1
F.F.O. FINANCIAL GROUP, INC.
Financial Highlights
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
(Dollars in thousands, except per share amounts)
For the Year
Interest Income $ 21,997 $ 19,730 $ 16,882
Interest Expense 12,023 10,111 7,553
Provision (Credit) for Loan Losses 782 477 (1,403)
Noninterest Income 2,387 2,602 2,487
Noninterest Expenses 9,176 9,457 12,545
Net Income 1,600 1,646 440
Net Income per Share of Common Stock $ 0.19 $ 0.20 $ 0.06
At Year End
Total Assets $ 316,949 $ 301,485 $ 253,428
Securities 66,368 90,544 60,757
Loans Receivable (1) 219,467 183,955 163,992
Deposits 286,927 248,936 210,832
Borrowed Funds 7,000 30,000 21,400
Stockholders' Equity 20,280 18,780 16,545
Book Value per Share $ 2.41 $ 2.23 $ 1.96
Shares Outstanding 8,430,000 8,430,000 8,430,000
Certain Ratios
Return on Average Assets 0.54% 0.64% 0.18%
Return on Average Equity 8.18% 9.17% 3.08%
Equity to Assets at Year End 6.40% 6.23% 6.53%
Interest Rate Spread During the Year 3.20% 3.86% 4.24%
Net Interest Margin During the Year 3.44% 3.99% 4.25%
Ratio of Allowance for Loan Losses to Gross Loans (1) 2.38% 2.62% 4.61%
Nonperforming Assets to Total Assets 3.12% 4.00% 8.96%
(1) Includes loans held for sale.
- ------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
President's Message 1
Marketing Profile 2
Selected Consolidated Financial and Other Data 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
Consolidated Financial Statements 16
Independent Auditors' Report 43
Office Locations 44
2
F.F.O. FINANCIAL GROUP, INC.
Selected Consolidated Financial and Other Data
(Dollars in thousands, except per share amounts)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
At Year End
Total assets $ 316,949 $ 301,485 $ 253,428 $ 249,399 $ 308,930
Securities 66,368 90,544 60,757 36,660 22,073
Loans receivable (1) 219,467 183,955 163,992 165,130 231,300
Deposits 286,927 248,936 210,832 211,118 278,463
Borrowed funds 7,000 30,000 21,400 20,000 15,000
Stockholders' equity 20,280 18,780 16,545 14,527 8,718
For the Year
Interest income $ 21,997 $ 19,730 $ 16,882 $ 18,888 $ 25,395
Interest expense 12,023 10,111 7,553 9,033 14,197
--------- --------- --------- --------- ---------
Net interest income 9,974 9,619 9,329 9,855 11,198
Provision (credit) for loan losses 782 477 (1,403) 4,807 7,591
--------- --------- --------- --------- ---------
Net interest income after
provision (credit) for loan losses 9,192 9,142 10,732 5,048 3,607
Noninterest income 2,387 2,602 2,487 3,004 4,166
Noninterest expenses 9,176 9,457 12,545 10,614 13,386
--------- --------- --------- --------- ---------
Income (loss) before
income tax expense (benefit) 2,403 2,287 674 (2,562) (5,613)
Income tax expense (benefit) 803 641 234 (2,844) (1,012)
--------- --------- --------- --------- ---------
Net income (loss) $ 1,600 $ 1,646 $ 440 $ 282 ($ 4,601)
========= ========= ========= ========= =========
Net income (loss) per
share of common stock $ 0.19 $ 0.20 $ 0.06 $ 0.08 ($ 2.11)
========= ========= ========= ========= =========
Other Data
Return on average assets 0.54% 0.64% 0.18% 0.11% (1.36)%
Return on average equity 8.18% 9.17% 3.08% 2.60% (41.00)%
Equity to assets at year end 6.40% 6.23% 6.53% 5.82% 2.82 %
Interest rate spread during the year 3.20% 3.86% 4.24% 4.17% 3.97 %
Net interest margin during the year 3.44% 3.99% 4.25% 4.08% 3.73 %
Ratio of allowance for loan losses
to gross loans (1) 2.38% 2.62% 4.61% 5.31% 2.66 %
Nonperforming assets to total assets 3.12% 4.00% 8.96% 11.51% 17.36 %
Number of full-service offices 11 11 10 10 12
(1) Includes $10.5 million, $22.8 million, $7.9 million, $11.3 million and
$62.7 million in loans held for sale as of December 31, 1996, 1995, 1994,
1993 and 1992, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
INTRODUCTION
F.F.O. FINANCIAL GROUP, INC. F.F.O. Financial Group, Inc. (the "Holding
Company") was incorporated in the State of Florida on June 6, 1988. On October
20, 1988 the Holding Company became the unitary savings and loan holding
company for First Federal Savings and Loan Association of Osceola County (the
"Association") (together, the "Company"). The Holding Company's operations are
limited to ownership of the Association. As of December 31, 1996, the Company
had consolidated assets of $316.9 million, consolidated deposits of $286.9
million, and consolidated stockholders' equity of $20.3 million. The Company's
executive office is located at 2013 Live Oak Boulevard, St. Cloud, Florida
34771, and its telephone number is (407) 892-1200.
THE ASSOCIATION. The Association is a federally chartered savings and
loan association which conducts business from its headquarters and main office
in Kissimmee, Florida and ten branch offices located in Central Florida. The
Association was founded in 1934 as a mutual savings and loan association. On
October 20, 1988, the Association converted to a federally chartered stock
association. The Association's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to applicable limits through the Savings
Association Insurance Fund ("SAIF"). The Association has one wholly-owned
subsidiary, Gulf American Financial Corporation, which is currently inactive.
The principal business of the Association is to attract deposits,
primarily in the form of savings deposits from the general public, and to
invest these funds, together with borrowings and other funds, in loans,
securities and other investments. Loans are primarily made to enable borrowers
to purchase, refinance, construct or improve residential and other real estate
and are secured by mortgages on the real estate. Funds are also provided for
the operations of the Association through proceeds from the sale of loans,
repayment of outstanding loans, proceeds from the sale and maturity of
securities, and borrowings from the Federal Home Loan Bank ("FHLB") of Atlanta.
The Association's operating results depend substantially on (i) net interest
income (the difference between its interest income and interest expense), (ii)
provisions for losses on loans and foreclosed real estate, (iii) noninterest
income, (iv) noninterest expenses and (v) income taxes. Net interest income is
determined primarily by interest rate spread and the relative amounts of
interest-earning assets (primarily loans, securities and other investments) and
interest-bearing liabilities (primarily deposits and borrowings).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are from time deposit inflows, loan
principal repayments, principal repayments and proceeds from sales and
maturities of securities available for sale, proceeds from sales of loans held
for sale, and a net decrease in trading account securities. During 1996, net
time deposit inflows were $42.5 million, loan principal repayments were $42.0
million, principal repayments on securities available for sale were $18.8
million, proceeds from maturities and sales of securities available for sale
were $10.0 million and $26.7 million, respectively, proceeds from sales of
loans held for sale were
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$25.7 million and the net decrease in trading securities was $13.5 million.
Cash was used primarily to fund loan disbursements of $80.3 million, and to
purchase securities available for sale of $47.4 million. At December 31, 1996,
the Company had approved commitments to originate real estate loans of $5.1
million and to fund the undisbursed portions of loans in process of $10.8
million. It is expected that these requirements will be funded from the sources
described above.
The Association is required under federal regulations to maintain
specified levels of liquid assets, which include qualifying types of U.S.
government and federal agency securities, cash and other investments. Current
regulations require the Association to maintain liquid assets of not less than
5% of its average daily balance of net withdrawable deposit accounts plus short
term borrowings during the preceding calendar month; short term liquid assets
must consist of not less than 1% of that amount. These levels are established
by the Office of Thrift Supervision ("OTS") and are adjustable periodically to
reflect current conditions. The Association has generally maintained liquidity
in excess of required levels. The Association's average daily liquidity ratio
was 7.64% and the short-term liquidity ratio was 6.22% at December 31, 1996.
In accordance with applicable law, the Association is required to meet
certain minimum regulatory capital requirements. The following table is a
summary of the capital requirements, the Association's regulatory capital and
the amounts in excess at December 31, 1996 (dollars in thousands):
TANGIBLE CORE RISK-BASED
------------------- --------------------- ------------------
% OF
% OF % OF RISK
ADJUSTED ADJUSTED WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ------ ------ ------ ------ ------
Regulatory capital $18,772 5.9% $ 18,772 5.9% $ 20,926 12.3%
Requirement 4,734 1.5 9,469 3.0 13,572 8.0
------- --- -------- --- ------ -----
Excess $14,038 4.4% $ 9,303 2.9% $ 7,354 4.3%
======= === ======== === ======== =====
If an association is unable to comply with all of its regulatory capital
requirements, the OTS may take such action as it deems appropriate to protect
the deposit insurance funds, the association and its depositors. Such action
may include various operating restrictions, limitations on liability growth,
limitations on deposit account interest rates and investment restrictions. As a
means of limiting regulatory discretion to allow undercapitalized depository
institutions to remain in operation, and thereby minimizing insurance fund
losses, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required the OTS and the other federal banking agencies to establish
a prompt regulatory action system pursuant to which banks and thrifts will be
classified, according to their capital levels, into five categories: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
Under regulations adopted by the federal banking agencies to implement
these requirements, the Association met the capital requirements of a "well
capitalized" institution as of December 31, 1996.
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On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF member institutions, including
the Association, to recapitalize the SAIF and spread the obligation for
repayment of Financing Corporation ("FICO") bonds across all SAIF and Bank
Insurance Fund ("BIF") members. The FDIC special assessment amounted to 65.7
basis points on SAIF-assessable deposits held as of March 31, 1995. The special
assessment of $1.5 million was recognized in the third quarter of 1996 and is
tax deductible.
