PROSPECTUS
FLORIDAFIRST BANCORP, INC.
(Proposed holding company for FloridaFirst Bank)
Up to 5,520,000 shares of common stock
We are offering common stock. The shares we are offering represent the
57% ownership interest in FloridaFirst Bancorp now owned by FloridaFirst Bancorp
MHC, the mutual holding company of FloridaFirst Bancorp. FloridaFirst Bancorp is
the mid-tier stock holding company parent of FloridaFirst Bank. The remaining
43% ownership interest in FloridaFirst Bancorp is owned by the public and will
be exchanged for our shares of common stock.
If you are a current or former depositor of FloridaFirst Bank as of the
eligibility dates:
o You may have priority rights to purchase shares at $10.00 per share.
o You may be eligible to purchase up to 30,000 shares but may not purchase
fewer than 25 shares.
o You will not pay a commission to buy any shares.
o Our offering will end at 4:00 p.m., eastern time on December 6, 2000.
If you are currently a stockholder of FloridaFirst Bancorp:
o Your shares will be exchanged automatically for new shares of FloridaFirst
Bancorp, Inc.
o After the exchange of shares, your percentage ownership interest in
FloridaFirst Bancorp, Inc. will be equivalent to your current percentage
ownership interest in FloridaFirst Bancorp.
o You may be eligible to also purchase additional shares at $10.00 per share
in the community offering.
o You will not pay a commission to buy any shares or to exchange existing
shares.
If you fit none of the above categories, but are interested in purchasing shares
of our common stock:
o You may be eligible to purchase shares at $10.00 per share after priority
orders are filled.
o You may be eligible to purchase up to 30,000 shares.
o You may not purchase fewer than 25 shares.
o You will not pay a commission to buy any shares.
-------------------------------------
MAXIMUM
MINIMUM MAXIMUM AS ADJUSTED
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Number of Shares 2,326,877 3,147,952 3,620,179
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Total Underwriting Commissions and Expenses $1,038,000 $1,094,000 $1,127,000
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Net Proceeds $22,230,770 $30,385,520 $35,075,000
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Net Proceeds Per Share $9.55 $9.65 $9.69
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FloridaFirst Bancorp, Inc. may sell up to 3,620,179 shares because of
changes in the market and general financial and economic conditions without
notifying prospective purchasers. We will terminate the offering and the
exchange of shares if we do not sell the minimum number of shares.
For a discussion of risks you should consider, see "Risk Factors"
beginning on page 10 of the prospectus.
The Nasdaq National Market has given us preliminary approval to list
our common stock on the National Market under the same symbol "FFBK."
We are offering the common stock on a best efforts basis. Sandler
O'Neill & Partners, L.P. will assist us in the sale of the common stock, though
they are not required to purchase any of the common stock that is being offered.
These securities are not deposits or savings accounts and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision nor any state securities regulator has approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Funds received prior to the completion of the offering will be held in
an escrow account at FloridaFirst Bank which will bear interest at our savings
account rate. If the offering is terminated, all funds received from prospective
purchasers will be promptly returned with interest. This offering is expected to
expire on December 6, 2000, at 4:00 p.m., eastern time, unless it is extended,
up to January 20, 2001, with the approval of the Office of Thrift Supervision.
For assistance, please contact the conversion center at (863) 802-0088.
Sandler O'Neill & Partners, L.P.
The Date of this Prospectus is November 3, 2000
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements of
FloridaFirst Bancorp.
The Companies
FloridaFirst Bancorp, Inc. 205 East Orange Street, Lakeland, Florida 33801-4611
We are a Florida corporation and we were formed to own all of
FloridaFirst Bank's capital stock upon completion of the conversion and stock
offering. We have applied to the Office of Thrift Supervision for approval to
become a savings and loan holding company.
FloridaFirst Bancorp MHC 205 East Orange Street, Lakeland, Florida 33801-4611
FloridaFirst Bancorp MHC is currently the mutual holding company of
FloridaFirst Bancorp. As of June 30, 2000, FloridaFirst Bancorp MHC's sole
business activity consists of its ownership of 3,049,024 shares of FloridaFirst
Bancorp's common stock, which represents 57% of its outstanding shares, as well
as $98,500 in cash.
FloridaFirst Bancorp 205 East Orange Street, Lakeland, Florida 33801-4611
FloridaFirst Bancorp is currently the mid-tier federal stock holding
company of FloridaFirst Bank. FloridaFirst Bancorp owns all of the outstanding
common stock of FloridaFirst Bank. FloridaFirst Bancorp MHC owns 3,049,024
shares of FloridaFirst Bancorp's outstanding common stock. The remaining
2,298,273 shares of common stock are held by the public. At June 30, 2000,
FloridaFirst Bancorp had consolidated assets totaling $569.0 million, deposits
of $357.5 million and consolidated stockholders' equity of $59.4 million.
FloridaFirst Bank 205 East Orange Street, Lakeland, Florida 33801-4611
FloridaFirst Bank is a federally-chartered stock savings bank
headquartered in Lakeland, Florida. FloridaFirst Bank is a community-oriented
financial institution offering traditional financial services to its local
community. It conducts operations through its main office in Lakeland, Florida
and its eight branch offices.
How The Ownership Structure Will Change After The Conversion
The following chart shows our current structure which is commonly
referred to as a "two-tier" mutual holding company structure:
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|------------------------------| |------------------------------|
| | | FloridaFirst Bancorp |
| FloridaFirst Bancorp MHC | | Minority Stockholders |
|------------------------------| |------------------------------|
| |
|57% 43%|
| ------------------------------|
| FloridaFirst Bancorp |
|-------------------------------|
|
|100%
|
|------------------------------|
| FloridaFirst Bank |
|------------------------------|
Our ownership structure after the conversion
|------------------------------|
| Public Stockholders |
|------------------------------|
|
|100%
|
|------------------------------|
| FloridaFirst Bancorp, Inc. |
|------------------------------|
|
|100%
|
|------------------------------|
| FloridaFirst Bank |
|------------------------------|
The Conversion
The Offering
We are selling common stock which represents the 57% ownership interest
in FloridaFirst Bancorp now owned by FloridaFirst Bancorp MHC in the following
order of priority.
First: Depositors with $50 or more on deposit as of June 30, 1999.
Second: FloridaFirst Bank's employee stock ownership plan.
Third: Depositors with $50 or more on deposit as of September 30, 2000.
Fourth: Depositors and certain borrowers as of October 23, 2000.
We are selling between 2,326,877 and 3,147,952 shares of common stock,
all at a price of $10.00 per share. The number of shares to be sold may be
increased to 3,620,179. The actual amount of shares we sell will depend on an
independent appraisal performed by Finpro, an independent appraisal firm. See,
"$10.00 Per Share Stock Pricing And The Number Of Shares To Be Issued In The
Conversion," at page 6.
The subscription offering expires at 4:00 p.m., eastern time, on
December 6, 2000, but may be extended to January 20, 2001, with the approval of
the Office of Thrift Supervision. You cannot transfer your subscription rights.
If you attempt to transfer your rights, you may lose the right to purchase
shares and may be subject to criminal prosecution and/or other sanctions.
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During the subscription offering, we may also offer shares of common
stock in a community offering. In this part of the offering, current
stockholders of FloridaFirst Bancorp will have first preference and people who
reside in Polk or Manatee Counties, Florida will have second preference. This
part of the offering may terminate at any time without notice but no later than
January 20, 2001.
Shares not sold in the subscription or community offering may be
offered for sale in a syndicated community offering, which would be an offering
to the general public on a best efforts basis by a syndicate of broker dealers
managed by Sandler O'Neill & Partners, L.P.
You will not pay a commission to buy any shares.
We have the right to reject any orders of stock in the subscription
offering, community offering, and syndicated community offering.
We have described the offering in greater detail beginning at page 24
of this prospectus.
The Exchange Of FloridaFirst Bancorp Common Stock
If you are now a stockholder of FloridaFirst Bancorp, your shares will
be cancelled and exchanged for our shares. The number of shares you will receive
will be based on an exchange ratio. The actual number of shares you receive will
depend upon the number of shares we sell in our offering and the final appraised
value of our stock.
The following table shows how the exchange ratio will adjust based on
the number of shares sold in our offering. The table also shows how many shares
an owner of FloridaFirst Bancorp common stock would receive in the exchange,
adjusted for the number of shares sold in the offering.
100 Shares of
FloridaFirst
Shares to be Exchanged Bancorp would be
Shares to be Sold for FloridaFirst Bancorp, Inc. Total Shares exchanged for
in the Offering Common Stock of Common FloridaFirst
--------------------------- ------------------------------ Stock to be Exchange Bancorp, Inc.
Amount Percent Amount Percent Outstanding Ratio Common Stock
------ ------- ------ ------- ----------- -------- ------------------
Minimum.............. 2,326,877 57.03% 1,753,123 42.97% 4,080,000 0.7628% 76
Midpoint............. 2,737,299 57.03 2,062,701 42.97 4,800,000 0.8975 90
Maximum.............. 3,147,952 57.03 2,372,048 42.97 5,520,000 1.0321 103
Adjusted maximum..... 3,620,179 57.03 2,727,821 42.97 6,348,000 1.1869 119
If you own your shares of FloridaFirst Bancorp in "street name," the
exchange will occur automatically and you need take no action. If you have
certificated shares, you will receive a transmittal form with instructions to
surrender your stock certificates after the offering is completed. You will
receive new certificates of our common stock within five business days after we
receive properly executed transmittal forms.
No fractional shares of our common stock will be issued to any public
stockholder of FloridaFirst Bancorp upon consummation of the conversion. Payment
for fractional shares will be made as soon as practicable after the receipt by
the exchange agent of surrendered FloridaFirst Bancorp stock certificates.
We have described the exchange in greater detail beginning at page 18
of this prospectus.
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Reasons For The Conversion
We are pursuing the conversion for the following reasons:
o After conversion, due to the proceeds we will receive from the
sale of our shares, we will have more capital which will
enable us to continue to expand our banking franchise through
de novo branching, and offer new products and banking
services. We will be in a better position to increase our
market presence in our market areas of Polk and Manatee
Counties, Florida. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" beginning at
page 51 of this prospectus.
o The larger capital base resulting from the conversion will
allow us to increase our earning assets, which should permit
us to continue to increase our earnings.
o After conversion, our common stock will continue to be listed
on the Nasdaq National Market with a greater number of
outstanding shares held by public stockholders. This will
provide additional liquidity and visibility for our common
stock and make it easier for you to buy and sell our common
stock.
o As a fully converted holding company, we will have greater
strategic flexibility in connection with merger and
acquisition transactions. Unlike a mutual holding company, we
can use stock as a form of payment for acquisitions and merge
with any other stock institution or its holding company.
Currently, we have no plans, agreements or understandings
regarding any acquisition.
Conditions To Complete The Conversion
We cannot complete our conversion and our offering unless:
(1) It is approved by a majority vote of members of FloridaFirst
Bancorp MHC;
(2) It is approved by a two-thirds vote of stockholders of
FloridaFirst Bancorp; and
(3) It is approved by a majority vote of stockholders of FloridaFirst
Bancorp, not including those shares held by FloridaFirst Bancorp
MHC.
We have described the conditions to complete the conversion in greater
detail at page 23 of this prospectus.
$10.00 Per Share Stock Pricing And The Number Of Shares To Be Issued In The
Conversion
The number of shares offered is based on an independent appraisal of
the pro forma estimated market value of our stock by FinPro divided by the
purchase price of $10.00 and multiplied by the percentage of shares being
offered to the public. The $10.00 per share price was determined by our board of
directors. FinPro will receive a fee of $18,000 for its appraisal services.
FinPro has determined that as of September 5, 2000, our estimated
aggregate pro forma market value was $48.0 million, the mid-point of the
offering range. Pursuant to regulations, this estimate must be included within a
range with a minimum of $40.8 million and a maximum of $55.2 million. We are
offering a maximum of 3,147,952 shares in the offering, subject to adjustment.
This offering range means that the $10.00 per share purchase price for our
shares will range from 8.93x to 12.99x of our pro forma
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net income per share using the financial data for the twelve month period ended
June 30, 2000, compared of similar thrift institutions used by FinPro.
Additionally, the $10.00 per share purchase price for our shares will
range from 51.98% to 70.82% of our pro forma stockholders' equity per share and
our pro forma tangible per share using June 30, 2000 financial data.
Stockholders' equity represents the difference between assets and liabilities.
Tangible stockholders' equity represents the difference between assets and
liabilities minus any intangible assets, such as goodwill. We have no intangible
assets, therefore, on a pro forma basis, our tangible stockholders' equity
equals our stockholders' equity. The average stockholders' equity per share for
a peer group of similar institutions is 89.08% and the average tangible
stockholders' equity per share for a peer group of similar institutions is
89.69%.
FinPro determined that our pricing ratios are lower than the pricing
ratios for a peer group of similar institutions because:
o we have a high level of interest rate risk;
o our historical earnings are lower than the peer group;
o other fully converted thrifts in the Florida market trade below the
national market ratios; and
o we will require time to adequately invest the proceeds raised in this
offering.
The ratios we have presented are commonly requested by a prospective
investor in order to determine whether or not the stock meets his or her
investment criteria. Because of possible differences and important factors such
as operating characteristics, financial performance, asset size, capital
structure, and business prospects between us and other fully converted
institutions, you should not rely solely on these comparative valuation ratios
as an indication as to whether or not the stock is an appropriate investment for
you. See "Risk Factors -- "You may not be able to sell your shares when you
desire, or for $10.00 or more per share." and "Pro Forma Data" and "The Offering
- -- Stock Pricing and the Number of Shares To Be Offered."
The Amount Of Stock You May Purchase
The minimum number of shares that you may purchase is 25.
If you are not a FloridaFirst Bancorp stockholder, you may not,either
alone or together with persons acting in concert with you, purchase more than
30,000 shares of common stock.
If you are now a FloridaFirst Bancorp stockholder, you may not, either
alone or together with persons acting in concert with you, purchase shares that,
when combined with shares you receive in the exchange for FloridaFirst Bancorp
stock, exceed 30,000 shares.
For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "The Offering--Limitations on Purchases
of Common Stock" at page 28.
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Our Use Of The Proceeds Raised From The Sale Of Stock
We estimate that we will receive net proceeds from the sale of the
common stock of between $22.2 million at the minimum of the offering range and
$35.1 million at the maximum, as adjusted of the offering range. Assuming net
proceeds of $26.3 million of common stock at the midpoint of the offering range
and the purchase of 8% of the shares by the employee stock ownership plan, the
following table shows the manner in which we will use the net proceeds (in
millions).
Loan to employee stock ownership plan $ 2.2
Investment in FloridaFirst Bank 13.2
Working capital 10.9
-----
$26.3
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Benefits Of The Conversion to Management
In order to link our employees' and directors' interests closer to our
stockholders' interests, we intend to establish certain benefit plans that use
our stock as compensation. Officers, directors, and employees will not be
required to pay cash in exchange for certain stock benefits.
The following table presents information regarding the employee stock
ownership plan and stock- based incentive plans. The stock-based incentive plans
may not be adopted for at least six months after the offering and must be
approved by a majority vote of the stockholders. The table below assumes the
sale of 3,147,952 shares in the offering. It is assumed that the value of the
stock is $10 per share. Options to acquire shares of the stock are given no
value because their exercise price will be equal to the fair market value of the
stock on the day the options are granted. As a result, anyone who receives an
option will only benefit from the option if the price of the stock rises in the
future above the exercise price.
Percentage of
Estimated Total Shares Sold
Participants Shares Value of Shares in the Offering
------------ ------ ------------------- -----------------
Employee Stock Ownership
Plan................................ Employees 251,836 $2,518,360 8.0%
Stock-Based Incentive Plans:
Restricted Stock Awards............. Directors and
Employees 125,918 1,259,180 4.0
Stock Options....................... Directors and
Employees 314,795 - 10.0
------- --------- ----
Total................. 692,549 $3,777,540 22.0%
======= ========= ====
We will also convert restricted stock awards and options previously
awarded to officers, directors and employees of FloridaFirst Bancorp and
FloridaFirst Bank. The number of restricted stock awards received will be
adjusted based upon the exchange ratio and the other terms and the vesting
period will remain unchanged. The number of stock options received and the
exercise price will be adjusted based on the exchange ratio and the other terms
and the vesting period will remain unchanged.
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Market For Common Stock
We have applied to the Nasdaq Stock Market to list the common stock on
the Nasdaq National Market under the symbol FFBK. The common stock of
FloridaFirst Bancorp is currently listed on the Nasdaq National Market under the
same symbol, FFBK. While it is expected that our common stock will be more
easily tradeable because there will be significantly more outstanding shares
than FloridaFirst Bancorp's common stock, there can be no assurance of this.
Sandler O'Neill has advised us that it intends to be a market maker in the
common stock and will assist us in obtaining additional market makers.
Dividend Policy
FloridaFirst Bancorp currently pays a cash dividend of $.04 per share
per quarter during fiscal 2000, or $.16 per share per year. After the
conversion, we expect to continue to pay a dividend rate of at least $.04 per
share per quarter. The dividend rate and the continued payment of dividends will
depend on a number of factors including our capital requirements, our financial
condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions. No assurance can be
given that we will continue to pay dividends or that they will not be reduced in
the future.
Comparison Of Stockholders' Rights
After the conversion, the stockholders of FloridaFirst Bancorp will
become our stockholders and their rights as stockholders will be governed by our
articles of incorporation, bylaws and Florida law. For a discussion of material
differences in the rights of stockholders and an explanation of possible
anti-takeover effects of provisions in our articles of incorporation and bylaws,
see "Comparison of Stockholders' Rights" beginning at page 105 of this
prospectus.
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RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in evaluating an investment in our stock.
Rising interest rates would likely hurt our profits and may affect our ability
to pay dividends, repurchase stock or undertake other corporate transactions.
To be profitable, we must earn more in interest and fees than we pay in
interest and expenses. If interest rates continue to rise as they have recently,
the interest we pay on interest-bearing liabilities, such as deposits and
borrowings, will increase more quickly than interest earned on interest-earning
assets, such as loans and investment securities. This will reduce our net
interest income and thereby reduce our net income in the short-term. In
addition, rising interest rates are likely to reduce our income because it may
reduce the demand for loans and the value of our investment securities and make
it more difficult for our borrowers to repay their loans. The Office of Thrift
Supervision uses an interest sensitivity analysis to review the level of
interest rate risk. Based on this analysis, we have significant interest rate
risk. As a result, this could restrict the capital resources of FloridaFirst
Bank and could require us to contribute additional capital to FloridaFirst Bank
or may prevent FloridaFirst Bank from paying dividends to us. This could
restrict our ability to pay dividends, repurchase stock or undertake other
corporate transactions. Currently, a material increase in interest rates would
have a material adverse effect on our income and regulatory capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk and Market Risk."
Increases in market rates of interest are likely to adversely affect our
stockholders' equity.
At June 30, 2000, FloridaFirst Bancorp owned $94.0 million of
marketable securities that were available for sale. Generally accepted
accounting principles require that these securities be carried at fair value on
the consolidated balance sheet. Unrealized gains or losses on these securities,
that is, the difference between the fair value and the amortized cost of these
securities, is reflected in stockholders' equity, net of deferred taxes.
Recently, market rates of interest have increased. When interest rates increase,
the fair value of FloridaFirst Bancorp's available for sale marketable
securities generally decreases, which decreases stockholders' equity. As of June
30, 2000, FloridaFirst Bancorp's available for sale marketable securities
portfolio had an unrealized loss, net of taxes, of $2.0 million, which resulted
in a decrease in stockholders' equity by the same amount. Our stockholders'
equity is likely to be adversely affected by an increase in market interest
rates.
Our profits will decrease due to expansion plans.
The Board of Directors and management have developed an expansion plan
that includes three de novo branches within our existing market areas and a
strategic plan. Costs for the new projects are estimated to be approximately
$1.1 million in fiscal 2001 and $1.5 million in fiscal 2002. Such plans will
decrease our profits in the short term. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Comparison of
Operating Results for the Nine Months Ended June 30, 2000 and June 30, 1999 --
Other Expenses."
Because of our emphasis on expansion of our commercial and consumer lending
after the offering, downturns in the real estate market or economy may increase
the risk that some of our loans will not be repaid.
In recent years, we have increased our emphasis on commercial and
consumer lending and intend to continue to do so after the offering. The risk
that commercial and consumer loans will not be repaid is generally greater than
the risk that residential loans will not be repaid. As we increase the amount of
commercial and consumer loans that we originate and hold for investment, the
likelihood increases that
10
some of our loans will not be repaid or our borrowers will be late in paying
such loans. Any failure to pay such loans would hurt our earnings and asset
quality.
You may not be able to profit from the sale or merger of us because of
provisions in our charter documents and other laws and regulation.
Our articles of incorporation and bylaws contain provisions that may
make it difficult for someone to acquire control of us. These provisions may
discourage takeover attempts and prevent you from receiving a premium over the
market price of your shares as part of a takeover. Additionally, the Office of
Thrift Supervision regulations may also make it difficult for anyone to acquire
us for three years after the conversion. See "Comparison of Stockholders'
Rights" and "Restrictions on Acquisitions of FloridaFirst Bancorp, Inc."
The implementation of certain stock-based benefit plans may increase our future
compensation expense and may reduce our earnings.
We intend to adopt a stock option plan that will provide for the
granting of options to purchase common stock, a restricted stock plan that will
provide for awards of restricted stock to our eligible officers, employees and
directors and an employee stock ownership plan that will distribute stock to all
of our qualifying employees over a period of time. The restricted stock plan and
the employee stock ownership plan will increase our future costs of compensating
our directors, officers, and employees. The cost of the employee stock ownership
plan will vary based on our stock price over time, while the cost of the
restricted stock plan will be based on our stock price when the awards are first
granted.
Our low return on equity after the conversion may negatively impact the value of
our common stock.
As a result of FloridaFirst Bancorp's high capital levels and the
additional capital that will be raised by us in the conversion, our ability to
leverage the net proceeds from the conversion may be limited in the near future.
The return on equity is initially expected to be lower than it has been in
recent years, which may negatively impact the value of our common stock.
You may not be able to sell your shares when you desire, or for $10.00 or more
per share.
Publicly traded stocks have recently experienced substantial market
price volatility. This is due, in part, to investors' shifting perceptions of
the effect on various industry sectors of changes and potential changes in the
economy. Volatility, therefore, may be unrelated to the current operating
performance of particular companies whose shares are traded. The purchase price
of common stock sold in conversion transactions, including mutual-to-stock
conversion transactions of mutual holding companies, is based on an independent
appraisal. Independent appraisals are not intended, and should not be construed
as a recommendation as to the advisability of purchasing shares. After our
common stock begins to trade, the trading price will be determined by the
marketplace. The trading price will fluctuate because it will be influenced by
many factors, including prevailing interest rates, other economic conditions,
our operating performance and investor perceptions of the outlook for us and the
banking industry in general. We cannot assure you that if you choose to sell
shares you purchased in the stock offering, you will be able to sell them at or
above the $10 per share offering price.
A downturn in our local economy and increased competition may adversely affect
our profitability.
Our business of attracting deposits and making loans is primarily
conducted within our market area. A downturn in our local economy could reduce
the amount of funds available for deposit and the ability of borrowers to repay
their loans. As a result, our ability to make a profit could be hurt. We have
substantial competition for deposits and loans. Many competitors have greater
resources than we do. Our ability to compete successfully will affect our
profitability.
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Banking reform legislation may adversely impact our profitability.
In November 1999, the President signed into law the Gramm-Leach-Bliley
Financial Services Modernization Act of 1999. This legislation is intended to
modernize the financial services industry by establishing a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms and other financial service providers. Since the legislation
now permits banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation. This could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than we currently offer and that can aggressively
compete in the markets we currently serve. This could adversely impact our
profitability.
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Selected Financial Highlights
(In thousands except per share data)
At June 30, At September 30,
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2000 1999 (1) 1998 (2) 1997 1996 (3) 1995
----------- ----------- ---------- ---------- ---------- ----------
Assets................................ $568,969 $498,358 $414,472 $466,765 $440,294 $431,414
Loans receivable, net................. 432,492 397,910 338,610 355,551 321,327 260,675
Investment securities................. 103,638 80,876 60,961 74,573 99,841 138,234
Cash and cash equivalents............. 5,473 2,598 647 21,842 3,885 18,222
Deposits.............................. 357,535 339,224 352,180 429,714 404,184 397,594
Federal Home Loan Bank advances and
other borrowings................... 147,025 92,472 21,000 -- -- --
Stockholders' equity.................. 59,363 61,337 36,107 33,588 30,569 30,774
Actual number (not in thousands):
Real estate loans outstanding......... 4,614 4,696 4,433 5,149 5,461 5,187
Deposit accounts...................... 37,216 36,856 38,409 46,012 43,002 40,083
Full service offices.................. 9 9 9 14 13 14
Nine Months Ended
June 30, Year Ended September 30,
------------------- -----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
Summary of Operations:
Interest income ........................ $29,163 $24,002 $32,648 $32,141 $33,865 $31,694 $29,820
Interest expense ....................... 16,821 12,598 17,128 18,966 19,702 18,961 17,689
------- ------- ------- ------- ------- ------- -------
Net interest income .................... 12,342 11,404 15,520 13,175 14,163 12,733 12,131
Provision for loan losses .............. 450 420 540 405 317 600 75
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses ...................... 11,892 10,984 14,980 12,770 13,846 12,133 12,056
Other income ........................... 1,473 1,136 1,473 4,347 1,189 1,546 1,064
Other expenses ......................... 8,994 8,510 11,448 13,581 11,209 13,382 10,081
------- ------- ------- ------- ------- ------- -------
Income before income taxes ............. 4,371 3,610 5,005 3,536 3,826 297 3,039
Income taxes ........................... 1,540 1,279 1,748 1,151 1,299 44 1,057
------- ------- ------- ------- ------- ------- -------
Net income ............................. $ 2,831 $ 2,331 $ 3,257 $ 2,385 $ 2,527 $ 253 $ 1,982
======= ======= ======= ======= ======= ======= =======
Basic and diluted earnings per share (1) $ .54 -- $ .34 -- -- -- --
======= =======
Weighted shares outstanding (1) ........ 5,280 -- 5,549 -- -- -- --
===== =====
- ---------------
(1) Includes $25.7 million in net proceeds from the reorganization. Prior to
April 6, 1999, FloridaFirst Bank was a mutual institution. Therefore,
earnings per share and weighted average shares outstanding are for the six
months ended September 30, 1999 (period subsequent to the reorganization).
(2) During fiscal year 1998, FloridaFirst Bank sold five branches (and $55.5
million in related deposits) that were not contiguous to its primary market
area for a pre-tax gain of $3.0 million. In connection with the sale of
branches, FloridaFirst Bank transferred $44.6 million in loans. In
addition, other expenses includes special benefit plan adjustments of $2.2
million.
(3) 1996 includes a $2.5 million one-time special assessment to recapitalize
the Savings Association Insurance Fund.
13
Selected Financial Ratios
At or For
the Nine
Months Ended At or For the Year Ended
June 30, September 30,
---------------- ---------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
Performance Ratios:
Return on average assets (net income
divided by average total assets) .... .70% .70% .72% .55% .56% .06% .48%
Return on average equity (net
income divided by average equity) .... 6.32 6.92 6.65 6.55 7.71 .79 6.58
Net interest rate spread ................ 2.61 2.94 2.91 2.65 2.87 2.68 2.38
Net interest margin on average
interest-earnings assets .............. 3.20 3.52 3.56 3.10 3.23 3.03 2.99
Average interest-earning assets to
Average interest-bearing liabilities 110 112 116 110 108 108 107
Efficiency ratio (noninterest expense,
other than the $2.5 million SAIF
special assessment in 1996, divided
by the sum of net interest income
and noninterest income) .............. 65 68 67 78 74 76 76
Dividend payout ratio ................... 22 -- -- -- -- -- --
Asset Quality Ratios:
Non-performing loans to total loans, net .15 .11 .21 .25 .65 .37 .46
Non-performing assets to total assets .. .13 .15 .21 .32 .53 .28 .36
Net charge-offs to average loans
outstanding .......................... .04 .03 .04 .14 .02 .04 .03
Allowance for loan losses to total loans .75 .75 .74 .76 .74 .74 .73
Capital Ratios:
Average equity to average assets
(average equity divided by
average total assets) ................ 11.12 10.13 10.84 8.31 7.25 7.41 7.22
Equity to assets at period end .......... 10.43 13.16 12.31 8.62 7.20 6.94 7.13
14
Recent Developments
The information set forth below at or for the periods ended September
30, 2000 and 1999, is unaudited and, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results for the unaudited periods have been made. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements contained elsewhere in this prospectus.
On October 31,2000, FloridaFirst Bancorp announced to the public its
annual and fourth quarter earnings for the year ended and quarter ended
September 30, 2000. Net income for the fiscal year ended September 30, 2000 was
$3.8 million, or $ .73 basic and dilutive earnings per share, compared to $3.3
million for the same period last year. Net income for the quarter ended
September 30, 2000 was $1.0 million, or $.19 basic and dilutive earnings per
share, compared to $926,000 or $.17 basic earnings per share, for the same
period last year. FloridaFirst Bancorp was incorporated as a savings and loan
holding company under federal law on April 6, 1999 as part of the reorganization
into a mutual holding company structure. Accordingly, earnings per share amounts
are not presented for the fiscal year ended September 30, 1999.
For the fiscal year ended September 30, 2000, FloridaFirst Bancorp was
able to increase net income by 14% and it grew its asset base to $582 million,
an $84 million increase over last year. Net loans outstanding grew by 10.7%
reflecting strong performance by their loan production staffs. Additionally,
FloridaFirst Bancorp was able to reduce its efficiency ratio from 67% to 64% for
the current year and also grew non-interest revenues by 42%.
FloridaFirst Bancorp reported earnings in the latest quarter were
higher than previous quarters, however, these earnings included income of
$128,000 that resulted from certain nonrecurring adjustments. Excluding these
adjustments, earnings were lower in this quarter due to the continuing
compression in its net interest margin. The significant rise in short term
interest rates over the past year, resulting in an inverted yield curve, is
forcing FloridaFirst Bancorp to reprice customer deposits and other funding
sources at much higher costs. FloridaFirst Bancorp does not see any relief in
the margin pressure until the interest rate environment stabilizes and returns
to a more normal pattern. Additionally, earnings over the next several quarters
will be constrained by the continuing squeeze on the interest margin as well as
its investment in upgrading its technology, the construction of three new
branches and the on-going recruitment of personnel with the experience to
deliver new banking products and services to an expanding customer base.
Please refer below to the Selected Financial Information for further
information.
15
Selected Financial Information
(Dollars in thousands except per share data)
Three months ended Fiscal year ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Operating Data:
Interest income $10,677 $ 8,646 $39,840 $32,648
Interest expense 6,755 4,530 23,575 17,128
Net interest income 3,922 4,116 16,265 15,520
Provision for loan losses 180 120 630 540
Other income 636 338 2,109 1,473
Other expense 2,813 2,938 11,807 11,448
Net Income $ 1,012 $ 926 $ 3,842 $ 3,257
Basic and diluted earnings per share (1) $ 0.19 $ 0.17 $ 0.73 N/A
Weighted average shares outstanding (1) 5,183 5,544 5,256
Selected Performance Ratios:
(annualized where appropriate)
Return on average assets 0.71% 0.76% 0.70% 0.72%
Return on average equity 6.76% 6.03% 6.43% 6.65%
Net interest margin in average earning
assets 2.89% 3.47% 3.12% 3.56%
Efficiency ratio 62% 66% 64% 67%
At September 30,
------------------------
Balance Sheet Data and Ratios: 2000 1999
-------- --------
Total assets $582,180 $498,358
Loans receivable, net 440,386 397,910
Investment securities 106,348 80,876
Deposits 354,554 339,224
Federal Home Loan Bank advances 158,000 87,600
Stockholders' equity 61,081 61,337
Allowance for loan losses to total loans 0.75% 0.74%
Non-performing assets to total assets 0.17% 0.21%
Equity to assets at period end 10.49% 12.31%
Book value per share (1) $ 11.42 $ 10.66
(1) Includes shares owned by our mutual holding company, FloridaFirst Bancorp
MHC.
16
The Conversion
The Boards of Directors have adopted a plan authorizing the conversion,
subject to the approval of the Office of Thrift Supervision, members of
FloridaFirst Bancorp MHC, stockholders of FloridaFirst Bancorp and the
satisfaction of certain other conditions. Office of Thrift Supervision approval
does not mean that the Office of Thrift Supervision recommends or endorses the
plan of conversion.
General
On July 21, 2000, the Board of Directors of FloridaFirst Bancorp MHC,
FloridaFirst Bancorp and FloridaFirst Bank adopted a plan of conversion, which
has been subsequently amended. In accordance with the plan, FloridaFirst Bancorp
MHC will convert from a mutual holding company to a full stock corporation.
Public stockholders currently own 43% of FloridaFirst Bancorp and the remaining
57% is owned by FloridaFirst Bancorp MHC. Upon consummation of the conversion,
FloridaFirst Bancorp MHC will cease to exist. The stock held by the public
stockholders of FloridaFirst Bancorp will be converted into our shares.
FloridaFirst Bank will be our wholly owned subsidiary. For a detailed
description of the merger structure, see "-- Federal and State Tax Consequences
of the Conversion."
Reasons for the Conversion
FloridaFirst Bancorp MHC, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the conversion, we will be structured in the form used by holding
companies of commercial banks, many business entities and a growing number of
savings institutions. An important distinction between the mutual holding
company form of organization and the fully public form is that, by federal law,
a mutual holding company must always own over 50% of the common stock of its
savings institution subsidiary. Only a minority of the subsidiary's outstanding
stock can be sold to investors.
Through the conversion, we will become the stock holding company of
FloridaFirst Bank, which will complete the transition to full public ownership.
The stock holding company form of organization will provide us with the ability
to diversify our business and FloridaFirst Bank's business activities through
acquisition of or mergers with both stock savings institutions and commercial
banks, as well as other companies. There has been significant consolidation in
Florida where FloridaFirst Bank conducts its operations, and although there are
no current arrangements, understandings or agreements regarding any such
opportunities, we will be in a position, subject to regulatory limitations and
our financial condition, to take advantage of any such opportunities that may
arise because of the increase in its capital after the conversion.
The conversion will be important to our future growth and performance
and to that of FloridaFirst Bank, by providing a larger capital base to support
our operations and the operations of FloridaFirst Bank, enhancing our future
access to capital markets, the ability to diversify into other financial
services related activities, and the ability to provide services to the public.
The conversion will result in increased funds being available for lending
purposes, greater resources for expansion of services, and better opportunities
for attracting and retaining qualified personnel. Although FloridaFirst Bancorp
currently has the ability to raise additional capital through the sale of
additional shares of its common stock, that ability is limited by the mutual
holding company structure which, among other things, requires that the mutual
holding company always hold a majority of the outstanding shares of FloridaFirst
Bancorp's common stock.
17
The conversion will also result in an increase in the number of
outstanding shares of common stock following the conversion, as compared to the
number of outstanding shares held by the public stockholders of FloridaFirst
Bancorp prior to the conversion, which will increase the likelihood of the
development of an active and liquid trading market for the common stock. See
"Market for the Common Stock."
Our Board of Directors and the Boards of Directors of FloridaFirst
Bancorp MHC, FloridaFirst Bancorp and FloridaFirst Bank, believe that the
conversion is in the best interests of such companies and their respective
stockholders and members.
Share Exchange Ratio
Office of Thrift Supervision regulations provide that in a conversion
of a mutual holding company to stock form, the minority stockholders of
FloridaFirst Bancorp will be entitled to exchange their shares of common stock
for common stock of the converted holding company, provided that the bank and
the mutual holding company demonstrate to the satisfaction of the Office of
Thrift Supervision that the basis for the exchange is fair and reasonable. The
Boards of Directors have determined that each publicly-held share of
FloridaFirst Bancorp common stock will, on the effective date of the conversion,
be automatically converted into and become the right to receive a number of
exchange shares determined pursuant to the exchange ratio. We are not required
to adjust the share exchange ratio to reflect the waiver of dividends by
FloridaFirst Bancorp MHC. Consequently, the public stockholders of FloridaFirst
Bancorp common stock will own the same percentage of our common stock after the
conversion as they hold in FloridaFirst Bancorp, subject to additional
purchases, or the receipt of cash in lieu of fractional shares. The total number
of shares held by the public stockholders of FloridaFirst Bancorp common stock
after the conversion also would be affected by any purchases by these persons in
the offering and by the receipt of cash in lieu of fractional shares. At June
30, 2000, there were 5,347,297 shares of FloridaFirst Bancorp common stock
outstanding, 2,298,273, or 43%, of which were publicly held.
Based on the independent valuation, the 57% of the outstanding shares
of FloridaFirst Bancorp common stock held by FloridaFirst Bancorp MHC as of the
date of the independent valuation and the 43% public ownership interest of
FloridaFirst Bancorp, the following table sets forth, at the minimum, mid-
point, maximum, and adjusted maximum of the offering range:
o the total number of subscription shares and exchange shares to be issued in
the conversion;
o the total shares of common stock outstanding after the conversion;
o the exchange ratio; and
o the number of shares an owner of FloridaFirst Bancorp would receive in the
exchange, adjusted for the number of shares sold in the offering.
100 Shares of
FloridaFirst
Shares to be Exchanged Bancorp would be
Shares to be Sold for FloridaFirst Bancorp, Inc. Total Shares exchanged for
in the Offering Common Stock of Common FloridaFirst
------------------------ ------------------------------ Stock to be Exchange Bancorp, Inc.
Amount Percent Amount Percent Outstanding Ratio Common Stock
------ ------- ------ ------- ----------- ----- ------------
Minimum.............. 2,326,877 57.03% 1,753,123 42.97% 4,080,000 0.7628% 76
Midpoint............. 2,737,299 57.03 2,062,701 42.97 4,800,000 0.8975 90
Maximum.............. 3,147,952 57.03 2,372,048 42.97 5,520,000 1.0321 103
Adjusted maximum..... 3,620,179 57.03 2,727,821 42.97 6,348,000 1.1869 119
18
Options to purchase shares of FloridaFirst Bancorp common stock will be
converted into options to purchase our shares of common stock. Additionally,
restricted stock awards of FloridaFirst Bancorp will also be converted into our
shares of common stock. At June 30, 2000 there were outstanding options to
purchase 270,385 shares of FloridaFirst Bancorp common stock and there were
103,519 restricted stock awards of FloridaFirst Bancorp common stock
outstanding. The number of shares of common stock to be received upon exercise
of these options will be determined pursuant to the exchange ratio. The
aggregate exercise price, duration, and vesting schedule of these options and
restricted stock awards will not be affected. At June 30, 2000, no options to
purchase shares or restricted stock awards were vested.
Effect of the Conversion on Minority Stockholders
Effect on Stockholders' Equity Per Share of the Shares Exchanged. The
conversion will increase the stockholders' equity of the public stockholders of
FloridaFirst Bancorp common stock. At June 30, 2000, the stockholders' equity
per share of FloridaFirst Bancorp common stock was $11.10, including shares held
by FloridaFirst Bancorp MHC. As adjusted at that date for the exchange ratio,
stockholders' equity per share would be $8.47, $9.96, $11.46 and $13.17 at the
minimum, midpoint, maximum, and adjusted maximum, of the offering range. Based
on the pro forma information set forth for June 30, 2000, in "Pro Forma Data,"
pro forma stockholders' equity per share following the conversion will be
$19.24, $17.09, $15.49 and $14.12 at the minimum, midpoint, maximum and adjusted
maximum, respectively, of the offering range.
Effect on Earnings per Share of the Shares Exchanged. The conversion
will also affect the public stockholders of FloridaFirst Bancorp common stock
pro forma earnings per share. For the nine months ended June 30, 2000, basic and
diluted earnings per share of FloridaFirst Bancorp common stock was $.54
including shares held by FloridaFirst Bancorp MHC. Based on the pro forma
information set forth for the nine months ended June 30, 2000 in "Pro Forma
Data", earnings per share of common stock following the conversion will range
from $.86 to $.59, for the minimum to the adjusted maximum of the offering
range.
Dissenters' and Appraisal Rights. Under Office of Thrift Supervision
regulations, the public stockholders of FloridaFirst Bancorp common stock will
not have dissenters' rights or appraisal rights in connection with the exchange
of publicly-held shares of FloridaFirst Bancorp common stock for our shares of
common stock.
Effects of Conversion on Depositors, Borrowers and Members
General. Each depositor in FloridaFirst Bank has both a deposit account
in FloridaFirst Bank and a pro rata ownership interest in the net worth of
FloridaFirst Bancorp MHC based upon the balance in his or her account. This
interest may only be realized in the event of a liquidation of FloridaFirst
Bancorp MHC and FloridaFirst Bank. However, this ownership interest is tied to
the depositor's account and has no tangible market value separate from the
deposit account. Any depositor who opens a deposit account obtains a pro rata
ownership interest in FloridaFirst Bancorp MHC without any additional payment
beyond the amount of the deposit. A depositor who reduces or closes his account
receives a portion or all of the balance in the account, but nothing for his
ownership interest in the net worth of FloridaFirst Bancorp MHC, which is lost
to the extent that the balance in the account is reduced or closed.
Consequently, depositors in a stock subsidiary of a mutual holding
company normally have no way of realizing the value of their ownership interest,
which has realizable value only in the unlikely event that FloridaFirst Bancorp
MHC and FloridaFirst Bank are liquidated. If this occurs, the depositors of
record at that time, as owners, would share pro rata in any residual surplus and
reserves of FloridaFirst Bancorp MHC after other claims, including claims of
depositors to the amounts of their deposits, are paid.
19
When a mutual holding company converts to stock form, permanent
nonwithdrawable capital stock is created in the stock holding company to
represent the ownership of the subsidiary institution's net worth. The common
stock is separate and apart from deposit accounts and cannot be and is not
insured by the Federal Deposit Insurance Corporation or any other governmental
agency. Certificates are issued to evidence ownership of the capital stock. The
stock certificates are transferable and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in FloridaFirst Bank.
Continuity. While the conversion is being accomplished, the normal
business of FloridaFirst Bank of accepting deposits and making loans will
continue without interruption. FloridaFirst Bank will continue to be regulated
by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. After the conversion, FloridaFirst Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff. The Directors serving FloridaFirst Bank and FloridaFirst
Bancorp at the time of the conversion will serve on our Board of Directors after
the conversion.
Effect on Deposit Accounts. Under the plan of conversion, each
depositor in FloridaFirst Bank at the time of the conversion will automatically
continue as a depositor after the conversion, and each of the deposit accounts
will remain the same with respect to deposit balance, interest rate and other
terms. Each such account will be insured by the Federal Deposit Insurance
Corporation to the same extent as before the conversion. Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.
Effect on Loans. No loan outstanding from FloridaFirst Bank will be
affected by the conversion, and the amount, interest rate, maturity and security
for each loan will remain as they were contractually fixed prior to the
conversion.
Effect on Voting Rights of Members. At present, all depositors of
FloridaFirst Bank are members of, and have voting rights in, FloridaFirst
Bancorp MHC as to all matters requiring membership action. Upon completion of
the conversion, depositors and borrowers will cease to be members of
FloridaFirst Bancorp MHC and will no longer be entitled to vote at meetings of
FloridaFirst Bancorp MHC. Upon completion of the conversion, we will be the sole
stockholder of FloridaFirst Bank and have all voting rights in FloridaFirst
Bank. Our stockholders will have exclusive voting rights in us. Depositors and
borrowers of FloridaFirst Bank will not have voting rights after the conversion
except to the extent that they become our stockholders through the purchase of
common stock.
Tax Effects. FloridaFirst Bancorp has received opinions of counsel or
tax advisor with regard to federal and state income taxation to the effect that
the adoption and implementation of the plan of conversion will not be taxable
for federal or state income tax purposes to FloridaFirst Bancorp, FloridaFirst
Bancorp MHC, the minority stockholders, the interim savings bank, members of
FloridaFirst Bancorp MHC, eligible account holders or FloridaFirst Bank. See
"--Federal and State Tax Consequences of the Conversion."
Effect on Liquidation Rights. If FloridaFirst Bank were to liquidate
prior to the conversion, all claims of creditors of FloridaFirst Bank, including
those of depositors to the extent of their deposit balances, would be paid
first. Thereafter, if there were any assets of FloridaFirst Bank remaining,
these assets would be distributed to FloridaFirst Bancorp MHC, to the extent of
its stock ownership interest in FloridaFirst Bancorp. If FloridaFirst Bancorp
MHC were to liquidate, all claims of creditors would be paid first. Thereafter,
if there were any assets of FloridaFirst Bancorp MHC remaining, members of
FloridaFirst Bancorp MHC would receive the remaining assets, pro rata, based
upon the deposit balances in their deposit account in FloridaFirst Bank
immediately prior to liquidation. In the unlikely event that FloridaFirst Bank
were to liquidate after the conversion, all claims of creditors, including those
of
20
depositors, would also be paid first, followed by distribution of the
"liquidation account" to depositors, with any assets remaining thereafter
distributed to us as the holder of FloridaFirst Bank's capital stock. Pursuant
to the rules and regulations of the Office of Thrift Supervision, a
post-conversion merger, consolidation, sale of bulk assets or similar
combination or transaction with another insured savings institution would not be
considered a liquidation and, in such a transaction, the liquidation account
would be assumed by the surviving institution.
