or equal to those of the debenture holders.
No public market for the debentures or the underlying common stock currently
exists.
The debentures, and the common stock into which the debentures are
convertible, are not traded on an exchange or other trading market. There is no
existing market for the debentures and there can be no assurance as to:
. whether any markets may develop for the debentures or Florida Savings
Bancorp's common stock;
. whether the debenture holders will be able to sell the debentures or,
when converted, Florida Savings Bancorp common stock; or
. the price, if any, at which holders of the debentures, or, when
converted, Florida Savings Bancorp common stock, will be able to sell
their debentures or common stock, as the case may be.
Florida Savings Bancorp may redeem the debentures before maturity, requiring
investors to reinvest their principal.
Florida Savings Bancorp may redeem the debentures at any time, in whole in
part, on at least 30 days' notice but no more than 60 days' notice, together
with any accrued and unpaid interest to, but excluding, the redemption date, at
par without the payment of any premium amounts under circumstances as described
in this prospectus.
You should assume that an early redemption may be attractive to Florida
Savings Bancorp if it can obtain capital at a lower cost than it must pay on the
debentures or if it is otherwise in Florida Savings Bancorp's interest to redeem
the debentures. If the debentures are redeemed, you may be required to reinvest
your principal at a time when you may not be able to earn a return that is as
high as you were earning on the debentures.
8
Risk Factors Relating to Florida Savings Bancorp and its Subsidiaries
Florida Savings Bancorp and its subsidiaries have limited operating histories
upon which to evaluate its performance.
Florida Savings Bancorp was incorporated in 1998 and Florida Savings and
FSB Development began operations in April 1999 and June 2000, respectively.
Accordingly, Florida Savings Bancorp, Florida Savings and FSB Development have
only limited operating histories upon which you can evaluate their prospects and
future performance. Prior to October 2001, Florida Savings Bancorp was not
profitable and FSB Development has had only limited profits. As of December 31,
2001, Florida Savings Bancorp had an accumulated deficit of $1.1 million. You
should consider Florida Savings Bancorp's prospects based on the risks, expenses
and difficulties frequently encountered in the operation of a new business in an
industry characterized by intense competition.
Changes in economic conditions could lead to higher loan charge-offs and reduce
Florida Savings Bancorp's income and growth.
Florida Savings' loan portfolio includes many residential real estate
secured loans, as well as commercial real estate loans, in South Florida. Real
estate loans are in demand when interest rates are low and economic conditions
are favorable. Even when interest rates are low, these favorable conditions may
not continue.
An increase in unemployment, a decrease in real estate values or increases
in interest rates could weaken the South Florida economy. Weakness in Florida
Savings' market area could depress Florida Savings' earnings and consequently
its financial condition because:
. customers may not want or need Florida Savings' products and services;
. borrowers may not be able to repay their loans;
. the value of the collateral securing Florida Savings' loans to
borrowers may decline; and
. the quality of Florida Savings' loan portfolio may decline.
Any of the latter three scenarios could require Florida Savings to
"charge-off" a higher percentage of its loans and/or increase its provision for
loan losses, which would reduce Florida Savings' income.
Florida Savings' concentration of loans secured by commercial real estate and
commercial business loans increases possibility of loan losses.
Florida Savings may incur significant losses because at December 31, 2001
approximately 21% of its loan portfolio is secured by commercial real estate and
commercial business loans. Although generally secured, commercial real estate
loans and commercial business loans have a higher risk of loss than residential
real estate loans. Competitive pressures, economic cycles, changes in technology
and similar factors may negatively impact the cash flows of the commercial
borrowers and their ability to repay their loans. As a result, there is an
increased possibility that our delinquencies could increase or that we could
incur loan losses.
Florida Savings' substantial number of unsecured loans may hurt both asset
quality and profits.
At December 31, 2001, unsecured loans represented 7.96% of Florida Savings'
total loan portfolio. Generally, Florida Savings considers these types of loans
to involve a higher degree of default risk compared to loans secured by real
estate or business assets. Florida Savings cannot assure that its level of
nonperforming loans or its level of charge-offs of its unsecured loans will not
be higher in future periods, which could lead to a significant increase in the
provision for loan losses in future periods. Increased provisions for loan
losses would hurt Florida Savings profits.
9
An increase in nonperforming loans or a deterioration of nonperforming loans may
have an adverse impact on our net income.
If loans that are currently nonperforming further deteriorate or loans that
are currently performing become nonperforming loans, we may need to increase our
allowance for loan losses. Such an increase would have a negative impact on net
income and earnings per share.
In February 2001, a $450,000 commercial business loan in Florida Savings'
portfolio became delinquent. Florida Savings anticipates receiving proceeds from
the sale of part of the underlying collateral sufficient to pay down
approximately 50% of the outstanding balance on this loan. In September 2001,
Florida Savings recognized a specific reserve in the allowance for loan loss of
$225,000 on this loan, and it currently believes the total allowance for loan
losses remains adequate.
Changes in interest rates may reduce Florida Savings' net income and future cash
flows.
Florida Savings' primary source of income is net interest income, which is
the difference between the interest income earned on its interest-earning assets
and the interest expense incurred on its interest-bearing liabilities. At
December 31, 2001, Florida Savings' one-year interest rate sensitivity gap (the
difference between its interest rate sensitive assets maturing or repricing
within one year and its interest rate sensitive liabilities maturing or
repricing within one year, expressed as a percentage of rate sensitive assets
repricing within one year) was negative 23.96%. In a rising interest rate
environment, an institution with a negative gap would generally be expected,
absent the effects of other factors, to experience a greater increase in its
cost of liabilities relative to its yield on assets, and thus decrease an
institution's net interest income. Because interest rates are established by
competition, Florida Savings has limited control over its net interest income.
In an environment of decreasing interest rates, the average life of loans and
mortgage-backed securities in Florida Savings Bancorp's portfolio may decrease
as the result of borrowers refinancing their mortgage loans to reduce their
borrowing costs. Under these circumstances, Florida Savings Bancorp is subject
to reinvestment risk to the extent that it is not able to reinvest the funds
received from such prepayments at rates which are comparable to the rates that
Florida Savings Bancorp previously earned on the prepaid loans or securities.
Ownership of Florida Savings Bancorp's common stock is concentrated in persons
affiliated with Florida Savings Bancorp.
Florida Savings Bancorp's directors, executive officers and the beneficial
owners of more than 10% of Florida Savings Bancorp's common stock own in the
aggregate approximately 52.2% of the common stock of Florida Savings Bancorp
(58.6% assuming the exercise of outstanding options). If all of the debentures
are sold, Florida Savings Bancorp's directors, executive officers and 10%
shareholders would own 51.4% of Florida Savings Bancorp's common stock (assuming
conversion of all of the debentures into common stock and assuming that our
directors, executive officers and 10% shareholders purchase approximately $2.5
million of the debentures, as intended) (55.7% assuming the exercise of
outstanding options). If they were to act as a group or in concert, they could
exercise a significant influence over the outcome of any shareholder vote
requiring a majority vote or in the election of directors and could effectively
exercise veto power on matters requiring a shareholder vote with respect to
certain business combinations.
In the future, there may be little public information about Florida Savings
Bancorp.
If, at January 1, 2003, Florida Savings Bancorp has under 300 holders of
record of its common stock, Florida Savings Bancorp will not be required to
provide to its shareholders quarterly summary financial statements, an annual
report to shareholders and a proxy statement in compliance with the Securities
Exchange Act of 1934. Florida Savings Bancorp believes that it will not have 300
holders of record after the offering.
10
Florida Savings Bancorp, Florida Savings and FSB Development depend on key
personnel and the loss of any of their services could harm our business.
Florida Savings Bancorp's, Florida Savings' and FSB Development's business
is dependent upon certain key executive officers, in particular, Bernard Janis
and Robert L. Bonnet. The loss of services of any of these individuals could
harm the business of Florida Savings Bancorp. Florida Savings Bancorp and
Florida Savings each have an employment agreement with Mr. Bonnet, the President
and Chief Operating Officer. The loss of the services of any of the key
personnel or the inability to identify, hire, train and retain other qualified
personnel in the future could harm Florida Savings Bancorp's, Florida Savings'
and FSB Development's business and prospects. Florida Savings Bancorp does not
maintain "key man" life insurance policies on Messrs. Janis or Bonnet.
FSB Development is subject to the risks inherent in the real estate development
and construction industry.
FSB Development is engaged in the residential real estate development and
construction industry. The business of developing and selling residential
properties is highly competitive and fragmented. FSB Development competes with
numerous large and small builders on the basis of a number of interrelated
factors, including location, reputation, amenities, design, quality and price.
Some competing builders have nationwide operations and substantially greater
financial resources. FSB Development's products must also compete with resales
of existing homes and available rental housing. In general, the housing industry
is cyclical and is affected by consumer confidence levels, prevailing economic
conditions and interest rates. A variety of factors affect the demand for new
homes, including the availability and cost of labor and materials, changes in
costs associated with home ownership, changes in consumer preferences,
demographic trends and the availability of mortgage financing.
Debenture holders may experience dilution if they convert their debentures into
shares of Florida Savings Bancorp common stock.
If debenture holders convert debentures into shares of Florida Savings
Bancorp common stock, debenture holders will experience dilution if the
conversion price of the debentures is higher than the tangible book value per
share of the outstanding common stock at the time of conversion of the
debentures. Assuming the issuance and conversion of the maximum amount of the
debentures and based on the current conversion price and tangible book value,
debenture holders would incur dilution of approximately $1.56 per share.
Florida Savings Bancorp's net income could be reduced if its certificates of
deposit scheduled to mature within one year do not remain with Florida Savings.
At December 31, 2001, certificates of deposit that are scheduled to mature
on or before December 31, 2002 totaled $28.3 million, or 54% of Florida Savings'
deposits. If these deposits do not remain with Florida Savings after December
31, 2002, Florida Savings will be required to seek other sources of funds,
including other certificates of deposit, Federal Home Loan Bank advances or
lines of credit from commercial banks. Depending on market conditions, Florida
Savings Bancorp may be required to pay higher rates on such deposits or other
borrowings than it currently pays on the certificates of deposit due by or
before December 31, 2002, which would negatively impact net income.
11
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables contain information concerning the consolidated
financial position and consolidated results of operations of Florida Savings
Bancorp. The data presented for the three-month periods ended December 31, 2001
and 2000 are derived from unaudited condensed consolidated financial statements
and, in the opinion of management, reflect all adjustments necessary to present
fairly the results for these interim periods. You should read this information
in conjunction with the Florida Savings Bancorp consolidated financial
statements which are included elsewhere in this prospectus.
At December 31,
-----------------------
2001 2000
---------- ----------
(In thousands)
Selected Consolidated Financial Data:
Total assets ...................................... $63,347 $53,924
Cash and cash equivalents ......................... 3,253 2,616
Loans, net ........................................ 51,202 41,984
Securities available for sale ..................... 3,767 6,433
Deposits .......................................... 52,863 44,712
FHLB advance ...................................... 2,000 2,000
Other borrowings .................................. 1,292 -
Shareholders' equity .............................. 6,440 6,358
Three Months Ended Year Ended
December 31, December 31,
----------------------- ----------------
2001 2000 2001 2000
-------- -------- -------- -------
(In thousands, except per share amounts)
Selected Operating Data:
Total interest income ....................... $1,053 $ 996 $4,245 $3,248
Total interest expense ...................... 567 637 2,658 2,016
Net interest income ....................... 486 359 1,587 1,232
Provision for loan losses ................... 22 22 318 130
Net interest income after
provision for loan losses ............... 464 337 1,269 1,102
Noninterest income .......................... 119 2 312 114
Noninterest expense ......................... 483 369 1,833 1,480
Earnings (loss) before income taxes ........ 100 (30) (252) (264)
Income taxes (benefit) ...................... 33 (17) (98) (109)
Net earnings (loss) ...................... 67 (13) (154) (155)
Income (loss) per share, basic and diluted ... $ 0.09 $ (0.02) $(0.20) $(0.21)
12
At or for the Year Ended
December 31,
---------------------------
2001 2000
---------- ----------
Selected Operating Ratios and Other Data(1):
Performance Ratios:
Average yield on interest-earning assets ....................... 7.42% 8.06%
Average rate paid on interest-bearing liabilities .............. 5.10 5.77
Average interest-rate spread(2) ................................ 2.32 2.29
Net interest margin(3) ......................................... 2.77 3.06
Interest-earning assets as a percent of interest-bearing
liabilities ................................................. 109.66 115.39
Net interest income after provision for loan losses to
noninterest expense ......................................... 69.22 74.46
Noninterest expense as a percent of average assets ............. 2.96 3.39
Return on average assets ....................................... (0.25) (0.36)
Return on average equity ....................................... (2.37) (2.44)
Average equity as a percent of average assets .................. 10.45 14.59
Efficiency ratio(4) ............................................ 96.50 110.02
Regulatory Capital:
Total capital to risk-weighted assets .......................... 12.81 15.82
Tier 1 capital to risk-weighted assets ......................... 11.97 14.97
Tier 1 to total assets ......................................... 8.75 9.26
Asset Quality Ratios:
Nonperforming loans as a percent of total loans(5) ............. 1.85 -
Nonperforming assets as a percent of total assets(6) ........... 1.51 -
Allowance for loan losses as a percent of total loans .......... 1.16 0.67
Allowance for loan losses as a percent of nonperforming
loans(5) ..................................................... 62.79 -
Net loans charge-off to average loans .......................... - -
Number at end of period:
Full service offices ........................................... 1 1
Mortgage loans ................................................. 422 242
Deposit accounts ............................................... 3,262 2,193
_______________________
(1) Asset Quality Ratios and Regulatory Capital Ratios are at end of period.
With the exception of end of period ratios, all ratios are based on average
daily balances during the indicated periods.
(2) Average interest-rate spread represents the difference between the
weighted-average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percent of average
interest-earning assets.
(4) Efficiency ratio represents noninterest expense as a percentage of net
interest income plus noninterest income.
(5) Nonperforming loans consist of all nonaccrual loans and all other loans 90
days or more past due.
(6) Nonperforming assets consist of nonperforming loans.
13
RECENT DEVELOPMENTS
The following tables contain information concerning the financial position
and results of operations of Florida Savings Bancorp at and for the dates
indicated. The data presented at March 31, 2002 and for the three-month periods
ended March 31, 2002 and 2001 are derived from unaudited condensed consolidated
financial statements and, in the opinion of management, reflect all adjustments
necessary to present fairly the results for these interim periods. These
adjustments consist only of normal recurring adjustments. The results of
operations for the three months ended March 31, 2002 are not necessarily
indicative of the results of operations that may be expected for the year ended
December 31, 2002. This information should be read in conjunction with the
consolidated financial statements included in this prospectus.
At March 31, At December 31,
2002 2001
---------------- ------------------
(In thousands)
Selected Consolidated Financial Data:
Total assets ................................ $68,292 $63,347
Cash and cash equivalents ................... 8,118 3,253
Loans, net .................................. 50,281 51,202
Securities available for sale ............... 4,348 3,767
Deposits .................................... 57,142 52,863
FHLB advance ................................ 2,000 2,000
Other borrowings ............................ 1,792 1,292
Shareholders' equity ........................ 6,492 6,440
Three Months Ended March 31,
--------------------------------
2002 2001
---------- ----------
(In thousands, except
per share amounts)
Selected Operating Data:
Total interest income ............................. $ 983 $1,074
Total interest expense ............................ 501 720
Net interest income ............................. 482 354
Provision for loan losses ......................... 23 23
Net interest income after
provision for loan losses ..................... 459 331
Noninterest income ................................ 128 58
Noninterest expense ............................... 495 444
Earnings (loss) before income taxes .............. 92 (55)
Income taxes (benefit) ............................ 37 (22)
Net earnings (loss) ............................ 55 (33)
Earnings (loss) per share,
basic and diluted ............................... $0.07 $(0.05)
14
Comparison of Financial Condition at March 31, 2002 and December 31, 2001
At March 31, 2002, Florida Savings Bancorp had total consolidated assets of
$68.3 million, an increase of 7.9% over total consolidated assets of $63.3
million at December 31, 2001. During the three months ended March 31, 2002,
loans decreased to $50.3 million from $51.2 million at December 31, 2001, a
decrease of 1.8%. Florida Savings Bancorp's portfolio of securities increased to
$4.3 million at March 31, 2002 from $3.8 million at December 31, 2001, an
increase of 13.2%. Florida Savings Bancorp's deposits increased to $57.1 million
at December 31, 2001 from $52.9 million as of March 31, 2002, a 7.9% increase.
The overall increase in assets relates to an overall increase in the number of
customer accounts and outstanding balances.
Comparison of Operating Results for the Three Months Ended March 31, 2002 and
March 31, 2001
General. Net income for the three months ended March 31, 2002 was $55,000
or $.07 per basic and diluted share, compared to a net loss of $33,000 or $.05
per basic and diluted share for the three months ended March 31, 2001.
Interest Income. Interest earnings were $983,000 for the three months ended
March 31, 2002 compared to $1.1 million for the three months ended March 31,
2001. Interest income earned on loans decreased to $874,000 for the three months
ended March 31, 2002 from $894,000 for the three months ended March 31, 2001 due
to a decrease in the weighted-average yield earned. This decrease was partially
offset by an increase in the average loan portfolio balance. Interest on
securities decreased to $63,000 for the three months ended March 31, 2002 from
$98,000 for the three months ended March 31, 2001 due to a decrease in the
average securities balance and a decrease in the weighted-average yield earned.
Interest Expense. Interest expense on interest-bearing deposits was
$462,000 for the three months ended March 31, 2002 compared to $690,000 for the
three months ended March 31, 2001. The decrease was due to a decrease in the
weighted-average yield paid, partially offset by an increase in the average
deposit balance.
Provisions for Loan Losses. The provision for loan losses is charged to
operations to increase the total allowance to a level deemed appropriate by
management and is based upon the volume and type of lending conducted by us,
industry standards, the amount of nonperforming loans and general economic
conditions, particularly as they relate to our market areas, and other factors
related to the collectibility of our loan portfolio. The provision for loan
losses was $23,000 for each of the three months ended March 31, 2002 and 2001.
The allowance for loan losses was $627,000 at March 31, 2002, which management
believes is adequate.
Noninterest Income. The following table shows the components of noninterest
income and the dollar and percentage change from the three months ended March
31, 2001 to the three months ended March 31, 2002.
Three Months Ended
March 31,
---------------------- Dollar Percentage
2002 2001 Change Change
-------- -------- --------- -----------
(Dollars in thousands)
Service charges and fees on deposit accounts ................ $ 42 $ 31 $11 35.5%
Prepayment fees collected ................................... 69 14 55 392.9
Other ....................................................... 17 13 4 30.8
---- ---- ---
Total .................................................. $128 $ 58 $70 120.7
==== ==== ===
15
Noninterest Expense. The following table shows the components of
noninterest expense and the dollar and percentage change from the three months
ended March 31, 2001 to the three months ended March 31, 2002.
Three Months Ended
March 31,
---------------------- Dollar Percentage
2002 2001 Change Change
-------- -------- -------- ------------
(Dollars in thousands)
Salaries and employee benefits ............................ $215 $200 $15 7.5%
Occupancy and equipment expense ........................... 112 92 20 21.7
Advertising ............................................... 20 20 - -
Data processing ........................................... 35 36 (1) 2.8
Other ..................................................... 113 96 17 17.7
---- ---- ---
Total ................................................ $495 $444 $51 11.5
==== ==== ===
The increase in total noninterest expenses relates to the overall growth of
Florida Savings Bancorp.
Income Taxes. The income tax expense for the three months ended March 31,
2002 was $37,000 (an effective rate of 40.2%) compared to an income tax benefit
of $22,000 for the three months ended March 31, 2001 (an effective rate of
40.0%). Florida Savings Bancorp recognized an income tax benefit as well as a
deferred tax asset because it believes it is more likely than not that Florida
Savings Bancorp will be able to generate taxable income in the future to realize
these amounts.
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering and
the amount expected to be retained by Florida Saving Bancorp and contributed to
Florida Savings and Florida Savings Bancorp's other subsidiaries.
2,000 Percentage 5,000 Percentage
Debentures at of Gross Debentures at of Gross
$1,000 Proceeds of $1,000 Proceeds of
Per Debenture $2,000,000 Per Debenture $5,000,000
--------------- ------------- --------------- -------------
(Dollars in thousands)
Gross proceeds .................................................... $2,000 100.00% $5,000 100.00%
Less: estimated underwriting commissions and other offering
expenses .................................................... 295 14.75 480 9.60
------ ------ ------ ------
Net offering proceeds ............................................. 1,705 85.25 4,520 90.40
Less:
Proceeds to be contributed to Florida Savings .................. 400 20.00 1,900 38.00
Proceeds to be contributed to FSB Development .................. 400 20.00 1,000 20.00
Proceeds to be retained by Florida Savings
Bancorp for payment of interest on debentures ............... 160 8.00 400 8.00
Proceeds used to repay balance on line of credit ............... 600 30.00 600 12.00
------ ------ ------ ------
Proceeds remaining for Florida Savings Bancorp .................... $ 145 7.25% $ 620 12.40%
====== ====== ====== ======
Florida Savings Bancorp may use the proceeds it retains from the offering:
. to invest in securities;
. for general corporate purposes;
. to invest in FSB Insurance Agency, Inc.; or
. to finance diversification of its business activities through newly
formed subsidiaries or though possible acquisitions of financial
institutions or other financial services related companies.
16
Florida Savings may use the proceeds that it receives from the offering:
. to fund new loans;
. to invest in securities;
. to support the opening of new Florida Savings branches, including a
branch office in Miami, Florida;
. to finance the possible expansion of its business activities; and
. for general corporate purposes.
FSB Development Corp. may use the proceeds that it receives from the
offering for its acquisition, construction and resale of single family homes
located within the Village of Pinecrest.
There are no current liquidity needs of FSB Insurance Agency, Inc. at this
time. However, management has had discussions with several insurance agencies in
the local market area to explore the possibilities of strategic alliances and
expects to continue to engage in such discussions in the future. In the event of
a strategic alliance or acquisition, proceeds from the offering may be
distributed to the subsidiary to fund its activities. While at this time the
amount of any such funding is unknown, management does not expect any
distribution to the subsidiary to be material in amount. Management anticipates
that it will commence the sales of insurance products prior to the end of fiscal
2002 and, if and when an agreement is reached, proceeds from the sale of
debentures may be used to fund the business. Until the proceeds are used,
Florida Savings Bancorp may invest the proceeds, depending on its cash flow
requirements, in short and long-term investments, such as treasury bills,
commercial paper, certificates of deposit, securities issued by U.S. government
agencies, money market funds and repurchase agreements.
Florida Savings Bancorp has a $1.5 million line of credit from a commercial
bank, $600,000 of which has been drawn upon at December 31, 2001. A portion of
the proceeds from this offering will be utilized to repay any outstanding
balance remaining due on the line of credit as of the closing date. In addition,
Florida Savings Bancorp will retain net proceeds sufficient to pay two years of
future interest payments on the debentures and the remaining net proceeds will
be used for general corporate purposes, which may include, but not be limited
to, diversifying its business activities through newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions or other
financial services related companies.
