U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2002
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- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission Number: 0-32139
FLORIDAFIRST BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
Florida 59-3662010
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
205 East Orange Street, Lakeland, Florida 33801-4611
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (863) 688-6811
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Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .10 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price of the Registrant's Common Stock as
quoted on the Nasdaq National Market on December 10, 2002 of $24.02 per share,
was $108 million.
As of December 10, 2002, there were issued and outstanding 5,378,957 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
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General
The Registrant, FloridaFirst Bancorp, Inc. (the "Company") is the parent company
of and conducts most of its business operations through FloridaFirst Bank (the
"Bank"). The Bank, a federally-chartered savings bank headquartered in Lakeland,
Florida, is a community-oriented retail savings bank offering a full range of
deposit services to both consumers and commercial entities. The Bank's lending
activities include residential real estate mortgage loans, commercial real
estate loans, other commercial loans and consumer loans. The Bank has operated
within its market areas since 1934 and delivers its products and services
through eighteen offices located in Florida's Highlands, Polk, Manatee and
Sumter Counties.
On April 6, 1999, the Bank reorganized from a mutual savings association into a
mutual holding company named FloridaFirst Bancorp MHC and formed FloridaFirst
Bancorp, a middle-tier holding company, whereby the Bank became a wholly-owned
subsidiary of FloridaFirst Bancorp. In connection with the reorganization,
FloridaFirst Bancorp sold 2,703,851 shares of its Common Stock to the public and
the remaining 3,049,024 shares were held by FloridaFirst Bancorp MHC.
On December 21, 2000, the Company completed its stock offering in connection
with the conversion and reorganization of FloridaFirst Bank and its holding
company, FloridaFirst Bancorp, from the mutual holding company form of
organization to a full stock company. As part of the conversion and
reorganization, the shares formerly held by FloridaFirst Bancorp MHC were
cancelled, the Company sold 3,147,952 new shares to the public and the shares
held by stockholders of FloridaFirst Bancorp were exchanged for 2,372,048 shares
of the Company.
The Company provides commercial and retail banking services, with an emphasis on
one-to-four family residential mortgage loans, home equity loans and lines of
credit and consumer loans as well as certificates of deposit, checking accounts,
money-market accounts and savings accounts. In addition, the Company originates
commercial real estate loans and offers checking accounts and other credit
facilities to businesses within its market area. At September 30, 2002, the
Company had total assets, deposits and equity of $859.4 million, $587.4 million,
and $99.0 million, respectively.
The Company attracts deposits from the general public and uses these deposits
primarily to originate loans and to purchase mortgage-backed and other
securities. The principal sources of funds for the Company's lending and
investing activities are deposits, Federal Home Loan Bank ("FHLB") advances, the
sale of loans held for sale, loan repayments and sale, maturity, and call of
securities. The principal source of income is interest on loans and securities.
The principal expense is interest paid on deposits and FHLB advances.
On February 15, 2002, the Bank acquired seven Florida branches from SunTrust
Bank ("SunTrust") coincident with SunTrust's acquisition of such branches from
Huntington National Bank ("Huntington"). Four of the Huntington branches are
located in Lakeland, Florida, and one each in Avon Park, Sebring and Wildwood,
Florida. In this transaction, the Bank assumed approximately $162 million in
deposits and the purchase of approximately $26 million in loans related to the
seven branches.
On October 2, 2002, the Company signed a definitive agreement with BB&T
Corporation ("BB&T"), Winston-Salem, North Carolina, whereby BB&T would acquire
100% of the outstanding stock of the Company. However, pursuant to discussion
with regulatory officials, BB&T and the Company terminated the agreement on
October 31, 2002 so that BB&T could submit the proper application to request
permission to acquire control of the Company pursuant to regulatory guidelines.
The application was filed on November 4, 2002 with the Office of Thrift
Supervision ("OTS") and no further merger related activities will take place
until proper approval is obtained from the OTS.
