SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2001
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- or -
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission Number: 0-32139
FLORIDAFIRST BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
State of Florida 59-3662010
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
205 East Orange Street 33801-4611
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (863) 688-6811
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Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .10 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO (Not subject to such filing
requirements for the past 90 days)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of the Registrant's Common Stock as
quoted on the Nasdaq National Market, on December 17, 2001, was $78.0 million.
As of December 17, 2001, there were issued and outstanding 5,486,850 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1 Portions of the Annual Report to Stockholders for the Fiscal Year Ended
September 30, 2001. (Parts I, II and IV)
2 Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held January 29, 2002. (Part III)
PART I
Item 1. Description of Business
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General
On April 6, 1999, FloridaFirst Bank reorganized from a mutual savings
association into a mutual holding company named FloridaFirst Bancorp MHC and
formed FloridaFirst Bancorp, a middle-tier holding company, whereby FloridaFirst
Bank became a wholly-owned subsidiary of FloridaFirst Bancorp. In connection
with the reorganization, FloridaFirst Bancorp sold 2,703,851 shares of its
Common Stock to the public and the remaining 3,049,024 shares were held by
FloridaFirst Bancorp MHC.
On December 21, 2000, FloridaFirst Bancorp, Inc. (the "Company") completed its
stock offering in connection with the conversion and reorganization of
FloridaFirst Bank (the "Bank") and its holding company, FloridaFirst Bancorp,
from the mutual holding company form of organization to a full stock company. As
part of the conversion and reorganization, the shares formerly held by
FloridaFirst Bancorp MHC were cancelled, the Company sold 3,147,952 new shares
to the public and the shares held by stockholders of FloridaFirst Bancorp were
exchanged for 2,372,048 shares of the Company.
The Company provides commercial and 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, the Company originates commercial real estate
loans and offers checking accounts and other credit facilities to businesses
within its market area. At September 30, 2001, the Company had total assets,
deposits and equity of $660.4 million, $399.5 million, and $93.8 million,
respectively.
The Company attracts deposits from the general public and uses these deposits
primarily to originate loans and to purchase investment, mortgage-backed and
other securities. The principal sources of funds for the Company's lending and
investing activities are deposits, Federal Home Loan Bank ("FHLB") advances, the
repayment and maturity of loans and sale, maturity, and call of securities. The
principal source of income is interest on loans and investment and
mortgage-backed securities. The principal expense is interest paid on deposits
and FHLB advances.
On December 6, 2001, the Bank signed a definitive agreement with SunTrust Bank
("SunTrust") to purchase seven Florida branches from SunTrust coincident with
SunTrust's acquisition of such branches from Huntington National Bank
("Huntington"). Four of the Huntington branches are located in Lakeland,
Florida, and one each in Avon Park and Sebring in Highlands County, and one
branch in Wildwood, Florida. The transaction will include assumption of
approximately $165 million in deposits and the purchase of approximately $25
million in loans related to the seven branches.
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Company's market area of Polk and Manatee
Counties, Florida. Deposit competition also includes a number of insurance
products sold by local agents and investment products such as mutual funds and
other securities sold by local and regional brokers. Loan competition varies
depending upon market conditions and comes form other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
multi-state regional banks, and mortgage bankers and brokers.
Lending Activities
General. The Company primarily originates one-to-four-family residential real
estate 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 loans. The Company's
commercial real estate loans consist primarily of mortgage loans secured by
small commercial office/retail space, warehouses, small and medium sized
apartment buildings and residential real estate acquisition and development
projects.
1
Loan Portfolio Composition. The following table analyzes the composition of the
Company's loan portfolio by loan category and in percentages of the total loan
portfolios at the dates indicated.