Federal and State Tax Consequences of the Conversion
Consummation of the conversion is expressly conditioned upon prior
receipt of either a ruling from IRS, or an opinion of counsel with respect to
the federal tax effects of the transaction, and either a ruling or an opinion
with respect to Florida tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any material
adverse tax consequences to us, FloridaFirst Bancorp MHC, FloridaFirst Bancorp
and FloridaFirst Bank, or to account holders receiving subscription rights,
except to the extent, if any, that subscription rights are deemed to have value
on the date such rights are issued. This condition may not be waived by us,
FloridaFirst Bancorp MHC, FloridaFirst Bancorp, or FloridaFirst Bank.
Malizia Spidi & Fisch has issued an opinion to us and FloridaFirst Bank
with respect to the material federal income tax consequences of the conversion.
The opinion of counsel is subject to the following assumptions:
o the plan of conversion has been adopted;
o we, FloridaFirst Bancorp MHC, FloridaFirst Bancorp, and FloridaFirst Bank
will comply with the plan of conversion;
o the factual representations of management are accurate, complete, true and
correct; and
o there were no adverse facts not present on the face of instruments and
documents examined.
With regard to the conversion, Malizia Spidi & Fisch has issued an
opinion that:
1. The transactions qualify as statutory mergers and each merger
required by the plan qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the code. FloridaFirst Bancorp MHC, FloridaFirst Bancorp, and
FloridaFirst Bank will each be a party to a reorganization as defined in Section
368(b) of the code.
2. FloridaFirst Bancorp MHC following its conversion to a federal stock
savings bank, and FloridaFirst Bancorp following its conversion to a federal
stock savings bank, will recognize no gain or loss pursuant to the conversion.
3. No gain or loss will be recognized by FloridaFirst Bank upon the
receipt of the assets from FloridaFirst Bancorp MHC and FloridaFirst Bancorp
pursuant to the conversion.
4. The reorganization of FloridaFirst Bancorp, Inc. as the holding
company of FloridaFirst Bank qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the code by virtue of Section 368(a)(2)(E) of the code.
Therefore, FloridaFirst Bank, FloridaFirst Bancorp, Inc., and an interim federal
savings bank created by FloridaFirst Bancorp, Inc., will each be a party to a
reorganization as defined in Section 368(b) of the code.
5. No gain or loss will be recognized by the interim federal savings
bank created by FloridaFirst Bancorp, Inc. upon the transfer of its assets to
FloridaFirst Bank pursuant to the conversion.
21
6. No gain or loss will be recognized by FloridaFirst Bank upon the
receipt of the assets of FloridaFirst Bancorp MHC, FloridaFirst Bancorp, and the
interim federal savings bank created by FloridaFirst Bancorp, Inc.
7. No gain or loss will be recognized by FloridaFirst Bancorp, Inc.
upon the receipt of FloridaFirst Bank common stock solely in exchange for common
stock of FloridaFirst Bancorp, Inc.
8. No gain or loss will be recognized by the public stockholders upon
the receipt of common stock of FloridaFirst Bancorp, Inc., if exchanged for
FloridaFirst Bancorp common stock.
9. The basis of the common stock to be received by the public
stockholders will be the same as the basis of FloridaFirst Bancorp common stock
surrendered before giving effect to any payment of cash in lieu of fractional
shares.
10. No gain or loss will be recognized by FloridaFirst Bancorp, Inc.
upon the sale of common stock to investors.
11. The eligible account holders, supplemental eligible account
holders, and other members will recognize gain, if any, but only to the extent
of the value, if any, of the subscription rights upon the issuance to them of:
o withdrawable savings accounts in FloridaFirst Bank following the
conversion;
o FloridaFirst Bank liquidation accounts; and
o nontransferable subscription rights to purchase conversion stock.
The parties to the merger of FloridaFirst Bancorp MHC, with and into
FloridaFirst Bank with FloridaFirst Bank as the surviving entity, maintain a
separate and distinct business purpose for consummating the merger. Immediately
after the consummation of the merger, FloridaFirst Bank will no longer be
controlled by FloridaFirst Bancorp MHC but will instead be controlled by its
public stockholders and that FloridaFirst Bank's capital will be substantially
increased. The facts indicate that the merger of FloridaFirst Bancorp MHC with
and into FloridaFirst Bank will result in a real and substantial change in the
form of ownership of FloridaFirst Bank that is sufficient to conclude that the
merger comports with the underlying purposes and assumptions of a tax free
reorganization under Section 368(a)(1)(A) of the code. In addition, because the
various steps contemplated by the plan were necessitated by the requirements of
the Office of Thrift Supervision, each of the mergers described above, has a
business purpose and independent significance.
It is the opinion of Malizia Spidi & Fisch that the transactions
undertaken pursuant to the plan should be treated as a tax free reorganization.
However, such opinion, is not binding upon the IRS, and there can be no
assurance that the IRS will not assert a contradictory position.
We and FloridaFirst Bank have also received a letter from FinPro which
addresses certain issues surrounding the value of the subscription rights. The
letter states that it is FinPro's belief, which is not binding on the IRS, that
the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration, and afford the recipients the right only to purchase the
conversion stock at a price equal to its estimated fair market value, which will
be the same price as the purchase price for the unsubscribed shares of
conversion stock. If the subscription rights granted to eligible subscribers are
deemed to have an ascertainable value, receipt of such rights likely would be
taxable only to those eligible subscribers who exercise the subscription rights,
either as a capital gain or ordinary income, in an amount equal to such value,
and the public stockholders of FloridaFirst Bancorp and the members of Florida
First Bancorp MHC could recognize gain on such
22
distribution. Eligible subscribers are encouraged to consult with their own tax
advisor as to the tax consequences in the event that such subscription rights
are deemed to have an ascertainable value.
Unlike private rulings, an opinion of Malizia Spidi & Fisch, or letter
from FinPro is not binding on the IRS and the IRS could disagree with the
conclusions reached therein. In the event of such disagreement, there can be no
assurance that the IRS would not prevail in a judicial or administrative
proceeding. Management does not believe the fact that the IRS has placed this
transaction into a "no rule" area will result in the IRS treating the conversion
and the reorganization any differently from similar transactions already
completed for which the IRS has issued private letter rulings. If the IRS
determines that the tax effects of the transaction are to be treated differently
from that presented in the tax opinion, we, the public stockholders of
FloridaFirst Bancorp or the members of FloridaFirst Bancorp MHC may be subject
to adverse tax consequences as a result of the conversion.
Hahn, McClurg, Watson, Griffith & Bush has issued an opinion, subject
to the limitations and qualifications in its opinion, that, for purposes of the
Florida corporate income tax, the reorganization will not become a taxable
transaction to us, the public stockholders of FloridaFirst Bancorp or the
members of FloridaFirst Bancorp MHC, except to the extent that cash is received
in exchange for fractional shares by the public stockholders of FloridaFirst
Bancorp. This opinion is not binding on the Florida taxing authorities and these
taxing authorities could disagree with the conclusions reached in the opinion of
Hahn, McClurg, Watson, Griffith & Bush.
The federal and state tax opinions regarding the material federal and
state tax consequences have been filed as exhibits to the registration
statement.
Conditions to the Conversion
Various approvals of the Office of Thrift Supervision are required in
order to consummate the conversion. The Office of Thrift Supervision has
approved the plan of conversion, subject to approval by FloridaFirst Bancorp MHC
members and FloridaFirst Bancorp's stockholders. In addition, consummation of
the conversion is subject to Office of Thrift Supervision approval of the
applications with respect to the merger of FloridaFirst Bancorp MHC and
FloridaFirst Bancorp into FloridaFirst Bank, with FloridaFirst Bank being the
surviving entity. Applications for these approvals, including an application to
form us as a holding company for FloridaFirst Bank, have been filed and are
currently pending. There can be no assurances that the requisite Office of
Thrift Supervision approvals will be received in a timely manner, in which event
the consummation of the conversion may be delayed beyond the expiration of the
offering.
We cannot complete our conversion and our offering unless:
(1) It is approved by a majority vote of members of FloridaFirst
Bancorp MHC;
(2) It is approved by a two-thirds vote of stockholders of
FloridaFirst Bancorp; and
(3) It is approved by a majority vote of stockholders of FloridaFirst
Bancorp, not including those shares held by FloridaFirst Bancorp
MHC.
FloridaFirst Bancorp MHC intends to vote its 57% ownership interest in
favor of the conversion. In addition, as of June 30, 2000, directors and
executive officers of FloridaFirst Bancorp and their associates beneficially own
131,333 shares of FloridaFirst Bancorp, or 2.5% of the outstanding shares other
than those held by FloridaFirst Bancorp MHC. They intend to vote those shares in
favor of the conversion. Certain directors who serve as the trustee committee
for FloridaFirst Bank's restricted stock plan may direct the voting of 53,244
shares held in the plan trust. Additionally, certain directors and an executive
officer who serve as FloridaFirst Bank's employee stock ownership plan trustees
may vote
23
approximately 183,808 unallocated shares of the employee stock ownership plan
and may vote, in the trustees' fiduciary capacity, allocated shares of the
employee stock ownership plan for which no timely voting directions have been
received from plan participants.
Amendment or Termination of the Plan of Conversion
If deemed necessary or desirable by the Boards of Directors this plan
may be substantively amended, as a result of comments from regulatory
authorities or otherwise, at any time prior to the solicitation of proxies from
members and stockholders to vote on the plan and at any time thereafter with the
concurrence of the Office of Thrift Supervision. Any amendment to this plan made
after approval by the members and stockholders with the concurrence of the
Office of Thrift Supervision shall not necessitate further approval by the
members or stockholders unless otherwise required by the Office of Thrift
Supervision. This plan shall terminate if the sale of all shares of conversion
stock is not completed within 24 months from the date of the special meeting of
members. Prior to the earlier of the special meeting of members and the
stockholders' meeting, this plan may be terminated by the Boards of Directors
without approval of the Office of Thrift Supervision; after the special meeting
or the stockholders' meeting, the Boards of Directors may terminate this plan
only with the approval of the Office of Thrift Supervision.
The Offering
General
We are offering between a minimum of 2,326,877 shares and an
anticipated maximum of 3,147,952 shares of common stock in the offering. The
number of shares that will be offered may increase up to 3,620,179 shares if our
estimated pro forma market value has increased at the conclusion of the
offering. The offering will expire at 4:00 p.m., eastern time, on December 6,
2000 unless extended. The shares of common stock that will be sold in the
offering will constitute no more than 57% of the shares that will be outstanding
after completion of the offering. The minimum purchase is 25 shares of common
stock or a minimum investment of $250. Our common stock is being offered at a
fixed price of $10 per share in the offering.
Subscription funds may be held by FloridaFirst Bank for up to 45 days
after the last day of the subscription offering in order to consummate the
conversion and offering and thus, unless waived by us, all orders will be
irrevocable until January 20, 2001. In addition, the conversion may not be
completed until we receive approval from the Office of Thrift Supervision.
Approval by the Office of Thrift Supervision is not a recommendation of the
conversion or offering. Consummation of the conversion and offering will be
delayed, and resolicitation will be required, if the Office of Thrift
Supervision does not issue a letter of approval within 45 days after the last
day of the subscription offering, or in the event the Office of Thrift
Supervision requires a material change to the offering prior to the issuance of
its approval. If the conversion and offering are not completed by January 20,
2001, subscribers will have the right to modify or rescind their subscriptions
and to have their subscription funds returned with interest at FloridaFirst
Bank's savings account rate and all withdrawal authorizations will be canceled.
We may cancel the offering at any time, and orders for common stock
which have been submitted are subject to cancellation under such circumstances.
Conduct of the Offering
Subject to the limitations of the plan, shares of common stock are
being offered in descending order of priority in the subscription offering to:
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o Eligible Account Holders;
o The Employee Stock Ownership Plan;
o Supplemental Eligible Account Holders; and
o Other Members.
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we will
conduct one or more of a community and syndicated community offering.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe
for the purchase of common stock have been granted under the plan of conversion
in the following order of priority:
First: Eligible Account Holders. Each Eligible Account Holder, or
persons through a single account, shall generally be given the opportunity to
purchase such number of shares of our common stock, that when combined with
shares received by existing stockholders in exchange for our common stock shall
not exceed 30,000 shares, or $300,000 of common stock offered in the
subscription offering, subject to the overall limitations on purchases of Common
Stock. If there are insufficient shares available to satisfy all subscriptions
of Eligible Account Holders, shares will be allocated to Eligible Account
Holders so as to permit each subscribing Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares ordered. Thereafter, unallocated shares will
be allocated to remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the same proportion that each such subscriber's
qualifying deposit bears to the total amount of qualifying deposits of all
subscribing Eligible Account Holders, in each case on June 30, 1999, whose
subscriptions remain unfilled. Subscription rights received by officers and
directors, based on their increased deposits in FloridaFirst Bank in the one
year preceding the eligibility record date will be subordinated to the
subscription rights of other eligible account holders. To ensure proper
allocation of stock, each Eligible Account Holder must list on his order form
all accounts in which he had an ownership interest as of the Eligibility Record
Date. See "-- Limitations on Purchases of Common Stock."
Second: The Employee Stock Ownership Plan. The employee stock ownership
plan may be given the opportunity to purchase in the aggregate up to 10% of the
common stock issued in the subscription offering. It is expected that the
employee stock ownership plan will purchase up to 8% of the common stock issued
in the offering. If an oversubscription occurs in the offering by Eligible
Account Holders, the employee stock ownership plan may, in whole or in part,
fill its order through open market purchases or through the use of authorized
but unissued shares subsequent to the closing of the offering.
Third: Supplemental Eligible Account Holders. If any stock is available
after satisfaction of subscriptions by Eligible Account Holders and the employee
stock ownership plan and other tax-qualified employee stock benefit plans, if
any, each Supplemental Eligible Account Holder, or persons through a single
account, shall generally have the opportunity to purchase such number of shares
of our common stock that, when combined with shares received by existing
stockholders in exchange for FloridaFirst Bancorp stock, shall not exceed 30,000
shares, or $300,000 of common stock offered in the subscription offering,
subject to the overall limitations on purchases of Common Stock. If Supplemental
Eligible Account Holders subscribe for a number of shares which, when added to
the shares subscribed for by Eligible Account Holders and the employee stock
ownership plan and other tax-qualified employee stock benefit plans, if any, is
in excess of the total number of shares offered in the offering, the shares of
common stock will be allocated among subscribing Supplemental Eligible Account
Holders first so as to permit each subscribing Supplemental Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares ordered. Thereafter,
unallocated shares will be allocated to each subscribing Supplemental Eligible
Account Holder whose
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subscription remains unfilled in the same proportion that such subscriber's
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Supplemental Eligible Account Holders, in each case on September 30,
2000, whose subscriptions remain unfilled. To ensure proper allocation of stock,
each Supplemental Eligible Account Holder must list on his order form all
accounts in which he had an ownership interest as of the Supplemental
Eligibility Record Date. See "-- - Limitations on Purchases of Common Stock."
Fourth: Other Members. If any stock is available after satisfaction of
all subscriptions by the Eligible Account Holders, the tax-qualified employee
stock benefit plans, and Supplemental Eligible Account Holders, each Other
Member as of October 23, 2000 who is entitled to vote on the conversion, or
persons through a single account, who is not an Eligible or Supplemental
Eligible Account Holder shall generally have the opportunity to purchase such
number of shares of our common stock that, when combined with shares received by
existing stockholders in exchange for our common stock, shall not exceed 30,000
shares, or $300,000 of common stock offered in the subscription offering,
subject to the overall limitations on purchases of Common Stock. If Other
Members subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, the tax-qualified employee stock
benefit plans and Supplemental Eligible Account Holder, is in excess of the
total number of shares offered in the offering, the subscriptions of Other
Members will be allocated among subscribing Other Members so as to permit each
subscribing Other Member, to the extent possible, to purchase a number of shares
sufficient to make his total allocation of common stock equal to the lesser of
100 shares or the number of shares subscribed for by Other Members. Any
remaining available shares shall be allocated among subscribing Other Members on
a pro rata basis in the same proportion as each such Other Members' subscription
bears to the total subscriptions of all such subscribing Other Members whose
orders are unfilled, provided that no fractional shares shall be issued. See "--
Limitations on Purchases of Common Stock."
The above is a summary of the purchase limitation contained in the plan
of conversion. The plan should be examined for the actual limitations. See
"Where You Can Find Additional Information."
State Securities Laws. In our sole discretion, we may make reasonable
efforts to comply with the securities laws of any state in the United States in
which FloridaFirst Bank members reside, and will only offer and sell the common
stock in states in which the offers and sales comply with state securities laws.
However, no person will be offered or allowed to purchase any common stock under
the plan if he resides in a foreign country or in a state of the United States
with respect to which:
o a small number of persons otherwise eligible to purchase shares under the
plan reside in such state or foreign country; and/or
o the offer or sale of shares of common stock to such persons would require
us or FloridaFirst Bank or our employees to register, under the securities
laws of such state or foreign country, as a broker or dealer or to register
or otherwise qualify its securities for sale in such state or foreign
country and such registration or qualification would be impracticable for
reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares. The plan
prohibits any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the plan
or the shares of common stock to be issued when they are exercised. Such rights
may be exercised only by the person to whom they are granted and only for his or
her account. Each person subscribing for shares will be required to certify that
such person is purchasing shares solely for his or her own account and that such
person has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from
26
offering or making an announcement of an offer or intent to make an offer to
purchase such subscription rights or shares of common stock before the
completion of the offering.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
which we determine involve the transfer of such rights.
Expiration Date. The subscription offering will expire at 4:00 p.m.,
eastern time, on December 6, 2000, unless it is extended, up to an additional 45
days with the approval of the Office of Thrift Supervision, if necessary, but
without additional notice to subscribers. Subscription rights will become void
if not exercised prior to the expiration date.
Community Offering
If less than the total number of shares of common stock to be
subscribed for in the offering are sold in the subscription offering, shares
remaining unsubscribed may be made available for purchase in the community
offering to certain members of the general public. The maximum amount of common
stock that any person may purchase in the community offering is 30,000 shares,
or $300,000. In the community offering, if any, shares will be available for
purchase by the general public with preference given first to persons who are
FloridaFirst Bancorp stockholders and second to natural persons residing in
either Polk or Manatee County, Florida. We will attempt to issue common stock in
such a manner as to promote a wide distribution of common stock.
If purchasers in the community offering, whose orders would otherwise
be accepted, subscribe for more shares than are available for purchase, the
shares available to them will be allocated among persons submitting orders in
the community offering first so that each person receives 100 shares and the
remainder in such equitable manner as we determine.
The community offering, if any, may commence simultaneously with,
during or subsequent to the completion of the subscription offering, and, if
commenced simultaneously with or during the subscription offering, the community
offering may be limited to persons who are FloridaFirst Bancorp stockholders and
residents of Polk or Manatee County in Florida. The community offering, if any,
must be completed within 45 days after the completion of the subscription
offering unless otherwise extended by the Office of Thrift Supervision.
We, in our absolute discretion, reserve the right to reject any or all
orders in whole or in part which are received in the community offering, at the
time of receipt or as soon as practicable following the completion of the
community offering.
Syndicated Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we may offer
shares to selected persons in a syndicated community offering on a best-efforts
basis through Sandler O'Neill in such a manner as to promote a wide distribution
of the common stock. Orders received in connection with the syndicated community
offering, if any, will receive a lower priority than orders received in the
subscription offering and community offering. Common stocksold in the syndicated
community offering will be sold at the same price as all other shares in the
subscription offering. We have the right to reject orders, in whole or in part,
in our sole discretion in the syndicated community offering. No person will be
permitted to purchase more than 30,000 shares, or $300,000, of common stock in
the syndicated community offering.
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If a syndicate of broker-dealers is formed to assist in the syndicated
community offering, a purchaser may pay for his shares with funds held or
deposited with a selected dealer. If an order form is executed and forwarded to
the selected dealer or if the selected dealer is authorized to execute the order
form on behalf of a purchaser, the selected dealer is required to forward the
order form and funds to FloridaFirst Bank for deposit in a segregated account on
or before noon of the business day following receipt of the order form or
execution of the order form by the selected dealer. Alternatively, selected
dealers may solicit indications of interest from their customers to place orders
for shares. Such selected dealers shall subsequently contact their customers who
indicated an interest and seek their confirmation as to their intent to
purchase. Those indicating an intent to purchase shall execute order forms and
forward them to their selected dealer or authorize the selected dealer to
execute such forms. The selected dealer will acknowledge receipt of the order to
its customer in writing on the following business day and will debit such
customer's account on the third business day after the customer has confirmed
his intent to purchase (the "debit date") and on or before noon of the next
business day following the debit date will send order forms and funds to
FloridaFirst Bank for deposit in a segregated account. Although purchasers'
funds are not required to be in their accounts with selected dealers until the
debit date in the event that such alternative procedure is employed once a
confirmation of an intent to purchase has been received by the selected dealer,
the purchaser has no right to rescind his order.
The date by which orders must be received in the syndicated community
offering will be set by us at the time of commencement of the syndicated
community offering; provided however, if the syndicated community offering is
extended beyond January 20, 2001, each purchaser will have the opportunity to
maintain, modify, or rescind his order. In such event, all funds received in the
syndicated community offering will be promptly returned with interest to each
purchaser unless he affirmatively indicates otherwise.
If an order in the syndicated community offering is accepted, promptly
after the completion of the conversion, a certificate for the appropriate amount
of shares will be forwarded to Sandler O'Neill as nominee for the beneficial
owner. If an order is not accepted or the conversion is not consummated,
FloridaFirst Bank will promptly refund with interest the funds received to
Sandler O'Neill which will then return the funds to subscribers' accounts. If
the aggregate pro forma market value of FloridaFirst Bank as converted is less
than $40.8 million or more than $63.5 million, each purchaser will have the
right to modify or rescind his or her order.
Limitations on Purchases of Common Stock
The following is a summary of the limitations contained in the plan of
conversion which have been imposed on purchases of shares of common stock:
1. The maximum number of shares of common stock which may be
purchased in the subscription offering by any person, or persons
through a single account, in the first priority, third priority
and fourth priority, including shares received by existing
stockholders in exchange for their FloridaFirst Bancorp stock,
shall not exceed 30,000 shares, or $300,000.
2. The maximum number of shares of common stock which may be
subscribed for or purchased in all categories in the offering by
any person together with any associate or group of persons acting
in concert, including shares received by existing stockholders in
exchange for their FloridaFirst Bancorp stock, shall not exceed
50,000 shares, or $500,000, except for our employee plans, which
in the aggregate may subscribe for up to 10% of the common stock
issued in the offering.
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3. The maximum number of shares of common stock which may be
purchased in all categories in the offering by officers,
directors, and associates in the aggregate shall not exceed 25%
of the total number of shares of common stock issued in the
offering.
4. A minimum of 25 shares of common stock must be purchased by each
person purchasing shares in the offering to the extent those
shares are available.
5. If the number of shares of common stock otherwise allocable to
any person or that person's associates would be in excess of the
maximum number of shares permitted as set forth above, the number
of shares of common stock allocated to each such person shall be
reduced to the lowest limitation applicable to that person, and
then the number of shares allocated to each group consisting of a
person and that person's associates shall be reduced so that the
aggregate allocation to that person and his associates complies
with the above maximums, and such maximum number of shares shall
be reallocated among that person and his associates in proportion
to the shares subscribed by each, after first applying the
maximums applicable to each person, separately.
6. Depending on market or financial conditions, the Boards of
Directors, without further approval of the members and
stockholders, may decrease or increase the purchase limitations
in the plan, provided that the maximum purchase limitations may
not be increased to a percentage in excess of 5% of the offering.
If the Boards of Directors increase the maximum purchase
limitations, then we are only required to resolicit persons who
subscribed for the maximum purchase amount and may, in their sole
discretion, resolicit certain other large subscribers.
7. If the total number of shares offered increases in the offering
due to an increase in the maximum of the estimated valuation
range of up to 15%, or 3,620,179 shares, then the additional
shares will be used in the following order of priority:
o to fill the employee benefit plans subscription up to 10%;
o if there is an oversubscription at the Eligible Account
Holder level, to fill unfilled subscriptions of Eligible
Account Holders;
o if there is an oversubscription at the Supplemental Eligible
Account Holder level, to fill unfilled subscriptions of
Supplemental Eligible Account Holders;
o if there is an oversubscription at the other member level,
to fill unfilled subscriptions of other members; and
o to fill unfilled subscriptions in the community offering,
with preference given to persons who are FloridaFirst
Bancorp stockholders and then to natural persons residing in
the local community.
8. No person shall be entitled to purchase any common stock to the
extent such purchase would be illegal under any federal law or
state law or regulation or would violate regulations or policies
of the National Association of Securities Dealers, particularly
those regarding free riding and withholding. We or our agents may
ask for an acceptable legal opinion from any purchaser as to the
legality of such purchase and may refuse to honor any purchase
order if such opinion is not timely furnished.
29
9. The Board of Directors has the right to reject any order
submitted by a person whose representations the Board of
Directors believes to be false or who it otherwise believes,
either alone or acting in concert with others, is violating,
circumventing, or intends to violate, evade, or circumvent the
terms and conditions of the plan.
10. The restrictions on purchases by any person also apply to
purchases by persons acting in concert under applicable
regulations of the Office of Thrift Supervision. Under
regulations of the Office of Thrift Supervision, the Boards of
Directors are not deemed to be affiliates or a group acting in
concert with other directors solely as a result of their
membership on the Boards of Directors.
The term "acting in concert" means:
o knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or
o a combination or pooling of voting or other interests in the securities of
an issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise.
A person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any tax-qualified employee stock benefit plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated.
The term "associate" of a person is defined in the plan to mean:
o any corporation or organization other than us, FloridaFirst Bancorp MHC,
FloridaFirst Bancorp, or FloridaFirst Bank or a majority-owned subsidiary
of theirs of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities;
o any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity, excluding tax-qualified employee stock benefit plans or
tax-qualified employee stock benefit plans in which a person has a
substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity and except that, for purposes of aggregating total
shares that may be held by officers and directors, the term "associate"
does not include any tax-qualified employee stock benefit plan; and
o any relative or spouse of such person or any relative of such spouse, who
has the same home as such person or who is a director or officer of us,
FloridaFirst Bancorp MHC, FloridaFirst Bancorp or FloridaFirst Bank, or any
of its parents or subsidiaries. For example, a corporation of which a
person serves as an officer would be an associate of such person, and
therefore, all shares purchased by such corporation would be included with
the number of shares which such person individually could purchase under
the above limitations.
Each person purchasing shares of the common stock in the offering will
be deemed to confirm that such purchase does not conflict with the maximum
purchase limitation. If this purchase limitation is violated by any person or
any associate or group of persons affiliated or otherwise acting in concert with
such persons, we will have the right to purchase from such person at the
purchase price per share all shares acquired by such person in excess of such
purchase limitation or, if such excess shares have been sold by
30
such person, to receive the difference between the purchase price per share paid
for such excess shares and the price at which such excess shares were sold by
such person. Our right to purchase such excess shares will be assignable.
We have the right, in our sole discretion, to determine whether
prospective purchasers are associates or acting in concert. All such
determinations are in our sole discretion and may be based on whatever evidence
we believe to be relevant.
Common stock purchased pursuant to the offering will be freely
transferable, except for shares purchased by the directors and officers. In
addition, under guidelines of the National Association of Securities Dealers,
the members and their associates are subject to certain restrictions on the
transfer of securities purchased in accordance with subscription rights and to
certain reporting requirements after the purchase of such securities. For
certain restrictions on the common stock purchased by directors and officers,
see " -- Restrictions on Transferability by Directors and Officers."
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by
completion of an order form. Any person receiving an order form who desires to
subscribe for shares of common stock must do so prior to the applicable
expiration date by delivering by mail or in person to FloridaFirst Bank a
properly executed and completed order form, together with full payment of the
purchase price for all shares for which subscription is made; provided, however,
that if the employee plans subscribe for shares during the subscription
offering, the employee plans will not be required to pay for the shares at the
time they subscribe but rather may pay for the shares after the conversion.
Except for institutional investors, all subscription rights under the plan will
expire on the expiration date, whether or not we have been able to locate each
person entitled to such subscription rights. We shall have the right, in our
sole discretion, to permit institutional investors to submit contractually
irrevocable orders in the syndicated community offering at any time before
completing the syndicated community offering. Once tendered, subscription orders
cannot be revoked without our consent unless the conversion is not completed
within 45 days of the expiration date.
The subscription rights for the person to whom such rights have been
granted will lapse as though such person failed to return the completed order
form within the time period specified, if a stock order form:
o is not delivered and is returned to us by the U.S. Postal Service or we are
unable to locate the addressee;
o is not received or is received after the applicable expiration date;
o is not completed correctly or executed;
o is not accompanied by the full required payment for the shares subscribed
for including instances where a savings account or certificate balance from
which withdrawal is authorized is insufficient to fund the amount of such
required payment, but excluding subscriptions by the Employee Plans or, in
the case of an institutional investor in the syndicated community offering,
by delivering irrevocable orders together with a legally binding commitment
to pay the full purchase price prior to 48 hours before the conversion is
completed; or
o is not mailed pursuant to a "no mail" order placed in effect by the account
holder.
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However, we may, but will not be required to, waive any irregularity on
any order form or require the submission of corrected order forms or the
remittance of full payment for subscribed shares by such date as we may
otherwise specify. The waiver of an irregularity on an order form in no way
obligates us to waive any other irregularity on any other order form. Waivers
will be considered on a case by case basis. We reserve the right in our sole
discretion to accept or reject orders received on photocopies or facsimile order
forms, or whose payment is to be made by wire transfer or payment from private
third parties. Our interpretation of the terms and conditions of the plan and of
the acceptability of the order forms will be final, subject to the authority of
the Office of Thrift Supervision.
To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior to
such date. Execution of the order form will confirm receipt or delivery in
accordance with Rule 15c2-8. Order forms will only be distributed with a
prospectus.
Payment for Shares. For subscriptions to be valid, payment for all
subscribed shares will be required to accompany all properly completed order
forms, on or prior to the expiration date specified on the order form unless we
extend the date. Employee plans subscribing for shares during the subscription
offering may pay for such shares after the offering. Payment for shares of
common stock may be made
o in cash, if delivered in person,
o by check or money order, or
o for shares of common stock subscribed for in the subscription offering, by
authorization of withdrawal from savings accounts maintained with
FloridaFirst Bank.
Appropriate means by which such withdrawals may be authorized are
provided in the order form. Once such a withdrawal has been authorized, none of
the designated withdrawal amount may be used by a subscriber for any purpose
other than to purchase the common stock for which a subscription has been made
until the offering has been completed or terminated. In the case of payments
authorized to be made through withdrawal from savings accounts, all sums
authorized for withdrawal will continue to earn interest at the contract rate
until the offering has been completed or terminated. Interest penalties for
early withdrawal applicable to certificate accounts will not apply to
withdrawals authorized for the purchase of shares, however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate, at the discretion of
FloridaFirst Bank, shall either be canceled at the time of withdrawal, without
penalty, or the remaining balance will earn interest at the savings account rate
subsequent to the withdrawal. In the case of payments made in cash or by check
or money order, such funds will be placed in a segregated account and interest
will be paid by FloridaFirst Bank at the savings account rate from the date
payment is received until the offering is completed or terminated. An executed
order form, once we receive it, may not be modified, amended, or rescinded
without our consent, unless the offering is not completed within 45 days after
the conclusion of the subscription offering, in which event subscribers may be
given the opportunity to increase, decrease, or rescind their subscription for a
specified period of time. If the offering is not completed for any reason, all
funds submitted pursuant to the offerings will be promptly refunded with
interest as described above.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of common stock in the offerings, provided that such IRAs are
not maintained on deposit at FloridaFirst Bank. Persons with IRAs maintained at
FloridaFirst Bank must have their accounts transferred to an unaffiliated
institution or broker to purchase shares of common stock in the offerings. There
is no early withdrawal or IRS interest penalties for such transfers.
Instructions on how to transfer self-directed IRAs maintained at FloridaFirst
Bank can be obtained from the conversion center. Depositors interested in using
funds in a FloridaFirst Bank IRA to purchase common stock should contact the
conversion center as soon as possible so that the necessary forms may be
forwarded, executed and returned prior to the expiration date.
32
Federal regulations prohibit FloridaFirst Bank from lending funds or
extending credit to any person to purchase the common stock in the conversion.
Conversion Center. The conversion center is located at 402 S. Kentucky
Avenue, Suite 300, Lakeland, Florida 33801. The phone number is (863) 802-0088.
Exchange of Stock Certificates of Minority Stockholders
Until the effective date of the conversion, publicly-held shares of
FloridaFirst Bancorp common stock will continue to be available for trading on
the Nasdaq National Market. The conversion of FloridaFirst Bancorp common stock
into our common stock will occur automatically on the effective date of the
conversion. After the effective date of the conversion, former holders of
FloridaFirst Bancorp common stock will have no further equity interest in
FloridaFirst Bancorp, other than as stockholders of us, and there will be no
further transfers of FloridaFirst Bancorp common stock on the stock transfer
records of FloridaFirst Bancorp.
As soon as practicable after the effective date of the conversion, we,
or a bank or trust company designated by us, in the capacity of exchange agent,
will send a transmittal form to each public stockholder of FloridaFirst Bancorp.
The transmittal forms are expected to be mailed within five business days after
the effective date of the conversion and will contain instructions with respect
to the surrender of certificates representing FloridaFirst Bancorp common stock
to be exchanged into our common stock. It is expected that certificates for
shares of our common stock will be distributed within five business days after
the receipt of properly executed transmittal forms and other required documents.
FloridaFirst Bancorp's stockholders should not forward their stock
certificates to us, the conversion center, or the exchange agent until they have
received transmittal forms.
Until the certificates representing FloridaFirst Bancorp common stock
are surrendered for exchange after consummation of the conversion, upon
compliance with the terms of the transmittal form, holders of such certificates
will not receive our shares and will not be paid dividends on our shares of
common stock into which these shares have been converted. When certificates are
surrendered, any unpaid dividends will be paid without interest. For all other
purposes, however, each certificate which represents shares of FloridaFirst
Bancorp common stock outstanding at the effective date of the conversion will be
deemed to evidence ownership of our shares of common stock into which those
shares have been converted by virtue of the conversion.
All shares of our common stock issued upon exchange of shares of
FloridaFirst Bancorp common stock shall be deemed to have been issued in full
satisfaction of all rights pertaining to these shares of FloridaFirst Bancorp
common stock, subject, however, to our obligation to pay any dividends or make
any other distributions with a record date prior to the effective date which may
have been declared or made by FloridaFirst Bancorp on shares of FloridaFirst
Bancorp common stock on or prior to the effective date and which remain unpaid
at the effective date. FloridaFirst Bancorp intends to continue to pay a
quarterly cash dividend of $.04 per share through the fiscal quarter ending
December 31, 2000. Subject to the receipt of any required regulatory approval,
FloridaFirst Bancorp MHC may decide to waive the receipt of any dividend.
No fractional shares of our common stock will be issued to any public
stockholder of FloridaFirst Bancorp upon consummation of the conversion. For
each fractional share that would otherwise be issued, we will pay by check an
amount equal to the product obtained by multiplying the fractional share
interest to which the holder would otherwise be entitled by the subscription
price. Payment for fractional shares will be made as soon as practicable after
the receipt by the exchange agent of surrendered FloridaFirst Bancorp stock
certificates.
33
If a certificate for FloridaFirst Bancorp common stock has been lost,
stolen or destroyed, the exchange agent will issue the consideration properly
payable upon receipt of appropriate evidence as to the loss, theft or
destruction, appropriate evidence as to the ownership of the certificate by the
claimant, and appropriate and customary indemnification.
Delivery of Stock Certificates of Conversion Stock. Certificates
representing common stock issued in the offering, to all persons other than
minority stockholders of FloridaFirst Bancorp, will be mailed to the persons
entitled thereto at the address noted on the order form, as soon as practicable
following consummation of the offering. Any certificates returned as
undeliverable will be held until claimed by persons legally entitled thereto or
otherwise disposed of in accordance with applicable law. Until certificates for
the common stock are available and delivered to subscribers, subscribers may not
be able to sell the shares of stock for which they subscribed.
Restriction on Sales Activities
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock in jurisdictions where such
participation is not prohibited. Other employees of FloridaFirst Bank may
participate in the offering in ministerial capacities. Such other employees have
been instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock. Questions of prospective purchasers will
be directed to executive officers of FloridaFirst Bank or registered
representatives of Sandler O'Neill. No officer, director or employee of
FloridaFirst Bank will be compensated in connection with such person's
solicitations or other participation in the offering by the payment of
commissions or other remuneration based either directly or indirectly on
transactions in the common stock.
Restrictions on Repurchase of Shares
During the first year following the conversion, we may be permitted to
repurchase up to 5% of our shares during the first year, provided that we obtain
approval from the Office of Thrift Supervision regarding such repurchases and we
can demonstrate compelling and valid business reasons for such repurchases.
After the first year following the conversion, there is no limit as to how many
shares may be purchased. However, repurchases must not cause us to become
undercapitalized. The Office of Thrift Supervision may disapprove a repurchase
program if it determines that:
o the repurchase program would adversely affect our financial condition;
o the information submitted is not enough to base a conclusion as to whether
our financial condition would be adversely affected; or
o a valid business purpose was not demonstrated.
In addition, SEC rules also govern the method, time, price, and number of shares
of common stock that may be repurchased by us and affiliated purchasers. If, in
the future, the rules and regulations regarding the repurchase of stock are
liberalized, we may utilize the rules and regulations then in effect.
Stock Pricing and the Number of Shares to be Offered
FinPro, which is experienced in the valuation and appraisal of business
entities, including savings institutions, has been retained to prepare an
appraisal of the estimated pro forma market value of the common stock. This
independent valuation will express our pro forma market value in terms of an
aggregate dollar amount. FinPro will receive fees of $18,000 for its appraisal
services, including the independent valuation and subsequent updates, and up to
$18,000 for assistance in preparation of our business plan, plus its reasonable
out-of-pocket expenses incurred in connection with the independent valuation and
business plan. We have agreed to indemnify FinPro under certain circumstances
against
34
liabilities and expenses arising out of or based on any misstatement or untrue
statement of a material fact contained in the information supplied by us to
FinPro, except where FinPro is determined to have been negligent or failed to
exercise due diligence in the preparation of the independent valuation.
The independent valuation was prepared by FinPro. FinPro considered the
following factors, among others: the present and projected operating results and
financial condition of us and FloridaFirst Bank; the economic and demographic
conditions in FloridaFirst Bank's existing marketing area; certain historical,
financial and other information relating to FloridaFirst Bank, a comparative
evaluation of the operating and financial statistics of FloridaFirst Bank with
those of other publicly traded savings institutions located in FloridaFirst
Bank's region and on a national basis; the aggregate size of the offering of the
common stock; the impact of the conversion on FloridaFirst Bank's stockholders'
equity and earnings potential; our proposed dividend policy and the dividend
policy of FloridaFirst Bank; and the trading market for securities of comparable
institutions and general conditions in the market for the securities. A copy of
FinPro's opinion regarding the appraisal valuation has been filed as Exhibit
99.3 to the registration statement.
The following table presents a summary of selected pricing ratios for
comparable public thrift institutions used by FinPro to help establish our
market value and our resulting ratios.
Price
Price Price to Tangible
to Pro Forma to Stockholders' Stockholders' Price to
FloridaFirst Bancorp, Inc. Earnings Equity Equity Assets Ratio
- -------------------------- -------- ------ ------ ------------
15% above maximum.................... 12.99x 70.82 % 70.82% 10.59%
Maximum.............................. 11.63 64.56 64.56 9.27
Mid-point............................ 10.31 58.51 58.51 8.11
Minimum.............................. 8.93 51.98 51.98 6.94
All Fully Converted Thrifts Publicly Traded
on the NYSE, NASDAQ & AMEX Exchanges
as of September 5, 2000
Averages............................. 12.76 101.44 107.91 10.02
Medians.............................. 10.63 88.84 91.02 9.11
Valuation peer institutions as of
September 5, 2000
Averages............................. 13.59 89.08 89.69 12.70
Medians.............................. 11.92 86.92 86.92 11.81
FinPro has determined that as of September 5, 2000, our estimated
aggregate pro forma market value was $48.0 million, the mid-point of the
offering range. Pursuant to regulations, this estimate must be included within a
range with a minimum of $40.8 million and a maximum of $55.2 million. We have
determined to offer shares of common stock in the offering at a price of $10 per
share. We are offering a maximum of 3,147,952 shares in the offering, subject to
adjustment. In determining the offering range, the Board of Directors reviewed
FinPro's appraisal and in particular, considered:
o FloridaFirst Bancorp's consolidated financial condition and results of
operations for the nine months ended June 30, 2000 and for the year ended
September 30, 1999;
35
o financial comparisons of FloridaFirst Bancorp in relation to other
financial institutions of similar size; and
o stock market conditions generally and in particular for financial
institutions, all of which are set forth in the appraisal.
The Board also reviewed the methodology and the assumptions used by
FinPro in preparing its appraisal. The number of shares are subject to change if
the independent valuation changes at the conclusion of the offering.
The number of shares and price per share of common stock was determined
by the Board of Directors based on the independent valuation. The actual number
of shares to be sold in the offering may be increased or decreased before
completion of the offering, subject to approval and conditions that may be
imposed by the Office of Thrift Supervision, to reflect any change in our
estimated pro forma market value.
Depending on market and financial conditions at the time of the
completion of the offering, we may increase or decrease the number of shares to
be issued in the conversion and offering. No resolicitation of purchasers will
be made and purchasers will not be permitted to modify or cancel their purchase
orders unless the change in the number of shares to be issued in the offering
results in fewer than 2,326,877 shares or more than 3,620,179 shares being sold
in the offering at the purchase price of $10, in which event we may also elect
to terminate the offering. If we terminate the offering, purchasers will receive
a prompt refund of their purchase orders, together with interest earned thereon
from the date of receipt to the date of termination of the offering.
Furthermore, any account withdrawal authorizations will be terminated. If we
receive orders for less than 2,326,877 shares, at the discretion of the Board of
Directors and subject to approval of the Office of Thrift Supervision, we may
establish a new offering range and resolicit purchasers. If we resolicit,
purchasers will be allowed to modify or cancel their purchase orders. Any
adjustments in our pro forma market value as a result of market and financial
conditions or a resolicitation of prospective purchasers must be approved by the
Office of Thrift Supervision.
The independent valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing the common
stock. In preparing the independent valuation, FinPro has relied on and assumed
the accuracy and completeness of financial and statistical information provided
by FloridaFirst Bancorp. FinPro did not independently verify the financial
statements and other information provided by FloridaFirst Bancorp, nor did
FinPro value independently the assets and liabilities of FloridaFirst Bancorp.
The independent valuation considers FloridaFirst Bancorp only as a going concern
and should not be considered as a indication of the liquidation value of
FloridaFirst Bancorp. Moreover, because such independent valuation is based on
estimates and projections on a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing the
common stock will be able to sell such shares at a price equal to or greater
than the purchase price.
No sale of shares of common stock may be consummated unless FinPro
confirms that, to the best of its knowledge, nothing of a material nature has
occurred that, taking into account all relevant factors, would cause FinPro to
conclude that the independent valuation is incompatible with its estimate of our
pro forma market value at the conclusion of the offering. Any change that would
result in an aggregate value that is below $40.8 million or above $63.5 million
would be subject to Office of Thrift Supervision approval. If confirmation from
FinPro is not received, we may extend the offering, reopen or commence a new
offering, request a new Independent Valuation, establish a new offering range
and commence a resolicitation of all purchasers with the approval of the Office
of Thrift Supervision, or take such other action as permitted by the Office of
Thrift Supervision in order to complete the offering.
36
Plan of Distribution/Marketing Arrangements
The common stock will be offered in the offering principally by the
distribution of this prospectus and through activities conducted at the
conversion center. It is expected that a registered representative employed by
Sandler O'Neill will be working at, and supervising the operation of, the
conversion center. Sandler O'Neill will assist FloridaFirst Bank in overseeing
the mailing of material relating to the offering, responding to questions
regarding the conversion and the offering and processing order forms.
We have entered into an agency agreement with Sandler O'Neill under
which Sandler O'Neill will provide advisory assistance and assist, on a best
efforts basis, in the solicitation of subscriptions and purchase orders for the
common stock in the offering. Sandler O'Neill is a broker-dealer registered with
the SEC and a member of the National Association of Securities Dealers, Inc.