1
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Company's market area of Highlands, Polk,
Manatee and Sumter Counties, Florida. Deposit competition also includes a number
of insurance products sold by local agents and investment products such as
mutual funds and other securities sold by local and regional brokers. Loan
competition varies depending upon market conditions and comes from other insured
financial institutions such as commercial banks, thrift institutions, credit
unions, multi-state regional banks, and mortgage bankers and brokers.
Lending Activities
General. The Company primarily originates one-to-four family residential real
estate loans, commercial real estate loans, consumer loans and other loans.
Consumer loans consist primarily of direct and indirect automobile loans, home
equity loans and lines of credit, and other consumer loans. The Company's
commercial real estate loans consist primarily of mortgage loans secured by
small commercial office/retail space, warehouses, small and medium sized
apartment buildings and residential real estate acquisition and development
projects.
2
Loan Portfolio Composition. The following table analyzes the composition of the
Company's loan portfolio by loan category and in percentages of the total loan
portfolios at the dates indicated ($ in thousands).
At September 30,
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2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Type of Loans:
Mortgage loans:
Residential:
Permanent.................. $ 301,622 57.7% $ 312,309 61.7% $ 304,419 66.1% $ 276,115 65.6% $ 244,667 68.3%
Construction............... 29,058 5.6 35,516 7.0 27,996 6.1 32,974 7.8 27,311 7.6
Commercial real estate........ 58,177 11.1 58,371 11.6 31,786 6.9 25,570 6.1 20,598 5.8
Land.......................... 15,806 3.0 8,907 1.8 12,886 2.8 9,548 2.3 6,796 1.9
Commercial........................ 10,806 2.1 5,061 1.0 2,533 .5 1,374 .3 1,083 .3
Consumer loans:
Home equity loans (1)......... 50,240 9.6 33,200 6.5 28,926 6.3 22,545 5.4 13,137 3.7
Auto loans.................... 39,989 7.6 42,293 8.3 40,717 8.8 42,181 10.0 34,795 9.7
Other......................... 17,352 3.3 10,439 2.1 11,396 2.5 10,318 2.5 9,800 2.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans....................... 523,050 100.0% 506,096 100.0% 460,659 100.0% 420,625 100.0% 358,187 100.0%
===== ===== ===== ===== =====
Less:
Construction loans in
process.................... 19,167 28,289 16,952 19,774 17,013
Allowance for loan losses..... 4,519 3,652 3,321 2,941 2,564
--------- --------- --------- --------- ---------
Total loans, net.................. $ 499,364 $ 474,155 $ 440,386 $ 397,910 $ 338,610
========= ========= ========= ========= =========
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(1) Includes home equity lines of credit.
3
Loan Maturity Schedule. The following table sets forth the maturity or repricing
of the Company's loan portfolio at September 30, 2002. Demand loans, loans
having no stated maturity, and overdrafts are shown as due in one year or less
(in thousands).
Commercial
Real Estate
Residential (1) and Land Consumer Commercial Total
--------------- -------- -------- ---------- -----
Amounts Due:
Within 1 Year................ $ 30,271 33,222 16,764 6,644 86,901
--------- ------ ------- ------ -------
After 1 Year:
1 to 3 years.............. 22,517 9,531 15,030 2,474 49,552
3 to 5 years.............. 7,369 13,382 28,567 1,618 50,936
Over 5 years.............. 270,523 17,848 47,220 70 335,661
--------- ------ ------- ------ -------
Total due after one year..... 300,409 40,761 90,817 4,162 436,149
--------- ------ ------- ------ -------
Total amount due............. $ 330,680 73,983 107,581 10,806 523,050
========= ====== ======= ====== =======
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(1) Includes $29,058 in construction loans.
