EXHIBIT 13
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Table of Contents
Page
Message to Stockholders.................................................................1
Corporate Profile.......................................................................3
Selected Financial Highlights...........................................................4
Management's Discussion of Financial Condition and Results of Operations................6
Year 2000 Readiness Disclosure.........................................................15
Consolidated Financial Statements......................................................19
Notes to Consolidated Financial Statements.............................................24
Independent Auditors' Report...........................................................45
Directors and Officers.................................................................46
Company Offices and Corporate Information...............................Inside back cover
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MESSAGE TO STOCKHOLDERS
It is a distinct honor to greet our fellow stockholders and present our first
annual report for FloridaFirst Bancorp. FloridaFirst is the holding company for
FloridaFirst Bank. Although the name may be new in financial services in central
Florida, FloridaFirst Bank has been an important part of the banking scene in
Polk and Manatee Counties for over 65 years. Under the banner of FloridaFirst
Bank, we will carry out our goal of transitioning to a full service banking
business. Our markets along the Interstate 4 corridor between Orlando and Tampa,
and on the Gulf Coast in Bradenton, are growing rapidly. Not only do we plan to
serve these markets more effectively by offering a full line of loan and deposit
services to our traditional construction and mortgage customers, but also to
aggressively expand our growing account relationships with individual consumers
and small businesses. Our efforts in this direction thus far have been
rewarding.
Financial Overview
I am pleased to report that FloridaFirst Bancorp achieved its highest level of
earnings during our fiscal year ended September 30, 1999. Net income for 1999
was $3,257,000, up 37% from $2,385,000 in fiscal year 1998. The increase in
earnings was due primarily to growth in total assets of 20%, from $414 million
at the beginning of the year to $498 million at September 30, 1999. Net loans
grew over 17% from $339 million at the beginning of the year to $398 million at
year-end. Loan originations for the 1999 fiscal year totaled $158 million across
all our lines of business mortgage, consumer, and commercial.
We are also proud that, while we had another great year in loan growth, our
asset quality remains outstanding. Nonperforming loans, real estate owned
properties and other repossessed assets were just over $1 million at September
30, 1999, or just .21% of total assets, well below industry average.
Strategic Initiatives
Transitioning to a full service banking business strategy requires new
technological capacity. Our goal, consistent with the underlying motive for our
conversion and public offering in April 1999, is to invest in training and
technological enhancements to improve efficiency at every level of the
organization. We have worked with various consultants during the past few years
to identify areas where improvements are needed and to focus on appropriate
solutions.
In an effort to increase our market presence and provide the proper service to
our customers, we are developing plans to build three new full service branch
facilities in the year 2000:
>> North Lakeland - north of Interstate 4 where we currently do not have a
physical presence
>> Southeastern Winter Haven - in the rapidly developing area around Cypress
Gardens, and
>> Lakewood Ranch - in the highly attractive area of Lakewood Ranch just east
of Interstate 75 in Bradenton
All three facilities represent extensions of existing markets where our
reputation is already established.
Management Team
While attracting good people has and will continue to be a major business
challenge, the new Senior Management group that has been assembled at
FloridaFirst Bank is an outstanding group with the skills to effect the changes
necessary to accomplish our goals. Their collective vision and talents will
enable the group to lead our employees through the changes required in pursuing
a different business strategy.
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Share Repurchase Program
FloridaFirst Bancorp is currently in the process of repurchasing up to 15% of
its outstanding stock for which approval was obtained from the Office of Thrift
Supervision on October 18, 1999. Continued market fluctuations and weakness in
financial institutions stocks has created an opportunity to execute this
repurchase plan, thus far, at levels that are accretive to both earnings and
book value per share. We are actively managing our capital with the focus on
improving the company's return on average stockholders' equity.
Supporting Stockholders
Recognizing that investing in financial institution stocks is subject to some
uncertainty, the FloridaFirst directors and management are fully committed to
supporting the strategic initiatives which are necessary to build value in our
company and take advantage of the opportunities that present themselves in our
marketplace. We believe that, over the long term, stockholders will benefit from
the plans we have developed and are currently implementing.
The 21st Century
As we move into year 2000, we will have many new events to report. Significant
among these is the retirement of current Chairman of the Board, Charles W.
Bovay, and the recent election of the new Chairman, Nis H. Nissen, III.
Chuck Bovay, during his four years as Chairman, has presided over the mapping of
a new future for FloridaFirst. His dedicated leadership and focused loyalty to
the best interest of our company will continue to be major cornerstones of our
success for years to come.
Sincerely,
/s/Gregory C. Wilkes
Gregory C. Wilkes
President and Chief Executive Officer
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FLORIDAFIRST BANCORP
Corporate Profile
FloridaFirst Bancorp is the parent company of and conducts most of its business
operations through FloridaFirst Bank (the "Bank"). The Bank, a federally
chartered savings bank headquartered in Lakeland, Florida, is a
community-oriented retail savings bank offering a full range of deposit services
to both consumers and commercial entities. The Bank's lending activities include
residential real estate mortgage loans, commercial real estate loans, other
commercial loans and consumer loans. The Bank has operated within its market
areas since 1934 and delivers its products and services through nine offices
located in Florida's Polk and Manatee Counties.
Mutual Holding Company Reorganization
On April 6, 1999, the Bank completed its mutual to stock conversion including
the formation of mutual and stock holding companies ("Reorganization"). In
conjunction with the Reorganization, FloridaFirst Bancorp, a federally chartered
corporation, issued a total of 5,752,875 shares of its common stock - 2,703,851
shares (47% of the total shares) were sold in a subscription offering to the
Bank's depositors at $10.00 per share, and the remaining 3,049,024 shares (53%
of the total shares) were issued to FloridaFirst Bancorp MHC, a mutual holding
company. Upon completion of these transactions, the Bank became the wholly owned
subsidiary of FloridaFirst Bancorp (the "Bancorp").
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, leaving net proceeds of the offering of $25.7 million.