Specifically, Sandler O'Neill will assist in the offering in the following
manner:
o assisting in the design and implementation of a marketing strategy for the
offering;
o assisting FloridaFirst Bank's management in scheduling and preparing for
meetings with potential investors and broker-dealers; and
o providing such other general advice and assistance as may be requested to
promote the successful completion of the offering.
Sandler O'Neill will receive, as compensation, an advisory and
marketing fee of .75% of the aggregate amount of common stock sold in the
Subscription and Direct Community Offerings, excluding shares sold to
FloridaFirst Bank's employee benefit plan, any of the directors, officers, or
employees or any member of their immediate families. If common stock is sold
through licensed brokers under a selected dealers agreement, we will pay the
sales commission payable to the selected dealer pursuant to the agreement, any
sponsoring dealer's fees and a managing dealer's fee to Sandler O'Neill of 1.25%
of the aggregate price of such shares. Sandler O'Neill's fee shall not exceed
1.25% for any shares sold. Sandler O'Neill will also be reimbursed for its legal
fees and out-of-pocket expenses, not to exceed $65,000. We have agreed to
indemnify Sandler O'Neill, to the extent allowed by law, for reasonable costs
and expenses in connection with certain claims or liabilities, including certain
liabilities under the Securities Act of 1933. Additionally, Sandler O'Neill will
receive a fee of $32,500 for services performed as conversion agent in
connection with the stock offering.
Restrictions on Transferability by Directors and Officers
Shares of the common stock purchased by our directors or officers
cannot be sold for a period of one year following completion of the conversion,
except for a disposition of shares after the death of a stockholder.
Accordingly, shares of the common stock issued to directors and officers will
bear a legend restricting their sale. Any shares issued to directors and
officers as a stock dividend, stock split, or otherwise with respect to
restricted stock will be subject to the same restriction.
For a period of three years following the conversion, none of our
directors, officers or their associates may, without the prior approval of the
Office of Thrift Supervision, purchase our common stock except from a broker or
dealer registered with the SEC. This prohibition does not apply to negotiated
transactions including more than 1% of our common stock or purchases made for
tax qualified or non-tax qualified employee stock benefit plans which may be
attributable to individual officers or directors.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Offering
Before the completion of the conversion, no depositor may transfer or
enter into an agreement or understanding to transfer any subscription rights or
the legal or beneficial ownership of the shares of
37
common stock to be purchased by such person in the offering. Depositors who
submit an order form will be required to certify that their purchase of common
stock is solely for their own account and there is no agreement or understanding
regarding the sale or transfer of their shares. We intend to pursue any and all
legal and equitable remedies after we become aware of any such agreement or
understanding, and will not honor orders we reasonably believe to involve such
an agreement or understanding.
FloridaFirst Bancorp, Inc.
We were organized in July 2000 for the purpose of acquiring all of the
outstanding shares of capital stock of FloridaFirst Bank. We will serve as a
savings and loan holding company for FloridaFirst Bank after we buy all of
FloridaFirst Bank's stock in the conversion. We have applied to the Office of
Thrift Supervision for approval to acquire control of FloridaFirst Bank. We have
not yet engaged in any business and will initially have no significant
liabilities. Our cash flow will depend on earnings from the investment of the
portion of net proceeds retained in the conversion and any dividends received
from FloridaFirst Bank. See "Use of Proceeds."
Management believes that the holding company structure will provide
flexibility for possible diversification of business activities through existing
or newly-formed subsidiaries, or through acquisitions of or mergers with both
savings institutions and commercial banks, as well as other financial services
related companies. Although there are no current arrangements, understandings,
or agreements regarding any such opportunities, we will be in a position after
the conversion, subject to regulatory limitations and our financial condition,
to take advantage of any such acquisition and expansion opportunities that may
arise. However, some of these activities could be deemed to entail a greater
risk than the activities permissible for federally chartered savings
institutions such as FloridaFirst Bank. Our initial activities are anticipated
to be funded by the portion of the net proceeds retained by us and earnings
received from such activities.
FloridaFirst Bank
We were originally chartered in 1934 as First Federal Savings and Loan
Association of Lakeland, a federally chartered mutual savings institution. On
April 6, 1999, we reorganized into a two-tier mutual holding company structure
with FloridaFirst Bancorp MHC, as the mutual holding company, that owns a
majority of FloridaFirst Bancorp, the mid-tier holding company that owns us. As
part of the mutual holding company reorganization, we became a federally
chartered stock savings bank. We are a community-oriented retail savings bank
offering traditional deposit products, residential real estate mortgage loans,
commercial loans, commercial real estate loans, consumer loans and other loans.
Through our nine offices located in Polk and Manatee Counties in Florida, we
provide a full range of retail and business banking services.
Use of Proceeds
The net proceeds will depend on the total number of shares of stock
sold in the offering, which will depend on the independent valuation and
marketing considerations, and the expenses incurred by us in connection with the
offering. We estimate that we will receive net proceeds from the sale of the
common stock of between $22.2 million at the minimum of the offering range and
$35.1 million at the maximum, as adjusted of the offering range. Assuming net
proceeds of $26.3 million of common stock at the midpoint of the offering range
and the purchase of 8% of the shares by the employee stock ownership plan, the
following table shows the manner in which we will use the net proceeds (in
millions):
38
Loan to employee stock ownership plan $ 2.2
Investment in FloridaFirst Bank 13.2
Working capital 10.9
-----
$26.3
=====
These funds will be initially invested in U.S. government and federal
agency securities, marketable securities, or a combination of both. We may also
use the net proceeds to repurchase our stock. See "Risk Factors--Rising interest
rates would likely hurt our profits and may affect our ability to pay dividends,
repurchase stock or undertake other corporate transactions" and Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk and Market Risk."
The funds received by FloridaFirst Bank from us in return for the
purchase of all its stock to be issued will be used for general corporate
purposes. These funds will increase FloridaFirst Bank's total capital to expand
investment and lending, internal growth, expand its branch network within its
existing market areas, enhance its technological capabilities and expansion of
its commercial and consumer lending programs. Costs for such projects are
estimated to be approximately $1.1 million in fiscal 2001 and $1.5 million in
fiscal 2002. Net proceeds may also be used by FloridaFirst Bank to make
contributions to the employee stock ownership plan which in turn would be used
to repay the loan from us.
If the employee stock ownership plan does not purchase common stock in
the offering, it may purchase shares of common stock in the market after the
conversion. If the purchase price of the common stock is higher than $10 per
share, the amount of proceeds required for the purchase by the employee stock
ownership plan will increase and the resulting stockholders' equity will
decrease.
The net proceeds may vary because total expenses of the conversion may
be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the conversion are adjusted to reflect a change
in the estimated pro forma market value of FloridaFirst Bancorp MHC,
FloridaFirst Bancorp, and FloridaFirst Bank. Payments for shares made through
withdrawals from existing FloridaFirst Bank deposit accounts will not result in
the receipt of new funds for investment by FloridaFirst Bank but will result in
a reduction of FloridaFirst Bank's deposits and interest expense as funds are
transferred from interest-bearing certificates or other deposit accounts.
Dividend Policy
FloridaFirst Bancorp currently pays a cash dividend of $.04 per share
per quarter for fiscal 2000, or $.16 per share per year. After the conversion,
we expect to continue to pay a dividend rate of at least $.04 per share per
quarter. Dividends will be subject to determination and declaration by our Board
of Directors. In making its decision, the Board of Directors will consider
several factors, including:
o our financial condition;
o results of operations;
o tax considerations;
o industry standards; and
o economic conditions.
Our ability to pay dividends could also depend on the receipt of
dividends from FloridaFirst Bank which is subject to a variety of regulatory
limitations on the payment of dividends. See "Risk Factors-- Rising interest
rates would likely hurt our profits and may affect our ability to pay dividends,
repurchase stock or undertake other corporate transactions," and "Management's
Discussion and Analysis of Financial
39
Condition and Results of Operations--Management of Interest Rate Risk and Market
Risk," "Regulation -- Regulation of FloridaFirst Bank -- Dividend and Other
Capital Distribution Limitations." Furthermore, as a condition to Office of
Thrift Supervision approval of the conversion, we have agreed that we will not
initiate any action within one year of completion of the conversion to pay a
special distribution or a return of capital to our stockholders.
In addition, earnings of FloridaFirst Bank appropriated to bad debt
reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then-current tax rate by FloridaFirst Bank on the amount of
earnings deemed to be removed from the reserves for such distribution. See
"Taxation" and Note 9 of the Consolidated Financial Statements. FloridaFirst
Bank does not contemplate any distribution out of its bad debt reserve which
would cause such tax liability.
Market for the Common Stock
There is an established market for FloridaFirst Bancorp common stock
which is currently listed on the Nasdaq National Market under the symbol,
"FFBK." At June 30, 2000 FloridaFirst Bancorp had approximately 5 market makers,
including Sandler O'Neill. As a newly formed company, however, we have not
issued capital stock. It is expected that our common stock will be more liquid
than FloridaFirst Bancorp common stock since there will be significantly more
outstanding shares owned by the public. We applied to have our common stock
listed on the Nasdaq National Market under the symbol "FFBK." However, there can
be no assurance that an active and liquid trading market for the common stock
will develop or, if developed, will be maintained. The shares of FloridaFirst
Bancorp common stock owned by the public will automatically, without further
action by those holders, be converted into and become a right to receive a
number of shares of our common stock that is determined pursuant to the exchange
ratio.
See "The Conversion--Share Exchange Ratio."
The development of a public market having the desirable characteristics
of depth, liquidity and orderliness depends on the existence of willing buyers
and sellers, the presence of which is not within the control of us, FloridaFirst
Bancorp or any market maker. In the event that institutional investors buy a
relatively large proportion of the offering, the number of active buyers and
sellers of the common stock at any particular time may be limited. There can be
no assurance that persons purchasing the common stock will be able to sell their
shares at or above the subscription price of $10 per share. Therefore,
purchasers of the common stock should have a long-term investment intent and
should recognize that there may be a limited trading market in the common stock.
This may make it difficult to sell the common stock after the conversion and may
have an adverse effect on the price at which the common stock can be sold.
The following table sets forth the high and low bid quotes for
FloridaFirst Bancorp common stock and the adjusted cash dividends per share
declared for the periods indicated. FloridaFirst Bancorp's stock was issued on
April 6, 1999. These quotations represent prices between dealers and, therefore,
may not include retail markups, markdowns, or commissions and may not reflect
actual transactions. As of September 1, 2000 there were 2,298,273 publicly-held
shares of FloridaFirst Bancorp common stock outstanding. In connection with the
conversion, each share of FloridaFirst Bancorp's common stock will be converted
into shares of our common stock, based upon the exchange ratio that is described
in other parts of this prospectus. Accordingly, the information in this table
should be reviewed in conjunction with the exchange ratio at various levels of
the offering range.
40
Cash Dividends
High Low Per Share Declared
---- --- ------------------
Fiscal 2000
- -----------
First Quarter..................................... $9.38 $8.50 $.04
Second Quarter.................................... 8.88 7.31 .04
Third Quarter..................................... 8.25 7.25 .04
Fourth Quarter.................................... 12.25 7.88 .04
Fiscal 1999
- -----------
Fourth Quarter.................................... 9.50 7.88 .04
Third Quarter (April 6, 1999 - June 30, 1999)..... 9.50 8.38 --
At July 21, 2000, the business day immediately preceding the public
announcement of the conversion, and at November 3, 2000, the last sale of
FloridaFirst Bancorp common stock as reported on the Nasdaq National Market was
at a price of $8.19 per share and $11.56 per share, respectively. At June 30,
2000, FloridaFirst Bancorp had approximately 912 stockholders of record. All
publicly-held shares of FloridaFirst Bancorp common stock, including shares held
by FloridaFirst Bancorp's officers and directors, will on the effective date of
the conversion be automatically converted into and become the right to receive a
number of shares of our common stock determined pursuant to the exchange ratio.
Additionally, options held by officers and directors of FloridaFirst Bancorp and
FloridaFirst Bank will be converted into options to purchase our shares of
common stock determined pursuant to the exchange ratio, for the same aggregate
exercise price. See "Management of FlordiaFirst Bank -- Beneficial Ownership of
FloridaFirst Bancorp Common Stock."
Capitalization
Set forth below is the historical capitalization of FloridaFirst
Bancorp as of June 30, 2000, and the pro forma capitalization of us after giving
effect to the offering. The table also gives affect to the assumptions set forth
under "Pro Forma Data." A change in the number of shares sold in the offering
may materially affect the pro forma capitalization.
41
Pro Forma Capitalization at June 30, 2000
-----------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
2,326,877 2,737,299 3,147,952 3,620,179
Actual, at Shares at Shares at Shares at Shares at
June 30, $10.00 per $10.00 per $10.00 per $10.00 per
2000 share share share share(1)
----------------- --------------- ----------------- ---------------- ------------
(In thousands)
Deposits(2)................................... $357,535 $357,535 $357,535 $357,535 $357,535
Borrowed funds................................ 147,025 147,025 147,025 147,025 147,025
------- ------- ------- ------- -------
Total deposits and borrowed funds............. $504,560 $504,560 $504,560 $504,560 $504,560
======= ======= ======= ======= =======
Stockholders' equity:
Preferred stock, no par value, 20,000,000
shares authorized (post conversion); none to
be issued..................................... $ -- $ -- $ -- $ -- $ --
Common stock, $0.10 par value, 80,000,000
shares authorized (post conversion),
assuming shares outstanding as shown(3).... 575 408 480 552 635
Additional paid-in capital(3)(4)(7)........... 25,085 43,976 47,980 51,987 56,593
Treasury shares(3)............................ (3,606) -- -- -- --
Retained earnings(7).......................... 41,586 41,586 41,586 41,586 41,586
Unrealized (loss) on securities available
for sale, net............................... (2,025) (2,025) (2,025) (2,025) (2,025)
Less:
Common stock acquired by ESOP(5)............ (1,838) (3,700) (4,028) (4,356) (4,734)
Common stock acquired by
stock programs(6)......................... (414) (1,728) (1,960) (2,192) (2,459)
-------- --------- -------- -------- --------
Total equity/stockholders' equity(7).......... $ 59,363 $ 78,517 82,033 $ 85,552 $ 89,596
======== ======== ======== ======== ========
- -----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the independent valuation and a
commensurate increase in the offering range of up to 15% to reflect
changes in market and financial conditions.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
stock in the offering. Such withdrawals would reduce pro forma deposits
by the amount of such withdrawals.
(3) FloridaFirst Bancorp has 2,000,000 authorized shares of preferred stock
and 18,000,000 authorized shares of common stock, par value $.10 per
share. FloridaFirst Bancorp common stock and additional paid-in capital
have been reclassified to reflect the number of shares of FloridaFirst
Bancorp common stock to be outstanding. Treasury shares will be
cancelled.
(4) No effect has been given to the issuance of additional shares of stock
pursuant to any stock option plans that may be adopted by us and
presented for approval by the stockholders after the offering. An
amount equal to 10% of the shares of stock sold in the offering would
be reserved for issuance upon the exercise of options to be granted
under the stock option plans within one year following the conversion.
See "Risk Factors -- The implementation of certain stock-based benefit
plans may increase our future compensation expense and may reduce our
earnings" and "Management of FloridaFirst Bank -- Stock Benefits --
Benefits To Be Considered Following Completion Of The Conversion --
2001 Stock Option Plan."
(5) Assumes that 8.0% of the shares sold in the offering will be purchased
by the employee stock ownership plan in addition to the shares already
owned by the employee stock ownership plan, and that the funds used to
acquire these shares will be borrowed from us. For an estimate of the
impact of the loan on net income, see "Pro Forma Data." FloridaFirst
Bank intends to make scheduled discretionary contributions to the
employee stock ownership plan sufficient to enable the employee stock
ownership plan to service and repay its debt over a ten year period.
The amount of shares to be acquired by the employee stock ownership
plan is reflected as a reduction of stockholders' equity. See
"Management of FloridaFirst Bank - Executive Compensation - Employee
Stock Ownership Plan." If the employee stock ownership plan is unable
to purchase stock in the conversion due to an oversubscription in the
offering by Eligible Account Holders, and the purchase price in the
open market is greater than the original $10 price per share, there
will be a corresponding reduction in stockholders' equity.
(6) Assumes that an amount equal to 4% of the shares of stock sold in the
offering is purchased by stock programs within one year following the
conversion. Also, assumes stock to be acquired by existing restricted
stock plan after completion of the conversion. The stock purchased by
the stock programs and the existing restricted stock plan is reflected
as a reduction of stockholders' equity. See footnotes (2) and (3) to
the table under "Pro Forma Data." See "Risk Factors -- The
implementation of certain stock-based benefit plans may increase our
future compensation expense and may reduce our earnings" and
"Management of FloridaFirst Bank -- Benefits To Be Considered Following
The Completion Of The Conversion."
(footnote continued on next page)
42
(7) Pro forma additional paid-in capital reflects consolidation of $98,500
of capital from FloridaFirst Bancorp MHC. The earnings of FloridaFirst
Bank will be substantially restricted after the conversion, see
"Regulation -- Regulation of FloridaFirst Bank -- Dividend and Other
Capital Distribution Limitations."
Pro Forma Data
The actual net proceeds from the sale of the stock cannot be determined
until the offering is completed. However, net proceeds are currently estimated
to be between $22.2 million and $30.4 million (or $35.1 million if the
independent valuation is increased by 15%) based on the following assumptions:
o an amount equal to 4% of the shares offered will be awarded pursuant to
the stock programs adopted no sooner than six months following the
offering, funded through open market purchases;
o Sandler O'Neill will receive an advisory and marketing fee equal to
.75% of the aggregate purchase price of the shares of stock sold in the
offerings to the public, excluding any shares purchased by any employee
benefit plan of FloridaFirst Bank, and any director, officer or
employee of FloridaFirst Bancorp MHC, FloridaFirst Bancorp, and
FloridaFirst Bank or members of their immediate families;
o other fixed expenses of the offering are estimated to be $880,000; and
We have prepared the following table, which sets forth our historical
consolidated net income and stockholders' equity prior to the conversion and our
pro forma consolidated net income and stockholders' equity following the
conversion. In preparing this table and in calculating pro forma data, we have
made the following assumptions:
o Pro forma earnings have been calculated assuming the stock had been sold at
the beginning of the period and the net proceeds had been invested at an
average yield of 6.13% for the nine months ended June 30, 2000 and the year
ended September 30, 1999, which approximates the yield on a one-year U.S.
Treasury bill on September 30, 1999. The yield on a one-year U.S. Treasury
bill, rather than an arithmetic average of the average yield on
interest-earning assets and average rate paid on deposits, has been used to
estimate income on net proceeds because it is believed that the one-year
U.S. Treasury bill rate is a more accurate estimate of the rate that would
be obtained on an investment of net proceeds from the offering.
o The pro forma after-tax yield on the net proceeds is assumed to be 3.92%
for the nine months ended June 30, 2000 and the year ended September 30,
1999, based on an effective tax rate of 36%, respectively.
o We did not include any withdrawals from deposit accounts to purchase shares
in the offering.
o Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of
stock, as adjusted in the pro forma net income per share to give effect to
the purchase of shares by the employee stock ownership plan.
o Pro forma stockholders' equity amounts have been calculated as if the stock
had been sold on June 30, 2000 and September 30, 1999, respectively, and,
accordingly, no effect has been given to the assumed earnings effect of the
transactions.
The following pro forma data relies on the assumptions we outlined
above, and this data does not represent the fair market value of the common
stock, the current value of assets or liabilities, or the amount of money that
would be distributed to stockholders if we were liquidated. The pro forma data
does not predict how much we will earn in the future.
43
The following tables summarize historical data of FloridaFirst Bancorp
and pro forma data of us at or for the nine months ended June 30, 2000 and the
year ended September 30, 1999, based solely on the assumptions set forth above
and in the tables and should not be used as a basis for projections of market
value of the stock following the conversion. No effect has been given in the
tables to expenses associated with the expansion resulting from the addition of
three offices or to the possible issuance of additional stock reserved for
future issuance pursuant to a stock option plan that may be adopted by the Board
of Directors within one year following the conversion, nor does book value give
any effect to the liquidation account to be established for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders or the bad
debt reserve in liquidation. See "The Conversion -- Effects of Conversion on
Depositors, Borrowers and Members -- Effect on Liquidation Rights" and
"Management of FloridaFirst Bank -- "Benefits To Be Considered Following
Completion Of The Conversion."
44
At or For the Nine Months Ended June 30, 2000
------------------------------------------------------------
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
------------- ------------------ -------------- ------------
2,326,877 2,737,299 3,147,952 3,620,179
Shares Shares Shares Shares
------------- ------------------ -------------- ------------
(Dollars in thousands, except per share amounts)
Gross proceeds ............................................ $ 23,269 $ 27,373 $ 31,480 $ 36,202
Less expenses ............................................. (1,038) (1,066) (1,094) (1,127)
----------- ----------- ----------- -----------
Estimated net proceeds ................................. 22,231 26,307 30,386 35,075
Less ESOP funded by FloridaFirst Bancorp, Inc. ............ (1,862) (2,190) (2,518) (2,896)
Less stock program adjustment ............................. (931) (1,095) (1,259) (1,448)
Less Common stock to be acquired by existing restricted
stock plan(3) .......................................... (383) (451) (519) (597)
----------- ----------- ----------- -----------
Estimated investable net proceeds ...................... $ 19,055 $ 22,571 $ 26,090 $ 30,134
=========== =========== =========== ===========
Net Income:
Historical ............................................. $ 2,831 $ 2,831 $ 2,831 $ 2,831
Pro forma income on net proceeds ....................... 560 664 767 886
Pro forma ESOP adjustments(1) .......................... (89) (105) (121) (139)
Pro forma stock program adjustment(2) .................. (89) (105) (121) (139)
----------- ----------- ----------- -----------
Pro forma net income(1)(4)(5) .......................... $ 3,213 $ 3,285 $ 3,356 $ 3,439
=========== =========== =========== ===========
Per share net income
Historical ............................................. $ .75 $ .64 $ .55 $ .48
Pro forma income on net proceeds ....................... .15 .15 .15 .15
Pro forma ESOP adjustments(1) .......................... (.02) (.02) (.02) (.02)
Pro forma stock program adjustment(2) .................. (.02) (.02) (.02) (.02)
----------- ----------- ----------- -----------
Pro forma net income per share(1)(4)(5) ................ $ .86 $ .75 $ .66 $ .59
=========== =========== =========== ===========
Shares used in calculation of income per share(1) ......... 3,779,977 4,447,032 5,114,088 5,881,200
----------- ----------- ----------- -----------
Stockholders' equity:
Historical ............................................. $ 59,363 $ 59,363 $ 59,363 $ 59,363
Estimated net proceeds ................................. 22,231 26,307 30,386 35,075
MHC Capital Addition ................................... 99 99 99 99
Less: Common stock acquired by the ESOP(1) ............. (1,862) (2,190) (2,518) (2,896)
Less: Common stock acquired by stock program(2) ........ (931) (1,095) (1,259) (1,448)
Less: Common stock to be acquired by existing restricted
stock plan(3) ................................ (383) (451) (519) (597)
----------- ----------- ----------- -----------
Pro forma stockholders' equity(1)(4)(5) ................ $ 78,517 $ 82,033 $ 85,552 $ 89,596
=========== =========== =========== ===========
Stockholders' equity per share:
Historical ............................................. $ 14.55 $ 12.37 $ 10.75 $ 9.35
Estimated net proceeds ................................. 5.45 5.48 5.50 5.53
MHC Capital Addition ................................... .02 .02 .02 .02
Less: Common Stock acquired ESOP(1) .................... (.46) (.46) (.46) (.46)
Less: Common Stock acquired by stock program(2) ........ (.23) (.23) (.23) (.23)
Less: Common stock to be acquired by existing restricted
stock plan(3) ................................ (.09) (.09) (.09) (.09)
----------- ----------- ----------- -----------
Pro forma stockholders' equity per share(5) ............ $ 19.24 $ 17.09 $ 15.49 $ 14.12
=========== =========== =========== ===========
Offering price as a percentage of pro forma
stockholders' equity per share .......................... 51.98% 58.51% 64.56% 70.82%
=========== =========== =========== ===========
Offering price to pro forma
net income per share .................................... 8.72x 10.00x 11.36x 12.71x
=========== =========== =========== ===========
Shares used in calculation of proforma
stockholders' equity per share (5) ...................... 4,080,000 4,800,000 5,520,000 6,348,000
----------- ----------- ----------- -----------
(footnotes on next page)
45
- ---------------
(1) Assumes that 8% of the shares of stock sold in the offering will be
purchased by the employee stock ownership plan in addition to the
shares already held by the plan, and that the plan will borrow funds
from us. The stock acquired by the employee stock ownership plan is
reflected as a reduction of stockholders' equity. FloridaFirst Bank
intends to make annual contributions to this plan in an amount at least
equal to the principal and interest requirement of the loan. This table
assumes a 10 year amortization period. See "Management of FloridaFirst
Bank -- Executive Compensation -- Employee Stock Ownership Plan." The
pro forma net income assumes: (i) that FloridaFirst Bank's contribution
to the employee stock ownership plan for the principal portion of the
debt service requirement for the nine months ended June 30, 2000 were
made at the end of the period; (ii) that 13,961, 16,424, 18,888, and
21,721 shares at the minimum, midpoint, maximum, and 15% above the
maximum of the range, respectively, were committed to be released
during the nine months ended June 30, 2000 at an average fair value of
$10 per share and were accounted for as a charge to expense in
accordance with Statement of Position ("SOP") No. 93-6; and (iii) only
the employee stock ownership plan shares committed to be released were
considered outstanding for purposes of the net income per share
calculations, while all employee stock ownership plan shares were
considered outstanding for purposes of the stockholders' equity per
share calculations. See also "Risk Factors -- The implementation of
certain stock- based benefit plans may increase our future compensation
expense and may reduce our earnings" for a discussion of possible added
costs for the employee stock ownership plan.
(2) Gives effect to the stock program that we may adopt following the
conversion and presented for approval at a meeting of stockholders to
be held within one year after completion of the conversion. If the
stock program is approved by the stockholders, the stock program would
be expected to acquire an amount of stock equal to 4% of the shares of
stock sold in the offering, or 93,075, 109,491, 125,918 and 144,807
shares of stock respectively at the minimum, midpoint, maximum and 15%
above the maximum of the range through open market purchases. We will
contribute funds used by the stock program to purchase the shares. In
calculating the pro forma effect of the stock program, it is assumed
that the required stockholder approval has been received, that the
shares were acquired by the stock program at the beginning of the nine
months ended June 30, 2000 through open market purchases, at $10 per
share, and that 15% of the amount contributed was amortized to expense
during the nine months ended June 30, 2000. The issuance of authorized
but unissued shares of stock to the stock plan instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 1.8% and pro forma net income per share would be $.83,
$.72, $.64 and $.57 at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively, and pro forma stockholders' equity
per share would be $18.82, $16.71, $15.15 and $13.80 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively.
There can be no assurance that stockholder approval of the stock
program will be obtained, or the actual purchase price of the shares
will be equal to $10.00 per share. See "Management of FloridaFirst Bank
-- Benefits To Be Completed Following Completion Of The Conversion -
2001 Restricted Stock Plan."
(3) In October 1999, the stockholders of FloridaFirst Bancorp approved the
purchase of 108,154 shares of common stock to fund the restricted stock
plan. At June 30, 2000, 57,879 shares have been purchased in the open
market, leaving 50,275 shares to be purchased in the future. The equity
adjustment for the existing restricted stock plan reflects the pro
forma impact of purchasing 50,275 shares, adjusted for the appropriate
exchange ratio at each point in the valuation range at a price of
$10.00 per share. Adjusted for the exchange ratio at the minimum,
midpoint, maximum and 15% above the maximum, the existing restricted
stock plan shares to be purchased are 38,349, 45,121, 51,888 and
59,671, respectively.
(4) Our retained earnings will continue to be substantially restricted
after the conversion. See "Dividend Policy," "The Conversion -- Effects
of Conversion on Depositors, Borrowers and Members -- Effects on
Liquidation Rights" and "Regulation - Regulation of FloridaFirst Bank
-- Dividend and Other Capital Distribution Limitations."
(5) No effect has been given to the issuance of additional shares of stock
pursuant to the stock option plan that may be adopted by us following
the conversion which, in turn, would be presented for approval at a
meeting of stockholders to be held within one year after the completion
of the conversion. If the stock option plan is presented and approved
by stockholders, an amount equal to 10% of the stock sold in the
offering, or 232,687, 273,729, 314,795, and 362,017 shares at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the stock option plan. The issuance of
authorized but unissued shares of stock to the stock plan instead of
open market purchases would dilute the voting interests of existing
stockholders by approximately 5.4%. Assuming stockholder approval of
the stock option plan and the exercise of all options at the end of the
period at an exercise price of $10 per share, the pro forma net income
per share would be $.77, $.67, $.59, and $.53, respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range for
the nine months ended June 30, 2000; pro forma stockholders' equity per
share would be $18.40, $16.45, $15.00 and $13.74, respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range at
June 30, 2000. See "Management of FloridaFirst Bank -- Benefits To Be
Considered Following Completion Of The Conversion -- 2001 Stock Option
Plan."
46
At or For the Year Ended September 30, 1999
-----------------------------------------------------------------
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
-------------- ----------------- -------------- -----------------
2,326,877 2,737,299 3,147,952 3,620,179
Shares Shares Shares Shares
-------------- ----------------- -------------- -----------------
(Dollars in thousands, except per share amounts)
Gross proceeds ................................................ $ 23,269 $ 27,373 $ 31,480 $ 36,202
Less expenses ................................................. (1,038) (1,066) (1,094) (1,127)
----------- ----------- ----------- -----------
Estimated net proceeds ..................................... 22,231 26,307 30,386 35,075
Less ESOP funded by FloridaFirst Bancorp, Inc. ................ (1,862) (2,190) (2,518) (2,896)
Less stock program adjustment ................................. (931) (1,095) (1,259) (1,448)
Less Common stock to be acquired by existing restricted
stock plan(3) .............................................. (825) (971) (1,116) (1,284)
----------- ----------- ----------- -----------
Estimated investable net proceeds .......................... $ 18,613 $ 22,051 $ 25,493 $ 29,447
=========== =========== =========== ===========
Net Income:
Historical ................................................. $ 3,257 $ 3,257 $ 3,257 $ 3,257
Pro forma income on net proceeds ........................... 730 864 999 1,154
Pro forma ESOP adjustments(1) .............................. (119) (140) (161) (185)
Pro forma stock program adjustment(2) ...................... (119) (140) (161) (185)
Pro forma adjustment for existing restricted stock plan(3) . (106) (124) (143) (167)
----------- ----------- ----------- -----------
Pro forma net income(1)(4)(5) .............................. $ 3,643 $ 3,717 $ 3,791 $ 3,877
=========== =========== =========== ===========
Per share net income
Historical ................................................. $ .86 $ .73 $ .64 $ .55
Pro forma income on net proceeds ........................... .19 .19 .19 .20
Pro forma ESOP adjustments(1) .............................. (.03) (.03) (.03) (.03)
Pro forma stock program adjustment(2) ...................... (.03) (.03) (.03) (.03)
Pro forma adjustment for existing restricted stock plan(3) . (.03) (.03) (.03) (.03)
----------- ----------- ----------- -----------
Pro forma net income per share(1)(4)(5) .................... $ .96 $ .83 $ .74 $ .66
=========== =========== =========== ===========
Shares used in calculation of income per share(1) ............. 3,788,756 4,457,360 5,125,965 5,894,858
----------- ----------- ----------- -----------
Stockholders' equity:
Historical ................................................. $ 61,337 $ 61,337 $ 61,337 $ 61,337
Estimated net proceeds ..................................... 22,231 26,307 30,386 35,075
MHC Capital Addition ....................................... 99 99 99 99
Less: Common stock acquired by the ESOP(1) ................. (1,862) (2,190) (2,518) (2,896)
Less: Common stock acquired by stock program(2) ............ (931) (1,095) (1,259) (1,448)
Less: Common stock to be acquired by existing restricted
stock plan(3) ........................................ (825) (971) (1,116) (1,284)
----------- ----------- ----------- -----------
Pro forma stockholders' equity(1)(4)(5) .................... $ 80,049 $ 83,487 $ 86,929 $ 90,883
=========== =========== =========== ===========
Stockholders' equity per share:
Historical ................................................. $ 15.03 $ 12.78 $ 11.11 $ 9.66
Estimated net proceeds ..................................... 5.45 5.48 5.50 5.53
MHC Capital Addition ....................................... .02 .02 .02 .02
Less: Common Stock acquired ESOP(1) ........................ (.46) (.46) (.46) (.46)
Less: Common Stock acquired by stock program(2) ............ (.23) (.23) (.23) (.23)
Less: Common stock to be acquired by existing restricted
stock plan(3) ........................................ (.20) (.20) (.20) (.20)
----------- ----------- ----------- -----------
Pro forma stockholders' equity per share(5) ................ $ 19.61 $ 17.39 $ 15.74 $ 14.32
=========== =========== =========== ===========
Offering price as a percentage of pro forma
stockholders' equity per share .............................. 50.99% 57.50% 63.53% 69.83%
=========== =========== =========== ===========
Offering price to pro forma
net income per share ........................................ 10.42x 12.05x 13.51x 15.15x
=========== =========== =========== ===========
Shares used in calculation of proforma
stockholders' equity per share(4) ............................ 4,080,000 4,800,000 5,520,000 6,348,000
----------- ----------- ----------- -----------
(footnotes on next page)
47
- --------------------
(1) Assumes that 8% of the shares of stock sold in the offering will be
purchased by the employee stock ownership plan in addition to the
shares already held by the plan, and that the plan will borrow funds
from us. The stock acquired by the employee stock ownership plan is
reflected as a reduction of stockholders' equity. FloridaFirst Bank
intends to make annual contributions to this plan in an amount at least
equal to the principal and interest requirement of the loan. This table
assumes a 10 year amortization period. See "Management of FloridaFirst
Bank -- Executive Compensation -- Employee Stock Ownership Plan." The
pro forma net income assumes: (i) that FloridaFirst Bank's contribution
to the employee stock ownership plan for the principal portion of the
debt service requirement for the year ended September 30, 1999 was made
at the end of the period; (ii) that 18,615, 21,898, 25,184, and 28,961
shares at the minimum, midpoint, maximum, and 15% above the maximum of
the range, respectively, were committed to be released during the year
ended September 30, 1999 at an average fair value of $10 per share and
were accounted for as a charge to expense in accordance with SOP No.
93-6; and (iii) only the employee stock ownership plan shares committed
to be released were considered outstanding for purposes of the net
income per share calculations, while all employee stock ownership plan
shares were considered outstanding for purposes of the stockholders'
equity per share calculations. See also "Risk Factors -- The
implementation of certain stock-based benefit plans may increase our
future compensation expense and may reduce our earnings" for a
discussion of possible added costs for the employee stock ownership
plan.
(2) Gives effect to the stock program that we may adopt following the
conversion and presented for approval at a meeting of stockholders to
be held within one year after completion of the conversion. If the
stock program is approved by the stockholders, the stock program would
be expected to acquire an amount of stock equal to 4% of the shares of
stock sold in the offering, or 93,075, 109,491, 125,918 and 144,807
shares of stock respectively at the minimum, midpoint, maximum and 15%
above the maximum of the range through open market purchases. We will
contribute funds used by the stock program to purchase the shares. In
calculating the pro forma effect of the stock program, it is assumed
that the required stockholder approval has been received, that the
shares were acquired by the stock program at the beginning of the year
ended September 30, 1999 through open market purchases, at $10 per
share, and that 20% of the amount contributed was amortized to expense
during the year ended September 30, 1999. The issuance of authorized
but unissued shares of stock to the stock plan instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 1.8% and pro forma net income per share would be $.94,
$.82, $.72 and $.64 at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively, and pro forma stockholders' equity
per share would be $19.18, $17.01, $15.40 and $14.00 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively.
There can be no assurance that stockholder approval of the stock
program will be obtained, or the actual purchase price of the shares
will be equal to $10.00 per share. See "Management of FloridaFirst Bank
-- Benefits To Be Completed Following Completion Of The Conversion --
2001 Restricted Stock Plan."
(3) In October 1999, the stockholders of FloridaFirst Bancorp approved the
purchase of 108,154 shares of common stock to fund the restricted stock
plan. At September 30, 1999, it is assumed that 108,154 shares will be
purchased in the open market in the future. The equity adjustment for
the existing restricted stock plan reflects the pro forma impact of
purchasing 108,154 shares, adjusted for the appropriate exchange ratio
at each point in the valuation range at a price of $10.00 per share.
Adjusted for the exchange ratio at the minimum, midpoint, maximum and
15% above the maximum, the existing restricted stock plan shares to be
purchased are 82,500, 97,068, 111,626, and 128,368, respectively.
(4) Our retained earnings will continue to be substantially restricted
after the conversion. See "Dividend Policy," "The Conversion -- Effects
of Conversion on Depositors, Borrowers and Members -- Effects on
Liquidation Rights" and "Regulation -- Regulation of FloridaFirst Bank
-- Dividend and Other Capital Distribution Limitations."
(5) No effect has been given to the issuance of additional shares of stock
pursuant to the stock option plan that may be adopted by us following
the conversion which, in turn, would be presented for approval at a
meeting of stockholders to be held within one year after the completion
of the conversion. If the stock option plan is presented and approved
by stockholders, an amount equal to 10% of the stock sold in the
offering, or 232,687, 273,729, 314,795, and 362,017 shares at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the stock option plan. The issuance of
authorized but unissued shares of stock to the stock plan instead of
open market purchases would dilute the voting interests of existing
stockholders by approximately 5.4%. Assuming stockholder approval of
the stock option plan and the exercise of all options at the end of the
period at an exercise price of $10 per share, the pro forma net income
per share would be $.87, $.75, $.67, and $.59, respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range for
the year ended September 30, 1999; pro forma stockholders' equity per
share would be $18.75, $16.72, $15.23 and $13.92, respectively at the
minimum, midpoint, maximum and 15% above the maximum of the range at
September 30, 1999. See "Management of FloridaFirst Bank -- Benefits To
Be Considered Following Completion Of The Conversion -- 2001 Stock
Option Plan."
48
Historical and Pro Forma Capital Compliance
The following table presents FloridaFirst Bank's historical and pro
forma capital position relative to its capital requirements as of June 30, 2000.
Pro forma capital levels assume receipt by FloridaFirst Bank of the proceeds
from the offering. Pro forma capital levels are then reduced by employee stock
ownership plan purchases of stock and the stock programs to be adopted. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the Office of Thrift Supervision. For a discussion of the
capital standards applicable to FloridaFirst Bank, see "Regulation - Regulation
of FloridaFirst Bank - Regulatory Capital Requirements."
Pro Forma at June 30, 2000
-----------------------------------------------------------------------------------
Actual, at $23,268,770 $27,372,990 $31,479,520 $36,201,790
June 30, 2000 Offering Offering Offering Offering(1)
-------------------- -------------------- ------------------- ------------------- ---------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
GAAP Capital(3)....... $50,179 8.85% $58,119 10.11% $59,597 10.34% $61,076 10.57% $62,776 10.83%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Tangible Capital:
Actual or
Pro Forma......... $52,204 9.17% $60,144 10.42% $61,622 10.65% $63,101 10.88% $64,801 11.14%
Required............ 8,536 1.50 8,655 1.50 8,677 1.50 8,699 1.50 8,725 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.............. $43,668 7.67% $51,489 8.92% $52,945 9.15% $54,402 9.38% $56,076 9.64%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core Capital:
Actual or
Pro Forma......... $52,204 9.17% $60,144 10.42% $61,622 10.65% $63,101 10.88% $64,801 11.14%
Required(4)......... 17,072 3.00 17,310 3.00 17,354 3.00 17,399 3.00 17,450 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.............. $35,132 6.17% $42,834 7.42% $44,268 7.65% $45,702 7.88% $47,351 8.14%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital:
Actual or
Pro Forma(5)(6)... $55,430 15.60% $63,370 17.64% $64,848 18.01% $66,327 18.39% $68,027 18.81%
Required............ 28,423 8.00 28,741 8.00 28,800 8.00 28,859 8.00 28,927 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.............. $27,007 7.60% $34,629 9.64% $36,048 10.01% $37,468 10.39% $39,100 10.81%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- -----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
subscription and community offerings.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) GAAP Capital includes unrealized loss on available-for-sale securities,
net, which is not included as regulatory capital.
(4) The current Office of Thrift Supervision core capital requirement for
savings associations is 3% of total adjusted assets for thrifts that
receive the highest supervisory rating for safety and soundness and a 4%
core capital ratio requirement for all other thrifts. See "Regulation -
Regulation of FloridaFirst Bank - Regulatory Capital Requirements."
(5) Assumes net proceeds are invested in assets that carry a 50%
risk-weighting.
(6) The difference between equity under GAAP and regulatory risk-based capital
is attributable to the addition of the general valuation allowance of $3.2
million at June 30, 2000.
49
FLORIDAFIRST BANCORP
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
The statements of earnings for the nine months ended June 30, 2000 and
1999 are unaudited and have been prepared in accordance with the requirements
for a presentation of interim financial statements and are in accordance with
generally accepted accounting principles. In the opinion of management, all
adjustments consisting of normal recurring adjustments, that are necessary for a
fair presentation of the interim periods have been reflected. The amounts for
the three years ended September 30, 1999 have been derived from statements
audited by KPMG LLP, whose report appears elsewhere in this Prospectus.
Nine Months Ended
June 30, Year ended September 30,
------------------- ----------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(Unaudited)
Interest income:
Interest and fees on loans $ 23,894 $ 21,055 $ 28,482 $ 27,241 $ 27,730
Interest and dividends on investment securities 4,897 2,540 3,671 3,906 5,513
Other interest income 372 407 495 994 622
-------- -------- -------- -------- --------
Total interest income 29,163 24,002 32,648 32,141 33,865
-------- -------- -------- -------- --------
Interest expense:
Deposits 11,433 11,167 14,727 18,831 19,702
Federal Home Loan Bank advances and other borrowings 5,388 1,431 2,401 135 --
-------- -------- -------- -------- --------
Total interest expense 16,821 12,598 17,128 18,966 19,702
-------- -------- -------- -------- --------
Net interest income 12,342 11,404 15,520 13,175 14,163
Provision for loan losses 450 420 540 405 317
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 11,892 10,984 14,980 12,770 13,846
-------- -------- -------- -------- --------
Other income:
Fees and service charges 1,017 849 991 996 1,069
Gain (loss) on sale of loans and investments available for sale -- -- (22) 117 114
Gain on sale of branches -- 165 165 3,016 --
Other, net 456 122 339 218 6
-------- -------- -------- -------- --------
Total other income 1,473 1,136 1,473 4,347 1,189
-------- -------- -------- -------- --------
Other expenses:
Compensation and employee benefits 4,744 4,322 5,820 5,632 5,552
Other compensation and employee benefits -- -- -- 2,085 --
Occupancy and equipment costs 1,306 1,419 1,881 1,818 1,646
Marketing 382 432 534 495 488
Data processing costs 382 391 521 558 479
Federal insurance premiums 85 165 214 338 456
Other 2,095 1,781 2,478 2,655 2,588
-------- -------- -------- -------- --------
Total other expenses 8,994 8,510 11,448 13,581 11,209
-------- -------- -------- -------- --------
Income before income taxes 4,371 3,610 5,005 3,536 3,826
Income taxes 1,540 1,279 1,748 1,151 1,299
-------- -------- -------- -------- --------
NET INCOME $ 2,831 $ 2,331 $ 3,257 $ 2,385 $ 2,527
======== ======== ======== ======== ========
Basic and diluted earnings per share $ 0.54 -- $ 0.34(1) -- --
======== ======== ======== ======== ========
Weighted average shares outstanding 5,280 -- 5,549(1) -- --
======== ======== ======== ======== ========
(1) FloridaFirst converted to a stock company on April 6, 1999. Earnings per
share and weighted average shares outstanding are for the six months ended
September 30, 1999 (period subsequent to the conversion.)
See Notes to consolidated financial statements.
50
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
Selected Financial Highlights and Selected Financial Ratios and the Consolidated
Financial Statements and related Notes appearing elsewhere in this prospectus.
In addition to historical information, the following discussion contains
forward-looking statements as a result of certain factors, including those
discussed in "Risk Factors" contained elsewhere in this prospectus.
General
FloridaFirst Bancorp is the holding company for FloridaFirst Bank. We
will become and will operate as the holding company of FloridaFirst Bank
following the conversion and stock offering. FloridaFirst Bancorp's business
operations are conducted primarily through FloridaFirst Bank and our business
operations will also be conducted primarily through FloridaFirst Bank. We have
no business activities or results of operations. As a result, the following is a
discussion and analysis of the financial condition and results of operations of
FloridaFirst Bancorp. Any references to FloridaFirst Bancorp in the following
discussion generally refer to the consolidated operations of FloridaFirst
Bancorp.