The following table sets forth the dollar amount of all loans due after
September 30, 2003, which have predetermined interest rates or which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In thousands)
Residential........................ $ 271,940 28,469 300,409
Commercial real estate and land.... 39,496 1,265 40,761
Consumer........................... 90,817 - 90,817
Commercial......................... 4,162 - 4,162
--------- ------ -------
Total.............................. $ 406,415 29,734 436,149
========= ====== =======
Residential Lending. The Company's primary lending activity consists of the
origination of one-to-four family residential mortgage loans secured by property
located in the Company's market area. The Company generally originates
one-to-four family residential mortgage loans in amounts up to 80% of the lesser
of the appraised value or selling price of the mortgaged property without
requiring private mortgage insurance. The Company will originate a mortgage loan
in an amount up to 95% of the lesser of the appraised value or selling price of
a mortgaged property, however, private mortgage insurance for the borrower is
generally required on the amount financed in excess of 80%. The Company
currently originates shorter-term fixed-rate and adjustable-rate loans for
retention in its portfolio. Longer-term fixed-rate mortgages are generally sold
to correspondent lenders on a servicing released basis. A mortgage loan
originated by the Company, whether fixed-rate or adjustable-rate, can have a
term of up to 30 years. Adjustable-rate loans limit the periodic interest rate
adjustment and the minimum and maximum rates that may be charged over the term
of the loan.
The majority of the Company's one-to-four family residential loans (both
fixed-rate and adjustable-rate) are underwritten in accordance with Fannie Mae
or Freddie Mac guidelines, regardless of whether they will be held in portfolio
or sold in the secondary market. Substantially all of the Company's residential
mortgages include
4
"due on sale" clauses, which give the Company the right to declare a loan
immediately payable if the borrower sells or otherwise transfers an interest in
the property to a third party.
Property appraisals on real estate securing the Company's residential loans are
made by state certified and licensed independent appraisers approved by the
Board of Directors. Appraisals are performed in accordance with applicable
regulations and policies. The Company obtains title insurance policies on all
first mortgage real estate loans originated. Borrowers generally advance funds,
with each monthly payment of principal and interest, to a loan escrow account
from which the Company makes disbursements for such items as real estate taxes,
hazard insurance premiums and mortgage insurance premiums as they become due.
Construction Lending. The Company is an active lender in the construction of
one-to-four family houses. The residential construction loans are made both to
individual homeowners for the construction of their primary residence and to
local builders for the construction of pre-sold houses or houses that are being
built for speculative purposes.
As of September 30, 2002, 75% of all the Company's residential construction
loans were made to individual homeowners. After the house is constructed, the
loan terms are modified to terms that apply to permanent residential loans. The
underwriting guidelines for the construction to permanent loans are the same as
the permanent loans, but additional construction administration procedures and
inspections are followed during the construction process to assure that
satisfactory progress is being made prior to funding the construction draw
requests.
Construction lending is generally considered to involve a higher degree of
credit risk than long-term financing of residential properties. The Company's
risk of loss on a construction loan depends largely on the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction. If the estimate of construction cost and the
marketability of the property after the project is completed prove to be
inaccurate, the Company may be compelled to advance additional funds to complete
the construction. Furthermore, if the final value of the completed property is
less than the estimated amount, the value of the property might not be
sufficient to assure the repayment of the loan.
The Company limits its exposure for construction loans made to local builders
through periodic credit analysis on the individual builder and a series of
inspections throughout the construction phase. In addition, the Company limits
the amount and number of loans made to an individual builder for the
construction of pre-sold and speculative houses based on the financial strength
of the builder. At September 30, 2002, approximately 25% of the Company's
construction loans were to local builders.
Commercial Real Estate and Other Mortgage Loans. The Company originates
commercial real estate mortgage loans and loans on multi-family dwellings and
developed and undeveloped land. The Company's commercial real estate mortgage
loans are primarily permanent loans secured by improved property such as office
buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and
based on the financial strength of the project and any guarantors. The average
loan size is approximately $300,000 and loans are typically made at fixed rates
of interest with five to ten year maturities, at which point the loan is repaid
or the terms and conditions are renegotiated. Essentially all originated
commercial real estate loans are within the Company's market area and all are
within the State of Florida. The Company's largest commercial real estate loan
had a balance of $4.9 million on September 30, 2002 and was secured by a Class A
office building. Typically, commercial real estate loans are originated in
amounts up to 80% of the appraised value of the mortgaged property.