Florida Savings Bancorp and Florida Savings may need regulatory approvals
to engage in some of the activities listed above. See "Regulation and
Supervision." Florida Savings Bancorp currently has no specific plans or
agreements regarding any expansion activities or acquisitions. Florida Savings
received approvals from the Office of Thrift Supervision on August 10, 2001, to
open a branch in the southern end of Miami Beach, Florida and on January 24,
2002, to open a branch office in Miami, Florida. It is anticipated that the
Miami branch will open in the second quarter of 2002.
Except as described above, neither Florida Savings Bancorp nor Florida
Savings has any immediate specific use for the investment of the proceeds of
this offering.
17
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth Florida Savings Bancorp's ratios of earnings
to combined fixed charges on a consolidated basis for the respective periods
indicated.
Year Ended
December 31,
-------------------------
2001 2000
---------- ----------
Ratios of Earnings to Combined Fixed Charges:
Excluding interest on deposits ................ 19.03 11.86
Including interest on deposits ................ 0.94 0.87
For purposes of computing the ratios of earnings to combined fixed charges,
earnings represents net loss as shown on Florida Savings Bancorp's statement of
operations less the applicable income tax benefit and fixed charges. Fixed
charges excluding interest on deposits represents total interest expense other
than interest paid on deposits. Fixed charges including interest on deposits
represents total interest expense.
CAPITALIZATION
The following table sets forth our capitalization, on a consolidated basis,
as of December 31, 2001, and as adjusted to give effect to the sale of the $2.0
million minimum and $5.0 maximum of the debentures offered hereby. This table
should be read in conjunction with the consolidated financial statements and the
notes to the consolidated financial statements which appear at the end of this
prospectus.
At December 31, 2001
---------------------------------------------------
As Adjusted As Adjusted
(Minimum of (Maximum of
Actual Offer Range)(1) Offer Range)(1)
---------------------------------------------------
(In thousands)
Borrowings:
FHLB advance ........................................................... $ 2,000 $ 2,000 $ 2,000
Other borrowings ....................................................... 1,292 1,292 1,292
4% Debentures Due March 31, 2009 ....................................... - 2,000 5,000
------- ------- -------
Total long-term borrowings ......................................... 3,292 5,292 8,292
Shareholders' Equity:
Preferred stock, $.01 par value, 1,500,000 shares authorized;
none issued ............................................................ - - -
Common stock, $.01 par value, 3,500,000 shares authorized;
757,000 shares issued and outstanding .................................. 7 7 7
Additional paid-in capital ................................................ 7,567 7,567 7,567
Accumulated deficit ....................................................... (1,133) (1,133) (1,133)
Accumulated other comprehensive income .................................... (1) (1) (1)
------- ------- -------
Total shareholders' equity ......................................... 6,440 6,440 6,440
------- ------- -------
Total borrowings and shareholders' equity ................................. $ 9,732 $11,732 $14,732
======= ======= =======
_____________________________
(1) Does not include shares of Florida Savings Bancorp common stock into which
the debentures are convertible.
18
DILUTION
As of December 31, 2001, Florida Savings Bancorp had a net tangible book
value of $6.4 million, or $8.51 per share of common stock. Net tangible book
value per share represents the amount of total tangible assets less the amount
of Florida Savings Bancorp's total liabilities, divided by the number of shares
of common stock outstanding. After giving effect to the issuance and conversion
of the maximum amount of the debentures, Florida Savings Bancorp's adjusted pro
forma net tangible book value as of December 31, 2001 would have been $11.4
million, or $9.44 per share of common stock. This amount represents an immediate
increase in pro forma net tangible book value of $0.93 per share to Florida
Savings Bancorp's existing shareholders and an immediate dilution to the persons
converting the debentures of approximately $1.56 per share, assuming the maximum
of the offering range. Dilution is determined by subtracting pro forma net
tangible book value per share of common stock after this offering from the price
paid by new investors for a share of Florida Savings Bancorp's common stock
assuming the debentures are converted. The following table illustrates this
dilution on a per share basis at the minimum and the maximum of the offering.
Minimum of Maximum of
Offering Range Offering Range
---------------- ----------------
Assumed conversion price per share .......................................... $11.00 $11.00
Net tangible book value per share before conversion ................... 8.51 8.51
Increase per share attributable to the conversion of the debentures ... 0.48 0.93
Pro forma net tangible book value per share after conversion ................ 8.99 9.44
Dilution .................................................................... 2.01 1.56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The objective of this section is to help potential investors understand
management's views on Florida Savings Bancorp's financial condition and results
of operations. You should read this discussion in conjunction with the
consolidated financial statements and the notes to the consolidated financial
statements that appear at the end of this prospectus.
Forward-Looking Statements
Some of the information presented or incorporated by reference into this
prospectus contains "forward-looking" statements within the meaning of the
Private Securities Litigation Reform Act of 1995, and may be identified by the
use of such words as "believe," "expect," "anticipate," "should," "planned,"
"estimated" and "potential." Examples of forward-looking statements include, but
are not limited to, estimates with respect to our financial condition, results
of operations and business that are subject to various factors which could cause
actual results to differ materially from these estimates. These factors include,
but are not limited to:
. general economic conditions;
. changes in interest rates, deposit flows, loan demand, real estate
values and competition;
. changes in accounting principles, policies, or guidelines;
. material unforeseen changes in the financial condition or results of
operations of our customers;
. unforeseen difficulties in realizing expected income or cost savings
from acquisitions;
. changes in legislation or regulation; and
19
. other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and
services.
Florida Savings Bancorp's actual results could vary materially from the
future results covered in its forward-looking statements. The statements in the
"Risk Factors" section of this prospectus are cautionary statements identifying
important factors, including certain risks and uncertainties, that could cause
our results to vary materially from the future results covered in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results covered in such forward-looking
statements.
Florida Savings Bancorp disclaims any obligation to announce publicly
future events or developments that affect the forward-looking statements in this
prospectus.
General
Florida Savings Bancorp's results of operations depend primarily on the
results of operations of Florida Savings. Accordingly, the discussion herein
addresses Florida Savings Bancorp's operations as they are conducted through
Florida Savings. Florida Savings' results of operations depend primarily on net
interest income, which is the difference between the interest income earned on
Florida Savings' interest-earning assets, such as loans and securities, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. Florida Savings also generates noninterest income primarily from
loan fees and service charges. Florida Savings' noninterest expenses primarily
consist of employee compensation and benefits, occupancy expense, advertising
and other operating expenses. Florida Savings' results of operations are also
affected by general economic and competitive conditions, notably changes in
market interest rates, government policies and regulations.
20
Average Balances, Interest and Average Yields/Cost
The following table presents certain information for the periods indicated
regarding average balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances were
derived from daily balances.
At December 31, Year Ended December 31,
--------------------------------------------------------------
2001 2001 2000
------------------- ------------------------------- ------------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
---------- -------- ---------- ---------- --------- --------- ---------- --------
(Dollars in thousands)
Interest-earning assets:
Loans (1) .................................... $51,201 7.52% $47,209 $3,661 7.75% $29,115 $2,479 8.51%
Securities available for sale (2) ............ 3,767 5.65 5,601 342 6.11 9,407 656 6.97
Federal Home Loan Bank
of Atlanta stock .......................... 295 6.25 290 20 6.90 222 17 7.66
Certificates of deposit ...................... 1,182 4.77 817 38 4.65 100 6 6.00
Other (3) .................................... 1,872 2.53 3,283 184 5.60 1,457 90 6.18
------- ------- ------ ------- ------
Total interest-earning assets .............. 58,317 7.25 57,200 4,245 7.42 40,301 3,248 8.06
Noninterest-earning assets ...................... 5,030 4,802 3,300
------- ------- -------
Total assets ............................... $63,347 $62,002 $43,601
======= ======= =======
Interest-bearing liabilities:
Savings accounts ............................. $13,232 2.65 $ 9,763 365 3.74 $ 6,805 319 4.69
N.O.W. ....................................... 2,012 0.68 2,291 41 1.79 1,890 35 1.85
Money market ................................. 3,447 1.56 3,405 102 3.00 1,249 66 5.28
Certificates of deposit ...................... 31,319 4.89 33,429 2,018 6.04 22,619 1,448 6.40
------- ------- ------ ------- ------
Total interest-bearing deposits ............ 50,010 3.90 48,888 2,526 5.17 32,563 1,868 5.74
Borrowed money ............................... 3,292 5.37 3,272 132 4.03 2,363 148 6.26
------- ------- ------ ------- ------
Total interest-bearing liabilities ......... 53,302 3.99 52,160 2,658 5.10 34,926 2,016 5.77
Demand deposits ................................. 2,853 2,438 1,608
Other noninterest-bearing liabilities ........... 752 922 706
------- ------- -------
Total liabilities ...................... 56,907 55,520 37,240
Shareholders' equity ............................ 6,440 6,482 6,361
------- ------- -------
Total liabilities and shareholders' equity ... $63,347 $62,002 $43,601
======= ======= =======
Net interest income ............................. $1,587 $1,232
====== ======
Interest-rate spread (4) ........................ 2.32% 2.29%
==== ====
Net interest margin (5) ......................... 2.77% 3.06%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities........... 1.10 1.15
==== ====
_________________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans. All
interest accrued, but not collected on nonperforming loans, is reversed
against interest income. The interest on these loans is accounted for on
the cash-basis or cost recovery method, until qualifying for return to
accrual status.
(2) Yields on securities available for sale are based on average amortized
cost.
(3) Includes interest-earning deposits and federal funds sold.
(4) Interest-rate spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
21
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes
on the interest income and interest expense of Florida Savings. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to changes in both rate and volume have been allocated proportionately due to
rate and the change due to volume.
Year Ended
December 31, 2001
Compared to
Year Ended
December 31, 2000
----------------------------
Increase (Decrease)
Due to
-------------------
Rate Volume Net
------- -------- ------
(In thousands)
Interest Income:
Loans receivable ................................................. $(198) $1,380 $1,182
Securities available for sale .................................... (74) (240) (314)
Federal Home Loan Bank of Atlanta stock .......................... (1) 4 3
Certificates of deposit .......................................... (1) 33 32
Other ............................................................ (8) 102 94
----- ------ ------
Total increase (decrease) in interest income ................. (282) 1,279 997
Interest Expense:
Savings accounts ................................................. (40) 86 46
N.O.W. ........................................................... (1) 7 6
Money market ..................................................... (12) 48 36
Certificates of deposit .......................................... (78) 648 570
----- ------ ------
Total interest bearing deposits .............................. (131) 789 658
Borrowed money ................................................... 198 (214) (16)
----- ------ ------
Total increase (decrease) in interest expense ................ 67 575 642
----- ------ ------
Increase (decrease) in net interest income ......................... $(349) $ 704 $ 355
===== ====== ======
Comparison of Financial Condition at December 31, 2001 and December 31, 2000
At December 31, 2001, Florida Savings Bancorp had total consolidated
assets of $63.3 million, an increase of 17.4% over total consolidated assets of
$53.9 million at December 31, 2000. During the year ended December 31, 2001,
loans increased to $51.2 million from $42.0 million at December 31, 2000, an
increase of 21.9%. Florida Savings Bancorp's portfolio of securities decreased
to $3.8 million at December 31, 2001 from $6.4 million as of December 31, 2000
primarily due to calls and sales of securities of approximately $5.6 million.
Florida Savings Bancorp's deposits increased to $52.9 million at December 31,
2001 from $44.7 million as of December 31, 2000, a 18.3% increase. The overall
increase in assets relates to the overall growth of Florida Savings Bancorp and
its subsidiaries.
Comparison of Operating Results for the Three Months Ended December 31, 2001 and
December 31, 2000
General. Net income for the three months ended December 31, 2001 was
$67,000 or $.09 per basic and diluted share, compared to net loss of $13,000 or
$.02 per basic and diluted share for the three months ended December 31, 2000.
During the three months ended December 31, 2001, management believes that
Florida Savings Bancorp achieved the average asset size to begin to operate
profitably. Florida Savings Bancorp achieved positive net income for the 2001
period as compared to the loss for the 2000 period due to an increase in asset
size, an increase in fee income and decrease in the average cost of funds.
22
Interest Income. Interest income was $1.1 million for the three months
ended December 31, 2001 compared to $996,000 for the three months ended December
31, 2000. Interest income earned on loans increased to $942,000 for the three
months ended December 31, 2001 from $840,000 for the three months ended December
31, 2000 due to an increase in the average loan portfolio balance. This increase
was partially offset by a decrease in the weighted-average yield earned.
Interest of securities decreased to $107,000 for the three months ended December
31, 2001 from $128,000 for the three months ended December 31, 2000 due to a
decrease in the average investment portfolio balance and weighted-average yield
earned on the portfolio.
Interest Expense. Interest expense on interest-bearing deposits was
$536,000 for the three months ended December 31, 2001 compared to $603,000 for
the three months ended December 31, 2000. The decrease was due to a decrease in
the weighted-average rate paid, reflecting the further decline in market rates,
which was partially offset by an increase in the average interest-bearing
deposits.
Provisions for Loan Losses. The provision for loan loss is charged to
operations to increase the total allowance to a level deemed appropriate by
management and is based upon the volume and type of lending conducted by us,
industry standards, the amount of nonperforming loans and general economic
conditions, particularly as they relate to our market areas, and other factors
related to the collectibility of our loan portfolio. The provision for loan
losses was $22,000 for the three months ended December 31, 2001 and 2000. The
allowance for loan losses was $599,000 at December 31, 2001, which management
believes is adequate.
Noninterest Income. The following table shows the components of
noninterest income and the dollar and percentage change from the three months
ended December 31, 2000 to the three months ended December 31, 2001.
Three Months Ended
December 31,
-------------------- Dollar Percentage
2001 2000 Change Change
------ ------ -------- ----------
(Dollars in thousands)
Service charges and fees on deposit accounts ................... $ 46 $ 26 $ 20 77%
Gain (loss) on securities available for sale ................... 16 (61) 77 126
Rental income .................................................. -- 6 (6) --
Other .......................................................... 57 31 26 84
---- ---- ----
Total ..................................................... $119 $ 2 $117 5,850
==== ==== ====
Noninterest Expense. The following table shows the components of
noninterest expense and the dollar and percentage change from the three months
ended December 31, 2000 to the three months ended December 31, 2001.
Three Months Ended
December 31,
-------------------- Dollar Percentage
2001 2000 Change Change
------ ------ -------- ----------
(Dollars in thousands)
Salaries and employee benefits ................................. $211 $152 $59 39%
Occupancy and equipment expense ................................ 98 90 8 9
Advertising .................................................... 10 21 (11) (52)
Data processing ................................................ 34 33 1 3
Other .......................................................... 130 73 57 78
---- ---- ----
Total ..................................................... $483 $369 $114 31
==== ==== ====
The increase in total noninterest expenses relates to the overall
growth of Florida Savings Bancorp.
Income Taxes. The income tax expense for the three months ended
December 31, 2001 was $33,000 (an effective rate of 33.0%) compared to an income
tax benefit of $17,000 for the three months ended December 31, 2000 (an
effective rate of 56.7%). Florida Savings Bancorp recognized an income tax
benefit as well as a deferred tax asset because it believes it is more likely
than not that Florida Savings Bancorp will be able to generate taxable income in
the future to realize these amounts.
23
Comparison of Operating Results for the Years Ended December 31, 2001 and
December 31, 2000
General. Net loss for the year ended December 31, 2001 was $154,000 or
$.20 per basic and diluted share, compared to net loss of $155,000 or $.21 per
basic and diluted share for the year ended December 31, 2000. During the year
ended December 31, 2001, management believes that Florida Savings Bancorp
achieved the average asset size to begin to operate profitably. Primarily as a
result of Florida Savings Bancorp's increase in asset size during the year ended
December 31, 2001, Florida Savings Bancorp has shown improvement in its
operating results and achieved profitability on a monthly basis during the
months of October, November and December 2001.
Interest Income. Interest income was $4.2 million for the year ended
December 31, 2001 compared to $3.2 million for the year ended December 31, 2000.
Interest income earned on loans increased to $3.7 million for the year ended
December 31, 2001 from $2.5 million for the year ended December 31, 2000 due to
an increase in the average loan portfolio balance. This increase was partially
offset by a decrease in the weighted-average yield earned. Interest of
securities decreased to $342,000 for the year ended December 31, 2001 from
$655,000 for the year ended December 31, 2000 due to a decrease in the average
investment portfolio balance and weighted-average yield earned on the portfolio.
Interest Expense. Interest expense on interest-bearing deposits was
$2.5 million for the year ended December 31, 2001 compared to $1.9 million for
the year ended December 31, 2000. The increase was due to an increase in the
average interest-bearing deposits which was partially offset by a decrease in
the weighted-average rate paid, which is a result of the declining interest rate
environment in 2001.
Provisions for Loan Losses. The provision for loan losses is charged to
operations to increase the total allowance to a level deemed appropriate by
management and is based upon the volume and type of lending conducted by us,
industry standards, the amount of nonperforming loans and general economic
conditions, particularly as they relate to our market areas, and other factors
related to the collectibility of our loan portfolio. The provision for loan
losses was $318,000 for the year ended December 31, 2001, compared to $130,000
for the same period in 2000. The provision increased because of an additional
allowance established due to the deterioration of one lending relationship and
normal increases as a result of loan growth. The allowance for loan losses was
$599,000 at December 31, 2001, which management believes is adequate.
Noninterest Income. The following table shows the components of
noninterest income and the dollar and percentage change from the year ended
December 31, 2000 to the year ended December 31, 2001.
Year Ended
December 31,
----------------- Dollar Percentage
2001 2000 Change Change
------ ------ -------- ----------
(Dollars in thousands)
Service charges and fees on deposit accounts .................... $149 $ 64 $ 85 133%
Gain (loss) on securities available for sale .................... 16 (61) 77 126
Rental income ................................................... -- 10 (10) --
Other ........................................................... 147 101 46 46
---- ---- ----
Total ...................................................... $312 $114 $198 174
==== ==== ====
Service charges and fees on deposit accounts increased due to an
increase in the number of deposit accounts. Other noninterest income increased
due to an increase in miscellaneous fees collected on loans.
24
Noninterest Expense. The following table shows the components of
noninterest expense and the dollar and percentage change from the year ended
December 31, 2000 to the year ended December 31, 2001.
Year Ended
December 31,
-------------------- Dollar Percentage
2001 2000 Change Change
-------- -------- -------- ----------
(Dollars in thousands)
Salaries and employee benefits ........................ $ 828 $ 639 $ 189 30%
Occupancy and equipment expense ....................... 379 348 31 9
Advertising ........................................... 61 76 (15) (20)
Data processing ....................................... 135 124 11 9
Other ................................................. 430 293 137 47
------ ------ -----
Total ............................................ $1,833 $1,480 $ 353 24
====== ====== =====
The increase in total noninterest expenses relates to the overall
growth of Florida Savings Bancorp.
Income Taxes. The income tax benefit for the year ended December 31,
2001 was $98,000 (an effective rate of 38.9%) compared to an income tax benefit
of $109,000 for the year ended December 31, 2000 (an effective rate of 41.3%).
Florida Savings Bancorp recognized an income tax benefit as well as a deferred
tax asset because it believes it is more likely than not that Florida Savings
Bancorp will be able to generate taxable income in the future to realize these
amounts. Primarily as a result of Florida Savings Bancorp's increase in asset
size during the year ended December 31, 2001, Florida Savings Bancorp has shown
improvement in its operating results and achieved profitability on a monthly
basis during the months of October, November and December 2001. Due to the
increase in its average asset size, Florida Savings Bancorp currently expects
this trend to continue in 2002.
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Florida Savings' most significant
form of market risk is interest rate risk. The principal objectives of Florida
Savings' interest rate risk management are to evaluate the interest rate risk
inherent in certain balance sheet accounts, determine the level of risk
appropriate given Florida Savings' business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
risk consistent with the board of directors' approved guidelines. Florida
Savings has an Asset/Liability Committee, responsible for reviewing its
asset/liability policies and interest-rate risk position, which meets quarterly
and reports trends and interest-rate risk position to the board of directors
quarterly. The extent of the movement of interest rates is an uncertainty that
could have a negative impact on the earnings of Florida Savings.
Florida Savings uses the following strategies in an effort to manage
interest rate risk and profitability: 1) emphasize the origination of short-term
fixed rate, adjustable-rate and balloon loans while limiting the number and
amount of long-term, fixed-rate loans which are retained in its portfolio; 2)
use Federal Home Loan Bank advances as a source of longer term fixed rate
liabilities to better structure maturities of its interest rate sensitive
liabilities; 3) maintain a high quality securities portfolio which could provide
liquidity if needed; 4) originate higher yielding commercial real estate and
construction loans; and 5) increase the level of core deposits, consisting
primarily of lower yielding deposits in an effort to maximize net interest
margin. Florida Savings does not currently, or plan to in the near future,
participate in any hedging programs, interest rate swaps or other activities
involving the use to off-balance sheet derivative financial instruments.
Quantitative Aspects of Market Risk. Florida Savings primarily utilizes
an interest sensitivity analysis prepared in conjunction with a third party
software provider to review the level of interest-rate risk contained within the
balance sheet. These results are compared and analyzed to the Thrift Industry
Interest Rate Risk Measures. This analysis measures interest rate risk by
computing changes in the net portfolio value of Florida Savings' cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. Net portfolio value represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items. This analysis assesses the risk of loss in market risk sensitive
instruments in the event of a sudden and sustained 100 to 300 basis point
increase or
25
decrease in market interest rates with no effect given to any steps that
management might take to counter the effect of that interest rate movement. The
following table, which is based on information provided to Florida Savings by
the Office of Thrift Supervision, presents the change in Florida Savings' net
portfolio value at December 31, 2001, that would occur upon an immediate change
in interest rates based on Office of Thrift Supervision assumptions, but without
giving effect to any steps that management might take to counteract that change.
Change in Net Portfolio Value (NPV) NPV as Percent of Portfolio
Interest Rates ------------------------------------------ ---------------------------
In Basis Points Amount Dollar Change Percent Change NPV Ratio Change
- --------------- ------ ------------- -------------- --------- --------
(Dollars in thousands)
300 $8,279 $(904) (9.84)% 13.94% (75)bps
200 8,653 (530) (5.78) 14.31 (38)
100 8,961 (222) (2.42) 14.57 (12)
Static 9,183 - - 14.69 0
(100) 8,667 (516) (5.62) 13.80 (89)
(200) 8,454 (729) (7.94) 13.33 (136)
(300) 8,512 (671) (7.31) 13.25 (144)
The Office of Thrift Supervision uses certain assumptions in assessing
the interest-rate risk of savings associations. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest-rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate mortgage loans,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, if interest rates change, expected rates of
prepayments on loans and early withdrawals from certificates of deposit could
deviate significantly from those assumed in calculating the table.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial
obligations of a short-term nature. Florida Savings further defines liquidity as
the ability to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities.
Florida Savings' primary sources of funds consist of deposit inflows, loan
repayments, maturities and sales of investment securities, and borrowings from
the Federal Home Loan Bank. While maturities and scheduled amortization of loans
and securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Liquidity management is both a daily and long-term responsibility of
management. Florida Savings adjusts its investments in liquid assets based upon
management's assessment of (1) expected loan demand, (2) expected deposit flows,
(3) yields available on interest-earning deposits and securities, and (4) the
objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. Government and agency obligations.