FloridaFirst Bancorp's results of operations primarily depend on its
net interest income. Net interest income is a function of the balances of loans
and investments outstanding in any one period, the yields earned on such loans
and investments and the interest paid on deposits and borrowed funds that were
outstanding in that same period. FloridaFirst Bancorp's noninterest income
consists primarily of fees and service charges. The results of operations are
significantly impacted by the amount of provisions for loan losses which, in
turn, depend on, among other things, the size and makeup of the loan portfolio,
loan quality and loan trends. The noninterest expenses consist primarily of
employee compensation and benefits, occupancy and equipment expenses, data
processing costs, marketing costs, professional fees and federal deposit
insurance premiums. FloridaFirst Bancorp's results of operations are affected by
general economic and competitive conditions, including changes in prevailing
interest rates and the policies of regulatory agencies.
Forward-Looking Statements
This prospectus contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of
FloridaFirst Bank and FloridaFirst Bancorp. These forward- looking statements
are generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. FloridaFirst
Bancorp's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse
effect on the operations of FloridaFirst Bancorp and its subsidiaries include,
but are not limited to, changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality and composition of the loan and investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
FloridaFirst Bancorp's market area, and changes in relevant accounting
principles. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. FloridaFirst Bancorp does not undertake--and specifically
disclaims--any obligation to publicly release the results of any revisions after
the date of the statements or to reflect the occurrence of anticipated or
unanticipated events.
51
Business Strategy
The Board of Directors and management have developed expansion plans
that includes three de novo branches within its existing market areas and
deployment of a strategic plan. By seeking to broaden the range of its products
and services offered, we believe such strategy will offset the declining margins
in the competitive market for one- to four-family residential mortgage loans.
The strategic plan includes:
o increasing the percentage of higher yielding and more interest sensitive
assets;
o increasing the percentage of commercial and consumer loans and commercial
deposit accounts, among other products;
o increasing alternative sources of cash at reasonable rates;
o increasing sources of non-interest income;
o installing a new customer delivery software to enhance the sales efforts;
o upgrading our computer network for enhanced service and security features;
and
o investigation of alternative delivery systems, including an Internet
banking solution and enhanced call center strategy.
Highlights of the business strategy are as follows:
Community-Oriented Institution. Based on total assets, FloridaFirst
Bank is the largest independent financial institution headquartered in Polk
County, Florida. FloridaFirst Bank is committed to meeting the financial needs
of the communities in which it operates. Management believes that FloridaFirst
Bank is large enough to provide a full range of personal and business financial
services, and yet is small enough to provide such services in a personalized and
efficient manner. FloridaFirst Bank has recently added several convenience
services to enhance its capabilities as a full service community bank, including
the issuance of debit cards and placing automated teller machines at all of the
branches. It is FloridaFirst Bank's current plan to deliver the products and
services that meet the needs of its customers, including Internet banking and
telephone banking services.
Market Focus. FloridaFirst Bank continues to review all opportunities
that may benefit its business in its current market areas. In 2001 and 2002,
FloridaFirst Bank will open a total of three de novo branches in Polk and
Manatee Counties, Florida. See "-- Comparison of Operating Results for the Nine
Months Ended June 30, 2000 and June 30, 1999 -- Other Expenses."
Commercial Banking. FloridaFirst Bank continues to expand its lending
programs for commercial business and commercial real estate loans in an effort
to satisfy a perceived need within its market area and increase its loan
portfolio. FloridaFirst Bank continues to realize a positive impact on its net
interest margin since commercial customers generally provide a higher loan yield
and a source of lower cost funds. The risks of commercial lending relate to the
source of repayment of the loan which is weighted toward the ability to repay
versus being primarily collateral dependent.
In 1998, FloridaFirst Bank hired a senior commercial loan officer to
head up the lending and credit activities and two additional commercial loan
staff members were added to support its increased activities in this area. To
further enhance its transition to a full service community bank, FloridaFirst
Bank hired an additional lender experienced in commercial lending in September
2000 and plans to increase its marketing efforts on smaller businesses operating
in its market areas.
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of FloridaFirst Bancorp
assets and liabilities are sensitive to changes in interest rates, its most
significant form of market risk is interest rate risk, or changes in interest
rates. FloridaFirst Bancorp is vulnerable to an increase in interest rates to
the extent that
52
interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. Its lending activities have historically emphasized the
origination of long-term, fixed-rate loans secured by single-family residences.
The primary source of funds has been deposits with substantially shorter
maturities. While having interest-bearing liabilities that reprice more
frequently than interest-earning assets is generally beneficial to net interest
income during a period of declining interest rates, such an asset/liability
mismatch is generally detrimental during periods of rising interest rates.
The Board of Directors has established an asset/liability committee
that consists of FloridaFirst Bancorp's president and senior banking officers.
The committee meets on a monthly basis to review loan and deposit pricing and
production volumes, interest rate risk analysis, liquidity and borrowing needs,
and a variety of other asset and liability management issues.
To reduce the effect of interest rate changes on net interest income,
FloridaFirst Bancorp has adopted various strategies to improve the matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include:
o the origination of commercial and consumer loans with adjustable rate
features or fixed rate loans with shorter term maturities;
o lengthening the maturities of liabilities when deemed cost effective
through the pricing and promotion of certificates of deposit and
utilization of Federal Home Loan Bank advances;
o attracting low cost checking and transaction accounts which tend to be less
sensitive to rising rates; and
o when market conditions permit, to originate and hold in its portfolio
adjustable rate mortgage loans which have periodic interest rate
adjustments. FloridaFirst Bancorp also maintains an investment portfolio
that provides a stable cash flow, thereby providing investable funds in
varying interest rate cycles.
FloridaFirst Bancorp has also made a significant effort to maintain its
level of lower cost deposits as a method of enhancing profitability. At June 30,
2000, FloridaFirst Bancorp had 28.9% of its deposits in savings, checking and
money market accounts. These deposits have traditionally remained relatively
stable and are expected to be only moderately affected in a period of rising
interest rates. This stability has enabled FloridaFirst Bancorp to offset the
impact of rising rates in other deposit accounts.
Quantitative Analysis. Exposure to interest rate risk is actively
monitored by management. FloridaFirst Bancorp's objective is to maintain a
consistent level of profitability within acceptable risk tolerances across a
broad range of potential interest rate environments. FloridaFirst Bancorp uses
the Office of Thrift Supervision Net Portfolio Value Model to monitor its
exposure to interest rate risk, which calculates changes in net portfolio value.
The Net Portfolio Value Model measures interest rate risk by computing estimated
changes in the net portfolio value of cash flow from assets, liabilities and
off-balance sheet items in the event of a range of assumed changes in market
interest rates. The Net Portfolio Value Model shows the degree to which balance
sheet line items and net portfolio value are potentially affected by a 100 to
300 basis point change. One basis point equals 1/100th of a percentage point.
Reports generated by the Net Portfolio Value Model are reviewed by the
Asset/Liability Management Committee and reported to the Board of Directors
quarterly.
The Net Portfolio Value Model uses an option-based pricing approach to
value one- to four-family mortgages, mortgages serviced by or for others, and
firm commitments to buy, sell, or originate mortgages. This approach makes use
of an interest rate simulation program to generate numerous random interest rate
paths that, in conjunction with a prepayment model, are used to estimate
mortgage cash flows. Prepayment options and interest rate caps and floors
contained in mortgages and mortgage-related securities introduce significant
uncertainty in estimating the timing of cash flows for these instruments that
warrants the use of this sophisticated methodology. All other financial
instruments are valued using a static
53
discounted cash flow method. Under this approach, the present value is
determined by discounting the cash flows the instrument is expected to generate
by the yields currently available to investors from an instrument of comparable
risk and duration.
Future interest rates and their effects on net portfolio value and net
interest income are not predictable. Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, prepayments, and deposit run-offs, and
should not be relied upon as indicative of actual results. Certain shortcomings
are inherent in such computations. Although certain assets and liabilities may
have similar maturity or periods of repricing, they may react at different times
and in different degrees to changes in the market interest rates. The interest
rate on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while rates on other types of assets and
liabilities may lag behind changes in market interest rates. Certain assets,
such as adjustable rate mortgages, generally have features that restrict changes
in interest rates on a short-term basis and over the life of the asset. After a
change in interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result if our borrowers are unable to
meet their repayment obligations as interest rates increase.
The following table presents our net portfolio value as of June 30,
2000. The net portfolio value was calculated by the Office of Thrift
Supervision, based upon the above model assumptions and financial information
provided by FloridaFirst Bancorp. As illustrated in the table, the calculations
show that we would be adversely affected by increases in interest rates and
favorably affected by decreases in interest rates.
Net Portfolio Value
as % of Present
Net Portfolio Value Value of Assets
------------------------------- ----------------------
Changes Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
- ---------- --------- ----------- --------- ---------- -----------
(Dollars in thousands)
+ 300 bp 9,222 (42,123) (82) 1.80% (731)
+ 200 bp 22,778 (28,567) (56) 4.31 (480)
+ 100 bp 37,042 (14,302) (28) 6.78 (233)
0 bp 51,345 9.11
- - 100 bp 64,936 13,592 26 11.18 208
- - 200 bp 75,401 24,056 47 12.68 358
- - 300 bp 85,334 33,989 66 14.04 493
The Office of Thrift Supervision defines the sensitivity measure as the
change in net portfolio value ratio with a 200 basis point shock. Our
sensitivity measure reflects a 478 basis point decline in NPV ratio as of June
30, 2000. This compares to a sensitivity measure of 507 and 280 basis points as
of March 31, 2000 and September 30, 1999, respectively. The decline in our
sensitivity measure at June 30, 2000 primarily reflects the significant increase
in short-term borrowing interest rates from September 30, 1999.
See "Business of FloridaFirst Bank -- Borrowings."
54
Our strategies for addressing the sensitivity measure indicators are as
follows:
o Reviewing the average lives and durations of our loans and investment
securities;
o Reviewing deposit offerings and alternative funding sources to better match
the durations of the assets;
o Providing an additional capital contribution from us to FloridaFirst Bank
upon completion of the conversion; and
o Performing, on a quarterly basis, a business simulation that more clearly
reflects an on-going business assumption, rather than relying solely on the
Office of Thrift Supervision model which more closely approximates a
liquidation value model.
The investment of at least 50% of net proceeds from the sale of common
stock by FloridaFirst Bancorp, Inc. in the stock of FloridaFirst Bank will
provide FloridaFirst Bank with additional capital to further strengthen its
capital position. If needed, FloridaFirst Bancorp, Inc. may infuse additional
capital into FloridaFirst Bank subsequent to the conversion. Accordingly, the
net portfolio value will be increased significantly from current levels due to a
higher capital level. The new capital may not have a significant, immediate
impact on the sensitivity measure. However, the additional capital will allow us
to expand and diversify our operations in a more timely manner, increasing
commercial and consumer lending activities through branch expansion and hiring
appropriate personnel needed to fully implement our strategy. Our ability to
increase shorter-term commercial and consumer assets and increase our lower
costing deposits will allow us to sell longer-term assets and reduce our
dependency on short-term, higher costing funds, such as Federal Home Loan Bank
advances.
Comparison of Financial Condition at June 30, 2000 and September 30, 1999
Assets. Total assets increased $70.6 million, or 14.2%, to $569.0
million at June 30, 2000 from $498.4 million at September 30, 1999. The increase
in total assets resulted primarily from an $34.6 million, or a 11.6% annualized
increase in the loan portfolio attributable to steady loan demand in our market
areas, a slow down in loan prepayments and funding of construction loans. In
addition, investment securities increased $22.8 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 $72.6 million, or 16.6%, to
$509.6 million at June 30, 2000 from $437.0 million at September 30, 1999. The
increase in total liabilities resulted primarily from a $56.4 million net
increase in Federal Home Loan Bank advances utilized to fund the asset growth
and a net deposit increase of $18.3 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.
Stockholders' Equity. Net income for the nine months ended June 30,
2000 increased stockholders' equity by $2.8 million, however, the decrease in
stockholders' equity reflects:
o repurchase of 405,578 shares of FloridaFirst Bancorp stock at a cost of
$3.6 million;
o repurchase of 57,879 shares of FloridaFirst Bancorp stock for the
restricted stock plan at a cost of $449,000, less shares issued at a cost
of approximately $35,000;
55
o change in accumulated other comprehensive loss of $789,000, attributable to
the net unrealized loss on investments available for sale;
o repayment of $325,000 on the ESOP loan; and
o dividends paid that totaled $282,000.
The net unrealized loss on investments available for sale relates
primarily to the increasing level of interest rates during the fiscal year.
Increasing rates reduce the value of certain investments held for sale that have
longer average lives.
Comparison of Financial Condition at September 30, 1999 and 1998
Assets. Total assets increased $83.9 million, or 20.2%, to $498.4
million at September 30, 1999 from $414.5 million at September 30, 1998. The
increase in total assets resulted primarily from: a $59.3 million increase in
net loans outstanding from new originations; an increase in investments
available for sale portfolio of $25.9 million due to a financial leveraging
strategy implemented after the issuance of stock; a reduction in investments
held to maturity of $6.0 million due to the maturity and calls of securities;
and an increase in Federal Home Loan Bank stock of $1.6 million.
Liabilities. Total liabilities increased $58.6 million, or 15.5%, to
$437.0 million at September 30, 1999 from $378.4 million at September 30, 1998.
The increase in total liabilities resulted primarily from: a $66.6 million
increase in Federal Home Loan Bank advances; a $4.9 million increase in other
borrowings; and a $13.0 million net outflow in deposits. The increase in the
Federal Home Loan Bank advances and other borrowings utilized to fund the loan
and investment growth was attributable to:
o the decision to not offer premium pricing on deposits to customers without
other banking relationships;
o disintermediation of customer funds due to alternative investment
opportunities; and
o management's decision to financially leverage the higher level of capital
of the Company to increase earnings.
Deposits, excluding the $19.6 million decrease in certificate of
account balances, grew $6.6 million, or 7.3%, during the year.
Stockholders' Equity. The $25.2 million increase in the stockholders'
equity reflects the $23.5 million in net proceeds from the issuance of common
stock, $25.7 million in net offering proceeds reduced by the $2.2 million in
stock held by the employee stock ownership plan that has not been allocated to
the participants, $3.3 million in net income for the year ended September 30,
1999 and a net reduction in equity of $1.4 million resulting from the decline in
value of the Company's investment available for sale portfolio. The decline in
value of the investments is directly attributable to the significant rise in
interest rates during the second half of the fiscal year.
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 market opportunities. Funding loan requests, providing for
liability outflows, and managing interest rate fluctuations require continuous
analysis in order to match the maturities of short-term loans and investments
with specific types of deposits and borrowings. An institution's liquidity is
normally considered in terms of the nature and mix of the institution's sources
and uses of funds.
56
Assets providing liquidity are generated through loan repayments and
the management of maturity distributions for loans and securities. An important
aspect of liquidity management lies in maintaining sufficient levels of loans
and mortgage-backed securities that generate monthly cash flows.
Cash and cash equivalents increased $2.9 million to $5.5 million for
the nine months ended June 30, 2000. Significant cash flows or uses (amounts
shown in parentheses) were as follows:
(In millions)
-----------
Cash used by operations............................................... $ (1.5)
Federal Home Loan Bank advances and other borrowings.................. 54.6
Increase in net deposits.............................................. 18.3
Maturities of and repayments on investment securities................. 16.9
Purchases of investment securities and Federal Home Loan Bank stock... (43.9)
Net increase in loans................................................. (35.2)
Payments to acquire treasury stock.................................... (3.6)
Other - net........................................................... (2.7)
-------
Net increase in cash and cash equivalents $ 2.9
=======
FloridaFirst Bancorp is subject to federal regulations that impose
certain minimum capital requirements. For a discussion on such capital levels,
see footnote 10 of the notes to consolidated financial statements.
Management is not aware of any known trends, events or uncertainties
that will have or are reasonably likely to have a material effect on
FloridaFirst Bancorp's liquidity, capital or operations nor is management aware
of any current recommendation by regulatory authorities, which if implemented,
would have such an effect.
Analysis of Net Interest Income
Historically, FloridaFirst Bancorp's earnings have depended primarily
on its net interest income, which is the difference between interest income
earned on its loans and investments ("interest-earning assets") and interest
paid on its deposits and any borrowed funds ("interest-bearing liabilities").
Net interest income is affected by:
o the interest rate spread - the difference between rates of interest earned
on interest-earning assets and rates paid on its interest-bearing
liabilities; and
o the aggregate amounts of its interest-earning assets and interest-bearing
liabilities.
57
Average Balance Sheet. The following tables set forth certain
information relating to FloridaFirst Bancorp 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.
Nine Months Ended June 30,
At June 30, ----------------------------------------------------------------
2000 2000 1999
------------------ ------------------------------- -------------------------------
Yield/ Average Average Average Average
Balance Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable net (1)............. $432,492 7.75% $418,269 $23,894 7.62% $362,815 $21,055 7.74%
Investment securities (2)(6)......... 111,093 7.15% 100,398 5,372 7.13% 66,601 2,999 6.00%
-------- -------- ------- -------- -------
Total interest-earning assets(6).... 543,585 7.63% 518,667 29,266 7.52% 429,416 24,054 7.47%
------- -------
Non-interest-earning assets........... 25,384 18,478 11,516
-------- -------- --------
Total assets........................ $568,969 $537,145 $440,932
======== ======== ========
Interest-bearing liabilities:
Checking accounts.................... $ 31,924 1.89% $31,354 437 1.86% $27,377 352 1.71%
Savings accounts..................... 30,352 2.06% 31,476 404 1.71% 38,338 484 1.68%
Money market accounts................ 24,583 4.31% 25,222 788 4.17% 20,182 576 3.81%
Certificates of deposit.............. 254,293 5.75% 243,418 9,804 5.37% 245,420 9,755 5.30%
-------- -------- ------- -------- -------
Total deposits.................... 341,152 4.96% 331,470 11,433 4.60% 331,317 11,167 4.49%
Federal Home Loan Bank advances
and other borrowings............... 147,025 6.35% 125,276 5,388 5.73% 39,373 1,431 4.85%
-------- -------- ------- -------- -------
Total interest-bearing liabilities.. 488,177 5.38% 456,746 16,821 4.91% 370,690 12,598 4.53%
------- -------
Non-interest-bearing liabilities (3).. 21,429 20,680 25,379
-------- -------- --------
Total liabilities.................... 509,606 477,426 396,069
Stockholders' equity.................. 59,363 59,719 44,863
-------- -------- --------
Total liabilities and stockholders'
equity............................. $568,969 $537,145 $440,932
======== ======== ========
Net interest income(6)................ $12,445 $11,456
======= =======
Interest rate spread(4)............... 2.25% 2.61% 2.94%
==== ==== ====
Net margin on interest-earning
assets(5)........................... 2.82% 3.20% 3.56%
==== ==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities................ 111% 114% 116%
==== ==== ====
- -------------------------------
(1) Average balances include non-accrual loans.
(2) Investment securities includes both securities that are available for sale
and held to maturity. Includes interest-bearing deposits in other financial
institutions and Federal Home Loan Bank stock.
(3) Amounts at June 30, 2000 and the nine months ended June 30, 2000 and 1999
include non-interesting-bearing checking accounts of $16,383, $15,442, and
$12,592, respectively.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net margin on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(6) Interest income and net interest income do not agree to the consolidated
statement of earnings because the tax equivalent income (based on effective
tax rate of 36.75%) on municipal bonds is included in this schedule.
58
Year Ended September 30,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ---------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable net (1)....... $368,513 $28,482 7.73% $339,218 $27,241 8.03% $339,992 $27,730 8.16%
Investment securities
and other (2)................ 71,557 4,166 5.82 85,594 4,900 5.72 98,836 6,135 6.21
------- ------- -------- ------- -------- -------
Total interest-earning
assets...................... 440,070 32,648 7.42 424,812 32,141 7.57 438,828 33,865 7.72
------- ------- -------
Non-interest-earning assets..... 11,606 12,557 13,640
-------- -------- --------
Total assets.................. $451,676 $437,369 $452,468
======== ======== ========
Interest-bearing liabilities:
Checking accounts.............. $ 27,193 486 1.79 $ 25,177 469 1.86 $ 24,343 607 2.49
Savings accounts............... 36,469 612 1.68 41,456 859 2.07 48,155 1,204 2.50
Money market accounts.......... 20,740 796 3.84 15,356 582 3.79 11,767 351 2.98
Certificates of deposit........ 245,915 12,833 5.22 301,093 16,921 5.62 321,938 17,540 5.45
-------- ------- -------- ------- -------- -------
Total deposits................ 330,317 14,727 4.46 383,082 18,831 4.92 406,203 19,702 4.85
Federal Home Loan Bank
advances and other
borrowings................... 49,884 2,401 4.81 2,647 135 5.10 -- -- --
-------- ------- -------- ------- -------- -------
Total interest-
bearing liabilities......... 380,201 17,128 4.50 385,729 18,966 4.92 406,203 19,702 4.85
------- ------- -------
Non-interest-bearing
liabilities (3)............... 22,491 15,246 13,478
-------- -------- --------
Total liabilities.............. 402,692 400,975 419,681
Stockholders' equity............ 48,984 36,394 32,787
-------- -------- --------
Total liabilities and
stockholders' equity......... $451,676 $437,369 $452,468
======== ======== ========
Net interest income............. $15,520 $13,175 $14,163
======= ======= =======
Interest rate spread (4)........ 2.92% 2.65% 2.87%
==== ==== ====
Net margin on interest-
earning assets(5)............ 3.53% 3.10% 3.23%
==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities................... 116% 110% 108%
=== === ===
- --------------------------------
(1) Average balances include non-accrual loans.
(2) Investment securities includes both securities that are available for sale
and held to maturity. Includes interest-bearing deposits in other financial
institutions.
(3) Amounts for the year ended September 30, 1999, 1998, and 1997 include
non-interesting-bearing checking accounts of $13,207, $10,634, and $9,125,
respectively.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net margin on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
59
Rate/Volume Analysis. The relationship between the volume and rates of
FloridaFirst Bancorp's interest-earning assets and interest-bearing liabilities
affects its net interest income. The following table reflects the sensitivity of
FloridaFirst Bancorp's interest income and interest expense to changes in volume
and in prevailing interest rates during the periods indicated. Each category
reflects the: (1) changes in volume (changes in volume multiplied by old rate);
(2) changes in rate (changes in rate multiplied by old volume); and (3) net
change. The net change attributable to the combined impact of volume and rate
has been allocated proportionally to the absolute dollar amounts of change in
each.
Nine Months Ended
June 30, Year Ended September 30, Year Ended September 30,
--------------------- ------------------------ ------------------------
2000 vs. 1999 1999 vs. 1998 1998 vs. 1997
--------------------- ----------------- ------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
Volume Rate Net Volume Rate Net Volume Rate Net
------ ------ ----- ------ ------ ----- ------ ------ ---
(Dollars in thousands)
Interest income:
Loans receivable ............... $ 3,163 $ (324) $ 2,839 $ 2,196 $ (955) $ 1,241 $ (75) $ (414) $ (489)
Investment securities
and other .................... 1,707 585 2,292 (819) 85 (734) (739) (496) (1,235)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets . $ 4,870 $ 261 $ 5,131 $ 1,377 $ (870) $ 507 $ (814) $ (910) $(1,724)
======= ======= ======= ======= ======= ======= ======= ======= =======
Interest expense:
Checking accounts ............... $ 54 $ 31 $ 85 $ 34 $ (17) $ 17 $ 24 $ (162) $ (138)
Savings accounts ................ (88) 8 (80) (96) (151) (247) (156) (189) (345)
Money market accounts ........... 153 59 212 207 7 214 122 109 231
Certificates of deposit ......... (80) 48 (32) (2,941) (1,147) (4,088) (1,156) 537 (619)
Federal Home Loan Bank advances
and other borrowings .......... 3,638 319 3,957 2,273 (7) 2,266 135 -- 135
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ................ $ 3,677 $ 465 $ 4,142 $ (523) $(1,315) $(1,838) $(1,031) $ 295 $ (736)
======= ======= ======= ======= ======= ======= ======= ======= =======
Change in net interest income ... $ 1,193 $ (204) $ 989 $ 1,900 $ 445 $ 2,345 $ 217 $(1,205) $ (988)
======= ======= ======= ======= ======= ======= ======= ======= =======
60
Comparison of Operating Results for the Nine Months Ended June 30, 2000 and June
30, 1999
Net Income. Net income for the nine months ended June 30, 2000
increased 21.5% to $2.8 million, compared to $2.3 million for the same period in
1999. Net income for the nine months ended June 30, 2000 benefitted from the
deployment of $23.5 million in new capital. New capital is comprised of net
proceeds of $25.7 million less the employee stock ownership plan loan of $2.2
million.
Net interest income increased $938,000, or 8.2%, for the nine months
ended June 30, 2000 compared to the same period in 1999. This increase resulted
primarily from an increase in interest income of $5.1 million, offset by an
increase in interest expense of $4.1 million. Other expenses increased to $9.0
million for the nine months ended June 30, 2000 from $8.5 million for the nine
months ended June 30, 1999, due to an accumulation of several expense
categories, as discussed below.
Interest Income. The following discussion highlights the major factors
that impacted the changes in interest income during the nine months ended June
30, 2000 when compared to the prior year. Details are contained in the table at
page 58.
o Loan growth reflects the strong loan demand over the past year and
FloridaFirst Bancorp's increased emphasis on loan origination efforts.
o The yield on loans decreased primarily due to an approximate 80 basis
point reduction in loan rates for new mortgage loan originations offset
by approximately $54.0 million in mortgage loans that paid off during
fiscal 1999, causing average mortgage portfolio yields to decline
approximately 10 basis points. In addition, the average portfolio yield
on consumer loans decreased approximately 12 basis points and yields in
the commercial portfolio decreased approximately 13 basis points due to
competitive pricing pressures.
o The average balances in the investment securities portfolio grew 51%
primarily due to FloridaFirst Bancorp's strategy to leverage capital
that was raised in the stock offering.
o The higher yield in the investment portfolio resulted from the
leveraging strategy in the latter part of fiscal 1999 and throughout
fiscal 2000 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.
Interest Expense. The following discussion highlights the major factors
that impacted the changes in Interest Expense during the nine months ended June
30, 2000 when compared to the prior year. Detailed changes are contained in the
table at page 58.
o Deposits remained fairly level primarily by maintaining a conservative
deposit pricing strategy, utilizing more cost effective funding
alternatives that are available for the terms FloridaFirst Bancorp has
considered appropriate to fit its interest rate management strategies.
This was offset however, by special promotions to increase certificate
accounts. The growth in checking account average balances has helped
offset the decline in certificate accounts.
o Federal Home Loan Bank advances grew because FloridaFirst Bancorp
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.
o The higher cost of funds related to the Federal Home Loan Bank advances
is reflective of the significant rise in interest rates over the past
year.
61
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level that
represents management's best estimates of the losses inherent in the portfolio,
based on historical experience, volume and type of lending conducted by
FloridaFirst Bancorp, industry standards, the level and status of past due and
non-performing loans, the general economic conditions in FloridaFirst Bancorp's
lending area and other factors affecting the collectibility of the loans in its
portfolio. For the nine months ended June 30, 2000, the provision for loan
losses was $450,000 compared to $420,000 for the comparable 1999 period. The
allowance for loan losses at June 30, 2000 increased $285,000 from September 30,
1999. Though our non-performing loans decreased $201,000 for the period, our
classified assets increased approximately $1.0 million and our commercial and
consumer loans increased in the aggregate of approximately $14.0 million from
September 30, 1999. Such increases in classified loans and commercial and
consumer loans precipitated the increase in the provision for loan losses. See,
"Business of FloridaFirst Bank -- "Lending Activities" and --"Classified
Assets."
Other Expenses. Other expense increased by $484,000 to $9.0 million for
the nine months ended June 30, 2000 from $8.5 million for the nine months ended
June 30, 1999. The major components of the increase was due to the following:
o Compensation and employee benefits increased $422,000 due primarily to an
approximate 5% increase in staffing and recognition of $145,000 related to
the restricted stock plan.
o Other expenses increased by $314,000 primarily due to the following:
o certain Year 2000 costs totalling $50,000;
o direct costs related to stockholder meetings, communications, legal
matters and new financial reporting requirements as a public company
totalling $70,000;
o increased effort on charging off uncollected fees and overdrawn
accounts totalling $60,000;
o supplies and promotional materials primarily related to name change
totalling $50,000; and
o accelerated vesting of restricted stock due to the death of a director
totalling $30,000.
o Offsetting the increase in other expenses was a decrease of:
o occupancy and equipment costs of $110,000 primarily due to the
renegotiation of annual maintenance contracts at a lower cost and the
decrease of our usage of leased equipment from the prior period; and
o federal insurance premiums of $80,000 due to the decrease in premium
rates by the FDIC on January 1, 2000.
The Board of Directors and management have developed expansion plans
that includes three de novo branches within our existing market areas and
deployment of a strategic technology plan. The strategic technology plan
includes:
o installing a new customer delivery software to enhance the sales efforts;
o enhancing both our data and voice communications systems;
o upgrading our computer network for enhanced service and security features;
o implementing internal and external networks to improve communications and
productivity; and
o investigation of alternative delivery systems, including an Internet
banking solution and enhanced call center strategy.
62
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
====== ======
Comparison of Operating Results for Years Ended September 30, 1999 and September
30, 1998
Net Income. Net income for the year ended September 30, 1999 increased
37.5% to $3.3 million, compared to $2.4 million for the year ended September 30,
1998.
o Net interest income increased 17.4% to $15.5 million for the year ended
September 30, 1999 compared to $13.2 million for the year ended
September 30, 1998. This increase resulted from an increase in interest
income of $ 507,000 and a decrease in interest expense of $1.8 million.
o Other income decreased to $1.5 million for the year ended September 30,
1999 from $4.3 million for the year ended September 30, 1998, resulting
primarily from a $3.0 million gain from the sale of certain deposits
and branch buildings, as further discussed in the notes to consolidated
financial statements.
o Other expenses decreased to $11.4 million for the year ended September
30, 1999 from $13.6 million for the year ended September 30, 1998. This
decrease is due primarily to $2.2 million in charges resulting from the
freezing of benefits under the defined benefit pension plan - $1.7
million, and the adoption of a directors' retirement plan - $410,000,
as further discussed in the notes to the consolidated financial
statements.
Interest Income. Total interest income increased to $32.6 million for
the year ended September 30, 1999 from $32.1 million for the year ended
September 30, 1998, as a result of an increase in average interest-earning
assets offset to some extent by a decrease in the average interest rates earned.
Average interest-earning assets increased to $440.1 million for the year ended
September 30, 1999 from $424.8 million for the year ended September 30, 1998, an
increase resulting from strong loan growth throughout the year. The average rate
earned on interest-earning assets decreased to 7.42% for the year ended
September 30, 1999 from 7.57% for the year ended September 30, 1998, a decrease
of 15 basis points.
Interest income on loans increased $1.2 million to $28.5 million for
the year ended September 30, 1999 from $27.2 million for the year ended
September 30, 1998. This increase reflects the strong loan growth in all areas
mortgage, consumer and commercial loans. Total loan originations were $158.9
million in 1999 compared to $119.6 million in 1998, a 33% increase in
origination volume. The strong originations were offset by substantial
repayments and refinance activity. Also, the Branch Sale at the end of January
1998 reduced the loan portfolio by $44.6 million, meaning that 1998 results had
income on these loans for four months of the year. In addition, the average
yield on loans decreased by 30 basis
63
points during the year, reflecting the general downward trend in interest rates
for the first half of the fiscal year. Mortgage loan rates began to increase
late in the year, but the competitive pressures in the consumer and commercial
markets kept rates lower for the entire year in 1999 when compared to 1998.
Interest income on investment securities and other investments
decreased $734,000 to $4.2 million for the year ended September 30, 1999 from
$4.9 million for the year ended September 30, 1998. This decrease was primarily
the result of a $14.0 million decrease in the average balance to $71.6 million
in 1999 from $85.6 million in 1998. The decrease in the average balance of
investment securities was due primarily to the maturities and calls of certain
securities and the redeployment of these funds into loans. The decrease in
average balances was partially offset by an increase in the average yield by 10
basis points through the diversification of the portfolio, extension of
maturities, reduction in interest-earning deposit accounts and a rising interest
rate environment during the last half of the year.
Interest Expense. Total interest expense decreased by $1.8 million to
$17.1 million for the year ended September 30, 1999 from $18.9 million for the
year ended September 30, 1998, as a result of a 42 basis point decrease in
average cost of funds and a $5.5 million decrease in the average
interest-bearing liabilities. Average interest-bearing liabilities decreased to
$380.2 million for the year ended September 30, 1999 from $385.7 million for the
year ended September 30, 1998. The average cost for interest-bearing liabilities
was 4.50% for the year ended September 30, 1999 compared to 4.92.% for the year
ended September 30, 1998, a decrease of 42 basis points. The decrease in rates
paid on interest-bearing liabilities reflects market rates as well as the
replacement of higher cost certificates of deposit with Federal Home Loan Bank
advances and lower cost checking and money market accounts.
Interest expense on deposits decreased $4.1 million to $14.7 million
for the year ended September 30, 1999 from $18.8 million for the year ended
September 30, 1998. This decrease was a result of a decrease of $52.8 million in
the average balance of interest-bearing deposits to $330.3 million in 1999 from
$383.1 million in 1999 and a decrease of 46 basis points in the average cost of
deposits to 4.46% in 1999 from 4.92% in 1998.
FloridaFirst Bancorp began using Federal Home Loan Bank advances in
June 1998 to control its cost of funds and lengthen the maturity of its
liabilities. FloridaFirst Bancorp manages the maturity of its advances based on
the assets being funded and based on projections of interest rate trends and has
used the Federal Home Loan Bank advances as a major funding source due to the
ability to manage the maturities, the cost effectiveness in executing the
transactions and the level of interest rates offered compared to alternative
funding sources. The average costs of advances in 1999 was 4.81% which compares
favorably with the average cost for certificates of deposit which averaged
5.22%.
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to an amount that
represents management's best estimate of the losses inherent in the loan
portfolio, based on historical experience, volume and type of lending conducted
by FloridaFirst Bancorp, industry standards, the level and status of past due
and non-performing loans, the general economic conditions in its lending area
and other factors affecting the collectibility of the loans in its portfolio.
The provision for loan losses was $540,000 for the year ended September 30, 1999
compared to $405,000 for the year ended September 30, 1998. The allowance for
loan losses increased to $2.9 million for the year ended September 30, 1999 from
$2.6 million for the year ended September 30, 1998, due primarily to the
increase in net loans outstanding. The current allowance represents .74% of
loans outstanding at September 30, 1999. FloridaFirst Bancorp had net
charge-offs of $163,000 for the year ended September 30, 1999 compared to net
charge-offs of $474,000 for the year ended September 30, 1998. See " --
Comparison of Operating Results for Years Ended September 30, 1998 and September
30,
64
1997" for a discussion of the 1998 charge-offs. See also, "Business of
FloridaFirst Bank -- Allowance for Loan Losses and Real Estate Owned."
Other Income. Substantially the entire decrease in Other Income for the
year ending September 30, 1999 compared to September 30, 1998 is attributable to
the $3.0 million gain from the branch sale in January 1998.
Other Expenses. Other expense decreased by $2.1 million to $11.4
million for the year ended September 30, 1999 from $13.5 million for the year
ended September 30, 1998, due primarily to the adoption of a directors'
retirement plan. In addition, compensation and employee benefits increased
slightly due to the hiring of additional sales personnel and an average 4%
increase in salary adjustments. These costs were offset by certain vacancies in
staff positions during the year and savings related to compensation and employee
benefits for personnel at the branches involved in the branch sale in January
1998. Occupancy and equipment costs increased due to costs associated with the
installation and operation of automated teller machines at all branch locations
in 1999.
Comparison of Operating Results for Years Ended September 30, 1998 and September
30, 1997
Net Income. Net income for the year ended September 30, 1998 decreased
4.0% to $2.4 million, compared to $2.5 million for the same period last year.
o Net interest income decreased 7.0% to $13.2 million for the year ended
September 30, 1998 compared to $14.2 million for the year ended
September 30, 1997. This decrease resulted from a decrease in interest
income of $1.7 million which was partially offset by a decrease in
interest expense of $736,000.
o Other income increased to $4.3 million for the year ended September 30,
1998 from $1.2 million for the year ended September 30, 1997, resulting
primarily from the Branch Sale.
o Other expenses increased to $13.6 million for the year ended September
30, 1998 from $11.2 million for the year ended September 30, 1997, due
primarily to the adoption of a directors' retirement plan.
Interest Income. Total interest income decreased to $32.1 million for
the year ended September 30, 1998 from $33.9 million for the year ended
September 30, 1997, as a result of a decrease in average interest-earning assets
and a decrease in the average interest rates earned. Average interest-earning
assets decreased to $424.8 million for the year ended September 30, 1998 from
$438.8 million for the year ended September 30, 1997. This decrease resulted
from the transfer of $44.6 million in interest-earning assets in January 1998 in
connection with the branch sale, partially offset by strong loan growth
throughout the year. The average rate earned on interest-earning assets
decreased to 7.57% for the year ended September 30, 1998 from 7.72% for the year
ended September 30, 1997, a decrease of 15 basis points.
Interest income on loans decreased $489,000 to $27.2 million for the
year ended September 30, 1998 from $27.7 million for the year ended September
30, 1997. This slight decrease reflects the strong loan growth, particularly
refinancings, that offset the sale of loans noted above. In addition, the
average yield on loans decreased by 13 basis points during the year, reflecting
the general downward trend in interest rates.
Interest income on investment securities and other investments
decreased $1.2 million to $4.9 million for the year ended September 30, 1998
from $6.1 million for the year ended September 30, 1997. This decrease was
primarily the result of a $13.2 million decrease in the average balance to $85.6
million
65
in 1998 from $98.8 million in 1997. The decrease in the average balance of
investment securities was primarily due to the maturities and calls of certain
securities and the redeployment of these funds into loans. Also the average
yield on investment securities and other investments decreased by 49 basis
points since yields on the reinvestment of available assets have decreased with
the general downward trend in interest rates.
Interest Expense. Total interest expense decreased by $736,000 for the
year ended September 30, 1998 from $19.7 million for the year ended September
30, 1997, as a result of a decrease in average interest-bearing liabilities,
offset by a slight 7 basis point increase in the average cost of funds. Average
interest-bearing liabilities decreased to $385.7 million for the year ended
September 30, 1998 from $406.2 million for the year ended September 30, 1997.
The decrease is attributable to the sale of $55.5 million in deposits in January
1998 when FloridaFirst Bancorp sold the deposits of five branches, partially
offset by new deposits and borrowing to fund the asset growth. The average
interest rate paid on interest-bearing liabilities was 4.92% for the year ended
September 30, 1998 compared to 4.85% for the year ended September 30, 1997, an
increase of 7 basis points. The increase in rates paid on interest-bearing
liabilities reflects market rates as well as the transfer of lower yielding
certificates of deposit in connection with the Branch Sale.
Interest expense on deposits decreased $871,000 to $18.8 million for
the year ended September 30, 1998 from $19.7 million for the year ended
September 30, 1997. This decrease was a result of a decrease of $23.1 million in
the average balance of interest-bearing deposits to $383.1 million in 1998 from
$406.2 million in 1997 partially offset by an increase of 7 basis points in the
average rate to 4.92% in 1998 from 4.85% in 1997.
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to an amount that
represents management's best estimate of the losses inherent in the loan
portfolio, based on historical experience, volume and type of lending conducted
by FloridaFirst Bancorp, industry standards, the level and status of past due
and non-performing loans, the general economic conditions in its lending area
and other factors affecting the collectibility of the loans in its portfolio.
The provision for loan losses was $405,000 for the year ended September 30, 1998
compared to $317,000 for the year ended September 30, 1997. The increase in the
provision for loan losses relates primarily to large charge-offs during fiscal
1998 that reduced the allowance for loan losses below its policy guidelines. The
allowance for loan losses declined from September 30, 1997 to September 30,
1998, primarily due to a reduction in net loans outstanding resulting from the
branch sale in January 1998. The allowance for loan losses was $2.6 million at
September 30, 1998 and 1997. The current allowance represents .76% of total
loans outstanding at September 30, 1998. FloridaFirst Bancorp had net
charge-offs of $474,000 for the year ended September 30, 1998 compared to net
charge-offs of $69,000 for the year ended September 30, 1997.
The larger charge-offs in 1998 resulted primarily from two borrowers as
follows:
o Final resolution of a foreclosure and counterclaim litigation relating
to a $491,000 loan secured by a retail strip shopping center resulted
in a charge-off of $140,000, and
o Foreclosure on loans made to a local builder for the construction of
single family houses resulted in a $64,000 charge-off.
See also, "Business of FloridaFirst Bank -- Allowance for Loan Losses
and Real Estate Owned."
66
Other Income. Substantially the entire increase in Other Income for the
year ending September 30, 1998 compared to September 30, 1997 is attributable to
the $3.0 million gain from the branch sale in January 1998.
Other Expenses. Other expense increased by $2.4 million to $13.6
million for the year ended September 30, 1998 from $11.2 million for the year
ended September 30, 1997. In addition to the Benefits Adjustment in 1998,
compensation and employee benefits increased due to the hiring of additional
commercial lending staff personnel, an average 5% increase in salary
adjustments, a full year of staff cost associated with the Company's newest
branch that opened in September 1997, partially offset by the staff costs
savings realized through the branch sale in January 1998. Occupancy and
equipment costs increased due to expenses related to a data processing
conversion in 1998 as well as a full year's cost related to the new customer
service platform system installed in May 1997.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented
elsewhere in this prospectus have been prepared in accordance with GAAP which
generally requires 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 and due to inflation. The impact of
inflation is reflected in the increased cost of FloridaFirst Bancorp's
operations. 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 prices
of goods and services.
Business of FloridaFirst Bancorp, Inc.
After the conversion, we will own all of the stock of FloridaFirst
Bank. We have not yet engaged in any significant business. Before the
conversion, we will not transact any material business. We will invest our
initial capital as discussed in the "Use of Proceeds" section. In the future, we
may pursue other business activities, including mergers and acquisitions,
investment alternatives and diversification of operations. There are, however,
no current plans for such activities. Initially, we will not maintain offices
separate from those of FloridaFirst Bank or employ any persons other than their
officers. Our officers will not be separately compensated for their service.
Business of FloridaFirst Bank
General
We provide retail banking services, with an emphasis on one- to
four-family residential mortgage loans, home equity loans and lines of credit
and consumer loans as well as certificates of deposit, checking accounts and
savings accounts. In addition, we originate commercial real estate loans and
offer checking accounts and other credit facilities to businesses within our
market area.
We attract deposits from the general public and use these deposits
primarily to originate loans and to purchase investment securities. The
principal sources of funds for our lending and investing activities are
deposits, Federal Home Loan Bank advances, the repayment and maturity of loans
and sale, maturity, and call of securities. The principal sources of our income
is interest on loans and investment securities. The principal expense is
interest paid on deposits and Federal Home Loan Bank advances.
67
Market Area and Competition
We operate seven offices in Polk County and two offices in Manatee
County. Polk County is in central Florida and Manatee County is located in west
central Florida. In 1999, there were approximately 710,000 residents and 283,000
households within our primary market areas. Polk County had an estimated 1999
population of 465,000 and includes Lakeland and Winter Haven among its most
populous cities. We operate primarily in those two cities. Polk County is
positioned for continued growth as it is located between the rapidly developing
counties of Orange and Hillsborough. Orange County includes the city of Orlando
and Hillsborough County includes the city of Tampa. Manatee County had an
estimated 1999 population of 245,000 and includes Bradenton and Palmetto as its
most populous cities. We operate five offices in Lakeland, two in Winter Haven
and two in Bradenton.
The Polk County economy has depended on the citrus and phosphate mining
industries for a long time. These industries remain strong and are continuing to
grow through capital investment. The citrus industry however, remains vulnerable
to severe weather conditions and increased competition, both domestic and
international. In addition, the economy has diversified and has strengthened the
area's business development. Polk County is home to the largest privately owned
employer in the state, a grocery chain that operates over 575 stores in four
states. Because of Polk County's location in central Florida between Orlando and
Tampa and its accessibility to major interstate highways, Polk County is
considered a major distribution location and has become a home for large
transportation and distribution companies and related warehousing and supplies
operations. The weather conditions, affordable labor pool and lifestyle
amenities have attracted other major employers in the insurance servicing area
and a variety of other industries.
Manatee County is situated southwest of Polk County and just south of
Tampa and St. Petersburg, Florida. Manatee and neighboring Sarasota County have
experienced growth rates among the highest in the nation over the past several
years. Local economies have been supported primarily by the services industry,
which includes tourism. However, recent efforts have resulted in diversification
into light manufacturing operations.
Based on deposits at June 30, 1999, we ranked sixth among FDIC insured
financial institutions operating in Polk County. We are the only remaining
thrift institution based in Polk County and had a deposit market share of 7.1%.