Commercial real estate, multi-family and land loans generally have a
significantly greater risk than loans on single family real estate. The
repayment of these loans typically depends on the successful operations and
income stream of the commercial real estate and the borrower. Such risks can be
significantly affected by
5
economic conditions. In addition, commercial real estate lending generally
requires substantially greater oversight efforts compared to residential real
estate lending.
Commercial Loans. To accomplish its mission to become a full-service community
bank, the Company has expanded its products and services offerings to the small-
to medium-size businesses within its market area. Experienced personnel have
been hired to assist in reaching the Company's objectives. Sales call programs,
credit analysis guidelines, loan grading systems, technology upgrades and new
products and services have been implemented to improve our lending capabilities.
The Company not only satisfies the borrowing needs of prospective business
customers, but provides the full complement of deposit services and customer
services related to the checking, savings, and cash management needs of these
businesses.
Unlike residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other income
and which are secured by real property with a value that tends to be more easily
ascertainable, commercial business loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself, which is likely to be dependent upon the general economic environment.
The Company's commercial business loans are sometimes, but not always, secured
by business assets, such as accounts receivable, equipment and inventory, as
well as real estate. However, the collateral securing the loans may depreciate
over time, may be difficult to appraise, and may fluctuate in value based on the
success of the business.
The Company recognizes the generally increased risks associated with commercial
business lending. The Company's commercial business lending policy emphasizes
the following:
> credit file documentation,
> analysis of the borrower's capacity to repay the loan,
> adequacy of the borrower's capital and collateral,
> analysis of the borrower's character, and
> evaluation of the industry conditions affecting the borrower.
Analysis of the borrower's past, present and future cash flows is also an
important aspect of the Company's credit analysis. The Company plans to expand
its commercial business lending, subject to market conditions.
The Company generally obtains annual financial statements from borrowers for
commercial business loans. These statements are analyzed to monitor the quality
of the loan. As of September 30, 2002, the commercial business loans ranged from
$3,000 to $2.2 million, with an average balance outstanding of $275,000.
Consumer Loans. Consumer loans consist primarily of automobile loans and home
equity loans and credit lines. The Company also originates unsecured lines of
credit, loans secured by savings accounts and other consumer loans. Consumer
loans are originated in the Company's market area and generally have maturities
up to 15 years. For savings account loans, the Company will lend up to 90% of
the account balance.
Consumer loans have a shorter term and generally provide higher interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between average loan yield and costs of funds and at the same time
improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one-to-four family residential mortgage
loans, particularly consumer loans secured by depreciable assets such as
automobiles or loans that are unsecured. In such cases, any repossessed
collateral for a defaulted loan may not provide an adequate source of repayment
of
6
the outstanding loan balance, since there is a greater likelihood of damage,
loss or depreciation of the underlying collateral. Further, consumer loan
collections depend on the borrower's continuing financial stability, and
therefore are more likely to be adversely affected by job loss, divorce, illness
or personal bankruptcy. Even for consumer loans secured by real estate, the risk
to the Company is greater than in the single-family loan portfolio, in that the
security for consumer loans is generally not the first lien on the property and
ultimate collection of amounts due may depend on whether any value remains after
collection by a holder with a higher priority than the Company. Finally, the
application of various federal laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans after
a default.
At September 30, 2002, 54% of the Company's automobile loans outstanding were
loans originated through local automobile dealerships. Although this type of
lending generally carries a greater risk factor, the Company has experienced
personnel to handle this type of lending. The dealer arrangements are limited
primarily to a few local dealers where long-term relationships have been
established and the loans acquired typically are those made to higher-credit
quality borrowers.
The underwriting standards employed by the Company for consumer loans include a
determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.
Loan Solicitation and Processing. The Company's customary sources of mortgage
loan applications include repeat customers, walk-ins, and referrals from home
builders and real estate brokers. Commercial customer relationships are
developed through the officer call program and from referrals developed through
the branch network.
