SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
---------------------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25693
FLORIDAFIRST BANCORP
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 59-3545582
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
205 East Orange Street, Lakeland, Florida 33801-4611
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (863) 688-6811
----------------------------
N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check |X| whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date May 8, 2000.
Class Outstanding
- ------------------------------------ ------------------------
$.10 par value common stock 5,347,297 shares
FLORIDAFIRST BANCORP
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Page
Number
------
PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF
FLORIDAFIRST BANCORP
Item 1. Financial Statements and Notes Thereto...................... 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 6
Item 3. Qualitative and Quantitative Disclosure About Market Risk... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities....................................... 16
Item 3. Defaults upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 17
SIGNATURES........................................................... 18
FLORIDAFIRST BANCORP
Condensed Consolidated Statements of Financial Condition
(Unaudited)
March 31, September 30,
ASSETS 2000 1999
---------------- ----------------
(In thousands)
Cash and cash equivalents $ 3,160 $ 2,598
Investment securities available for sale, at fair value 89,426 68,152
Investment securities held to maturity, market value
$10,325 and $12,479 10,686 12,724
Loans receivable, net of allowance for loan losses of
$3,084 and $2,941 422,971 397,910
Premises and equipment, net 6,928 6,818
Federal Home Loan Bank stock, at cost 6,430 4,475
Other assets 11,384 5,681
--------- ---------
Total assets $ 550,985 $ 498,358
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 355,599 $ 339,224
Federal Home Loan Bank advances 127,100 87,600
Other borrowings 4,853 4,872
Other liabilities 4,445 5,325
--------- ---------
Total liabilities 491,997 437,021
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $ .10 par value, 18,000,000 shares authorized,
5,752,875 outstanding 575 575
Additional paid-in capital 25,085 25,124
Retained income 40,710 39,037
Treasury stock, at cost, 405,578 and -0- shares (3,606)
Unallocated shares held by the ESOP (1,838) (2,163)
Unallocated shares held by the RSP (289)
Accumulated other comprehensive income (loss) (1,649) (1,236)
--------- ---------
Total stockholders' equity 58,988 61,337
--------- ---------
Total liabilities and stockholders' equity $ 550,985 $ 498,358
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
1
FLORIDAFIRST BANCORP
Condensed Consolidated Statements of Earnings
(Unaudited)
For the three months ended For the six months ended
March 31, March 31,
2000 1999 2000 1999
------------------------------------------------------------
(In thousands, except per share amounts)
Interest income:
Loans $ 7,994 $ 7,024 $ 15,576 $ 13,899
Investments and other 1,721 931 3,281 1,890
--------------- ------------- -------------- -------------
Total interest income 9,715 7,955 18,857 15,789
--------------- ------------- -------------- -------------
Interest expense:
Deposits 3,795 3,686 7,402 7,590
Federal Home Loan Bank advances and other borrowings 1,754 530 3,171 909
--------------- ------------- -------------- -------------
Total interest expense 5,549 4,216 10,573 8,499
--------------- ------------- -------------- -------------
Net interest income 4,166 3,739 8,284 7,290
Provision for loan losses 150 150 270 300
--------------- ------------- -------------- -------------
Net interest income after provision for loan losses 4,016 3,589 8,014 6,990
--------------- ------------- -------------- -------------
Other income:
Fees and service charges 274 242 565 508
Gain on sale of assets - 164 22 164
Other, net 230 58 363 113
--------------- ------------- -------------- -------------
Total other income 504 464 950 785
--------------- ------------- -------------- -------------
Other expenses:
Compensation and employee benefits 1,577 1,429 3,131 2,852
Occupancy and equipment costs 438 501 875 948
Marketing 118 133 305 257
Data processing costs 127 123 256 259
Federal insurance premiums 19 53 69 111
Other 772 633 1,455 1,144
--------------- ------------- -------------- -------------
Total other expenses 3,051 2,872 6,091 5,571
--------------- ------------- -------------- -------------
Income before income taxes 1,469 1,181 2,873 2,204
Income taxes 517 434 1,010 813
--------------- ------------- -------------- -------------
NET INCOME $ 952 $ 747 $ 1,863 $ 1,391
=============== ============= ============== =============
Basic earnings per share (1) $ 0.18 N/A $ 0.35 N/A
Weighted average number of shares outstanding (1) 5,208 N/A 5,328 N/A
(1) FloridaFirst converted to a stock company on April 6, 1999. Earnings per
share and weighted average shares outstanding are not shown for the three
and six-month periods ended March 31, 1999 since no shares were
outstanding.