We ranked tenth in Manatee County among twenty-two FDIC insured financial
institutions and had a deposit market share of 1.9%. The deposit markets in both
of these counties are dominated by large regional banks that are headquartered
outside of Florida.
Our market area can be characterized as a market with moderate incomes,
increasing wealth, and strong population growth, representing an attractive
market that can be served by a community financial institution such as us.
We face strong competition in attracting deposits, which is our primary
source of funds for lending, and in the origination of real estate, commercial
and consumer loans. Our competition for deposits and loans historically has come
from local and regional commercial banks and credit unions located in our market
area. We also compete with mortgage banking companies for real estate loans, and
commercial banks and savings institutions for consumer loans, and face
competition for investor funds from mutual fund accounts, short-term money funds
and corporate and government securities.
We compete for loans by charging competitive interest rates and loan
fees, and emphasizing outstanding service for our customers. We offer consumer
banking services such as checking and savings
68
accounts, certificates of deposit, retirement accounts, overdraft protection,
and consumer and mortgage loans. We also have drive-up facilities and automated
teller machines at all branches, and offer a debit card program. The emphasis on
outstanding service differentiates us in our competition for deposits. Although
we are the largest locally based financial institution in terms of deposit share
in our primary market area, many of our regional commercial banking competitors
offer a broader array of services and products.
Lending Activities
General. We primarily originate one-to four-family residential real
estate loans, commercial loans, commercial real estate loans, consumer loans and
other loans. Consumer loans consist primarily of direct and indirect automobile
loans, home equity loans and lines of credit, and other consumer purpose loans.
Our commercial real estate loans consist primarily of mortgage loans secured by
small commercial office/retail space, warehouses and small and medium sized
apartment buildings.
69
Loan Portfolio Composition. The following table present the composition of our
loan portfolio by loan category at the dates indicated.
At June 30, At September 30,
----------------- ----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ -----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
- -------------
Mortgage loans:
Residential:
Permanent........... $295,857 65.4% $276,115 65.6% $244,667 68.3% $256,742 69.3% $247,609 73.7% $206,415 77.1%
Construction........ 29,652 6.5 32,974 7.8 27,311 7.6 22,350 6.0 19,778 5.9 9,729 3.6
Multi-family.......... 6,802 1.5 5,787 1.4 4,464 1.2 4,154 1.1 4,564 1.4 5,510 2.1
Commercial
real estate (1)..... 27,045 6.0 21,157 5.0 17,217 4.8 12,282 3.3 8,562 2.5 4,260 1.6
Land.................. 12,011 2.7 9,548 2.3 6,796 1.9 6,153 1.7 779 .2 629 .2
Consumer Loans:
Home equity
loans(2).......... 25,769 5.7 22,545 5.4 13,137 3.7 18,310 4.9 18,361 5.5 18,396 6.9
Auto loans.......... 42,892 9.5 42,181 10.0 34,795 9.7 43,504 11.7 30,911 9.2 19,307 7.2
Other............... 12,638 2.7 10,318 2.5 9,959 2.8 7,415 2.0 5,311 1.6 3,586 1.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans........... 452,666 100.0% 420,625 100.0% 358,346 100.0% 370,910 100.0% 335,875 100.0% 267,832 100.0%
===== ===== ===== ===== ===== =====
Less:
Loans in process(3). 16,948 19,774 17,013 12,589 12,072 5,060
Deferred loan fees
and unearned
interest.......... -- -- 159 137 91 195
Allowance for loan
losses............ 3,226 2,941 2,564 2,633 2,385 1,902
-------- -------- -------- -------- -------- --------
Total loans, net...... $432,492 $397,910 $338,610 $355,551 $321,327 $260,675
======== ======== ======== ======== ======== ========
- --------------------
(1) Includes commercial loans of $2.1 million in 2000, $1.4 million in 1999,
$1.1 million in 1998 and $218,000 in 1997 which were not secured by real
estate.
(2) Includes home equity lines of credit.
(3) Relates to construction loans.
70
Loan Maturity Schedule. The following table sets forth the maturity or
repricing of our loan portfolio at June 30, 2000. Demand loans, loans having no
stated maturity, and overdrafts are shown as due in one year or less.
Commercial Home Auto and
Multi- Real Estate Equity Other
Residential family and Land Loans Consumer Total
----------- ------- -------- ----- -------- -----
(In thousands)
Amounts Due:
Within 1 Year................... $ 63,591 $ 202 $ 9,972 $ 132 $ 1,735 $ 75,632
-------- -------- ------- ---------- ------- --------
After 1 year:
1 to 3 years.................. 18,141 2,242 3,566 1,138 12,819 37,906
3 to 5 years.................. 17,683 2,592 7,567 2,951 29,657 60,450
5 to 10 years................. 12,051 1,020 11,240 10,398 8,733 43,442
10 to 20 years................ 73,837 341 6,017 11,150 2,586 93,931
Over 20 years................. 140,206 405 694 -- -- 141,305
-------- -------- ------- ---------- ------- --------
Total due after one year........ 261,918 6,600 29,084 25,637 53,795 377,034
-------- -------- ------- ---------- ------- --------
Total amount due................ $325,509 $ 6,802 $39,056 $ 25,769 $55,530 $452,666
======== ======== ======= ========== ======= ========
The following table sets forth the dollar amount of all loans at June
30, 2000 due after June 30, 2001, which have pre-determined interest rates and
which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
Residential......................... $217,668 $44,250 $261,918
Multi-family........................ 4,357 2,243 6,600
Commercial real estate and land..... 27,532 1,552 29,084
Home equity......................... 25,637 -- 25,637
Auto and other consumer............. 53,795 -- 53,795
-------- ------- --------
Total............................. $328,989 $48,045 $377,034
======== ======= =======
Residential Lending. Our primary lending activity consists of the
origination of one-to four-family residential mortgage loans secured by property
located in our market area. We generally originate one- to four-family
residential mortgage loans in amounts up to 80% of the lesser of the appraised
value or selling price of the mortgaged property without requiring private
mortgage insurance. We will originate a mortgage loan in an amount up to 95% of
the lesser of the appraised value or selling price of a mortgaged property,
however, private mortgage insurance for the borrower is required on the amount
financed in excess of 80%. We originate fixed-rate and adjustable-rate loans for
retention in our portfolio. A mortgage loan originated by us, whether fixed-rate
or adjustable-rate, can have a term of up to 30 years. Adjustable rate loans
limit the periodic interest rate adjustment and the minimum and maximum rates
that may be charged over the term of the loan.
71
The majority of our one-to four-family residential loans, both
fixed-rate and adjustable-rate, are underwritten in accordance with Fannie Mae
guidelines, regardless of whether they will be sold in the secondary market.
Substantially all of our residential mortgages include "due on sale" clauses,
which give us the right to declare a loan immediately payable if the borrower
sells or otherwise transfers an interest in the property to a third party.
Property appraisals on real estate securing our single-family
residential loans are made by state certified and licensed independent
appraisers approved by the Board of Directors. Appraisals are performed in
accordance with applicable regulations and policies. We obtain title insurance
policies on all first mortgage real estate loans originated. Borrowers generally
advance funds, with each monthly payment of principal and interest, to a loan
escrow account from which we make disbursements for such items as real estate
taxes and hazard insurance premiums and mortgage insurance premiums as they
become due.
Construction Lending. We are an active lender in the construction of
one- to four- family homes. The residential construction loans are made both to
individual homeowners for the construction of their primary residence and to
local builders for the construction of pre-sold houses or houses that are being
built for speculative purposes.
As of June 30, 2000, 80% of all our residential construction loans were
made to individual homeowners. After the home is constructed, the loan terms are
modified to terms that apply to permanent residential loans. The underwriting
guidelines for the construction to permanent loans are the same as the permanent
loans, but additional construction administration procedures and inspections are
followed during the construction process to assure that satisfactory progress is
being made prior to funding the construction draw requests.
Construction lending is generally considered to involve a higher degree
of credit risk than long term financing of residential properties. Our risk of
loss on a construction loan depends largely on the accuracy of the initial
estimate of the property's value at completion of construction and the estimated
cost of construction. If the estimate of construction cost and the marketability
of the property after the project is completed prove to be inaccurate, we may be
compelled to advance additional funds to complete the construction. Furthermore,
if the final value of the completed property is less than the estimated amount,
the value of the property might not be sufficient to assure the repayment of the
loan.
We limit our exposure for construction loans made to local builders
through periodic credit analysis on the individual builder and a series of
inspections throughout the construction phase. In addition, we limit the amount
and number of loans made to an individual builder for the construction of
pre-sold and speculative houses based on the financial strength of the builder.
At June 30, 2000, approximately 20% of our construction loans are to local
builders.
Commercial Real Estate and Other Loans. We originate commercial real
estate mortgage loans and loans on multi-family dwellings and developed and
undeveloped land. Undeveloped land includes acquisition and development loans.
At June 30, 2000, such loans were approximately $6.1 million. Our commercial
real estate mortgage loans are primarily permanent loans secured by improved
property such as office buildings, retail stores, commercial warehouses and
apartment buildings. The terms and conditions of each loan are tailored to the
needs of the borrower and based on the financial strength of the project and any
guarantors. The average loan size is approximately $186,000 and typically is
made with fixed rates of interest with five to ten year maturities, at which
point the loan is repaid or the terms and conditions are renegotiated.
Essentially all originated commercial real estate loans are within our market
72
area and all are within the State of Florida. Our largest commercial real estate
loan had a balance of $1.6 million on June 30, 2000 and was secured by a
commercial warehouse building. Typically, commercial real estate loans are
originated in amounts up to 80% of the appraised value of the mortgaged
property. See --"Loans to One Borrower."
Commercial real estate, multi-family and land loans generally have a
significantly greater risk than that which is involved with single-family real
estate lending. The repayment of these loans typically depends on the successful
operations and income stream of the commercial real estate and the borrower.
Such risks can be significantly affected by economic conditions. In addition,
commercial real estate lending generally requires substantially greater
oversight efforts compared to residential real estate lending.
Commercial Banking. To accomplish our mission to become a full service
community bank, we have expanded our products and services offerings to the
small to medium size businesses within our market area. Experienced personnel
have been added within the past year and we plan to hire additional personnel
over the next few years to assist in reaching our objectives. New sales call
programs, credit analysis guidelines, loan grading systems, technology upgrades
and new products and services either have been implemented or are in the process
of implementation. We plan to satisfy not only the borrowing needs of new
prospective business customers, but plan to have the full complement of deposit
services and customer services related to the checking, savings, and cash
management needs of these businesses.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property with a value that tends to
be more easily ascertainable, commercial business loans 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 business loans may be substantially dependent on the success of the
business itself, which is likely to be dependent upon the general economic
environment. Our commercial business loans are sometimes, secured by business
assets, such as accounts receivable, equipment and inventory, as well as real
estate. However, the collateral securing the loans may depreciate over time, may
be difficult to appraise, and may fluctuate in value based on the success of the
business.
We recognize the generally increased risks associated with commercial
business lending. Our commercial business lending policy emphasizes:
o credit file documentation;
o analysis of the borrower's character;
o analysis of the borrower's capacity to repay the loan;
o adequacy of the borrower's capital and collateral; and
o evaluation of the industry conditions affecting the borrower.
Analysis of the borrower's past, present and future cash flows is also
an important aspect of our credit analysis. We plan to expand our commercial
business lending, subject to market conditions.
We generally obtain annual financial statements from borrowers for
commercial business loans. These statements are analyzed to monitor the quality
of the loan. As of June 30, 2000, the commercial business loans ranged from
$5,000 to $345,000, with an average committed balance outstanding of $32,000.
All such loans are current and have performed in accordance with their terms.
73
Consumer Loans. Consumer loans consist primarily of direct and indirect
auto loans and home equity loans and credit lines. To a lesser extent, we
originate unsecured lines of credit, loans secured by savings accounts and other
consumer loans. Consumer loans are originated in our market area and generally
have maturities of up to 10 years. For savings account loans, we will lend up to
90% of the account balance.
Consumer loans have a shorter term and generally provide higher
interest rates than residential loans. The consumer loan market can be helpful
in improving the spread between average loan yield and costs of funds and at the
same time improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one- to four-family
residential mortgage loans, particularly, consumer loans secured by rapidly
depreciable assets such as automobiles or loans that are unsecured. In such
cases, any repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections depend on the borrower's continuing financial
stability and, therefore, are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Even for consumer loans secured by real
estate, the risk to us is greater than that inherent in the single family loan
portfolio in that the security for consumer loans is generally not the first
lien on the property and ultimate collection of amounts due may depend on
whether any value remains after collection by a holder with a higher priority
than us. Finally, the application of various federal laws, including federal and
state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans after a default.
At June 30, 2000, 61% of our automobile loans outstanding were loans
originated through local automobile dealerships. Although this type of lending
generally carries a greater risk factor, we have experienced personnel to handle
this type of lending. The dealer arrangements are limited primarily to a few
local dealers where long term relationships have been established and the loans
acquired typically are those made to higher credit quality borrowers.
The underwriting standards employed by us for consumer loans include a
determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.
Loans to One Borrower. Under federal law, savings institutions have,
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the institution's unimpaired capital and
surplus. As of June 30, 2000, our largest aggregation of loans to one borrower
was $4.9 million, consisting of 17 loans secured primarily by commercial
warehouses, in the Lakeland, Florida area. Our second largest aggregation of
loans to one borrower was $3.9 million, consisting of five loans secured by
commercial warehouses and development. At June 30, 2000, all such loans were
current and were within our legal lending limit to one borrower of $7.8 million.
Loan Solicitation and Processing. Our customary sources of mortgage
loan applications include repeat customers, walk-ins, and referrals from home
builders and real estate brokers. Commercial customer relationships are
developed through the officer call program and from referrals developed through
the branch network.
74
After receiving a loan application from a prospective borrower, a
credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an independent fee appraiser. In connection with the loan approval process,
our staff analyzes the loan applications and the property involved. Officers and
lenders are granted lending authority based on the loan types that they work
with and their level of experience. Generally, an officers' loan committee
approves loans exceeding individual authorities, with the Executive Committee
approving loans between $500,000 and $1 million, and the full Board of Directors
approving loans in excess of $1 million.
Loan applicants are promptly notified of our decision by a letter
setting forth the terms and conditions of the decision. If approved, these terms
and conditions include the amount of the loan, interest rate basis, amortization
term, a brief description of real estate to be mortgaged to us, tax escrow and
the notice of requirement of insurance coverage to be maintained to protect our
interest. We require title insurance on first mortgage loans and fire and
casualty insurance on all properties securing loans, which insurance must be
maintained during the entire term of the loan.
Loan Commitments. We generally grant commitments to fund fixed and
adjustable-rate single family mortgage loans for periods of 60 days at a
specified term and interest rate. The total amount of our commitments to extend
credit as of June 30, 2000 was $1.5 million.
Loan Origination and Other Fees. In addition to interest earned on
loans, we may charge loan origination and commitment fees for originating or
purchasing certain loans. Since most loans are originated without points being
charged, we have assessed customers certain fees related to underwriting and
document preparation. We believe these fees are just slightly above the costs to
originate the loans. Therefore, the net deferred fees are minimal and deferrals
have an immaterial effect on operating results. We also receive other fees and
charges relating to existing loans, which include late charges, and fees
collected in connection with a change in borrower or other loan modifications.
These fees and charges have not constituted a material source of income.
Non-performing Loans and Problem Assets
Collection Procedures. Our collection procedures generally provide that
when a loan is 15 days delinquent, the borrower is notified. If the loan becomes
30 days delinquent, the borrower is sent a written delinquent notice requiring
payment. If the delinquency continues, subsequent efforts are made to contact
the delinquent borrower. In certain instances, we may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his
financial affairs and we attempt to work with the borrower to establish a
repayment schedule to cure the delinquency. As to mortgage loans, if the
borrower is unable to cure the delinquency or reach a payment agreement with us
within 90 days, we will institute foreclosure actions. If a foreclosure action
is taken and the loan is not reinstated, paid in full or refinanced, the
property is sold at judicial sale at which we may be the buyer if there are no
adequate offers to satisfy the debt. Any property acquired as the result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until such time as it is sold or otherwise disposed of by us. When real estate
owned is acquired, it is recorded at the lower of the unpaid principal balance
of the related loan or its fair market value less estimated selling costs. The
initial writedown of the property is charged to the allowance for loan losses.
As to commercial related loans, the main thrust of our collection
efforts is through telephone contact and a sequence of collection letters. If we
are unable to resolve the delinquency within 90 days or in some situations
shorter time periods, we will pursue all available legal remedies. Our
commercial
75
lenders are required to evaluate each assigned account on a case-by-case basis,
within the parameters of our policies.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when they are more than 90 days delinquent. Loans may be placed on a
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At June 30, 2000, we had $629,000 of loans that were
held on a non-accrual basis; and $109,000 in other non-performing assets
consisting primarily of repossessed vehicles.
Non-Performing Assets. The following table provides information regarding the
our non-performing loans and other non-performing assets as of June 30, 2000 and
the end of each of the last five fiscal years. As of each of the dates
indicated, we did not have any troubled debt restructurings within the meaning
of Statement of Financial Accounting Standards No. 15.
At At September 30,
June 30, -----------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- ------- ------- -------- ------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential .................................................. $ 534 $ 581 $ 445 $ 1,624 $ 654 $ 605
Multi-family ................................................. -- -- -- -- -- --
All other mortgage loans ..................................... 50 103 -- 491 491 584
Consumer loans:
Home equity loans ............................................ -- -- -- -- -- --
Other consumer ............................................... 45 146 391 199 39 17
-------- -------- ------- ------- -------- ------
Total .......................................................... $ 629 $ 830 $ 836 $ 2,314 $ 1,184 $1,206
======== ======== ======= ======= ======== ======
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
Residential .................................................. $ -- $ -- $ -- $ -- $ -- $ --
Multi-family ................................................. -- -- -- -- -- --
All other mortgage loans ..................................... -- -- -- -- -- --
Consumer loans:
Home equity and second mortgages ............................. -- -- -- -- -- --
Other consumer ............................................... -- -- -- -- -- --
-------- -------- ------- ------- -------- ------
Total .......................................................... $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======= ======= ======== ======
Total non-performing loans ..................................... $ 629 $ 830 $ 836 $ 2,314 $ 1,184 $1,206
======== ======== ======= ======= ======== ======
Real estate owned .............................................. $ -- $ 16 $ 403 $ 67 $ 8 $ 337
======== ======== ======= ======= ======== ======
Other non-performing assets .................................... $ 109 $ 188 $ 91 $ 104 $ 42 $ 11
======== ======== ======= ======= ======== ======
Total non-performing assets .................................... $ 738 $ 1,034 $ 1,330 $ 2,485 $ 1,234 $1,554
======== ======== ======= ======= ======== ======
Total non-performing loans to net loans ........................ .15% .21% .25% .65% .37% .46%
======== ======== ======= ======= ======== ======
Total non-performing loans to total assets ..................... .11% .17% .20% .49% .27% .28%
======== ======== ======= ======= ======== ======
Total non-performing assets to total assets .................... .13% .21% .32% .53% .28% .36%
======== ======== ======= ======= ======== ======
76
The increase in non-accrual loans during the year ended September 30,
1997 was attributable primarily to $698,000 in residential construction loans
which were placed in non-accrual status after the builder declared bankruptcy.
During the year ended September 30, 1998, we foreclosed on and sold the
properties securing the loans which consisted of six individual houses. During
fiscal year 1998, we also resolved foreclosure and counterclaim litigation
relating to a $491,000 loan secured by a retail strip shopping center. In
connection with the settlement of this litigation, we received payments totaling
$348,000 from the borrower and charged off the remainder of our investment. As a
result of these events, total non-performing assets declined to $1.3 million at
September 30, 1998 from $2.5 million at September 30, 1997. There were no
unusual or significant items that existed as of September 30, 1999 or occurred
during fiscal 1999.
During the nine months ended June 30, 2000, approximately $17,000 of
interest would have been recorded on loans accounted for on a non-accrual basis
if such loans had been current according to the original loan agreements for the
entire period. This amount was not included in FloridaFirst Bancorp's interest
income for the period.
Classified Assets. Management, in compliance with regulatory
guidelines, has instituted an internal loan review program whereby loans are
classified as special mention, substandard, doubtful or loss. When a loan is
classified as substandard or doubtful, management is required to establish a
valuation allowance for loan losses in an amount that is deemed prudent. When
management classifies a loan as a loss asset, an allowance equal to 100% of the
loan balance is required to be established or the loan is to be charged-off.
This allowance for loan losses is composed of an allowance for both inherent
risk associated with lending activities and particular problem assets.
An asset is considered substandard if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a loss
allowance is not warranted. Assets which do not currently expose the insured
institution to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated special mention by management. In
addition, each loan that exceeds $500,000 and each group of loans to one
borrower that exceeds $500,000 is monitored more closely due to the potentially
greater losses from such loans.
Management's evaluation of the classification of assets and the
adequacy of the allowance for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process. At
June 30, 2000 the classified assets were (in thousands):
Special mention.................. $1,806
Substandard...................... 1,210
Doubtful......................... --
------
Total....................... $3,016
======
77
Included in classified assets at June 30, 2000 were two loans that had
been adversely classified, each with balances of $450,000 or more. The first,
which is included in the substandard category, is secured by undeveloped land
located in Polk County, Florida. A recent appraisal of the property indicated
that the loan was not adequately protected by the value of the collateral that
resulted from the expiration of favorable zoning. At June 30, 2000, this loan
was current as to principal and interest payments. The second loan, which is
included in the special mention category, is secured by a self-storage facility
located in Polk County, Florida. Vacancy rates have negatively impacted the
property's cash flow and, accordingly, have affected the borrower's ability to
repay the loan. Subsequent to June 30, 2000, this loan was placed on non-accrual
and a foreclosure action was commenced. As of June 30, 2000 the aggregate
carrying balances of these two loans was $1.0 million.
Allowance for Loan Losses and Real Estate Owned. We segregate the loan
portfolio for loan losses into the following categories: residential real
estate, multi-family real estate, commercial real estate, commercial loans, land
loans, home equity loans and lines of credit, automobile loans, including both
direct and dealer originated loans, and other consumer loans. We provide for a
general allowance for losses inherent in the portfolio by the above categories,
which consists of two components. General loss percentages are calculated based
on historical analyses and other factors. A portion of the allowance is
calculated for inherent losses which exist as of the evaluation date even though
they might not have been identified by the more objective processes used. This
is due to the risk of error and/or inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments based
on qualitative factors that do not lend themselves to exact mathematical
calculations such as:
o trends in delinquencies and nonaccruals;
o trends in volume, terms and portfolio mix;
o new credit products;
o changes in lending policies and procedures;
o changes in the outlook for the local, regional and national economy; and
o peer group comparisons.
At least quarterly, management evaluates the need to establish an
allowance against losses on loans and other assets based on estimated losses on
specific loans and on any real estate held for sale or investment when a finding
is made that a loss is estimable and probable. Such evaluation includes a review
of all loans for which full collectibility may not be reasonably assured and
considers, among other matters:
o the estimated market value of the underlying collateral of problem loans;
o prior loss experience;
o economic conditions; and
o overall portfolio quality.
Provisions for losses are charged against earnings in the period they
are established. We had $3.2 million in allowances for loan losses at June 30,
2000.
While we believe we have established our existing allowance for loan
losses in accordance with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing our loan portfolio, will not request
us to significantly adjust our allowance for loan losses, or that general
economic conditions, a deteriorating real estate market, or other factors will
not cause us to significantly increase our allowance for loans losses, therefore
negatively affecting our financial condition and earnings.
78
In making loans, we recognize that credit losses will be experienced
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 and,
in the case of a secured loan, the quality of the security for the loan.
During fiscal 1999, our net charge-offs decreased to $163,000 from
$474,000 in 1998. The higher level of charge-offs in 1998 related primarily to
loans to two borrowers. One loan was secured by a small shopping center that we
have been litigating for several years. Final resolution and repayment of the
loan occurred in 1998 and we incurred a loss approximating $140,000. Another
large charge-off involved loans made to a local builder for the construction of
single family houses. We foreclosed on the properties and recognized a
charge-off of $64,000 in 1998. See further discussion of these loans under
"Non-Performing Assets."
It is our policy to review the loan portfolio, in accordance with
regulatory classification procedures, on at least a quarterly basis.
Additionally, we maintain a program of reviewing loan applications prior to
making the loan and immediately after loans are made in an effort to maintain
loan quality.
The following table sets forth information with respect to our
allowance for loan losses at or for the periods ended on the dates indicated:
At At September 30,
June 30, --------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------
(Dollars in thousands)
Allowance balance (at beginning of period) $ 2,941 $ 2,564 $ 2,633 $ 2,385 $ 1,902 $ 1,902
--------- --------- --------- --------- --------- ---------
Provision for loan losses ................. 450 540 405 317 600 75
--------- --------- --------- --------- --------- ---------
Charge-offs:
Residential ............................. -- (37) (218) (19) (70) (55)
Commercial real estate .................. -- -- (146) (12) -- --
Consumer ................................ (201) (214) (110) (38) (49) (20)
--------- --------- --------- --------- --------- ---------
Total charge-off's ........................ (201) (251) (474) (69) (119) (75)
Recoveries(1) ............................. 36 88 -- -- 2 --
--------- --------- --------- --------- --------- ---------
Net (charge-offs) recoveries .............. (165) (163) (474) (69) (117) (75)
--------- --------- --------- --------- --------- ---------
Allowance balance (at end of period) ...... $ 3,226 $ 2,941 $ 2,564 $ 2,633 $ 2,385 $ 1,902
========= ========= ========= ========= ========= =========
Total loans outstanding ................... $ 432,492 $ 397,910 $ 338,610 $ 355,551 $ 321,327 $ 260,675
========= ========= ========= ========= ========= =========
Average loans outstanding ................. $ 418,269 $ 368,513 $ 339,218 $ 339,992 $ 288,901 $ 261,259
========= ========= ========= ========= ========= =========
Allowance for loan losses as a percent of
total loans outstanding ................ .75% .74% .76% .74% .74% .73%
========= ========= ========= ========= ========= =========
Net loans charged off as a percent of
average loans outstanding .............. .04% .04% .14% .02% .04% .03%
========= ========= ========= ========= ========= =========
(1) Primarily reflects mortgage loan recoveries for all periods presented.
79
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of our allowance for loan losses by loan category and the percent
of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation allowance applicable to the entire loan portfolio.
At June 30, At September 30,
---------------- -----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------------- ------------------ ---------------- ---------------- ---------------- ------------------
Percent Percent Percent Percent Percent Percent
of of of of of of
Loans Loans Loans Loans Loans Loans
to to to to to to
Total Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ ------ ------ -------- ------- -------- ------ --------
(Dollars in thousands)
At end of
period
allocated to:
Residential........ $1,825 71.9% $1,689 73.4% $1,564 75.9% $1,523 75.3% $1,491 79.6% $1,301 71.2%
Multi-family....... 51 1.5 37 1.4 33 1.2 31 1.1 34 1.4 41 3.4
Commercial
real estate
and land......... 426 8.7 289 7.3 206 6.7 251 5.0 234 2.7 56 3.8
Consumer........... 924 17.9 926 17.9 761 16.2 828 18.6 626 16.3 504 21.6
------ ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance.... $3,226 100.0% $2,941 100.00% $2,564 100.00% $2,633 100.00% $2,385 100.00% $1,902 100.00%
====== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
80
Investment Activities
General. Federally chartered savings banks have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, including securities collateralized by
mortgages, certain certificates of deposits of insured banks and savings
institutions, municipal securities, corporate debt securities and loans to other
banking institutions.
We maintain liquid assets which may be invested in specified short-term
securities and certain other investments. Liquidity levels may be increased or
decreased depending on the yields on investment alternatives and upon
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities and its expectation of future yield levels, as
well as management's projections as to the short-term demand for funds to be
used in our loan origination and other activities. At June 30, 2000, our
investment securities portfolio totalled $103.6 million or, 18.2% of total
assets. Our investment securities portfolio has grown significantly since
September 30, 1998, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Comparison of Financial Condition at June
30, 2000 and September 30, 1999 and Comparison of Financial Condition at
September 30, 1999 and 1998."
Investment Policies. Our investment policy, which was established by
the Board of Directors, is designed to foster earnings and liquidity within
prudent interest rate risk guidelines, while complementing our lending
activities. The policy provides for available for sale, held to maturity and
trading classifications. However, we do not currently use a trading
classification and do not anticipate doing so in the future. The policy permits
investments in high credit quality instruments with diversified cash flows while
permitting us to maximize total return within the guidelines set forth in our
interest rate risk and liquidity management policy. Permitted investments
include but are not limited to U.S. Government obligations, government agency or
government-sponsored agency obligations, state, county and municipal
obligations, mortgage-backed securities and collateralized mortgage obligations
guaranteed by government or government-sponsored agencies, investment grade
corporate debt securities, and commercial paper. We also invest in Federal Home
Loan Bank overnight deposits and federal funds, but these instruments are not
considered part of the investment portfolio.
The policy also includes several specific guidelines and restrictions
to insure adherence with safe and sound activities. The policy prohibits
investments in high risk mortgage derivative products, as defined within its
policy, without prior approval from the Board of Directors. Management must
demonstrate the business advantage of such investments. In addition, the policy
limits the maximum amount of the investment in a specific investment category.
We do not participate in hedging programs, interest rate swaps, or other
activities involving the use of off-balance sheet derivative financial
instruments. Further, we generally do not invest in securities which are not
rated as investment grade.
The Board through its Investment and Asset Liability Committee has
charged the Chief Financial Officer to implement the policy. All transactions
are reported to the Board of Directors monthly, with the entire portfolio
reported quarterly, including market values and unrealized gains (losses).
Investment Securities. We maintain a portfolio of investment
securities, classified as either available for sale or held to maturity, to
enhance total return on investments. At June 30, 2000, our investment securities
included U.S. government agency obligations with varying characteristics as to
rate, maturity and call provisions, corporate bonds, and municipal bonds.
Callable agency securities, representing 77% of our U.S. government agency
obligations at June 30, 2000, could reduce our investment yield if these
securities are called prior to maturity.
81
Mortgage-backed Securities. We invest in mortgage-backed securities to
provide earnings, liquidity, cash flows, and diversification to our overall
balance sheet. These mortgage-backed securities are classified as either
available for sale or held to maturity. These securities are participation
certificates issued and guaranteed by Ginnie Mae, Freddie Mac and Fannie Mae and
secured by interest in pools of mortgages. Mortgage-backed securities typically
represent a participation interest in a pool of single-family or multi-family
mortgages, although we focus our investments on mortgage-backed securities
secured by single-family mortgages.
Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable
rate mortgage loans. The interest rate risk characteristics of the underlying
pool of fixed-rate or adjustable- rate mortgages and the prepayment risk, are
passed on to the security holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
Collateralized Mortgage Obligations. We also invest in collateralized
mortgage obligations, issued or sponsored by Freddie Mac, Fannie Mae or private
issuers. Collateralized mortgage obligations are a type of debt security that
aggregates pools of mortgages and mortgage-backed securities and creates
different classes of collateralized mortgage obligations securities with varying
maturities and amortization schedules as well as a residual interest with each
class having different risk characteristics. The cash flows from the underlying
collateral are usually divided into "tranches" or classes whereby tranches have
descending priorities with respect to the distribution of principal and interest
repayment of the underlying mortgages and mortgage-backed securities as opposed
to mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying
collateralized mortgage obligations are paid in accordance with a predetermined
priority to investors holding various tranches of such securities or
obligations. A particular tranche or class may carry prepayment risk which may
be different from that of the underlying collateral and other tranches.
Investing in collateralized mortgage obligations allows us to moderate
reinvestment risk resulting from unexpected prepayment activity associated with
conventional mortgage-backed securities. Management believes these securities
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
Corporate Bonds. Corporate bonds generally have long-term maturities,
but include call provisions at earlier dates, generally after seven to ten
years. The call provisions usually contain a premium price to exercise the call
feature. We have invested in these longer maturity bonds and securities with
fixed rates of interest to provide higher yields to protect part of our assets
from the possible decline in interest rates over the life of the bond. Although
interest rates may rise over the life of these securities, management believes
these securities provide a good complement to loans and investment assets, which
are subject to periodic principal repayments and payoffs before contractual
maturities.
Municipal Bonds. Municipal bonds have maturities from 12 to 20 years
with premium call provisions after seven to ten years. These bonds are exempt
from federal income taxes and, therefore, have lower stated interest rates. All
municipal bonds owned by the bank have fixed rates of interest. The yields
included in the investment tables reflect the tax equivalent yields for the
municipal bonds.
82
Other Securities. Other securities owned by us, but not necessarily
included in the investment portfolio, consist of equity securities,
interest-bearing deposits and federal funds sold. Equity securities, which are
not shown in the table below, consist of a $7.5 million investment in Federal
Home Loan Bank of Atlanta common stock. As a member of the Federal Home Loan
Bank of Atlanta, ownership of their common shares is required. The remaining
securities provide diversification and complement our overall investment
strategy.
The following table sets forth the carrying value of our investment
securities portfolio at the dates indicated.
At September 30,
At June 30, ------------------------------
2000 1999 1998 1997
-------- -------- -------- --------
(In thousands)
Securities Held to Maturity:
- ----------------------------
U.S. government agency securities ........... $ 1,000 $ 4,000 $ 8,998 $ 27,993
Collateralized mortgage obligations ......... 8,687 8,724 9,738 9,819
-------- -------- -------- --------
Total securities held to maturity ........... 9,687 12,724 18,736 37,812
-------- -------- -------- --------
Securities available for sale (at fair value):
- ----------------------------------------------
U.S. government agency securities ........... 19,204 20,513 24,711 31,126
Collateralized mortgage obligations ......... 18,257 7,420 3,229 --
Mortgage-backed securities .................. 30,260 28,316 14,285 5,635
Corporate bonds ............................. 17,010 6,718 -- --
Municipal bonds ............................. 9,220 5,185 -- --
-------- -------- -------- --------
Total securities available for sale ......... 93,951 68,152 42,225 36,761
-------- -------- -------- --------
Total ....................................... $103,638 $ 80,876 $ 60,961 $ 74,573
======== ======== ======== ========
83
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities (or repricing terms for
variable rate securities) of our investment securities portfolio at June 30,
2000.
At June 30, 2000
---------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------ ----------------- ----------------- ------------------- ------------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(Dollars in thousands)
Securities
held to maturity:
- -----------------
U.S. government
agency securities.. $ 1,000 5.51% $ -- --% $ -- --% $ -- --% $ 1,000 5.51% $ 1,000
Collateralized
mortgage
obligations (1).... 8,687 6.33 -- -- -- -- -- -- 8,687 6.33 8,348
Securities available
for sale:
- --------------------
U.S. government
agency securities.. -- -- 7,181 6.04 10,082 6.98 1,940 8.00 19,204 6.74 19,204
Collateralized
mortgage
obligations....... -- -- -- -- 2,057 7.44 16,201 7.61 18,257 7.59 18,257
Mortgage-backed
securities......... 5,233 6.45 -- -- 4,804 6.20 20,223 7.40 30,260 7.04 30,260
Corporate bonds...... -- -- 4,396 6.88 3,789 8.08 8,825 8.60 17,010 8.06 17,010
Municipal bonds...... -- -- -- -- -- -- 9,220 7.68 9,220 7.68 9,220
------- ------- ------- ------- -------- --------
Total.............. $14,920 6.32% $11,577 6.36% $20,732 7.05% $56,409 7.71% $103,638 7.23% $103,299
======= ==== ======= ==== ======= ==== ======= ==== ======== ==== ========
(1) Consists of variable rate instruments, which adjust monthly.
84
Sources of Funds
General. Deposits are the major source of our funds for lending and
other investment purposes. Borrowings, principally from the Federal Home Loan
Bank, are used to compensate for reductions in the availability of funds from
other sources. In addition to deposits and borrowings, we derive funds from loan
and mortgage-backed securities principal repayments, and proceeds from the
maturity, call and sale of mortgage-backed securities and investment securities.
Loan and mortgage- backed securities payments are a relatively stable source of
funds, while deposit inflows are significantly influenced by general interest
rates and money market conditions.
Deposits. We offer a variety of deposit accounts, although a majority
of deposits are in fixed-term, market-rate certificate accounts. Deposit account
terms vary, primarily as to the required minimum balance amount, the amount of
time that the funds must remain on deposit and the applicable interest rate.
Our current deposit products include certificate accounts ranging in
terms from 90 days to five years as well as checking, savings and money market
accounts. Individual retirement accounts are included in these accounts,
depending on the customers investment preference.
Deposits are obtained primarily from residents of Polk and Manatee
Counties. We attract deposit accounts by offering outstanding service,
competitive interest rates, and convenient locations and service hours. We use
traditional methods of advertising to attract new customers and deposits,
including radio, cable television, direct mail and print media advertising. We
do not utilize the services of deposit brokers and management believes that an
insignificant number of deposit accounts are held by non-residents of Florida.
We pay interest on our deposits which are competitive in our market.
Interest rates on deposits are set weekly by senior management, based on a
number of factors, including:
o projected cash flow;
o a current survey of a selected group of competitors' rates for
similar products;
o external data which may influence interest rates;
o investment opportunities and loan demand; and
o scheduled certificate maturities and loan and investment
repayments.
Because of the large percentage of certificate accounts in the deposit
portfolio, which was71.1% at June 30, 2000, our liquidity could be reduced if a
significant amount of these accounts, maturing within a short period of time,
were not renewed. A significant portion of the certificate accounts remain with
us after they mature and we believe that this will continue. However, the need
to retain these accounts could result in an increase in our cost of funds.
85
The following table sets forth the certificate accounts classified by
interest rate as of the dates indicated.
At At September 30,
June 30, --------------------------------------
2000 1999 1998 1997
------ ------ ------ -----
(In thousands)
Interest Rate
4.00 - 4.99%....... $ 30,267 $112,560 $ 31,676 $ 9,293
5.00 - 5.99%....... 114,810 79,323 166,610 228,331
6.00 - 6.99%....... 102,647 47,903 60,964 92,676
7.00 - 7.99%...... 6,569 2,032 2,132 2,696
-------- -------- -------- --------
Total............ $254,293 $241,818 $261,382 $332,996
======== ======== ======== ========
The following table sets forth the amount of certificates of deposit of
$100,000 or more by time remaining until maturity as of June 30, 2000.
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
Within three months...................... $12,158
Three through six months................. 9,185
Six through twelve months................ 15,780
Over twelve months....................... 18,510
-------
$55,633
=======
The following table sets forth the amount and maturities of certificate
accounts deposits at June 30, 2000.
Amount Due
----------------------------------------------------
After
June 30, June 30, June 30, June 30,
Interest Rate 2001 2002 2003 2003 Total
- ------------- ------ ------ ------ ------ ------
(In thousands)
4.00-4.99%......... $ 26,722 $ 2,152 $ 245 $ 1,148 $ 30,267
5.00-5.99%......... 82,892 22,055 6,914 2,949 114,810
6.00-6.99%......... 53,058 30,820 8,845 9,924 102,647
7.00-7.99%......... 423 6,027 -- 119 6,569
-------- ------- ------- ------- --------
Total $163,095 $61,054 $16,004 $14,140 $254,293
======== ======= ======= ======= ========
86
Borrowings. Deposits are the primary source of funds of our lending and
investment activities and for our general business purposes. We, as the need
arises or in order to take advantage of funding opportunities, may borrow funds
in the form of advances from the Federal Home Loan Bank to supplement our supply
of lendable funds and to meet deposit withdrawal requirements. Advances from the
Federal Home Loan Bank are typically secured by our stock in the Federal Home
Loan Bank and a portion of our residential mortgage loans and may be secured by
other assets, principally securities which are obligations of or guaranteed by
the U.S. Government. We typically have funded loan demand and investment
opportunities out of current loan and mortgage-backed securities repayments,
investment maturities and new deposits. However, in recent years we have
utilized Federal Home Loan Bank advances to supplement these sources and as a
match against certain assets in order to better manage interest rate risk. The
following table sets forth the maximum month-end balance and the average balance
of Federal Home Loan Bank advances for the periods indicated.
During the Nine During the Year
Months Ended Ended
June 30, September 30,
----------------------- -------------------------
2000 1999 1999 1998
--------- ---------- ------------- ---------
(Dollars in thousands)
Maximum amount of short-term borrowings
outstanding at any month end:
Advances from Federal Home Loan Bank....... $149,100 $60,000 $87,600 $21,000
Approximate average short-term borrowings
outstanding with respect to:
Advances from Federal Home Loan Bank....... $121,193 $39,373 $49,510 $2,647
Approximate weighted average rate paid on:
Advances from Federal Home Loan Bank....... 5.72% 4.85% 4.82% 5.10%
Personnel
As of June 30, 2000 we had 155 full-time employees and 9 part-time
employees. The employees are not represented by a collective bargaining unit. We
believe our relationship with our employees is satisfactory.
Legal Proceedings
From time to time, we are a party to routine litigation, which arises
in the normal course of business, such as claims to enforce liens, condemnation
proceedings on properties in which we hold security interests, claims involving
the making and servicing of real property loans, and other issues incident to
our business. There were no lawsuits pending or known to be contemplated against
us at June 30, 2000 that would have a material effect on our operations or
income.
Properties
Our corporate offices are located at 205 East Orange Street in
Lakeland, Florida. We conduct our business through nine offices, which are
located in Polk and Manatee Counties in Florida. The following table sets forth
the location of each of our offices, the year the office was opened and the net
book value (in thousands) of each office and its related equipment.
87
Year facility Net book
opened or Leased or value at
Building/Office Location acquired owned June 30, 2000
------------------------ ------------- ---------- -------------
Downtown/Corporate Headquarters 1957 Owned $2,043
Branch Offices:
Grove Park 1961 Owned 358
Highlands 1972 Owned 591
Interstate 1985 Owned 465
Winter Haven North 1978 Owned 537
Winter Haven South 1995 Owned 895
West Bradenton 1989 Owned 767
Cortez (Bradenton) 1972 Leased(1) 104
Scott Lake 1997 Owned 594
Operations Center 1964 Owned 276
Residential Lending Office 1999 Leased(2) 10
New branch/land 1,184(3)
Other projects in progress 424(3)
- -----------------------
(1) This is a five-year lease that terminates December 31, 2003, but has two
three-year renewal options.
(2) This is a six month renewable lease.
(3) In fiscal 2001 and 2002, FloridaFirst Bank plans to open approximately
three de novo branches in Polk and Manatees Counties, Florida. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations -- Comparison of Operating Results for the Nine Months Ended
June 30, 2000 and June 30, 1999 -- Other Expenses."
As of June 30, 2000, the net book value of land, buildings, furniture
and equipment owned by us, less accumulated depreciation, totaled $8.2 million.
In March 1999, FloridaFirst Bank sold a former branch site. In
connection with the sale of this property, FloridaFirst Bank agreed to indemnify
the purchaser for the costs of obtaining closure with state environmental
authorities regarding the necessity of further remediation of certain
environmental contamination on the sites due to outside sources. We anticipate
that any costs related to obtaining closure with the state environmental
authorities should occur in fiscal year 2001. Any costs incurred will be applied
against the deferred gain, then the remaining gain will be reflected in the
consolidated statement of earnings. FloridaFirst Bancorp has deferred a $190,000
gain on the sale of this property pending resolution of this matter and does not
currently anticipate that it will incur additional material expense associated
with the sale of this property.
88
Regulation
Set forth below is a brief description of certain laws relating to the
regulation of us and FloridaFirst Bank after the proposed conversion. This
description does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.
Financial Modernization Legislation
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act, which repealed the
prohibitions against bank affiliations with securities and insurance firms. The
act authorizes qualifying bank holding companies to become financial holding
companies and thereby affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature. Additionally, the
act defines financial in nature to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities, and activities that the
Federal Reserve Board has determined to be closely related to banking. A
qualifying national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
The act repeals the "unitary savings and loan holding company
exemption" from the restrictions imposed by the Home Owners' Loan Act on the
business activities of savings and loan holding companies. However, the act
grandfathers from this provision companies that were already unitary savings and
loan holding companies before May 4, 1999 or that result from an internal
reorganization of such preexisting unitary holding companies. Grandfathered
unitary savings and loan holding companies have no restrictions on their
activities at the holding company level. However, non-grandfathered unitary
savings and loan holding companies may engage only in activities authorized for
savings and loan holding companies under the Home Owners' Loan Act and in
banking, securities, insurance and merchant banking activities permitted for
financial holding companies under the act. Since FloridaFirst Bancorp and
FloridaFirst Bancorp MHC were unitary savings and loan holding companies before
May 4, 1999, we expect to be a grandfathered unitary savings and loan holding
company upon completion of the conversion. However, there is no assurance that
the Office of Thrift Supervision will consider us a grandfathered holding
company, since we have not requested an opinion from the Office of Thrift
Supervision regarding our status under the act's grandfathered provisions.