At September 30,
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2001 2000 1999 1998 1997
--------------- --------------- ---------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
- -------------
Mortgage loans:
Residential:
Permanent..............$312,309 61.7% $304,419 66.1% $276,115 65.6% $244,667 68.3% $256,742 69.3%
Construction........... 35,516 7.0 27,996 6.1 32,974 7.8 27,311 7.6 22,350 6.0
Multi-family.............. 2,306 0.5 3,610 .8 5,787 1.4 4,464 1.2 4,154 1.1
Commercial real estate.... 56,065 11.1 28,176 6.1 19,783 4.7 16,134 4.5 12,064 3.3
Land...................... 8,907 1.8 12,886 2.8 9,548 2.3 6,796 1.9 6,153 1.7
Commercial................... 5,061 1.0 2,533 .5 1,374 .3 1,083 .3 218 --
Consumer Loans:
Home equity loans (1)...... 33,200 6.5 28,926 6.3 22,545 5.4 13,137 3.7 18,310 4.9
Auto loans................. 42,293 8.3 40,717 8.8 42,181 10.0 34,795 9.7 43,504 11.7
Other...................... 10,439 2.1 11,396 2.5 10,318 2.5 9,959 2.8 7,415 2.0
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total loans.................. 506,096 100.0% 460,659 100.0% 420,625 100.0% 358,346 100.0% 370,910 100.0%
===== ===== ===== ===== =====
Less:
Loans in process (2)....... 28,289 16,952 19,774 17,013 12,589
Deferred loan fees and
unearned interest........ - - - 159 137
Allowance for loan losses.. 3,652 3,321 2,941 2,564 2,633
-------- -------- -------- -------- --------
Total loans, net.............$474,155 $440,386 $397,910 $338,610 $355,551
======== ======== ======== ======== ========
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(1) Includes home equity lines of credit.
(2) Relates to construction loans.
2
Loan Maturity Schedule. The following table sets forth the maturity or repricing
of the Company's loan portfolio at September 30, 2001. Demand loans, loans
having no stated maturity, and overdrafts are shown as due in one year or less.
Amounts are in thousands.
Commercial Home Auto and
Multi- real estate equity Other
Residential(1) family and land loans consumer Total
--------------------- -------- ----- -------- -----
Amounts Due:
Within 1 Year .......... $ 43,571 $ 137 $ 31,532 $ 6,522 $ 4,376 $ 86,138
After 1 year:
1 to 3 years ......... 27,486 799 9,260 764 14,256 52,565
3 to 5 years ......... 13,000 514 12,989 2,962 24,785 54,250
Over 5 years ......... 263,768 856 16,252 22,952 9,315 313,143
-------- -------- -------- -------- -------- --------
Total due after one year 304,254 2,169 38,501 26,678 48,356 419,958
-------- -------- -------- -------- -------- --------
Total amount due ....... $347,825 $ 2,306 $ 70,033 $ 33,200 $ 52,732 $506,096
======== ======== ======== ======== ======== ========
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(1) Includes $35,516 in construction loans.
The following table sets forth the dollar amount of all loans due after
September 30, 2002, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable rates Total
----------- ---------------- -----
(In thousands)
Residential ................... $265,657 $ 38,597 $304,254
Multi-family .................. 1,775 394 2,169
Commercial real estate and land 37,324 1,177 38,501
Home equity loans ............. 26,678 -- 26,678
Auto and other consumer ....... 48,356 -- 48,356
-------- -------- --------
Total ....................... $379,790 $ 40,168 $419,958
======== ======== ========
Residential Lending. The Company's primary lending activity consists of the
origination of one-to-four family residential mortgage loans secured by property
located in the Company's market area. The Company generally originates
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. The Company 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%. The Company currently
originates shorter-term fixed-rate and adjustable-rate loans for retention in
its portfolio. Longer-term fixed-rate mortgages are generally sold to
correspondent lenders on a servicing released basis. A mortgage loan originated
by the Company, 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.
The majority of the Company's 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 the Company's residential mortgages include "due on sale"
clauses, which give the Company the right to declare a loan immediately payable
if the borrower sells or otherwise transfers an interest in the property to a
third party.
3
Property appraisals on real estate securing the Company's 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. The Company obtains 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 the Company makes disbursements for such items
as real estate taxes and hazard insurance premiums and mortgage insurance
premiums as they become due.
Construction Lending. The Company is 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 September 30, 2001, 82% of all the Company's residential construction
loans were made to individual homeowners. After the house 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. The Company's
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.
The Company limits its 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, the Company limits
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 September 30, 2001, approximately 18% of the Company's
construction loans are to local builders.
Commercial Real Estate and Other Loans. The Company originates commercial real
estate mortgage loans and loans on multi-family dwellings and developed and
undeveloped land. The Company's 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 $300,000 and typically are made at 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 the Company's market area and all are within the State of
Florida. The Company's largest commercial real estate loan had a balance of $4.4
million on September 30, 2001 and was secured by a warehouse building.
Typically, commercial real estate loans are originated in amounts up to 80% of
the appraised value of the mortgaged property.
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.
4
Commercial Banking. To accomplish its mission to become a full service community
bank, the Company has expanded its products and services offerings to the small
to medium size businesses within its market area. Experienced personnel have
been added within the past year and the Company's plans call for the hiring of
additional personnel over the next few years to assist in reaching its
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. The Company plans to
satisfy not only the borrowing needs of prospective business customers, but
plans 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.