See accompanying notes to unaudited condensed consolidated financial statements.
2
FLORIDAFIRST BANCORP
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For The Six Months
Ended March 31,
2000 1999
---- ----
(In thousands)
Operating activities:
Net income $ 1,863 $ 1,391
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for loan losses 270 300
Depreciation 358 368
Gain on sale of branches and related deposits - (164)
Decrease (increase) in accrued interest receivable - -
Gain on sale of branches and related deposits -
Increase in other assets (5,269) (921)
Decrease in other liabilities (594) (4,866)
-------------- --------------
Net cash used in operating activities (3,372) (3,892)
-------------- --------------
Investing activities:
Proceeds from calls, maturities and repayment of investment securities 10,490 15,095
Increase in loans, net (25,521) (27,498)
Purchase of investments available for sale (30,383) (13,713)
Purchase of FHLB stock (1,955) (430)
Purchases of premises and equipment (494) -
Proceeds on sale of premises and equipment 26 235
-------------- --------------
Net cash used in investing activities (47,837) (26,311)
-------------- --------------
Financing activities:
Net decrease in deposits 16,375 (8,825)
Net increase in FHLB advances 39,500 14,000
Net decrease in other borrowings (19) -
Net funds received from stock subscriptions - 70,375
Payments to acquire treasury stock (3,606) -
Payments to acquire shares held by the RSP (289) -
Dividends paid (190) -
-------------- --------------
Net cash provided by financing activities 51,771 75,550
-------------- --------------
Net increase in cash and cash equivalents 562 45,347
Cash and cash equivalents at beginning of period 2,598 5,217
-------------- --------------
Cash and cash equivalents at end of period $ 3,160 $50,564
============== ==============
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest $11,050 $ 9,291
============== ==============
Taxes $ 551 $ 531
============== ==============
Supplemental disclosure of non-cash information:
Additions to investment in real estate acquired through foreclosure $ 190 $ 351
============== ==============
Change in unrealized gain (loss) on investments available for sale, net
of deferred tax benefit of $(244) and $(141) $ (413) $ (263)
============== ==============
Allocation of shares held by the ESOP $ $ 325 $ -
============== ==============
See accompanying notes to unaudited condensed consolidated financial statements.
3
FLORIDAFIRST BANCORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
information necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for a fair
presentation of the financial statements have been included. The results of
operations for the periods ended March 31, 2000 and 1999 are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
other period. The condensed consolidated financial statements as of and for the
three and six-month periods ended March 31, 2000 and 1999 include the accounts
of FloridaFirst Bank (the "Bank") which became the wholly owned subsidiary of
FloridaFirst Bancorp (the "Company") on April 6, 1999. The Company's business is
conducted principally through the Bank.
These statements should be read in conjunction with the consolidated financial
statements and related notes, which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended September 30, 1999.
Note 2 - COMPREHENSIVE INCOME
Comprehensive income for the periods presented was as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 952 $ 747 $1,863 $1,391
Other comprehensive income (loss) 113 (77) (413) (263)
------ ----- ------ ------
Comprehensive income $1,065 $ 670 $1,450 $1,128
====== ===== ====== ======
Other comprehensive losses consisted entirely of unrealized gains (losses), net
of taxes, on available for sale securities.
Note 3 - STOCK REPURCHASE PROGRAM
On October 19, 1999 the Company announced that it had received approval from the
Office of Thrift Supervision ("OTS") to proceed with its planned repurchase of
up to 15% of the common stock, or 405,578 shares, held by stockholders other
than FloridaFirst Bancorp MHC, the Company's mutual holding company. The Company
is authorized to make such repurchases from time to time in open market
transactions as, in the opinion of management, market conditions warrant. The
repurchased shares will be held in treasury stock and will be available for
general corporate purposes, including the exercise of stock options. As of March
31, 2000 the Company had acquired the entire 405,578 shares under the repurchase
program at an average price of $8.89. The weighted average number of shares
outstanding for the quarter ended March 31, 2000 was reduced by 50,113 shares
based on the purchase date of the shares acquired during the quarter.
4
On November 15, 1999 the Company received approval from the Office of Thrift
Supervision ("OTS") to proceed with its planned repurchase for the FloridaFirst
Bank Restricted Stock Plan ("RSP") of up to 4% of the common stock, or 108,154
shares, held by stockholders other than FloridaFirst Bancorp MHC, the Company's
mutual holding company. The Company is authorized to make such repurchases from
time to time in open market transactions as, in the opinion of management,
market conditions warrant. The repurchased shares will be held in trust for the
participants in the RSP. As of March 31, 2000 the Company had acquired 36,779
shares under the repurchase program at an average price of $7.85. The weighted
average number of shares outstanding for the quarter ended March 31, 2000 was
reduced by 6,098 shares based on the purchase date of the shares acquired during
the quarter.