The act imposes significant new financial privacy obligations and
reporting requirements on all financial institutions, including federal savings
associations. Specifically, the statute, among other things, will require
financial institutions to:
o to establish privacy policies and disclose them to customers both at the
commencement of a customer relationship and on an annual basis; and
o to permit customers to opt out of a financial institution's disclosure of
financial information to nonaffiliated third parties.
The federal financial regulators have promulgated final regulations
implementing these provisions, which will become effective July 1, 2001.
The act also enacts significant changes to the Federal Home Loan Bank
System. The act expands the permissible uses of Federal Home Loan Bank advances
by community financial institutions, under $500 million in assets, to include
funding loans to small businesses, small farms and small agri- businesses. In
addition, the act makes membership in a regional Federal Home Loan Bank
voluntary for federal savings associations.
89
Regulation of FloridaFirst Bancorp, Inc.
General. Upon completion of the proposed conversion, we will register
as a savings and loan holding company with the Office of Thrift Supervision. We
will be required to file reports with the Office of Thrift Supervision and will
be subject to supervision and periodic examination by the Office of Thrift
Supervision. In addition, the Office of Thrift Supervision will have enforcement
authority over us and any non-savings institution subsidiaries. The Office of
Thrift Supervision can restrict or prohibit activities that it determines to be
a serious risk to us. This regulation is intended primarily for the protection
of the depositors and not for the benefit of you, as our stockholders.
Activities Restrictions. Because FloridaFirst Bancorp, the current
mid-tier holding company, was a unitary savings and loan holding company prior
to May 4, 1999, we expect to become a grandfathered unitary savings and loan
holding company under the Gramm-Leach-Bliley Act following the proposed
conversion. If we are a grandfathered unitary holding company, there would be
generally no restrictions on our business activities. However, there is no
assurance of the type of activities we will be permitted to engage in, since we
have not requested an opinion from the Office of Thrift Supervision as to
whether any restrictions will apply. Additionally, if FloridaFirst Bank were to
fail to meet the Qualified Thrift Lender Test, then we would become subject to
the activities restrictions of the Home Owners' Loan Act applicable to multiple
holding companies. See "Regulation of FloridaFirst Bank -- Qualified Thrift
Lender Test."
If we were to acquire control of another savings association, we would
lose our grandfathered status under the act and our business activities would be
restricted to certain activities specified by Office of Thrift Supervision
regulation, which include performing services and holding properties used by a
savings institution subsidiary, certain activities authorized for savings and
loan holding companies as of March 5, 1987, and nonbanking activities
permissible for bank holding companies pursuant to the Bank Holding Company Act
of 1956 or authorized for financial holding companies pursuant to the act.
Furthermore, no company may acquire control of us or FloridaFirst Bank unless
the company was a unitary savings and loan holding company on May 4, 1999, or
became a unitary savings and loan holding company pursuant to an application
pending as of that date, or the company is only engaged in activities that are
permitted for multiple savings and loan holding companies or for financial
holding companies under the Bank Holding Company Act as amended by the
Gramm-Leach-Bliley Act.
Mergers and Acquisitions. We must obtain approval from the Office of
Thrift Supervision before acquiring more than 5% of the voting stock of another
savings institution or savings and loan holding company or acquiring such an
institution or company by merger, consolidation or purchase of its assets. In
evaluating an application for us to acquire control of a savings institution,
the Office of Thrift Supervision would consider the financial and managerial
resources and future prospects of us and the target institution, the effect of
the acquisition on the risk to the insurance funds, the convenience and the
needs of the community and competitive factors.
Regulation of FloridaFirst Bank
General. As a federally chartered, insured savings association of the
Savings Association Insurance Fund, FloridaFirst Bank is subject to extensive
regulation by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. Lending activities and other investments must comply with federal
statutory and regulatory requirements. FloridaFirst Bank is also subject to
reserve requirements of the Federal Reserve System. Federal regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
Savings Association Insurance Fund and depositors. This regulatory structure
gives the regulatory authorities
90
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies regarding the
classification of assets and the establishment of adequate allowance for loan
losses.
The Office of Thrift Supervision regularly examines FloridaFirst Bank
and prepares reports to FloridaFirst Bank's board of directors on deficiencies,
if any, found in its operations. FloridaFirst Bank's relationship with its
depositors and borrowers is also regulated by federal law, especially in such
matters as the ownership of savings accounts and the form and content of
FloridaFirst Bank's mortgage documents.
FloridaFirst Bank must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition, and must obtain regulatory approvals prior
to entering into certain transactions such as mergers with or acquisitions of
other financial institutions. Any change in applicable statutory and regulatory
requirements, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or the United States Congress, could have a material
adverse impact on us and FloridaFirst Bank, and their operations.
Insurance of Deposit Accounts. The Federal Deposit Insurance
Corporation administers two separate deposit insurance funds. Generally, the
Bank Insurance Fund insures the deposits of commercial banks and the Savings
Association Insurance Fund insures the deposits of savings institutions. The
Federal Deposit Insurance Corporation is authorized to increase deposit
insurance premiums if it determines such increases are appropriate to maintain
the reserves of either the Savings Association Insurance Fund or the Bank
Insurance Fund or to fund the administration of the Federal Deposit Insurance
Corporation. In addition, the Federal Deposit Insurance Corporation is
authorized to levy emergency special assessments on Bank Insurance Fund and
Savings Association Insurance Fund members. The Federal Deposit Insurance
Corporation has set the deposit insurance assessment rates for Savings
Association Insurance Fund - member institutions for the first six months of
2000 at 0% to .027% of insured deposits on an annualized basis, with the
assessment rate for most savings institutions set at 0%.
In addition, all insured institutions of the Federal Deposit Insurance
Corporation are required to pay assessments to the corporation at an annual rate
of approximately .0212% of insured deposits to fund interest payments on bonds
issued by the Financing Corporation, an agency of the Federal government
established to recapitalize the predecessor to the Savings Association Insurance
Fund. These assessments will continue until the Financing Corporation bonds
mature in 2017.
Regulatory Capital Requirements. Office of Thrift Supervision capital
regulations require savings institutions to meet three capital standards:
o tangible capital equal to 1.5% of total adjusted assets;
o "Tier 1" or "core" capital equal to at least 3% of total adjusted assets
for savings institutions that receive the highest supervisory rating for
safety and soundness and 4% of total adjusted assets for all other thrifts;
and
o risk-based capital equal to 8% of total risk-weighted assets.
For a discussion of FloridaFirst Bank's compliance with these
regulatory capital standards, see "Historical and Pro Forma Capital Compliance."
For purposes of the Office of Thrift Supervision capital regulations,
tangible capital is defined as core capital less all intangible assets except
for certain mortgage servicing rights. Tier 1 and core capital are defined as
common stockholders' equity, noncumulative perpetual preferred stock and related
surplus, minority interests in the equity accounts of consolidated subsidiaries,
certain nonwithdrawable accounts and
91
pledged deposits of mutual savings associations and qualifying supervisory
goodwill. Tier 1 and core capital are reduced by an institution's intangible
assets, with limited exceptions for certain mortgage and nonmortgage servicing
rights and purchased credit card relationships. Both core and tangible capital
are further reduced by an amount equal to the savings institution's debt and
equity investments in "nonincludable" subsidiaries engaged in activities not
permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets.
Risk-based capital is comprised of core and supplementary capital. The
components of supplementary capital include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock, and the portion of the
allowance for loan losses not designated for specific loan losses. The portion
of the allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings institution's risk-based
capital is reduced by the amount of capital instruments held by other depository
institutions pursuant to reciprocal arrangements and by the amount of the
institution's equity investments, other than those deducted from core and
tangible capital, and its high loan-to-value ratio land loans and
non-residential construction loans.
A savings institution's risk-based capital requirement is measured
against risk-weighted assets, which equal the sum of each on-balance-sheet
assets and the credit-equivalent amount of each off-balance- sheet item after
being multiplied by an assigned risk weight. These risk weights range from 0%
for cash to 100% for delinquent loans, property acquired through foreclosure,
commercial loans, and other assets.
Office of Thrift Supervision rules require a deduction from capital for
savings institutions with certain levels of interest rate risk. The Office of
Thrift Supervision calculates the sensitivity of an institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the Office of Thrift Supervision. The amount of the interest rate
risk component, if any, deducted from an institution's total capital is based on
the institution's Thrift Financial Report filed two quarters earlier. The Office
of Thrift Supervision has indefinitely postponed implementation of the interest
rate risk component, and FloridaFirst Bank has not been required to determine
whether it will be required to deduct an interest rate risk component from
capital.
Dividend and Other Capital Distribution Limitations. The Office of
Thrift Supervision imposes various restrictions or requirements on the ability
of savings institutions to make capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan
holding company, such as FloridaFirst Bank, must file an application or a notice
with the Office of Thrift Supervision at least 30 days before making a capital
distribution. A savings institution must file an application for prior approval
of a capital distribution if:
o it is not eligible for expedited treatment under the applications
processing rules of the Office of Thrift Supervision;
o the total amount of all capital distributions, including the proposed
capital distribution, for the applicable calendar year would exceed an
amount equal to the savings bank's net income for that year to date plus
the institution's retained net income for the preceding two years;
o it would not adequately be capitalized after the capital distribution; or
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o the distribution would violate an agreement with the Office of Thrift
Supervision or applicable regulation.
FloridaFirst Bank will be required to file a capital distribution
notice or application with the Office of Thrift Supervision before paying any
dividend to us. However, capital distributions by us, as a savings and loan
holding company, will not be subject to the Office of Thrift Supervision capital
distribution rules.
The Office of Thrift Supervision may disapprove a notice or deny an
application for a capital distribution if:
o the savings institution would be undercapitalized following the capital
distribution;
o the proposed capital distribution raises safety and soundness concerns; or
o the capital distribution would violate a prohibition contained in any
statute, regulation or agreement.
In addition, a federal savings institution cannot distribute regulatory
capital that is required for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender test or they become subject to the business activity
restrictions and branching rules applicable to national banks. To qualify as a
qualified thrift lender, a savings institution must either:
o be deemed a "domestic building and loan association" under the Internal
Revenue Code by maintaining at least 60% of its total assets in specified
types of assets, including cash, certain government securities, loans
secured by and other assets related to residential real property,
educational loans and investments in premises of the institution; or
o satisfy the statutory qualified thrift lender test set forth in the Home
Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in
certain qualified thrift investments, defined to include residential
mortgages and related equity investments, certain mortgage-related
securities, small business loans, student loans and credit card loans, and
50% of certain community development loans. For purposes of the statutory
qualified thrift lender test, portfolio assets are defined as total assets
minus intangible assets, property used by the institution in conducting its
business, and liquid assets equal to 10% of total assets. A savings
institution must maintain its status as a qualified thrift lender on a
monthly basis in at least nine out of every 12 months. FloridaFirst Bank
met the qualified thrift lender test as of June 30, 2000 and in each of the
last 12 months and, therefore, qualifies as a qualified thrift lender.
Transactions with Affiliates. Generally, federal banking law requires
that transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. In
addition, a savings institution may not extend credit to any affiliate engaged
in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The Office of Thrift
Supervision has the discretion to treat subsidiaries of savings institutions as
affiliates on a case-by-case basis.
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Community Reinvestment Act. Under the Community Reinvestment Act, every
insured depository institution, including FloridaFirst Bank, 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. The Community Reinvestment
Act requires the Office of Thrift Supervision to assess the depository
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution, such as a merger or the establishment of a branch by FloridaFirst
Bank. An unsatisfactory Community Reinvestment Act examination rating may be
used as the basis for the denial of an application by the Office of Thrift
Supervision. FloridaFirst Bank received a "satisfactory" overall rating in its
most recent Community Reinvestment Act examination.
Liquidity Requirements. All federal savings institutions are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowing payable in one year or less. Depending on economic
conditions and savings flows of all savings institutions, the Office of Thrift
Supervision can vary the liquidity requirement from time to time between 4% and
10%. Monetary penalties may be imposed on institutions for liquidity requirement
violations.
Federal Home Loan Bank System. FloridaFirst Bank is a member of the
Federal Home Loan Bank of Atlanta, which is one of 12 regional Federal Home Loan
Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from funds deposited
by financial institutions and proceeds derived from the sale of consolidated
obligations of the federal home loan bank system. It makes loans to members
pursuant to policies and procedures established by the board of directors of the
Federal Home Loan Bank.
As a member, FloridaFirst Bank is required to purchase and maintain
stock in the Federal Home Loan Bank of Atlanta in an amount equal to the greater
of 1% of our aggregate unpaid residential mortgage loans, home purchase
contracts or similar obligations at the beginning of each year or 5% of Federal
Home Loan Bank advances. We are in compliance with this requirement. The Federal
Home Loan Bank imposes various limitations on advances such as limiting the
amount of certain types of real estate related collateral to 30% of a member's
capital and limiting total advances to a member.
The Federal Home Loan Banks are required to provide funds for the
resolution of troubled savings institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of dividends paid by the Federal
Home Loan Banks and could continue to do so in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest-bearing reserves at specified
levels against their checking accounts and non- personal certificate accounts.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve System may be used to satisfy the Office of Thrift Supervision liquidity
requirements.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
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Taxation
Federal Taxation
Savings institutions are subject to the Internal Revenue Code of 1986,
as amended, in the same general manner as other corporations. Prior to certain
changes to the code in 1996, thrift institutions enjoyed a tax advantage over
banks with respect to determining additions to its bad debt reserves. All thrift
institutions, prior to 1996, were generally allowed a deduction for additions to
a reserve for bad debts. In contrast, only "small banks," the average adjusted
bases of all assets of such institution equals $500 million or less were allowed
a similar deduction for additions to their bad debt reserves. In addition, while
small banks were only allowed to use the experience method in determining their
annual addition to a bad debt reserve, all thrift institutions generally enjoyed
a choice between (1) the percentage of taxable income method and, (2) the
experience method, for determining the annual addition to their bad debt
reserve. This choice of methods provided a distinct advantage to thrift
institutions that continually experienced little or no losses from bad debts,
over small banks in a similar situation, because thrift institutions in
comparison to small banks were generally allowed a greater tax deduction by
using the percentage of taxable income method rather than the experience method
to determine their deductible addition to their bad debt reserves.
The code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with respect
to deductions for bad debts. Now only thrift institutions that are treated as
small banks under the code may continue to account for bad debts under the
reserve method; however, such institutions may only use the experience method
for determining additions to their bad debt reserve. Thrift institutions that
are not treated as small banks may no longer use the reserve method to account
for their bad debts but must now use the specific charge-off method.
The revisions to the code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of (1) the balance of its bad debt reserves as of the
close of its taxable year beginning before January 1, 1996, over (2) the balance
of such reserves as of the close of its last taxable year beginning before
January 1, 1988, the pre-1988 reserves. FloridaFirst Bancorp will be required to
recapture $366,000 of applicable excess reserve.
In addition, all thrift institutions must continue to keep track of
their pre-1988 reserves because this amount remains subject to recapture in the
future under the Code. A thrift institution such as FloridaFirst Bank, would
generally be required to recapture into its taxable income its pre-1988 reserves
in the case of certain excess distributions to, and redemptions of FloridaFirst
Bancorp's stockholders and in the case of a reduction in FloridaFirst Bancorp's
outstanding loans when comparing loans currently outstanding to loans
outstanding at the end of the base year. For taxable years after 1995,
FloridaFirst Bancorp will continue to account for its bad debts under the
reserve method. The balance of FloridaFirst Bancorp's pre- 1988 reserves equaled
$5.8 million.
FloridaFirst Bancorp may exclude from its income 100% of dividends
received from FloridaFirst Bank as a member of the same affiliated group of
corporations. A 70% dividends received deduction generally applies with respect
to dividends received from corporations that are not members of such affiliated
group.
FloridaFirst Bancorp's federal income tax returns for the last five tax
years have not been audited by the IRS.
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State Taxation
FloridaFirst Bancorp files Florida income tax returns. For Florida
income tax purposes, savings institutions are presently taxed at a rate equal to
5.5% of taxable income which is calculated based on federal taxable income,
subject to certain adjustments, including the addition of interest income on
state and municipal obligations. FloridaFirst Bancorp also for Florida income
tax purposes reflects a credit for Florida intangible taxes paid, if applicable.
FloridaFirst Bancorp's state tax returns have not been audited for the
past five years.
Management of FloridaFirst Bancorp, Inc.
We consist of the same individuals who serve as directors of
FloridaFirst Bank. Our articles of incorporation and bylaws require that
directors be divided into three classes, as nearly equal in number as possible.
Each class of directors serves for a three-year period, with approximately
one-third of the directors elected each year. Our officers will be elected
annually by the board and serve at the board's discretion.
Management of FloridaFirst Bank
Directors and Executive Officers
The Bylaws requires that directors be divided into three classes, as
nearly equal in number as possible, each class to serve for a three year period,
with approximately one-third of the directors elected each year. The Board of
Directors currently consists of six members, each of whom also serves as a
director of FloridaFirst Bancorp MHC and FloridaFirst Bancorp.
The following table sets forth information with respect to the
directors and executive officers, all of whom will continue to serve in the same
capacities after the conversion.
Age at Current
June 30, Director Term
Name 2000 Position Since(1) Expires
- ---------------------- ---------- ------------------------ ----------- -------
Gregory C. Wilkes 52 President, Director 1995 2000
Llewellyn N. Belcourt 68 Director 1989 2001
Stephen A. Moore, Jr. 58 Director 1998 2001
Nis H. Nissen, III 59 Chairman of the Board 1996 2002
G.F. Zimmermann, III 56 Director 1993 2000
J. Larry Durrence 60 Director 2000 2000
Don A. Burdett 54 SVP - Retail Sales and
Service
Kerry P. Charlet 47 SVP - Chief Financial
Officer
William H. Cloyd 43 SVP - Chief Lending
Officer
Marion Moore 60 SVP - Deposit
Administration
- -------------------
(1) Refers to the year directors became a director of FloridaFirst Bank.
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The business experience for the past five years of each of the
directors and executive officers is as follows:
Gregory C. Wilkes has been FloridaFirst Bank's President, Director and
Chief Executive Officer since 1995. From 1990 to 1995, Mr. Wilkes was employed
by Home Federal Savings Bank in Rome, Georgia, where he served as President,
Director and Chief Executive Officer. He currently serves as the Chairman of
Lakeland Chamber of Commerce and also serves as a board member for the Lakeland
Chamber of Commerce, Lakeland Rotary Club, Polk Theatre, the YMCA, the Salvation
Army, the Florida Southern College President's Council, and the Lakeland
Regional Hospital Foundation. In addition, Mr. Wilkes is the elected director
for the State of Florida for the Federal Home Loan Bank of Atlanta and is a
member of the board of the Florida Bankers Association and board and faculty
member of the Florida School of Banking.
Llewellyn N. Belcourt has been a Director of FloridaFirst Bank since
1989. Mr. Belcourt is a stockholder, Director and Vice President of Carter,
Belcourt & Atkinson, P.A., an accounting firm located in Lakeland, Florida. He
is Treasurer and a Board member of the Community Foundation of Greater Lakeland
and Finance Committee Chairman and a Board member of the Lakeland Regional
Medical Center Foundation.
Stephen A. Moore, Jr. has been a Director of FloridaFirst Bank since
February 1998. Mr. Moore is President, Director and majority stockholder of
Moore Business Service, Inc., an accounting firm located in Lakeland, Florida.
He has been with Moore Business Service, Inc. since 1974. Mr. Moore is also a
member of the Lakeland Rotary Club, a Director and officer of the Central
Florida Speech & Hearing Center, and a Board member of the Polk Community
College Foundation.
Nis H. Nissen, III has been a Director of FloridaFirst Bank since 1996.
Mr. Nissen is President and Chief Executive Officer of Nissen Advertising, Inc.,
an advertising and public relations firm located in Lakeland, Florida that he
has been affiliated with since 1971. He also is a member of the Rotary Club, a
Director of the Central Florida Speech & Hearing Center, a Director of
Crimestoppers of Polk County, Vice Chairman of the Public Information Committee,
Community Foundation of Lakeland, a member of the Fine Arts Council of the
Florida Southern Foundation of Lakeland, and a member of the Board of Governors
of Florida Southern College.
G.F. Zimmermann, III has been a Director of FloridaFirst Bank since
1993. Mr. Zimmermann is President and majority stockholder of Zimmermann
Associates, Inc., a building design firm located in Lakeland, Florida, which he
has been with since 1974. He has been active with the Salvation Army, the
Kiwanis Club of Lakeland, the Lakeland Kiwanis Foundation and the Chamber of
Commerce. He also has served as a member of the Habitat for Humanity Board of
Directors, the City of Lakeland Civil Service Board, the Pension Board, the
Arbitration Board and the Lakeland Regional Medical Center Community Board.
J. Larry Durrence was elected a Director of the Bank on January 28,
2000. Dr. Durrence is President of Polk Community College with campuses in Polk
County, Florida. He is active with the United Way, Polk Museum of Art,
Volunteers in Service to the Elderly, Polk Economic Education Council, Polk
Leadership & Learning Academy, Polk County Workforce Development Board, Polk
County Career/Technical Education Task Force, AACC Commission on Economic
Workforce Development, and Heart Fund Walk.
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Executive Officers Who Are Not Directors
Don A. Burdett joined FloridaFirst Bank as Senior Vice President of
Retail Banking in November 1998. Prior to joining FloridaFirst Bank, Mr. Burdett
served as a market executive and held various sales management positions at
Barnett Bank from 1979 to 1998. Mr. Burdett has completed various graduate
banking programs during his career. Mr. Burdett has held leadership positions in
the Clearwater Chamber of Commerce, Suncoast Junior Achievement, Eastlake
Optimist and has participated in both the Leadership Manatee and Leadership
Lakeland Programs.
Kerry P. Charlet has been Chief Financial and Operations Officer of
FloridaFirst Bank since March 1998. Prior to joining FloridaFirst Bank, Mr.
Charlet served in various positions from 1986 to 1994 at Florida Bank, FSB,
including Executive Vice President and Chief Financial Officer. He was also
employed by AmSouth Bank of Florida from 1995 to 1998, where he served as Senior
Vice President and Chief Financial Officer. Mr. Charlet has also served as an
officer and committee chairman for the Gator Bowl Association, Chairman of
Payment Systems Network, and president and board member of various youth
basketball organizations.
William H. Cloyd has been Chief Lending Officer of FloridaFirst Bank
since January 1998. Previously, Mr. Cloyd was Senior Vice President of Sun Trust
Bank Mid-Florida, N.A. He has also been active with the United Way, the Lakeland
North Rotary Club, the Lakeland Chamber of Commerce, and has served as Chairman
of the Lakeland Downtown Development Authority.
Marion L. Moore serves as Senior Vice President of Deposit
Administration for FloridaFirst Bank and Mr. Moore has been employed at
FloridaFirst Bank since 1984. He has also been active with the Rotary Club, the
Boy Scouts of America, the Lakeland Chamber of Commerce and the Winter Haven
Chamber of Commerce.
Meetings and Committees of the Board of Directors of FloridaFirst Bancorp
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended September
30, 1999, the board of directors held 13 regular meetings. No director attended
fewer than 75% of the total meetings of the board of directors and committees on
which such director served during the year ended September 30, 1999. In addition
to other committees, as of September 30, 1999, FloridaFirst Bancorp had a
Nominating Committee, a Compensation Committee, and an Audit Committee. The
committees of FloridaFirst Bancorp will become our committees.
The Nominating Committee consists of the Board of Directors. The
Nominating Committee, which is not a standing committee, met once during the
1999 fiscal year.
The Compensation Committee is comprised of Directors Belcourt, Nissen
and Zimmermann. This standing committee meets annually to review the
compensation of the chief executive officer. The Committee met once during the
1999 fiscal year.
The Audit Committee consists of Directors Belcourt, Durrence and Moore.
The Audit Committee meets at least semi-annually and meets with its independent
certified public accountants to review the results of the annual audit and other
related matters. The audit committee met two times during the year ended
September 30, 1999.
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Director Compensation
During 1999 each director was paid a fee of $1,000 for each board
meeting attended and each director emeritus was paid $667 per board meeting. The
chairman of the board receives an additional $1,500 fee for each board meeting.
Each non-management director was paid $200 for each committee meeting attended.
The total fees paid to the directors for the year ended September 30, 1999 were
approximately $162,200.
In addition, FloridaFirst Bank has adopted a Directors Consultant and
Retirement Plan for all directors following retirement and completion of at
least 10 years of service. If a director agrees to become a consulting director
to our board after retirement, he or she will receive a monthly payment equal to
the Board fee in effect at the date of retirement, currently $1,000 per month,
for a period of 120 months. Benefits under such plan will begin after a
director's retirement. If there is a change in control, all directors will be
presumed to have not less than 10 years of service and each director will
receive a lump sum payment equal to the present value of future benefits
payable. During fiscal 1999, there were no payments by FloridaFirst Bank under
the plan.
On October 19, 1999 under the stock option plan and the restricted
stock plan, each director was awarded stock options and restricted stock plan
shares. Under the stock option plan, each director was granted options to
purchase shares of common stock at $8.50 per share. Under the restricted stock
plan, each director was awarded shares of common stock. Option shares and
restricted stock plan shares are exercisable at the rate of 20% per year
commencing on July 19, 2000. Under the option plan and restricted stock plan,
Mr. Wilkes received 63,785 options and 27,038 restricted stock plan shares. All
non- employee directors, except Mr. Durrence, each received 10,800 options and
4,635 restricted stock plan shares. In accordance with the restricted stock
plan, dividends are paid on shares awarded or held in the restricted stock plan.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned, for services rendered during the
fiscal years ended September 30, 1999 and 1998, by our chief executive officer,
chief financial officer and chief lending officer, who were the only executive
officers to receive compensation in salary and bonus in excess of $100,000 for
the fiscal year ended September 30, 1999.
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Annual Compensation(1)(2)
------------------------------------
Fiscal Other Annual All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)
- --------------------------- ---- ------ ----- ------------ ---------------
Gregory C. Wilkes, President 1999 185,400 3,875 13,000 132,999(3)
and Chief Executive Officer 1998 164,500 2,400 13,000 --
Kerry P. Charlet, Senior Vice 1999 113,125 22,838 -- 44,786(4)
President and Chief Financial 1998 61,875 -- -- --
Officer
William H. Cloyd, Senior Vice 1999 102,500 11,659 -- 42,787(5)
President and Chief Lending 1998 68,700 -- -- --
Officer
- -----------------
(1) All compensation set forth in the table was paid by FloridaFirst Bank.
(2) Does not include shares of restricted stock or options to purchase
shares of Common stockthat were awarded on October 19, 1999. Mr.
Charlet received 32,500 options and 18,000 restricted stock shares. Mr.
Cloyd received 25,000 options and 15,000 restricted stock shares. For a
description of the awards, see "-- Directors Compensation."
(3) Includes $59,000 related to an accrual under the supplemental executive
retirement plan; approximately 1,300 shares of Common stockscheduled to
be allocated under the employee stock ownership plan as of September
30, 1999 with a market value as of September 30, 1999 of $8.38 per
share; $4,162 in FloridaFirst Bancorp matching funds in the 401(k)
retirement plan (employee contributions are included in salary); and
$58,437 from a lump sum distribution of FloridaFirst Bank's terminated
pension plan.
(4) Includes $33,000 related to an accrual under the supplemental executive
retirement plan; approximately 975 shares of Common stockscheduled to
be allocated under the employee stock ownership plan as of September
30, 1999 with a market value as of September 30, 1999 of $8.38 per
share; and $3,236 in company matching funds in the 401(k) retirement
plan (employee contributions are included in salary).
(5) Includes $33,000 related to an accrual under the supplemental executive
retirement plan; approximately 810 shares of Common stockscheduled to
be allocated under the employee stock ownership plan as of September
30, 1999 with a market value as of September 30, 1999 of $8.38 per
share; and $2,662 in company matching funds in the 401(k) retirement
plan (employee contributions are included in salary).
Employment Agreements. FloridaFirst Bank has entered into separate
employment agreements with Mr. Wilkes, Mr. Charlet and Mr. Cloyd. Messrs.
Wilkes', Charlet's and Cloyd's current base salaries under their employment
agreements are $200,000, $132,000 and $120,000, respectively. Messrs. Wilkes'
and Charlet's employment agreements have a term of three years, while Mr.
Cloyd's agreement has a term of two years. The agreements may be terminated by
FloridaFirst Bank for "just cause" as defined in the agreement. If FloridaFirst
Bank terminates any of these three individuals without just cause, they will be
entitled to a continuation of their salary from the date of termination through
the remaining term of the agreement, but in no event for a period of less than
one year. The employment agreements contain a provision stating that after
Messrs. Wilkes', Charlet's or Cloyd's employment is terminated in connection
with any change in control, the individual will be paid a lump sum amount equal
to 2.99 times his five-year average annual taxable cash compensation. If
payments had been made under the agreements as of June 30, 2000, the payments
would have equaled approximately $1,250,000.
Supplemental Executive Retirement Plan. FloridaFirst Bank has
implemented a supplemental executive retirement plan for the benefit of Messrs.
Wilkes, Charlet and Cloyd. The supplemental executive retirement plan will
provide benefits at age 65 that would be comparable to approximately 83% of the
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benefits that would have accrued under the terminated pension plan after
retirement at age 65. If a participant terminates employment prior to age 65,
then the target retirement benefits will be reduced. The accumulated deferred
compensation account for each participant will be payable to such participant at
anytime following termination of employment after attainment of age 55, the
death or disability of the participant, or termination of employment following a
change in control of FloridaFirst Bank whereby FloridaFirst Bank or its parent
company is not the resulting entity. For the fiscal year ended September 30,
1999, Messrs. Wilkes, Charlet and Cloyd had accrued supplemental executive
retirement plan benefits of approximately $44,000, $25,000, and $25,000,
respectively, and such benefits for the individuals were not vested.
Employee Stock Ownership Plan. FloridaFirst Bank maintains an employee
stock ownership plan as part of its retirement benefit program. The employee
stock ownership plan holds 183,808 shares of Common stockfor allocation to
employees over the next nine years. Presently, the employee stock ownership plan
has a debt of $1,838,080 payable to FloridaFirst Bancorp related to the purchase
of such Common Stock. As part of the conversion, the plan anticipates purchasing
an additional 218,983 shares representing 8.0% of the shares to be offered for
sale at the mid-point of the range. Such stock purchase will be financed with a
loan from us in the amount of $2,189,830, in addition to our refinancing the
existing plan debt of $1,838,080. The stock held by the employee stock ownership
plan will be allocated to plan participants over the next 10 years as
contributions are made by FloridaFirst Bank to this retirement plan. At present,
FloridaFirst Bank anticipates contributing approximately $400,000 annually plus
interest to the plan. Benefits under the plan will vest immediately upon a
change of control of us or FloridaFirst Bank.
Stock Benefits
Stock Option Plan. In October 1999, the stockholders of FloridaFirst
Bancorp approved a plan authorizing the issuance of up to 270,385 shares of
common stock upon the exercise of stock options that may be granted to
directors, officers and employees. Such options shall be adjusted for the
Exchange Ratio.
Restricted Stock Plan. In October 1999, the stockholders of
FloridaFirst Bancorp approved a restricted stock plan authorizing the issuance
of up to 108,154 shares of common stock to directors, officers and employees.
Such stock awards vest over a five-year period. At June 30, 2000, 57,879 shares
have been purchased in the market by FloridaFirst Bank and FloridaFirst Bank
intends to purchase the remaining 50,275 shares in the market after completion
of the conversion. The actual number of shares purchased after the conversion
will vary based upon the exchange ratio applied to the minority shares of
FloridaFirst Bancorp.
Benefits To Be Considered Following Completion Of The Conversion
2001 Stock Option Plan. We intend to submit for stockholder approval,
no earlier than six months after the completion of the conversion, the 2001
stock option plan for directors, officers and employees of us and FloridaFirst
Bank. If approved by the stockholders, the 2001 stock option plan will reserve
10% of the shares sold in the offering to be issued when options granted to
directors, officers, and employees are exercised. Ten percent of the shares
issued in the offering would amount to 232,687 shares, 273,729 shares, 314,795
shares or 362,017 shares at the minimum, mid-point, maximum and adjusted maximum
of the offering range, respectively. No options would be granted under the 2001
stock option plan until the date on which stockholder approval is received.
101
The exercise price of the options granted under the 2001 stock option
plan will be equal to the fair market value of the shares on the date of grant
of the stock options. If the 2001 stock option plan is adopted within one year
following the offering, options will vest at a rate of 20% at the end of each 12
months of service with FloridaFirst Bank after the date of grant. Options
granted under the 2001 stock option plan would be adjusted for capital changes
such as stock splits and stock dividends. Awards will be 100% vested upon
termination of employment due to death or disability, and if the 2001 stock
option plan is adopted more than one year after the conversion, awards would be
100% vested upon normal retirement or a change in control of us or FloridaFirst
Bank. Under Office of Thrift Supervision rules, if the 2001 stock option plan is
adopted within one year of the conversion, no individual officer may receive
more than 25% of the awards under the plan, no nonemployee director may receive
more than 5% of the awards under the plan, and all nonemployee directors as a
group can receive no more than 30% of the awards under the plan in the
aggregate.
The 2001 stock option plan would be administered by a committee of
nonemployee members of our board of directors. Options granted under the 2001
stock option plan to employees may be "incentive" stock options, designed to
result in a beneficial tax treatment to the employee but no tax deduction to us.
Non-qualified stock options may also be granted to employees under the 2001
stock option plan, and will be granted to the nonemployee directors who receive
stock options. In the event an option recipient terminated his employment or
service as an employee or director, the options would terminate during certain
specified periods.
2001 Restricted Stock Plan. We also intend to submit for stockholder
approval, no earlier than six months after the completion of the conversion, the
2001 restricted stock plan. The 2001 restricted stock plan is designed to
encourage directors, officers and employees to continue their service with
FloridaFirst Bank by giving them an ownership interest in us. If approved by
stockholders, the 2001 restricted stock plan will reserve 4% of the shares sold
in the offering or 93,075 shares, 109,491 shares, 125,918 or 144,807 shares at
the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively. In the event the 2001 restricted stock plan is adopted more than
one year following the completion of the conversion, it would reserve up to 4%
of the shares sold in the offering for awards to officers, directors, and
employees. The officers, directors, and employees will be awarded common stock
under the 2001 restricted stock plan without having to pay cash for the shares.
No awards would be made under the 2001 restricted stock plan until the date on
which stockholder approval is received.
Awards under the 2001 restricted stock plan would be nontransferable
and nonassignable, and during the lifetime of the recipient could only be earned
by him. Under Office of Thrift Supervision rules, if the 2001 restricted stock
plan is adopted within one year following the conversion, the shares which are
subject to an award would vest at a rate of 20% at the end of each full 12
months of service with FloridaFirst Bank after the date of grant of the award.
Awards would be adjusted for capital changes such as stock dividends and stock
splits. Awards would be 100% vested upon termination of employment or service
due to death or disability, and if the 2001 restricted stock plan is adopted
more than one year after the conversion, awards would be 100% vested upon normal
retirement or a change in control of us or FloridaFirst Bank. If employment or
service were to terminate for other reasons, the award recipient would forfeit
any nonvested award. If employment or service is terminated for cause, as
defined in the 2001 restricted stock plan, shares not already delivered would be
forfeited. Under Office of Thrift Supervision rules, if the 2001 restricted
stock plan is adopted within one year of the conversion, no individual officer
may receive more than 25% of the awards under the plan, no nonemployee director
may receive more than 5% of the awards under the plan, and all nonemployee
directors as a group may receive no more than 30% of the awards under the plan
in the aggregate.
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The recipient of an award will recognize income equal to the fair
market value of the stock earned, determined as of the date of vesting, unless
the recipient makes an election under Section 83(b) of the Code to be taxed
earlier. The amount of income recognized by the recipient would be a deductible
expense for our tax purposes. If the 2001 restricted stock plan is adopted
within one year following the conversion, dividends and other earnings will
accrue and be payable to the award recipient when the shares vest. If the 2001
restricted stock plan is adopted within one year following the conversion,
shares not yet vested will be voted by the trustee of the 2001 restricted stock
plan, taking into account the best interests of the award recipients. If the
2001 restricted stock plan is adopted more than one year following the
conversion, dividends declared on unvested shares will be distributed to the
recipient when paid, and the recipient will be entitled to vote the unvested
shares.
Beneficial Ownership of FloridaFirst Bancorp Common Stock
The following table includes, as of June 30, 2000, information as to
FloridaFirst Bancorp common stock beneficially owned by all directors and named
executive officers of FloridaFirst Bancorp, and by all directors and executive
officers as a group.
Name and Address Amount of Shares Owned and Percent of Shares of
of Beneficial Owners Nature of Beneficial Ownership Common Stock Outstanding
- -------------------- ------------------------------ ------------------------
Beneficial Owners of More Than 5%:
FloridaFirst Bancorp, MHC 3,049,024 57.0%(1)
205 East Orange Street
Lakeland, Florida 33801-4611
Directors:
Llewellyn N. Belcourt 5,000 (3)(5) -- (2)(6)
J. Larry Durrence 200 (5) -- (2)(6)
Stephen A. Moore, Jr. 24,000 (3) 1.0 (2)
Nis H. Nissen, III 25,000 (3) 1.1 (2)
Gregory C. Wilkes 30,480 (3)(4) 1.3 (2)
G. F. Zimmermann, III 12,000 (3)(5) -- (2)(6)
Named Executive Officers Who
Are Not Directors:
Kerry P. Charlet 21,276 (3)(4)(5) -- (2)(6)
William H. Cloyd 6,064 (3)(4) -- (2)(6)
Total shares beneficially owned by
all Directors and Executive Officers
as a group (10 persons) 131,333 (3)(4)(5) 2.5%(2)
- -------------------------
(1) Based on 5,347,297 shares outstanding.
(2) Based on 2,298,273 shares held by persons other than FloridaFirst Bancorp
MHC.
(3) The share amounts exclude stock options and restricted stock shares since
such awards are not exercisable or vested within 60 days of June 30, 2000.
See " -- Director's Compensation" and " -- Executive Compensation."
(footnote continued on next page.)
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(4) For Messrs. Wilkes, Charlet and Cloyd the amount of shares owned include
the following number of shares under FloridaFirst Bank's employee stock
ownership plan: 1,480, 1,276 and 1,064, respectively.
(5) Includes shares of Common stockheld directly as well as by spouses or minor
children, in trust and other indirect ownership, over which shares the
individuals effectively exercise sole voting and investment power, unless
otherwise indicated. Excludes 183,800 unallocated shares held by the
employee stock ownership plan and also excludes 53,244 shares previously
awarded but presently subject to forfeiture held by FloridaFirst Bank's
restricted stock plan over which certain directors, as trustees to the
employee stock ownership plan and the restricted stock plan, respectively,
exercise shared voting and investment power. Such individuals serving as
trustees disclaim beneficial ownership with respect to such shares.
(6) Less than 1.0% of the shares outstanding.
Certain Relationships And Related Transactions
No directors, executive officers or immediate family members of such
individuals were engaged in transactions with us or any subsidiary involving
more than $60,000, other than through a loan, during the nine months ended June
30, 2000 and the year ended September 30, 1999. Furthermore, FloridaFirst Bank
had no "interlocking" relationships in which:
o any executive officer is a member of the board of directors of another
entity, one of whose executive officers are a member of FloridaFirst
Bank's board of directors; or where
o any executive officer is a member of the compensation committee of
another entity, one of whose executive officers is a member of
FloridaFirst Bank's board of directors.
FloridaFirst Bank has followed the policy of offering residential
mortgage loans for the financing of personal residences and consumer loans to
its officers, directors and employees. Loans are made in the ordinary course of
business and also made on substantially the same terms and conditions, including
interest rate and collateral, as those of comparable transactions prevailing at
the time with other persons, and do not include more than the normal risk of
collectibility or present other unfavorable features.
Subscriptions By Executive Officers And Directors
The table below sets forth, for each of our directors and executive
officers the following information:
(1) the number of exchange shares to be held upon consummation of the
conversion, based upon their beneficial ownership of FloridaFirst
Bancorp common stock as of June 30, 2000;
(2) the proposed purchases of subscription shares, assuming
sufficient shares are available to satisfy their subscriptions;
and
(3) the total amount of our common stock to be held upon consummation
of the conversion.
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In each case, it is assumed that subscription shares are sold at the midpoint of
the offering range. Because of limitations on the purchase of subscription
shares, directors and executive officers may be precluded from purchasing
subscription shares if the offering is sold at the maximum or the maximum, as
adjusted, of the offering range. See "The Offering--Limitations on Common Stock
Purchases."
Proposed Purchases of Total Common Stock
Conversion Stock(1) Held
----------------------------------------- ---------------------------------------
Number of
Exchange
Shares to be
Name Held(2)(3) Number of Shares Amount($) Number of Shares % of Total(4)
- ---------------------------- -------------------- ---------------------- ------------------ ---------------------- ----------------
Gregory C. Wilkes 27,356 20,000 200,000 47,356 --
Llewellyn N. Belcourt 4,488 1,000 10,000 5,488 --
Stephen A. Moore, Jr. 21,540 20,000 200,000 41,540 --
Nis H. Nissen, III 22,438 20,000 200,000 42,438 --
G. F. Zimmermann, III 10,770 1,000 10,000 11,770 --
J. Larry Durrence 180 500 5,000 680 --
Don A. Burdett 1,436 1,000 10,000 2,436 --
Kerry P. Charlet 19,095 10,000 100,000 29,095 --
William H. Cloyd 5,442 2,500 25,000 7,942 --
Marion Moore 4,488 1,000 10,000 5,488
------- ------ ------- --------
Total 117,233 77,000 770,000 194,233 4.0
======= ====== ======= ======= =======
- -------------------
(1) Includes proposed subscriptions, if any, by associates. Does not
include the subscription order by the employee stock ownership plan.
Purchases by the employee stock ownership plan are expected to be 8% of
the shares sold in the offering.
(2) Does not include shares underlying options and shares of restricted
stock. Such option shares and restricted stock are not exercisable
within 60 days of June 30, 2000. See "-- Beneficial Ownership of
FloridaFirst Bancorp Common Stock."
(3) Does not include stock options and awards that may be granted under our
2001 stock option plan and 2001 restricted stock plan if these plans
are approved by stockholders at an annual meeting or special meeting of
stockholders at least six months following the conversion.
(4) Less than 1.0% of the shares outstanding.
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Comparison of Stockholders' Rights
General
As a result of the conversion, holders of FloridaFirst Bancorp common
stock will become stockholders of us. There are certain differences in
stockholder rights arising from distinctions between FloridaFirst Bancorp's
federal charter and bylaws and our articles of incorporation and bylaws, which
are based on Florida corporate law. Additionally, there are distinctions between
laws applicable to federally chartered savings institutions and holding
companies and laws applicable to Florida corporations.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather as a summary of the
material differences and similarities affecting the rights of stockholders. The
discussion herein is qualified in its entirety by reference to our articles of
incorporation and bylaws and the Florida Business Corporation Act. See "Where
You Can Find Additional Information" for procedures for obtaining a copy of our
articles of incorporation and bylaws.
Authorized Capital Stock. Our authorized capital stock consists of
80,000,0000 shares of common stock, par value $.10 per share, and 20,000,000
shares of preferred stock, no par value. FloridaFirst Bancorp's authorized
capital stock consists of 18,000,000 shares of common stock and 2,000,000 shares
of preferred stock, par value $.10 per share. The shares of our common stock and
preferred stock were authorized in an amount greater than that to be issued in
the conversion to provide our Board of Directors with flexibility to effect,
among other transactions, financing, acquisitions, stock dividends, stock splits
and employee stock options. However, these additional authorized shares may also
be used by our Board of Directors, consistent with their fiduciary duty, to
deter future attempts to gain control of us. Our Board of Directors also has
sole authority to determine the terms of any one or more series of preferred
stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of preferred stock,
the Board of Directors has the power, to the extent consistent with its
fiduciary duty, to issue a series of preferred stock to persons friendly to
management in order to attempt to block a post tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. Our Board of Directors currently has no plans for the
issuance of additional shares, other than the issuance of additional shares
pursuant to stock benefit plans.
Issuance of Capital Stock. Pursuant to applicable laws and regulations,
FloridaFirst Bancorp MHC is required to own not less than a majority of the
outstanding FloridaFirst Bancorp common stock. There will be no such restriction
applicable to the ownership of our common stock following consummation of the
conversion.
Our articles of incorporation do not contain restrictions on the
issuance of shares of capital stock to directors, officers or controlling
persons of us, whereas FloridaFirst Bancorp's federal stock charter restricts
such issuance to general public offerings or, if qualifying shares, to
directors, unless the share issuance or the plan under which they would be
issued has been approved by a majority of the total votes eligible to be cast at
a legal stockholders' meeting. Thus, stock-related compensation plans, such as
stock option plans, could be adopted by us without stockholder approval and
shares of our capital stock could be issued directly to directors or officers
without stockholder approval. The bylaws of the National Association of
Securities Dealers, Inc., however, generally require corporations with
securities quoted on the Nasdaq National Market System to obtain stockholder
approval of most stock compensation plans for
106
directors, officers and key employees of the corporation. Moreover, although
generally not required, stockholder approval of stock-related compensation plans
may be sought in certain instances in order to qualify such plans for favorable
federal income tax and securities law treatment under current laws and
regulations.