After receiving a loan application from a prospective borrower, a credit report
and verifications are ordered to confirm specific information relating to the
loan applicant's employment, income and credit standing. An appraisal of the
real estate intended to secure the proposed loan is undertaken by an independent
fee appraiser. In connection with the loan approval process, the Company's staff
analyzes the loan applications and the property involved. Officers and lenders
are granted lending authority based on the loan types they handle and their
level of experience. Generally, a management loan committee approves loans
exceeding individual authorities, with the Executive Committee or the full Board
of Directors approving loans in excess of management's authority.
Loan applicants are promptly notified of the decision of the Company by a letter
setting forth the terms and conditions of the decision. If approved, these terms
and conditions include the amount of the loan, interest- rate basis,
amortization term, a brief description of real estate to be mortgaged to the
Company, tax escrow and the notice of requirement of insurance coverage to be
maintained to protect the Company's interest. The Company requires title
insurance on first mortgage loans and fire and casualty insurance on all
properties securing loans, which insurance must be maintained during the entire
term of the loan.
Loan Commitments. The Company generally grants commitments to fund fixed- and
adjustable-rate single family mortgage loans for periods of 60 days at a
specified term and interest rate. The total amount of the Company's commitments
to extend credit, including letters of credit, unfunded construction and line of
credit loans, as of September 30, 2002 was $51.4 million.
Loan Origination and Other Fees. In addition to interest earned on loans, the
Company may charge loan origination and commitment fees for originating or
purchasing certain loans. Since most loans are originated without points being
charged, the Company has assessed customers certain fees related to underwriting
and
7
document preparation. The Company believes these fees approximate the costs to
originate the loans. Therefore, net deferred fees are minimal and deferrals
would have an immaterial effect on operating results.
The Company also receives other fees and charges relating to existing loans,
which include late charges and fees collected in connection with a change in
borrower or other loan modifications. These fees and charges have not
constituted a material source of income.
Nonperforming Loans and Problem Assets
Collection Procedures. The Company's collection procedures provide that when a
loan is 15 days delinquent, the borrower is notified. If the loan becomes 30
days delinquent, the borrower is sent a written delinquency notice requiring
payment. If the delinquency continues, subsequent efforts are made to contact
the delinquent borrower. In certain instances, the Company may modify the loan
or grant a limited moratorium on loan payments to enable the borrower to
reorganize his financial affairs and the Company attempts to work with the
borrower to establish a repayment schedule to cure the delinquency. As to
mortgage loans, if the borrower is unable to cure the delinquency or reach a
payment agreement with the Company within 90 days, the Company will institute
foreclosure actions. If a foreclosure action is taken and the loan is not
reinstated, paid in full or refinanced, the property is sold at judicial sale at
which the Company may be the buyer if there are no adequate offers to satisfy
the debt. Any property acquired as the result of foreclosure or by deed in lieu
of foreclosure is classified as foreclosed assets until such time as it is sold
or otherwise disposed of by the Company. When foreclosed assets are acquired,
they are recorded at the lower of the unpaid principal balance of the related
loan or its fair market value less estimated selling costs. The initial
writedown of the property is charged against the allowance for loan losses.
As to commercial-related loans, the main thrust of the Company's collection
efforts is through telephone contact and a sequence of collection letters. If
the Company is unable to resolve the delinquency within 90 days or in some
situations shorter time periods, the Company will pursue all available legal
remedies. The Company's commercial lenders are required to evaluate each
assigned account on a case-by-case basis, within the parameters of the Company's
policies.
Loans are reviewed on a regular basis and are placed on a nonaccrual status when
they are more than 90 days delinquent. Loans may be placed on a nonaccrual
status at any time if, in the opinion of management, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan.
8
Nonperforming Assets. The following table provides information regarding the
Company's non-performing loans and other nonperforming assets as of the end of
each of the last five fiscal years. As of each of the dates indicated, the
Company did not have any troubled debt restructurings within the meaning of
Statement of Financial Accounting Standards ("SFAS") No. 15.