Note 4 - EARNINGS PER SHARE
Basic earnings per share of common stock for the quarter ended March 31, 2000
has been computed by dividing net income for the period by the weighted average
number of shares outstanding, which includes 3,049,024 shares held by the
Company's mutual holding company, FloridaFirst Bancorp MHC. Shares of common
stock purchased by the Bank's Employee Stock Ownership Plan are only considered
outstanding when the shares are released or committed to be released for
allocation to participants. The Company has determined that 1,803 shares per
month will be added to the outstanding shares for the fiscal year ending
September 30, 2000. Since the Company currently does not have any convertible
debt or other equity instruments, there are no common stock equivalents that
could further dilute the Company's basic earnings per share.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders. Statements made in such documents, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such forward-looking statements are made based
upon management's belief as well as assumptions made by, and information
currently available to management, pursuant to "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from the results anticipated in forward-looking statements
due to a variety of factors, including governmental monetary and fiscal
policies, deposit levels, loan demand, loan collateral values, securities
portfolio values, and interest rate risk management; the effects of competition
in the banking business from other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating through the Internet; changes in
governmental regulation relating to the banking industry, including regulations
relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for losses, including the value of collateral
underlying delinquent loans, and other factors. The Company cautions that such
factors are not exclusive. The Company does not undertake to update any
forward-looking statements that may be made from time to time by, or on behalf
of, the Company.
Comparison of Financial Condition at March 31, 2000 and September 30, 1999
Assets. Total assets increased $52.6 million, or 10.6%, to $551.0 million at
March 31, 2000 from $498.4 million at September 30, 1999. The increase in total
assets resulted primarily from an $25.5 million, or a 12.7% annualized increase
in the loan portfolio attributable to steady loan demand in our market areas, a
slow down in loan repayments and funding of construction loans. In addition,
investment securities increased $19.2 million. Management plans to focus on loan
growth to effectively utilize the new capital raised in fiscal 1999. The capital
leveraging strategy will include the purchase of investment securities to
complement its loan origination efforts.
Other assets increased primarily due to the cash surrender value of bank owned
life insurance policies that were purchased in January 2000.
Liabilities. Total liabilities increased $55.0 million, or 12.6%, to $492.0
million at March 31, 2000 from $437.0 million at September 30, 1999. The
increase in total liabilities resulted primarily from a $39.5 million net
increase in FHLB advances utilized to fund the asset growth and a net deposit
increase of $16.4 million. The increase in deposits in recent months reflects
renewed consumer interest in competitively priced certificates of deposit due to
the increase in short-term interest rates. Checking and money market accounts
continue to grow through expansion of our customer base.
Management continues to evaluate the available funding sources. The attributes
of the alternative funding sources that management considers in its analysis
include the interest and other costs of such funding, the maturity
considerations and the nature and characteristics of assets being funded.
6
Stockholders' Equity. The decrease in the Company's stockholders' equity
reflects:
>> net income for the six months ended March 31, 2000 of $1.9 million
>> repurchase of 405,578 shares of Company stock at a cost of $3.6 million
>> repurchase of 36,779 shares of Company stock for the RSP at a cost of
$289,000
>> change in accumulated other comprehensive loss of $413,000 (attributable to
the net unrealized loss on investments available for sale)
>> repayment of $325,000 on the ESOP loan.
>> dividends paid that totaled $190,000.
The net unrealized loss on investments available for sale relates primarily to
the increasing level of interest rates during the first half of the fiscal year.
Increasing rates reduce the value of certain investments held for sale that have
longer average lives.
At March 31, 2000 the Company's stockholders' equity as a percentage of total
assets was 10.7%.
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
March 31, 1999
Net Income. Net income for the three months ended March 31, 2000 increased 27.4%
to $952,000, compared to $747,000 for the same period in 1999. Net income for
the three months ended March 31, 2000 benefited from the deployment of $23.5
million in new capital (net proceeds of $25.7 million less the ESOP loan of $2.2
million) for the entire period.