Stock Market Information and Dividends
Since its issuance on April 6, 1999, the Bancorp's common stock has traded on
the Nasdaq National Market under the symbol FFBK. The following table sets forth
market price information, based on closing prices, as reported by the Nasdaq
National Market for the common stock high and low sales prices for the periods
indicated. See Note 17 of the consolidated financial statements for a summary of
quarterly financial data.
Quarter Ended: High Low
-------------- ---- ---
June 30, 1999 $ 9.50 $ 7.88
September 30, 1999 $ 9.50 $ 8.38
The Company declared a $ .04 per share dividend during the quarter ended
September 30, 1999. In accordance with current OTS policy, FloridaFirst Bancorp
MHC waived the receipt of dividends on its 3,049,024 shares for the cash
dividend declared. There can be no assurance that the OTS will permit future
waivers. As of December 15, 1999, the Company had 1,015 holders of record of
common stock.
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Selected Financial Highlights
(In thousands except per share data)
At September 30:
1999 (1) 1998 (2) 1997 1996 (3) 1995
------------- ------------- ------------- ------------- -------------
Assets................................... $ 498,358 $ 414,472 $ 466,765 $ 440,294 $ 431,414
Loans receivable, net.................... 397,910 338,610 355,551 321,327 260,675
Investment securities.................... 80,876 60,961 74,573 99,841 138,234
Cash and cash equivalents................ 2,598 647 21,842 3,885 18,222
Deposits................................. 339,224 352,180 429,714 404,184 397,594
FHLB advances and other borrowings....... 92,472 21,000 -- -- --
Stockholders' equity..................... 61,337 36,107 33,588 30,569 30,774
Actual number (not in thousands):
Real estate loans outstanding............ 4,696 4,433 5,149 5,461 5,187
Deposit accounts......................... 36,856 38,409 46,012 43,002 40,083
Full service offices..................... 9 9 14 13 14
------------- ------------- ------------- ------------- -------------
For the year ended September 30:
Interest income............. $ 32,648 $ 32,141 $ 33,865 $ 31,694 $ 29,820
Interest expense............ 17,128 18,966 19,702 18,961 17,689
-------- ------- ------- -------- -------
Net interest income......... 15,520 13,175 14,163 12,733 12,131
Provision for loan losses... 540 405 317 600 75
-------- ------- ------- -------- -------
Net interest income after provision
for loan losses........... 14,980 12,770 13,846 12,133 12,056
Other income................ 1,473 4,347 1,189 1,546 1,064
Other expenses.............. 11,448 13,581 11,209 13,382 10,081
-------- ------- ------- -------- -------
Income before income taxes.. 5,005 3,536 3,826 297 3,039
Income taxes................ 1,748 1,151 1,299 44 1,057
-------- ------- ------- -------- -------
Net income.................. $ 3,257 $ 2,385 $ 2,527 $ 253 $ 1,982
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Basic earnings per share (4) $ .34 -- -- -- --
=====
Weighted shares outstanding (4) 5,549 -- -- -- --
=====
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(1) Includes $25.7 million in net proceeds from the Reorganization. Prior
to April 6, 1999, the 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 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 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.
(4) 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.)
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Selected Financial Ratios
At or For the Year Ended September 30,
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1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Performance Ratios:
Return on average assets (net income
Divided by average total assets)........... .72% .55% .56% .06% .48%
Return on average equity (net income
Divided by average equity)................. 6.65 6.55 7.71 .79 6.58
Net interest rate spread....................... 2.91 2.65 2.87 2.68 2.38
Net interest margin on average
Interest-earnings assets................... 3.53 3.10 3.23 3.03 2.99
Average interest-earning assets to
Average interest-bearing liabilities....... 116 110 108 108 107
Efficiency ratio (noninterest expense,
Other than the $2.5 million SAIF
special assessment in 1997, divided
by the sum of net interest income and
noninterest income)........................ 67 78 74 76 76
Asset Quality Ratios:
Non-performing loans to total loans, net....... .21 .25 .65 .37 .46
Non-performing assets to total assets.......... .21 .32 .53 .28 .36
Net charge-offs to average loans
Outstanding...............................
.04 .14 .02 .04 .03
Allowance for loan losses to total loans....... .74 .76 .74 .74 .73
Capital Ratios:
Average equity to average assets
(average equity divided by average
total assets)............................ 10.84 8.31 7.25 7.41 7.22
Equity to assets at period end................. 12.31 8.62 7.20 6.94 7.13
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Management's discussion and analysis of FloridaFirst Bancorp and its
subsidiary's, FloridaFirst Bank, (hereinafter referred to as the "Company")
financial condition and results of operations is intended as assistance in
understanding the Company's financial condition and results of operations. The
information in this section should be read with the consolidated financial
statements and the notes to consolidated financial statements beginning at page
19.
The Company's results of operations depend primarily on its net interest income.
Net interest income is a function of loans and investments outstanding in any
one period, the interest yield earned on such loans and investments and the
interest paid on deposits and borrowed funds that were outstanding during that
same period. Company's noninterest income consists primarily of fees and service
charges. The results of operations are significantly impacted by the provision
for loan losses which, in turn, depend on, among other things, the size and
makeup of the loan portfolio, loan quality and trends. The noninterest expenses
consist primarily of employee compensation and benefits, occupancy and equipment
expenses, marketing and other general and administrative costs. The Company'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
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders. Statements made in such documents, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such forward-looking statements are made based
upon management's belief as well as assumptions made by, and information
currently available to, management pursuant to "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from the results anticipated in forward-looking statements
due to a variety of factors, including governmental monetary and fiscal
policies, deposit levels, loan demand, loan collateral values, securities
portfolio values, and interest rate risk management; the effects of competition
in the banking business from other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating through the Internet; changes in
governmental regulation relating to the banking industry, including regulations
relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for losses, including the value of collateral
underlying delinquent loans, and other factors. The Company cautions that such
factors are not exclusive. The Company does not undertake to update any
forward-looking statements that may be made from time to time by, or on behalf
of, the Company.