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits, compared to 6.5
basis points payable by SAIF members on SAIF-insured deposits, and will pay a
pro rata share of the FICO payment on the earlier of January 1, 2000 or the
date upon which the last savings association ceases to exist. The legislation
also requires BIF and SAIF to be merged by January 1, 1999, provided that
subsequent legislation is adopted to eliminate the savings association charter
and no savings associations remain as of that time.
The FDIC recently lowered SAIF assessments to a range comparable to those
of BIF members, although SAIF members will continue to pay the higher FICO
payments described above. Management cannot predict the level of FDIC insurance
assessments on an ongoing basis or whether the BIF and SAIF will eventually be
merged.
ASSET QUALITY
The Company is required by the OTS to classify its own assets and to
establish valuation allowances based in part on such classifications. These
classifications are subject to review by OTS examiners. Management of the
Company reviews its loan, foreclosed real estate and securities portfolios on a
monthly basis, classifying those assets deemed appropriate and establishing
valuation allowances as appropriate. In addition, the Company continues to
establish general loss allowances for unclassified loans based on its
historical loss experience. An asset is classified substandard if it is
determined to involve a distinct possibility that the Company could sustain
some loss if deficiencies associated with the asset are not corrected. An asset
is classified doubtful if full collection is highly questionable or improbable.
An asset is classified loss if it is considered uncollectible, even if a
partial recovery could be expected in the future. If an asset is classified
substandard or doubtful pursuant to the Company's policies or by regulatory
examiners, general allowances for losses may be established. If an asset is
classified loss, the Company is required to establish a specific allowance in
an amount equal to 100% of the portion of the asset classified loss or it must
charge off that amount.
Pursuant to applicable regulations, the OTS and the FDIC have the
authority to require the Association to increase its valuation allowances if
either agency determines that the allowances are inadequate. The estimation of
appropriate levels of loss allowances is a process that involves a high degree
of subjectivity, and the regulatory authorities may arrive at conclusions that
differ from management's regarding allowance levels. The OTS last performed an
examination of the Association as of December 31, 1996. The examination was
part of the OTS' routine supervision of the Association and included
evaluations of the Association's loan and foreclosed real estate loss
allowances. Based upon the results of the OTS examination, management believes
the Association's policies and procedures for determination of loan and
foreclosed real estate allowances are generally consistent with those used by
the OTS in determining the adequacy of the loss allowances maintained by thrift
institutions. However, there is no assurance that the OTS will concur with this
assessment in future examinations.
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The following table illustrates the Company's classified assets as of
December 31, 1996 (in thousands):
Substandard $ 6,747
Doubtful 145
Loss 800
-------
Total classified assets $ 7,692
-------
The Company had nonperforming assets as follows (dollars in thousands):
AT DECEMBER 31,
1996 1995 1994
---- ---- ----
Nonperforming Loans:
Nonaccrual Loans:
Single family residential $ 2,080 887 371
Improved and unimproved land 544 414 214
Commercial real estate 1,434 623 2,178
SBA loans -- 751 588
Consumer loans -- -- 12
------- ------- -------
Total 4,058 2,675 3,363
------- ------- -------
Troubled Debt Restructured:
Multifamily residential 4,862 4,890 10,424
------- ------- -------
Total Nonperforming Loans 8,920 7,565 13,787
------- ------- -------
Foreclosed Real Estate:
Single family residential 57 38 86
Multifamily residential -- 2,651 --
Improved and unimproved land 900 1,278 6,171
Commercial real estate -- 515 2,255
SBA loans -- -- 415
------- ------- -------
Total Foreclosed Real Estate 957 4,482 8,927
------- ------- -------
Total Nonperforming Assets $ 9,877 12,047 22,714
------- ------- -------
Nonperforming Assets to Total Assets 3.12% 4.00% 8.96%
------- ------- -------
Allowance for Loan Losses $ 5,613 5,138 8,207
Allowance for Foreclosed Real Estate Losses 158 1,124 2,873
------- ------- -------
Total Allowance for Losses $ 5,771 6,262 11,080
======= ======= =======
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NONACCRUAL LOANS. At December 31, 1996, loans on nonaccrual status
totaled $4.1 million. During 1996 and 1995, approximately $523,000 and
$400,000, respectively, in interest income would have been recorded on loans
accounted for on a nonaccrual basis and troubled debt restructurings if each
loan had been current in accordance with its original contract and had been
outstanding throughout the period. These amounts were not included in the
Company's interest income in the respective periods.
TROUBLED DEBT RESTRUCTURED. At December 31, 1996, the Company's troubled
debt restructurings totaled $4.9 million and consisted of one multifamily real
estate loan. The loan is collateralized by a 172-unit apartment complex located
in Seminole County, Florida. The apartment complex was appraised for $6.4
million as of the most recent appraisal in 1988. During December 1992, while
the loan was delinquent, the Association allowed it to be assumed by a
nonprofit organization, and reduced the interest rate from 10.75% to 7.0%.
Under the restructured terms, the loan requires monthly principal and interest
payments of approximately $31,000 plus a balloon payment of $4,361,000 in
December 2007. The Association retained the personal guarantees of two
individuals who executed the note at the time of origination. Subsequent to the
date of modification, the loan has performed in accordance with the
restructured terms of the contract. In conjunction with the quarterly
evaluation of the reasonableness of the carrying value of this property,
management has considered, among other factors, the 1988 appraisal of the
property, the indicated valuation of the property by the nonprofit organization
which assumed the loan in 1992, the location of the property and management's
assessment of the current real estate valuation of similar properties in the
local real estate market, management's assessment of the cash flows generated
by the collateral property based on current operating information provided by
the borrower, and management's assessment of the financial capacity of the two
individuals whose personal guarantees also secure the loan.
FORECLOSED REAL ESTATE. Foreclosed real estate includes property acquired
by foreclosure or deed in lieu of foreclosure. Total foreclosed real estate
decreased from $4.5 million at December 31, 1995 to $957,000 at December 31,
1996. The decrease was due to sales of foreclosed real estate properties,
partially offset by foreclosures during the year ended December 31, 1996.
ASSET/LIABILITY MANAGEMENT
The Association, like most other savings institutions, is engaged
primarily in the business of investing funds obtained from deposits, borrowings
and other sources, in loans, securities and other investments. Consequently,
the Company's earnings depend to a significant extent on its net interest
income, which is the difference between the interest earned on loans,
securities and other investments, and the interest paid on deposits and
borrowings. The Company is subject to interest rate risk, and corresponding
fluctuations in its net interest income, to the extent that its
interest-earning assets and interest-bearing liabilities do not mature or
reprice at the same time.
Asset/liability management policies are employed in an effort to reduce
the Company's exposure to interest rate risk and thereby reduce the volatility
of net interest income. The primary goal of these policies is to achieve a
reasonable interest rate spread while reducing the repricing imbalance by
increasing the interest rate sensitivity and shortening the repricing period of
the Company's interest-earning assets and lengthening the repricing period of
its interest-bearing liabilities.
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In order to increase the interest-rate sensitivity of its interest-earning
assets, the Company has emphasized the origination of residential mortgage
loans with adjustable interest rates and loans with short-term maturities. The
Company also has sought in recent years to diversify and increase the
interest-rate sensitivity of its loan portfolio by emphasizing the origination
of construction loans for residential properties within its primary market
area. Such loans generally provide for contractual maturities within one year.
Although competitive pressures require the Company to offer long-term,
fixed-rate mortgage loans, most such loans are originated under terms and
conditions intended to permit their sale in the secondary market.
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1996, based upon certain estimates and assumptions as to loan
prepayment rates and certain deposit erosion rates which management believes
are reasonable based on the Company's experience (dollars in thousands).
One Year Over
One Year to Three Three
or Less Years Years Total
------- ----- ----- -----
Rate-Sensitive Assets:
Loans (1) $110,600 56,902 53,689 221,191
Securities 47,780 10,893 7,679 66,352
Other interest-earning assets (2) 11,665 -- 2,378 14,043
-------- -------- ------ -------
Total Rate-Sensitive Assets $170,045 67,795 63,746 301,586
======== ======== ====== =======
Rate-Sensitive Liabilities:
Deposits (3) 153,428 104,626 28,873 286,927
Borrowed funds 7,000 -- -- 7,000
-------- -------- ------ -------
Total Rate-Sensitive Liabilities $160,428 104,626 28,873 293,927
======== ======== ====== =======
GAP (Repricing differences) $ 9,617 (36,831) 34,873 7,659
======== ======== ====== =======
Cumulative GAP $ 9,617 (27,214) 7,659 --
======== ======== ====== =======
Cumulative GAP as a
Percent of Total Assets 3.03% 8.59% 2.42% --
======== ======== ====== =======
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(1) Loans are net of the undisbursed portion of loans in process and
nonaccrual loans.
(2) Consists of interest-earning deposits and FHLB stock.
(3) In preparing the table above, the following assumptions were made
regarding the withdrawal of deposits: (i) passbook withdrawals of 17% for
the first three years and (ii) NOW account withdrawals of 36% for the
first year and 32% for years two and three.
The above assumptions are annual percentages based on remaining balances
and should not be regarded as indicative of the actual withdrawals that may be
experienced by the Company. Moreover, certain shortcomings are inherent in the
analysis presented in the foregoing table. For example, although certain assets
and liabilities may have similar maturities or periods to repricing, they may
react differently to changes in market interest rates. Also, interest rates on
certain types of assets and liabilities may fluctuate in advance of or lag
behind changes in market interest rates. Additionally, certain assets, such as
adjustable rate mortgage loans, have features that restrict changes in interest
rates on a short-term basis and over the life of the assets. Moreover, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in calculating the above
table.
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RESULTS OF OPERATIONS
The Company's operating results depend substantially on (i) net interest
income (the difference between its interest income and interest expense), (ii)
provisions for losses on loans and foreclosed real estate, (iii) noninterest
income (including gains and losses on the sale of securities and loans, and
fees from lending and deposit operations), (iv) noninterest expenses (including
salaries and employee benefits, and occupancy expense) and (v) income taxes.