Federal regulations require Florida Savings to maintain a sufficient
level of liquid assets to ensure its safe and sound operations. Liquid assets
for purposes of this ratio include cash, certain time deposits, U.S. Government,
government agency and corporate securities and other obligations generally
having remaining maturities of less than five years.
26
Florida Savings' most liquid assets are cash and certificates of
deposits. The levels of these assets are dependent on its operating, financing,
lending and investing activities during any given period. At December 31, 2001,
cash and certificates of deposits totaled $4.4 million. Securities classified as
available-for-sale totaled $3.8 million at December 31, 2001.
The primary investing activities of Florida Savings are the origination
of loans and the purchase of securities. For the year ended December 31, 2001,
Florida Savings originated $37.0 million of loans and purchased $3.5 million of
securities. In 2000, Florida Savings originated $35.0 million of loans and
purchased no securities.
Financing activities consist primarily of activity in deposit accounts,
Federal Home Loan Bank advances and other borrowings. Florida Savings
experienced a net increase in total deposits of $8.2 million and $21.9 million
for the years ended 2001 and 2000, respectively. Deposit flows are affected by
the overall level of interest rates, the interest rates and products offered by
Florida Savings and its local competitors and other factors. Florida Savings
generally manages the pricing of its deposits to be competitive and to increase
core deposit relationships. Occasionally, Florida Savings offers promotional
rates on certain deposit products in order to attract deposits. In addition, at
December 31, 2001, Florida Savings had arranged the ability to borrow a total of
approximately $3.7 million from the Federal Home Loan Bank of Atlanta. On that
date, Florida Savings had an advance outstanding of $2.0 million. Construction
loans of FSB Development totaled $692,000 at December 31, 2001. Florida Savings
Bancorp also currently has available a $1.5 million line of credit from
Independent Bankers' Bank of Florida that had an outstanding balance due of
$600,000, as of December 31, 2001.
At December 31, 2001, Florida Savings had no outstanding commitments to
originate loans. Loan commitments have, in recent periods, been funded through
liquidity or through Federal Home Loan Bank borrowings. Certificates of deposit
that are scheduled to mature in one year or less from December 31, 2001 totaled
$28.3 million. Management believes, based on past experience, that a significant
portion of those deposits will remain with Florida Savings. Based on the
foregoing, Florida Savings considers its liquidity and capital resources
sufficient to meet its outstanding short-term and long-term needs.
Florida Savings is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At December 31,
2001, Florida Savings exceeded all of its regulatory capital requirements.
Florida Savings is considered "well capitalized" under regulatory guidelines.
See "Regulation and Supervision--Federal Savings Institution Regulation--Capital
Requirements" and note 14 of the notes to the financial statements.
The net proceeds from this offering will increase liquidity and capital
resources. Over time, the initial level of liquidity may be reduced as net
proceeds are used for general corporate purposes, including the funding of
lending activities. Florida Savings' financial condition and results of
operations should be enhanced by the net proceeds from the offering, which
management believes will result in increased net interest-earning assets and net
income.
Impact of Accounting Pronouncements
Derivatives and Hedging Activities. On January 1, 2001, Florida
Savings Bancorp adopted SFAS No. 133, "Accounting for Derivatives and Similar
Financial Instruments and for Hedging Activities," and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. SFAS No. 138 amends SFAS Statement No. 133 and No.
137. It is effective for companies that have adopted the provisions of SFAS No.
133 and No. 137 for fiscal quarters beginning after June 15, 2000. Transition
provisions contained in SFAS No. 133 provide that at the date of initial
application, an entity may transfer any debt security classified as
"held-to-maturity" to "available-for-sale" or "trading." The adoption of the
statement by Florida Savings Bancorp did not have a material effect on the
financial statements of Florida Savings Bancorp.
27
Florida Savings Bancorp did not have any derivative instruments or hedging
activities as defined by SFAS No. 133 and SFAS No. 138.
Business Combinations and Goodwill and Other Intangible Assets. On July 20,
2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, as well as all purchase method business combinations completed after
June 30, 2001. SFAS No. 141 also specifies the criteria intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives, and reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of."
SFAS No. 142 requires that goodwill and any intangible assets, determined
to have an indefinite useful life, that are acquired in a purchase business
combination completed after June 30, 2001 will not be amortized, but will
continue to be evaluated for impairment in accordance with the appropriate
pre-SFAS No. 142 accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of SFAS No. 142.
Florida Savings Bancorp is required to adopt the provisions of SFAS No. 141
immediately. The initial adoption of SFAS No. 141 had no impact on the Florida
Savings Bancorp's consolidated financial statements. SFAS No. 142 will be
adopted by Florida Savings Bancorp on January 1, 2002. Florida Savings Bancorp
currently has no recorded goodwill or intangible assets.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
in this prospectus have been prepared following generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The primary
impact of inflation is reflected in the increased cost of Florida Savings'
operations. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
BUSINESS OF FLORIDA SAVINGS BANCORP
General
Florida Savings Bancorp is the savings and loan holding company for Florida
Savings and directs, plans and coordinates Florida Savings' business activities.
In addition, Florida Savings Bancorp transacts business through its other wholly
owned subsidiaries, FSB Development Corp., FSB Insurance, Inc., and FSB
Properties Corp.
Florida Savings Bancorp is a community-oriented financial services company
dedicated to serving the financial needs of the consumers and businesses in and
around Pinecrest and Miami-Dade County, Florida. Florida Savings Bancorp was
initially capitalized in 1999 in a successful private offering that raised
approximately $7.4 million through the sale of 735,000 shares of common stock at
$10.00 per share. Since opening in 1999, Florida Savings Bancorp has grown to
$63.3 million in assets, $51.2 in net loans and $52.9 million in deposits.
Florida Savings Bancorp has shown improvement in operating results since its
inception and achieved profitability during the three months ended December 31,
2001.
As a grandfathered "unitary thrift holding company" (a holding company of a
single thrift) Florida Savings Bancorp will focus on its centerpiece of
operations, Florida Savings. At the same time, a part of the future strategy
28
for Florida Savings Bancorp is to potentially create a diversified financial
services company based upon permissible activities for grandfathered unitary
thrift holding companies.
Florida Savings Bancorp plans to provide insurance products, investment and
brokerage services, trust services, and real estate related activities through
its operating subsidiaries. FSB Development Corp acquires property for the
purpose of constructing and selling one-to-four family homes in the Pinecrest,
Florida area. Since its inception, FSB Development has acquired three
properties, one of which was sold prior to development. FSB Development has
begun the construction of two luxury estate homes located within the Village of
Pinecrest with the intent to sell the properties. Florida Savings Bancorp
intends to explore the feasibility and operational potential of other financial
services and products during the next eighteen months.
Florida Savings Bancorp and its subsidiaries currently operate from a sole
office located in Pinecrest, Florida.
Operating Strategy
Florida Savings Bancorp's overall strategy is to establish itself as a
leading consumer-oriented diversified financial services company in Miami-Dade
County, Florida that delivers products and services designed to meet the needs
of individuals and small-to-medium sized businesses in its growing market area.
To accomplish this objective, Florida Savings provides its customers with:
. local decision-making authority;
. employees who are familiar with the customers' needs, their business
environment, and competitive demands; and
. employees who are able to develop and customize personalized financial
solutions that meet the customer's needs.
As part of Florida Savings Bancorp's community-based approach, it has
assembled a board of directors comprised primarily of experienced business
people and professionals who actively promote Florida Savings in the community.
In addition, Florida Savings Bancorp has attracted experienced personnel who
reside in the local area, are knowledgeable about the market area and can
provide personalized service. Prior to founding Florida Savings Bancorp, Florida
Savings Bancorp's Chairman of the Board and Chief Executive Officer, Bernard
Janis, its President and Chief Operating Officer, Robert Bonnet, and a number of
members of the board of directors worked together in founding and managing
Consumers Savings Bank, a Miami-based savings bank that was sold in 1998 to a
multi-billion dollar financial institution.
Florida Savings will seek to aggressively increase its market share through
strategic opening of branches, new products and services and, possibly,
acquisitions. In the future, Florida Savings Bancorp may acquire or organize
other operating subsidiaries or it may merge with or acquire other financial
institutions and financial services related companies. Permissible activities
could encompass multi-relational financial products and services for customers,
all through operating subsidiaries under one organization and include, among
other things, insurance products, investment management services, financial
asset management services, trust services, property management services and real
estate related activities and services. As part of this strategy, Florida
Savings Bancorp will focus on:
. serving the financial and other banking needs of individuals and small
to mid-sized businesses in the market area;
. providing products and services tailored to the specific needs of
Florida Savings Bancorp's customers; and
. maintaining high credit quality.
29
Florida Savings Bancorp believes that there is an increased current demand
for community-based institutions in Florida primarily because of the recent
number of acquisitions of several Florida banking institutions by larger
out-of-state based regional bank holding companies. In many cases where those
consolidations have occurred, local boards of directors are dissolved and local
management relocated or terminated. In management's view, this situation creates
a favorable opportunity for newer community-based financial institutions with
local boards of directors and local management.
BUSINESS OF FLORIDA SAVINGS
General
The centerpiece of Florida Savings Bancorp's operations is Florida Savings.
Florida Savings opened for business on April 26, 1999. Florida Savings'
principal business is attracting deposits from the general public and primarily
originating loans secured by one- to four- family residential real estate
properties located in its market area as well as consumer, commercial real
estate and business loans, and to purchase investments. Florida Savings is
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. Bank deposits are federally-insured to the maximum allowable amount
by the Federal Deposit Insurance Corporation under the Savings Association
Insurance Fund. Florida Savings is a member of the Federal Home Loan Bank
System.
Florida Savings is a community-oriented financial services institution
dedicated to serving the financial needs of the consumers and businesses in and
around the Village of Pinecrest and Miami-Dade County, Florida. Since opening in
1999, Florida Savings has grown to $63.436 million in assets, $51.2 in net loans
and $52.9 million in deposits. Florida Savings has shown consistent improvement
in operating results since its inception and achieved profitability on a monthly
basis during the months of October, November and December 2001. While currently
operating from a single office, Florida Savings received approvals from the
Office of Thrift Supervision on August 10, 2001, to open a branch office in the
southern end of Miami Beach, Florida and on January 24, 2002, to open a branch
office in Miami, Florida. It is anticipated that the Miami branch will open in
the second quarter of 2002. Based on preliminary estimates, Florida Savings
expects the cost to maintain the Miami branch during its first full year of
operation to be approximately $297,000, including salaries for five new
employees. Florida Savings expects to fund the expenses relating to the Miami
branch from income earned by Florida Savings during the year and may fund the
branch expenses from proceeds from the offering. In addition, Florida Savings
plans to apply for other branch locations as opportunities arise to support
future growth. There are no assurances that additional branches will be
established or that the Office of Thrift Supervision will approve additional
branch locations.
Market Area
Florida Savings' operations are based in Pinecrest, Florida, which is
located in Miami-Dade County, the largest county in Florida and the 8th largest
county in the United States. Pinecrest, a newly incorporated community
established in 1996, is home to more than 19,000 residents and over 700
businesses and is positioned approximately 20 minutes southwest of downtown
Miami. Although it was only recently incorporated, Pinecrest is in a
well-established, mature residential and commercial area fully supported with
commercial centers and major thoroughfares.
The Miami area is the second largest metropolitan statistical area in the
State of Florida with approximately 2.3 million residents as of 2000, a 16.3%
increase over the 1990 level. The total percentage of households earning more
than $50,000 was 35.04% of the total households in 2000 and is projected to grow
to 37.30% of the total households in 2005. The Miami-Dade market holds
approximately $42 billion of Florida's $227 billion in deposits, or 18.5%.
The major industries in Miami-Dade County include service, tourism,
technology, film and entertainment, and international trade. South Florida's
economy has also benefitted from the increasing presence of high technology
companies that specialize in manufacturing, electronics, computers, and defense
industries. The international trade sector of Miami-Dade is supported by dozens
of international trade offices, bi-national chambers of commerce and foreign
consulates.
30
As a result of the combination of the high quality of life and the stable
economic environment, Miami-Dade County continues to attract residents and
businesses, thereby positioning Florida Savings to take advantage of the
expected growth in its market area.
Competition
Florida Savings faces intense competition for the attraction of deposits
and origination of loans in its primary market area. Its most direct competition
for deposits has come from the several commercial and savings banks operating in
Florida Savings' primary market area and, to a lesser extent, from other
financial institutions, such as brokerage firms, credit unions and insurance
companies. While those entities still provide a source of competition for
deposits, Florida Savings currently faces significant competition for deposits
from the mutual fund industry as customers seek alternative sources of
investment for their funds. Florida Savings also faces significant competition
for investors' funds from their direct purchase of short-term money market
securities and other corporate and government securities. While Florida Savings'
faces competition for loans from the significant number of financial
institutions, primarily savings banks and commercial banks in its market area,
its most significant competition comes from other financial service providers,
such as the mortgage companies and mortgage brokers operating in its primary
market area. Additionally, competition may increase as a result of the lifting
of restrictions on the interstate operations of financial institutions and due
to the increasing trend for nondepository financial service companies entering
the financial services market, such as insurance companies, securities companies
and specialty financial companies. Competition for deposits and the origination
of loans may limit Florida Savings' growth in the future.
Lending Activities
General. The types of loans that Florida Savings may originate are governed
by federal laws and regulations. Interest rates Florida Savings charges on loans
are affected principally by its current asset/liability strategy, the demand for
the type of loans being originated, the supply of money available for lending
purposes and the rates offered by competitors. All of these factors are affected
by general and economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
31
Loan Portfolio Analysis. The following table presents the composition of
Florida Savings' loan portfolio at the dates indicated. Florida Savings had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
At December 31,
-----------------------------------------------------------
2001 2000
---------------------------- ----------------------------
Percent Percent
Amount of Total Amount of Total
------------ -------------- ------------ --------------
(Dollars in thousands)
Real estate loans:
One- to four- family ........................ $29,172 56.65% $27,412 65.32%
Commercial real estate ...................... 8,090 15.71 5,697 13.58
Construction ................................ 1,897 3.69 664 1.58
------- -------
Total real estate loans ................... 39,159 76.05 33,773 80.48
Consumer and other loans:
Home equity loans ........................... 6,836 13.28 3,990 9.51
Other ....................................... 2,899 5.63 1,251 2.98
------- -------
Total consumer loans ...................... 9,735 18.91 5,241 12.49
Commercial business loans ..................... 2,598 5.04 2,950 7.03
------- -------
Total loans ............................... 51,492 100.00% 41,964 100.00%
Less:
Deferred loan origination fees
and discounts ............................. (308) (300)
Allowance for loan losses ................... 598 280
------- -------
Total loans, net .......................... $51,202 $41,984
======= =======
The following table presents certain information at December 31, 2001
regarding the dollar amount of loans maturing in Florida Savings' portfolio
based on their contractual terms to maturity or scheduled amortization, but does
not include potential prepayments.
At December 31, 2001
--------------------------------------------------------------------------
One- to
Four- Commercial Consumer Commercial Total
Family Real Estate Construction and Other Business Loans
--------- ------------- -------------- ------------ ------------ -------
(In thousands)
Amounts due in:
One year or less ............................ $ - $ 970 $1,715 $2,021 $1,891 $ 6,597
More than one year to three years ........... - 547 153 122 514 1,336
More than three years to five years ......... 783 2,693 - 588 193 4,257
More than five years to 10 years ............ 1,076 3,097 29 147 - 4,349
More than 10 years to 15 years .............. 2,056 783 - 6,662 - 9,501
More than 15 years .......................... 25,257 - - 195 - 25,452
------- ------ ------ ------ ------ -------
Total amount due ......................... $29,172 $8,090 $1,897 $9,735 $2,598 $51,492
======= ====== ====== ====== ====== =======
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
32
The following table sets forth at December 31, 2001 the dollar amount of
all loans contractually due after December 31, 2002, which have fixed interest
rates and floating or adjustable interest rates.
Due After December 31, 2002
-------------------------------------------------
Fixed Adjustable Total
------------ ----------------- -----------
(In thousands)
Real estate loans:
One- to four-family ....................................... $6,197 $22,975 $29,172
Commercial real estate .................................... 2,420 4,700 7,120
Construction .............................................. - 182 182
------ ------- -------
Total real estate loans ................................... 8,617 27,857 36,474
Consumer and other loans:
Home equity loans and lines of credit ..................... - 6,835 6,835
Other ..................................................... 654 225 879
------ ------- -------
Total consumer loans ................................... 654 7,060 7,714
Commercial business loans .................................... 160 547 707
------ ------- -------
Total loans ............................................ $9,431 $35,464 $44,895
====== ======= =======
One- to Four-Family Real Estate Loans. Florida Savings' primary lending
activity is the origination of loans secured by one- to four-family residences
located in its market area. Florida Savings offers several fixed- and
adjustable-rate mortgage loan products. Of the one- to four-family loans
outstanding on December 31, 2001, approximately 21.24% were fixed-rate mortgage
loans and approximately 78.76% were adjustable-rate loans. Florida Savings
generally holds all one- to four-family loans in its portfolio for long-term
investment; however, such loans may be sold from time to time. The determination
of whether to sell loans is determined periodically by management in response to
changes in prevailing market interest rates and liquidity needs.
Florida Savings currently offers adjustable-rate mortgage loans which
adjust every one, three or five years with terms of up to 30 years. The maximum
amount by which the interest rate may be increased or decreased in a given
period on adjustable-rate mortgage loans is generally 2% per year and the
lifetime interest rate cap is generally 6% over the initial interest rate of the
loan. Florida Savings qualifies the borrower based on the borrower's ability to
repay the adjustable-rate mortgage loan based on the maximum interest rate at
the first adjustment. Florida Savings does not originate negative amortization
loans. The terms and conditions of the adjustable-rate mortgage loans offered by
Florida Savings, including the index for interest rates, may vary from time to
time. Florida Savings believes that the annual adjustment feature of its
adjustable-rate mortgage loans also provides flexibility to meet competitive
conditions as to initial rate concessions while limiting the duration of the
initial rate concession.
Adjustable-rate mortgage loans help reduce Florida Savings' exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. It is possible that during periods of rising interest rates the
risk of default on adjustable-rate mortgage loans may increase as a result of
repricing and the increased payments required by the borrower. In addition,
although adjustable-rate mortgage loans allow Florida Savings to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits. Because of these considerations Florida Savings can give no
assurance that yields on adjustable-rate mortgage loans will be sufficient to
offset increases in Florida Savings' cost of funds during periods of rising
interest rates. Florida Savings believes these risks, which have not had a
material adverse effect on Florida Savings to date, generally are less than the
risks associated with holding fixed-rate loans in its portfolio in a rising
interest rate environment.
Florida Savings also originates fixed-rate fully amortizing one- to
four-family loans with maturities of 30 years. The loan fees charged, interest
rates and other provisions of Florida Savings' mortgage loans are determined by
Florida Savings on the basis of its own pricing criteria and market conditions.
Florida Savings offers mortgage loans that conform to Fannie Mae and Freddie Mac
guidelines, as well as jumbo loans in excess of $275,000.
33
Florida Savings' residential mortgage loans typically do not exceed 80% of
the appraised value of the property. Florida Savings' lending policies permit
Florida Savings to lend up to 95% of the appraised value of the property;
however, Florida Savings generally requires private mortgage insurance on the
portion of the principal amount that exceeds 80% of the appraised value of the
property.
Florida Savings also requires fire, casualty, title, hazard insurance and,
if appropriate, flood insurance be maintained on all properties securing real
estate loans made by Florida Savings. An independent state-certified appraiser
generally appraises all properties.
Commercial Real Estate Loans. Florida Savings originates mortgage loans for
the acquisition and refinancing of commercial real estate properties. Commercial
real estate loans are fully amortizing loans that are generally originated with
variable rates, typically with terms of 5 to 15 years. Fixed rate loans
typically have terms of 5 to 10 years. The interest on variable-rate loans
adjusts at either one, three or five year intervals. Florida Savings' commercial
real estate loans are generally secured by office, retail and owner occupied
properties most of which are located in Florida Savings' primary market area.
Commercial real estate lending affords Florida Savings an opportunity to
receive interest at rates higher than those generally available from one- to
four-family residential lending. However, loans secured by these properties
usually are greater in amount and are more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by income
producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Florida Savings
seeks to minimize these risks by generally limiting the maximum loan-to-value
ratio to 75% for multi-family and commercial real estate loans and by strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan. Florida Savings also generally obtains loan guarantees from
financially capable parties based on a review of personal financial statements.
Residential Construction Loans. Florida Savings originates construction
loans to individuals for the construction of one- to four-family residences.
Florida Savings' residential construction loans generally provide for the
payment of interest only during the construction phase, which is usually between
12 and 18 months. At the end of the construction phase, the loan is matured or
converts to a permanent mortgage loan. Permanent loans can be made with a
maximum loan to value ratio of 95%, provided that the borrower obtains private
mortgage insurance on the loan if the loan balance exceeds 80% of the appraised
value or sales price, whichever is less, of the secured property. Florida
Savings will also originate residential construction loans to builders with
which Florida Savings has an established relationship. Construction/permanent
loans to individuals are generally made on the same terms as Florida Savings'
one- to four-family mortgage loans. At December 31, 2001, the largest
outstanding residential construction loan commitment was for $608,000 of which
$204,000 was outstanding. This loan was performing according to its terms at
December 31, 2001.
Before making a commitment to fund a construction loan, Florida Savings
requires an appraisal of the property by an independent licensed appraiser.
Florida Savings also reviews and inspects each property before disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
after each stage of work is completed. The final 10% of the loan is held until
the house is completed.
Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, Florida Savings may
be required to advance funds beyond the amount originally committed to protect
the value of the property. If the estimate of value upon completion proves to be
inaccurate, Florida Savings may be confronted with a property whose value is
insufficient to assure full repayment.
Consumer Loans. Florida Savings' consumer loans consist primarily of home
equity lines of credit and fully amortized home equity loans, all of which are
secured by owner-occupied one- to four-family residences, as well as automobile
loans. The underwriting standards employed by Florida Savings for home equity
loans and lines
34
of credit include a determination of the applicant's credit history, an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan.
Florida Savings also offers various other consumer loans, including
personal signature loans, loans secured by various personal property and loans
generally secured by a passbook account, a certificate of deposit or marketable
securities.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections depend on the
borrower's continuing financial stability, and are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy.
Commercial Business Loans. Florida Savings originates commercial business
loans primarily in its primary market area to a variety of professionals, sole
proprietorships and small businesses. Florida Savings offers a variety of
commercial lending products, including term loans for fixed assets and working
capital and revolving lines of credit. Commercial business loans are generally
offered with adjustable interest rates and with terms of up to five years.
Business lines of credit have adjustable rates of interest and are payable on
demand, subject to annual review and renewal.
In making commercial business loans, Florida Savings considers the
financial statements of the borrower, Florida Savings' lending history with the
borrower, the debt service capabilities of the borrower, the projected cash
flows of the business and the value of the collateral. Commercial business loans
are generally secured by a variety of collateral, primarily equipment, assets
and accounts receivable, and are generally supported by personal guarantees.