Net interest income increased $427,000, or 11.4%, for the three months ended
March 31, 2000 compared to the same period in 1999. This increase resulted
primarily from an increase in interest income of $1.8 million, offset by an
increase in interest expense of $1.3 million. Other expenses increased to $3.1
million for the three months ended March 31, 2000 from $2.9 million for the
three months ended March 31, 1999, due to an accumulation of several expense
categories as discussed at Other Expense.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the quarter when compared to the
prior year. Details are contained in the table at page 8.
>> Loan growth reflects the strong loan demand over the past year, the
Company's increased emphasis on loan origination and the favorable interest
rate environment for borrowers that prevailed from early 1998 through the
middle of 1999.
>> The yield on loans decreased primarily due to an approximate 80 basis point
reduction in loan rates for new mortgage loan originations as compared to
approximately $54 million in mortgage loans that paid off during fiscal
1999. The impact of this caused overall mortgage portfolio yields to
decline approximately 3 basis points. In addition, the overall portfolio
yield on consumer loans decreased about 18 basis points and yields in the
commercial portfolio decreased about 17 basis points.
>> The average balances in the investment securities portfolio grew 64%
primarily due to the Company's strategy to leverage the higher capital
level that resulted from the stock offering in April 1999.
>> The higher yield in the investment portfolio resulted from the leveraging
strategy (outside the loan portfolio) in the latter part of fiscal 1999
when rates had risen significantly over the prior year. In addition, the
growth occurred in securities that had slightly longer average lives with
higher yields.
7
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the periods indicated. The average yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from average daily balances for fiscal 2000, but the fiscal 1999
averages are derived from month-end balances. Management does not believe that
the use of month-end balances instead of average daily balances has caused any
material differences in the information presented.
Three months Three months
March 31, 2000 March 31, 1999 Changes in
-------------- -------------- --------------------------------
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balances % Interest Yield/Cost
------------------------------- ------------------------------ ---------------------------------
Interest-earnings assets (IEA):
Loans receivable $ 417,877 $ 7,994 7.65% $ 363,519 7,024 7.73% $ 54,358 15% $ 970 -0.08%
Investments and other (2) 100,635 1,760 7.00% 61,413 878 5.72% 39,222 64% 882 1.28%
--------- ------- --------- ------- ----- -------- ------- -----
Total (1) 518,512 $ 9,754 7.52% 424,932 $ 7,902 7.44% $ 93,580 22% $ 1,852 0.09%
======= ======= ======== =======
Other assets 20,386 11,201
--------- ---------
Total assets $ 538,898 $ 436,133
========= =========
Interest-bearing liabilities (IBL):
Interest checking $ 31,649 $ 144 1.82% $ 27,608 $ 126 1.82% $ 4,041 15% $ 19 0.00%
Savings 31,533 138 1.75% 37,991 167 1.75% (6,458) -17% (29) 0.00%
Money market accounts 25,841 270 4.18% 20,246 191 3.77% 5,595 28% 79 0.41%
Certificate accounts 245,699 3,243 5.28% 243,397 3,144 5.17% 2,302 1% 99 0.11%
--------- -------- --------- ------- --------- --------
Total deposits 334,722 3,795 4.54% 329,242 3,627 4.41% 5,480 2% 168 0.13%
Advances and other borrowings 124,802 1,754 5.62% 43,667 531 4.86% 81,135 186% 1,223 0.76%
--------- -------- ---------- -------- --------- --------
Total (2) 459,524 $ 5,549 4.83% 372,909 $ 4,158 4.46% $ 86,615 23% $ 1,391 0.37%
======== ======== ========= ========
Other liabilities 20,090 26,257
--------- ----------
Total liabilities 479,614 399,166
Stockholders' equity 59,284 36,967
--------- ----------
Total liabilities and equity $ 538,898 $ 436,133
========= ==========
Net interest income (1) (2) $ 4,205 $ 3,744
======== ========
Average IEA to IBL 113% 114%
Interest rate spread 2.69% 2.98%
Interest margin 3.24% 3.52%
(1) Interest income and net interest income do not agree to the statement of
operations because the tax equivalent income on municipal bonds is included
in this schedule.
(2) Interest income and interest expense for 1999 do not agree to the statement
of operations because special adjustments related to escrowed funds in
connection with the stock conversion.
8
Interest Expense. The following discussion highlights the major factors that
impacted the changes in Interest Expense during the quarter when compared to the
prior year. Detailed changes are contained in the table at page 8.
>> The slight increase in average deposits is attributable mainly to a special
promotion for certificate accounts during the March 31, 2000 quarter while
maintaining a conservative deposit pricing strategy in the previous year.