Net interest income is determined primarily by interest rate spread and the
relative amounts of interest-earning assets and interest-bearing liabilities.
The following table shows selected ratios for the periods ended or at the dates
indicated:
AT OR FOR THE
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
Average equity as a percentage of
average assets 6.57% 6.96% 5.98%
Equity to assets at end of year 6.40% 6.23% 6.53%
Return on average assets .54% .64% .18%
Return on average equity 8.18% 9.17% 3.08%
Noninterest expenses to average assets 3.08% 3.67% 5.25%
Nonperforming assets to total assets
at end of year 3.12% 4.00% 8.96%
Interest rate spread during the year 3.20% 3.86% 4.24%
The following table shows weighted average interest rates as of the dates
indicated:
AT DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Interest-earning assets:
Loans 8.15% 8.44% 8.05%
Mortgage-backed securities 6.23% 6.59% 6.00%
Investment securities 7.57% 6.58% 6.28%
Other interest-earning assets 6.70% 5.56% 5.65%
Total interest-earning assets 7.72% 7.80% 7.49%
Interest-bearing liabilities:
Deposits 4.57% 4.50% 3.79%
Borrowed funds 6.95% 5.85% 6.81%
Total interest-bearing liabilities 4.63% 4.65% 4.07%
Interest rate spread 3.09% 3.15% 3.42%
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The following table sets forth information regarding (i) the average
balance of the Company's interest-earning assets and interest-bearing
liabilities, (ii) the total dollar amount of interest and dividend income from
interest-earning assets and the resultant average yields, (iii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost, (iv) net interest/dividend income, (v) interest rate
spread and (vi) net interest margin.
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1994
------------------------- ---------------------------- ------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST/ YIELD/ AVERAGE INTEREST/ YIELD/ AVERAGE INTEREST/ YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
(Dollars in thousands)
Interest - earning assets:
Loans (1) $206,755 16,712 8.08% 174,203 15,357 8.82% 167,192 13,752 8.23%
Securities 77,524 4,917 6.34% 58,024 3,782 6.52% 41,155 2,647 6.43%
Other interest - earning assets 5,330 368 6.92% 8,585 591 6.88% 11,168 483 4.32%
-------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest - earning assets 289,609 21,997 7.60% 240,812 19,730 8.19% 219,515 16,882 7.69%
Noninterest - earning assets 8,010 17,028 19,589
-------- ------- -------
Total assets $297,619 257,840 239,104
-------- ------- -------
Interest - bearing liabilities:
Deposits:
Noninterest - bearing accounts 14,054 -- -- 12,.415 -- -- 10,243 -- --
NOW accounts 24,386 339 1.39% 29,708 440 1.48% 25,331 423 1.67%
Passbook and statement accounts 37,935 597 1.57% 35,920 914 2.55% 52,672 1,034 1.96%
Certificate accounts 190,927 10,774 5.64% 152,716 8,594 5.63% 121,704 5,685 4.67%
-------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits 267,302 11,710 4.38% 230,759 9,948 4.31% 209,950 7,142 3.40%
Borrowed funds 5,627 313 5.56% 2,705 163 6.03% 8,672 411 4.74%
-------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest - bearing liabilities 272,929 12,023 4.40% 233,464 10,111 4.33% 218,622 7,553 3.45%
------ ------ ------
Noninterest - bearing liabilities 5,134 6,420 6,181
Stockholders' equity 19,556 17,956 14,301
-------- ------ ------
Total liabilities & stockholders' equity $297,619 257,840 239,104
======== ====== =========
Net interest/dividend income 9,974 9,619 9,329
===== ===== =====
Interest rate spread (2) 3.20% 3.86% 4.24%
===== =====
Net average interest - earning assets,
net interest margin (3) $ 16,680 3.44% 7,348 3.99% 893 4.25%
======== ==== ======= ===== ======== ====
Ratio of average interest - earning
assets to average interest - bearing
liabilies 1.06 1.03 1.00
======== ======= ========
- ----------------------------------
(1) Includes nonaccrual loans.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
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The following table presents certain information regarding changes in
interest and dividend income and interest expense of the Company for the years
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided with respect to changes attributable to
(i) changes in rate (change in rate multiplied by prior volume), (ii) changes
in volume (change in volume multiplied by prior rate) and (iii) changes in
rate/volume (change in rate multiplied by change in volume).
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 VS. 1995 1995 VS. 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------------- -------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME TOTAL RATE VOLUME VOLUME TOTAL
----- ------ ------ ----- ---- ------ ------ -----
Interest-earning assets:
Loans $(1,276) 2,870 (239) 1,355 $ 987 577 41 1,605
Securities -- 1,237 (103) 1,134 25 1,010 100 1,135
Other interest-earning assets 3 (224) (1) (222) 286 (112) (66) 108
------- ------ ---- ------ ------- ------ ---- ------
Total (1,273) 3,883 (343) 2,267 1,298 1,475 75 2,848
------- ------ ---- ------ ------- ------ ---- ------
Interest-bearing liabilities:
Deposits 161 1,575 26 1,762 1,909 708 189 2,806
Borrowings (13) 176 (14) 149 112 (283) (77) (248)
------- ------ ---- ------ ------- ------ ---- ------
Total 148 1,751 12 1,911 2,021 425 112 2,558
------- ------ ---- ------ ------- ------ ---- ------
Net change in interest income $(1,421) 2,132 (355) 356 (723) 1,050 (37) 290
------- ------ ---- ------ ------- ------ ---- ------
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1995
GENERAL. The Company reported net earnings of $1.6 million or $0.19 per
share for the year ended December 31, 1996 compared to net earnings of $1.6
million or $0.20 per share for 1995.
INTEREST INCOME. Total interest income for 1996 was $22.0 million, an
increase of $2.3 million from 1995. Interest income on loans increased $1.4
million or 8.8% in 1996 compared to 1995. The increase in interest income on
loans was the result of an increase in the average balance of loans outstanding
from $174.2 million in 1995 to $206.8 million in 1996, partially offset by a
decrease in the average yield earned on such loans from 8.82% in 1995 to 8.08%
in 1996. Interest income on securities increased $1.1 million or 30.0%, due to
an increase in the average balance from $58.0 million in 1995 to $77.5 million
in 1996, partially offset by a decrease in the average yield earned from 6.52%
in 1995 to 6.34% in 1996. Interest income on other interest-earning assets
decreased $223,000 from $591,000 in 1995 to $368,000 in 1996. The decrease was
the result of a decrease in the average balance outstanding during 1996
compared to 1995, partially offset by a slight increase in average yield earned
in 1996 compared to 1995.
INTEREST EXPENSE. Total interest expense for 1996 increased from $10.1
million in 1995 to $12.0 million in 1996. Interest paid on deposit accounts
increased by $1.8 million. The increase in interest expense on deposits was due
to an increase in the average balances outstanding and an increase in the rates
paid thereon. During 1996,
12
12
deposits averaged $267.3 million at an average rate of 4.38% compared to $230.8
million at an average rate of 4.31% during 1995.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan
losses of $782,000 for 1996, compared to a $477,000 provision for 1995. The
ratio of nonperforming loans and foreclosed real estate to total assets was
3.12% at December 31, 1996, compared to 4.00% at December 31, 1995. The
Company's total allowance for losses on loans and foreclosed real estate
equaled 58.4% of nonperforming assets at December 31, 1996 compared to 52.0% of
nonperforming assets at December 31, 1995.
NONINTEREST INCOME. For the year ended December 31, 1996, noninterest
income was $2.4 million, a decrease of $215,000 from 1995. The decrease was
primarily due to a net loss on trading securities during 1996 of $196,000
compared to a net profit on trading securities of $229,000 during 1995 and an
unrealized loss on loans held for sale of $150,000 at December 31, 1996
compared to no such loss at December 31, 1995. Partially offsetting these
decreases was a $264,000 increase in other income.
NONINTEREST EXPENSES. During 1996 noninterest expenses decreased by
$281,000 from $9.5 million during 1995 to $9.2 million in 1996. The decrease
resulted from a $2.4 million decrease in loss on foreclosed real estate during
1996, partially offset by the one-time SAIF assessment of $1.5 million and an
increase of $247,000 in other expenses. The decrease in loss on foreclosed real
estate was due to a credit provision for losses on foreclosed real estate of
$1.5 million in 1996 compared to $240,000 provision for losses on foreclosed
real estate in 1995.
INCOME TAXES. The income tax provision increased from $641,000 for 1995
(an effective rate of 28.0%) to $803,000 for 1996 (an effective rate of 33.4%).
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
GENERAL. The Company reported net earnings of $1.6 million or $0.20 per
share for the year ended December 31, 1995 compared to net earnings of $440,000
or $0.06 per share for 1994. The improvement in operating results for 1995 was
primarily due to a $3.1 million decrease in noninterest expenses partially
offset by a $1.9 million increase in provision for loan losses.
INTEREST INCOME. Total interest income for 1995 was $19.7 million, an
increase of $2.8 million from 1994. Interest income on loans increased $1.6
million or 11.7% in 1995 compared to 1994. The increase in interest income on
loans was the result of an increase in the average balance of loans outstanding
from $167.2 million in 1994 to $174.2 million in 1995 and an increase in the
average yield earned on such loans from 8.23% in 1994 to 8.82% in 1995.
Interest income on securities increased $1.1 million or 42.9%, due to an
increase in the average balance from $41.2 million during 1994 to $58.0 million
during 1995, and an increase in the average yield earned from 6.43% during 1994
to 6.52% during 1995. Interest income on other interest-earning assets
increased in $108,000 from $483,000 in 1994 to $591,000 in 1995. The increase
was the result of an increase in the average yield earned in 1995 compared to
1994, partially offset by a decrease in the average balance outstanding during
1995 compared to 1994.
13
13
INTEREST EXPENSE. Total interest expense for 1995 increased from $7.6
million in 1994 to $10.1 million in 1995. Interest paid on deposits increased
by $2.8 million. The increase in interest expense on deposits was due to an
increase in the average balances outstanding and an increase in the rates paid
thereon. During 1995, deposits averaged $230.8 million at an average rate of
4.31% compared to $210.0 million at an average rate of 3.40% during 1994.