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of the Company's assets and
liabilities are sensitive to changes in interest rates, the Company's most
significant form of market risk is interest rate risk, or changes in interest
rates. The Company, is vulnerable to an increase in interest rates to the extent
that interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. The lending activities of the Company 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.
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The Board of Directors has established an asset/liability committee that
consists of the Company'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 assets and liability management issues.
To reduce the effect of interest rate changes on net interest income the Company
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: (a) the Company seeks to originate commercial and
consumer loans with adjustable rate features or fixed rate loans with short
maturities; (b) the Company seeks to lengthen the maturities of liabilities when
deemed cost effective through the pricing and promotion of certificates of
deposit and utilization of FHLB advances; (c) the Company seeks to attract low
cost checking and transaction accounts which tend to be less sensitive to rising
rates; and (d) the Company seeks, when market conditions permit, to originate
and hold in its portfolio adjustable rate mortgage loans which have annual
interest rate adjustments. The Company also maintains an investment portfolio
that provides a stable cash flow, thereby providing investable funds in varying
interest rate cycles.
The Company has also made a significant effort to maintain its level of lower
cost deposits as a method of enhancing profitability. At September 30, 1999, the
Company had 28.7% of its deposits in passbook, 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 the Company to offset the impact of rising rates in
other deposit accounts.
Quantitative Analysis. Exposure to interest rate risk is actively monitored by
management. The Company's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Company uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in net portfolio value. Reports generated from assumptions
provided and modified by management are reviewed by the Asset/Liability
Management Committee and reported to the Board of Directors quarterly. The
Interest Rate Sensitivity of Net Portfolio Value Report shows the degree to
which balance sheet line items and net portfolio value are potentially affected
by a 100 to 300 basis point (1 basis point equals 1/100th of a percentage point)
upward and downward parallel shift (shock) in the Treasury yield curve.
The following table presents the Company's NPV as of September 30, 1999. The NPV
was calculated by the OTS, based on information provided by the Company.
Net Portfolio Value ("NPV") NPV as % of Present Value of Assets
--------------------------- -----------------------------------
Change Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
+300 bp 30.990 -24.793 -44% 6.60% -448 bp
+200 bp 39.819 -15,963 -29% 8.27% -280 bp
+100 bp 48,295 -7,488 -13% 9.80% -128 bp
0 bp 55,783 11.08%
-100 bp 60,711 +4,929 +9% 11.86% +79 bp
-200 bp 63,530 +7,747 +14% 12.26% +119 bp
-300 bp 66,207 +10,424 +19% 12.63% +155 bp
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Future interest rates and their effects on NPV and net interest income are not
predictable. Nevertheless, the Company's management does not believe its NPV or
net interest income will suffer material adverse effects in the near future as a
result of current trends in interest rates. 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.
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 $26.0 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 FHLB advances; a $4.9 million increase in other borrowings; and a $13.0
million net outflow in deposits. The increase in the FHLB advances and other
borrowings utilized to fund the loan and investment growth was attributable to:
>> the Company's decision to not offer premium pricing on deposits to
customers without other banking relationships, and
>> disintermediation of customer funds due to alternative investment
opportunities
>> 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 Company's 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.
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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.
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.
In addition to the $3.9 million in cash provided by operations, other
significant sources (uses) of cash in 1999 were as follows (amounts in millions
of dollars):
Cash provided by operations $ 3.9
FHLB advances and other borrowings 71.5
Decrease in net deposits (13.0)
Sales, maturities and repayments on investment securities 30.1
Purchases of investment securities (52.4)
Net increase in loans (59.8)
Funds from issuance of common stock 23.5
Other, net (1.8)
------
Net increase in cash $ 2.0
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The Company 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 the Company'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, the Company's earnings have depended primarily on its net interest
income, which is the difference between interest income earned on loans and
investments ("interest-earning assets") and interest paid on deposits and any
borrowed funds ("interest-bearing liabilities"). Net interest income is affected
by (a) the difference between rates of interest earned on the Company's
interest-earning assets and rates paid on its interest-bearing liabilities
("interest rate spread") and (b) the aggregate amounts of its interest-earnings
assets and interest-bearing liabilities.
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Average Balance Sheet. The following table sets forth certain information
relating to the Company for the periods indicated. The average yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Similar information is
provided as of September 30, 1999. Average balances 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.
Year ended September 30,
----------------------------------------------------------------------------
September 30, 1999 1999 1998 1997
------------------ -------------------------- ------------------------ -----------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Loans receivable (1) $ 400,851 7.56% $368,513 $28,482 7.73% $339,218 $ 27,241 8.03% $339,992 $ 27,730 8.16%
Investment securities and other (2) 85,481 6.66 71,557 4,166 5.82 85,594 4,900 5.72 98,836 6,135 6.21
--------- -------- ------- -------- -------- -------- --------
Total interest-earning assets 486,332 7.39 440,070 32,648 7.42 424,812 32,141 7.57 438,828 33,865 7.72
------ ------ ------
Noninterest-earning assets 12,026 11,606 12,557 13,640
--------- -------- -------- --------
Total assets $ 498,358 $451,676 $437,369 $452,468
========= ======== ======== ========
Interest-bearing liabilities:
Checking accounts $ 27,098 1.77 $ 27,193 486 1.79 $ 25,177 469 1.86 $ 24,343 607 2.49
Savings accounts 32,826 1.67 36,469 612 1.68 41,456 859 2.07 48,155 1,204 2.50
Money market accounts 23,997 3.87 20,740 796 3.84 15,356 582 3.79 11,767 351 2.98
Certificates of deposit 241,818 5.12 245,915 12,833 5.22 301,093 16,921 5.62 321,938 17,540 5.45
FHLB advances and other borrowings 92,472 5.22 49,884 2,401 4.81 2,647 135 5.10 -- -- --
--------- -------- ------- -------- ------- -------- ------
Total interest-bearing liabilities 418,211 4.58 380,201 17,128 4.50 385,729 18,966 4.92 406,203 19,702 4.85
Noninterest-bearing liabilities (3) 18,810 22,491 ------- 15,246 ------- 13,478 ------
--------- -------- -------- --------
Total liabilities 437,021 402,692 400,975 419,681
Stockholders' equity 61,337 48,984 36,394 32,787
--------- -------- -------- --------
Total liabilities and stockholders $ 498,358 $451,676 $437,369 $452,468
========= ======== ======== ========
Net interest income $15,520 $ 13,175 $ 14,163
======= ======== ========
Interest rate spread (4) 2.81% 2.92% 2.65% 2.87%
== ==== ==== ==== ====
Net margin on interest-earning assets (5) 3.45% 3.53% 3.10% 3.23%
== ==== ==== ==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 116% 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 and FHLB stock.