Florida Savings also makes unsecured commercial loans. Unsecured commercial
loans are generally offered with floating interest rates and terms of up to two
years and are generally limited to $750,000. Approximately 6.7% of Florida
Savings loan portfolio is comprised of unsecured commercial loans.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may depend substantially on the success of the business itself.
Further, any collateral securing such loans may depreciate over time, may be
difficult to appraise and may fluctuate in value.
In February 2001, a $450,000 commercial business loan in Florida Savings'
portfolio became delinquent. The loan is secured by insurance proceeds assigned
by the borrower and additional collateral in the form of certain real estate and
equity securities of the borrower. The guarantor of the loan is seeking Chapter
11 bankruptcy protection. Currently, Florida Savings is in the first lien
position on six condominium units, which comprise part of the additional
collateral. Assuming the successful sale of these condominium units based on
recent sales prices within the condominium project, Florida Savings anticipates
receiving proceeds from such sales sufficient to pay down approximately 50% of
the outstanding balance on this loan. Management continues to work closely with
legal counsel to determine what appropriate actions are to be taken regarding
this loan; however, the loan is likely to remain in workout status for several
months. In September 2001, Florida Savings recognized a specific reserve in the
allowance for loan loss of $225,000 on this loan, and it currently believes the
total allowance for loan loss remains adequate.
Loans to One Borrower. The maximum amount that Florida Savings may lend to
one borrower is limited by regulation. At December 31, 2001, Florida Savings'
regulatory limit on loans to one borrower was $890,000. At that date, Florida
Savings' largest credit exposure to one borrower, including the borrower's
related interests, totaled $750,000 and consisted of one real estate loan. This
loan had an outstanding balance of $750,000 at December 31, 2001. In addition,
three other borrowers had real estate loans or available lines of credit of
$750,000 each. These loans were performing according to their original terms at
December 31, 2001.
35
Loan Approval Procedures and Authority. The board of directors establishes
the lending policies and loan approval authorities of Florida Savings. Loan
underwriting includes credit evaluation under Florida Savings' underwriting
standards and loan origination procedures prescribed by the board of directors
and management. One- to four-family residential first mortgage loans are
generally underwritten according to Freddie Mac/Fannie Mae guidelines. Loan
applications are obtained from borrowers to determine the borrower's ability to
repay, and the more significant items on these applications are verified through
the use of credit reports, financial statements and confirmations. If necessary,
additional financial information may be required. The loan policy for real
estate loans generally require that an independent, outside appraiser approved
by the board of directors appraise collateral. Additionally, for proposed
mortgage loans, title insurance and hazard and flood insurance must be obtained
prior to closing. Borrowers generally are required to make payments to a
mortgage escrow account for the payment of real estate taxes.
Loans are approved at various management levels up to and including the
board of directors, depending on the loan classification and the amount of the
loan. Loan approvals are made in accordance with a schedule of delegated
authority approved by the board of directors. Approved loans are reported to the
board of directors.
Loan Originations, Purchases and Sales. Florida Savings originates both
adjustable-rate and fixed-rate one- to four-family mortgage loans, home equity
loans, commercial real estate loans, construction and development loans,
residential lot loans, consumer loans and commercial business loans. Florida
Savings' lending activities are currently conducted primarily by its loan
personnel operating at its one location as well as through a network of
wholesale mortgage loan brokers and other financial institutions approved by
Florida Savings. All loans originated by Florida Savings are underwritten to
Florida Savings' policies and procedures and generally, are originated for
investment with the exception of longer term fixed-rate one- to four-family
mortgage loans. Currently, the general position of Florida Savings is to sell
substantially all of the one- to four-family fixed-rate mortgage loans into the
secondary market and to retain the majority of adjustable-rate one- to
four-family mortgage loans originated. However, from time to time, Florida
Savings may retain fixed-rate mortgage loans with terms over fifteen years
depending on the asset quality and the interest rate risk position of Florida
Savings. The one- to four-family loan products currently originated for sale by
Florida Savings include a variety of mortgage loans which conform to the
underwriting standards of Fannie Mae, Freddie Mac and other secondary market
investors which Florida Savings is approved by. While Florida Savings originates
a variety of loans, its ability to originate loans is dependent upon demand for
loans in the market in which it serves. The applicable local economies and the
interest environment affect demand.
Loan originations are developed from continuing business throughout the
community with existing or past depositors and borrowers, Realtors, mortgage
brokers, walk-in and call-in customers, builders, professionals and personal
contacts. Advertisement in the local community newspapers is used regularly
along with mass mailers. Also, Florida Savings has, from time to time, purchased
participation interests in various types of mortgage loans from local financial
institutions. Any participation interest purchased must meet Florida Savings'
own underwriting standards.
36
The following table presents total loans originated, purchased, repaid and
sold during the periods indicated.
Year Ended December 31,
---------------------------
2001 2000
------------ -----------
(In thousands)
Loans receivable at beginning of period .............................. $41,964 $12,662
Originations:
Real estate loans:
One- to four-family ............................................ 14,052 18,568
Commercial real estate ......................................... 4,264 4,995
Construction ................................................... 3,492 787
------- -------
Total real estate loans ..................................... 21,808 24,350
Consumer and other loans:
Home equity loans and lines of credit .......................... 9,915 5,150
Other .......................................................... 2,968 1,411
------- -------
Total consumer loans ........................................ 12,883 6,561
Commercial business loans ......................................... 2,315 4,068
------- -------
Total loans ................................................. 37,006 34,979
Loans purchased ...................................................... 395 1,583
Deduct:
Transfer of mortgage loans to foreclosed real estate ............ - -
Principal repayments ............................................ 20,951 5,442
Loans sold ...................................................... 6,922 1,818
Loans securitized ............................................... - -
------- -------
Net loan activity .................................................... 9,528 29,302
------- -------
Loans receivable at end of period .................................... $51,492 $41,964
======= =======
Loan Fees. In addition to interest earned on loans, Florida Savings
receives income from fees on loan originations, loan modifications, prepayment
penalties, late payments and for miscellaneous services related to its loans.
Income from these activities varies from period to period depending upon the
volume and type of loans made and competitive conditions.
Nonperforming Assets and Delinquencies. Management informs the board of
directors periodically of the amount of loans delinquent more than 60 days, all
loans in foreclosure, and all foreclosed and repossessed property that Florida
Savings owns.
Florida Savings ceases accruing interest on mortgage loans when principal
or interest payments are delinquent 90 days or more. Once the accrual of
interest on a loan is discontinued, all interest previously accrued is reversed
against current period interest income if management determines that interest is
uncollectible. No additional interest is accrued on the loan until the
collection of both principal and interest becomes reasonably certain. At
December 31, 2001, Florida Savings had non-performing assets of $954,000. There
were no nonperforming assets at December 31, 2000.
In February 2001, a $450,000 commercial business loan in Florida Savings'
portfolio became delinquent. The loan is secured by insurance proceeds assigned
by the borrower and additional collateral in the form of certain real estate and
equity securities of the borrower. The guarantor of the loan is seeking Chapter
11 bankruptcy protection. Currently, Florida Savings is in the first lien
position on six condominium units, which comprise part of the additional
collateral. Assuming the successful sale of these condominium units based on
recent sales prices within the condominium project, Florida Savings anticipates
receiving proceeds from such sales sufficient to pay down approximately 50% of
the outstanding balance on this loan. Management continues to work closely with
legal counsel to determine what appropriate actions are to be taken regarding
this loan; however, the loan is likely to remain in workout status for several
months. In September 2001, Florida Savings recognized a specific reserve in
37
the allowance for loan loss of $225,000 on this loan, and it currently believes
the total allowance for loan loss remains adequate. In addition, at December 31,
2001, $225,000 of this loan was classified as substandard. See "- Asset
Classification."
The following table sets forth the delinquencies in Florida Savings' loan
portfolio as of the dates indicated.
At December 31,
------------------------------------------------------------------------------------------
2001 2000
----------------------------------------------- ------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------------ ---------------------- ---------------------- -------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of of Balance of of Balance of of Balance of
Loans Loans Loans Loans Loans Loans Loans Loans
----------- ------------ --------- ----------- -------- ------------ -------- ----------
(In thousands)
Real estate loans:
One- to four-family ................. - $ - 3 $ 504 - $ - - $ -
Commercial real estate .............. - - - - - - - -
Construction ........................ - - - - - - - -
----- ------- ------ ------ ----- ----- ----- -----
Total real estate loans ............. - - 3 504 - - - -
Consumer and other loans:
Home equity loans lines of credit ... 1 24 - - - - - -
Other ............................... - - - -
----- ------- ------ ------ ----- ----- ----- -----
Total consumer loans ............. 1 24 - - - - - -
Commercial business loans .............. - - 1 450 - - - -
----- ------- ------ ------ ----- ----- ----- -----
Total loans ...................... 1 $ 24 4 $ 954 - $ - - $ -
===== ======= ====== ====== ===== ===== ===== =====
Delinquent loans to total loans ........ - 0.05% - 1.85% - - - -
Interest income that would have been recorded for the year ended December
31, 2001 had nonaccruing loans been current according to their original terms
amounted to approximately $44,000. Interest related to these loans was not
included in interest income for the year ended December 31, 2001.
Real Estate Owned and Other Repossessed Assets. Real estate that Florida
Savings acquires through foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned until sold. When property is acquired it is
recorded at fair market value at the date of foreclosure if the fair market
value is less than book value, establishing a new cost basis. At December 31,
2001, Florida Savings had no real estate owned and no repossessed personal
property.
Asset Classification. Federal banking regulators have adopted various
regulations and practices regarding problem assets of savings institutions.
Under such regulations, examiners have authority to identify problem assets
during examinations and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
38
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Florida Savings monitors "special mention"
assets.
The following table presents classified assets at December 31, 2001.
Loss Doubtful Substandard Special Mention
------------------ ------------------ ------------------- -------------------
Number Principal Number Principal Number of Principal Number Principal
of Loans Balance of Loans Balance Loans Balance of Loans Balance
------------------ ------------------ -------------------- -------------------
(Dollars in thousands)
Real estate loans:
One- to four-family.............. - $ - - $ - - $ - 3 $504
Commercial real estate........... - - - - - - - -
Construction..................... - - - - - - - -
---- ---- ---- ---- ---- ---- ---- ----
Total real estate loans.... - - - - - - 3 504
Consumer and other loans:
Home equity loans and lines of
credit .......................... - - - - - - - -
Other ........................... - - - - - - - -
---- ---- ---- ---- ---- ---- ---- ----
Total consumer loans ...... - - - - - - - -
Commercial business loans .......... - - - - 1 225 - -
---- ---- ---- ---- ---- ---- ---- ----
Total loans ................ - $ - - $ - 1 $225 3 $504
==== ==== ==== ==== ==== ==== ==== ====
Allowance for Loan Losses. In originating loans, Florida Savings
recognizes that losses will be experienced on loans and that the risk of loss
will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. Florida Savings maintains an allowance for loan losses to absorb
losses inherent in the loan portfolio. The allowance for loan losses represents
management's estimate of probable losses based on information available as of
the date of the financial statements. The allowance for loan losses is based on
management's evaluation of the collectibility of the loan portfolio, including
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current economic conditions.
At December 31, 2001, Florida Savings had an allowance for loan losses of
$599,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
adversely affected if circumstances differ substantially from the assumptions
used in making the determinations. Furthermore, while Florida Savings believes
it has established its existing allowance for loan losses in conformity with
generally accepted accounting principles, there can be no assurance that
regulators, in reviewing Florida Savings' loan portfolio, will not request
Florida Savings to increase its allowance for loan losses. In addition, because
future events affecting borrowers and collateral cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan losses
is adequate or that increases will not be necessary should the quality of any
loans deteriorate as a result of the factors discussed above. Any material
increase in the allowance for loan losses may adversely affect Florida Savings'
financial condition and results of operations.
In February 2001, a $450,000 commercial business loan in Florida Savings'
portfolio became delinquent. The loan is secured by insurance proceeds assigned
by the borrower and additional collateral in the form of certain real estate and
equity securities of the borrower. The guarantor of the loan is seeking Chapter
11 bankruptcy protection. Currently, Florida Savings is in the first lien
position on six condominium units, which comprise part of the additional
collateral. Assuming the successful sale of these condominium units based on
recent sales prices within the condominium project, Florida Savings anticipates
receiving proceeds from such sales sufficient to pay down approximately 50% of
the outstanding balance on this loan. Management continues to work closely with
legal counsel to determine what appropriate actions are to be taken regarding
this loan; however, the loan is likely to remain in workout status for several
months. In December 2001, Florida Savings recognized a specific reserve in the
allowance for loan loss of $225,000 on this loan, and it currently believes the
total allowance for loan loss remains adequate.
39
The following table sets forth activity in Florida Savings' allowance
for loan losses for the specified periods.
At or for the Year Ended
December 31,
------------------------
2001 2000
---- ----
(Dollars in thousands)
Allowance for loan losses, beginning of period ................... $ 280 $ 150
Charged-off loans:
Real estate .................................................... - -
Consumer ....................................................... - -
Consumer ....................................................... - -
Commercial ..................................................... - -
------ -----
- -
Total charged-off loans .....................................
Recoveries on loans previously charged off:
Real estate .................................................... - -
Consumer ....................................................... - -
Commercial ..................................................... - -
------ -----
Total recoveries ............................................... - -
------ -----
Net charge-offs ................................................ - -
Provision for loan losses ...................................... 319 130
------ -----
Allowance for loan losses, end of period ....................... $ 599 $ 280
====== ======
Allowance for loan losses as a percentage of total loans........ 1.16% 0.67%
Allowance for loan losses a percentage of nonperforming loans... 62.79% -
Recoveries to charge-offs ...................................... - -
The following table presents the approximate allocation of the
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not indicative of
future losses and does not restrict the use of any of the allowance to absorb
losses in any category.
At December 31,
-----------------------------------------------------------------------------------
2001 2000
---------------------------------------- --------------------------------------
Percent of
Loans in
Percent of Percent of Each
Percent of Loans in Allowance to Category
Allowance Allowance to Each Category Allowance Total to Total
Amount Total Allowance to Total Loans Amount Allowance Loans
---------- --------------- -------------- ---------- ------------ ----------
(Dollars in thousands)
Real estate ................ $ 303 50.58% 76.05% $ 227 81.07% 80.48%
Commercial ................. 254 42.41 5.04 36 12.86 7.03
Consumer ................... 27 4.51 18.91 15 5.36 12.49
Unallocated ................ 15 2.50 2 0.71
------ ------ ------- ------
Total allowance
for loan losses .......... $ 599 100.00% $ 280 100.00%
====== ====== ======= ======
Investment Activities
Florida Savings invests in various types of liquid assets, including
U.S. Government obligations, securities of various federal agencies and of state
and municipal governments, deposits at the Federal Home Loan Bank, certificates
of deposit of federally insured institutions, certain bankers' acceptances and
federal funds. Within certain regulatory limits, Florida Savings may also invest
a portion of its assets in commercial paper and corporate debt securities.
Savings institutions like Florida Savings are also required to maintain an
investment in Federal Home Loan Bank stock. Florida Savings is required under
federal regulations to maintain a minimum amount of liquid assets.
40
Florida Savings does not currently use or maintain a trading account. Debt
and equity securities are classified as "available for sale." These securities
are reported at fair value, and unrealized gains and losses on the securities
are excluded from earnings and reported, net of deferred taxes, as a separate
component of equity. At December 31, 2001, all of Florida Savings'
mortgage-backed securities and investment securities were classified as
"available for sale."
All of Florida Savings' investment securities carry market risk insofar as
increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called before
maturity in times of low market interest rates, so that Florida Savings may have
to invest the funds at a lower interest rate. Florida Savings' investment policy
does not permit engaging directly in hedging activities or purchasing high risk
mortgage derivative products. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, Florida Savings' liquidity position, and anticipated
cash needs and sources. The effect that the proposed investment would have on
Florida Savings' credit and interest rate risk and risk-based capital is also
considered. Florida Savings purchases investment securities to provide necessary
liquidity for day-to-day operations. Florida Savings may purchase investment
securities when investable funds exceed loan demand.
All of Florida Savings' mortgage-backed securities are issued or guaranteed
by agencies of the U.S. Government. Accordingly, they carry lower credit risk
than mortgage-backed securities of a private issuer. However, mortgage-backed
securities still carry market risk, the risk that increases in market interest
rates may cause a decrease in market value, and prepayment risk, the risk that
the securities will be repaid before maturity and that Florida Savings will have
to reinvest the funds at a lower interest rate.
At December 31, 2001, Florida Savings Bancorp did not own any securities,
other than U.S. Government and agency securities, that had an aggregate book
value in excess of 10% of Florida Savings Bancorp's shareholders' equity at that
date.
The following table sets forth certain information regarding the amortized
cost and fair value of Florida Savings' securities at the dates indicated.
At December 31,
-----------------------------------------
2001 2000
------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ------- ---------- --------
(In thousands)
Marketable securities available-for-sale:
U.S. government and agency
obligations ................................. $ 623 $ 624 $3,371 $3,381
------- ------- ------ ------
Mortgage-backed securities available-for-sale:
FHLMC ........................................ 2,150 2,140 1,252 1,230
FNMA ......................................... 995 1,003 1,815 1,822
------- ------- ------ ------
Total mortgage-backed securities
available-for-sale ......................... 3,145 3,143 3,067 3,052
Net unrealized losses on all securities ...... (1) - (5) -
------- ------- ------ ------
Total securities ....................... $ 3,767 $ 3,767 $6,433 $6,433
======= ======= ====== ======
41
The table below sets forth certain information regarding the carrying
value, weighted-average yields and contractual maturities of Florida Savings'
securities as of December 31, 2001.
At December 31, 2001
---------------------------------------------------------------------------------------------
More than One More than Five
Year Years More than Ten
One Year or Less to Five Years to Ten Years Years Total
----------------- ------------------ ------------------ ------------------ -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- --------- --------- -------- -------- --------- -------- --------
(Dollars in thousands)
Available-for-sale securities:
Obligations of the U.S. Treasury .. $ - -% $ - -% $ 125 5.95% $ 499 6.50% $ 624 6.39%
Mortgage-backed securities ........ - - - - - - 3,143 5.30 3,143 5.50
-------- -------- -------- -------- --------- ------- ------- -------- ------- -------
Total securities at fair value ... $ - -% $ - -% $ 125 5.95% $ 3,642 5.46% $ 3,767 5.65%
======== ======== ======== ======== ========= ======= ======= ======== ======= =======
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Florida
Savings' lending and other investment activities. In addition, Florida Savings
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. Florida Savings may use borrowings from the Federal Home Loan Bank
of Atlanta to compensate for reductions in the availability of funds from other
sources.
Deposit Accounts. Nearly all of Florida Savings' depositors reside in
Florida. Florida Savings offers a wide variety of deposit accounts with a range
of interest rates and terms. Florida Savings' deposit accounts consist of
interest-bearing checking, noninterest-bearing checking, passbook savings and
statement savings accounts, money market and certificates of deposit. In
addition, Florida Savings offers interest on trust accounts and retirement
accounts, including IRAs and simplified employee pension plan accounts. Deposit
account terms vary with the principal differences being the minimum balance
deposit, early withdrawal penalties, limits on the number of transactions and
the interest rate.
Florida Savings believes it is competitive in the interest rates it
offers on its deposit products. Florida Savings determines the rates paid based
on a number of factors, including rates paid by competitors, Florida Savings'
need for funds and cost of funds, borrowing costs and movements of market
interest rates. Florida Savings does not currently use brokers to obtain
deposits and at December 31, 2001 had no brokered deposits.
The following table presents the deposit activity of Florida Savings
for the periods indicated.
Year Ended December 31,
-----------------------
2001 2000
------- -------
(In thousands)
Beginning balance .................. $44,712 $22,796
Increase before interest credited .. 5,625 20,048
Interest credited .................. 2,526 1,868
------- -------
Net increase ....................... 8,151 21,916
------- -------
Ending balance ..................... $52,863 $44,712
======= =======
42
The following table indicates the amount of Florida Savings' jumbo
wholesale certificates and retail certificates of deposits with principal
balances of $100,000 or more by time remaining until maturity as of December 31,
2001.
Weighted
Average
Maturity Period Amount Rate
---------------- ----------- ----------
(Dollars in thousands)
Three months or less ........... $ 7,876 5.80%
Over 3 through 6 months ........ 3,106 4.67
Over 6 through 12 months ....... 3,509 4.31
Over 12 months ................. 301 4.30
-------
Total ................. $15,092 5.16%
=======
The following table sets forth the distribution of Florida Savings'
accounts for the periods indicated and the weighted average nominal interest
rates on each category of deposits presented.
At December 31,
--------------------------------------------------------
2001 2000
---------------------------- ----------------------------
Percent Weighted Percent Weighted
of Total Average of Total Average
Balance Deposits Rate Balance Deposits Rate
------- -------- --------- ------- --------- --------
(Dollars in thousands)
Noninterest-bearing demand ............. $ 2,853 5.40% -% $ 1,967 4.40% -%
NOW accounts ........................... 2,012 3.81 0.68 2,794 6.25 1.86
Passbooks and Club Accounts ............ 13,232 25.03 2.65 6,499 14.53 4.80
Money market deposit accounts .......... 3,447 6.52 1.56 1,958 4.38 5.67
Certificates of deposit that mature:
Within 12 months .................... 28,295 53.52 4.94 28,816 64.45 6.65
Within 13 to 36 months .............. 2,458 4.65 4.10 2,495 5.58 6.91
Beyond 36 months .................... 566 1.07 5.43 183 0.41 6.52
------- -------
Total certificates of deposit ......... $31,319 59.24% 4.89% $31,494 70.44% 6.67%
------- -------
Total deposits ........................ $52,863 100.00% $44,712 100.00%
======= =======
Borrowings. Florida Savings has the ability to use advances from the
Federal Home Loan Bank of Atlanta to supplement its supply of lendable funds and
to meet deposit withdrawal requirements. The Federal Home Loan Bank of Atlanta
functions as a central reserve bank providing credit for savings banks and
certain other member financial institutions. As a member of the Federal Home
Loan Bank of Atlanta, Florida Savings is required to own capital stock in the
Federal Home Loan Bank of Atlanta and is authorized to apply for advances on the
security of the capital stock and certain of its mortgage loans and other
assets, principally securities that are obligations of, or guaranteed by, the
U.S. Government or its agencies, provided certain creditworthiness standards
have been met. Advances are made under several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At December 31, 2001, Florida Savings had arranged the
ability to borrow a total of approximately $3.7 million from the Federal Home
Loan Bank of Atlanta, of which $2.0 million was borrowed at such date. In
addition, at December 31, 2001, Florida Savings Bancorp had the ability to
borrow a total of $1.5 million from Independent Bankers' Bank of Florida, of
which $600,000 was borrowed at such date. This line of credit is secured by the
common stock of Florida Savings and may only be used to capitalize Florida
Savings.