PROVISION FOR LOAN LOSSES. The Company recorded a credit for loan losses
for 1994 of $1.4 million, compared to a $477,000 provision for 1995. The credit
in 1994 was partially offset by a $3.4 million provision for losses on
foreclosed real estate. See "Noninterest Expenses" below. The ratio of
nonperforming loans and foreclosed real estate to total assets was 4.00% at
December 31, 1995, compared to 8.96% at December 31, 1994. The Company's total
allowance for losses on loans and foreclosed real estate equaled 52.0% of
nonperforming assets at December 31, 1995 compared to 48.8% of nonperforming
assets at December 31, 1994.
NONINTEREST INCOME. For the year ended December 31, 1995, noninterest
income was $2.6 million, an increase of $115,000 from 1994. The increase was
primarily due to a net profit on trading securities during 1995 of $229,000
compared to a net loss on trading securities of $76,000 during 1994, and an
increase of $129,000 on loan related fees and service charges. Partially
offsetting these increases was a $277,000 gain on sale of premises and
equipment during 1994 compared to no such gain in 1995.
NONINTEREST EXPENSES. During 1995, noninterest expenses decreased by $3.0
million from $12.5 million during 1994 to $9.5 million in 1995. The decrease
resulted primarily from a $3.2 million decrease in loss on foreclosed real
estate during 1995, from $3.8 million in 1994 to $613,000 during 1995. Such
decreased in noninterest expenses were partially offset by a $241,000 increase
in employee compensation and benefits. The decrease in loss on foreclosed real
estate was due to a decrease in provision for losses from $3.4 million in 1994
to $240,000 in 1995. The large provision in the allowance for losses on
foreclosed real estate during 1994 was the result of the Company's decision to
accelerate the disposition of such properties. During 1994 and 1995, foreclosed
real estate totaling $14.2 million was sold.
INCOME TAXES. The income tax provision increased from $234,000 in 1994
(an effective rate of 34.7%) to $641,000 in 1995 (an effective rate of 28.0%).
14
14
FUTURE ACCOUNTING REQUIREMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 125 ("SFAS 125"). SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets as well as
extinguishments of liabilities. SFAS 125 also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring after
December 31, 1996. Management does not anticipate SFAS 125 will have a material
impact on the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data presented herein
have been prepared in accordance with Generally Accepted Accounting Principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the effects of
general levels of inflation. Interest rates may not necessarily move in the
same direction or in the same magnitude as the prices of goods and services,
since such prices are affected by inflation to a larger extent than interest
rates. See "Asset/Liability Management" and "Results of Operations" above.
15
15
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AT DECEMBER 31,
------------------------
1996 1995
---- ----
ASSETS
Cash and due from banks $ 6,300 6,989
Interest-bearing deposits with banks 11,665 2,768
Federal funds sold -- 669
--------- -------
Cash and cash equivalents 17,965 10,426
Trading securities 9,580 23,076
Securities available for sale 41,445 49,832
Securities held to maturity, at cost 15,343 17,636
Loans held for sale, net of unrealized losses of $150 in 1996 10,462 22,765
Loans receivable, net of allowances for loan losses of
$5,613 in 1996 and $5,138 in 1995 209,005 161,190
Accrued interest receivable 1,710 1,821
Premises and equipment 5,324 5,700
5,700 Restricted securities - Federal Home Loan Bank stock, at cost 2,378 2,514
Foreclosed real estate, net of allowances of $158 in 1996 and
$1,124 in 1995 799 3,358
Deferred tax asset 1,490 2,249
Other assets 1,448 918
--------- -------
Total assets $ 316,949 301,485
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 14,303 13,107
Savings and NOW deposits 57,981 63,682
Time deposits 214,643 172,147
--------- -------
Total deposits 286,927 248,936
Accrued interest on deposits 256 282
Due to bank 424 1,120
Advances from Federal Home Loan Bank 7,000 30,000
Advance payments by borrowers for taxes and insurance 608 819
Other liabilities 1,454 1,548
--------- -------
Total liabilities 296,669 282,705
--------- -------
Commitments and Contingencies (Notes 6, 12, 13, 15 and 21)
Stockholders' Equity:
Preferred stock, $.10 par value, 2,500,000 shares
authorized, none outstanding -- --
Common stock, $.10 par value, 20,000,000 shares authorized,
8,430,000 shares issued and outstanding 843 843
Additional paid-in capital 17,599 17,599
Retained earnings 1,844 244
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax of $4 in 1996
and $(56) in 1995 (6) 94
--------- -------
Total stockholders' equity 20,280 18,780
--------- -------
Total liabilities and stockholders' equity $ 316,949 301,485
========= =======
See Notes to Consolidated Financial Statements.
16
16
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
Interest income:
Loans receivable $ 16,712 15,357 13,752
Securities available for sale 2,524 1,218 1,963
Securities held to maturity 1,179 1,297 684
Trading securities 1,214 1,267 --
Federal funds sold 80 150 125
Deposits with banks 288 441 358
----------- --------- ---------
Total interest income 21,997 19,730 16,882
----------- --------- ---------
Interest expense:
Deposits 11,710 9,948 7,142
Other borrowed funds 313 163 411
----------- --------- ---------
Total interest expense 12,023 10,111 7,553
----------- --------- ---------
Net interest income 9,974 9,619 9,329
Provision (credit) for loan losses 782 477 (1,403)
----------- --------- ---------
Net interest income after provision (credit)
for loan losses 9,192 9,142 10,732
----------- --------- ---------
Noninterest income:
Service charges on deposits 1,306 1,269 1,297
Loan related fees and service charges 443 375 246
Loan servicing fees 279 367 409
Net trading account (losses) profit (196) 229 (76)
Net realized gain on sales of available-for-sale securities 87 66 --
Net gain on sale of loans 144 86
131
Unrealized loss on loans held for sale (150) -- --
Net gain on sale of premises and equipment -- -- 277
Other income 474 210 203
----------- --------- ---------
Total noninterest income 2,387 2,602 2,487
----------- --------- ---------
Noninterest expenses:
Salaries and employee benefits 4,192 4,043 3,802
Occupancy expense 1,925 1,814 1,755
(Gain) loss on foreclosed real estate (1,818) 613 3,784
Deposit insurance premium 657 646 645
SAIF recapitalization assessment 1,466 -- --
Marketing and advertising 381 299 298
Data processing 668 564 563
Printing and office supplies 280 284 279
Telephone expense 255 271 272
Other expense 1,170 923 1,147
----------- --------- ---------
Total noninterest expenses 9,176 9,457 12,545
----------- --------- ---------
Income before income taxes 2,403 2,287 674
Income tax expense 803 641 234
----------- --------- ---------
Net income $ 1,600 1,646 440
=========== ========= =========
Net income per share of common stock $ .19 .20 .06
=========== ========= =========
Weighted average number of shares outstanding 8,430,000 8,430,000 7,354,658
=========== ========= =========
See Notes to Consolidated Financial Statements.
17
17
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
NET
UNREALIZED
(DEPRECIATION)
APPRECIATION
RETAINED ON
ADDITIONAL EARNINGS SECURITIES TOTAL
COMMON PAID-IN (ACCUMULATED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL DEFICIT) FOR SALE EQUITY
----- ------- -------- -------- ------
Balance at December 31, 1993 $718 15,324 (1,842) 327 14,527
Proceeds from issuance of 1,250,000
shares of common stock 125 2,275 -- -- 2,400
Net income for 1994 -- -- 440 -- 440
Net change in unrealized (depreciation)
appreciation on securities available
for sale -- -- -- (822) (822)
---- ------ ------ ----- ------
Balance at December 31, 1994 843 17,599 (1,402) (495) 16,545
Net income for 1995 -- -- 1,646 -- 1,646
Net change in unrealized (depreciation)
appreciation on securities available
for sale -- -- -- 589 589
---- ------ ------ ----- ------
Balance at December 31, 1995 843 17,599 244 94 18,780
Net income for 1996 -- -- 1,600 -- 1,600
Net change in unrealized (depreciation)
appreciation on securities available
for sale -- -- -- (100) (100)
---- ------ ------ ----- ------
Balance at December 31, 1996 $843 17,599 1,844 (6) 20,280
==== ====== ===== ===== ======
See Notes to Consolidated Financial Statements.