(3) Includes noninterest-bearing checking accounts.
(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.
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Rate/Volume Analysis. The relationship between the volume and rates of the
Company's interest-earning assets and interest-bearing liabilities affects the
Company's net interest income. The following table reflects the sensitivity of
the Company'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.
Year Ended September 30, Year Ended September 30,
------------------------------- ---------------------------------
1999 vs. 1998 1998 vs. 1997
------------------------------- ---------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------- ---------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars in thousands)
Interest income:
Loans receivable .............. $ 2,196 $ (955) $ 1,241 $ (75) $ (414) $ (489)
Investment securities and other (819) 85 (734) (739) (496) (1,235)
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 1,377 $ (870) $ 507 $ (814) $ (910) $(1,724)
======= ======= ======= ======= ======= =======
Interest expense:
Checking accounts .............. $ 34 $ (17) $ 17 $ 24 $ (162) $ (138)
Savings accounts ............... (96) (151) (247) (156) (189) (345)
Money market accounts .......... 207 7 214 122 109 231
Certificates of deposit ........ (2,941) (1,147) (4,088) (1,156) 537 (619)
Other liabilities ............. 2,273 (7) 2,266 135 -- 135
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ............ $ (523) $(1,315) $(1,838) $(1,031) $ 295 $ (736)
======= ======= ======= ======= ======= =======
Change in net interest income .. $ 1,900 $ 445 $ 2,345 $ 217 $(1,205) $ (988)
======= ======= ======= ======= ======= =======
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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 September 30, 1998.
>> 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.
>> 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 (hereinafter referred as "Branch Sale"), as further
discussed in the notes to consolidated financial statements.
>> 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 (hereinafter
referred to as "Benefit Adjustments"), 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,
1999. 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 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.
12
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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 millionfor 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
to interest-bearing liabilities reflects market rates as well as the replacement
of higher cost certificates of deposit with FHLB 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.
The Company began using FHLB advances in June 1998 to control its cost of funds
and lengthen the maturity of its liabilities. The Company manages the maturity
(or conversion dates for certain convertible advances) of its advances based on
the assets being funded and based on projections of interest rate trends. The
Company has used the FHLB 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 a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Company, industry standards, the level and status of
past due and non-performing loans, the general economic conditions in the
Company's lending area and other factors affecting the collectibility of the
loans in the Company's 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. The Company 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 the comparison of operating
results of 1998 to 1997 for a discussion of the 1998 charge-offs.
The Company monitors its loan portfolio on a continuing basis and intends to
continue to provide for loan losses based on its ongoing review of the loan
portfolio and general market conditions.
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.
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 Benefit Adjustments. 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. Occupancy and equipment costs increased due to
costs associated with the installation and operation of automated teller
machines at all branch locations in 1999.
13
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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.
>> 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.
>> 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.
>> 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 Benefit Adjustments.
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 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 the Company 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.
The Company began using FHLB advances in June 1998 to control its cost of funds
and lengthen the maturity of its liabilities.
14
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Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Company, industry standards, the level and status of
past due and non-performing loans, the general economic conditions in the
Company's lending area and other factors affecting the collectibility of the
loans in the Company's 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 the Company's 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. 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. The
Company 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:
>> 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
>> Foreclosure on loans made to a local builder for the construction of single
family houses resulted in a $64,000 charge-off.
The Company monitors its loan portfolio on a continuing basis and intends to
continue to provide for loan losses based on its ongoing review of the loan
portfolio and general market conditions.
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.
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. 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.
Year 2000 Readiness Disclosure
Rapid and accurate data processing is essential to the Company's operations.
Many computer programs that can only distinguish the final two digits of the
year entered (a common programming practice in prior years) are expected to read
entries for the year 2000 as the year 1900 or as zero and incorrectly attempt to
compute payment, interest, delinquency and other data.
The following discussion of the implications of the Year 2000 problem for the
Company, contains numerous forward looking statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete the internal year 2000 modifications are based on management's
best estimates, which are derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these statements will be achieved and actual results could differ.
Moreover, although management believes it will be able to make the necessary
modifications in advance, there can be no guarantee that failure to modify the
systems would not have a material adverse effect on the Company.
15
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Year 2000 issues expose the Company to a number of risks, any one of which, if
realized, could have a material adverse effect of the Company's business,
results of operations or financial condition. These risks include the
possibility that, to the extent certain vendors fail to adequately address Year
2000 issues, the Company may suffer disruptions in important services on which
the Company depends, such as telecommunications, electrical power, and data
processing. Year 2000 issues could affect the Company's liquidity if customer
withdrawals in anticipation of the Year 2000 are greater than expected or if the
Company's lenders are unable to provide the Company with funds when and as
needed by the Company. Year 2000 issues also create additional credit risk to
the Company insofar as the failure of the Company's customers and the
counterparties to adequately address Year 2000 issues could increase the
likelihood that these customers and counterparties become delinquent or default
on the obligations to the Company. In addition to increasing the Company's risk
exposure to problem loans, credit losses and liquidity problems, Year 2000
issues expose the Company to increased risk of litigation losses and expenses
relating to the foregoing. There are other Year 2000 risks besides those
described above that may impact the Company's business, results of operations
and financial condition.