The Company's commercial business loans are sometimes, but not always, 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.
The Company recognizes the generally increased risks associated with commercial
business lending. The Company's commercial business lending policy emphasizes
the following:
> credit file documentation,
> analysis of the borrower's capacity to repay the loan,
> adequacy of the borrower's capital and collateral,
> analysis of the borrower's character, and
> 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 the Company's credit analysis. The Company plans to expand
its commercial business lending, subject to market conditions.
The Company generally obtains annual financial statements from borrowers for
commercial business loans. These statements are analyzed to monitor the quality
of the loan. As of September 30, 2001, the commercial business loans ranged from
$5,000 to $2.8 million, with an average balance outstanding of $67,000. With the
exception of two loans totaling $489,000, all such loans are current and have
performed in accordance with their terms. The Company has provided a reserve of
$98,000 for the two delinquent loans because recovery of the full loan balance
is highly unlikely.
5
Consumer Loans. Consumer loans consist primarily of direct and indirect auto
loans and home equity loans and credit lines. The Company also originates
unsecured lines of credit, loans secured by savings accounts and other consumer
loans. Consumer loans are originated in the Company's market area and generally
have maturities of up to 10 years. For savings account loans, the Company 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 the Company 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 the Company. 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 September 30, 2001, 69% of the Company's automobile loans outstanding were
loans originated through local automobile dealerships. Although this type of
lending generally carries a greater risk factor, the Company has 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 the Company 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.
Loan Solicitation and Processing. The Company's 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.
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, the Company's staff
analyze 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, a management 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.
6
Loan applicants are promptly notified of the decision of the Company 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 the Company, tax
escrow and the notice of requirement of insurance coverage to be maintained to
protect the Company's interest. The Company requires 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. The Company generally grants 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 the Company's commitments
to extend credit as of September 30, 2001 was $1.9 million.
Loan Origination and Other Fees. In addition to interest earned on loans, the
Company may charge loan origination and commitment fees for originating or
purchasing certain loans. Since most loans are originated without points being
charged, the Company has assessed customers certain fees related to underwriting
and document preparation. The Company believes 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.
The Company also receives 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. The Company's collection procedures 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 delinquency notice requiring
payment. If the delinquency continues, subsequent efforts are made to contact
the delinquent borrower. In certain instances, the Company may modify the loan
or grant a limited moratorium on loan payments to enable the borrower to
reorganize his financial affairs and the Company attempts 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 the Company within 90 days, the Company 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 the Company 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 ("REO") until such time as it
is sold or otherwise disposed of by the Company. When REO 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 the Company's collection
efforts is through telephone contact and a sequence of collection letters. If
the Company is unable to resolve the delinquency within 90 days or in some
situations shorter time periods, the Company will pursue all available legal
remedies. The Company's commercial lenders are required to evaluate each
assigned account on a case-by-case basis, within the parameters of the Company's
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.
7
Non-Performing Assets. The following table provides information regarding the
Company's non-performing loans and other non-performing assets as of the end of
each of the last five fiscal years. As of each of the dates indicated, the
Company did not have any troubled debt restructurings within the meaning of
Statement of Financial Accounting Standards ("SFAS") No. 15.
At September 30,
----------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential ............................. $ 320 $ 33 $ 581 $ 445 $1,624
Multi-family ............................ -- -- -- -- --
All other mortgage loans ................ 489 638 103 -- 491
Commercial loans
-- 45 -- -- --
Consumer loans:
Home equity loans ....................... 69 -- -- -- --
Other consumer .......................... 82 46 146 391 199
------ ------ ------ ------ ------
Total ..................................... $ 960 $ 762 $ 830 $ 836 $2,314
====== ====== ====== ====== ======
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 ................ $ 960 $ 762 $ 830 $ 836 $2,314
====== ====== ====== ====== ======
Real estate owned ......................... $ 60 $ 113 $ 15 $ 403 $ 67
====== ====== ====== ====== ======
Other non-performing assets ............... $ 216 $ 90 $ 188 $ 91 $ 104
====== ====== ====== ====== ======
Total non-performing assets ............... $1,236 $ 965 $1,033 $1,330 $2,485
====== ====== ====== ====== ======
Total non-performing loans to net loans ... .20% .17% .21% .25% .65%
====== ====== ====== ====== ======
Total non-performing loans to total assets .15% .13% .17% .20% .49%
====== ====== ====== ====== ======
Total non-performing assets to total assets .19% .17% .21% .32% .53%
====== ====== ====== ====== ======
During the year ended September 30, 2001, approximately $65,000 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.