43
The following table presents certain information regarding Florida
Savings' borrowed funds at or for the periods ended on the dates indicated:
Year Ended December 31,
-----------------------
2001 2000
---------- ----------
(Dollars in thousands)
Federal Home Loan Bank advances and other borrowings:
Average balance outstanding ........................ $ 3,272 $ 2,363
Maximum amount outstanding at any month-end
during the period ............................... 4,542 5,500
Balance outstanding at end of period ............... 3,292 2,000
Weighted average interest rate during the period ... 4.03% 6.26%
Weighted average interest rate at end of period .... 5.37% 5.92%
Personnel
As of December 31, 2001, Florida Savings Bancorp, on a consolidated
basis, had 16 full-time employees, none of whom is represented by a collective
bargaining agreement, and no part-time employees. Florida Savings Bancorp
believes its relationship with its employees is good.
Properties
Florida Savings Bancorp currently conducts its business through one
full-service banking office located at 8181 Southwest 117 Street, Pinecrest,
Florida. This office was opened in 1999 and is subject to a lease, the initial
term of which expires September 15, 2003. Florida Savings has three additional
three year options, which it can exercise at its sole discretion. At December
31, 2001, future rentals over the remaining noncancellable lease terms are
$339,000. Florida Savings received approvals from the Office of Thrift
Supervision on August 10, 2001, to open a branch office in the southern end of
Miami Beach, Florida and in January 24, 2002, to open a branch office in Miami,
Florida. It is anticipated that the Miami branch will open in the second quarter
of 2002. Based on preliminary estimates, Florida Savings expects the cost to
maintain the Miami branch during its first full year of operation to be
approximately $297,000, including salaries for five new employees. Florida
Savings expects to fund the expenses relating to the Miami branch from income
earned by Florida Savings during the year and may fund the branch expenses from
proceeds from the offering.
Legal Proceedings
Neither Florida Savings Bancorp nor Florida Savings is a party to any
pending legal proceedings that either believes would have a material adverse
effect on the financial condition or operations of Florida Savings Bancorp or
Florida Savings.
OTHER SUBSIDIARY ACTIVITIES
In addition to Florida Savings, Florida Savings Bancorp's subsidiaries
include the following:
FSB Development Corp.
FSB Development acquires property for the purpose of constructing and
selling one- to four-family homes. Since its inception as a Florida corporation
in January 2000, FSB Development has acquired three properties, one of which was
sold prior to development. FSB Development has begun the construction of two
luxury estate homes located within the Village of Pinecrest with the intent to
sell the properties. Each of these homes will be constructed on a parcel of land
up to one acre in size. Florida Savings Bancorp has contributed approximately
$790,000 in capital to FSB Development. In addition, FSB Development has
approximately $1.4 million in available construction loans which Florida Savings
Bancorp fully guarantees. At December 31, 2001, approximately
44
$692,000 of the construction loans had been utilized by FSB Development. FSB
Development's address is 8181 Southwest 117/th/ Street, Pinecrest, Florida.
FSB Insurance Agency, Inc.
FSB Insurance, incorporated in Florida in June 2000, is currently an
inactive subsidiary still in planning stages. FSB Insurance is exploring the
possibility of becoming a full service insurance agency dealing in all lines of
insurance needs and servicing not only the needs of Florida Savings' customers
but the local community as well. FSB Insurance's address is 8181 Southwest
117/th/ Street, Pinecrest, Florida.
FSB Properties Corp.
FSB Properties Corp. is currently an inactive subsidiary. FSB
Properties is a Florida corporation incorporated in June 2001. FSB Properties'
address is 8181 Southwest 117/th/ Street, Pinecrest, Florida.
MANAGEMENT OF FLORIDA SAVINGS BANCORP AND FLORIDA SAVINGS
Directors and Executive Officers of Florida Savings Bancorp
The board of directors of Florida Savings Bancorp is presently composed
of twelve members who are elected for terms of three years, approximately one
third of whom are elected annually as required by the Bylaws of Florida Savings
Bancorp. The executive officers of Florida Savings Bancorp are appointed
annually by the board of directors and serve at the board of directors'
discretion. The following table presents information with respect to the
directors and executive officers of Florida Savings Bancorp.
Position Held With Director Term
Name Age (1) Florida Savings Bancorp Since Expires(2)
- ---- ------- ------------------------------------------------- -------- -----------
Bernard Janis 76 Chairman of the Board and Chief Executive Officer 1998 2005
Victor S. Falk 56 Vice Chairman of the Board 1998 2004
Robert L. Bonnet 48 Director, President and Chief Operating Officer 1998 2005
Norman S. Edelcup 66 Director and Senior Vice President, Business 2001 2005
Development
David W. Bianchi 47 Director 1999 2003
Charles E. Cobb 65 Director 1999 2004
Robert E. Gallaher 51 Director 2001 2004
Sandra Goldstein 61 Director 2000 2004
Kimberly Green 30 Director 2001 2005
Jack Langer 64 Director 1998 2003
Y. Judd Shoval 53 Director 2001 2003
Gary P. Simon 52 Director, Assistant Secretary 1998 2003
_________________________________
(1) As of December 31, 2001.
(2) As of May 2, 2002.
45
Executive Officers of Florida Savings Bancorp Who Are Not Directors
Position Held With
Name Age (1) Florida Savings Bancorp
- ---- ------- -----------------------
David P. Stark 52 Senior Vice President and Chief Financial Officer
Dianna L. Romero 51 Senior Vice President, Corporate Secretary and
Treasurer
______________________________
(1) As of December 31, 2001.
The board of directors of FSB Development Corp. are Messrs. Janis,
Bonnet, Stark and Langer. The executive officers of FSB Development Corp. are
Messrs. Janis, Stark and Bonnet and Ms. Romero.
Directors and Executive Officers of Florida Savings
The board of directors of Florida Savings is presently composed of
eight members who are elected for terms of three years, approximately one third
of whom are elected annually as required by the Bylaws of Florida Savings. The
executive officers of Florida Savings appointed annually by the board of
directors and serve at the board of directors's discretion. The following table
presents information with respect to the directors and executive officers of
Florida Savings.
Director Term
Name Age(1) Position Held With Florida Savings Since Expires(2)
- ---- ------ -------------------------------------------------- -------- ----------
Bernard Janis 76 Chairman of the Board and Chief Executive Officer 1999 2005
Victor S. Falk 56 Vice Chairman of the Board 1999 2004
Robert L. Bonnet 48 Director, President and Chief Operating Officer 1999 2005
David W. Bianchi 47 Director 1999 2003
Robert E. Gallaher 51 Director 2001 2004
Sandra Goldstein 61 Director 2000 2004
Jack Langer 64 Director 1999 2003
Gary P. Simon 52 Director 1999 2003
_____________________________
(1) As of December 31, 2001.
(2) As of May 2, 2002.
Executive Officers of Florida Savings Who Are Not Directors
Name Age(1) Position Held With Florida Savings
- ---- ------ ---------------------------------------------------
David P. Stark 52 Senior Vice President and Chief Financial Officer
Dianna L. Romero 51 Senior Vice President, Corporate Secretary and
Treasurer
______________________________
(1) As of December 31, 2001.
46
Biographical Information
Set forth below is certain information regarding the directors and
executive officers of Florida Savings Bancorp and Florida Savings. Unless
otherwise stated, each director and executive officer has held his or her
current occupation for the last five years. All executive officers are full-time
employees. There are no family relationships among or between the directors or
executive officers. The business address of each director and executive officer
is 8181 Southwest 117/th/ Street, Pinecrest, Florida.
Directors
Bernard Janis has served as Chairman of the Board and Chief Executive
Officer of Florida Savings Bancorp and Florida Savings since 1998 and 1999,
respectively. Mr. Janis has held high level positions in the Florida financial
institution industry since 1968. Prior to the organization of Florida Savings,
he founded Consumers Savings Bank, Miami, Florida, in 1986 and served as
Chairman of the Board and Chief Executive Officer from May 1986 until its
acquisition by a multi-billion dollar institution in January 1998. Mr. Janis
also served as Chairman of the Board of Republic National Bank of Miami from
1968 through 1974. He is active in community affairs and serves on the Board of
Directors of the Boys and Girls Club of Miami.
Victor S. Falk has served as Vice Chairman of the Board of Florida
Savings Bancorp and Florida Savings since 1998 and 1999, respectively. Mr. Falk
served as Vice President, Secretary and General Counsel of Wometco Cable Corp.
prior to his retirement in 1994. Mr. Falk was a director of Consumers Savings
Bank from 1989 until 1998.
David W. Bianchi has served as director of Florida Savings Bancorp and
Florida Savings since 1999. He is a partner and trial lawyer with the law firm
of Stewart Tilghman Fox & Bianchi, P.A. in Miami, Florida.
Robert L. Bonnet has served as President and Chief Operating Officer of
Florida Savings Bancorp and Florida Savings since 1998 and 1999, respectively
and as a director of Florida Savings Bancorp since 1998. Mr. Bonnet has been
involved in the savings and loan and banking industry since 1972 in various
positions. Most recently, Mr. Bonnet served as Senior Vice President and Chief
Lending Officer of Consumers Savings Bank in Miami, Florida from October 1986
until its acquisition by another bank in January 1998. During his eleven years
at Consumers Savings Bank, Mr. Bonnet oversaw all aspects of lending and was
involved in various operational matters. Mr. Bonnet has taken an active
leadership role in the community and has participated in numerous activities and
organizations, including Habitat for Humanity of Greater Miami's Board of
Directors, Fannie Mae Miami-Dade Housing Authority Advisory Board, and the
Chamber South Board of Directors.
Charles E. Cobb has served as a director of Florida Savings Bancorp and
Florida Savings since 1998 and 1999, respectively. He is the Chief Executive
Officer and Senior Managing Director of Cobb Partners Limited, an investment
firm with interests in real estate, international trade, resorts and
tourism-related businesses. Mr. Cobb has served as a director of LNR Property
Corporation, a real estate investment, finance and management company, since
2001 and has served as Chairman of Kirkwood Resort and Durango Mountain Resort,
both of which are ski resorts, since 1994 and 2000, respectively Mr. Cobb has
served as the United States Ambassador to Iceland and Under Secretary and
Assistant Secretary of the United States Department of Commerce. Mr. Cobb was
formerly the Chairman and Chief Executive Officer of Arvida/Disney Corporation,
a real estate development company, a director of the Walt Disney Company, the
Chief Operating Officer and a director of Penn Central Corporation, a
multi-industry company, and a director of Southeast Banking Corp., a bank
holding company. Mr. Cobb was also formerly the Chairman of the Board of Pan Am
Corporation. In 1998 Pan Am Corporation and its subsidiaries filed voluntary
petitions for relief under Chapter 11, Title II of the United States Bankruptcy
Code with the United States Bankruptcy Court.
Norman S. Edelcup has served as Senior Vice President and Director of
Florida Savings Bancorp since 2001. Mr. Edelcup served as senior vice president
of Item Processing of America, Inc., a processing service bureau ("IPA") from
1998 to 2000 and as Chairman of the Board and Chief Executive Officer of IPA
from 1987 to 1998. He also serves as director of Valhi, Inc., a chemicals,
component products, waste management and titanium metals
47
industries company since 1975 and he serves as a trustee for the Baron Funds, a
mutual fund group. Mr. Edelcup, in September of 2001, was elected a City
Commissioner for the City of Sunny Isles Beach, Florida.
Robert E. Gallaher has been a director of Florida Savings Bancorp and
Florida Savings since 2001. Mr. Gallaher is the president of Gallaher, Inc.,
formerly known as Hedgepeth and Gallaher, Inc., a real estate appraisal and
consulting company.
Sandra Goldstein has served as director of Florida Savings Bancorp and
Florida Savings since 2000. She began her career in real estate and subsequently
formed Sandra Goldstein and Associates, Inc. in 1979, a full service residential
and commercial real estate office where she is the president and owner.
Kimberly Green has been a director of Florida Savings Bancorp since
2001. Ms. Green is the director of the Green Family Foundation, which focuses on
private and corporate partnerships for grassroots arts programs, education,
homeless assistance, AIDS education, disaster relief, early childhood
development, the Red Cross, the United Way and Habitat for Humanity. Ms. Green
is a member of the President's Council on Arts and Humanities.
Jack Langer has served as a director of Florida Savings Bancorp and
Florida Savings since 1998 and 1999, respectively. He has been the Chief
Executive Officer since January 1995 of Langer Energy Consulting, Inc., a firm
which consults with businesses and municipalities to better control their cost
of natural gas. Mr. Langer retired in January 1995 as President and Chief
Executive Officer of City Gas Company of Florida. Mr. Langer is also President
of Chelsea Homes, Inc., a real estate development company. Mr. Langer has
previously served as a director of Consumers Savings Bank from 1996 to 1998 and
as a director of The Boys and Girls Club since 1960.
Y. Judd Shoval has served as a director of Florida Savings Bancorp
since 2001. Mr. Shoval serves as chairman and chief executive officer of GUARD
Financial Group, the parent holding company of a number of related affiliates
involved in insurance and banking activities. Mr. Shoval also serves as
President of Shoval Enterprises, Inc., an investment/management and
insurance/financial services entity which provides executive management services
to GUARD companies and affiliates.
Gary P. Simon has served as a director of Florida Savings Bancorp and
Florida Savings since 1998 and 1999, respectively. Mr. Simon has served as
Assistant Secretary of Florida Savings since 2000. He has been a practicing
attorney in Miami-Dade County since 1974. He is currently a principal of the
Miami law firm of Simon & Simon PA. Mr. Simon served as a director of Consumers
Savings Bank from 1990 until 1998. Mr. Simon serves as an officer and board
member of Temple Judea in Coral Gables, Florida and a board member of the
Sanford Ziff Jewish Museum of Florida.
Officers Who Are Not Also Directors
David P. Stark has served as Senior Vice President and Chief Financial
Officer of Florida Savings Bancorp and Florida Savings since 1999. Prior to
joining Florida Savings Bancorp, Mr. Stark served in similar positions at two
community banks located in Southern Florida, EuroBank from 1997 to 1998 and
First Western Bank from 1987 to 1996.
Dianna L. Romero has served as Senior Vice President, Corporate
Secretary and Treasury of Florida Savings Bancorp and Florida Savings since 1998
and 1999, respectively. Ms. Romero previously served as Vice President of
Consumers Savings Bank from 1990 until 1997, where she was involved with loan
operations and administration.
48
Remuneration of Directors and Officers
The following information is furnished for the three highest paid
persons who are officers or directors, for the fiscal year ended December 31,
2001.
Name of Individual Capacities in Which Remuneration Aggregate
or Identity of Group Was Received Remuneration(1)
- --------------------------------- ------------------------------------------------------------- ------------------
Robert L. Bonnet President and Chief Operating Officer of Florida $137,705
Savings Bancorp and Florida Savings
Bernard Janis Chief Executive Officer of Florida Savings 95,272
Bancorp and Florida Savings
David P. Stark Senior Vice President and Chief Financial Officer 81,100
of Florida Savings Bancorp and Florida Savings
All directors and executive
officers as a group 396,777
__________________________
(1) Includes directors' fees. Additionally, Messrs. Bonnet and Janis received
the use of automobiles leased by Florida Savings Bancorp, which monthly
leases are $575 and $935, respectively. Florida Savings also paid $10,744
for Mr. Janis' membership in a country club. Mr. Stark receives a cash
automobile allowance in the amount of $250 per month. The 2002 salaries,
not including directors' fees (which are paid for meetings attended), for
Messrs. Bonnet, Janis, Stark and all directors and executive officers as a
group are $125,000, $70,000, $78,600 and $328,600, respectively.
Neither Florida Savings Bancorp nor Florida Savings maintains
separate "key man" life insurance policies on any of its executive officers.
Florida Savings Bancorp and Florida Savings each pay a fee of $300
to each of its directors for attendance at each board meeting and $200 for each
meeting of a committee of which they are members. If more than one committee
meeting falls on the same day, the director receives a fee of $200 for the first
committee meeting and $100 for each subsequent committee meeting.
Employment Agreements
Effective June 30, 1998, Florida Savings Bancorp and Florida Savings
each entered into a three-year employment agreement with Mr. Bonnet. Under the
employment agreements, the current salary level for Mr. Bonnet is $125,000. The
initial terms for the employment agreements are three years. The employment
agreements are automatically renewed for terms of two years unless written
notice of non-renewal is given by Mr. Bonnet or the board of directors; however,
the Florida Savings employment agreement is subject to annual board of directors
review. In addition, Mr. Bonnet receives the use of a car, car insurance, and
options to purchase the Florida Savings Bancorp's common stock. See "Security
Ownership of Management and Certain Shareholders - Stock Options." The
agreements are terminable by the employers at any time or by Mr. Bonnet if he is
assigned duties inconsistent with his initial position, duties, responsibilities
and status, or upon the occurrence of certain events specified in the employment
agreements. If Mr. Bonnet's employment is terminated without cause or upon his
voluntary termination following the occurrence of an event described in the
preceding sentence, Florida Savings Bancorp or Florida Savings would be required
to pay Mr. Bonnet one year's base salary and his current benefits for one year
from the date of termination.
The employment agreements also provide for a severance payment and
other benefits in the event of involuntary termination of employment in
connection with any change in control of Florida Savings Bancorp or Florida
Savings. A severance payment also will be provided on a similar basis on
connection with a voluntary termination of employment where, after a change in
control, Mr. Bonnet is assigned duties inconsistent with his position, duties,
responsibilities and status immediately before such change in control.
49
Even though both Florida Savings Bancorp and Florida Savings employment
agreements provide for a severance payment if a change in control occurs, Mr.
Bonnet would only be entitled to receive a severance payment under one
agreement. No severance payment may exceed three times Mr. Bonnet's annual
compensation and, if any payment would constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code, such payment will be reduced to
$1 less than an amount equal to three times Mr. Bonnet's "base amount" as
determined in accordance with Section 280G.
Payments to Mr. Bonnet under Florida Savings' employment agreement will
be guaranteed by Florida Savings Bancorp if payments or benefits are not paid by
Florida Savings. Payment under Florida Savings Bancorp's employment agreement
would be made by Florida Savings Bancorp. The employment agreements also provide
that Florida Savings Bancorp and Florida Savings will indemnify Mr. Bonnet to
the fullest extent legally allowable.
Transactions with Management
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. Florida Savings' policy is not to make any new loans
or extensions of credit to Florida Savings' executive officers and directors at
different rates or terms than those offered to the general public. In addition,
loans made to a director or executive officer in an amount that, when aggregated
with the amount of all other loans to the person and his or her related
interests, are in excess of the greater of $25,000 or 5% of Florida Savings'
capital and surplus, up to a maximum of $500,000, must be approved in advance by
a majority of the disinterested members of the board of directors.
On November 15, 2001, Florida Savings approved the nomination of Robert
Gallaher to the board of directors of Florida Savings and Florida Savings,
contingent on Office of Thrift Supervision approval. Prior to this date, Mr.
Gallaher had three secured real estate loans amounting to $600,000. All the
loans were underwritten according to standard credit guidelines and approved
based upon the then current rate, terms and conditions prevailing at the time of
origination.
Indemnification for Directors and Officers
Florida Savings Bancorp's Articles of Incorporation contain provisions
which limit the liability of and indemnify its directors and officers. These
provisions provide that directors and officers will be indemnified and held
harmless by Florida Savings Bancorp when that individual is made a party to
civil, criminal, administrative and investigative proceedings. Directors and
officers will be indemnified to the fullest extent authorized by the Florida
Business Corporation Act against all expense, liability and loss reasonably
incurred. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Florida Savings Bancorp pursuant to the Articles of Incorporation or
otherwise, Florida Savings Bancorp has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
50
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
The following information is provided at December 31, 2001 for the
three highest paid persons who are officers or directors and each shareholder
who owns more than 10% of any class of the issuer's securities.
Title of Class Name and Address of Owner(1) Amount Owned Percent of Class
- -------------------- ---------------------------------- -------------------- ----------------------
Common Bernard Janis 90,000(2) 11.89%
Common Robert L. Bonnet 5,000 0.66
Common David P. Stark -- --
Common Andrea Green 1991 Irrevocable Trust (3) 130,000 17.69
Common All directors and executive officers as a 265,000 35.01
group
_____________________
(1) The business address for Messrs. Janis, Bonnet and Stark are Florida
Savings Bancorp, Inc., 8181 Southwest 117 Street, Pinecrest, Florida 33156.
(2) Includes 10,000 shares owned by Mr. Janis' spouse.
(3) The address of the Andrea Green 1991 Irrevocable Trust is 2601 South
Bayshore Drive, Suite 1775, Coconut Grove, Florida.
Stock Options
The following information is provided at December 31, 2001 for the same
persons above, regarding options, warrants and rights to purchase securities
from Florida Savings Bancorp.
Title and Amount of
Securities Underlying
Name of Holder Options, Warrants or Rights Exercise Price Date of Exercise
- ---------------------- -------------------------------- -------------------- --------------------
Bernard Janis -- --
Robert L. Bonnet 77,500 $10.00 (1)
David P. Stark 22,500 $10.00 (2)
Andrea Green
1991 Irrevocable Trust -- --
All directors and executive
officers as a group 118,250 $10.00
_____________________
(1) At December 31, 2001 27,500 options are exercisable. The remaining
50,000 options vest in equal annual installments over four years
beginning June 2002.
(2) At December 31, 2001 7,500 options are exercisable. The remaining
15,000 options vest in equal annual installments over three years
beginning September 2002.
Florida Savings Bancorp reserves the right to grant options to purchase
its common stock to other employees of Florida Savings if the board of directors
determines that such action is necessary to attract and retain qualified and
experienced personnel. The total amount of options reserved for issuance to
officers and employees of Florida Savings shall not exceed 20% of the total
number of shares of common stock outstanding. The exercise of options granted to
officers and employees of Florida Savings will dilute the shareholders' interest
in the Florida Savings Bancorp.
51
REGULATION AND SUPERVISION
General
As a savings and loan holding company, Florida Savings Bancorp is
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. Florida Savings is
subject to extensive regulation, examination and supervision by the Office of
Thrift Supervision, as its primary federal regulator, and the Federal Deposit
Insurance Corporation, as the deposit insurer. Florida Savings is a member of
the Federal Home Loan Bank System and, with respect to deposit insurance, of the
Savings Association Insurance Fund managed by the Federal Deposit Insurance
Corporation. Florida Savings must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The Office of Thrift Supervision
and/or the Federal Deposit Insurance Corporation conduct periodic examinations
to test Florida Savings' safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation or the U.S.
Congress, could have a material adverse impact on Florida Savings Bancorp,
Florida Savings and their operations. Certain of the regulatory requirements
applicable to Florida Savings and to Florida Savings Bancorp are referred to
below or elsewhere in this prospectus. The description of statutory provisions
and regulations applicable to savings institutions and their holding companies
set forth in this prospectus does not purport to be a complete description of
such statutes and regulations and their effects on Florida Savings and Florida
Savings Bancorp.