The Company places a high degree of reliance on computer systems of third
parties, such as customers, suppliers, and other financial and governmental
institutions. Although the Company has assessed the readiness of these third
parties and has prepared contingency plans, there can be no guarantee that the
failure of these third parties to maintain their systems, as modified, in
advance of December 31, 1999 would not have a material adverse affect on the
Company.
The Company's Year 2000 Plan (the "Plan") was presented to the Board of
Directors in September 1997. The Plan was developed using the guidelines
outlined in the Federal Financial Institutions Examination Council's "The Effect
of Year 2000 on Computer Systems." The Year 2000 Committee is responsible for
the Plan with the Board of Directors receiving Year 2000 progress reports on a
quarterly basis. Our primary operating systems are provided by a third party
service bureau ("External Provider"). The Company has performed significant
testing of the software utilized by the External Provider with successful
results. The External Provider has represented that the software currently being
utilized for the Company's current operations is Year 2000 compliant. The main
hardware and software used to serve our customer base and maintain the customer
transaction histories and company accounting records are currently operating on
Year 2000 compliant systems.
The latest OTS on-site examination was conducted in July 1999, and based on the
examination results, the Company was progressing satisfactorily towards
completing the Plan requirements. The business resumption plan, including plans
for cash and liquidity needs, was approved by the Board on June 29, 1999. Actual
testing of those plans was satisfactorily completed in September and October
1999.
The Company has contacted all other material vendors and suppliers regarding
their Year 2000 readiness. Each of these third parties has delivered written
assurance to the Company that they are or expect to be Year 2000 compliant prior
to the Year 2000. The Company is maintaining contact with all significant
customers and non-information technology suppliers (i.e. utility systems,
telephone systems, etc.), regarding their year 2000 state of readiness. We are
unable to test the Year 2000 readiness of our significant suppliers of
utilities. We are relying on the utility companies' internal testing and
representations to provide the required services that drive our data systems.
Any failure of the utilities to adequately address the Year 2000 issues could
result in the Company being unable to service its customers on a timely basis.
All non-information technology providers have assured us that the Year 2000 will
not be an issue or that the issue will be satisfactorily resolved prior to the
end of 1999. No contracts, written assurances, or oral assurances with the
Company's material vendors, systems providers, and suppliers include any type of
remedy or penalty for breach of contract in the event that any of these parties
are not Year 2000 compliant.
16
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The Company has identified 15 vendors and systems as mission critical and, based
upon testing or assurances from such vendors, 100% of the Company's mission
critical vendors and systems are Year 2000 compliant. Testing has been completed
on all significant vendor applications. Vendors and systems deemed important or
minor (not "mission critical") are services that are performed by outside
vendors. We have received communication from these vendors indicating they are
or will be in compliance for Year 2000 without any disruption in service.
Appropriate testing, as necessary, and related contingency plans were completed
in the third and fourth quarters of 1999.
Software provided by our External Provider is supported by a contractual
agreement that states the software will be Year 2000 compliant prior to January
1, 2000. This software has been thoroughly tested and has been declared by our
External Provider, as compliant. The contracts for our other systems and
services do not contain similar statements since they have longer terms and were
not subject to specific contract negotiation in the past few years.
Major commercial loan customers (loan balances in excess of $500,000) have been
contacted in writing. In addition, the commercial loan relationship managers
conducted a telephone and personal contact program with all these customers to
determine any potential exposure that might be present due to the customer's
failure to prepare adequately for the Year 2000. This contact program was
completed as of June 30, 1999. No unusual or significant risk exposure was
identified. Any new commercial loan applicant is required to answer a brief
series of questions concerning Year 2000 preparedness in the loan approval and
closing process.
As a practical matter, individual mortgage loan, consumer loan and smaller
commercial loan customers were not contacted regarding their Year 2000
readiness. It was deemed to be beyond the scope of our testing parameters to
contact these borrowers. Further, most of these are individuals with adequate
collateral for their loans.
If the Plan fails to significantly address the Year 2000 issues of the Company,
the following, among other things, could negatively affect the Company:
(a) utility service companies may be unable to provide the necessary service to
drive our data systems or provide sufficient sanitary conditions for our
offices;
(b) our primary software provider could have a major malfunction in its system
or their service could be disrupted due to its utility providers, or some
combination of the two; or
(c) the Company may have to transact its business manually.
The Company will attempt to monitor these uncertainties by continuing to request
an update on all critical and important vendors throughout the remainder of
1999. If the Company identifies any concern related to any critical or important
vendor, the contingency plans will be implemented immediately to assure
continued service to the Company's customers.
Costs have and will be incurred to replace certain non-compliant software and
hardware. The Company does not anticipate that direct costs for renovating or
replacing non-compliant hardware and software will exceed $325,000, of which
approximately $250,000 had been expended as of September 30, 1999. No assurance
can be given that the Year 2000 Plan will be completed successfully by the Year
2000, in which event the Company could incur significant costs. If the External
Provider fails to maintain its system in compliant state or incurs other
obstacles prior to Year 2000, the Company would likely experience significant
data processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant negative affect on our earnings.
17
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Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including continued compliance of the External
Provider, testing plans, and all vendors, suppliers and customer readiness.
Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Company, such as customers, public utilities, vendors, payment system providers
and other financial institutions, makes it impossible to assure that a failure
to achieve compliance by one or more of these entities would not have material
adverse impact on the financial condition or operations of the Company.
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 the Company'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.