The conservative pricing strategy in the 1999 quarter was followed due to:
o utilization of more cost effective funding alternatives that were
available for the terms the Company has considered appropriate to fit
its interest rate management strategies, and
o $23.5 million in net proceeds received in the stock offering.
>> FHLB advances grew because the Company considered the advances to be a more
cost-effective funding alternative during the course of the year. Although
the costs of the advances exceed the cost of certificate accounts, funding
asset growth through certificate accounts was deemed to be more expensive
than wholesale funding.
>> The higher cost of funds related to certain deposit accounts and the FHLB
advances is reflective of the significant rise in interest rates over the
past year.
Provision for Loan Losses. The provision for loan losses was $150,000 for the
three months ended March 31, 2000, and March 31, 1999. The allowance for loan
losses increased $282,000 to $3.1 million at March 31, 2000 from $2.8 million at
March 31, 1999 reflecting a decrease in substandard loans offset by the growth
and changing composition in the loan portfolio. The current allowance represents
.72% of total loans outstanding at March 31, 2000. The Company had net
charge-offs of $54,000 for the three months ended March 31, 2000 compared to net
charge-offs of $80,000 for the three months ended March 31, 1999.
Other Expense. Other expense increased by $179,000 to $3.1 million for the three
months ended March 31, 2000 from $2.9 million for the three months ended March
31, 1999.
>> Compensation and employee benefits increased $148,000 due primarily to
having certain key positions filled this year compared to last year,
recognition of $48,000 related to the restricted stock plan and certain
costs related to increased incentive pay based on production and earnings
performance.
>> Other expenses increased by $139,000 due to the following:
o certain Year 2000 costs ($30,000),
o direct costs related to stockholder meetings, communications, legal
matters and new financial reporting requirements as a public company
($50,000), and
o increased effort on charging off uncollected fees and overdrawn
accounts ($40,000),
o consulting services ($20,000).
The Board of Directors and management has developed expansion plans for the
Company that includes three de novo branches within our existing market areas
and deployment of a strategic technology plan. The strategic technology plan
includes:
>> installing a new customer delivery software to enhance the sales efforts,
>> enhancing both our data and voice communications systems,
>> upgrading our computer network for enhanced service and security features,
>> implementing internal and external networks to improve communications and
productivity within the Company, and
>> investigation of alternative delivery systems, including an Internet
banking solution and enhanced call center strategy.
9
A summary of the estimated costs associated with the new projects follows:
Estimated Costs Estimated Costs
Category. Fiscal 2001 Fiscal 2002
-------- ------------------ ------------------
(In thousands)
New branches $ 650 $ 975
New computer hardware and software 240 240
Other costs related to strategic technology plan 240 240
------ ------
TOTAL.... $1,130 $1,455
====== ======
The Board of Directors and management analyzed the potential effect of each of
these expenditures prior to approval and believe that these expenditures will
have an overall positive effect on the Company's franchise and stockholder
value, but also realize that the expenditures will most likely depress
profitability ratios in the short-term. The Company also expects that both net
interest income and fee income will increase as a result of the new branches and
new technology enhancements. However, it is not possible to precisely estimate
such revenue increases, if any, at this time. The success of new projects is
dependent upon a number of factors, including, but not limited to, general
economic conditions, regulatory climate, interest rates and the success of the
Company's marketing efforts.
Comparison of Operating Results for the Six Months Ended March 31, 2000 and
March 31, 1999
Net Income. Net income for the six months ended March 31, 2000 increased 33.9%
to $1.9 million, compared to $1.4 million for the same period in 1999. Net
income for the six months ended March 31, 2000 benefited from the deployment of
$23.5 million in new capital (net proceeds of $25.7 million less the ESOP loan
of $2.2million) for the entire period.
Net interest income increased $994,000, or 13.6%, for the six months ended March
31, 2000 compared to the same period in 1999. This increase resulted primarily
from an increase in interest income of $3.1 million, offset by an increase in
interest expense of $2.1 million. Other expenses increased to $6.1 million for
the six months ended March 31, 2000 from $5.6 million for the six months ended
March 31, 1999, due to an accumulation of several expense categories, as
discussed at Other Expense.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the quarter when compared to the
prior year. Details are contained in the table at page 11.
>> Loan growth reflects the strong loan demand over the past year, the
Company's increased emphasis on loan origination and the favorable interest
rate environment for borrowers that prevailed from early 1998 through the
middle of 1999.