Voting Rights. Neither FloridaFirst Bancorp's federal stock charter or
bylaws nor our articles of incorporation or bylaws currently provide for
cumulative voting in elections of directors. For additional information
regarding voting rights, see "--Limitations on Acquisitions of Voting Stock and
Voting Rights" below.
Payment of Dividends. The ability of FloridaFirst Bancorp to pay
dividends on its capital stock is restricted by regulations and by federal
income tax considerations related to federal savings institutions and holding
companies such as FloridaFirst Bank and FloridaFirst Bancorp. Although we are
not subject to these restrictions on our dividends, such restrictions will
indirectly affect us because dividends from FloridaFirst Bank will be our
primary source of funds for the payment of dividends to our stockholders.
See "Regulation--Regulation of FloridaFirst Bank--Dividend and Other Capital
Distribution Limitations."
Certain restrictions generally imposed on Florida corporations may also
have an impact on our ability to pay dividends. Florida law generally provides
that we would be prohibited from paying a dividend if, after such payment, the
company would not be able to pay its debts as they became due or if the
company's total assets would be less than the sum of its total liabilities plus
the amount that would be required, if the company were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution.
Board of Directors. FloridaFirst Bancorp's federal bylaws and our
articles of incorporation and bylaws each require that our Board of Directors
and that of FloridaFirst Bancorp shall be divided into three classes as nearly
equal in number as possible and that the members of each class shall be elected
for a term of three years and until their successors are elected and qualified,
with one class being elected annually.
Under FloridaFirst Bancorp's bylaws, any vacancies in the Board of
Directors of FloridaFirst Bancorp may be filled by the affirmative vote of a
majority of the remaining directors although less than a quorum of the Board of
Directors. Persons elected by the directors of FloridaFirst Bancorp to fill
vacancies may only serve until the next annual meeting of stockholders. Under
our articles of incorporation, any vacancy occurring in our Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
shall hold office for the remainder of the term to which the director has been
elected and until his or her successor is elected and qualified.
Limitations on Liability. Our articles of incorporation provide that
our directors shall not be personally liable for monetary damages to us for
certain actions as directors, except for liabilities that involve a director's
willful misconduct or the director's conscious disregard for the best interest
of us, the authorization of unlawful distributions, a director's receipt of an
improper personal benefit from his or her position as a director or a violation
of criminal law, unless the director had reasonable cause to believe that his or
her conduct was lawful. This provision might, in certain instances, discourage
or deter stockholders or management from bringing a lawsuit against directors
for a breach of their duties even though such an action, if successful, might
have benefitted us.
Currently, federal law does not permit federally chartered holding
companies such as FloridaFirst Bancorp to limit the personal liability of
directors in the manner provided by Florida law and the laws of many other
states.
107
Indemnification of Directors, Officers, Employees and Agents.
FloridaFirst Bancorp's federal charter and bylaws do not contain any provision
relating to indemnification of directors and officers of FloridaFirst Bancorp.
Under current Office of Thrift Supervision regulations, however, FloridaFirst
Bancorp shall indemnify its directors, officers and employees for any costs
incurred in connection with any litigation involving any such person's
activities as a director, officer or employee if such person obtains a final
judgment on the merits in his or her favor. In addition, indemnification is
permitted in the case of a settlement, a final judgment against such person or
final judgment other than on the merits, if a majority of disinterested
directors determine that such person was acting in good faith within the scope
of his or her employment as he or she could reasonably have perceived it under
the circumstances and for a purpose he or she could reasonably have believed
under the circumstances was in the best interest of FloridaFirst Bancorp or its
stockholders. We are also permitted to pay ongoing expenses incurred by a
director, officer or employee if a majority of disinterested directors concludes
that such person may ultimately be entitled to indemnification. Before making
any indemnification payment, we are required to notify the Office of Thrift
Supervision of our intention and such payment cannot be made if the Office of
Thrift Supervision objects thereto.
Our officers, directors, agents and employees are indemnified with
respect to certain actions pursuant to our articles of incorporation, which
complies with Florida law regarding indemnification. Florida law allows us to
indemnify the aforementioned persons for expenses, settlements, judgments and
fines in suits in which such person has been made a party by reason of the fact
that he or she is or was an agent of us. No such indemnification may be given if
such person is liable to the corporation for an unlawful distribution, if such
person personally received a benefit to which he or she was not entitled, if
such person acted with willful misconduct or a conscious disregard for the
corporation's best interests in a action by the corporation or in a stockholder
derivative action, or if the person's acts or omissions constituted a violation
of the criminal law, unless such person had reasonable cause to believe his or
her conduct was lawful or had no reasonable cause to believe his or her conduct
was unlawful.
Special Meetings of Stockholders. Our articles of incorporation provide
that special meetings of our stockholders may be called by the board of
directors, a committee of the board of directors, or the holders of not less
than 50% of the shares entitled to vote. FloridaFirst Bancorp's federal charter
provides that special meetings of FloridaFirst Bancorp's stockholders may be
called by the Chairman, the President, a majority of the Board of Directors or
the holders of not less than a majority of the outstanding capital stock of
FloridaFirst Bancorp entitled to vote.
Stockholder Nominations and Proposals. FloridaFirst Bancorp's bylaws
generally provide that stockholders may submit nominations for election of
director at an annual meeting of stockholders at least five days before the date
of any such meeting and may submit any new business to be taken up at such a
meeting by filing such in writing with FloridaFirst Bancorp at least five days
before the date of any such meeting.
Our bylaws generally provide that any stockholder desiring to make a
nomination for the election of directors or a proposal for new business at a
meeting of stockholders must submit written notice to us not less than 60 days
after the end of our fiscal year. Failure to comply with these advance notice
requirements will preclude such nominations or new business from being
considered at the meeting. Management believes that it is in the best interests
of us and our stockholders to provide sufficient time to enable management to
disclose to stockholders information about a dissident slate of nominations for
directors. This advance notice requirement may also give management time to
solicit its own proxies in an attempt to defeat any dissident slate of
nominations, should management determine that doing so is in the best interest
of stockholders, generally. Similarly, adequate advance notice of stockholder
proposals
108
will give management time to study such proposals and to determine whether to
recommend to the stockholders that such proposals be adopted. In certain
instances, such provisions could make it more difficult to oppose management's
nominees or proposals, even if stockholders believe such nominees or proposals
are in their best interests.
Stockholder Action Without a Meeting. The bylaws of FloridaFirst
Bancorp provide that any action to be taken or which may be taken at any annual
or special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote. Our articles of incorporation specifically deny the authority
of stockholders to act without a meeting.
Stockholders' Right to Examine Books and Records. A federal regulation
applicable to FloridaFirst Bancorp provides that stockholders may inspect and
copy specified books and records of a federally chartered savings institution
after proper written notice for a proper purpose. Florida law similarly provides
that a stockholder may inspect books and records if the stockholder makes a
written demand in good faith and for a proper purpose that describes the
requested records and the stockholders' purpose and if the records requested are
directly connected to the stockholders' stated purpose.
Limitations on Acquisitions of Voting Stock and Voting Rights. Our
articles of incorporation provide that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock be entitled or permitted to any vote in respect of the shares
held in excess of such limit. FloridaFirst Bancorp's federal charter provides
for a similar voting restriction on shares of common stock beneficially owned by
any person in excess of 10% of the outstanding shares, but such restriction
expires five years from the completion of FloridaFirst Bank's conversion from
the mutual to stock form.
Mergers, Consolidations and Sales of Assets. A federal regulation
requires the approval of two-thirds of the Board of Directors of FloridaFirst
Bancorp and the holders of two-thirds of the outstanding stock of FloridaFirst
Bancorp entitled to vote thereon for mergers, consolidations and sales of all or
substantially all of FloridaFirst Bancorp's assets. Such regulation permits
FloridaFirst Bancorp to merge with another corporation without obtaining the
approval of its stockholders if:
(1) it does not involve an interim savings institution;
(2) FloridaFirst Bancorp's federal stock charter is not changed;
(3) each share of FloridaFirst Bancorp's stock outstanding immediately
prior to the effective date of the transaction is to be an identical outstanding
share or a treasury share of FloridaFirst Bancorp after such effective date; and
(4) either:
(a) no shares of voting stock of FloridaFirst Bancorp and
no securities convertible into such stock are to be issued or delivered
under the plan of combination; or
(b) the authorized unissued shares or the treasury shares of
voting stock of FloridaFirst Bancorp to be issued or delivered under
the plan of combination, plus those initially issuable upon conversion
of any securities to be issued or delivered under such plan, do not
exceed 15% of the total shares of voting stock of FloridaFirst Bancorp
outstanding immediately prior to the effective date of the transaction.
109
Under Florida law, mergers, consolidations and other forms of business
combination must generally be approved by the vote of a majority of the
outstanding shares of each class of voting stock of a corporation, unless a
corporation's articles of incorporation impose a higher vote requirement.
Approval by the stockholders of a Florida corporation that survives a business
combination is not required under Florida law if:
o the articles of incorporation of the corporation are not amended thereby;
and
o each stockholder of the surviving corporation will hold the same number of
shares, with the same designations, preferences and rights, after the
business combination as such stockholder had before.
Our articles of incorporation provide that, if a merger, consolidation
or sale of all or substantially all the assets of the company is approved by
two-thirds of our Board of Directors, the stockholder vote required to approve
such transaction will be that specified by Florida law. However, if a merger,
consolidation or sale of all or substantially all the assets of us is not
approved by a two-thirds vote of the Board of Directors, the articles of
incorporation provide that any such transaction must be approved by the vote of
at least 80% of our outstanding shares of capital stock eligible to vote.
In addition, our articles of incorporation require the approval of the
holders of at least 80% of our outstanding shares of voting stock to approve
certain "Business Combinations" involving an "Interested Shareholder" except in
cases where the proposed transaction has been approved in advance by two-thirds
of those members of our Board of Directors who are unaffiliated with the
Interested Shareholder and were directors prior to the time when the Interested
Shareholder became an Interested Shareholder. The term "Interested Shareholder"
is defined to include any individual, corporation, partnership or other entity,
other than us or our subsidiary, which owns beneficially or controls, directly
or indirectly, 20% or more of the outstanding shares of voting stock of us or an
affiliate of such person or entity. This provision of the articles of
incorporation applies to any "Business Combination," which is defined to
include, among other things, any merger, consolidation, sale of 25% or more of
our assets, reclassification of the common stock or recapitalization of us with
or involving an Interested Shareholder. If, however, the proposed transaction is
approved in advance by two-thirds of the members of our Board of Directors who
were directors before the Interested Shareholder became an Interested
Shareholder, such transaction would require only the majority vote of
stockholders otherwise required by Florida law.
Our articles of incorporation require our Board of Directors to
consider certain factors in addition to the amount of consideration to be paid
when evaluating certain business combinations or a tender or exchange offer.
These additional factors include the social and economic effects of the
transaction on its customers and employees and the communities served by us.
Dissenters' Rights of Appraisal. Office of Thrift Supervision
regulations generally provide that a stockholder of a federally-chartered
savings institution that engages in a merger, consolidation or sale of all or
substantially all of its assets shall have the right to demand from such
institution payment of the fair or appraised value of his or her stock in the
institution, subject to specified procedural requirements. This regulation also
provides, however, that the stockholders of a federally-chartered savings
institution with stock which is listed on a national securities exchange or
quoted on the Nasdaq Stock Market are not entitled to dissenters' rights in
connection with a merger involving such savings institution if the stockholder
is required to accept only "qualified consideration" for his or her stock, which
is defined to include cash, shares of stock of any institution or corporation
which at the effective date of the merger will be listed on a national
securities exchange or quoted on the Nasdaq Stock Market or any combination of
such shares of stock and cash.
110
Under Florida law, our stockholders generally will not have dissenters'
appraisal rights in connection with a plan of merger or consolidation to which
we are a party because the common stock is expected to be listed on the Nasdaq
National Market.
Amendment of Governing Instruments. No amendment of FloridaFirst
Bancorp's federal charter may be made unless it is first proposed by the Board
of Directors of FloridaFirst Bancorp, then preliminarily approved by the Office
of Thrift Supervision, and thereafter approved by the holders of a majority of
the total votes eligible to be cast at a legal meeting. Our articles of
incorporation may be amended by the vote of the holders of a majority of the
outstanding shares of our common stock, except that the provisions of the
articles of incorporation governing the calling of meeting of stockholders,
stockholders' nominations and proposals, authorized capital stock, denial of
preemptive rights, the number and staggered terms of directors, removal of
directors, approval of certain business combinations, the evaluation of certain
business combinations, elimination of directors' liability, indemnification of
officers and directors, and the manner of amending the articles of incorporation
and bylaws, each may not be repealed, altered, amended or rescinded except by
the vote of the holders of at least 80% of our outstanding shares. This
provision is intended to prevent the holders of a lesser percentage of our
outstanding stock from circumventing any of the foregoing provisions by amending
the articles of incorporation to delete or modify one of such provisions.
The bylaws of FloridaFirst Bancorp may be amended by a majority vote of
the full Board of Directors of FloridaFirst Bancorp or by a majority vote of the
votes cast by the stockholders of FloridaFirst Bancorp at any legal meeting. Our
bylaws may only be amended by a two-thirds vote of our Board of Directors or by
the holders of at least 80% of our outstanding stock.
Purpose and Takeover Defensive Effects of our Articles of Incorporation
and Bylaws. The Board of Directors of FloridaFirst Bank believes that the
provisions described above are prudent and will reduce our vulnerability to
takeover attempts and certain other transactions that have not been negotiated
with and approved by our Board of Directors. These provisions will also assist
FloridaFirst Bank in the orderly deployment of the conversion proceeds into
productive assets during the initial period after the conversion. The Board of
Directors believes these provisions are in the best interest of us and
FloridaFirst Bank and our stockholders. In the judgment of the Board of
Directors, our Board will be in the best position to determine the true value of
us and to negotiate more effectively for what may be in the best interests of
its stockholders. Accordingly, our Board of Directors believes that it is in our
best interest and that of our stockholders to encourage potential acquirers to
negotiate directly with our Board of Directors and that these provisions will
encourage such negotiations and discourage hostile takeover attempts. It is also
the view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction that is at a price
reflective of our true value and that is in the best interest of all of our
stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for our
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of our
assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of
111
the outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive our
remaining stockholders of benefits of certain protective provisions of the
Securities Exchange Act of 1934, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the act.
These provisions to our articles of incorporation and bylaws may also
have the effect of discouraging a future takeover attempt that would not be
approved by our Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of our Board of Directors and management more difficult. Our Board of Directors
and the Board of FloridaFirst Bank, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, we may adopt additional anti-takeover
provisions or other devices regarding the acquisition of our equity securities
that would be permitted for a Florida business corporation.
The cumulative effect of the restrictions on acquisition of us
contained in our articles of incorporation and bylaws and in federal and Florida
law may be to discourage potential takeover attempts and perpetuate incumbent
management, even though certain of our stockholders may deem a potential
acquisition to be in their best interests, or deem existing management not to be
acting in their best interests.
Restrictions on Acquisition of FloridaFirst Bancorp, Inc.
General
The following discussion is a summary of statutory and regulatory
restrictions on the acquisition of our common stock. In addition, the following
discussion summarizes provisions of our articles of incorporation and bylaws and
regulatory provisions that have an anti-takeover effect.
Statutory and Regulatory Restrictions on Acquisition
Regulatory Restrictions Applicable for Three Years. For three years
following a savings association's conversion to stock form, Office of Thrift
Supervision regulations prohibit any person, without their prior approval from
acquiring or making an offer to acquire more than 10% of the stock of the
converted institution or of its holding company if such person is, or after
consummation of such acquisition would be, the beneficial owner of more than 10%
of such stock. In the event that any person, directly or indirectly, violates
this regulation, the shares beneficially owned by such person in excess of 10%
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matter submitted to a
vote of stockholders.
In the recent past, it has been the Office of Thrift Supervision's
general policy to routinely approve acquisitions in excess of 10% of the stock
of converted savings associations or their holding companies after the passage
of one year from the conversion, especially when such acquisitions are
negotiated with the target company. However, the Office of Thrift Supervision
has recently proposed a regulation that
112
would impose more stringent restrictions on their ability to approve
acquisitions of greater than 10% in the three years after a conversion and has
stated that it intends to approve only those acquisitions of control within
three years that comply strictly with the regulatory criteria. If this rule is
adopted in its proposed form, it may prevent any acquisition of control of us,
whether "friendly" or hostile, for at least three years after the completion of
the conversion.
Statutory and Regulatory Change in Control Restrictions. Federal law
provides that no person, acting directly or indirectly or through or in concert
with one or more other persons, may acquire control of a savings association
unless the Office of Thrift Supervision has been given 60 days prior written
notice. Federal law provides that no company may acquire control of a savings
association or a savings and loan holding company without the prior approval of
the Office of Thrift Supervision. Any company that acquires control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the Office of Thrift Supervision. Pursuant to federal regulations,
control is considered to have been acquired when an entity, among other things,
has acquired more than 25 percent of any class of voting stock of the
institution or the ability to control the election of a majority of the
directors of an institution. Moreover, control is presumed to have occurred,
subject to rebuttal, upon the acquisition of more than 10 percent of any class
of voting stock, or of more than 25 percent of any class of stock, of a savings
institution, where certain enumerated control factors are also present in the
acquisition. The Office of Thrift Supervision may prohibit an acquisition of
control if:
o it would result in a monopoly or substantially lessen competition;
o the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
o the competence, experience or integrity of the acquiring person indicates
that it would not be in the interest of the depositors or of the public to
permit the acquisition of control by that person.
The foregoing restrictions do not apply to the acquisition of stock by
one or more tax-qualified employee stock benefit plans, provided that the plan
or plans do not have beneficial ownership in the aggregate of more than 25
percent of any class of our equity securities.
Our Articles of Incorporation and Bylaws
General. Our articles of incorporation and bylaws are available at our
headquarters, 205 East Orange Street, Lakeland, Florida 33801-4611, by writing
us. During the application process, we have also used the name FloridaFirst
Bancorp, Inc. of Lakeland in order to avoid a duplication of names with
FloridaFirst Bancorp. FloridaFirst Bancorp is registered as a foreign
corporation with the Florida Department of State.
Classified Board of Directors and Related Provisions. Our Board of
Directors is divided into three classes which are as nearly equal in number as
possible. Directors serve for terms of three years. As a result, each year, only
one-third of the directors are to be elected and it would take at least two
years to elect a majority of our directors. A director may be removed only by a
vote of the holders of a majority of the shares.
Restrictions on Voting of Securities. Our articles of incorporation
provide that any shares of common stock beneficially owned directly or
indirectly in excess of 10% by any person will not be counted as shares entitled
to vote, shall not be voted by any person or counted as voting shares, and will
not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve
113
any matter submitted to the stockholders for a vote. The purpose of this
provision is to reduce the chance that large stockholders could challenge our
management.
Prohibition Against Cumulative Voting. Our articles of incorporation
prohibit cumulative voting by stockholders in the election of directors. The
absence of cumulative voting means that the holders of a majority of the shares
voted may, if they so choose, elect all of the directors elected at the meeting,
thus preventing a minority stockholder from obtaining representation on our
Board of Directors unless the minority stockholder is able to obtain the support
of a majority.
Procedures for Certain Business Combinations. Our articles of
incorporation require the affirmative vote of at least 80% of the outstanding
shares in order for us to enter into any merger, consolidation, sale,
liquidation, or dissolution of us with any "interested shareholder." If the
proposed transaction has been approved in advance by two-thirds of the members
of our Board of Directors who were directors prior to the time the interested
shareholder became a interested shareholder, the transaction would only require
the affirmative vote of at least 50% of the outstanding shares. An interested
shareholder is any person who, directly or indirectly, has the right to vote or
to sell 20% or more of the outstanding shares. Affiliates and associates of an
interested shareholder are also considered to be interested stockholders. Any
amendment to this provision requires the vote of at least 80% of the shares.
In addition to the interested shareholder restrictions, our articles of
incorporation also require the affirmative vote of at least 80% of the
outstanding shares in order for us to enter into any merger, consolidation,
sale, liquidation, or dissolution of us, unless the transaction is approved by
two-thirds of our Board of Directors.
Amendment to our Articles of Incorporation and Bylaws. Amendments to
our articles of incorporation must be approved by our Board of Directors and
also by the holders of a majority of the shares. Approval by at least 80% of the
outstanding shares is required to amend provisions relating to restrictions on
the acquisition and voting of more than 10% of the common stock; number,
election and removal of directors; amendment of bylaws; call of special
stockholder meetings; director liability; certain business combinations; and
power of indemnification.
Our bylaws may be amended by a majority vote of our Board of Directors
or by the holders of at least 80% of the outstanding shares.
Additional Anti-Takeover Provisions. The provisions described above are
not the only provisions of our articles of incorporation and bylaws which have
an anti-takeover effect. For example, our articles of incorporation authorize
the issuance of up to 20 million shares of preferred stock, which conceivably
would represent an additional class of stock required to approve any proposed
acquisition. This preferred stock, none of which has been issued, together with
authorized but unissued shares of the common stock, also could represent
additional capital required to be purchased by the acquiror. Our articles of
incorporation authorize the issuance of up to 80 million shares of common stock.
Furthermore, for a period of five years after the conversion, our
articles of incorporation provide that no person can directly or indirectly
offer to acquire or acquire the beneficial ownership of more than 10 percent of
any class of securities of us. In the event shares are acquired in violation of
this prohibition, all shares beneficially owned by any person in excess of 10%
shall be considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting shares in
connection with any matters submitted to the stockholders for a vote.
114
In addition to discouraging a takeover attempt which a majority of our
stockholders might determine to be in their best interest or in which our
stockholders might receive a premium over the current market prices for their
shares, the effect of these provisions may render the removal of our management
more difficult.
Description of Capital Stock
We are authorized to issue 80,000,000 shares of common stock, par value
$0.10 per share and 20,000,000 shares of preferred stock, no par value. We
currently expect to issue in the conversion between 2,326,877 and 3,147,952
shares of common stock , subject to adjustment, and between 1,753,000 and
2,372,000, subject to adjustment, in exchange for our publicly held shares. See
"Capitalization." Upon payment of the purchase price shares of common stock
issued in the offering will be fully paid and non-assessable. The common stock
will represent nonwithdrawable capital, will not be an account of insurable type
and will not be insured by the FDIC or any other governmental agency. See also
"Dividend Policy."
Voting Rights
The holders of common stock will possess exclusive voting rights in us.
The holder of shares of common stock will be entitled to one vote for each share
held on all matters subject to stockholder vote.
See "The Conversion - Effects on Voting Rights of Members."
Liquidation Rights
In the event of any liquidation, dissolution, or winding-up of us, the
holders of the common stock generally would be entitled to receive, after
payment of all our debts and liabilities, including all debts and liabilities of
FloridaFirst Bank, all of our assets available for distribution. See also "The
Conversion - Effects on Liquidation Rights."
Preemptive Rights; Redemption
Because the holders of the common stock do not have any preemptive
rights with respect to any shares we may issue, the Board of Directors may sell
shares of our capital stock without first offering such shares to our existing
stockholders. The common stock will not be subject to any redemption provisions.
Preferred Stock
We are authorized to issue up to 20,000,000 shares of preferred stock
and to fix and state voting powers, designations, preferences, or other special
rights of preferred stock and the qualifications, limitations and restrictions
of those shares as the Board of Directors may determine in its discretion.
Preferred stock may be issued in distinctly designated series, may be
convertible into common stock and may rank prior to the common stock as to
dividends rights, liquidation preferences, or both, and may have full or limited
voting rights. The issuance of preferred stock could adversely affect the voting
and other rights of holders of common stock.
115
The authorized but unissued shares of preferred stock and the
authorized but unissued and unreserved shares of common stock will be available
for issuance in future mergers or acquisitions, in future public offerings or
private placements. Except as otherwise required to approve the transaction in
which the additional authorized shares of preferred stock would be issued, no
stockholder approval generally would be required for the issuance of these
shares.
Legal and Tax Opinions
The legality of the issuance of the common stock being offered and
certain matters relating to the conversion and federal taxation will be passed
upon for us by Malizia Spidi & Fisch, PC., Washington, D.C. Certain matters
relating to state taxation will be passed upon for us by Hahn, McClurg, Watson,
Griffith & Bush, P.A., Lakeland, Florida. Certain legal matters will be passed
upon for Sandler O'Neill & Partners, L.P. by Muldoon, Murphy & Faucette LLP,
Washington, D.C.
Experts
The consolidated financial statements of FloridaFirst Bancorp and
Subsidiary as of September 30, 1999 and 1998 and for each of the years in the
three year period ended September 30, 1999 have been included in this prospectus
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
said firm as experts in accounting and auditing.
FinPro has consented to the publication in this document of a summary
of its letter to us setting forth its opinion as to the estimated pro forma
market value of the common stock upon the conversion and stock offering and its
opinion setting forth the value of subscription rights and to the use of its
name and statements with respect to it appearing in this document.
Registration Requirements
Our common stock will be registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934. Since our stock will be registered under these
rules, we will be subject to the information, proxy solicitation, insider
trading restrictions, tender offer rules, periodic reporting and other
requirements of these rules. We will not deregister our common stock for a
period of at least three years following the conversion.
Where You Can Find Additional Information
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form S-1 under
the Securities Act of 1933, with respect to the common stock offered in this
document. As permitted by the rules and regulations of the SEC, this document
does not contain all the information set forth in the registration statement.
Such information can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
You may obtain information on the operation of the Public Reference Room by
calling 1-800-SEC-0330. The SEC also maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants,
including us, that file electronically with the SEC.
116
The address for this Web site is "http://www.sec.gov." The statements contained
in this document as to the contents of any contract or other document filed as
an exhibit to the Form S-1 are, of necessity, brief descriptions and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
A copy of the plan of conversion is available without charge from
FloridaFirst Bank.
117
Index to Financial Statements
FloridaFirst Bancorp
Consolidated Statements of Financial Condition at June 30, 2000 (unaudited),
and September 30, 1999 and 1998 F- 1
Consolidated Statements of Earnings for the nine months ended June 30, 2000 and
1999 (unaudited) and Consolidated Statements of Earnings for each
of the years in the three-year period ended September 30, 1999 50
Consolidated Statements of Stockholders' Equity and Comprehensive Income for
each of the years in the three-year period ended September 30, 1999
and for the nine months ended June 30, 2000 (unaudited) F-2
Consolidated Statements of Cash Flows for the nine months ended June 30, 2000
and 1999 (unaudited) and for each of the years in the three-year period
ended September 30, 1999 F-3
Notes to Consolidated Financial Statements F-4
Independent Auditors' Report F-28
Other schedules are omitted as they are not required or are not applicable or
the required information is shown in the financial statements or related notes.
FloridaFirst Bancorp, Inc. financial statements have not been provided since it
has not commenced operations.
118
FLORIDAFIRST BANCORP
Consolidated Statements of Financial Condition
(Dollars in thousands, except share data)
June 30, September 30,
2000 1999 1998
----------- --------- ---------
ASSETS (Unaudited)
Cash and cash equivalents $ 5,473 $ 2,598 $ 647
Investments available for sale, at fair value 93,951 68,152 42,225
Investment securities held to maturity,
market value of $9,348 (unaudited), $12,479 and $18,524 9,687 12,724 18,736
Loans receivable, net of allowance for loan losses
of $3,226 (unaudited), $2,941 and $2,564 432,492 397,910 338,610
Premises and equipment, net 8,239 6,818 6,845
Federal Home Loan Bank stock, at cost 7,455 4,475 2,864
Accrued interest receivable 3,153 2,764 2,398
Other assets 8,519 2,917 2,147
-------- -------- --------
TOTAL ASSETS $568,969 $498,358 $414,472
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $357,535 $339,224 $352,180
Federal Home Loan Bank advances 144,025 87,600 21,000
Other borrowings 3,000 4,872 -
Advance payments by borrowers for taxes and insurance 1,665 2,200 1,971
Other liabilities 3,381 3,125 3,214
-------- -------- --------
Total liabilities 509,606 437,021 378,365
-------- -------- --------
Commitments and contingencies - - -
Stockholders' equity:
Preferred stock, $ .10 par value,
2,000,000 shares authorized, none outstanding - - -
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 earnings, restricted 41,586 39,037 35,887
Treasury stock, at cost, 405,578 and -0- shares (3,606) - -
Unallocated shares held by the employee stock ownership plan (1,838) (2,163) -
Unallocated shares held by the RSP (414) - -
Accumulated other comprehensive income (loss) (2,025) (1,236) 220
-------- -------- --------
Total stockholders' equity 59,363 61,337 36,107
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $568,969 $498,358 $414,472
======== ======== ========
See notes to consolidated financial statements.
F-1
FLORIDAFIRST BANCORP
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars in thousands, except per share data)
Accum-
ulated Unallo- Unallo-
other cated cated
compre- shares shares Total
Additional henrsive Compre- held held stock-
Common paid-in Retained Treasury income hensive by the by the holders'
stock capital earnings Stock (loss) income ESOP RSP equity
------- --------- --------- ---------- ---------- -------- ------- -------- ---------
Balance at September 30, 1996 $ 30,975 $ (406) $ 30,569
Comprehensive income:
Net income 2,527 $ 2,527 2,527
Change in unrealized gain
on investments available
for sale, net 492 492 492
-------
Total comprehensive income $ 3,019
--------- ------- ======= --------
Balance at September 30, 1997 33,502 86 33,588
Comprehensive income:
Net income 2,385 $ 2,385 2,385
Change in unrealized gain
on investments available
for sale, net 134 134 134
-------
Total comprehensive income $ 2,519
--------- ------- ======= -------
Balance at September 30, 1998 35,887 220 36,107
Stock issuance, net of issuance
costs of $1,239 $ 575 $ 25,124 $ (2,163) 23,536
Comprehensive income:
Net income 3,257 $ 3,257 3,257
Change in unrealized loss on
investments available for
sale, net (1,456) (1,456) (1,456)
-------
Total comprehensive income $ 1,801
=======
Dividends ($ .04 per share) (107) (107)
----- -------- --------- ------- ------- -------- ------ -------
Balance at September 30, 1999 575 25,124 39,037 (1,236) (2,163) 61,337
Shares repurchased, at cost (3,606) (3,606)
Payment on ESOP loan (39) 325 286
Shares acquired for RSP, at cost (414) (414)
Comprehensive income:
Net income for the nine months
ended June 30, 2000 2,831 $ 2,831 2,831
Change in unrealized loss on
investments available for
sale, net (789) (789) (789)
-------
Total comprehensive income $ 2,042
=======
Dividends ($ .12 per share) (282) (282)
----- -------- --------- -------- ------- ------- ------ --------
Balance at June 30, 2000
(Unaudited) $ 575 $ 25,085 $ 41,586 $ (3,606) $(2,025) $(1,838) $ (414) $ 59,363
===== ======== ========= ======== ======= ======= ====== ========
Nine Months ended June 30, Year ended September 30,
Disclosure of reclassification amount: 2000 1999 1999 1998 1997
- -------------------------------------- ---- ---- ---- ---- ----
(Unaudited)
Unrealized gain (loss) on investments
available for sale arising during year,
net of taxes $ (2,025) $ (819) $ (1,470) $ 210 $ 469
-------- -------- ---------
Less reclassification adjustment for
gain (loss) included in net income - - (22) 117 (35)
Income taxes (benefit) - - (8) 41 (12)
-------- ------ -------- -------- ----------
Reclassification adjustment for gain
(loss), net of taxes - - (14) 76 (23)
-------- ------ -------- -------- ----------
Unrealized gain (loss) on investments
available for sale, net of taxes $ (2,025) $ (819) $ (1,456) $ 134 $ 492
======== ====== ======== ======== ==========
See notes to consolidated financial statements.
F-2
FLORIDAFIRST BANCORP
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months ended June 30, Year ended September 30,
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(Unaudited)
Net income $ 2,831 $ 2,331 $3,257 $2,385 $2,527
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 450 420 540 405 317
Deferred income taxes (benefit) - - (39) (864) 588
Depreciation 554 558 759 632 478
(Gain) loss on sale of investments available for sale - - 22 (117) 35
Gain on sale of loans available for sale - - - - (149)
Gain on sale of branches - (165) (165) (3,016) -
Decrease (increase) in accrued interest receivable (389) (138) (366) 295 (44)
Decrease (increase) in other assets (4,946) (768) (660) 592 (93)
Decrease (increase) in federal income tax receivable - 755 (426) 406
Increase (decrease) in other liabilities 577 (4,883) (402) 2,118 (2,631)
Increase (decrease) in advance payments by borrowers
for taxes and insurance (535) (372) 229 (33) 189
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities (1,458) (3,017) 3,930 1,971 1,623
------- ------- ------- ------- -------
Cash flows from investing activities:
Sale (purchase) of FHLB stock, net (2,980) - (1,611) - 1,123
Proceeds from sale of loans available for sale - - - - 9,927
Proceeds from sales, maturity and repayments of
investments available for sale 13,723 17,382 24,069 28,930 20,019
Proceeds from maturity and repayments of investment
securities held to maturity 3,137 5,809 6,012 19,000 7,000
Proceeds from sale of assets 26 343 520 1,824 313
Net increase in loans (35,222) (38,939) (59,782) (30,299) (44,726)
Purchases of premises and equipment (2,001) (490) (883) (434) (1,862)
Purchases of investments available for sale (40,877) (31,518) (52,358) (33,981) (990)
Cash transferred in connection with sale of branches, net - - - (10,186) -
------- ------- ------- ------- -------
Net cash used in investing activities (64,194) (47,413) (84,033) (25,146) (9,196)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits 18,311 (14,636) (12,956) (19,020) 25,530
Net increase in FHLB advances 56,425 39,000 66,600 21,000 -
Net increase (decrease) in other borrowings (1,872) - 4,874 - -
Net proceeds received from issuance of common stock - 23,536 23,536 - -
Payments to acquire treasury stock (3,606) - - - -
Payments to acquire shares held by the RSP (449) - - - -
DiviNetdproceeds received from issuance of common stock (282) - - - -
------- ------- ------- ------- -------
Net cash provided by financing activities 68,527 47,900 82,054 1,980 25,530
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 2,875 (2,530) 1,951 (21,195) 17,957
Cash and cash equivalents at beginning of period 2,598 5,217 647 21,842 3,885
------- ------- ------- ------- -------
Cash and cash equivalents at end of period $ 5,473 $ 2,687 $ 2,598 $ 647 $21,842
======= ======= ======= ======== =======
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $16,462 $12,404 $15,963 $18,971 $19,677
======= ======= ======= ======== =======
Taxes $ 1,071 $ 931 $ 1,406 $ 2,557 $ 270
======= ======= ======= ======== =======
Supplemental disclosure of non-cash information:
Additions to investment in real estate acquired
through foreclosure $ 190 $ 76 $ 76 $ 2,238 $ 456
======= ======= ======= ======== =======
Change in unrealized gain (loss) on investments
available for sale, net of deferred taxes (benefit)
of $(466), $(574), $(852), $79 and $(289), respectively $ (789) $(1,039) $(1,456) $ 134 $ 492
======= ======= ======= ======== =======
Allocation of shares held by the ESOP and RSP $ 360 $ 107
======= =======
Net assets transferred in connection with branch sale:
Loans receivable $ 44,607
Premises and equipment 705
Deposits 55,498
========
See notes to consolidated financial statements.
F-3
FLORIDAFIRST BANCORP
Notes to Consolidated Financial Statements
June 30, 2000 (Unaudited) and September 30, 1999, 1998 and 1997
(1) Reorganization
On April 6, 1999, FloridaFirst Bank (the "Bank") completed its mutual to
stock conversion including the formation of mutual and stock holding
companies ("Reorganization"). In connection with the Reorganization,
FloridaFirst Bancorp, a federally chartered corporation, sold 2,703,851
shares (or 47%) of its common stock in a subscription offering at $10.00
per share and issued the remaining 53% to FloridaFirst Bancorp MHC. A
total of 5,752,875 shares of common stock of FloridaFirst Bancorp were
issued in connection with the Reorganization. Upon completion of these
transactions, the Bank became the wholly owned subsidiary of FloridaFirst
Bancorp (the "Bancorp"). The Reorganization was accounted for in a manner
similar to a pooling of interests.
Gross proceeds from the stock issuance of $27.0 million were reduced by
$1.2 million in subscription related expenses and $100,000 initial
capital for FloridaFirst Bancorp MHC ("MHC"), leaving net proceeds of the
offering of $25.7 million. The Bancorp recorded $575,288 as capital stock
based on the 5,752,875 shares issued (3,049,024 were issued to the MHC)
at a $.10 par value, with the remaining $25.1 million recorded as
additional paid-in capital. Of the net proceeds, the Bancorp contributed
$12.9 million to the Bank in exchange for all of its outstanding shares
of stock.
Upon a complete liquidation of the Bank after the Reorganization, the
Bancorp, as holder of the Bank's common stock, would be entitled to any
assets remaining upon a liquidation or dissolution of the Bank. Each
depositor would not have a claim in the assets of the Bank. However, upon
a complete liquidation of the MHC after the Reorganization, each
depositor would have a claim up to the pro rata value of his or her
accounts, in the assets of the MHC remaining after the claims of the
creditors of the MHC are satisfied. Depositors who have liquidation
rights in the Bank immediately prior to the Reorganization will continue
to have such rights in the MHC after the Reorganization for so long as
they maintain qualifying deposits in the Bank after the Reorganization.
The Office of Thrift Supervision imposes various restrictions on the
ability of savings institutions to make capital distributions, including
dividend payments. A federal savings institution is prohibited from
making a capital distribution if, after making the distribution, the
savings institution would be undercapitalized. Further, a federal savings
institution cannot distribute regulatory capital that is needed for its
liquidation account.
(2) Nature of Business and Summary of Significant Accounting Policies
The following is a description of business of FloridaFirst Bancorp and
its subsidiary (the "Company") and the significant accounting and
reporting policies which the Company follows in preparing and presenting
its financial statements.
The Company conducts its business principally through the Bank. The Bank
is a community-oriented savings institution that delivers retail and
commercial banking services through nine full service locations.
Principal sources of income are derived through interest earned on loans
and investments. The primary sources of funds are customer deposits and
Federal Home Loan Bank advances. The Bank is subject to various
regulations governing savings institutions and is subject to periodic
examination by its primary regulator, the Office of Thrift Supervision.
F-4
In the opinion of management, all adjustments consisting of
normal recurring accruals necessary for a fair presentation of
the results of interim periods have been made. Operating results
for the nine month period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended
September 30, 2000 or any other future interim period.
(a) Principles of Consolidation
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and
include the accounts of the Bancorp and the Bank that, as
discussed in Note 1, became the wholly owned subsidiary of the
Bancorp on April 6, 1999. The Company's business is conducted
principally through the Bank. All intercompany transactions and
balances have been eliminated in consolidation.
(b) Cash and Cash Equivalents
For financial statement purposes, the Company considers cash, due
from banks and interest-bearing accounts with original maturities
of three months or less in other financial institutions to be cash
and cash equivalents.
(c) Investment Securities
Investments available for sale are stated at fair value.
Unrealized gains and losses on investments available for sale, net
of taxes, are included as other comprehensive income in the
consolidated statements of financial condition until these gains
or losses are realized. Investments available for sale that
experience a decline in fair value that is other than temporary
are written down to fair value and the resultant losses are
reflected in the consolidated statements of earnings.
Investment securities held to maturity are investments that
management has the intent and the Company has the ability at the
time of purchase to hold until maturity. Securities in this
category are carried at amortized cost adjusted for accretion of
discounts and amortization of premiums using the level-yield
method over the estimated life of the securities. If a security
has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new
cost basis by recording a loss in the consolidated statements of
earnings.
The Bank is required to maintain, in cash and U.S. Government and
other approved securities, an amount equal to 4% of deposits (net
of loans on deposits) plus short-term borrowings. The Bank's
liquidity ratio was13.7%,17.6% and 16.7% at June 30, 2000
(unaudited) and September 30, 1999 and 1998, respectively.
Capital stock in the Federal Home Loan Bank of Atlanta ("FHLB") is
held in accordance with certain requirements of the FHLB. The
Company's investment is carried at cost and serves as collateral
for FHLB advances.
(d) Loans Held For Sale
Loans originated and held for sale by the Company are carried at
the lower of cost or market using the specific identification
method. Gains and losses on the sale of such loans are recognized
using the specific identification method. No loans were held for
sale at June 30, 2000 (unaudited), September 30, 1999 and 1998.
F-5
(e) Mortgage Loan Interest Income
The Company provides an allowance for uncollected interest
generally on all accrued interest related to loans 90 days or more
delinquent. This allowance is netted against accrued interest
receivable for financial statement disclosure. Such interest, if
ultimately collected, is credited to income in the period of
recovery.
(f) Loan Fees
Loan origination and commitment fees and certain related costs are
deferred and amortized over the contractual maturities, adjusted
for anticipated prepayments, as an adjustment to yield using the
level-yield method. For loans on non-accrual, such amortization
ceases.
(g) Loans and Provisions for Losses
Loans are stated at unpaid principal balances, less loans in
process, the allowance for loan losses, unearned interest, and net
deferred loan origination fees.
The Company follows a consistent procedural discipline and
accounts for loan loss contingencies in accordance with Statement
of Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies and accounts for impaired loans in conformity with
SFAS No. 114, Accounting by Creditors for Impairment of a Loan,
as amended by SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. The
following is a description of how each portion of the allowance
for loan losses is determined.
The Company segregates the loan portfolio for loan loss purposes
into the following broad segments: commercial real estate,
residential real estate, and consumer. The Company provides for an
allowance for losses inherent in the portfolio by the above
categories, which consists of two components: general loss
percentages and specific loss analysis.
General loss percentages are calculated based upon historical
analyses. A portion of the allowance is calculated for inherent
losses which management believes exist as of the evaluation date
even though they might not have been identified by the more
objective processes used. This is due to the risk of error and/or
inherent imprecision in the process. This portion of the allowance
is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact
mathematical calculations such as: trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume,
terms, and portfolio mix; new credit products and/or changes in
the geographic distribution of those products; changes in lending
policies and procedures; loan review reports on the efficacy of
the risk identification process; changes in the outlook for local,
regional and national economic conditions; concentrations of
credit; and peer group comparison.
Allowances are also provided in the event that the specific
collateral analysis on a loan indicates that the estimated loss
upon liquidation of collateral would be in excess of the general
percentage allocation. The provision for loan loss is debited or
credited in order to state the allowance for loan losses to the
required level as determined above.
The Company considers a loan to be impaired when it is probable
that the Company will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the
loan agreement. When a loan is impaired, the Company may measure
impairment based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original
effective interest rate; (b) the observable market price of the
impaired loans; or (c) the fair value of the collateral of a
collateral-dependent loan. The Company selects the measurement
method on a loan-by-loan basis, except for collateral-dependent
loans for which foreclosure is probable must be measured at the
fair value of the collateral. In a troubled debt
F-6
restructuring involving a restructured loan, the Company measures
impairment by discounting the total expected future cash flows at
the loan's original effective rate of interest.
(h) Premises and Equipment
Depreciation of office properties and equipment is accumulated on
a straight-line basis over the estimated useful lives of the
related assets. Estimated lives are 10 to 35 years for buildings
and leasehold improvements, and 3 to 10 years for furniture,
fixtures and equipment.
Maintenance and repairs are charged to expense when incurred.
Expenditures for renewals and betterments generally are
capitalized. The costs and accumulated depreciation relating to
office properties and equipment retired or otherwise disposed of
are eliminated from the accounts, and any resulting gains and
losses are reflected in the consolidated statements of earnings.
(i) Real Estate Owned
Real estate owned represents real estate acquired through
foreclosure or deed in lieu of foreclosure. Real estate so
acquired is recorded at the lower of cost (principal balance of
the former mortgage loan) or estimated fair value, less estimated
selling expenses. As of June 30, 2000 (unaudited), there were no
properties held in real estate owned. The carrying value of real
estate owned properties was $16,000 and $403,000 at September 30,
1999 and 1998 and is included in Other Assets in the consolidated
statements of financial condition. The Company charged net costs
related to real estate owned activities of $(6,000), a net
recovery, $10,000, $144,000 and $22,000 against operations for
the nine-month period ended June 30, 2000 (unaudited) and for the
years ended September 30, 1999, 1998 and 1997.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment
date.