Holding Company Regulation
Florida Savings Bancorp is a nondiversified unitary savings and loan
holding company within the meaning of federal law. Under prior law, a unitary
savings and loan holding company, such as Florida Savings Bancorp, was not
generally restricted as to the types of business activities in which it may
engage, provided that Florida Savings' continued to be a qualified thrift
lender. See "Federal Savings Institution Regulation - QTL Test." The
Gramm-Leach-Bliley Act of 1999 provides that no company may acquire control of a
savings association after May 4, 1999 unless it engages only in the financial
activities permitted for financial holding companies under the law or for
multiple savings and loan holding companies as described below. Further, the
Gramm-Leach-Bliley Act specifies that savings and loan holding companies may
only engage in such activities. The Gramm-Leach-Bliley Act, however,
grandfathered the unrestricted authority for activities with respect to unitary
savings and loan holding companies existing, or subject to an application filed,
prior to May 4, 1999, such as Florida Savings Bancorp, so long as Florida
Savings continues to comply with the qualified thrift lender test. Upon any
non-supervisory acquisition by Florida Savings Bancorp of another savings
institution or savings bank that meets the qualified thrift lender test and is
deemed to be a savings institution by the Office of Thrift Supervision, Florida
Savings Bancorp would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would generally be
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain activities authorized by Office of
Thrift Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of Florida Savings Bancorp and
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.
52
The Office of Thrift Supervision may not approve any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. Florida Savings must
notify the Office of Thrift Supervision 30 days before declaring any dividend to
Florida Savings Bancorp. In addition, the financial impact of a holding company
on its subsidiary institution is a matter that is evaluated by the Office of
Thrift Supervision and the agency has authority to order cessation of activities
or divestiture of subsidiaries deemed to pose a threat to the safety and
soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The Office of Thrift Supervision capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS rating system) and an 8%
total risk-based capital ratio. In addition, the prompt corrective action
standards discussed below also establish, in effect, a minimum 2% tangible
capital standard, a 4% leverage ratio (3% for institutions receiving the highest
rating on the CAMEL financial institution rating system), and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The
Office of Thrift Supervision regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core (Tier
1) capital is defined as common shareholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
The capital regulations also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. For the present time, the Office of Thrift
Supervision has deferred implementation of the interest rate risk capital
charge. At December 31, 2001, Florida Savings met each of its capital
requirements.
53
The following table presents Florida Savings' capital position at
December 31, 2001. Florida Savings is in the "well capitalized" category
established by the Office of Thrift Supervision.
Excess
(Deficiency) Actual Required
Actual Required Amount Percent Percent
------------ ------------- --------------- ----------- -------------
(Dollars in thousands)
Tangible ................. $5,334 $2,438 $2,896 8.75% 4.00%
Core (Leverage) .......... 5,334 2,438 2,896 8.75 4.00
Risk-based ............... 5,707 3,564 2,143 12.81 8.00
Prompt Corrective Regulatory Action. The Office of Thrift Supervision
is required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the Office of
Thrift Supervision is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the Office of Thrift
Supervision within 45 days of the date a savings institution receives notice
that it is "undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The Office of Thrift Supervision could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
Insurance of Deposit Accounts. Florida Savings is a member of the
Savings Association Insurance Fund. The Federal Deposit Insurance Corporation
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for Savings Association Insurance Fund member
institutions are determined semiannually by the Federal Deposit Insurance
Corporation and currently range from zero basis points for the healthiest
institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association Insurance
Fund. During 2001, Financing Corporation payments for Savings Association
Insurance Fund members approximated 1.94 basis points.
Florida Savings was not required to pay any premiums for fiscal 2001.
The Federal Deposit Insurance Corporation has authority to increase insurance
assessments. A significant increase in Savings Association Insurance Fund
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of Florida Savings. Management cannot predict what
insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit
Insurance Corporation upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of Florida Savings does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
54
Loans to One Borrower. Federal law provides that savings institutions
are generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be loaned, equal to 10% of unimpaired
capital and surplus, if secured by specified readily marketable collateral.
QTL Test. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of December 31, 2001, Florida Savings met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. Under
current regulations, an application to and the prior approval of the Office of
Thrift Supervision is required prior to any capital distribution if the
institution does not meet the criteria for "expedited treatment" of applications
under Office of Thrift Supervision regulations (i.e., generally, examination
ratings in the two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with Office of Thrift Supervision. If an
application is not required, the institution must still provide prior notice to
Office of Thrift Supervision of the capital distribution if, like Florida
Savings, it is a subsidiary of a holding company. In the event Florida Savings'
capital fell below its regulatory requirements or the Office of Thrift
Supervision notified it that it was in need of more than normal supervision,
Florida Savings' ability to make capital distributions could be restricted. In
addition, the Office of Thrift Supervision could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the Office of Thrift Supervision determines that such
distribution would constitute an unsafe or unsound practice.
Pursuant to its Business Plan which was filed with the Office of Thrift
Supervision in connection with the organization of Florida Savings, Florida
Savings may not pay dividends for the three year period ending April 2002 unless
it amends its Business Plan and receives Office of Thrift Supervision approval
of such amended Business Plan.
Assessments. Savings institutions are required to pay assessments to
the Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Florida Savings' latest quarterly thrift financial report. The assessments paid
by Florida Savings for the fiscal year ended December 31, 2001 totaled
approximately $29,000.
Transactions with Related Parties. Florida Savings' authority to engage
in transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including Florida Savings Bancorp and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited
55
from lending to any affiliate that is engaged in activities that are not
permissible for bank holding companies and no savings institution may purchase
the securities of any affiliate other than a subsidiary.
Florida Savings' authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans Florida Savings may make to insiders based, in
part, on Florida Savings' capital position and requires certain board approval
procedures to be followed.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
shareholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. The Federal Deposit Insurance Corporation has the authority to recommend
to the Director of the Office of Thrift Supervision that enforcement action to
be taken with respect to a particular savings institution. If action is not
taken by the Director, the Federal Deposit Insurance Corporation has authority
to take such action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
Federal Home Loan Bank System
Florida Savings is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Florida
Savings, as a member of the Federal Home Loan Bank, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
Florida Savings was in compliance with this requirement with an investment in
Federal Home Loan Bank stock at December 31, 2001 of $295,000.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows: a
3% reserve ratio is assessed on net transaction accounts over $5.7 million to
and including $41.3 million; a 10% reserve ratio is applied above $41.3. The
first $5.7 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve Board) are exempted from the reserve requirements. Florida
Savings complies with the foregoing requirements.
56
Community Reinvestment Act
Under the Community Reinvestment Act, as implemented by Office of
Thrift Supervision regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act requires the Office
of Thrift Supervision, in connection with its examination of an institution, to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of applications by such
institution. The Community Reinvestment Act requires public disclosure of an
institution's Community Reinvestment Act rating. Florida Savings' latest
Community Reinvestment Act rating received from the Office of Thrift Supervision
was "Satisfactory."
Real Estate Industry Regulations
The development business and homebuilding industries in which FSB
Development is engaged have, in the last several years, become subject to
increased environmental, building, land use, zoning and sales regulations
administered by various federal, state and local authorities, which affect
construction activities as well as sales activities and other dealings with
customers. FSB Development has been and will be required to obtain for its
current or future development and homebuilding activities the approval of
numerous governmental authorities which often have wide discretion in such
matters. Changes in local circumstances or applicable law may necessitate
applications for additional approvals or the modification of existing approvals.
Compliance with these regulations may extend the time required to market a home
or a development project by prolonging the time between initiation and the
commencement and completion of construction. Delay or inability to obtain all
required approvals could have a materially adverse effect on the marketability
or profitability of a home or a development project.
The real estate development business and homebuilding industries are
subject to various environmental regulations, including those relating to soil
condition, hazardous materials, air quality and traffic. The impact of
environmental regulations is evaluated on a project by project basis and the
estimated costs of remediation or insurance are accounted for in
plan/development or job costing.
FEDERAL AND STATE TAXATION
Federal Taxation
General. Florida Savings Bancorp and Florida Savings report their
income using the cash method of accounting and are taxed under federal income
tax laws in the same manner as other corporations with some exceptions,
including particularly Florida Savings' reserve for bad debts discussed below.
Florida Savings Bancorp's and Florida Savings' tax years end on December 31 of
each year. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to Florida Savings or Florida Savings Bancorp.
Bad Debt Reserve. Florida Savings's bad debt deduction will be
determined under the experience method using a formula based on actual (or
borrowed as allowed under regulations) bad debt experience over a period of
years.
Dividends-Received Deduction. Florida Savings Bancorp may exclude from
its income 100% of dividends received from Florida Savings as a member of the
same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which Florida Savings Bancorp and Florida Savings will not
file a consolidated tax return, except that if Florida Savings Bancorp or
Florida Savings owns more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be deducted. Pursuant to its
Business Plan which was filed with the Office of Thrift Supervision in
connection with the organization of the Bank, the Bank may not pay dividends for
the three year
57
period unless it amends its Business Plan and receives Office of Thrift
Supervision approval of such amended Business Plan.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a
tax on alternative minimum taxable income at a rate of 20%. Only 90% of
alternative minimum taxable income can be offset by net operating loss
carry-overs. Alternative minimum taxable income is increased by an amount equal
to 75% of the amount by which Florida Savings' adjusted current earnings exceeds
its alternative minimum taxable income determined without regard to this
preference and prior to reduction for net operating losses modification) over
$2.0 million is imposed on corporations, including Florida Savings, whether or
not an alternative minimum tax is paid.
Audits. The Internal Revenue Service has not audited Florida Savings'
federal income tax returns since its organization.
Florida Taxation
Florida Savings Bancorp is subject to a Florida corporate income tax at
a statutory rate of 5.5% of income. Florida Savings Bancorp's state income tax
returns have not been audited since its organization.
FEDERAL INCOME TAX CONSEQUENCES TO DEBENTURE HOLDERS
General
The following is a summary of the material federal income tax
considerations that may be relevant to the purchasers of debentures. The
conclusions expressed herein are based upon current provisions of the Internal
Revenue Code of 1986, as amended, regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change
at any time, with possible retroactive effect. Subsequent changes may cause tax
consequences to vary substantially from the consequences described below.
Furthermore, the authorities on which the following summary is based are subject
to various interpretations, and it is therefore possible that the federal income
tax treatment of the purchase, ownership and disposition of debentures may
differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting purchasers of debentures. Moreover, the
discussion generally focuses on holders of debentures who are individual
citizens or residents of the United States and trust and estates whose federal
taxable income is taxed in the same manner as individual citizens or residents
of the United States, and who acquire debentures on their original issue at
their initial offering price and hold debentures as capital assets. The
discussion has only limited application to dealers in securities, corporations,
partnerships, or nonresident aliens and does not address all the tax
consequences that may be relevant to holders who may be subject to special tax
treatment, such as, for example, banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors or persons that will hold the debentures as a
position in a "straddle," as part of a "synthetic security" or "hedge," as part
of a "conversion transaction" or other integrated investment, or as other than a
capital asset. The following discussion also does not address the tax
consequences to persons that have a functional currency other than the U.S.
dollar or the tax consequences to shareholders, partners or beneficiaries of a
holder of debentures. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the
debentures. Accordingly, each prospective investor should consult, and should
rely exclusively on, the investor's own tax advisors in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of debentures.
Classification of the Debentures
Florida Savings Bancorp intends to take the position that the
debentures will be classified for federal income tax purposes as indebtedness of
Florida Savings Bancorp under current law, and, by acceptance of a debenture,
you, as a holder, covenant to treat the debentures as indebtedness. No assurance
can be given, however,
58
that this position will not be challenged by the Internal Revenue Service or, if
challenged, that it will not be successful. The remainder of this discussion
assumes that the debentures will be classified for federal income tax purposes
as indebtedness of Florida Savings Bancorp.
Disposition of Debentures
A holder that sells debentures will recognize gain or loss equal to the
difference between the amount realized on the sale of the debentures and the
holder's adjusted tax basis in the debentures. A holder's adjusted tax basis in
the debentures generally will be its initial purchase price. A gain or loss of
this kind will generally be a capital gain or loss and will be a long-term
capital gain or loss if the debentures have been held for more than one year at
the time of sale.
The debentures may trade at a price that does not accurately reflect
the value of accrued but unpaid interest. A holder that disposes of its
debentures between record dates for payments of interest thereon will be
required to include accrued but unpaid interest on the debentures through the
date of disposition in income as ordinary income. To the extent the selling
price is less than the holder's adjusted tax basis, a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for federal income tax purposes.
Conversion of Debentures
A holder of debentures generally will not recognize income, gain or
loss upon the conversion of its debentures into Florida Savings Bancorp common
stock. A holder will, however, recognize gain upon the receipt of cash in lieu
of a fractional share of common stock equal to the amount of cash received less
the holder's tax basis in such fractional share. A holder's tax basis in the
common stock received upon exchange and conversion should generally be equal to
the holder's tax basis in the debentures delivered for exchange less the basis
allocated to any fractional share for which cash is received, and a holder's
holding period in the common stock received upon exchange and conversion will
generally begin on the date that the holder acquired the debentures delivered
for exchange.
Adjustment of Conversion Ratio
Treasury Regulations promulgated under Section 305 of the Code would
treat holders of debentures as having received a constructive distribution from
us in the event that the conversion ratio of the debentures were adjusted if (1)
as a result of such adjustment, the proportionate interest (measured by the
number of shares of common stock into or for which the debentures are
convertible or exchangeable) of the holders of the debentures in the assets or
earnings and profits of Florida Savings Bancorp were increased, and (2) the
adjustment was not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment of the conversion ratio would not be considered made
pursuant to such a formula if the adjustment was made to compensate for certain
taxable distributions with respect to the common stock. Thus, under certain
circumstances, an increase in the conversion ratio for the holders may result in
deemed dividend income to holders to the extent of the current or accumulated
earnings and profits of Florida Savings Bancorp. Holders of the debentures would
be required to include their allocable share of such deemed dividend income in
gross income but would not receive any cash related thereto.
Backup Withholding and Information Reporting
Interest paid on the debentures held of record by individual citizens
or residents of the United States, or certain trusts, estates and partnerships,
will be reported to the Internal Revenue Service on Forms 1099-INT, which forms
should be mailed to the holders by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the debentures may be subject
to a "backup" withholding tax (currently at 30.5%) unless the holder complies
with certain identification and other requirements. Any amounts withheld under
the backup withholding rules will be allowed as a credit against the holder's
federal income tax liability, provided the required information is provided to
the Internal Revenue Service.
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The federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon the particular
situation of a holder of debentures. Holders of debentures should consult their
tax advisors with respect to the tax consequences to them of the purchase,
ownership and disposition of the debentures, including the tax consequences
under state, local, foreign and other tax laws and the possible effects of
changes in federal or other tax laws.
THE OFFERING
The Offering
Florida Savings Bancorp is offering between a minimum of $2.0 million
and a maximum of $5.0 million of its 4% convertible debentures, due March 31,
2009, to shareholders of record as of April 26, 2002 and to the general public.
In the event of an oversubscription, debentures will be allocated first to
shareholders of record in proportion to their percentage ownership in Florida
Savings Bancorp. All remaining debentures will be allocated to the public at the
discretion of Florida Savings Bancorp management. Florida Savings Bancorp may
accept or reject subscriptions, in whole or in part, in its sole discretion. All
subscription proceeds will be held in an interest-bearing escrow account with
SunTrust Bank pending the closing or termination of the offering. If the $2.0
million minimum is sold and the other conditions to closing the offering
provided for in the sales agency agreement with Kendrick, Pierce Securities,
Inc. are met, all subscription funds held in the escrow account, together with
interest earned thereon, will be released to Florida Savings Bancorp. If the
$2.0 million minimum is not sold by the expiration date, your funds will be
promptly returned to you with interest. Purchases by officers and directors will
be included in determining whether the minimum number of debentures have been
sold. Any purchases by officers and directors made for the purposes of meeting
the minimum will be made for investment purposes only and not with a view to
redistribution. If purchasers in the offering are not allocated the full amount
of debentures for which they subscribed, they will receive a refund, with
interest, of the subscription price delivered for the debentures that are not
allocated to purchasers.
Expiration of the Offering
The offering will expire at 5:00 p.m., Eastern time, on July 5, 2002,
unless extended at the sole discretion of the board of directors of Florida
Savings Bancorp. All extensions, if any, will not go beyond September 3, 2002.
Florida Savings Bancorp will not be obligated to honor any subscription
agreement received by the escrow agent after the offering expires, regardless of
when documents were sent.
Acceptance of Subscriptions
Once the $2.0 million minimum of debentures has been sold, Florida
Savings Bancorp may conduct an initial closing and issue the debentures sold as
of that date. Following the initial closing, Florida Savings Bancorp may
continue the offering and accept additional subscriptions for debentures, up to
a maximum of $5.0 million.
Procedure for Subscribing for Debentures
Purchasers in the offering must deliver to the escrow agent, on or
prior to the offering expiration date, a properly completed and executed
debenture order form, together with payment in full of the aggregate
subscription price for debentures subscribed for in the offering. Such payment
in full must be by (a) check or bank draft drawn upon a domestic bank or postal,
telegraphic or express money order payable to "SunTrust Bank, as Escrow Agent
for Florida Savings Bancorp, Inc.," or (b) wire transfer of funds to the account
maintained by the escrow agent for such purpose. The aggregate subscription
price will be deemed to have been received by the escrow agent only upon (i)
clearance of any non-certified check, (ii) receipt by the escrow agent of any
certified check or bank draft drawn upon a domestic bank or of any postal,
telegraphic or express money order, or (iii) receipt of good funds in the escrow
agent's account designated in the debenture order form. If paying by a
non-certified personal check, please note that the funds paid thereby may take
at least five business days to clear. Accordingly, persons who wish to pay the
aggregate subscription price by a means of a non-certified personal check are
urged to make payment sufficiently in advance to the offering expiration date,
to ensure that such payment is received and clears by such date and are
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urged to consider payment by means of certified or cashier's check, money order
or wire transfer of funds. All funds received shall be held by the escrow agent.
The address to which the debenture order form and payment of the subscription
price should be delivered is:
SunTrust Bank
777 Brickell Avenue
Miami, Florida 33131
Attn: Oscar Suris, Senior Vice President
Purchase Limitations
The minimum purchase is $10,000 of debentures. The minimum purchase
limitation may decrease, subject to the board of directors' discretion. No
prospective investor through this offering, other than Bernard Janis and the
Andrea Green 1991 Irrevocable Trust, may own or acquire, or through the purchase
of debentures, have the right to own or acquire, 10% or more of the common stock
of Florida Savings Bancorp.
Right to Amend or Terminate Offering
Florida Savings Bancorp expressly reserves the right to amend the terms
and conditions of the offering. Florida Savings Bancorp expressly reserves the
right, at any time prior to delivery of the debentures, to terminate the
offering if the offering is prohibited by law or regulation or the board of
directors concludes, in its judgment, that it is not in the best interest of
Florida Savings Bancorp to complete the offering under the circumstances. The
offering would be terminated by Florida Savings Bancorp by giving oral or
written notice thereof to the escrow agent. If the offering is terminated, all
funds received from subscribers will be promptly refunded, with interest.
Questions
If you have any questions about the offering or require additional
copies of this prospectus, please contact Kendrick, Pierce Securities, Inc. at
(866) 254-2265.
DESCRIPTION OF DEBENTURES
General
The following description is a summary of the material provisions of
the debentures. It does not restate the text of the form of debenture in its
entirety. We urge you to read the form of debenture because it, and not this
description, defines your rights as holders of the debentures.
The debentures are unsecured general obligations of Florida Savings
Bancorp ranking equal in right of payment to any existing or future unsecured
and unsubordinated indebtedness of Florida Savings Bancorp and convertible into
Florida Savings Bancorp's common stock as described under "--Conversion." The
debentures are not guaranteed by any of our subsidiaries. The debentures are not
being issued under a trust indenture and, therefore, there is no trustee to
protect the rights of the debenture holders.
Principal, Maturity and Interest
Florida Savings Bancorp is offering an aggregate principal amount of
$5.0 million of its 4% convertible debentures. The debentures mature on March
31, 2009. Interest on the debentures accrues at a rate of 4% per annum from the
date of original issuance and will be paid in arrears semi-annually, commencing
on the date one calendar year from the date of issuance. Florida Savings Bancorp
will make interest payments to persons who hold debentures on the record date,
which is the first day of the month immediately preceding the month in which the
payment date falls. Interest will be computed on the basis of a 360-day year
composed of 12 30-day months.
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The debentures are payable both as to principal and interest on
presentation of the debentures at the office of Florida Savings Bancorp or, at
Florida Savings Bancorp's option, payment of interest may be made by check
mailed to the holders of the debentures at their respective addresses set forth
in the register of holders of debentures. The debentures will be issued in
denominations of $1,000 and integral multiples of $1,000.
Conversion
General. The holder of any debentures has the right, exercisable at any
time beginning one year after the date of original issuance of the debentures
and prior to its maturity or redemption, to convert the principal amount of the
debentures (or any portion of it that is an integral multiple of $1,000) into
shares of Florida Savings Bancorp's common stock at the conversion price ratio
of 90.91 shares of common stock for each $1,000 principal amount of debenture
(equivalent to an initial conversion price of $11 per share of common stock),
subject to adjustment as described below. The initial conversion price of $11
and any future adjusted price is referred to as the "conversion price." The
foregoing notwithstanding, if a debenture is called for redemption, the
conversion right will terminate at the close of business on the business day
immediately preceding the date fixed for redemption.
A holder of a debenture wishing to exercise its conversion right must
deliver an irrevocable conversion notice together with the debenture to Florida
Savings Bancorp. Holders may obtain copies of the required form of the
conversion notice from Florida Savings Bancorp. Each conversion will be deemed
to have been effected as of the close of business on the day on which the
related conversion notice and debenture was received by Florida Savings Bancorp.
If any debentures are converted during the period after any record date
but before the next interest payment date, interest on such debentures will be
paid on the next interest payment date, notwithstanding such conversion, to the
holder of record on the record date of those debentures. If any debentures are
converted after an interest payment date but on or before the next record date,
no interest will be paid on those debentures. No fractional shares will be
issued upon conversion, but a cash adjustment will be made for any fractional
shares.
Conversion Ratio Adjustments - General. The conversion ratio is subject
to adjustment if Florida Savings Bancorp takes certain actions after the date of
issuance of the debentures offered in this prospectus, including:
. issue shares of common stock as a dividend or a distribution with
respect to common stock;
. effect subdivisions, combinations and reclassification of common
stock;
. issue rights or warrants to all holders of common stock
entitling them (for a period not exceeding 45 days) to subscribe
for or purchase shares of common stock at less than the then
current market price (as defined below) of the common stock;
. distribute evidences of indebtedness, capital stock, cash or
assets (including securities, but excluding those rights,
warrants, dividends and distributions referred to above, and
dividends and distributions paid exclusively in cash) to all
holders of common stock;
. pay any dividends (and other distributions) on common stock
exclusively in cash, but not including cash dividends Florida
Savings Bancorp pays out of its retained earnings; and
. make a tender or exchange offer (other than an odd-lot offer)
for Florida Savings Bancorp common stock and pay a price in
excess of 110% of the then current market price of Florida
Savings Bancorp common stock on the business day next succeeding
the last date tenders or exchanges may be made pursuant to such
tender or exchange offer.
"Current market price" means the last sales price of Florida Savings
Bancorp's common stock in an arms-length trade known to Florida Savings
Bancorp's management.