18
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FLORIDAFIRST BANCORP
CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years Ended
SEPTEMBER 30, 1999
19
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FLORIDAFIRST BANCORP
Consolidated Statements of Financial Condition
(Dollars in thousands, except share data)
September 30,
1999 1998
--------------- ---------------
ASSETS
Cash and cash equivalents $ 2,598 $ 647
Investments available for sale, at fair value 68,152 42,225
Investment securities held to maturity,
market value of $12,479 and $18,524 12,724 18,736
Loans receivable, net of allowance for loan losses
of $2,941 and $2,564 397,910 338,610
Premises and equipment, net 6,818 6,845
Federal Home Loan Bank stock, at cost 4,475 2,864
Accrued interest receivable 2,764 2,398
Other assets 2,917 2,147
=============== ===============
TOTAL ASSETS $498,358 $414,472
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $339,224 $352,180
Federal Home Loan Bank advances 87,600 21,000
Other borrowings 4,872 --
Advance payments by borrowers for taxes and insurance 2,200 1,971
Other liabilities 3,125 3,214
--------------- ---------------
Total liabilities 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 --
Additional paid-in capital 25,124 --
Retained earnings 39,037 35,887
Unallocated shares held by the employee stock ownership plan (2,163) --
Accumulated other comprehensive income (loss) (1,236) 220
--------------- ---------------
Total stockholders' equity 61,337 36,107
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $498,358 $414,472
=============== ===============
See notes to consolidated financial statements.
20
FLORIDAFIRST BANCORP
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
Year ended September 30,
1999 1998 1997
-------------- -------------- ---------------
Interest income:
Interest and fees on loans $ 28,482 $ 27,241 $ 27,730
Interest and dividends on investment securities 3,671 3,906 5,513
Other interest income 495 994 622
-------------- -------------- ---------------
Total interest income 32,648 32,141 33,865
-------------- -------------- ---------------
Interest expense:
Deposits 14,727 18,831 19,702
Federal Home Loan Bank advances and other borrowings 2,401 135 --
-------------- -------------- ---------------
Total interest expense 17,128 18,966 19,702
-------------- -------------- ---------------
Net interest income 15,520 13,175 14,163
Provision for loan losses 540 405 317
-------------- -------------- ---------------
Net interest income after provision for loan losses 14,980 12,770 13,846
-------------- -------------- ---------------
Other income:
Fees and service charges 991 996 1,069
Gain (loss) on sale of loans and investments available for sale (22) 117 114
Gain on sale of branches 165 3,016 --
Other, net 339 218 6
-------------- -------------- ---------------
Total other income 1,473 4,347 1,189
-------------- -------------- ---------------
Other expenses:
Compensation and employee benefits 5,820 5,632 5,552
Other compensation and employee benefits -- 2,085 --
Occupancy and equipment costs 1,881 1,818 1,646
Marketing 534 495 488
Data processing costs 521 558 479
Federal insurance premiums 214 338 456
Other 2,478 2,655 2,588
-------------- -------------- ---------------
Total other expenses 11,448 13,581 11,209
-------------- -------------- ---------------
Income before income taxes 5,005 3,536 3,826
Income taxes 1,748 1,151 1,299
============== ============== ===============
NET INCOME $ 3,257 $ 2,385 $ 2,527
============== ============== ===============
Basic earnings per share (1) $ 0.34 -- --
============== ============== ===============
Weighted average shares outstanding (1) 5,549,185 -- --
============== ============== ===============
(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.
21
FLORIDAFIRST BANCORP
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars in thousands, except per share data)
Additional
other
compre- Unallocated
Additional hensive Compre- shares Total
Common paid-in Retained income hensive held stockholders'
stock capital earnings (loss) income by the ESOP 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
======== ========== ============ ============ ========== ==============
Year ended September 30,
--------------------------------
Disclosure of reclassification amount: 1999 1998 1997
- -------------------------------------- ---- ---- ----
Unrealized gain (loss) on investments available for sale arising during year, net of taxes $ (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 $ (1,456) $ 134 $ 492
========== ======== ==========
See notes to consolidated financial statements.
22
FLORIDAFIRST BANCORP
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year ended September 30,
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income $ 3,257 $ 2,385 $ 2,527
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 540 405 317
Deferred income taxes (benefit) (39) (864) 588
Depreciation 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) (3,016) --
Decrease (increase) in accrued interest receivable (366) 295 (44)
Decrease (increase) in other assets (660) 592 (93)
Decrease (increase) in federal income tax receivable 755 (426) 406
Increase (decrease) in other liabilities (402) 2,118 (2,631)
Increase (decrease) in advance payments by borrowers for taxes and insurance 229 (33) 189
-------- -------- --------
Net cash provided by operating activities 3,930 1,971 1,623
-------- -------- --------
Cash flows from investing activities:
Sale (purchase) of FHLB stock, net (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 24,069 28,930 20,019
Proceeds from maturity and repayments of investment securities held to maturity 6,012 19,000 7,000
Proceeds from sale of assets 520 1,824 313
Net increase in loans (59,782) (30,299) (44,726)
Purchases of premises and equipment (883) (434) (1,862)
Purchases of investments available for sale (52,358) (33,981) (990)
Cash transferred in connection with sale of branches, net -- (10,186) --
-------- -------- --------
Net cash used in investing activities (84,033) (25,146) (9,196)
-------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (12,956) (19,020) 25,530
Net increase in FHLB advances 66,600 21,000 --
Net increase (decrease) in other borrowings 4,874 -- --
Net proceeds received from issuance of common stock 23,536 -- --
-------- -------- --------
Net cash provided by financing activities 82,054 1,980 25,530
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,951 (21,195) 17,957
Cash and cash equivalents at beginning of period 647 21,842 3,885
-------- -------- --------
Cash and cash equivalents at end of period $ 2,598 $ 647 $ 21,842
======== ======== ========
Supplemental disclosure of cash flow information Cash paid during the year for:
Interest $ 15,963 $ 18,971 $ 19,677
======== ======== ========
Taxes $ 1,406 $ 2,557 $ 270
======== ======== ========
Supplemental disclosure of non-cash information:
Additions to investment in real estate acquired through foreclosure $ 76 $ 2,238 $ 456
======== ======== ========
Change in unrealized gain (loss) on investments available for sale,
net of deferred taxes (benefit) of $(852), $79 and $(289), respectively $ (1,456) $ 134 $ 492
======== ======== ========
Dividends declared $ 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.
23
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FLORIDAFIRST BANCORP
Notes to Consolidated Financial Statements
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.