>> The yield on loans decreased primarily due to an approximate 80 basis point
reduction in loan rates for new mortgage loan originations as compared to
approximately $54 million in mortgage loans that paid off during fiscal
1999. The impact of this caused overall mortgage portfolio yields to
decline approximately 3 basis points. In addition, the overall portfolio
yield on consumer loans decreased about 18 basis points and yields in the
commercial portfolio decreased about 17 basis points.
>> The average balances in the investment securities portfolio grew 56%
primarily due to the Company's strategy to leverage capital that was raised
in the stock offering.
>> The higher yield in the investment portfolio resulted from the leveraging
strategy (outside the loan portfolio) in the latter part of fiscal 1999
when rates had risen significantly over the prior year. In addition, the
investment growth occurred in securities that had slightly longer average
lives with higher yields.
10
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the periods indicated. The average yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from average daily balances for fiscal 2000, but the fiscal 1999
averages are derived from month-end balances. Management does not believe that
the use of month-end balances instead of average daily balances has caused any
material differences in the information presented.
Six months Six months
March 31, 2000 March 31, 1999 Changes in
-------------- -------------- --------------------------------
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balances % Interest Yield/Cost
---------- -------- ---------- -------- -------- ---------- -------- ----- -------- ----------
Interest-earnings assets (IEA):
Loans receivable $411,955 $15,576 7.56% $356,209 13,899 7.80% $55,747 16% $ 1,677 -0.24%
Investments and other (2) 96,111 3,346 6.96% 61,786 1,851 5.99% 34,325 56% 1,495 0.97%
-------- ------- -------- ------- ------- -------
Total (1) 508,066 $18,922 7.45% 417,995 $15,750 7.54% $90,072 22% $ 3,172 -0.09%
======= ======= =======
Other assets 16,974 11,659
-------- --------
Total assets $525,040 $429,654
======== ========
Interest-bearing liabilities (IBL):
Interest checking $ 30,596 $ 279 1.82% $ 27,197 $ 246 1.81% $ 3,399 12% $ $ 34 0.02%
Savings 31,845 272 1.71% 37,718 330 1.75% (5,873) -16% (58) -0.04%
Money market accounts 25,226 508 4.03% 19,464 366 3.76% 5,763 30% 142 0.27%
Certificate accounts 242,103 6,343 5.24% 247,479 6,591 5.33% (5,376) -2% (248) -0.09%
-------- ------- -------- ------- ------- -------
Total deposits 329,770 7,402 4.49% 331,857 7,532 4.54% (2,087) -1% (130) -0.05%
Advances and other borrowings 115,417 3,171 5.49% 37,584 909 4.84% 77,833 207% 2,262 0.66%
-------- ------- -------- ------- ------- -------
Total (2) 445,187 $10,573 4.75% 369,441 $ 8,441 4.57% $75,746 21% $ 2,132 0.18%
======= ======= ======= =======
Other liabilities 19,968 23,440
Total liabilities 465,155 392,881
Stockholders' equity 59,885 36,773
-------- --------
Total liabilities and equity $525,040 $429,654
======== ========
Net interest income (1) (2) $ 8,349 $ 7,309
======= =======
Average IEA to IBL 114% 113%
Interest rate spread 2.70% 2.97%
Interest margin 3.29% 3.50%
(1) Interest income and net interest income do not agree to the statement of
operations because the tax equivalent income on municipal bonds is included
in this schedule.
(2) Interest income and interest expense for 1999 do not agree to the statement
of operations because special adjustments related to escrowed funds in
connection with the stock conversion.
11
Interest Expense. The following discussion highlights the major factors that
impacted the changes in Interest Expense during the quarter when compared to the
prior year. Detailed changes are contained in the table at page 11.
>> The decrease in deposits is attributable mainly to maintaining a
conservative deposit pricing strategy, utilizing more cost effective
funding alternatives that are available for the terms the Company has
considered appropriate to fit its interest rate management strategies. The
growth in checking account average balances has helped offset the decline
in certificate accounts.
>> FHLB advances grew because the Company considered the advances to be a more
cost-effective funding alternative during the course of the year. Although
the costs of the advances exceed the cost of certificate accounts, funding
asset growth through certificate accounts was deemed to be more expensive
than wholesale funding.
>> The higher cost of funds related to the FHLB advances is reflective of the
significant rise in interest rates over the past year.
Provision for Loan Losses. The provision for loan losses was $270,000 for the
six months ended March 31, 2000, compared to $300,000 for the six months ended
March 31, 1999. The Company had net charge-offs of $91,000 for the six months
ended March 31, 2000 compared to net charge-offs of only $82,000 for the six
months ended March 31, 1999. See other discussion at the three month comparison
of operations.