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Florida Savings Bancorp may, at its option, make such reasonable
increases in the conversion ratio, in addition to those set forth above, as it
reasonably deems advisable to avoid or diminish any income tax to holders of
common stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes.
The conversion ratio will be rounded to two decimal places. No
adjustment in the conversion ratio will be required unless adjustment would
require a change of at least one percent (1%) in the conversion ratio then in
effect; provided, however, that any adjustment that would not be required to be
made will be carried forward and taken into account in any subsequent
adjustment. If any action would require adjustment of the conversion ratio
pursuant to more than one of the provisions described above, only one adjustment
will be made with respect to that action and such adjustment will be the amount
of adjustment that has the highest absolute value to the holder of the
debentures.
Conversion Ratio Adjustments-Merger, Consolidation or Sale of Assets of
Company. If Florida Savings Bancorp becomes a party to any transaction, such as,
with certain exceptions, the transactions described below:
. a recapitalization or reclassification of the common stock;
. consolidation of Florida Savings Bancorp with, or merger of
Florida Savings Bancorp into, any other person, or any merger
of another person into Florida Savings Bancorp;
. any sale, transfer or lease of all or substantially all of the
assets of Florida Savings Bancorp; or
. any compulsory share exchange where the common stock becomes
instead the right to receive other securities, cash or other
property (each of the foregoing being referred to as a
"business consolidation transaction");
then the holders of debentures outstanding at that time will no longer have the
right to convert debentures into Florida Savings Bancorp common stock, but
rather will have the right to convert their debentures into the kind of
securities, cash or other property that the common shareholders would receive if
the business consolidation transaction is completed. Each debenture would become
convertible into the same amount of the securities, cash or other property that
would be received by a holder of the number of shares of common stock that each
debenture holder would receive if the debenture were converted just before the
business consolidation transaction. This change could substantially reduce or
eliminate the value of the debentures' conversion privilege in the future. For
example, if Florida Savings Bancorp were acquired in a cash merger, each
debenture would no longer be convertible into common stock, but instead would
become convertible solely into cash. Receiving cash instead of shares means that
debenture holders, if they convert their debentures, would no longer receive
securities the value of which would vary depending on the future prospects of
Florida Savings Bancorp and other factors.
Ranking
The debentures will not be secured by the assets of Florida Savings
Bancorp or any of its subsidiaries, including Florida Savings, or otherwise and
will not have the benefit of a sinking fund for the retirement of principal or
the payment of interest. The debentures will be equal in right of payment to any
existing or future unsecured and unsubordinated indebtedness of Florida Savings
Bancorp and senior in right of payment to any subordinated unsecured
indebtedness of Florida Savings Bancorp. Future unsecured indebtedness of
Florida Savings Bancorp will be subordinated only if the appropriate instruments
defining such indebtedness provide that such indebtedness is subordinate to the
debentures. The rights of Florida Savings Bancorp to participate in any
distribution of assets of any subsidiary, including Florida Savings, upon its
liquidation or reorganization or otherwise (and thus the ability of holders of
the debentures to benefit indirectly from such distribution) are subject to the
prior claims of creditors of that subsidiary, including depositors of Florida
Savings. Claims on Florida Savings Bancorp's subsidiaries by creditors, other
than Florida Savings, include substantial obligations with respect to deposit
liabilities and other borrowings. Additionally, distributions to Florida Savings
Bancorp by its subsidiaries, whether in liquidation, reorganization or
otherwise, will be subject to regulatory restrictions and, under certain
circumstances, may be prohibited. See "Regulation and Supervision."
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Optional Redemption
Florida Savings Bancorp may redeem the debentures at any time, in whole
in part, on at least 30 days' notice but no more than 60 days' notice, together
with any accrued and unpaid interest to, but excluding the redemption date, at
par, without the payment of any premium amounts under the following
circumstances:
. at any time after a date three years from the date of issuance
of the debentures; or
. at any time prior to the date three years from the date of
issuance of the debentures, if the average sales price of
Florida Savings Bancorp's common stock, in arms-length trades
known to Florida Savings Bancorp management, equals or exceeds
140% of the then effective conversion price for at least 30
consecutive business days, provided at least 10 bona fide
trades have occurred within the 30 business day period.
If Florida Savings Bancorp redeems less than all of the outstanding
debentures, the board of directors will select the debentures to be redeemed in
multiples of $1,000 by lot, pro rata or any other method the board of directors
consider fair and appropriate, in its sole discretion. If a portion of your
debentures is selected for partial redemption and you convert a portion of the
debentures, the portion selected for redemption will be converted unless you
direct otherwise. Florida Savings Bancorp may not give notice of any redemption
if it has defaulted in payment of interest and the default is continuing.
Rights of Acceleration and Events of Default
If any event of default occurs and is continuing, the full principal
amount of the debentures, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become, at the holder's
election, and by written notice to Florida Savings Bancorp, immediately due and
payable in cash.
The debenture provides that each of the following constitutes an "event
of default":
. any default in the payment of the principal of or interest on
in respect of, any debentures as and when the same shall
become due and payable (whether on a conversion date or the
maturity date or by acceleration or otherwise) if such default
is not cured by Florida Savings Bancorp within ten days after
the due date thereof;
. Florida Savings Bancorp or any of its subsidiaries shall
commence, or there shall be commenced against Florida Savings
Bancorp or any such subsidiary, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or Florida Savings Bancorp commences
any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency
or liquidation or similar law of any jurisdiction whether now
or hereafter in effect relating to Florida Savings Bancorp or
any subsidiary thereof or there is commenced against Florida
Savings Bancorp or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a
period of 90 days; or Florida Savings Bancorp or any
subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or Florida Savings Bancorp or any
subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or
Florida Savings Bancorp or any subsidiary thereof makes a
general assignment for the benefit of creditors; or Florida
Savings Bancorp shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally
as they become due; or Florida Savings Bancorp or any
subsidiary thereof shall call a meeting of its creditors with
a view to arranging an adjustment or restructuring of its
debts; or Florida Savings Bancorp or any subsidiary thereof
shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by
Florida Savings Bancorp or any subsidiary thereof for the
purpose of effecting any of the foregoing;
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. Florida Savings Bancorp shall default in any of its
obligations under any other debenture or any mortgage, credit
agreement or other facility, indenture agreement, leasing or
factoring agreement or other instrument under which there may
be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due in an amount
exceeding $1,000,000, whether such indebtedness now exists or
shall hereafter be created, and such default results in such
indebtedness becoming or being declared due and payable prior
to the date on which it would otherwise become due and
payable; or
. Florida Savings Bancorp shall fail for any reason to deliver
certificates to a holder prior to the fifth business day after
a conversion date or Florida Savings Bancorp shall provide
notice to the holder, including by way of public announcement,
at any time, of its intention not to comply with requests for
conversions of any debentures in accordance with the terms
thereof.
Restrictions on Payments
Florida Savings Bancorp is restricted from making certain payments (as
described below) if an event of default has occurred and is continuing.
If an event of default has occurred and is continuing, Florida Savings
Bancorp will not:
. declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect
to, any of its capital stock (other than stock dividends,
non-cash dividends in connection with the implementation of a
shareholder rights plan, purchases of common stock in
connection with employee benefit plans or in connection with
the reclassification of any class of its capital stock into
another class of capital stock) or allow any of its
subsidiaries to do the same with respect to their capital
stock (other than payment of dividends or distributions to
Florida Savings Bancorp);
. make or allow any of its subsidiaries to make any payment of
principal, interest or premium on, or repay or repurchase or
redeem any of its debt securities that rank equally with or
junior to the debentures;
. make or allow any of its subsidiaries to make any guarantee
payments with respect to any guarantee by Florida Savings
Bancorp of the debt securities of any of its subsidiaries if
the guarantee ranks equally with or junior to the debentures;
or
. redeem, purchase or acquire less than all of the debentures.
No Personal Liability of Directors, Officers, Employees and Shareholders for
Repayment
None of our directors, officers, employees, incorporators or
shareholders, as such, has any liability for the repayment of any principal or
interest due under the debentures. Each holder of the debentures by accepting a
debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the debentures.
Governing Law
The debentures will be governed exclusively by and construed in
accordance with the laws of the State of Florida without giving effect to
applicable principles of conflicts of laws to the extent that the application of
the law of another jurisdiction would be required thereby.
We will submit to the jurisdiction of the United States Federal and
Florida state courts for purposes of all legal actions and proceedings
instituted in connection with the debentures.
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Audited Financial Statements
Florida Savings Bancorp will furnish to all debenture holders a copy of
its audited financial statements within 120 days of the end of its fiscal year.
SALES AGENCY ARRANGEMENTS
Florida Savings Bancorp has retained Kendrick, Pierce Securities, Inc.
to consult with, advise and assist Florida Savings Bancorp, on a best efforts
basis, in the distribution of debentures in the offering pursuant to the terms
of a sales agent agreement between Kendrick, Pierce and Florida Savings Bancorp.
Kendrick, Pierce is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc.
Pursuant to the sales agent agreement, Kendrick, Pierce will receive a
retainer of $15,000; a fee equal to 1.5% of the aggregate dollar amount of all
debentures sold in the offering to shareholders of record of Florida Savings
Bancorp (except that no fee will be paid in connection with the purchase of
debentures in the offering by directors, officers and employees of Florida
Savings); a fee equal to 1.5% of the aggregate dollar amount of all debentures
sold in the offering to customers, other associates of Florida Savings and
members of Florida Savings Bancorp's community, who are identified and contacted
by Florida Savings Bancorp; and a fee equal to 6.0% of the aggregate dollar
amount of all debentures sold in the offering to all other persons. Florida
Savings will pay Kendrick, Pierce's fee upon completion of the offering.
Kendrick, Pierce may also select other dealers who are members of the National
Association of Securities Dealers, Inc. to sell debentures and who will receive
a selling concession not to exceed 4.0% of the gross proceeds of the debentures
sold by them. Florida Savings will also reimburse Kendrick, Pierce for its
reasonable out-of-pocket expenses, including legal fees and associated expenses,
marketing and travel expenses, up to a maximum of $50,000.
Kendrick, Pierce has the right to terminate the sales agent agreement
under certain circumstances (for example, if there is a material adverse change
in the financial condition of Florida Savings Bancorp or if there is an outbreak
or escalation of hostilities the effect of which on the financial markets makes
it, in Kendrick, Pierce's reasonable judgment, impracticable to market the
debentures or enforce subscriptions to purchase debentures). In such event,
offers and sales may be made on behalf of Florida Savings Bancorp by certain of
its officers and directors, or Florida Savings Bancorp may engage one or more
other broker/dealers to make sales on its behalf. Florida Savings Bancorp does
not currently have any other arrangements in place. As described herein, until
the minimum number of debentures have been sold, all funds received by Kendrick,
Pierce or Florida Savings Bancorp in connection with the sale of debentures will
be transmitted to the escrow agent by noon of the next business day.
The sales agent agreement provides for reciprocal indemnification
between Florida Savings Bancorp and Kendrick, Pierce against liabilities under
the Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted pursuant to the sales agent agreement, Florida
Savings Bancorp has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
by the Securities Act and is, therefore, unenforceable.
Prior to the date of this prospectus, there has been no public market
for the shares. Kendrick, Pierce has not prepared any report or opinion
constituting a recommendation or advice to Florida Savings Bancorp or to persons
who subscribe for debentures, nor has it prepared an opinion as to the fairness
to Florida Savings Bancorp of the purchase price or the terms of the debentures
to be sold. Kendrick, Pierce expresses no opinion as to the prices at which
debentures or the common stock may trade in the future, if at all.
The directors of Kendrick, Pierce Securities, Inc. are Micheal W. Cole
and Russell L. Hunt. The officers of Kendrick, Pierce are Russell L. Hunt and
Micheal W. Cole. The business address for the directors and officers of
Kendrick, Pierce is 324 South Hyde Park Avenue, Suite 202, Tampa, Florida.
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DESCRIPTION OF CAPITAL STOCK OF FLORIDA SAVINGS BANCORP
General
Florida Savings Bancorp is authorized pursuant to its Articles of
Incorporation to issue three million five hundred thousand (3,500,000) shares of
common stock having a par value of $.01 per share and one million five hundred
thousand (1,500,000) shares of preferred stock having a par value of $.01 per
share. Florida Savings Bancorp currently has issued 757,000 shares of common
stock and no shares of preferred stock. Each share of Florida Savings Bancorp's
common stock to be issued upon conversion of the debentures will have the same
relative rights as, and will be identical in all respects with, each share of
common stock currently outstanding. Upon conversion, all such common stock will
be duly authorized, fully paid and non-assessable.
The common stock of Florida Savings Bancorp represents non-withdrawable
capital, is not an account of an insurable type, and is not insured by the FDIC
or any governmental agency.
Common Stock
Dividends. Florida Savings Bancorp can pay dividends out of funds
legally available. The payment of dividends by Florida Savings Bancorp may be
subject to limitations imposed by law and applicable regulation. See "Risk
Factors" and "Regulation and Supervision." The holders of common stock of
Florida Savings Bancorp are entitled to receive and share equally in such
dividends as may be declared by the board of directors of Florida Savings
Bancorp out of funds legally available therefor. If Florida Savings Bancorp
issues preferred stock, the holders thereof may have a priority over the holders
of the common stock with respect to dividends.
Voting Rights. The holders of common stock of Florida Savings Bancorp
possess exclusive voting rights in Florida Savings Bancorp. They elect Florida
Savings Bancorp's board of directors and act on such other matters as are
required to be presented to them under Florida law or Florida Savings Bancorp's
Articles of Incorporation or as are otherwise presented to them by the board of
directors. Each holder of common stock is entitled to one vote per share and
does not have any right to cumulate votes in the election of directors. If
Florida Savings Bancorp issues preferred stock, holders of the preferred stock
may also possess voting rights.
As a federal savings bank, corporate powers and control of Florida
Savings are vested in its board of directors, who elect the officers of Florida
Savings and who fill any vacancies on the board of directors of Florida Savings.
Voting rights of Florida Savings are vested exclusively in the owner of the
shares of capital stock of Florida Savings, Florida Savings Bancorp, and voted
at the direction of Florida Savings Bancorp's board of directors. Consequently,
the holders of the common stock do not have direct control of Florida Savings.
Liquidation. In the event of any liquidation, dissolution or winding up
of Florida Savings, Florida Savings Bancorp, as holder of Florida Savings'
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Florida Savings (including all deposit
accounts and accrued interest thereon), all assets of Florida Savings available
for distribution. In the event of any liquidation, dissolution or winding up of
Florida Savings Bancorp, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Florida Savings Bancorp available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation,
dissolution or winding up.
Preemptive Rights and Other Provisions. Holders of the common stock of
Florida Savings Bancorp are not be entitled to preemptive rights with respect to
any shares that may be issued. The common stock is not subject to redemption or
a sinking fund and Florida Savings Bancorp shareholders are not subject to
liability for further calls or assessments by Florida Savings Bancorp.
Preferred Stock
None of the shares of Florida Savings Bancorp's authorized preferred
stock are issued. Such stock may be issued with such preferences and
designations as the board of directors may from time to time determine. The
board
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of directors can, without shareholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights, which could dilute the
voting strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control of Florida
Savings Bancorp.
EXPERTS
The consolidated financial statements of the Florida Savings Bancorp
and subsidiaries at December 31, 2001 and 2000 and for the years then ended,
included elsewhere in the document have been included in reliance upon the
report of Hacker, Johnson & Smith PA, independent certified public accountants,
given upon the authority of said firm as experts in accounting and auditing
matters.
LEGAL MATTERS
Certain legal matters have been passed upon for Florida Savings Bancorp
by Muldoon Murphy & Faucette LLP, 5101 Wisconsin Avenue, N.W., Washington, D.C.
Certain legal matters have been passed upon for Kendrick, Pierce by Broad and
Cassel, 7777 Glades Road, Suite 300, Boca Raton, Florida.
68
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report ................................................ F-1
Consolidated Balance Sheets at December 31, 2001 and 2000 ................... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 2001 and 2000 ......................................... F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2001 and 2000 ............................. F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001 and 2000 ......................................... F-5
Notes to Consolidated Financial Statements at
December 31, 2001 and 2000 and for the Years Then Ended ............ F-6
All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the Consolidated Financial Statements and related Notes.
69
Independent Auditors' Report
Board of Directors
Florida Savings Bancorp
Pinecrest, Florida:
We have audited the accompanying consolidated balance sheets of Florida
Savings Bancorp and Subsidiaries (the "Company") at December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
February 6, 2002
F-1
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
At December 31,
------------------------------
2001 2000
---- ----
Assets
Cash and due from banks ..................................... $ 1,381,127 1,270,032
Interest-bearing deposits with banks ........................ 1,872,003 1,345,691
------------ ------------
Total cash and cash equivalents ............... 3,253,130 2,615,723
Time deposits ............................................... 1,182,345 100,000
Securities available for sale ............................... 3,767,187 6,433,037
Loans, net of allowance for loan losses of $598,500 and
$280,000................................................... 51,201,500 41,984,114
Real estate under development ............................... 1,579,380 592,281
Premises and equipment, net ................................. 807,787 855,738
Federal Home Loan Bank stock, at cost ....................... 294,800 275,000
Accrued interest receivable ................................. 341,052 335,481
Deferred tax asset .......................................... 700,326 603,701
Other assets ................................................ 219,128 129,247
------------ ------------
Total assets .................................. $ 63,346,635 53,924,322
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits ..................... 2,853,438 1,967,096
Savings and NOW deposits ................................ 15,243,631 9,293,146
Money-market deposits ................................... 3,447,018 1,957,908
Time deposits ........................................... 31,319,142 31,494,035
------------ ------------
Total deposits ................................ 52,863,229 44,712,185
Federal Home Loan Bank advance .......................... 2,000,000 2,000,000
Other borrowings ........................................ 1,291,500 --
Advance payments by borrowers for taxes and insurance ... 145,728 161,357
Official checks ......................................... 472,356 614,997
Other liabilities ....................................... 133,626 78,082
------------ ------------
Total liabilities ............................. 56,906,439 47,566,621
------------ ------------
Commitments and contingencies (Notes 5, 10 and 13)
Stockholders' equity:
Preferred stock, $.01 par value, 1,500,000 shares
authorized, none outstanding ....................... -- --
Common stock, $.01 par value 3,500,000 shares authorized,
757,000 and 735,000 shares issued and outstanding .. 7,570 7,350
Additional paid-in capital .............................. 7,566,785 7,332,287
Accumulated deficit ..................................... (1,133,004) (979,109)
Accumulated other comprehensive loss .................... (1,155) (2,827)
------------ ------------
Total stockholders' equity .................... 6,440,196 6,357,701
------------ ------------
Total liabilities and stockholders' equity .... $ 63,346,635 53,924,322
============ ============
See Accompanying Notes to Consolidated Financial Statements.
F-2
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
---------------------------
2001 2000
---- ----
Interest income:
Loans ........................................................ $ 3,660,506 2,478,752
Securities available for sale ................................ 342,279 655,356
Interest-bearing deposits with banks ......................... 140,583 68,505
Other interest-earning assets ................................ 101,940 44,827
----------- -----------
Total interest income ................................... 4,245,308 3,247,440
----------- -----------
Interest expense:
Deposits ..................................................... 2,526,250 1,867,958
Federal Home Loan Bank advance ............................... 131,604 143,691
Other ........................................................ -- 3,858
----------- -----------
Total interest expense .................................. 2,657,854 2,015,507
----------- -----------
Net interest income ..................................... 1,587,454 1,231,933
Provision for loan losses ........................................ 318,500 130,000
----------- -----------
Net interest income after provision for loan losses ..... 1,268,954 1,101,933
----------- -----------
Noninterest income:
Service charges and fees on deposit accounts ................. 148,920 63,851
Gain (loss) on sale of available for sale securities ......... 16,018 (60,652)
Rental income ................................................ -- 9,501
Other ........................................................ 147,450 101,050
----------- -----------
Total noninterest income ................................ 312,388 113,750
----------- -----------
Noninterest expense:
Salaries and employee benefits ............................... 828,400 639,427
Occupancy and equipment expense .............................. 378,920 347,752
Advertising .................................................. 60,700 76,000
Data processing .............................................. 134,761 123,458
Other ........................................................ 430,537 293,898
----------- -----------
Total noninterest expense ............................... 1,833,318 1,480,535
----------- -----------
Loss before income tax benefit ................................... (251,976) (264,852)
Income tax benefit ...................................... (98,081) (109,426)
----------- -----------
Net loss ......................................................... $ (153,895) (155,426)
=========== ===========
Loss per share, basic and diluted ................................ $ (.20) (.21)
=========== ===========
Weighted-average number of shares, basic and diluted ............. 751,500 735,000
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
F-3
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001 and 2000
Accumulated
Other
Compre-
Common Stock Additional hensive Total
----------------------- Paid-In Accumulated Income Stockholders'
Shares Amount Capital Deficit (Loss) Equity
-------- ---------- ----------- ------------- ----------- ------------
Balance at December 31, 1999 .................. 735,000 $ 7,350 7,332,287 (823,683) (151,619) 6,364,335
----------
Comprehensive income (loss):
Net loss ............................. -- -- -- (155,426) -- (155,426)
Net change in unrealized loss on
securities available for sale,
net of tax of $76,652 .............. -- -- -- -- 148,792 148,792
----------
Comprehensive income (loss) .......... (6,634)
-------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2000 .................. 735,000 7,350 7,332,287 (979,109) (2,827) 6,357,701
----------
Comprehensive income (loss):
Net loss ............................. -- -- -- (153,895) -- (153,895)
Net change in unrealized loss on
securities available for sale,
net of tax of $1,456 ............... -- -- -- -- 1,672 1,672
----------
Comprehensive income (loss) .......... (152,223)
----------
Issuance of common stock ............. 22,000 220 234,498 -- -- 234,718
-------- --------- ----------- ---------- ---------- ----------
Balance at December 31, 2001 .................. 757,000 $ 7,570 7,566,785 (1,133,004) (1,155) 6,440,196
======== ========= =========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
F-4
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
-----------------------
2001 2000
---- ----
Cash flows from operating activities:
Net loss .................................................................... $ (153,895) (155,426)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization .......................................... 104,251 81,649
Provision for loan losses .............................................. 318,500 130,000
Deferred income tax benefit ............................................ (98,081) (109,426)
Net amortization of fees, premiums and discounts ....................... 137,283 17,550
(Gain) loss on sale of securities available for sale ................... (16,018) 60,652
Increase in accrued interest receivable and other assets ............... (95,452) (167,128)
(Decrease) increase in official checks and other liabilities ........... (87,097) 158,209
------------ ------------
Net cash provided by operating activities ......................... 109,491 16,080
------------ ------------
Cash flows from investing activities:
Net increase in loans ....................................................... (9,675,702) (29,559,663)
Proceeds from the sale and calls of securities available for sale ........... 5,648,255 3,670,184
Proceeds from repayments of securities available for sale ................... 541,772 483,194
Purchases of securities available for sale .................................. (3,502,498) -
Purchase of Federal Home Loan Bank stock .................................... (19,800) (259,100)
Net increase in certificates of deposit ..................................... (1,082,345) -
Net increase in real estate under development ............................... (987,099) (592,281)
Purchase of premises and equipment .......................................... (56,300) (100,432)
------------ ------------
Net cash used in investing activities ............................. (9,133,717) (26,358,098)
------------ ------------
Cash flows from financing activities:
Net increase in deposits .................................................... 8,151,044 21,915,882
Federal Home Loan Bank advance .............................................. - 2,000,000
Net increase in other borrowings ............................................ 1,291,500 -
Proceeds from issuance of common stock ...................................... 234,718 -
Net (decrease) increase in advance payments by borrowers for taxes and
insurance .............................................................. (15,629) 126,540
------------ ------------
Net cash provided by financing activities ......................... 9,661,633 24,042,422
------------ ------------
Net increase (decrease) in cash and cash equivalents ............................ 637,407 (2,299,596)
Cash and cash equivalents at beginning of year .................................. 2,615,723 4,915,319
------------ ------------
Cash and cash equivalents at end of year ........................................ $ 3,253,130 2,615,723
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ...................................... $ 2,761,847 2,010,156
============ ============
Noncash activity -
Accumulated other comprehensive income (loss), net change in
unrealized gain (loss) on securities available for sale, net
of tax ............................................................ $ 1,672 148,792
============ ============
See Accompanying Notes to Consolidated Financial Statements.