At September 30,
--------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
($ in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
Residential loans ............................. $ 483 320 33 581 445
Other mortgage loans .......................... 190 489 638 103 -
Commercial loans .................................. 18 - 45 - -
Consumer loans:
Home equity loans ............................. 175 69 - - -
Other consumer loans .......................... 245 82 46 146 391
------ ----- --- ----- -----
Total ............................................. $1,111 960 762 830 836
====== ===== === ===== =====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Residential loans ............................. - - - - -
Other mortgage loans .......................... - - - - -
Commercial loans .................................. - - - - -
Consumer loans:
Home equity loans ............................. - - - - -
Other consumer loans .......................... - - - - -
------ ----- --- ----- -----
Total ............................................ $ - - - - -
====== ===== === ===== =====
Total nonperforming loans ......................... $1,111 960 762 830 836
====== ===== === ===== =====
Foreclosed assets ................................. $ 347 276 203 203 494
====== ===== === ===== =====
Total nonperforming assets ........................ $1,458 1,236 965 1,033 1,330
====== ===== === ===== =====
Total nonperforming loans to gross loans
less LIP ...................................... .22% .20% .17% .21% .25%
====== ===== === ===== =====
Total nonperforming loans to total assets ......... .13% .15% .13% .17% .20%
====== ===== === ===== =====
Total nonperforming assets to total assets ........ .17% .19% .17% .21% .32%
====== ===== === ===== =====
During the year ended September 30, 2002, approximately $47,000 of interest
would have been recorded on loans accounted for on a nonaccrual basis if such
loans had been current according to the original loan agreements for the entire
period.
9
Classified Assets. Management, in compliance with regulatory guidelines, has
instituted an internal loan review program whereby loans are classified as
special mention, substandard, doubtful or loss. When a loan is classified as
substandard or doubtful, management is required to establish a valuation
allowance for loan losses in an amount that is deemed prudent. When management
classifies a loan as a loss asset, a reserve equal to 100% of the loan balance
is required to be established or the loan is charged-off. This allowance for
loan losses is composed of an allowance for both inherent risk associated with
lending activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by the
paying capacity and net worth of the borrower or the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a loss
reserve is not warranted. Assets which do not currently expose the insured
institution to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated special mention by management. In
addition, each loan that exceeds $500,000 and each group of loans to one
borrower that exceeds $500,000 is monitored more closely due to the potentially
greater losses from such loans.
Management's evaluation of the classification of assets and the adequacy of the
allowance for loan losses is reviewed by the Board on a regular basis and by the
regulatory agencies as part of their examination process. At September 30, 2002,
the Company's classified assets were as follows (in thousands):
Special mention........... $ 5,046
Substandard............... 3,723
Doubtful.................. -
Loss...................... -
-------
Total..................... $ 8,769
=======
A brief description of classified assets at September 30, 2002 follows:
Special Mention
- ---------------
> $1.8 million in corporate bonds that have a split investment rating,
meaning that one national rating agency has rated the bond as investment
grade while another rating agency rates the bond below investment grade.
The Company's policy allows purchase of bonds where one nationally
recognized rating agency has given a rating as investment grade. Both bonds
are debt of financial institutions where the Company has evaluated the
performance characteristics of the companies. Both securities have an
unrealized gain as of September 30, 2002.
> $1.1 million of commercial loans (consisting of 27 loans) acquired in the
Branch Acquisition have been classified due to the poor financial
information, creating an increased level of risk concerning the repayment
on these loans.
> $1.2 million, consisting of two commercial loans, have been classified due
to certain concerns involving the lack of current financial information,
vacancy rates or potentially inadequate cash flows.
10
Substandard
- -----------
> $875,000 for vacant land that was originally purchased for the construction
of a retail sales office. However, a change in plans has caused the Company
to actively market the land. Therefore, as a nonearning asset, the land has
been classified as substandard for regulatory reporting purposes.
> $1.4 million of commercial loans (consisting of 35 loans) that have been
graded internally as substandard due to poor financial information or lack
of adequate collateral. Approximately 50% of these loans were acquired in
the Branch Acquisition.