24
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================================================================================
(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 was 17.6% and 16.7% at 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 September 30, 1999 and 1998.
(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.
25
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================================================================================
(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 No. 5, Accounting for
Contingencies (SFAS No. 5). 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 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.
26
================================================================================
================================================================================
(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. 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 $10,000, $144,000 and $22,000 against
operations in fiscal 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 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.
27
================================================================================
================================================================================
(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, 1998, 1997 and 1996, claims paid,
net of amounts received under the reinsurance contract and
premiums received from dependent and COBRA coverage, were
$460,000, $356,000 and $380,000, 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.
(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.
28
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================================================================================
(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.
(2) Investments Available for Sale
The amortized cost and estimated fair values of investments available for
sale are as follows:
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
============== ============ ============= ==============
29
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================================================================================
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 95% of the collateralized mortgage obligations ("CMOs") and
mortgage-backed securities ("MBS") as of September 30, 1999 were issues
of GNMA, FNMA or FHLMC. All CMOs and MBS as of September 30, 1998 were
issues of GNMA, FNMA or FHLMC.
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 during the year
ended September 30, 1999, 1998 and 1997 were $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 $10.9 million and
$1.0 million were pledged as collateral to secure public funds at
September 30, 1999 and 1998, respectively.
30
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================================================================================
(3) Investment Securities Held to Maturity
The amortized cost and estimated fair values of investment securities
held to maturity are as follows:
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
============== ============ ============= ==============
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 September 30,
1999, 1998 and 1997 were 5.57%, 5.80% and 5.94%, respectively. All CMOs
as of 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 $4.0 million and $5.0 million at
September 30, 1999 and 1998, respectively. These bonds pay variable rates
of interest depending on relevant market rates and have an estimated fair
value of approximately $3.9 million and $5.0 million at 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
============== ==============
31
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================================================================================
(4) Loans Receivable, Net
Loans receivable consist of the following:
September 30,
--------------------------------
1999 1998
-------------- -------------
(In thousands)
Loans secured by first mortgages on real estate: Residential 1-4:
Permanent $ 276,115 $ 244,667
Construction 32,974 27,311
Multi-family 5,787 4,464
Commercial real estate 19,783 16,132
Land 9,548 6,796
-------------- -------------
Total first mortgage loans 344,207 299,370
-------------- -------------
Other loans:
Consumer loans 75,044 57,891
Other loans 1,374 1,085
-------------- -------------
Total other loans 76,418 58,976
-------------- -------------
Total loans 420,625 358,346
Net deferred loan origination fees -- (18)
Unearned interest on installment loans -- (141)
Allowance for loan losses (2,941) (2,564)
Loans in process (19,774) (17,013)
-------------- -------------
Loans receivable, net $ 397,910 $ 338,610
============== =============
Weighted average yield on loans at year end 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
===========
Outstanding mortgage loan commitments, generally with terms of 30 days, were
approximately $2.0 million and $2.1 million for fixed rate loans, and $300,000
and $540,000 for variable rate loans at September 30, 1999 and 1998,
respectively. There were no letters of credit outstanding at September 30, 1999
and 1998. Furthermore, the Company was servicing approximately $16.7 million,
$23.3 million and $16.1 million in loans for the benefit of others in 1999, 1998
and 1997, respectively. The
32
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================================================================================
Company holds custodial escrow deposits for these serviced loans totaling
approximately $10,000 and $57,000 at September 30, 1999 and 1998,
respectively. The range of interest rates on the fixed rate loan
commitments 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:
September 30,
-------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Impaired loans at year end $ 830 $ 836 $2,314
Average balance of impaired loans for the year 957 1,697 1,919
Allowance for loan losses for impaired loans 166 167 463
Interest income recognized during the year 72 130 146
(5) Premises and Equipment
Premises and equipment consists of the following:
September 30,
--------------------------------
1999 1998
---------- -----------
(In thousands)
Land $ 1,819 $ 1,887
Buildings and leasehold improvements 6,646 7,054
Furniture, fixtures and equipment 3,691 3,703
---------- -----------
Total 12,156 12,644
Less accumulated depreciation and amortization (5,338) (5,799)
---------- -----------
Premises and equipment, net $ 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.
33
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================================================================================
(6) Deposits
Deposits and weighted average interest rates are as follows:
September 30, 1999 September 30, 1998
------------------------------- -------------------------------
Amount Rate Amount Rate
--------------- ----------- -------------- ------------
(In thousands) (In thousands)
Noninterest-bearing checking $ 13,485 -- $ 10,492 --
Interest-bearing checking 27,098 1.77% 24,456 1.94%
Savings accounts 32,826 1.67% 37,758 1.77%
Money market accounts 23,997 3.87% 18,092 3.99%
Certificate accounts:
4.00% - 4.99% 112,560 31,676
5.00% - 5.99% 79,323 166,610
6.00% - 6.99% 47,903 60,964
7.00% - 7.99% 2,032 2,132
--------------- --------------
Total certificates 241,818 5.12% 261,382 5.52%
--------------- --------------
Total deposits $ 339,224 4.23% $ 352,180 4.63%
=============== ==============
Certificate accounts in amounts of $100,000 or more totaled approximately
$55.8 million and $45.7 million at September 30, 1999 and 1998,
respectively. Deposits in excess of $100,000 are not federally insured.