F-5
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 2001 and 2000 and For the Years Then Ended
(1) Summary of Significant Accounting Policies
Organization. Florida Savings Bancorp (the "Holding Company") was
incorporated on February 13, 1998. The Holding Company owns 100% of the
outstanding common stock of Florida Savings Bank (the "Bank"). The Bank
is a federally-chartered savings bank and is insured by the Federal
Deposit Insurance Corporation. The Bank opened for business on April 26,
1999 and provides a variety community banking services to businesses and
individuals in Miami-Dade County, Florida. During 2000, the Company
incorporated two additional subsidiaries, FSB Development Corp. and FSB
Insurance Agency, Inc. FSB Development Corp.'s primary business is the
acquisition, construction, and sale of residential real estate. FSB
Insurance Agency, Inc. was inactive at December 31, 2001 and 2000. FSB
Properties, Inc. was incorporated in June 2001 for the purpose of
holding foreclosed assets.
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Holding Company and its subsidiaries
(collectively the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The accounting and
reporting practices of the Company conform to accounting principles
generally accepted in the United States of America and to general
practices within the banking industry.
Use of Estimates. In preparing consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the balance sheet and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses and deferred tax assets.
Cash and Cash Equivalents. For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and balances due from
banks.
Securities. Securities may be classified as trading, held to maturity or
available for sale. Trading securities are held principally for resale
and recorded at their fair values. Unrealized gains and losses on
trading securities are included immediately in operations. The Bank does
not maintain any securities in a trading portfolio. Held-to-maturity
securities are those which the Bank has the positive intent and ability
to hold to maturity and are reported at amortized cost.
Available-for-sale securities consist of securities not classified as
trading securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale securities
are excluded from earnings and reported in other comprehensive income
(loss). Gains and losses on the sale of available-for-sale securities
are determined using the specific-identification method. Premiums and
discounts on securities available for sale and held to maturity are
recognized in interest income using the interest method over the period
to maturity.
(continued)
F-6
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Loans. Loans management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on loans is discontinued at the time the loan is
ninety days delinquent unless the loan is well collateralized and in
process of collection. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is
considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
Allowance for Loan Losses. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan
losses charged to operations. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan
basis for commercial loans by either the present value of expected
future cash flows discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment
disclosures.
(continued)
F-7
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Transfer of Financial Assets. Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the
right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
Income Taxes. Deferred income tax assets and liabilities are recorded to
reflect the tax consequences on future years of temporary differences
between revenues and expenses reported for financial statement and those
reported for income tax purposes. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be realized or settled. Valuation allowances are provided against assets
which are not likely to be realized.
Premises and Equipment. Leasehold improvements and furniture, fixtures and
equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization expense are computed on the
straight-line basis over the estimated useful life of each type of
asset.
Loss Per Share. Loss per share is calculated by dividing net loss by the
weighted-average number of shares of common stock outstanding during the
year. The Company's common stock equivalents are not dilutive due to the
net losses incurred by the Company.
Fair Values of Financial Instruments. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments:
Cash and Cash Equivalents. The carrying amounts of cash and cash
equivalents approximate their fair value.
Securities. Fair values for securities held to maturity and available
for sale are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Federal Home Loan Bank Stock. Federal Home Loan Bank stock is stated
at redemption value which approximates fair value.
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed-rate mortgage (e.g. one-to-four family
residential), commercial real estate and commercial loans are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
Accrued Interest Receivable. Book value approximates fair value.
Deposit Liabilities. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their
carrying amounts). Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
(continued)
F-8
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Fair Values of Financial Instruments, Continued.
Federal Home Loan Bank Advance. The fair value for the Federal Home
Loan Bank advance is estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for
similar types of borrowings.
Line of Credit. The carrying amount of the line of credit
approximates its fair value.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Advertising. The Company expenses all media advertising as incurred.
Stock Compensation Plans. Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for
employee stock compensation plans, whereby compensation cost is
measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price
of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options
issued under the Company's stock option plan have no intrinsic value
at the grant date, and under Opinion No. 25 no compensation cost is
recognized for them. The Company has elected to continue with the
accounting methodology in Opinion No. 25 and, as a result, has
provided proforma disclosures of net losses, and loss per share and
other disclosures, as if the fair value based method of accounting
had been applied.
Comprehensive Income. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net
earnings. Although certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the balance
sheet, such items, along with net loss, are components of
comprehensive income (loss).
The components of other comprehensive income and related tax effects
are as follows:
Year Ended December 31,
-----------------------
2001 2000
---- ----
Unrealized holding (losses) gains on available-for-
sale securities.................................... $(13,337) 299,100
Reclassification adjustment for gains (losses)
realized in operations............................. 16,018 (60,652)
-------- --------
Net unrealized gains.................................... 2,681 238,448
Tax effect.............................................. (1,009) (89,656)
-------- --------
Net-of-tax amount....................................... $ 1,672 148,792
======== ========
(continued)
F-9
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Reclassifications. Certain amounts in the 2000 financial statements have
been reclassified to conform to the 2001 presentation.
(2) Securities Available for Sale
Securities have been classified according to management's intent. The
carrying amount of securities and their approximate fair values are as
follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------- -------- ----------
At December 31, 2001
Mortgage-backed securities ................. $ 3,144,902 20,845 (22,697) 3,143,050
U.S. Government and
Agency securities ...................... 623,441 696 - 624,137
----------- ------- -------- ----------
$ 3,768,343 21,541 (22,697) 3,767,187
=========== ======= ======== ==========
At December 31, 2000
Mortgage-backed securities ................. 3,066,610 10,316 (24,539) 3,052,387
U.S. Government and
Agency securities ...................... 3,370,711 9,939 - 3,380,650
----------- ------- -------- ----------
$ 6,437,321 20,255 (24,539) 6,433,037
=========== ======= ======== ==========
The scheduled maturities of securities at December 31, 2001 are as follows:
Amortized Fair
Cost Value
------------ ----------
Due from five year to ten years.................................. $ 124,691 125,387
Due in over ten years............................................ 498,750 498,750
Mortgage-backed securities....................................... 3,144,902 3,143,050
------------ ----------
$ 3,768,343 3,767,187
============ ==========
For the years ended December 31, 2001 and 2000, proceeds from the sales of
securities available for sale amounted to $2,268,868 and $3,670,184.
Gross realized gains (losses) amounted to $16,018 and $(60,652),
respectively.
(continued)
F-10
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Loans
The components of loans are as follows:
At December 31,
------------------------------
2001 2000
---- ----
Residential real estate .................... $ 29,172,300 27,411,585
Commercial real estate ..................... 8,090,066 5,697,136
Home equity loans .......................... 6,835,755 3,990,462
Commercial ................................. 2,598,355 2,949,629
Consumer ................................... 2,898,572 1,251,836
Construction ............................... 1,897,080 663,873
------------ ------------
Total loans ........................ 51,492,128 41,964,521
(Subtract) add:
Allowance for loan losses .............. (598,500) (280,000)
Net deferred fees and underwriting costs 307,872 299,593
------------ ------------
Loans, net ................................. $ 51,201,500 41,984,114
============ ============
An analysis of the change in the allowance for loan losses follows:
2001 2000
---- ----
Beginning balance .......................... $ 280,000 150,000
Provision for loan losses................... 318,500 130,000
------------ -----------
Ending balance ............................. $ 598,500 280,000
============ ===========
(continued)
F-11
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
The following summarized the amount of collateral dependent impaired loans
for 2001:
At December 31,
---------------
2001
----
Loan identified as impaired:
Gross loan with related allowance for losses recorded $ 450,000
Less allowance on this loan ........................... (225,000)
---------
Net investment in one impaired loan ....................... $ 225,000
=========
The average net investment in one impaired loan and interest income
recognized and received on this loan is as follows:
Year Ended
December 31,
------------
2001
----
Average net investment in the impaired loan ............... $ 243,750
=========
Interest income recognized on the impaired loan............ $ 3,615
=========
Interest income received on the impaired loan.............. $ 3,615
=========
The impaired loan is collateralized by condominium units and an insurance
claim. Even though an allowance for losses has been established,
management to aggressively pursuing collection of the entire balance
due. The Company had no impaired loans in 2000.
(4) Real Estate Under Development
FSB Development Corp. has purchased developed building lots and is
constructing two single family homes on the lots. The components of
real estate under development are as follows:
At December 31,
--------------------
2001 2000
---- ----
Developed building lots......................... $ 979,356 538,665
Construction in progress........................ 600,024 53,616
---------- --------
$1,579,380 592,281
========== ========
At December 31, 2001, estimated costs to complete construction are $944,544.
Aggregate estimated sales prices are $2.8 million.
(continued)
F-12
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Premises and Equipment
A summary of premises and equipment follows:
At December 31,
---------------------------
2001 2000
---- ----
Leasehold improvements ........................... $ 729,173 729,173
Furniture, fixtures and equipment ................ 305,458 252,141
----------- -----------
Total, at cost ............................... 1,034,631 981,314
Less accumulated depreciation and amortization (226,844) (125,576)
----------- -----------
Premises and equipment, net .................. $ 807,787 855,738
=========== ===========
The Company leases its office facility under an operating lease. The lease
contains an escalation clause which provides for annual adjustments for
the Company's pro rata share of operating expenses as well as renewal
options. Rent expense under the operating lease during the years ended
December 31, 2001 and 2000 was $152,420 and $142,753 respectively.
Future rentals over the remaining noncancellable lease terms are as
follows:
Year Ending Sublease
December 31, Amount Amount
------------ ------ ------
2002......................................... $ 208,289 21,386
2003......................................... 131,195 --
---------- --------
Total minimum lease payments................. $ 339,484 21,386
========== ========
(6) Deposits
The aggregate amount of time deposits with a minimum denomination of
$100,000, was approximately $15.1 and $12.2 million at December 31,
2001 and 2000, respectively.
At December 31, 2001, a schedule of maturities of time deposits follows:
Year Ending
December 31, Amount
------------ ------
2002............................................ $28,294,766
2003............................................ 2,102,246
2004............................................ 356,098
2005............................................ 184,170
2006............................................ 381,862
-----------
$31,319,142
===========
(continued)
F-13
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Other Borrowings
At December 31, 2001, the components of other borrowings are as follows:
Construction loans $ 691,500
Line of credit 600,000
----------
$1,291,500
==========
In 2001, the Company, through its subsidiary, FSB Development Corp.
entered into construction loans that provide up to $2,000,000 to be
used for construction of single family homes. The loans bear interest
at the prime rate (4.75% at December 31, 2001) and mature January 1,
2003. The loans are collateralized by the single family homes
currently under construction. Interest is payable monthly. All unpaid
principal and interest are due at maturity. At December 31, 2001, the
total amount outstanding was $691,500. During the year ended December
31, 2001, interest of $104,307 was capitalized.
In addition, the Holding Company entered into a line of credit to provide
up to $1.5 million including an interest reserve of $150,000 to be
used as additional capital for its subsidiaries. The line bears
interest as prime minus 1/2% (4.25% at December 31, 2001), is payable
monthly and matures in 2003. The line is collateralized by 100% of the
Bank's stock. At December 31, 2001, $600,000 was outstanding.
There were no other borrowings outstanding at December 31, 2000.
(8) Federal Home Loan Bank Advance
At December 31, 2001 and 2000, a Federal Home Loan Bank ("FHLB") advance,
in the amount of $2 million was outstanding. The advance matures in
2010, is callable by the FHLB after March 31, 2001, and bears interest
at 5.92%. The advance is collateralized by all of the Bank's FHLB
stock and securities available for sale with a carrying value of
$3,143,050 and $6,433,037 at December 31, 2001 and 2000, respectively.
(9) Income Taxes
The income tax benefit consisted of the following:
Years Ended December 31,
------------------------
2001 2000
---- ----
Deferred:
Federal ........................................... $(83,745) (93,432)
State ............................................. (14,336) (15,994)
-------- --------
Total deferred ........................... $(98,081) (109,426)
======== ========
(continued)
F-14
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
The reasons for the differences between the statutory Federal income tax
rate and the effective tax rate are summarized as follows:
2001 2000
----------- --------
% of % of
Pretax Pretax
Amount Loss Amount Loss
------ ------ ------ ------
Income tax benefit at statutory rate ...... $ (85,672) (34.0)% $ (90,050) (34.0)%
(Increase) decrease resulting from:
State taxes, net of Federal tax benefit (9,462) (3.8) (10,556) (4.0)
Other ................................. (2,947) (1.1) (8,820) (3.3)
--------- ------ --------- ======
$ (98,081) (38.9)% $(109,426) (41.3)%
========= ====== ========= ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
At December 31,
----------------------
2001 2000
---- ----
Deferred tax asset:
Organizational and preopening costs ............ $ 92,529 122,275
Allowance for loan losses ...................... 100,761 --
Net operating loss carryforwards ............... 609,200 617,255
Unrealized loss on securities available for sale 1 1,456
Other .......................................... 22,075 14,186
--------- ---------
Deferred tax assets ................... 824,566 755,172
--------- ---------
Deferred tax liabilities:
Accrual to cash adjustment ..................... (119,583) (137,452)
Allowance for loan losses ...................... -- (7,221)
Premises and equipment ......................... (4,657) (6,798)
--------- ---------
Deferred tax liabilities .............. (124,240) (151,471)
--------- ---------
Net deferred tax asset ................ $ 700,326 603,701
========= =========
At December 31, 2001, the Bank has the following net operating loss
carryforwards available to offset future taxable income:
Expiration
----------
2018.............................. $ 4,299
2019.............................. 1,118,641
2020.............................. 491,195
2021.............................. 4,787
----------
$1,618,922
==========
(continued)
F-15
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Financial Instruments
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments are unused lines of credit
and undisbursed loans in process and may involve, to varying degrees,
elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated balance sheet. The contract amounts of
these instruments reflect the extent of involvement the Company has in
these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments as it
does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
At December 31, 2001 At December 31, 2000
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and cash equivalents......... $ 3,253 3,253 2,616 2,616
Certificates of deposit........... 1,182 1,182 100 100
Securities available for sale..... 3,767 3,767 6,433 6,433
Loans receivable.................. 51,202 51,863 41,984 42,010
Accrued interest receivable....... 341 341 335 335
Financial liabilities:
Deposits.......................... 52,863 53,298 44,712 44,844
Federal Home Loan Bank advance 2,000 2,244 2,000 2,089
Other borrowings.................. 1,292 1,292 -- --
A summary of the notional amounts of the Company's financial instruments
with off balance sheet risk follows (in thousands):
At December 31,
---------------
2001
----
Unused lines of credit.................... $ 5,260
=======
Undisbursed loans in process.............. $ 1,910
=======
(continued)
F-16
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Stock Options
The Company has granted options to purchase shares of the Company's common
stock. The options have a term of ten years and vest between four and
five years. A summary of stock option transactions follows:
Number of Per
Option Share
Shares Price
------- --------
Outstanding at December 31, 1999 ..... 37,500 $ 10
Options granted ...................... 22,000 10
------- -------
Outstanding at December 31, 2000 ..... 59,500 10
Options granted ...................... 58,750 10
------- -------
Outstanding at December 31, 2001 ..... 118,250 $ 10
======= =======
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 2001 and 2000 was 101 months and 99 months,
respectively.
These options are exercisable as follows:
Number Weighted-Average
Year Ending of Shares Exercise Price
----------- --------- ----------------
Currently ................ 43,750 $ 10
2002 ..................... 21,750 10
2003 ..................... 21,750 10
2004 ..................... 18,500 10
2005 ..................... 12,500 10
--------
118,250 $ 10
======== ==
(continued)
F-17
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Stock Options, Continued
FASB Statement 123 requires proforma information regarding net earnings.
This proforma information has been determined as if the Company had
accounted loss for its stock options under the fair value method of
that Statement and is as follows:
2001 2000
---- ----
Net loss:
As reported ................ $ (153,895) (155,426)
============ ===========
Per share .................. $ (.20) (.21)
============ ===========
Proforma ................... $ (280,513) (233,176)
============ ===========
Per share .................. $ (.37) (.32)
============ ===========
The fair value of each option granted in 2001 and 2000 was $3.79 and
$4.06, respectively. The fair value of each option grant is estimated
on the date of grant using the minimum value method with the following
assumptions:
2001 2000
---- ----
Risk-free interest rate .......... 5.0% 5.5%
Dividend yield ................... 0% 0%
Expected volatility .............. 0% 0%
Expected life in years ........... 10 years 10 years
(12) Related Party Transactions
In the ordinary course of business, the Company may make loans at terms
and rates prevailing at the time to officers and directors of the
Company. At December 31, 2001, balances of $111,64 were outstanding on
such loans. There were no such loans at December 31, 2000. As of the
same dates, these individuals and entities had approximately $403,729
and $334,662, respectively, of funds on deposit with the Company.
(13) Commitment and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The Company has an
employment agreement with the president which establishes the duties
and compensation of the president which expires in 2005. The Company
also has commitments for data processing and other services.
Contingent liabilities would include unasserted claims. Management is
not aware of any unasserted claim at December 31, 2001.
(14) Credit Risk
The Company grants the majority of its loans to borrowers throughout
Miami-Dade County, Florida. Although the Company has a diversified
loan portfolio, a significant portion of its borrowers' ability to
honor their contracts is dependent upon the economy in Miami-Dade
County, Florida.
(continued)
F-18
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Regulatory Matters
Banking regulations place certain restrictions on dividends and loans or
advances made by the Bank to the Company.
The Bank is subject to various regulatory capital requirements administered
by the regulatory banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and percentages (set forth
in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital
(as defined) to assets (as defined). Management believes, as of
December 31, 2001 and 2000, the Bank met all capital adequacy
requirements to which they are subject.
As of December 31, 2001, the most recent notification from the regulatory
authorities categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized
as well capitalized, an institution must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage percentages as set
forth in the following tables. There are no conditions or events since
that notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and percentages are also
presented in the table (dollars in thousands).
Minimum
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------- -------------------------- -----------------
Amount % Amount % Amount %
------ ------- ------ ----- ------ ------
As of December 31, 2001:
Total capital to Risk-
Weighted assets........... $ 5,707 12.81% $ 3,564 8.00% $ 4,455 10.00%
Tier I Capital to Risk-
Weighted Assets........... 5,334 11.97 1,782 4.00 2,673 6.00
Tier I Capital
to Total Assets........... 5,334 8.75 2,438 4.00 3,048 5.00
As of December 31, 2000:
Total capital to Risk-
Weighted assets........... 5,152 15.82 2,605 8.00 3,256 10.00
Tier I Capital to Risk-
Weighted Assets........... 4,876 14.97 1,302 4.00 1,954 6.00
Tier I Capital
to Total Assets........... 4,876 9.26 2,107 4.00 2,634 5.00
(continued)
F-19
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Parent Company Only Financial Information
The Holding Company's unconsolidated financial information is as follows:
Condensed Balance Sheets
At December 31,
---------------
2001 2000
---- ----
Assets
Cash ................................................. $ 33,100 294,736
Investment in subsidiaries ........................... 5,961,097 5,437,358
Due from subsidiaries ................................ 880,500 583,000
Deferred tax asset ................................... 93,486 48,258
Other ................................................ 76,467 156
----------- ----------
Total assets ..................................... $ 7,044,650 6,363,508
=========== ==========
Line of credit ....................................... 600,000 -
Other liabilities .................................... 4,454 5,807
Stockholders' equity ................................. 6,440,196 6,357,701
----------- ----------
Total liabilities and stockholders' equity ....... $ 7,044,650 6,363,508
=========== ==========
Condensed Statements of Operations
Year Ended December 31,
-----------------------
2001 2000
---- ----
Revenues ............................................. $ 44,115 22,456
Expenses ............................................. (119,077) (5,580)
----------- ----------
(Loss) income before loss of subsidiaries ........ (74,962) 16,876
Loss of subsidiaries ............................. (78,933) (172,302)
----------- ----------
Net loss ......................................... $ (153,895) (155,426)
=========== ==========
(continued)
F-20
FLORIDA SAVINGS BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Parent Company Only Financial Information, Continued
Condensed Statements of Cash Flows
Year Ended December 31,
-----------------------
2001 2000
---- ----
Cash flows from operating activities:
Net loss................................................................ $ (153,895) (155,426)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in undistributed loss of subsidiary.......................... 78,933 172,302
Net increase in due from subsidiaries............................... (297,500) (147,565)
Net increase in deferred tax asset.................................. (45,228) -
Net increase in other assets........................................ (76,311) (156)
Net decrease in other liabilities................................... (1,353) (985)
---------- ---------
Net cash used in operating activities............................... (495,354) (131,830)
---------- ---------
Cash flows from investing activity-
Investment in subsidiaries.............................................. (601,000) (2,000)
---------- ---------
Cash flows from financing activities:
Net increase in line of credit.......................................... 600,000 -
Proceeds from issuance of common stock.................................. 234,718 -
---------- ---------
Net cash provided by financing activities........................... 834,718 -
---------- ---------
Net decrease in cash and cash equivalents.................................... (261,636) (133,830)
Cash and cash equivalents at beginning of the year........................... 294,736 428,566
---------- ---------
Cash and cash equivalents at end of year..................................... $ 33,100 294,736
========== =========
F-21
You should rely only on the information contained in this prospectus. Neither
Florida Savings Bancorp, Inc. nor Florida Savings Bank has authorized anyone to
provide you with different information. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the debentures offered
by this prospectus to any person or in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation in those jurisdictions. The information
contained in this prospectus, regardless of the time of delivery of this
prospectus or of any sale of Florida Savings Bancorp, Inc. common stock.
[LOGO]
Florida Savings Bancorp, Inc.
Up to $5,000,000 Convertible Debentures
________
Prospectus
________
KENDRICK, PIERCE SECURITIES, INC.
May 2, 2002
DEALER PROSPECTUS DELIVERY OBLIGATION
Until August 4, 2002, all dealers that effect transactions in these debentures,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.