(k) Financial Instruments With Off-Balance Sheet Risk
In the ordinary course of business, the Company is a party to
financial instruments with off-balance sheet risk. These financial
instruments include commitments to extend credit at both fixed and
variable rates and standby letters of credit. These instruments
involve, to varying degrees, elements of credit risk in excess of
the amount recognized, if any, in the consolidated statements of
financial condition. The Company's exposure to credit loss for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The
Company uses the same credit policies in making commitments and
conditional obligations 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
F-7
expiration dates or other termination clauses and may require
payment of a fee. The Company evaluates each customer's credit
worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers.
(l) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amount of revenues and expenses during the reporting
period. The major estimate by management that is critical to the
consolidated financial statements is the appropriate level of
allowance for loan losses which can be significantly impacted by
future industry, market and economic trends and conditions. Actual
results could differ from these estimates. Regulatory agencies, as
a part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the
Company to recognize changes in the allowance based on their
judgements of information available to them at the time of their
examination.
(m) Self-Insurance
The Company is self-insured for employee medical and dental
benefits, but has a reinsurance contract to limit the amount of
liability for these benefits in any plan year. Benefits are
administered through a third party administrator and the related
liabilities are reflected in the consolidated financial
statements. The Company accrues a liability based on average
claims paid over the past three years, historical information and
certain assumptions regarding future events.
The self-insured plan operates on a calendar year basis. For the
plan years ended December 31, 1999 (unaudited), 1998, and 1997,
claims paid, net of amounts received under the reinsurance
contract and premiums received from dependent and COBRA coverage,
were $441,000, $460,000 and $356,000 , respectively. The plan
covers only active employees as defined in the plan.
(n) Derivative Instruments
The Company does not purchase, sell or enter into derivative
financial instruments or derivative commodity instruments as
defined by SFAS No. 119, Disclosures About Derivative Financial
Instruments and Fair Value of Financial Instruments, other than
fixed rate loan commitments.
(o) Earnings Per Share
Basic net income per share of common stock for the periods
subsequent to the Reorganization has been computed by dividing net
income for the period by the weighted average number of shares
outstanding. Earnings per share information for all other periods
presented in these financial statements is not comparative and
therefore not presented.
F-8
Basic earnings per share of common stock for the nine months
ended June 30, 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.
The common stock equivalents related to the Company's restricted
stock awards and stock options granted are not dilutive to
earnings per share for all periods included in this report.
Therefore, basic and diluted earnings per share are the same.
(p) Comprehensive Income
On October 1, 1998 the Company adopted SFAS No. 130, Reporting
Comprehensive Income which requires an entity to present, as a
component of comprehensive income, the amounts from transactions
and other events which currently are excluded from the
consolidated statements of earnings and are recorded directly to
stockholders' equity. The Company's other comprehensive income is
the unrealized gain (loss) on investments available for sale.
(q) Segment Information
On October 1, 1998 the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, which
requires public companies to report information about segments of
their business and requires them to report selected segment
information in their quarterly reports issued to stockholders. No
specific segment disclosure is required since the Company views
its operations as a single segment.
(r) Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and 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 position and measure those instruments at fair value.
FASB has delayed the effective date of SFAS No. 133 until fiscal
quarters beginning after June 15, 2000 by issuing SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
133 is not expected to have a material impact on the Company's
financial statement presentations.
(s) Reclassifications
Certain amounts in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to the 1999
presentation.
F-9
(3) Investments Available for Sale
The amortized cost and estimated fair values of investments available for
sale are as follows:
June 30, 2000 (Unaudited)
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------- ------------ --------- ----------
(In thousands)
Obligations of U.S. government
agencies $ 19,859 - $ (655) $ 19,204
Collateralized mortgage
obligations 18,591 $ 35 (369) 18,257
Mortgage-backed securities 30,948 9 (697) 30,260
Corporate bonds 18,038 50 (1,078) 17,010
Municipal bonds 9,729 89 (598) 9,220
----------- --------- --------- ----------
Total $ 97,165 $ 183 $ (3,397) $ 93,951
=========== ========= ========= ==========
September 30, 1999
------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- --------- ---------- ----------
(In thousands)
Obligations of U.S. government
agencies $ 20,855 - $ (342) $ 20,513
Collateralized mortgage
obligations 7,569 $ 3 (152) 7,420
Mortgage-backed securities 28,711 69 (464) 28,316
Corporate bonds 7,147 - (429) 6,718
Municipal bonds 5,831 - (646) 5,185
-------- --------- ---------- ----------
Total $ 70,113 $ 72 $ (2,033) $ 68,152
======== ========= ========== ==========
September 30, 1998
---------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- --------- ---------- ----------
(In thousands)
Obligations of U.S.
government agencies $ 24,426 $ 285 -- $ 24,711
Collateralized mortgage
obligations 3,185 44 -- 3,229
Mortgage-backed securities 14,265 31 $ (11) 14,285
-------- --------- -------- ----------
Total $ 41,876 $ 360 $ (11) $ 42,225
======== ========= ======== ==========
Approximately 70% and 95% of the collateralized mortgage obligations
("CMOs") and mortgage-backed securities ("MBS") as of June 30, 2000
(unaudited) and September 30, 1999, respectively, were issues of GNMA,
FNMA or FHLMC. All CMOs and MBS as of September 30, 1998 were issues of
GNMA, FNMA or FHLMC.
F-10
The maturity distribution for the portfolio of investments available for
sale at September 30, 1999 is as follows:
Amortized Fair
cost Value
-------------- ---------
(In thousands)
Due after one year through five years $ 10,371 $ 10,234
Due after five years through ten years 15,851 15,573
Due after ten years 15,180 14,029
-------- --------
41,402 39,836
Mortgage-backed securities 28,711 28,316
-------- --------
Total $ 70,113 $ 68,152
======== ========
Proceeds from sales of investments available for sale for the nine-months
ended June 30, 2000 (unaudited), September 30, 1999, 1998 and 1997 were
$4.7 million, $6.0 million, $3.4 million and $11.0 million, respectively.
Gross gains of $8,000 and gross losses of $30,000 were realized on those
sales during 1999. Gross gains of $149,000 and gross losses of $32,000
were realized on those sales during 1998. Gross losses of $35,000 were
realized on those sales during 1997.
Investments available for sale with a fair value of $10.4 million, $10.9
million and $1.0 million were pledged as collateral to secure public
funds at June 30, 2000 (unaudited), September 30, 1999 and 1998,
respectively.
(4) Investment Securities Held to Maturity
The amortized cost and estimated fair values of investment securities
held to maturity are as follows:
June 30, 2000 (Unaudited)
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- --------- ---------- ---------
(In thousands)
Obligations of U.S. government
agencies $ 1,000 -- -- $ 1,000
Collateralized mortgage
obligations 8,687 $ 55 $ (394) 8,348
--------- ------- ------- ---------
Total $ 9,687 $ 55 $ (394) $ 9,348
========= ======= ======= =========
September 30, 1999
---------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- --------- ---------- ---------
(In thousands)
Obligations of U.S. government
agencies $ 4,000 - $ (43) $ 3,957
Collateralized mortgage
obligations 8,724 $ 40 (242) 8,522
--------- ------- -------- ---------
Total $ 12,724 $ 40 $ (285) $ 12,479
========= ======= ======== =========
F-11
September 30, 1998
---------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- --------- ---------- ---------
(In thousands)
Obligations of U.S. government
agencies $ 8,998 $ 11 $ (40) $ 8,969
Collateralized mortgage
obligations 9,738 40 (223) 9,555
--------- --------- ------- ---------
Total $ 18,736 $ 51 $ (263) $ 18,524
========= ========= ======= =========
The CMOs have principal and interest components and have predominantly
variable rates of return. The weighted average rates at June 30, 2000
(unaudited) and September 30, 1999, 1998 and 1997 were 6.33%, 5.57%,
5.80% and 5.94%, respectively. All CMOs as of June 30, 2000 (unaudited)
and September 30, 1999 and 1998 were issues of FNMA or FHLMC.
The Company's investment in obligations of U.S. government agencies
include floating interest rate bonds that are reflected in the
consolidated financial statements at $1.0 million, $4.0 million and $5.0
million at June 30, 2000 (unaudited) and September 30, 1999 and 1998,
respectively. These bonds pay variable interest rates depending on
relevant market rates and have an estimated fair value of approximately
$1.0 million, $3.9 million and $5.0 million at June 30, 2000 (unaudited)
and September 30, 1999 and 1998, respectively. At September 30, 1998 the
Company had step-up bonds with a carrying value and estimated fair value
of $4.0 million and paid interest on a predetermined schedule of
escalating rates. All step-up bonds matured during the year ended
September 30, 1999. The floating interest rate and step-up bonds were
purchased to offset the risk related to the Company's portfolio of
adjustable and fixed rate mortgages; however, these bonds expose the
Company to a certain degree of market risk as their rates change with
prevailing market rates.
The amortized cost and estimated fair value of investment securities held
to maturity at September 30, 1999, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations without penalty.
Amortized Fair
cost Value
------------- ---------
(In thousands)
Due in one year or less $ 3,000 $ 2,973
Due after one year through five years 1,000 985
Due after five year through ten years 5,729 5,568
Due after ten years 2,995 2,953
--------- --------
Total $ 12,724 $ 12,479
========= ========
F-12
(5) Loans Receivable, Net
Loans receivable consist of the following (dollars in thousands):
June 30, September 30,
---------- ---------------------------
2000 1999 1998
---------- --------- ---------
(Unaudited)
Loans secured by first mortgages on real estate:
Residential 1-4:
Permanent $ 295,857 $ 276,115 $ 244,667
Construction 29,652 32,974 27,311
Multi-family 6,802 5,787 4,464
Commercial real estate 24,975 19,783 16,132
Land 12,011 9,548 6,796
--------- --------- ---------
Total first mortgage loans 369,297 344,207 299,370
--------- --------- ---------
Other loans:
Consumer loans 81,299 75,044 57,891
Other loans 2,070 1,374 1,085
--------- --------- ---------
Total other loans 83,369 76,418 58,976
--------- --------- ---------
Total loans 452,666 420,625 358,346
Net deferred loan origination fees - - (18)
Unearned interest on installment loans - - (141)
Allowance for loan losses (3,226) (2,941) (2,564)
Loans in process (16,948) (19,774) (17,013)
--------- --------- ---------
Loans receivable, net $ 432,492 $ 397,910 $ 338,610
========= ========= =========
Weighted average yield on loans at year end 7.75% 7.56% 7.91%
========= ========= =========
The activity in the allowance for loan losses was as follows (in
thousands):
Balance at September 30, 1996 $ 2,385
Provision for loan losses 317
Charge offs (69)
Recoveries --
--------
Balance at September 30, 1997 2,633
Provision for loan losses 405
Charge offs (474)
Recoveries --
--------
Balance at September 30, 1998 2,564
Provision for loan losses 540
Charge offs (251)
Recoveries 88
--------
Balance at September 30, 1999 $ 2,941
Provision for loan losses 450
Charge offs (201)
Recoveries 36
--------
Balance at June 30, 2000 (unaudited) $ 3,226
========
F-13
Outstanding mortgage loan commitments, generally with terms of 30 days,
were approximately $1.5 million, $2.0 million and $2.1 million for fixed
rate loans, and $101,500, $300,000 and $540,000 for variable rate loans
at June 30, 2000 (unaudited) and September 30, 1999 and 1998,
respectively. There were no letters of credit outstanding at June 30,
2000 (unaudited) and September 30, 1999 and 1998. Furthermore, the
Company was servicing approximately $14.1 million, $16.7 million,
$23.3 million and $16.1 million in loans for the benefit of others in
2000 (unaudited), 1999, 1998 and 1997, respectively. The Company holds
custodial escrow deposits for these serviced loans totaling
approximately $116,000, $10,000 and $57,000 at June 30, 2000
(unaudited) and September 30, 1999 and 1998, respectively. The range
of interest rates on the fixed rate loan commitments as of June 30,
2000 (unaudited) was 7.38% to 8.50% and as of September 30, 1999 was
7.50% to 8.38%.
Loan customers of the Company include certain executive officers and
directors and their related interests and associates. All loans to this
group were made in the ordinary course of business at prevailing terms
and conditions. As of September 30, 1999, these loans amounted to
approximately
$197,000.
Impaired loans have been recognized in conformity with FASB Statement No.
114, as amended by FASB Statement No. 118. Impaired loans and related
information are as follows (amounts in thousands):
September 30,
June 30, ----------------------------------
2000 1999 1998 1997
---- ---- ---- ----
(Unaudited)
Impaired loans at end of period $ 629 $ 830 $ 836 $ 2,314
Average balance of impaired loans for the year 575 957 1,697 1,919
Allowance for loan losses for impaired loans 126 166 167 463
Interest income recognized during the year 17 72 130 146
(6) Premises and Equipment
Premises and equipment consists of the following (in thousands):
September 30,
June 30, ---------------------------
2000 1999 1998
------------- ---------- ------------
(Unaudited)
Land $ 2,918 $ 1,819 $ 1,887
Buildings and leasehold improvements 7,056 6,646 7,054
Furniture, fixtures and equipment 4,132 3,691 3,703
------- ------- --------
Total 14,106 12,156 12,644
Less accumulated depreciation and amortization (5,867) (5,338) (5,799)
------- ------- --------
Premises and equipment, net $ 8,239 $ 6,818 $ 6,845
======= ======= ========
The Company conducts a portion of its operations from leased facilities
and leases certain equipment under operating leases. As of September 30,
1999, the Company was committed to noncancelable operating leases with
annual minimum lease payments approximating $92,000 through September 30,
2003.
Rent expense under all operating leases was approximately $136,000,
$139,000 and $152,000 for the years ended September 30, 1999, 1998 and
1997, respectively.
F-14
(7) Deposits
Deposits and weighted average interest rates are as follows (amounts in
thousands):
June 30, 2000 (Unaudited) September 30, 1999 September 30, 1998
---------------------------- ------------------------- -----------------------
Amount Rate Amount Rate Amount Rate
------------- --------- ----------- -------- ----------- --------
Noninterest-bearing checking $ 16,383 $ 13,485 -- $ 10,492 --
Interest-bearing checking 31,924 1.89% 27,098 1.77% 24,456 1.94%
Savings accounts 30,352 2.06% 32,826 1.67% 37,758 1.77%
Money market accounts 24,583 4.31% 23,997 3.87% 18,092 3.99%
Certificate accounts:
4.00% - 4.99% 30,267 112,560 31,676
5.00% - 5.99% 114,810 79,323 166,610
6.00% - 6.99% 102,647 47,903 60,964
7.00% - 7.99% 6,569 2,032 2,132
-------- --------- ---------
Total certificates 254,293 5.75% 241,818 5.12% 261,382 5.52%
-------- --------- ---------
Total deposits $ 357,535 4.73% $ 339,224 4.23% $ 352,180 4.63%
========= ========= =========
Certificate accounts in amounts of $100,000 or more totaled approximately
$55.6 million, $55.8 million and $45.7 million at June 30, 2000
(unaudited) and September 30, 1999 and 1998, respectively. Deposits in
excess of $100,000 are not federally insured. The Company had certificate
accounts totaling $17.0 million and $17.2 million under the State of
Florida public deposits program at June 30, 2000 (unaudited) and
September 30, 1999; however, there were no such deposits at September 30,
1998. Deposits under this program are collateralized with investment
securities in accordance with applicable regulations.
Interest expense on deposits is summarized as follows (in thousands):
Year ended September 30,
June 30, ------------------------------------------
2000 1998 1997
--------- -------- ------- --------
(Unaudited)
Interest on interest-bearing
checking and money market accounts $ 1,216 $ 1,257 $ 1,051 $ 958
Interest on savings and certificate accounts 10,269 13,550 17,868 18,841
Less early withdrawal penalties
(52) (80) (88) (97)
------- ------- ------- -------
Total interest expense $11,433 $14,727 $18,831 $19,702
======= ======= ======= =======
Certificate accounts by year of scheduled maturity are as follows (in
thousands):
September 30,
June 30, ------------------------------
Fiscal Year 2000 1999 1998
----------- ---------- --------- ---------
(Unaudited)
1999 - - $ 165,547
2000 $ 163,002 54,045
2001 $ 163,095 38,335 11,715
2002 61,054 29,572 21,527
2003 and after 30,144 10,909 8,548
--------- --------- ---------
Total $ 254,293 $ 241,818 $ 261,382
========= ========= =========
F-15
(8) Advances From Federal Home Loan Bank and Other Borrowings
The Company had $144.0 million, $87.6 million and $21.0 million in FHLB
advances with weighted average interest rates of 6.35%, 5.18% and 5.12%
at June 30, 2000 (unaudited) and September 30, 1999 and 1998,
respectively. The advances as of June 30, 2000 (unaudited) and September
30, 1999 include $61.0 million and $55.0 million in convertible advances
whereby the FHLB has the option at a predetermined time to convert the
fixed interest rate to an adjustable rate tied to LIBOR (London interbank
offering rate). The Company then has the option to prepay the advances
without penalty if the FHLB converts the interest rate. Should the
Company elect to otherwise prepay these borrowings prior to maturity,
prepayment penalties may be incurred. Advances from the FHLB are secured
with a blanket floating lien which includes a security interest in the
FHLB stock held by the Company and the Company's mortgage loan portfolio.
The Company's borrowings from the FHLB at June 30, 2000 are as follows
(unaudited):
Fiscal Conversion
Year Option Rate Maturity Rate
----
---------------- ------------ ---------------- -----------
(In thousands) (In thousands)
2000 $ 5,000 5.71% $83,025 6.84%
2001 46,000 5.70 -
2003 5,000 5.02 5,000 6.41
2004 5,000 6.10 15,000 4.91
2008 5,000 6.67
2009 15,000 5.07
2010 21,000 6.24
------- -------
Total and weighted average rate $ 61,000 5.68% $144,025 6.35%
======== ======== ====
The Company's borrowings from the FHLB at September 30, 1999 are as
follows:
Conversion
Year Option Rate Maturity Rate
---- ---------------- ------------ ---------------- -----------
(In thousands) (In thousands)
2000 $25,000 4.91% $32,600 5.55%
2001 25,000 4.98 -
2003 5,000 5.02 -
2004 15,000 4.91
2008 20,000 5.08
2009 20,000 4.86
------- -------
Total and weighted average rate $55,000 4.95% $87,600 5.18%
======= =======
As of June 30, 2000 (unaudited) and September 30, 1999 the Company's $3.0
million and $4.9 million in other borrowings are short-term borrowings
bearing interest at 6.37% and 5.43% per annum, respectively. These
borrowings mature within 90 days of the period end and are collateralized
by securities of U. S. government agencies having a fair value of $3.0
million and $5.0 million.
F-16
(9) Income Taxes
Income taxes for 1999, 1998 and 1997 consists of the following:
Current Deferred Total
------- -------- -------
(In thousands)
Year ended September 30, 1999:
Federal $ 1,606 $ (33) $ 1,573
State 181 (6) 175
------- -------- -------
$ 1,787 $ (39) $ 1,748
======= ======== =======
Year ended September 30, 1998
Federal $ 1,825 $ (782) $ 1,043
State 190 (82) 108
------- -------- -------
$ 2,015 $ (864) $ 1,151
======= ======== =======
Year ended September 30, 1997:
Federal $ 681 $ 531 $ 1,212
State 30 57 87
------- -------- -------
$ 711 $ 588 $ 1,299
======= ======== =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
September 30,
-------------------------
1999 1998
-------- ---------
(In thousands)
Deferred tax assets:
Loans receivable, due to allowance for loan losses, net $ 992 $ 827
Pension asset 202 379
Unrealized loss on investments available for sale 725 -
Self-insurance reserve 322 339
Other 85 21
------ ------
Total deferred tax assets 2,326 1,566
Less valuation allowance - -
------ ------
Net deferred tax assets 2,326 1,566
------ ------
Deferred tax liabilities:
FHLB stock (433) (457)
(433)
Unrealized gain on investments available for sale -- (129)
Other (64) (44)
------ ------
Total deferred tax liabilities (497) (630)
------ ------
Net deferred tax assets $ 1,829 $ 936
======= =======
Net deferred tax assets are included in other assets in the consolidated
statements of financial condition.
F-17
The Company's effective rate on pretax income differs from the statutory
Federal income tax rate as follows (dollars in thousand):
Year ended September 30,
Nine Month Ended -----------------------------------------------------------------
June 30, 2000 1999 % 1998 % 1997 %
-------------------- -------- --------- ----------- --------- ---------- -------
(Unaudited)
Tax provision at statutory rate $1,486 34 % $1,702 34 % $1,202 34% $1,301 34%
Increase (decrease) in tax
Resulting from:
Tax-exempt income, net of scaleback (97) (2)% (70) (1)% (17) (1%) (22) (1%)
State income taxes, net of Federal
income tax benefit 87 2 % 116 2 % 65 2% 78 2%
Other, net 64 1 % (99) (2%) (58) (1%)
------- ---- ------- ------ ------- ------ ------ ------
Total $1,540 35 % $1,748 35 % $1,151 33% $1,299 34%
======= ==== ======= ====== ======= ====== ====== ======
Until 1997, the Internal Revenue Code (the "Code") allowed the Company a
special bad debt deduction for additions to bad debt reserves for tax
purposes. Provisions in the Code permitted the Company to determine its
bad debt deduction by either the experience method or the percentage of
taxable income method. The statutory percentage used to calculate bad
debt deduction by the percentage of taxable income method was 8% before
such deduction. The experience method was calculated using actual loss
experience of the Company.
The Small Business Job Protection Act of 1996 repealed the percentage of
taxable income method of accounting for bad debts for tax years beginning
after 1995. The Company switched to the experience method above to
compute its bad debt deduction in 1997 and future years. As a result of
the change in the Code, the Company is required to recapture into taxable
income the portion of its bad debt reserves that exceeds its bad debt
reserves calculated under the experience method since 1987; a recapture
of approximately $366,000 ratably over six years beginning in 1999.
Retained earnings at September 30, 1999 includes approximately $5.8
million base year, tax basis bad debt reserve for which no deferred
Federal and state income tax liability has been accrued. These amounts
represent an allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which would be subject to the
then current corporate income tax rate. The unrecorded deferred income
tax liability on the above amounts was approximately $2.0 million at
September 30, 1999. Certain events, as defined, will still trigger the
recapture of the base year reserve. The base year reserves also remain
subject to income tax penalty provisions which, in general, require
recapture upon certain stock redemptions of, and excess distributions to,
stockholders.
(10) Concentration of Credit Risk
The Company originates real estate, consumer, and commercial loans
primarily in its Central Florida market area. Although the Company has a
diversified loan portfolio, a substantial portion of its borrowers'
ability to honor their contracts depends on the economic conditions of
Central Florida. The Company does not have a significant exposure to any
individual customer or counterparty.
The Company manages its credit risk by limiting the total amount of
arrangements outstanding with individual customers, by monitoring the
size and maturity structure of the loan portfolio, by obtaining
collateral based on management's credit assessment of the customers, and
by applying a uniform credit process for all credit exposures.
F-18
(11) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal 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 Bank's 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 the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments 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 ratios (set
forth in the table below) of risk-based and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined).
As of June 1999, the most recent notification from the Office of Thrift
Supervision categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized," the Bank must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the table. 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 ratios are as follows:
June 30, 2000 (Unaudited)
------------------------------------------------------------------
"Well capitalized"
For capital under prompt
adequacy Corrective action
Actual purpose provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Risk-based capital
(to risk-weighted $ 55,430 15.6% $ 28,423 8.0% $ 35,529 10.0%
assets)
Tier I capital (to risk-
weighted assets) $ 52,204 14.7% $ 14,211 4.0% $ 21,317 6.0%
Tier I capital
(to average assets) $ 52,204 9.7% $ 21,500 4.0% $ 26,875 5.0%
September 30, 1999
------------------------------------------------------------------
"Well capitalized"
For capital under prompt
adequacy Corrective action
Actual purpose provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Risk-based capital
(to risk-weighted $ 52,713 17.2% $ 24,471 8.0% $ 30,589 10.0%
assets)
Tier I capital (to risk-
weighted assets) $ 49,772 16.3% $ 12,236 4.0% $ 18,353 6.0%
Tier I capital
(to average assets) $ 49,772 11.1% $ 18,000 4.0% $ 22,500 5.0%
F-19
September 30, 1998
------------------------------------------------------------------
"Well capitalized"
For capital under prompt
adequacy Corrective action
Actual purpose provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Risk-based capital
(to risk-weighted assets) $38,451 15.5% $19,795 8.0% $24,744 10.0%
Tier I capital (to risk-
weighted assets) 35,887 14.5% 9,898 4.0% 14,846 6.0%
Tier I capital
(to average assets) 35,887 8.7% 16,599 4.0% 20,748 5.0%
Capital at September 30, 1999 for consolidated financial statement
purposes differs from the Tier I capital amount by $(1.2) million
representing the exclusion of unrealized losses on investments available
for sale and $12.8 million of capital maintained by the Bancorp. Total
risk-based capital differs from Tier I capital by the allowance for loan
losses.
Capital at September 30, 1998 for consolidated financial statement
purposes differs from the Tier I capital amount by $220,000 representing
the exclusion of unrealized gain on investments available for sale. In
addition, regulatory capital differed by $(119,000) for certain amounts
that were reflected for consolidated financial reporting purposes but
were not recognized in regulatory reports filed. Total risk-based capital
differs from Tier I capital by the allowance for loan losses.
The payment of dividends by the Bank to the Company are restricted. OTS
regulations impose limitations on all capital distributions by savings
institutions. Capital distributions include cash dividends, payments to
repurchase or otherwise acquire the institution's capital stock, payments
to stockholders of another institution in a cash-out merger and other
distributions charged against capital. A savings institution that is a
subsidiary of a savings and loan holding company, such as the Bank, must
file an application or a notice with the OTS at least 30 days before
making a capital distribution. Savings institutions are not required to
file an application for permission to make a capital distribution and
need only file a notice if the following conditions are met: (1) they are
eligible for expedited treatment under OTS regulations, (2) they would
remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year
to date added to retained net income for the two preceding years, and (4)
the capital distribution would not violate any agreements between the OTS
and the savings institution or any OTS regulations. Any other situation
would require an application to the OTS.
(12) Sale of Branches
On October 29, 1997, the Company entered into an agreement to sell
substantially all of the loans, with a majority of the loans sold on a
servicing-released basis, and certain liabilities (primarily deposit
liabilities) of the branches located in north Florida. The sale included
loans at 80% of the deposit liability. The remaining 20% of the sale was
funded with cash. The transaction was completed January 30, 1998. Assets
of approximately $52.5 million, including loans of $44.6 million,
property and equipment of $705,000, cash of $10.1 million, and
liabilities consisting primarily of deposit accounts of $55.5 million,
were sold for a gain of approximately $3.0 million. The assets sold
included the branches, except for two branches that were closed by the
Company because the Company is precluded from conducting any further
business at those locations. The two branches were subsequently sold to
third parties during the year ended September 30, 1999.
F-20
(13) Benefit Plans
Director Retirement Plan. On September 28, 1998, the Board of Directors
approved a non-qualified Director Retirement Plan ("Retirement Plan").
The Retirement Plan will pay all Directors that have served on the board
at least ten years, $1,000 per month for 120 months beginning at the end
of their final three-year term. If a Director dies prior to retirement or
prior to receipt of all monthly payments under the plan, the Company has
no further financial obligations to the Director or his or her estate.
For the years ended September 30, 1999 and 1998, the Company recognized
$37,000 and $410,000 related to this Retirement Plan. The amounts were
determined by discounting the anticipated cash flow required, based on
the services rendered by each covered director. The weighted-average
discount rate used to measure the expense was 5.50%. The 1998 expense is
a component of other compensation and employee benefits expense in the
consolidated statements of earnings.
Pension Plan. The Company had a noncontributory defined benefit pension
plan ("Plan") that covered substantially all employees who met minimum
service requirements. The benefit formula of the Plan generally based
payments to retired employees upon their length of service and a
percentage of qualifying compensation during the final years of
employment.
On September 28, 1998, the Board of Directors froze benefit accruals for
the Plan effective November 3, 1998 and directed the Company to allocate
to each eligible participant the full present value of accrued benefits
based on the Plan liquidation guidelines, as prescribed by the Internal
Revenue Code. The present value of benefit obligations at September 30,
1998 was approximately $5.7 million and the plan assets at fair
value were approximately $4.0 million. As a result, the Company
recognized other compensation and employee benefits expense of $1.7
million for 1998 as an actuarial estimate of benefits payable upon
liquidation, and the related liability is a component of other
liabilities on the statement of financial condition.
The Company terminated the Plan on April 14, 1999 by distributing the
participants their full present value of accrued benefits based on the
Plan liquidation guidelines, as prescribed by the Internal Revenue Code.
The Company funded $1.3 million to the Plan, which when combined with
other Plan assets, provided sufficient assets to distribute to or
purchase annuities for Plan participants to satisfy the present value of
the calculated benefit obligations.
Pension cost for the year ended September 30, 1997 consisted of the
following (in thousands):
Service cost - benefits earned during the period $ 207
Interest cost 304
Actual return on assets held in plan (580)
Net amortization and deferral 335
-----
Net periodic pension cost $ 266
=====
The weighted-average discount rate used to measure projected benefit
obligations was approximately 6.0% and 8.0% at September 30, 1998 and
1997; the rate of increase in future compensation levels was 5.0% at
September 30, 1997; and the expected long-term rate of return on assets
was approximately 6.5% and 8.3% for September 30, 1998 and 1997.
Employee Stock Ownership Plan. The Company sponsors an employee stock
ownership plan ("ESOP"). The ESOP covers eligible employees who have
completed twelve months of continuous employment with the Company during
which they worked at least 1,000 hours and who have attained the age of
21. As part of the Reorganization in April 1999, the ESOP borrowed $2.2
million from the Company to purchase 216,308 shares of the common stock
of the Company. Since the ESOP is internally leveraged, the Company does
not report the loan receivable from the ESOP as an asset ^and does not
report the loan payable from the ESOP as a liability. The Company's
accounting for its ESOP is in accordance with AICPA Statement of
Position 93-6, Employers Accounting for Employee Stock Ownership Pllans,
F-21
which requires the Company to recognize compensation expense equal to the
fair value of the ESOP shares during the periods in which they became
committed to be released. As shares are committed to be released, the
shares become outstanding for earnings per share computations. To the
extent that the fair value of the ESOP shares differs from the cost of such
shares, this differential will be charged or credited to equity as
additional paid-in capital. Management expects the recorded amount of
expense to fluctuate as continuing adjustments are made to reflect changes
in the fair value of the ESOP shares. As of June 30, 2000 and September 30,
1999, respectively, 16,227 shares and 32,445 shares had been committed for
release. The Company recorded compensation and employee benefit expense
relating to the ESOP of $162,000 for the nine months ended June 30, 2000
and $285,000 for the year ended September 30, 1999.
401(K) Retirement Plan. Effective January 1, 1999, the Company adopted a
qualified defined contribution plan with 401(k) provisions for eligible
employees. Subject to certain restrictions, eligible employees may
voluntarily contribute up to 15% of their annual compensation and the
Company may authorize discretionary contributions to eligible participants.
During 1999 the Company approved a maximum Company match of 50% on eligible
contributions for the first 6% of participant compensation. The 1999
consolidated financial statements reflect $65,000 of employee benefits
expense for the Company's matching contribution under the plan.
Supplemental Executive Retirement Plan ("SERP"). Effective January 1, 1999,
the Company adopted a nonqualified defined contribution plan to provide
supplemental retirement benefits for certain executive officers. The SERP
will provide benefits at age 65 that would be comparable to approximately
83% of the benefits that would have accrued under the terminated pension
plan after retirement at age 65. If a participant terminates employment
prior to age 65, then the target retirement benefits will be reduced. For
the nine-month period ended June 30, 2000 (unaudited) and for the year
ended September 30, 1999 the consolidated financial statements reflect
$97,000 and $94,000 of employee benefits expense related to the SERP.
(14) Subsequent Events
At a special meeting on October 19, 1999, the Company's stockholders
approved two stock benefit plans. Under the 1999 Stock Option Plan, certain
directors, officers and employees were granted options to purchase in
aggregate 270,385 shares of the Company's stock over the next five years.
Options vest 20% each year beginning one year after the date of grant. The
exercise price of the options has been established at $8.50 per share, the
average price of the shares traded on the Nasdaq National Market on October
19, 1999. Since the option price was established as the then current market
value of the Company's stock, the Company will not record an expense when
the options are granted or the stock is issued upon the exercise of the
option. When shares are issued upon the exercise of any options, the
Company may choose to issue stock from shares authorized but not yet issued
or to utilize stock held in treasury. Under the Restricted Stock Plan,
directors and officers of the Company may earn 108,154 shares of the
Company's stock over the next five years. Restricted shares are earned at a
rate of 20% each year of continued service to the Company. The fair value
of these shares, using the $8.50 per share noted above, is $919,000 and
this amount will be amortized over a five-year period to compensation and
employee benefit expense commencing October 1, 1999. The shares earned
under this plan are entitled to all voting and other stockholder rights,
except that, while restricted, the shares must be held in escrow and cannot
be sold, pledged or otherwise conveyed. The Company plans to acquire the
necessary shares through open market purchases. ^As of June 30, 2000, the
Company had acquired 57,879 shares under the repurchase program at an
average price of $7.76.
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 held by
F-22
stockholders other than FloridaFirst Bancorp MHC, or 405,578 shares. Such
repurchases are authorized to be made by the Company 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 February 28, 2000, the acquisition of
405,578 shares at an average price of $8.89 was completed.
(15) Conversion from Mutual Holding Company to Full Stock Company (Unaudited)
On July 21, 2000, the Board of Directors of the Company, the MHC and the
Bank adopted plans of merger and conversion ("Conversion") to convert from
a federally chartered mutual holding company to a state chartered capital
stock holding company known as FloridaFirst Bancorp, Inc. The Conversion
will be accounted for as a change in corporate form with no resulting
change in the historical basis of the Company's assets, liabilities and
equity. Following the successful completion of the stock offering,
conversion costs will be netted against proceeds from the sale of stock and
net proceeds will be added to stockholders' equity. In the event that the
Conversion is not successfully completed, the costs incurred in connection
with the Conversion will be expensed at the time that the unsuccessful
completion is determined. As of June 30, 2000 (unaudited), no costs had
been incurred.
At the time of the Conversion, the Bank will establish a liquidation
account in an amount equal to its equity as reflected in the statement of
financial condition used in the final Conversion prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders and supplemental eligible account holders who continue to maintain
their accounts at the Bank after the Conversion. The liquidation account
will be reduced annually, to the extent that eligible and supplemental
eligible account holders have reduced their qualifying deposits as of each
anniversary date. Subsequent increases in balances will not restore
eligible or supplemental eligible account holder's interest in the
liquidation account. In the event of a complete liquidation of the Bank,
each eligible and supplemental eligible account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held.
Subsequent to the Conversion, the Bank may not declare or pay cash
dividends on its shares of common stock if the effect thereof would cause
equity to be reduced below applicable regulatory capital maintenance
requirements or if such declaration and payment would otherwise violate
regulatory requirements.
(16) Fair Values of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments at September 30, 1999 and 1998.
Cash and cash equivalents: The carrying amount of cash and cash equivalents
-------------------------
(demand deposits maintained at various financial institutions) represents
fair value.
Investments: The Company's investment securities represent investments in
-----------
U.S. government agency obligations, CMOs, MBS, corporate bonds and
municipal bonds. The fair value of these investments was estimated based on
quoted market prices or bid quotations received from securities dealers.
FHLB stock: The FHLB stock is not publicly traded and the carrying amount
----------
was used to estimate the fair value.
F-23
Loans: Fair values are estimated for the Company's portfolio of loans by
-----
grouping loans with similar financial characteristics. The loans have
been segregated by type, such as fixed and variable rate first mortgage
loans and other loans. The fair value of loans is estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings and for
similar maturities.
Deposit liabilities: The fair value of deposits with no stated maturity
--------------------
(i.e., interest and noninterest-bearing checking accounts and savings
accounts) is equal to the amount payable as of year end. The fair value
of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered by the Company for deposits of similar remaining
maturities.
FHLB advances and other borrowings: The fair value of FHLB advances and
-----------------------------------
other borrowings are based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered
by creditors for advances of similar remaining maturities.
Commitments: The Company makes commitments in the normal course of
-----------
business to originate loans. All such commitments are for relatively
short periods of time, so the market value of the loan on the commitment
date and origination or delivery date is seldom materially different.
The estimated fair values of the Company's financial instruments are as
follows:
September 30, 1999
-------------------------
Carrying Estimated
amount fair value
--------- ----------
(In thousands)
Financial assets:
Cash and cash equivalents $ 2,598 $ 2,598
Investments available for sale 68,152 68,152
Investment securities held to maturity 12,724 12,479
Federal Home Loan Bank stock 4,475 4,475
Loans (carrying amount net of
allowance for loan loss of $2,941) 397,910 399,914
======== ========
Financial liabilities:
Deposits:
Without stated maturities $ 97,406 $ 97,406
With stated maturities 241,818 241,475
Federal Home Loan Bank advances 87,600 86,873
Other borrowings 4,872 4,872
======== ========
Commitments:
Loan commitments - $ 2,300
======== ========
F-24
September 30, 1998
---------------------------
Carrying Estimated
Amount fair value
-------- -----------
(In thousands)
Financial assets:
Cash and cash equivalents $ 647 $ 647
Investments available for sale 42,225 42,225
Investment securities held to maturity 18,736 18,524
Federal Home Loan Bank stock 2,864 2,864
Loans (carrying amount net of allowance
for loan loss of $2,564) 338,610 341,013
======== ========
Financial liabilities:
Deposits:
Without stated maturities $ 90,798 $ 90,798
With stated maturities 261,382 258,744
Federal Home Loan Bank advances 21,000 19,149
======== ========
Commitments:
Loan commitments - $ 2,640
======== ========
(17) Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected
to have a material adverse effect on the financial condition and
operations of the Company.
(18) Parent Company Only Financial Statements
Condensed financial statements of FloridaFirst Bancorp are as follows (in
thousands):
Condensed Statement of Financial Condition
------------------------------------------
Assets September 30, 1999
------------------
Cash and cash equivalents $ 50
Loan receivable from subsidiary 10,756
Investment in subsidiary 48,535
ESOP loan receivable 2,163
--------
Total assets $ 61,504
========
Liabilities and Stockholders' Equity
Dividends payable $ 107
Accrued income taxes 60
--------
Total liabilities 167
--------
Stockholders' equity 61,337
--------
Total liabilities and stockholders' equity $ 61,504
========
F-25
Year ended
Condensed Statement of Earnings September 30, 1999
- ------------------------------- ------------------
Interest income:
Loan to ESOP $ 57
Loan to subsidiary 169
------
Total income 226
------
Operating expenses 57
------
Income before income taxes and equity
in undistributed earnings of subsidiary 169
Income taxes 60
------
Income before equity in undistributed earnings of subsidiary 109
Equity in undistributed earnings of subsidiary 3,148
------
Net income $3,257
======
Year ended
Condensed Statement of Cash Flows September 30, 1999
- --------------------------------- ------------------
Cash flows from operating activities:
Net income $ 3,257
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiary (3,148)
Increase in accrued income taxes 60
--------
Net cash provided by operating activities 169
--------
Cash flows from investing activities:
Increase in ESOP loan receivable (2,163)
Increase in loan receivable from subsidiary (10,756)
--------
Net cash used in investing activities (12,919)
--------
Cash flows from financing activities:
Net proceeds from stock offering 25,700
Capital contribution to subsidiary (12,900)
--------
Net cash provided by financing activities 12,800
--------
Increase in cash 50
Cash at beginning of year -
--------
Cash at end of year $ 50
========
Supplemental disclosure of non-cash information:
Transfer of investment in subsidiary upon creation
of holding company $ 36,107
========
Declaration of dividends payable $ 107
========
F-26
(19) Quarterly Financial Data (Unaudited)
Unaudited quarterly financial data (in thousands except per share data)
is as follows:
Nine Months Ended June 30, 2000
------------------------------------------
First Second Third
Quarter Quarter Quarter Year-To-Date
------- ------- ------- ------------
Interest income $ 9,152 $ 9,740 $10,271 $29,163
Interest expense 5,035 5,574 6,212 16,821
------- ------- ------- -------
Net interest income 4,117 4,166 4,059 12,342
Provision for losses 120 150 180 450
------- ------- ------- -------
Net interest income after
provision for losses 3,997 4,016 3,879 11,892
------- ------- ------- -------
Non-interest income 446 504 523 1,473
Non-interest expense 3,039 3,051 2,904 8,994
------- ------- ------- -------
Income before taxes 1,404 1,469 1,498 4,371
Provision for income taxes 493 517 530 1,540
------- ------- ------- -------
Net income $ 911 $ 952 $ 968 $ 2,831
======= ======= ======= =======
Basic earnings per share $ .17 $ .18 $ .19 $ 0.54
======= ======= ======= =======
Weighted average shares outstanding 5,448 5,208 5,178 5,280
======= ======= ======= =======
Year ended September 30, 1999 Year ended September 30, 1998
-------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Interest income $ 7,834 $ 7,955 $ 8,213 $ 8,646 $ 8,970 $ 8,164 $ 7,688 $ 7,319
Interest expense 4,283 4,216 4,099 4,530 5,367 4,867 4,492 4,240
------- ------- ------- ------- ------- ------- ------- ------
Net interest income 3,551 3,739 4,114 4,116 3,603 3,297 3,196 3,079
Provision for losses 150 150 120 120 105 100 100 100
------- ------- ------- ------- ------- ------- ------- ------
Net interest income after
provision for losses 3,401 3,589 3,994 3,996 3,498 3,197 3,096 2,979
------- ------- ------- ------- ------- ------- ------- ------
Non-interest income 321 464 351 337 325 3,384 370 268
Non-interest expense 2,700 2,871 2,939 2,938 2,967 3,114 2,600 4,900
------- ------- ------- ------- ------- ------- ------- ------
Income before taxes 1,022 1,182 1,406 1,395 856 3,467 866 (1,653)
Provision for income taxes 379 434 466 469 300 1,109 272 (530)
------- ------- ------- ------- ------- ------- ------- ------
Net income $ 643 $ 748 $ 940 $ 926 $ 556 $ 2,358 $ 594 $(1,123)
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share $ .17 $ .17
======= =======
Weighted average shares outstanding 5,555 5,544
======= =======
F-27
[LOGO] KPMG
P.O. Box 31002
St. Petersburg, FL 33731-8902
P.O. Box 1439
Tampa, FL 33601-1439
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FloridaFirst Bancorp:
We have audited the accompanying consolidated statements of financial condition
of FloridaFirst Bancorp and subsidiary (the Company) as of September 30, 1999
and 1998, and the related consolidated statements of earnings, stockholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended September 30, 1999. 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 generally accepted auditing
standards. 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 FloridaFirst Bancorp
and subsidiary at September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1999 in conformity with generally accepted accounting
principles.
/s/KPMG LLP
Tampa, Florida
October 28, 1999
F-28
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You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document does not constitute an offer to sell, or the solicitation of an offer
to buy, any of the securities offered hereby to any person in any jurisdiction
in which such offer or solicitation would be unlawful. The affairs of
FloridaFirst Bancorp, Inc. may change after the date of this prospectus.
Delivery of this document and the sales of shares made hereunder does not mean
otherwise.
TABLE OF CONTENTS
Page
----
Summary .....................................................................3
Risk Factors ...............................................................10 5,520,000 Shares
Selected Financial Highlights ..............................................13
Recent Developments ........................................................15
The Conversion .............................................................17
The Offering ...............................................................24
FloridaFirst Bancorp, Inc. .................................................38
FloridaFirst Bank ..........................................................38
Use of Proceeds ............................................................38 FloridaFirst Bancorp, Inc.
Dividend Policy ............................................................39
Market for the Common Stock ................................................40
Capitalization .............................................................41
Pro Forma Data .............................................................43
Historical and Pro Forma Capital Compliance ................................49
FloridaFirst Bancorp Consolidated Statements of Earnings ...................50
Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................51 -------------------
Business of FloridaFirst Bancorp, Inc. .....................................67
Business of FloridaFirst Bank ..............................................67
Regulation .................................................................89 PROSPECTUS
Taxation ...................................................................95
Management of FloridaFirst Bancorp, Inc. ...................................96
Management of FloridaFirst Bank ............................................96 -------------------
Comparison of Stockholders' Rights ........................................106
Restrictions on Acquisition of FloridaFirst Bancorp, Inc. .................112
Description of Capital Stock ..............................................115
Legal and Tax Opinions ....................................................116
Experts ...................................................................116 Sandler O'Neill & Partners, L.P.
Registration Requirements .................................................116
Where You Can Find Additional Information .................................116
Index to Financial Statements .............................................118 November 3, 2000
Until the later of December 11, 2000 or 25 days after commencement of the THESE SECURITIES ARE NOT DEPOSITS OR
offering, all dealers effecting transactions in these securities, whether or not SAVINGS ACCOUNTS AND ARE NOT FEDERALLY
participating in this offering, may be required to deliver a prospectus. This is INSURED OR GUARANTEED.
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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