8
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 reserve
for loan losses in an amount that is deemed prudent. When management classifies
a loan as a loss asset, a reserve 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 borrower 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
reserve 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 September 30, 2001
the classified assets were (in thousands):
Special mention..................... $ 1,299
Substandard......................... 2,660
Doubtful............................ --
Loss................................ --
-------
Total.......................... $ 3,959
=======
The category of substandard assets includes a $1.0 million corporate bond that
has been downgraded below investment grade and the corporate entity is in
Chapter 11 bankruptcy proceedings. The Company's management cannot make a
specific determination what portion of the security, if any, has experienced a
decline in value that is other than temporary.
Other Real Estate Owned. Real estate acquired by the Company as a result of
foreclosure or by deed in lieu of foreclosure is classified as other real estate
owned until such time as it is sold. When other real estate owned is acquired,
it is recorded at the lower of the unpaid balance of the related loan or its
fair value less disposal costs. Any write-down of other real estate owned is
charged to operations.
9
Allowance for Losses on Loans. It is the policy of management to provide for
losses on unclassified loans in its portfolio in addition to classified loans. A
provision for loan losses is charged to operations based on management's
evaluation of the potential losses that may be incurred in the Company's loan
portfolio.
Management will continue to review the entire loan portfolio to determine the
extent, if any, to which further additional loan loss provisions may be deemed
necessary. There can be no assurance that the allowance for loan losses will be
adequate to cover losses which may be realized in the future. In addition, there
can be no assurance that additional provisions for losses on loans and other
real estate owned will not be required.
The following table sets forth information with respect to the Company's
allowance for loan losses at the dates indicated:
At September 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(Dollars in thousands)
Allowance balance, beginning of period ...... $ 3,321 $ 2,941 $ 2,564 $ 2,633 $ 2,385
--------- --------- --------- --------- ---------
Provision for loan losses ................... 615 630 540 405 317
--------- --------- --------- --------- ---------
Charge-offs:
Residential ............................... (15) (32) (37) (218) (19)
Commercial and commercial real estate ..... (45) - - (146) (12)
Consumer .................................. (326) (256) (214) (110) (38)
--------- --------- --------- --------- ---------
Total charge-offs ........................... (386) (288) (251) (474) (69)
Recoveries .................................. 102 38 88 -- --
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries ................ (284) (250) (163) (474) (69)
--------- --------- --------- --------- ---------
Allowance balance, end of period ............ $ 3,652 $ 3,321 $ 2,941 $ 2,564 $ 2,633
========= ========= ========= ========= =========
Total loans outstanding ..................... $ 477,807 $ 443,707 $ 400,851 $ 341,174 $ 358,184
========= ========= ========= ========= =========
Average loans outstanding ................... $ 463,569 $ 423,409 $ 368,513 $ 339,218 $ 339,992
========= ========= ========= ========= =========
Allowance for loan losses as a percent of
total loans outstanding ................. .76% .75% .73% .75% .74%
Net loans charged off as a percent of average
loans outstanding ....................... .06% .06% .04% .14% .02%
10
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the Company's 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 allowance for loan losses allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total allowance for loan losses is a
valuation allowance applicable to the entire loan portfolio.
At September 30,
--------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------------ ------------------- ------------------- ------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
loans to loans to loans to loans to loans to
Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
At end of period
allocated to:
Residential......... $1,846 68.7% $ 1,804 72.2% $1,689 73.4% $1,564 75.9% $ 1,523 75.3%
Multi-family........ 17 .5 27 .8 37 1.4 33 1.2 31 1.1
Commercial real
estate and land..... 731 12.9 541 8.9 272 7.0 193 6.4 248 4.9
Commercial.......... 76 1.0 25 .5 17 .3 13 .3 3 .1
Consumer............ 982 16.9 924 17.6 926 17.9 761 16.2 828 18.6
------ ----- ------- ----- ------ ----- ------ ----- ------- -----
Total allowance..... $3,652 100.0% $ 3,321 100.0% $2,941 100.0% $2,564 100.0% $ 2,633 100.0%
====== ===== ======= ===== ====== ===== ====== ===== ======= =====
11
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.
The Company maintains 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 the Company's loan origination and other activities. At September 30,
2001, the Company had an investment securities portfolio of $129.5 million
(19.6% of total assets).