Other Expense. Other expense increased by $520,000 to $6.1 million for the six
months ended March 31, 2000 from $5.7 million for the six months ended March 31,
1999.
>> Compensation and employee benefits increased $279,000 due primarily to
having certain key positions filled this year compared to last year,
recognition of $95,000 related to the restricted stock plan and certain
costs related to increased incentive pay based on production and earnings
performance.
>> Other expenses increased by $241,000 primarily due to the following:
o certain Year 2000 costs ($50,000),
o direct costs related to stockholder meetings, communications, legal
matters and new financial reporting requirements as a public company
($82,000), and
o increased effort on charging off uncollected fees and overdrawn
accounts ($55,000).
o consulting services ($50,000)
o supplies and promotional materials related to name change ($20,000)
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowing. Savings institution liquidity is normally considered in terms of
the nature and mix of the savings institution's sources and uses of funds.
Asset liquidity is provided through loan repayments and the management of
maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining sufficient levels of loans and mortgage-backed
securities that generate monthly cash flows.
12
Cash and cash equivalents increased $562,000 to $3.2 million for the six months
ended March 31, 2000. Significant cash flows or uses (amounts shown in
parentheses) were as follows:
(In millions)
-----------
Cash used by operations $ (3.4)
FHLB advances and other borrowings 39.5
Increase in net deposits 16.4
Maturities of and repayments on investment securities 10.5
Purchases of investment securities and FHLB stock (30.4)
Net increase in loans (25.5)
Payments to acquire treasury stock (3.6)
Other - net (2.9)
------
Net increase in cash and cash equivalents $ .6
=======
See "Comparison of Financial Condition at March 31, 2000 and September 30, 1999"
for discussion of significant cash flows.
On March 31, 2000, the Bank was in compliance with its three regulatory capital
requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital ......................... $51,485 9.33%
Tangible capital requirement ............. 8,276 1.50
Excess over requirement .................. 43,209 7.83
Core capital ............................. $51,485 9.33%
Core capital requirement ................. 22,069 4.00
Excess over requirement .................. 29,416 5.33
Risk based capital ....................... $53,871 15.73%
Risk based capital requirement ........... 27,397 8.00
Excess over requirement .................. 26,474 7.73
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
Year 2000
Like many financial institutions, the Company relies on computers to conduct its
business and information systems processing. Industry experts were concerned
that on January 1, 2000, some computers might not be able to interpret the new
year properly, causing computer malfunctions. Some banking industry experts
remain concerned that some computers may not be able to interpret additional
dates in the year 2000 properly. The Company has operated and evaluated its
computer operating systems following January 1, 2000 and has not identified any
errors or experienced any computer system malfunctions. The Company's management
will continue to monitor its information systems to assess whether the systems
are at risk of misinterpreting any future dates and will develop appropriate
contingency plans to prevent any potential system malfunction or correct any
system failures. The Company has not been informed of any such problem
experienced by its vendors or its customers, nor by any of the municipal
agencies that provide services to the Company.
13
Nevertheless, it is too soon to conclude that there will not be any problems
arising from the Year 2000 problem, particularly at some of the Company's
vendors. The Company will continue to monitor its significant vendors of goods
and services with respect to Year 2000 problems they may encounter as those
issues may effect the Company's ability to continue operations, or might
adversely affect the Company's financial position, results of operations and
cash flows. The Company does not believe at this time that these potential
problems will materially impact the ability of the Company to continue its
operations, however, no assurance can be given that this will be the case.
The expectations of the Company contained in this section on Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward looking statements. All forward looking statements in this section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward looking statements.
Impact of Inflation
The condensed consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in accordance with GAAP,
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 impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
financial. As a result, interest rates have a greater impact on the Company's
performance than do the effects of 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.
14
ITEM 3. Qualitative and Quantitative Disclosure About Market Risk
Qualitative Analysis. There have been no material changes from the Qualitative
Analysis information regarding market risk disclosed under the heading
"Management of Interest Rate Risk and Market Risk" in the Company's Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended September 30, 1999.
Quantitative Analysis. Exposure to interest rate risk is actively monitored by
management. The Company's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Company uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in net portfolio value. Reports generated from assumptions
provided and modified by management are reviewed by the Asset/Liability
Management Committee and reported to the Board of Directors quarterly. The
Interest Rate Sensitivity of Net Portfolio Value Report shows the degree to
which balance sheet line items and net portfolio value are potentially affected
by a 100 to 300 basis point (1 basis point equals 1/100th of a percentage point)
upward and downward parallel shift (shock) in the Treasury yield curve.