18
18
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------- ---- ----
Cash flows from operating activities:
Net income $ 1,600 1,646 440
Adjustments to reconcile net income to
net cash provided by (used in) operations:
Provision (credit) for loan losses 782 477 (1,403)
(Credit) provision for losses on foreclosed real estate (1,500) 240 3,410
Net amortization of premiums and discounts 159 (210) (115)
Net gain on sale of premises and equipment -- -- (277)
Net amortization of deferred loan fees (180) 52 (168)
Depreciation of premises and equipment 554 566 597
Net gain on sale of foreclosed real estate (368) (35) (175)
Net realized gain on sales of available-for-sale securities (87) (66) --
Net decrease (increase) in trading account securities 13,496 (16,106) (6,970)
Provision (benefit) for deferred income taxes 819 1,012 (276)
Proceeds from sales of loans held for sale 25,745 8,924 9,858
Originations of loans held for sale (13,448) (23,673) (6,311)
Decrease (increase) in accrued interest receivable 111 (356) (143)
Increase in other assets (530) (216) (157)
Gain on sale of loans (144) (86) (131)
Unrealized loss on loans held for sale 150 -- --
(Decrease) increase in accrued interest payable (26) 123 9
(Decrease) increase in other liabilities and due to bank (790) (1,131) 997
-------- ------- ------
Net cash provided by (used in) operating activities 26,343 (28,839) (815)
-------- ------- ------
Cash flows from investing activities:
Purchase of available-for-sale securities (47,400) (35,104) (19,868)
Purchase of held-to-maturity securities -- -- (47,504)
Proceeds from maturities of held-to-maturity securities -- 12,526 47,129
Proceeds from sale of available-for-sale securities 26,673 7,755 --
Proceeds from maturities of available-for-sale securities 10,000 -- --
Principal repayments on available-for-sale securities 18,832 746 1,916
Principal repayments on held-to-maturity securities 2,343 1,613 --
Net (increase) decrease in loans receivable (45,860) (10,512) 1,110
Proceeds from sale of premises and equipment -- -- 524
Net purchases of premises and equipment (178) (501) (365)
Proceeds from sale of foreclosed real estate 2,001 7,389 4,123
Payments capitalized to foreclosed real estate (131) (43) (7)
Redemption (purchase) of Federal Home Loan Bank stock 136 -- (31)
-------- ------- ------
Net cash used in investing activities (33,584) (16,131) (12,973)
-------- ------- ------
19
(continued)
19
F.F.O. FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(DOLLARS IN THOUSANDS)
Year Ended December 31,
1996 1995 1994
Cash flows from financing activities:
Net decrease in demand, savings and NOW deposits (4,505) (6,180) (5,979)
Net increase in time deposits 42,496 44,284 5,693
(Repayments of) proceeds from Federal Home Loan Bank advances (23,000) 8,600 1,400
Net proceeds from issuance of common stock -- -- 2,400
Net (decrease) increase in advances by borrowers for taxes
and insurance (211) 126 (109)
-------- ------ -----
Net cash provided by financing activities 14,780 46,830 3,405
-------- ------ -----
Net increase (decrease) in cash and cash equivalents 7,539 1,860 (10,383)
Cash and cash equivalents at beginning of year 10,426 8,566 18,949
-------- ------ -----
Cash and cash equivalents at end of year $ 17,965 10,426 8,566
======== ====== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
(Refunds received) income tax paid $ (134) 550 311
======== ====== =====
Interest $ 12,049 9,957 7,544
======== ====== =====
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate $ 339 6,382 1,447
======== ====== =====
Loans originated for the sale of foreclosed real estate $ 2,896 1,527 1,346
======== ====== =====
See Notes to Consolidated Financial Statements.
20
20
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F.F.O. Financial Group, Inc. (the "Holding Company" or "F.F.O.") is the
holding company for First Federal Savings and Loan Association of
Osceola County (the "Association"). The Holding Company's operations
are limited to ownership of the Association. The Association is a
federally chartered savings and loan association which conducts
business from its headquarters and main office in Kissimmee, Florida
and ten branch offices located in Central Florida. The Association's
deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits through the Savings Association
Insurance Fund ("SAIF").
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Holding Company and its wholly-owned subsidiary,
First Federal Savings and Loan Association of Osceola County, and
the Association's wholly-owned subsidiary, Gulf American Financial
Corporation. Gulf American Financial Corporation is currently
inactive. All significant intercompany transactions and balances
have been eliminated in consolidation.
GENERAL. The accounting and reporting policies of F.F.O. Financial Group,
Inc. and Subsidiaries (together, the "Company") conform to generally
accepted accounting principles and to general practices within the
thrift industry. The following summarizes the significant accounting
policies of the Company:
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 amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
TRADING SECURITIES. Securities held principally for resale in the near
term are classified as trading account securities and recorded at
their fair values. Unrealized gains and losses on trading account
securities are included immediately in noninterest income.
SECURITIES HELD TO MATURITY. Securities for which the Company has the
positive intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest
income using the interest method over the period to maturity.
SECURITIES AVAILABLE FOR SALE. Available-for-sale securities consist of
securities not classified as trading securitie s nor as held-to-
maturity securities.
(continued)
21
21
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED SECURITIES AVAILABLE
FOR SALE, CONTINUED. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a separate component of
stockholders' equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
LOANS HELD FOR SALE. Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated
market value in the aggregate . Net unrealized losses are recognized
through a valuation allowance by charges to income.
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or
pay-off are reported at their outstanding principal balance adjusted
for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans and unamortized premiums or
discounts on purchased loans.
Discounts and premiums on purchased real estate loans are amortized
to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic
conditions.
(continued)
22
22
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FORECLOSED REAL ESTATE. Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded
at fair value at the date of foreclosure establishing a new cost
basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying
amount or fair value less costs to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in
the consolidated statements of income.
INCOME TAXES. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicabl e to the period in which
the deferred tax assets or liabiliti es are expected to be realized
or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabiliti es are adjusted through the provision for income
taxes.
PREMISES AND EQUIPMENT. Land is carried at cost. The Company's premises,
furniture and equipment and leasehold improvements are carried at
cost, less accumulated depreciation and amortization computed
principally by the straight-line method.
OFF-BALANCE SHEET INSTRUMENTS. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit. Such financial
instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and
assumptions were used by the Company in estimating fair values of
financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and
short-term instruments approximate their fair value.
TRADING SECURITIES. Fair values for trading account securities, which
also are the amounts recognized in the consolidated balance sheets,
are based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES. Fair values for
available-for-sale and held-to-maturity securities, excluding
restricted equity securities, are based on quoted market prices.
LOANS RECEIVABLE. For variable rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain fixed-rate mortgage (e.g.
one-to-four family residential), commercial real estate and
commercial loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
FEDERAL HOME LOAN BANK STOCK. Fair value of the Company's investment
in FHLB stock is based on its redemption value, which is its cost of
$100 per share.
(continued)
23
23
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED. DEPOSITS. The fair values
disclosed for demand, NOW, money market and savings deposits are, by
definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities
on time deposits.
SHORT-TERM BORROWINGS. The carrying amounts of borrowings maturing
within 90 days approximate their fair values. Fair values of other
borrowings are estimated using discounted cash flow analysis based on
the Company's current incremental borrowing rates for similar types
of borrowing arrangements.
ACCRUED INTEREST RECEIVABLE. The carrying amounts of accrued interest
receivable approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
NET INCOME PER SHARE. Net income per share of common stock has been
computed on the basis of the weighted average number of shares of
common stock outstanding.
RECLASSIFICATIONS. Certain reclassifications have been made to the
financial statements for 1994 and 1995 to conform to the presentat
ions used in the financial statement s for 1996.
FUTURE ACCOUNTING REQUIREMENTS. The Financial Accounting Standards Board
(the "FASB") has issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"). This Statement provides accounting and
reporting standards for transfers and servicing of financial assets
as well as extinguishments of liabilities. This Statement also
provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring
after December 31, 1996. Management does not anticipate SFAS 125 will
have a material impact on the Company.
(continued)
24
24
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES
Securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amounts of securitie s
and their approximate fair values at December 31, were as follows
(in thousands ):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
TRADING SECURITIES:
DECEMBER 31, 1996:
Agency notes and debentures $ 4,000 32 -- 4,032
Collateralized mortgage-backed obligations 5,554 -- (6) 5,548
------- --- --- ------
$ 9,554 32 (6) 9,580
======= === --- ======
DECEMBER 31, 1995:
Agency notes and debentures 9,359 42 -- 9,401
Collateralized mortgage-backed obligations 13,616 59 -- 13,675
------- --- --- ------
$22,975 101 -- 23,076
======= === ==== ======
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 1996-
Mortgage-backed securities $41,455 108 (118) 41,445
======= === ==== ======
DECEMBER 31, 1995:
U.S. Treasury notes 9,996 23 -- 10,019
Mortgage-backed securities 39,686 127 -- 39,813
------- --- ---- ------
$49,682 150 -- 49,832
======= === ===== ======
SECURITIES HELD TO MATURITY:
DECEMBER 31, 1996-
Mortgage-backed securities $15,343 218 (47) 15,514
======= === ===== ======
DECEMBER 31, 1995-
Mortgage-backed securities $17,636 204 -- 17,840
======= === ===== ======
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $141,000 and $54,000, respectively
in 1996 and $75,000 and $9,000, respectively in 1995. There
were no sales of available-for-sale securities during the year
ended December 31, 1994.
Net unrealized holding gains on trading securities of $26,000, $101,000
and $76,000 were included in income during 1996, 1995 and 1994,
respectively.
The Board of Directors has authorized the Company to purchase and sell,
from time to time, securities through third parties including through
William R. Hough & Co. ("WRHC"), an investment banking firm
headquartered in St. Petersburg, Florida. Mr. Hough (a director and
principal shareholder of the Company) is Chairman and principal
shareholder of WRHC. During the years ended December 31, 1996, 1995
and 1994, the Company purchased approximately $53.3 million, $69.5
million and $30.5 million of securities through WRHC, respectively.
During the years ended December 31, 1996 and 1995, the Company sold
approximately $46.0 million and $19.7 million of securities through
WRHC, respectively. No securities were sold through WRHC in 1994. In
connection with such transactions, the Company paid WRHC an aggregate
of $118,000, $92,000 and $20,000 in commissions during the years
ended December 31, 1996, 1995 and 1994, respectively.