Investment Policies. The investment policy of the Company, which is established
by the Board of Directors, is designed to foster earnings and liquidity within
prudent interest rate risk guidelines, while complementing the Company's lending
activities. The policy provides for available for sale, held to maturity and
trading classifications. However, the Company does not currently use a trading
classification and does not anticipate doing so in the future. The policy
permits investments in high credit quality instruments with diversified cash
flows while permitting the Company to maximize total return within the
guidelines set forth in the Company's 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. The Company also invests in FHLB 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. The Company
does not participate in hedging programs, interest rate swaps, or other
activities involving the use of off-balance sheet derivative financial
instruments. Further, the Company does not invest in securities that are not
investment grade.
The Board through its Investment and Asset Liability Committee ("ALCO") 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).
Securities. The Company maintains a portfolio of securities, classified as
either available for sale or held to maturity, to enhance total return on
investments. At September 30, 2001, the Company's 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 47% of the Company's U.S. government agency obligations
at September 30, 2001, could reduce the Company's investment yield if these
securities are called prior to maturity.
12
Mortgage-backed Securities. The Company invests in mortgage-backed securities to
provide earnings, liquidity, cash flows, and diversification to the Company's
overall balance sheet. These mortgage-backed securities are classified as
available for sale. These securities are participation certificates issued and
guaranteed by the Ginnie Mae, the Fannie Mae and the Freddie Mac and secured by
interests in pools of mortgages. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Company focuses its investments on mortgage-backed securities
secured by single-family mortgages.
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
mortgages (i.e., fixed-rate or adjustable-rate) 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 ("CMOs"). The Company also invests in CMOs,
issued or sponsored by Fannie Mae, Freddie Mac or private issuers. CMOs are a
type of debt security that aggregates pools of mortgages and mortgage-backed
securities and creates different classes of CMO 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 CMOs 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 that may be different from that of the underlying
collateral and other tranches. Investing in CMOs allows the Company 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 (including capital trust securities) 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. The Company has invested in these
longer maturity bonds and securities with fixed rates of interest to provide
higher yields to protect part of its 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 those assets (loans and securities) which are subject to
periodic principal repayments and payoffs before contractual maturities.
Municipal Bonds. Municipal bonds have maturities from 11 to 20 years with
premium call provisions after seven to ten years. These bonds are exempt from
federal income taxes, 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.
Other Securities. Other securities owned by the Company, but not included in the
investment portfolio, consist of equity securities, interest-bearing deposits
and federal funds sold. Equity securities owned consist primarily of a $7.7
million investment in FHLB of Atlanta common stock (this amount is not shown in
the securities portfolio). As a member of the FHLB of Atlanta, ownership of FHLB
of Atlanta common shares is required. The remaining securities provide
diversification and complement the Company's overall investment strategy.
13
The following table sets forth the carrying value of the Company's securities
portfolio at the dates indicated.
At September 30,
-------------------------------------
2001 2000 1999
---- ---- ----
(In thousands)
Securities held to maturity:
----------------------------
U.S. government agency securities................ -- $ 1,000 $ 4,000
Collateralized mortgage obligations.............. -- 8,687 8,724
-------- -------- -------
Total securities held to maturity................ -- 9,687 12,724
-------- -------- -------
Securities available for sale (at fair value):
----------------------------------------------
U.S. government agency securities ............... $ 8,850 19,357 20,513
Collateralized mortgage obligations.............. 44,045 18,072 7,420
Mortgage-backed securities....................... 29,551 29,650 28,316
Corporate bonds.................................. 29,555 20,186 6,718
Municipal bonds.................................. 17,533 9,396 5,185
-------- -------- -------
Total securities available for sale.............. 129,534 96,661 68,152
-------- -------- -------
Total .......................................... $129,534 $106,348 $80,876
======== ======== =======
14
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities (or repricing terms for variable
rate securities) of the Company's securities portfolio at September 30, 2001.
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.
At September 30, 2001
-------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total 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)
U.S. government agency
Securities................. -- -- $3,159 6.12% $ 5,691 6.69% -- -- $ 8,850 6.48% $ 8,850
Collateralized mortgage
obligations.................. $ 6,583 4.19% -- -- -- -- $ 37,462 6.64% 44,045 6.27 44,045
Mortgage-backed securities... 4,611 6.14 -- -- 3,437 6.22 21,503 6.91 29,551 6.71 29,551
Corporate bonds.............. 3,032 6.88 9,945 7.48 4,260 8.11 12,318 8.55 29,555 7.95 29,555
Municipal bonds.............. -- -- -- -- -- -- 17,533 7.58 17,533 7.58 17,533
------- ------- ------- -------- -------- --------
Total...................... $14,226 5.40% $13,104 7.15% $13,388 7.02% $ 88,816 7.15% $129,534 6.95% $129,534
======= ==== ======= ==== ======= ==== ======== ==== ======== ==== ========
15
Sources of Funds
General. Deposits are the major source of the Company's funds for lending and
other investment purposes. Borrowings (principally from the FHLB) are used to
compensate for reductions in the availability of funds from other sources. In
addition to deposits and borrowings, the Company derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the maturity,
call and sale of mortgage-backed securities and other 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. The Company offers 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.