The Company had certificate accounts totaling $17.2 million under the
State of Florida public deposits program at 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:
Year ended September 30,
--------------------------------------------
1999 1998 1997
----------- ----------- ------------
(In thousands)
Interest on interest-bearing
checking and money market accounts $ 1,257 $ 1,051 $ 958
Interest on savings and certificate accounts 13,550 17,868 18,841
Less early withdrawal penalties
(80) (88) (97)
----------- ----------- ------------
Total interest expense $14,727 $18,831 $ 19,702
=========== =========== ============
Certificate accounts by year of scheduled maturity are as follows:
September 30,
---------------------------------
Fiscal Year 1999 1998
------------- -------------
(In thousands)
1999 -- $ 165,547
2000 $ 163,002 54,045
2001 38,335 11,715
2002 29,572 21,527
2003 and after 10,909 8,548
============= =============
Total $ 241,818 $ 261,382
============= =============
34
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================================================================================
(7) Advances From Federal Home Loan Bank and Other Borrowings
The Company had $87.6 million and $21.0 million in FHLB advances with
weighted average interest rates of 5.18% and 5.12% at September 30, 1999
and 1998, respectively. The advances as of September 30, 1999 include
$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 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 September 30, 1999 the Company's $4.9 million in other borrowings
are short-term borrowings bearing interest at 5.43% per annum. These
borrowings mature on December 8, 1999 and are collateralized by
securities of U. S. government agencies having a fair value of $5.0
million.
(8) 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
============ =========== ===========
35
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================================================================================
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)
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.
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,
---------------------------------------------------------------------
1999 % 1998 % 1997 %
--------- --------- ---------- ---------- ---------- --------
Tax provision at statutory rate $1,702 34% $1,202 34% $1,301 34%
Increase (decrease) in tax
resulting from:
Tax-exempt interest, net of scaleback (70) (1)% (17) (1%) (22) (1%)
State income taxes, net of Federal
income tax benefit 116 2% 65 2% 78 2%
Other, net (99) (2%) (58) (1%)
--------- --------- ---------- ---------- ---------- ---------
Total $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 methods of
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.
36
================================================================================
================================================================================
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.
(9) 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.
(10) 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.
37
================================================================================
================================================================================
The Bank's actual capital amounts and ratios are as follows:
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% $ 4.0% $ 18,353 6.0%
12,236
Tier I capital
(to average assets) $ 49,772 11.1% $ 18,000 4.0% $ 22,500 5.0%
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.
38
================================================================================
================================================================================
(11) 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.
(12) 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
==========
39
================================================================================
================================================================================
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 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 Plans, 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 September 30, 1999, 32,445 shares had been
committed for release and the Company recorded compensation and employee
benefit expense of $285,000 for the year ended September 30, 1999
relating to the ESOP.
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.
(13) 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.
40
================================================================================
================================================================================
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 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.
(14) 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.
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.
41
================================================================================
================================================================================
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
======== ========
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
======== ========
42
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================================================================================
(15) 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 of the
Company.
(16) 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
=======
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
======
43
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================================================================================
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
========
(17) Quarterly Financial Data (Unaudited)
Unaudited quarterly financial data (in thousands except per share data)
is as follows:
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
===== =====
44
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================================================================================
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
45
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Directors and Officers - FloridaFirst Bancorp
Board of Directors Officers
------------------ --------
Charles W. Bovay, Chairman Gregory C. Wilkes
President and Chief Executive Officer
Gregory C. Wilkes
Kerry P. Charlet
Robert H. Artman Chief Financial Officer
Llewellyn N. Belcourt Sonja T. Hughey
Corporate Secretary
Stephen A. Moore, Jr.
Nis H. Nissen, III
Rudy H. Thornberry
G. F. Zimmermann, III
Directors and Officers - FloridaFirst Bank
Gregory C. Wilkes Directors
President and Chief Executive Officer ---------
Same as FloridaFirst Bancorp
Senior Vice Presidents Vice Presidents
---------------------- ---------------
Donald A. Burdett Joyce F. Brock
Retail Banking
Kathleen R. Davis
Kerry P. Charlet
Chief Financial Officer Sharon S. Freeman
William H. Cloyd Kenneth D. Hawthorne
Chief Lending Officer
M. Terry Jameson
Marion L. Moore
Deposit Operations Carolyn G. Keller
Corporate Secretary W. Harlan McCall
-------------------
Sonja T. Hughey LaVerne S. Scott
Mark W. Thompson
46
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Company Offices
Downtown Interstate Highlands
205 East Orange Street 4012 Lakeland Hills Boulevard 4400 South Florida Avenue
Lakeland, Florida 33801 Lakeland, Florida 33809 Lakeland, Florida 33813
(863) 688-6811 (863) 688-6811 (863) 688-6811
Grove Park Scott Lake Winter Haven North
1817 N. Crystal Lake Drive 1011 East County Road 540-A 1483 6th Street NW
Lakeland, Florida 33801 Lakeland, Florida 33813 Winter Haven, Florida 33881
(863) 688-6811 (863) 688-6811 (863) 294-8861
Winter Haven South West Bradenton Cortez Road
448 Cypress Gardens Boulevard 4601 Manatee Avenue West 497 Cortez Road West
Winter Haven, Florida 33880 Bradenton, Florida 34209 Bradenton, Florida 34207
(863) 293-0708 (941) 747-1479 (941) 758-1483
Winter Haven Lending Office Corporate Offices
Olde Towne Square FloridaFirst Bancorp
301 3rd Street NW, Suite 208 205 East Orange Street
Winter Haven, Florida 33880 Lakeland, Florida 33801
(863) 298-8331 (863) 688-6811
Corporate Information
Annual Stockholders' Meeting Transfer Agent and Registrar
FloridaFirst Bancorp's annual stockholders Registrar and Transfer Company
meeting will be held on Friday, January 28, 2000 10 Commerce Drive
at 8:30 a.m. in the Corporate Office located at Cranford, New Jersey 07016
205 East Orange Street, Lakeland, Florida.
Form 10-K Independent Auditors
A copy of FloridaFirst Bancorp's Annual Report KPMG LLP
on Form 10-K, without exhibits, are available 100 North Tampa Street, Suite 2400
without charge by writing: Tampa, Florida 33602
Kerry P. Charlet, CFO
FloridaFirst Bancorp
205 East Orange Street Special Counsel
Lakeland, Florida 33801 Malizia Spidi & Fisch, PC
Suite 700 East
1301 K Street, N.W.
Stock Listing Washington, DC 20005
Shares of FloridaFirst Bancorp's common stock
are traded on Nasdaq National Market system
under the symbol FFBK.
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