(continued)
25
25
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE
The components of loans in the consolidated balance sheets were as follows
(in thousands):
AT DECEMBER 31,
-----------------------
1996 1995
---- ----
Mortgage Loans:
Conventional 1-4 family residential $ 112,827 78,680
FHA and VA single family residential 10,131 11,529
Multifamily residential 19,778 18,576
Land 8,279 6,476
Other nonresidential real estate 34,138 26,927
Construction residential 14,166 10,288
Construction nonresidential 990 --
--------- -------
Total mortgage loans 200,309 152,476
--------- -------
Other Loans:
Deposit account loans 957 868
Credit card loans 594 2,637
Consumer loans 20,537 13,717
SBA loans 3,009 3,633
Home improvement loans 55 76
--------- -------
Total other loans 25,152 20,931
--------- -------
Total loans 225,461 173,407
--------- -------
Deduct:
Undisbursed portion of loans in process (10,824) (6,880)
Deferred net loan origination fees and discounts (19) (199)
Allowance for loan losses (5,613) (5,138)
--------- -------
Total deductions (16,456) (12,217)
--------- -------
Loans receivable, net $ 209,005 161,190
========= =======
(continued)
26
26
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE, CONTINUED
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
Year Ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
Balance at January 1 $ 5,138 8,207 9,333
Loans charged-off, net of recoveries (307) (3,546) (260)
Provision (credit) for loan losses 782 477 (1,403)
Reclassification due to adoption of SFAS 114 and 118 -- -- 537
----------- ----- -----
Balance at December 31 $ 5,613 5,138 8,207
=========== ===== =====
The amounts of impaired loans, all of which were collateral-dependent,
were as follows (in thousands):
December 31,
----------------------
1996 1995
-------- ------
Loans identified as impaired:
Gross loans with related allowances for losses recorded $ 8,256 6,380
Less: Allowances on these loans (1,766) (1,537)
--------- -----
Net investment in impaired loans $ 6,490 4,843
========= =====
The average net investment in impaired loans and interest income recognized
and received on impaired loans were as follows (in thousands):
Year Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
Average investment in impaired loans $ 6,175 5,037 7,259
======== ===== =====
Interest income recognized on impaired loans $ 521 337 307
======== ===== =====
Interest income received on impaired loans $ 521 337 307
======== ===== =====
(continued)
27
27
F.F.O. FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements, Continued
(3) Loans Receivable, Continued
Nonaccrual and renegotiated loans for which interest has been reduced
totalled approximately $8.9 million, $7.6 million and $13.8 million
at December 31, 1996, 1995 and 1994, respectively. Interest income
that would have been recorded under the original terms of such loans
and the interest income actually recognized are summarized below (in
thousands):
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
Interest income that would have been recorded $ 863 742 971
Interest income recognized (340) (342) (383)
----- --- ---
Interest income foregone $ 523 400 588
===== === ===
The Company is not committed to lend additional funds to debtors whose
loans have been modified.
(4) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of
mortgage loans serviced for others was $103.6 million, $89.6 million
and $101.2 million at December 31, 1996, 1995 and 1994, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing are included in advance payments by borrowers for taxes and
insurance, and were approximately $494,000 and $498,000 at December
31, 1996 and 1995, respectively.
(5) FORECLOSED REAL ESTATE
Activity in the allowance for losses on foreclosed real estate was as
follows (in thousands):
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
Balance at January 1 $ 1,124 2,873 62
(Credit) provision charged to operations (1,500) 240 3,410
Recoveries (charge-offs), net 534 (1,989) (62)
158 1,124 3,410
Reclassification due to adoption of SFAS 114 and 118 -- -- (537)
------- ----- -----
Balance at December 31 $ 158 1,124 2,873
======= ===== =====
Gain or loss on foreclosed real estate for the years ended December 31,
1996, 1995 and 1994 includes net expense of $50,000, $408,000 and
$549,000, respectively, from operation of foreclosed real estate.
(continued)
28
28
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) PREMISES AND EQUIPMENT
Components of premises and equipment were as follows (in thousands):
AT DECEMBER 31,
------------------
1996 1995
---- ----
Cost:
Land $ 1,298 1,298
Premises and leasehold improvements 5,154 5,207
Furniture and equipment 5,263 5,772
-------- ------
Total cost 11,715 12,277
Less accumulated depreciation (6,391) (6,577)
-------- ------
Total $ 5,324 5,700
======== ======
At December 31, 1996, the Company was obligated under noncancelable
operating leases for office space. Certain leases contain escalation
clauses providing for increased rentals based primarily on increases
in real estate taxes or in the average consumer price index. Net rent
expense under operating leases, included in occupancy expense, was
approximately $378,000, $363,000 and $341,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum rental commitments under
noncancellable leases were as follows (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1997 $ 364
1998 309
1999 229
2000 54
2001 54
Thereafter 126
-------
Total $ 1,136
=======
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows (in thousands):
At December 31,
------------------
1996 1995
---- ----
Loans $1,279 1,164
Securities 431 657
Total $1,710 1,821
(continued)
29
29
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each
with a minimum denomination of $100,000, was approximately $13.2
million and $14.2 million at December 31, 1996 and 1995,
respectively.
At December 31, 1996, the scheduled maturities of certificates of
deposit were as follows (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1997 $ 132,990
1998 53,346
1999 13,834
2000 11,962
2001 and thereafter 2,511
---------
Total $ 214,643
=========
(9) ADVANCES FROM FEDERAL HOME LOAN BANK
Maturities and interest rates of advances from the Federal Home Loan Bank
of Atlanta ("FHLB") were as follows (dollars in thousands):
YEAR ENDING INTEREST AT DECEMBER 31,
DECEMBER 31, RATE 1996 1995
------------ ---- ---- ----
1996 5.85% $ - 30,000
1997 6.95% 7,000 -
------- ------
Total $ 7,000 30,000
======= ======
At December 31, 1996, the Association was required by its collateral
agreement with the FHLB to maintain qualifying first mortgage loans
in an amount equal to at least 150% of the FHLB advances outstanding
at December 31, 1996 as collateral. The Association's FHLB stock is
also pledged as collateral for such advances. The FHLB advances
outstanding at December 31, 1995 were collateralized by certain
securities with a book value of $32.2 million and a market value of
$32.6 million as allowed by the Association's collateral agreement
with the FHLB. The Association's FHLB stock was also pledged as
collateral for those advances while outstanding.
(continued)
30
30
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES
The provision (credit) for income taxes is summarized as follows
(in thousands):
CURRENT DEFERRED TOTAL
------- -------- -----
YEAR ENDED DECEMBER 31, 1996:
Federal $ (16) 695 679
State -- 124 124
----- ----- ---
Total $ (16) 819 803
===== ===== ===
YEAR ENDED DECEMBER 31, 1995:
Federal (371) 864 493
State -- 148 148
----- ----- ---
Total $(371) 1,012 641
===== ===== ===
YEAR ENDED DECEMBER 31, 1994:
Federal 435 (236) 199
State 75 (40) 35
----- ----- ---
Total $ 510 (276) 234
===== ===== ===
The effective tax rate on income before income taxes differs from the
U.S. statutory rate of 34%. The following summary reconciles taxes at
the U.S. statutory rate with the effective rates (dollars in
thousands):
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994
-------------- ---------------- -------------------
Amount % Amount % Amount %
------ - ------ - ------ ---
Taxes on income at U.S.
statutory rate $ 817 34.0% $ 777 34.0% $ 229 34.0%
State income taxes, net of
federal tax benefit 87 3.6 82 3.6 24 3.6
Recomputed bad-debt reserve -- -- (178) (7.8) -- --
Other - net (101) (4.2) (40) (1.8) (19) (2.8)
----- ----- ------ ----- ----- -----
Taxes on income at
effective rates $ 803 33.4% $ 641 28.0% $ 234 34.7%
===== ===== ====== ===== ===== =====
(continued)
31
31
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities related to the
following (in thousands):
AT DECEMBER 31,
---------------
1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses $1,454 1,516
Allowance for losses on foreclosed real estate 59 423
Accrued pension expense -- 141
Charitable contributions 4 --
Net operating loss carryforwards 1,601 2,149
Alternative minimum tax credit carryforwards 121 122
Unrealized depreciation on securities available for sale 4 --
------ -----
Total gross deferred tax assets 3,243 4,351
------ -----
Deferred tax liabilities:
Deferred loan fees 1,504 1,711
Federal Home Loan Bank stock 226 239
Accumulated depreciation on premises
and equipment 23 66
Unrealized appreciation on securities available for sale -- 56
Other -- 30
------ -----
Total gross deferred tax liabilities 1,753 2,102
------ -----
Deferred tax asset $1,490 2,249
====== =====
With respect to the net deferred tax asset of $1.5 million at December 31,
1996, management believes that it is more likely than not that the
Company will have sufficient future taxable income to recover this
asset. However, for purposes of calculating regulatory capital,
Office of Thrift Supervision ("OTS") regulations limit the amount of
deferred tax assets that can be included in regulatory capital to the
lesser of (i) 10% of Tier 1 capital or (ii) the amount the
Association expects to realize within the subsequent twelve-month
period. OTS guidelines require the Association to recalculate this
capital component on a quarterly basis.
(continued)
32
32
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES, CONTINUED
At December 31, 1996, the Company's net operating loss carryforwards for
federal income tax purposes which are available to offset future
federal taxable income were as follows (in thousands):
YEAR OF
EXPIRATION AMOUNT
---------- ------
2007 $ 1,324
2008 1,826
2010 980
-------
Total $ 4,130
=======
Net operating loss carryforwards of $3,150,000 included above are subject
to an annual limitation of $268,000 due to section 382 of the
Internal Revenue Code. In addition, the Company has alternative
minimum tax credit carryforwards of approximately $121,000 which are
available to reduce future federal regular income taxes over an
indefinite period.
(11) PENSION AND PROFIT SHARING PLANS
Prior to 1996, the Company had a noncontributory defined benefit pension
plan ("Plan") covering all employees who meet certain eligibility
requirements. It was the Company's policy to fund the maximum amount
that could be deducted for federal income tax purposes. Prior to
1992, the Company periodically made contributions to a profit sharing
plan covering all full-time employees in amounts determined by the
Board of Directors. No contributions were made to the Plan during any
of the years in the three-year period ended December 31, 1995. During
1994, the Company decided to terminate the pension and profit sharing
plans effective December 31, 1994 and ceased accrual of benefits as
of that date. The Company submitted plan termination documents, which
were subsequently approved, to the Internal Revenue Service ("IRS")
and the Pension Benefit Guarantee Corporation for the Plan, and to
the IRS for the profit sharing plan. Distributions from the plans
were made during January and February of 1996.