The Company's 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 (IRAs) are included in these accounts,
depending on the customer's investment preference.
Deposits are obtained primarily from residents of Polk and Manatee Counties. The
Company attracts deposit accounts by offering outstanding service, competitive
interest rates, and convenient locations and service hours. The Company uses
traditional methods of advertising to attract new customers and deposits,
including radio, cable television, direct mail and print media advertising. The
Company utilizes the services of deposit brokers to a minimal extent and
management believes that an insignificant number of deposit accounts are held by
non-residents of Florida.
The Company pays interest on its deposits that are competitive in its market.
Interest rates on deposits are set weekly by senior management, based on a
number of factors, including:
> projected cash flow;
> a current survey of a selected group of competitors' rates for similar
products;
> external data which may influence interest rates;
> investment opportunities and loan demand; and
> scheduled certificate maturities and loan and investment repayments.
Because of the large percentage of certificate accounts in the deposit portfolio
(70.9% at September 30, 2001), the Company's 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
the Company after they mature and the Company believes that current renewal
patterns will continue. However, the need to retain these accounts could result
in an increase in the Company's cost of funds.
The following table shows the amount (in thousands) of the Company's certificate
accounts of $100,000 or more by time remaining until maturity as of September
30, 2001.
Maturity Period Certificate Accounts
--------------- --------------------
Within three months................ $ 9,218
Three through six months........... 11,342
Six through twelve months.......... 25,454
Over twelve months................. 39,673
-------
Total $85,687
=======
16
Borrowings. Deposits are the primary source of funds of the Company's lending
and investment activities and for general business purposes. The Company, as the
need arises or in order to take advantage of funding opportunities, may borrow
funds in the form of advances from the FHLB to supplement its supply of lendable
funds and to meet deposit withdrawal requirements. Advances from the FHLB are
typically secured by stock in the FHLB and a portion of the Company's
residential mortgage loans and may be secured by other assets, principally
securities that are obligations of or guaranteed by the U.S. Government. The
Company typically has funded loan demand and investment opportunities out of
current loan and mortgage-backed securities repayments, securities maturities
and new deposits. However, in recent years the Company has utilized FHLB
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.
For the Year Ended September 30,
--------------------------------
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Maximum amount of borrowings outstanding
at any month end:
Advances from FHLB...................... $151,250 $158,000 $87,600
Approximate average borrowings outstanding
with respect to:
Advances from FHLB...................... $140,120 $128,523 $49,510
Approximate weighted average rate paid on:
Advances from FHLB...................... 5.74% 5.93% 4.82%
See Note 7 to the consolidated financial statements for additional information.
Personnel
As of September 30, 2001 the Company had 176 full-time employees and 11
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
17
Regulation
Set forth below is a brief description of certain laws relating to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of the Company
General. The Company is registered as a savings and loan holding company with
the OTS. The Company will be required to file reports with the OTS and will be
subject to supervision and periodic examination by the OTS. In addition, the OTS
will have enforcement authority over the Company and any non-savings institution
subsidiaries. The OTS can restrict or prohibit activities that it determines to
be a serious risk to the Company. OTS regulations are intended primarily for the
protection of the depositors and not for the benefit of the Company's
stockholders.
As a unitary savings and loan holding company, the Company generally is not
subject to any restrictions on its business activities. While the
Gramm-Leach-Bliley Act (the "GLB Act"), enacted in November 1999, terminated the
"unitary thrift holding company" exemption from activity restrictions on a
prospective basis, the Company enjoys grandfathered status under this provision
of the GLB Act because it acquired the Bank prior to May 4, 1999. As a result,
the Company's freedom from activity restrictions as a unitary savings and loan
holding company was not affected by the GLB Act. However, if the Company were to
acquire control of an additional savings association, its business activities
would be subject to restriction under the Home Owners' Loan Act. Furthermore, if
the Company were in the future to sell control of the Bank to any other company,
such company would not succeed to the Company's grandfathered status under the
GLB Act and would be subject to the same activity restrictions. The continuation
of the Company's exemption from restrictions on business activities as a unitary
savings and loan holding company is also subject to the Company's continued
compliance with the Qualified Thrift Lender ("QTL") test. See "- Regulation of
the Bank - Qualified Thrift Lender Test."