Since the OTS Net Portfolio Value ("NPV") Model measures exposure to interest
rate risk of the Bank to assure capital adequacy for the protection of the
depositors, only the Bank's financial information is used for the model.
However, the Bank is the only subsidiary and significant asset of the Company,
therefore the OTS NPV model provides a reliable basis upon which to perform the
quantitative analysis. The following table presents the Company's NPV as of
December 31, 1999. The results of the NPV model are not yet available for March
31, 2000, but no significant changes are anticipated in the NPV as a Percentage
of Present Value of Assets. The NPV was calculated by the OTS, based on
information provided by the Company.
Net Portfolio Value ("NPV") NPV as % of Present Value of Assets
-------------------------- ---------------------------------------
Change Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- --------- -------- --------- ------
(Dollars in thousands)
+300 bp 15,803 -36,621 -70% 3.31% -671 bp
+200 bp 27,449 -24,975 -48% 5.58% -444 bp
+100 bp 49,744 -12,680 -24% 7.84% -219 bp
0 bp 52,424 10.03%
-100 bp 60,247 +8,823 +17% 11.45% +142 bp
-200 bp 69,006 +16,581 +32% 12.64% +261 bp
-300 bp 75,844 +23,420 +45% 13.64% +361 bp
The OTS defines the sensitivity measure as the change in NPV Ratio with a 200
basis point shock. The Bank's sensitivity measure reflects a 444 basis point
decline in NPV ratio as of December 31, 1999. This compares to a sensitivity
measure of 280 basis points as of September 30, 1999. Without detailing all the
assumptions included in the OTS NPV model, the following comments are made to
discuss what Bank actions or strategies are addressing the sensitivity measure
indicators.
>> Reviewing the average lives and durations of its loans and investment
securities,
>> Reviewing deposit offerings and alternative funding sources to better match
the durations of the assets,
>> Considering an additional capital contribution from the Company to the Bank
(the Company has over $7 million in capital that could be contributed),
>> Performing, on a quarterly basis, a dynamic business simulation that more
clearly reflects an on-going business assumption, rather than relying
solely on the OTS model which more closely approximates a liquidation value
model.
15
FLORIDAFIRST BANCORP
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal proceeding
of a material nature at March 31, 2000. From time to time, the Company
is a party to routine legal proceedings in the ordinary course of
business, such as claims to enforce liens, condemnation proceedings on
properties in which the Company holds security interests, claims
involving the making and servicing of real property loans, and other
issues incident to the business of the Company. There were no lawsuits
pending or known to be contemplated against the Company at March 31,
2000 that would have a material effect on the operations or income of
the Company or the Bank, taken as a whole.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on January
28, 2000 to elect a director and ratify the appointment of independent
auditors. The stockholders reelected Nis H. Nissen, III to the Board
of Directors for a three-year term and ratified the appointment of
KPMG LLP as independent auditors for the fiscal year ending September
30, 2000. In addition, the Board of Directors elected Mr. Nissen to
serve as its new chairman, succeeding Mr. Charles W. Bovay upon his
retirement from the Board.
The results of voting are shown for each matter considered.
Director election:
Nominee Votes For Votes Withheld
------- --------- --------------
Nis H. Nissen, III 5,217,454 81,909
Auditor ratification: Votes For Votes Withheld Abstentions
--------- -------------- -----------
5,253,295 38,248 7,820
ITEM 5. OTHER INFORMATION
On February 25, 2000 the Board of Directors of the Company declared a
dividend distribution of $0.04 per share for the quarter ended March
31, 2000, based upon the number of shares outstanding as of March 15,
2000 on the Company's outstanding common stock, payable on April 1,
2000, to stockholders of record as of March 15, 2000.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K (Items 5 and 7)
with the Securities and Exchange Commission, dated February
28, 2000, announcing that it had completed its 15% stock
repurchase plan, representing 405,578 shares at an average
price of $8.89. In addition, the Company announced that it has
received approval from the Office of Thrift Supervision to
repurchase 108,154 shares for the FloridaFirst Bank Restricted
Stock Plan.
17
FLORIDAFIRST BANCORP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORIDAFIRST BANCORP
Date: May 10, 2000 By: /s/Gregory C. Wilkes
----------------------------------------
Gregory C. Wilkes
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 2000 By: /s/Kerry P. Charlet
----------------------------------------
Kerry P. Charlet
Chief Financial Officer
(Principal Accounting Officer)