The following table sets forth the Plan's status as of December 31, 1995
(in thousands):
AT DECEMBER 31,
1995
----
Actuarial present value of accumulated benefit obligation, including
vested benefits of $1,626 $ 1,626
=======
Accrued pension liability:
Projected benefit obligation for service rendered to date (1,626)
Plan assets at fair value 1,264
=======
Plan assets less than projected benefit obligation (362)
Unrecognized net loss 450
Unrecognized net asset being amortized over 15 years (388)
-------
Accrued pension liability included in other liabilities $ (300)
=======
(continued)
33
33
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) Pension and Profit Sharing Plans, Continued
Net periodic pension costs under the Plan prior to 1996 were as follows
(in thousands):
YEAR ENDED
DECEMBER 31,
----------------
1995 1994
---- ----
Service cost-benefits earned during the year $ - 150
Interest cost of projected benefit obligation 75 79
Actual return on plan assets 173 (82)
Net amortization and deferral adjustments (324) (96)
------ --
Net periodic pension costs $ (76) 51
====== ==
Disclosure assumptions used in accounting for the Plan as of December 31,
1995 and 1994 were as follows:
1995 1994
---- ----
Weighted average discount rate 4.5% 5.0%
Rate of increase in compensation levels N/A 6.0%
Expected long-term rate of return on assets 6.0% 6.0%
In connection with the plan terminations, the Company adopted a new defined
contribution profit sharing 401(k) plan (the "401(k) Plan") effective
January 1, 1995. All employees who meet certain eligibility requirements
are covered under the 401(k) Plan. Under the 401(k) Plan, an employee may
elect to contribute up to 15% of their annual compensation. Employer
contributions to the 401(k) Plan are made at the discretion of the Board of
Directors. Contributions to the 401(k) Plan for the years ended December
31, 1996 and 1995 were $78,000 and $49,000, respectively.
(12) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments are commitments to extend
credit and may involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of these
instruments reflect the extent of involvement the Company has in
these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments as it
does for on-balance-sheet instruments.
(continued)
34
34
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) FINANCIAL INSTRUMENTS, CONTINUED
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained by the
Company upon extension of credit is based on management's credit
evaluation of the counterparty.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Financial Assets:
Cash and cash equivalents $ 17,965 17,965 10,426 10,426
Trading securities 9,580 9,580 23,076 23,076
Securities available for sale 41,445 41,445 49,832 49,832
Securities held to maturity 15,343 15,514 17,636 17,840
Loans receivable 209,005 209,354 161,190 163,660
Loans held for sale 10,462 10,462 22,765 22,765
Accrued interest receivable 1,710 1,710 1,821 1,821
Federal Home Loan Bank stock 2,378 2,378 2,514 2,514
Financial Liabilities:
Deposits 286,927 289,326 248,936 251,116
Advances from Federal Home Loan Bank 7,000 7,000 30,000 30,000
The notional amount, which approximates fair value, of the Company's
financial instruments with off-balance-sheet risk at December 31,
1996, was as follows (in thousands):
NOTIONAL
AMOUNT
Commitments to extend credit $ 5,062
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company grants real estate, commercial and consumer loans to
customers primarily in the State of Florida with the majority of such
loans in the Central Florida area. Therefore, the Company's exposure
to credit risk is significantly affected by changes in the economy of
the Central Florida area.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential
accounting loss should the contract be fully drawn upon, the customer
default and the value of any existing collateral become worthless.
(continued)
35
35
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) RELATED PARTIES
Loans to directors and officers of the Company, which were made at market
rates, were made in the ordinary course of business and did not
involve more than normal risk of collectibility or present other
unfavorable features. Activity in loans to directors and officers
were as follows (in thousands):
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995
---- ----
Beginning balance $ 793 867
Amounts related to new officers and directors 15 7
Loans originated - 7
Principal repayments (35) (88)
Ending balance $ 773 793
===== ===
(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 consolidated 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
consolidated balance sheets of the Company.
(16) RESTRICTIONS ON RETAINED EARNINGS
The Association is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval. At
December 31, 1996, the Association was a Tier 2 institution for
purposes of the regulations relating to capital distributions; as
such, the Association may make capital distributions of up to 75% of
its net income over the most recent four-quarter period (depending on
its risk-based capital level) without prior regulatory approval.
(17) REGULATORY MATTERS
The Association 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 Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts (set forth in the
following table) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined). Management
believes, as of December 31, 1996, that the Association meets all
capital adequacy requirements to which it is subject.
(continued)
36
36
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) REGULATORY MATTERS, CONTINUED
As of December 31, 1996, the most recent notification from the OTS
categorized the Association as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Association must maintain minimum Tier I (core), Tier
I (risk-based) and total risk-based capital ratios as set forth
below. There are no conditions or events since that notification that
management believes have changed the Association's category.
The Association's actual capital amounts and ratios at December 31, 1996
were as follows (dollars in thousands):
TO BE WELL
MINIMUM CAPITALIZED
FOR CAPITAL FOR PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
----------------- ----------------- ---------------------
RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT
----- ------ ----- ------ ------- ----------
Stockholders' equity, and
ratio to total assets 6.4% $ 20,167
Less - nonincludable portion
of deferred tax asset
and mortgage
servicing rights (1,401)
Add back - unrealized
depreciation on
available-for-sale
securities 6
---------
Tangible capital, and ratio
to adjusted total assets 5.9% $ 18,772 1.5% $ 4,734
========= ========
Tier 1 (core) capital, and
ratio to adjusted total
assets 5.9% $ 18,772 3.0% $ 9,469 5.0% $ 15,782
========= ======== ========
Tier 1 capital, and ratio
to risk-weighted assets 11.1% 18,772 4.0% $ 6,786 6.0% $ 10,179
========= ======== ========
Tier 2 capital (excess allowance
for loan losses) 2,154
---------
Total risk-based capital,
and ratio to risk-
weighted assets 12.3% $ 20,926 8.0% $ 13,572 10.0% $ 16,965
========= ======== ========
Total assets $ 317,024
=========
Adjusted total assets $ 315,630
=========
Risk-weighted assets $ 169,647
=========
(continued)
37
37
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) REGULATORY MATTERS, CONTINUED
On September 30, 1996, legislation was enacted which, among other
things, imposed a special one-time assessment on SAIF member
institutions, including the Association, to recapitalize the SAIF and
spread the obligations for payments of Financing Corporation ("FICO")
bonds across all SAIF and Bank Insurance Fund ("BIF") members. That
legislation eliminated the substantial disparity between the amount
that BIF and SAIF members had been paying for deposit insurance
premiums. The FDIC special assessment levied amounted to 65.7 basis
points on SAIF assessable deposits held as of March 31, 1995. The
special assessment was recognized in the third quarter and is tax
deductible. The Association recorded a charge of $1.5 million before
taxes as a result of the FDIC special assessment.
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits, compared
to 6.48 basis points payable by SAIF members on SAIF-insured
deposits, and will pay a pro rata share of the FICO payment on the
earlier of January 1, 2000 or the date upon which the last savings
association, such as the Association, ceases to exist. The
legislation also requires BIF and SAIF to be merged by January 1,
1999 provided that subsequent legislation is adopted to eliminate the
savings association charter and no savings associations remain as of
that time.
The FDIC recently lowered SAIF assessments to a range comparable to those
of BIF members, however, SAIF members will continue to pay the higher
FICO payments described above. Management cannot predict the level of
FDIC insurance assessments on an ongoing basis or whether the BIF and
SAIF will eventually be merged.
(18) STOCK OPTION PLAN
In 1988, the Company adopted a stock option program (the "Program") for
the benefit of its directors, officers and other selected key
employees of the Company. Four kinds of rights are contained in the
program and are available for grant: incentive stock options (options
to purchase common stock, granted to officers and key employees),
compensatory stock options (options to purchase common stock, granted
to directors), stock appreciation rights and performance share
awards. A total of 241,500 shares of common stock were reserved for
issuance pursuant to the exercise of stock options under the Program.
As of December 31, 1996, the Company had granted incentive stock
options and compensatory stock options as discussed in more detail
below. No stock appreciation rights or performance share awards have
been issued to date. The Program provides that incentive stock
options and compensatory stock options are granted to purchase stock
at the market value of the stock at the date of the grant; such
grants are exercisable immediately for compensatory stock options,
and ratably over a three-year period for incentive stock options. All
stock options expire at the earlier of ten years from the date of the
grant, or three months after the director, officer or employee ceases
employment with the Company.
(continued)
38
38
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) STOCK OPTION PLAN, CONTINUED
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 applies to stock-based
compensation under the Company's Program. As allowed by SFAS 123, the
Company elected to continue to measure compensation cost for the
options or shares granted under the Program using the intrinsic value
method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Under that accounting method, the
Company recorded no compensation expense related to the Program
during the years ended December 31, 1996, 1995 and 1994.
During the years ended December 31, 1996 and 1995, 47,000 and 52,100
options were granted under the Program. If compensation cost for the
Program had been determined based on the fair value of the awards at
the grant date, using the fair value method defined in SFAS 123, the
Company's net income and net income per share for 1996 and 1995 would
not have been materially reduced.
The stock option transactions were as follows:
INCENTIVE COMPENSATORY
STOCK OPTIONS STOCK OPTIONS
--------------------------- --------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------ --------- ------ ---------
Outstanding, December 31, 1993 133,125 $ 2.13 15,813 $ 2.13
Granted 10,000 $ 2.13 - -
------- ------
Outstanding, December 31, 1994 143,125 $ 2.13 15,813 $ 2.13
Granted 52,100 $ 2.25 - -
Cancelled or expired (10,000) $ 2.13 (2,875) $ 2.13
------- ------
Outstanding, December 31, 1995 185,225 $2.13 - $ 2.25 12,938 $ 2.13
Granted 47,000 $ 2.75 - -
Cancelled or expired (37,600) $2.13 - $ 2.25 (4,313) $ 2.13
------- ------
Outstanding, December 31, 1996 194,625 $2.13 - $ 2.75 8,625 $ 2.13
======= ======
At December 31, 1996, the weighted-average option price per share for
the incentive stock options was $2.30 and for the compensatory stock
options was $2.13. The weighted- average option price per share of
all options under the Program at December 31, 1996 was $2.29. Of the
total incentive stock options outstanding at December 31, 1996, 1995
and 1994, 114,624, 82,083 and 44,375, respectively, were exercisable.