Regulation of the Bank
General. As a federally chartered, insured savings association of the Savings
Association Insurance Fund ("SAIF"), the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). Lending
activities and other investments must comply with federal statutory and
regulatory requirements. The 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 SAIF and depositors. This
regulatory structure gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies regarding the classification of assets and the
establishment of an adequate allowance for loan losses.
The OTS regularly examines the Bank and prepares reports to Bank's board of
directors on deficiencies, if any, found in its operations. The 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 the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC 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 OTS, the FDIC or the United States Congress, could
have a material adverse impact on the Bank or the Company, and their operations.
18
Insurance of Deposit Accounts. The FDIC administers two separate deposit
insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the deposits
of commercial banks and the SAIF insures the deposits of savings institutions.
The FDIC is authorized to increase deposit insurance premiums if it determines
such increases are appropriate to maintain the reserves of either the SAIF or
the BIF or to fund the administration of the FDIC. In addition, the FDIC is
authorized to levy emergency special assessments on BIF and SAIF members. The
FDIC has set the deposit insurance assessment rates for SAIF member institutions
for the first six months of 2001 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 FDIC are required to pay
assessments 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
SAIF. These assessments will continue until the Financing Corporation bonds
mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards:
> tangible capital equal to 1.5% of total adjusted assets;
> "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
> risk-based capital equal to 8% of total risk-weighted assets.
The Bank's capital ratios are set forth in Note 10 to the consolidated financial
statements.
For purposes of the OTS 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 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.
19
A savings institution's risk-based capital requirement is measured against
risk-weighted assets, which equal the sum of each on-balance-sheet asset 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.
OTS rules require a deduction from capital for savings institutions with certain
levels of interest rate risk. The OTS calculates the sensitivity of an
institution's NPV based on data submitted by the institution in a schedule to
its quarterly Thrift Financial Report ("TFR") and using the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, deducted from an institution's total capital is based on the
institution's TFR filed two quarters earlier. The OTS has indefinitely postponed
implementation of the interest rate risk component, and the 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 OTS 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 the Bank, must file an application or a notice with the OTS at
least 30 days before making a capital distribution. A savings institution must
file an application for prior approval of a capital distribution if:
> it is not eligible for expedited treatment under the applications
processing rules of the OTS;
> 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;
> it would not adequately be capitalized after the capital distribution; or
> the distribution would violate an agreement with the OTS or applicable
regulation.
The Bank will be required to file a capital distribution notice or application
with the OTS before paying any dividend to the Company. However, capital
distributions by the Company, as a savings and loan holding company, will not be
subject to the OTS capital distribution rules. The OTS may disapprove a notice
or deny an application for a capital distribution by the Bank if:
> the savings institution would be undercapitalized following the capital
distribution;
> the proposed capital distribution raises safety and soundness concerns; or
> 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.
20
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:
> 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
> 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. The Bank met the
qualified thrift lender test as of September 30, 2001 and in each of the
last 12 months and, therefore, qualifies as a qualified thrift lender.
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 September 30, 2001, the Bank's legal lending limit to one borrower was
$10.4 million.
FHLB System. The Bank is a member of the FHLB of Atlanta, which is one of 12
regional FHLBs. Each FHLB 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 FHLB system. It makes loans to members pursuant to policies
and procedures established by the board of directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB 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 FHLB advances. The Bank is in compliance
with this requirement. The FHLB imposes various limitations on advances such as
limiting the amount of certain types of real estate related collateral generally
to 30% of a member's capital and limiting total advances to a member.
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 OTS liquidity requirements. At
September 30, 2001 the Bank was in compliance with these requirements.
Item 2. Description of Property
- --------------------------------
The Registrant's corporate office is located at 205 East Orange Street in
Lakeland, Florida and conducts its business through eleven 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.
21
Year facility
opened or Leased or Net book value at
Building/Office Location acquired Owned September 30, 2001
------------------------ -------- ----- ------------------
Downtown/Corporate Headquarters 1957 Owned $2,358
Branch Offices:
Grove Park 1961 Owned 304
Highlands 1972 Owned 499
Interstate 1985 Owned 465
Town and Country 2000 Leased (3) 277
Lakewood Ranch 2001 Owned 2,246
Winter Haven North 1978 Owned 485
Winter Haven South 1995 Owned 839
West Bradenton 1989 Owned 742
Cortez (Bradenton) 1972 Leased (1) 92
Scott Lake 1997 Owned 557
Operations Center 1964 Owned 268
Residential Lending Office 1999 Leased (2) 24
Land 1,199
Other projects in progress 589
- ----------------
(1) Five-year lease that terminates December 31, 2003, but has two three-year
renewal options.
(2) Annual renewable lease.
(3) Ten year lease with two five year options.
As of September 30, 2001, the net book value of land, buildings, furniture and
equipment owned by us, less accumulated depreciation, totaled $10.9 million. In
addition, on December 6, 2001 the Bank entered into an agreement to purchase the
deposits and seven branch facilities from another financial institution. The net
book value of the purchased facilities and related equipment approximates $2.5
million.
Item 3. Legal Proceedings
- --------------------------
From time to time the Company and the Bank are involved as plaintiff or
defendant in various legal actions arising in the normal course of business.
Presently, neither the Company nor the Bank is a party to any material pending
legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
22
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
-------
Page 3 of the 2001 Annual Report to Stockholders ("Annual Report") is herein
incorporated by reference.
Item 6. Selected Financial Data
- --------------------------------
Pages 4 and 5 of the Annual Report are herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Pages 6 through 16 of the Annual Report are herein incorporated by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Pages 7 through 8 of the Annual Report are herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Pages 18 through 42 of the Annual Report are herein incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
Information regarding the change in accountants is incorporated herein to the
Form 8-K dated May 22, 2001 and filed on May 29, 2001.
23
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information concerning Directors and Executive Officers of the Registrant is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders scheduled to be held on January 29, 2002
("Proxy Statement").
Item 11. Executive Compensation
- --------------------------------
Information concerning executive compensation is incorporated herein by
reference from the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the Section captioned "Principal Holders" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the sections captioned "Principal Holders" and "Proposal I --
Election of Directors" of the Proxy Statement.
(c) Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference to the
section captioned "Certain Relationships and Related Transactions" of the Proxy
Statement.
24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) (1) Financial Statements:
The consolidated statements of financial condition of the Company and
subsidiary as of September 30, 2001 and 2000 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, 2001, together with the related
notes and the independent auditors' report of Hacker, Johnson & Smith
PA, independent certified public accountants are incorporated by
reference to the Annual Report.
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted, as the information
is not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
Exhibit
Number Document
------ --------
3(i) Articles of Incorporation of FloridaFirst Bancorp, Inc.*
3(ii) Bylaws of FloridaFirst Bancorp, Inc.*
4 Specimen Stock Certificate of FloridaFirst Bancorp, Inc.*
10.1 Form of Employment Agreement entered into with the named executive officers of
FloridaFirst Bank *
10.2 1999 Stock Option Plan **
10.3 Restricted Stock Plan **
10.4 Supplemental Executive Retirement Plan for the Benefit of Certain Senior Officers*
21 Subsidiaries of Registrant (See Item 1 - Description of the Business)
23 Consent of Accountants
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 initially filed with the Commission on September 5, 2000 (File No.
333-45150).
** Incorporated by reference to the identically numbered exhibits to the Form
10-K filed by FloridaFirst Bancorp on December 29, 1999 (File No. 0-25693).
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by FloridaFirst Bancorp, Inc.
during the period covered by this report.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORIDAFIRST BANCORP, INC.
Date: December 21, 2001 By: /s/Gregory C. Wilkes
-------------------------------------
Gregory C. Wilkes
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on December 21, 2001, by the following persons on behalf
of the Registrant and in the capacities indicated.
/s/Gregory C. Wilkes /s/Kerry P. Charlet
- ------------------------------------- --------------------------------------------
Gregory C. Wilkes Kerry P. Charlet
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/Nis H. Nissen, III /s/Stephen A. Moore, Jr.
- ------------------------------------- --------------------------------------------
Nis H. Nissen, III Stephen A. Moore, Jr.
Chairman of the Board Director
/s/Llewellyn N. Belcourt /s/Arthur J. Rowbotham
- ------------------------------------- --------------------------------------------
Llewellyn N. Belcourt Arthur J. Rowbotham
Director Director
/s/J. Larry Durrence /s/G. F. Zimmermann, III
- ------------------------------------- --------------------------------------------
J. Larry Durrence G. F. Zimmermann, III
Director Director
26