(continued)
39
39
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(19) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented below.
Amounts shown as investment in wholly-owned subsidiaries and equity
in earnings of subsidiaries are eliminated in consolidation (in
thousands).
CONDENSED BALANCE SHEETS
AT DECEMBER 31,
---------------
1996 1995
---- ----
ASSETS
Cash, deposited with subsidiary $ 113 117
Investment in wholly-owned subsidiaries 20,167 18,663
------- ------
Total $20,280 18,780
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities -- --
Stockholders' equity 20,280 18,780
Total $20,280 18,780
======= ======
CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
Income:
Equity in undistributed earnings of subsidiaries $ 1,604 1,591 379
Other income 120 120 120
Expense (124) (65) (59)
------- ----- ---
Net income $ 1,600 1,646 440
======= ===== ===
(continued)
40
40
F.F.O. FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(19) PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------ ---- ------
Cash Flows from Operating Activities:
Net earnings $ 1,600 1,646 440
Adjustments to reconcile net earnings to net cash
(used in) provided by operations:
Equity in earnings of subsidiaries (1,604) (1,591) (379)
------- ----- ---
Net cash (used in) provided by operating activities (4) 55 61
------- ----- ---
Cash Flows from Financing Activities:
Proceeds from sale of common stock -- -- 2,400
Investment in subsidiary -- -- (2,400)
------- ----- ---
Net cash provided by financing activities -- -- --
------- ----- ---
Net (decrease) increase in cash (4) 55 61
Cash at beginning of year 117 62 1
------- ----- ---
Cash at end of year $ 113 117 62
======= ===== ===
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present summarized quarterly data (dollars in
thousands, except per share amounts):
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
Interest income $5,466 5,398 5,340 5,793 21,997
Interest expense 3,140 2,942 2,824 3,117 12,023
------ ----- ----- ----- ------
Net interest income 2,326 2,456 2,516 2,676 9,974
Provision for loan losses 150 -- 7 625 782
------ ----- ----- ----- ------
Net interest income
after provision for loan losses 2,176 2,456 2,509 2,051 9,192
Noninterest income 304 563 535 985 2,387
Noninterest expenses 2,391 2,187 3,771 827 9,176
------ ----- ----- ----- ------
Income (loss) before income taxes 89 832 (727) 2,209 2,403
Provision (credit) for income taxes 33 310 (270) 730 803
------ ----- ----- ----- ------
Net income (loss) $ 56 522 (457) 1,479 1,600
====== ===== ===== ===== ======
Income (loss) per share $ .01 .06 (.05) .17 .19
====== ===== ===== ===== ======
(continued)
41
41
F.F.O. FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements, Continued
(20) QUARTERLY FINANCIAL DATA (UNAUDITED), CONTINUED
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
Interest income $4,978 4,780 4,897 5,075 19,730
Interest expense 2,259 2,477 2,616 2,759 10,111
------ ----- ----- ----- ------
Net interest income 2,719 2,303 2,281 2,316 9,619
Provision for loan losses 141 30 154 152 477
------ ----- ----- ----- ------
Net interest income
after provision for loan losses 2,578 2,273 2,127 2,164 9,142
Noninterest income 663 665 604 670 2,602
Noninterest expenses 2,530 2,428 2,182 2,317 9,457
------ ----- ----- ----- ------
Income before income taxes 711 510 549 517 2,287
Provision for income taxes 250 174 190 27 641
------ ----- ----- ----- ------
Net income $ 461 336 359 490 1,646
====== ===== ===== ===== ======
Income per share $ .05 .04 .05 .06 .20
====== ===== ===== ===== ======
(21) SUBSEQUENT EVENT - PENDING MERGER
On March 10, 1997, the Holding Company executed a Letter of Intent to
merge with Republic Bancshares, Inc. ("Republic"). Under the terms of
the Letter of Intent, Republic will exchange shares of its common
stock for all of the outstanding shares of F.F.O.'s common stock at
an exchange ratio of .29 share of Republic common stock for each
share of F.F.O. common stock. The exchange ratio may be adjusted for
decreases in Republic's stock price, but in no event will the
exchange ratio exceed .30 share of Republic common stock for each
share of F.F.O. common stock. F.F.O. has the right to terminate the
transaction if Republic's stock price is less than $13.50 shortly
before closing. Outstanding options for F.F.O.'s common stock will be
converted into options for Republic common stock on the same terms.
The transaction is expected to be completed in 1997, and is to be
accounted for as a corporate reorganization under which the
controlling shareholder's interest in F.F.O. will be carried forward
at its historical cost while the minority interest in F.F.O. will be
recorded at fair value. The proposed merger is subject to completion
of a definitive agreement, approval by the respective shareholders of
F.F.O. and Republic, and approval by applicable regulatory
authorities. Upon completion of the proposed merger, the
then-outstanding options under the Company's stock option program
(see Note 18) will become immediately exercisable.
42
42
INDEPENDENT AUDITORS' REPORT
The Board of Directors
F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have audited the accompanying consolidated balance sheets of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1996 in conformity with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
February 11, 1997, except for Note 21,
as to which the date is March 11, 1997
43
43
F.F.O. FINANCIAL GROUP, INC. CORPORATE OFFICE
2013 LIVE OAK BOULEVARD
ST. CLOUD, FL 34771-8462
FIRST FEDERAL/OSCEOLA BRANCH OFFICE LOCATIONS
OSCEOLA COUNTY BREVARD COUNTY
BROADWAY (Main Office) MELBOURNE
200 East Broadway (34741-5791) 1300 Babcock Street
P. O. Box 421708 Melbourne, FL 32901-3097
Kissimmee, FL 34742-1708 (407) 984-3100
(407) 846-3000
IMPERIAL PLAZA
BERMUDA Building B, Suite 100
1115 North Bermuda Avenue 6769 North Wickham Road
Kissimmee, FL 34741-4209 Melbourne, FL 32940-2019
(407) 846-2171 (407) 255-3300
MILL CREEK CAUSEWAY
1300 East Vine Street 450 East Eau Gallie Boulevard
Kissimmee, FL 34744-3620 Indian Harbour Beach, FL 32937-4207
(407) 847-5566 (407) 773-5000
NINTH STREET MELBOURNE BEACH
1220 Ninth Street 401 Ocean Avenue
St. Cloud, FL 34769-3376 Melbourne Beach, FL 32951-2567
(407) 892-2181 (407) 725-7420
OAK PARK PALM BAY
4291 13th Street 6000 Babcock Street, SE
St. Cloud, FL 34769-6730 Palm Bay, FL 32909-3921
(407) 892-2191 (407) 768-2811
ORANGE COUNTY
WINTER GARDEN
232 South Dillard Street
Winter Garden, FL 32787-3510
(407) 656-5100
44
44
CORPORATE INFORMATION
DIRECTORS AND EXECUTIVE OFFICERS
DONALD S. BROWN, D.V.M.
Director, D. Brown Enterprises
JAMES B. DAVIS
Director, President and Chief Executive Officer
WILLIAM R. HOUGH
Director, President of William R. Hough & Co.
ALFRED T. MAY
Chairman of the Board
EDWARD A. MOORE
Director, Vice President of Poe & Brown Insurance
MILDRED W. PIERSON
Director, Retired Savings and Loan Executive
PHYLLIS A. ELAM
Senior Vice President, Chief Financial Officer and Corporate Secretary
- -----------------------------------------
Common Stock Data
F.F.O. Financial Group, Inc.'s Common Stock is traded on the NASDAQ Small
Cap Market System under the symbol "FFFG."
The following table sets forth, for the periods indicated, the range of
high and low bid prices for the Common Stock quoted on the NASDAQ Small Cap
Market System. Stock price data reflects inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily represent actual
transactions. Because the Common Stock is not actively traded, the prices
indicated below may not be an accurate indication of the Common Stock's actual
value.
Quarter Ended High Low
------------- ---- ---
December 31, 1996 4 2 3/4
September 30, 1996 3 1/8 2 1/2
June 30, 1996 3 1/2 2 5/8
March 31, 1996 2 7/8 2 3/8
December 31, 1995 2 5/8 2 1/4
September 30, 1995 2 1/2 2 3/8
June 30, 1995 2 3/8 2 1/4
March 31, 1995 2 1/4 2 1/8
The prices shown in the table above are not necessarily reflective of
current or future prices. As of December 31, 1996, no dividends had been
declared or paid on the Company's Common Stock. The Board of Directors of the
Company anticipates that for the foreseeable future any earnings of the
Association and the Company will be retained for purposes of enhancing the
Company's or the Association's capital position and for other purposes.
As of December 31, 1996, the Company's 8,430,000 outstanding shares of
Common Stock were held by 684 stockholders of record.
TRANSFER AGENT
ChaseMellon Shareholder Services
3rd Floor
4 Station Square
Pittsburgh, Pennsylvania 15219
INDEPENDENT AUDITORS
Hacker, Johnson, Cohen & Grieb
930 Woodcock Road, Suite 211
Orlando, Florida 32803
SPECIAL COUNSEL
Smith, Mackinnon, Harris, Greeley,
Bowdoin & Edwards, P.A.
Citrus Tower
255 South Orange Avenue, Suite 800
Orlando, Florida 32801
ANNUAL MEETING
The annual meeting of stockholders is scheduled for April,23, 1997, 10:00 a.m.,
at the Osceola County Stadium Clubhouse, 1000 Bill Beck Boulevard, Kissimmee,
Florida. Holders of record of the Company's Common Stock as of February 28,
1997 will be eligible to vote.
FORM 10-K
A copy of the Company's 1996 Annual Report on Form 10-K as filed with the U.S.
Securities and Exchange Commission will be furnished without charge (excluding
exhibits) to shareholders upon written request to:
Shareholder Relations
F.F.O. Financial Group, Inc.
2013 Live Oak Boulevard
St. Cloud, Florida 34771-8462