> The remaining substandard assets consist of normal mortgage foreclosures,
repossessed consumer assets and loans that are in nonaccrual status.
Foreclosed Assets. Assets acquired by the Company as a result of foreclosure, by
deed in lieu of foreclosure or through repossession are classified as foreclosed
assets until such time as they are sold. When assets are acquired, they are
recorded at the lower of the unpaid balance of the related loan or its fair
value less disposal costs. Any further write-down of these assets is charged to
earnings.
Allowance for Losses on Loans. It is the policy of management to provide for
losses on unclassified loans in its portfolio in addition to classified loans. A
provision for loan losses is charged to earnings based on management's
evaluation of the potential losses that may be incurred in the Company's loan
portfolio.
Management will continue to review the entire loan portfolio to determine the
extent, if any, to which further additional loan loss provisions may be deemed
necessary. There can be no assurance that the allowance for loan losses will be
adequate to cover losses which may be realized in the future. In addition, there
can be no assurance that additional provisions for losses on loans and
foreclosed assets will not be required.
11
The following table sets forth information with respect to the Company's
allowance for loan losses at the dates indicated:
At or During the Year Ended September 30,
-------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
($ in thousands)
Allowance for loan losses, beginning of
year................................... $ 3,652 3,321 2,941 2,564 2,633
-------- ------- ------- ------- -------
Provision for loan losses ...................... 680 615 630 540 405
-------- ------- ------- ------- -------
Allowance acquired during branch
acquisition ........................... 1,000 - - - -
-------- ------- ------- ------- -------
Charge-offs:
Residential ................................ (25) (15) (32) (37) (218)
Commercial and commercial real
estate .................................. (450) (45) - - (146)
Consumer ................................... (433) (326) (256) (214) (110)
-------- ------- ------- ------- -------
Total charge-offs .............................. (908) (386) (288) (251) (474)
Recoveries ..................................... 95 102 38 88 -
-------- ------- ------- ------- -------
Net charge-offs ................................ (813) (284) (250) (163) (474)
-------- ------- ------- ------- -------
Allowance for loan losses, end of year.......... $ 4,519 3,652 3,321 2,941 2,564
======== ======= ======= ======= =======
Total loans less LIP outstanding................ $503,883 477,807 443,707 400,851 341,174
======== ======= ======= ======= =======
Average loans less LIP outstanding.............. $482,809 463,569 423,409 368,513 339,218
======== ======= ======= ======= =======
Allowance for loan losses as a percent
of total loans less LIP outstanding ........ .90% .76% .75% .73% .75%
Net loans charged off as a percent of
average loans less LIP outstanding ......... .17% .06% .06% .04% .14%
12
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the Company's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the allowance for loan losses allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total allowance for loan losses is a
valuation allowance applicable to the entire loan portfolio.
At September 30,
----------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
($ in thousands)
At end of period allocated to:
Residential....................... $ 1,796 63.3% $ 1,846 68.7% $ 1,804 72.2% $ 1,689 73.4% $ 1,564 75.9%
Commercial real estate and land... 727 14.1 748 13.4 568 9.7 309 8.4 226 7.7
Commercial........................ 826 2.1 76 1.0 25 .5 17 .3 13 .3
Consumer ......................... 1,170 20.5 982 16.9 924 17.6 926 17.9 761 16.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance................... $ 4,519 100.0% $ 3,652 100.0% $ 3,321 100.0% $ 2,941 100.0% $ 2,564 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
13
Investment Activities
General. Federally-chartered savings banks have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various Federal agencies (including securities collateralized by
mortgages), certain certificates of deposits of insured banks and savings
institutions, municipal securities, corporate debt securities and loans to other
banking institutions.
The Company maintains liquid assets which may be invested in specified
short-term securities and certain other investments. Liquidity levels may be
increased or decreased depending on the yields on investment alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other opportunities and its expectation of future yield levels,
as well as management's projections as to the short-term demand for funds to be
used in the Company's loan origination and other activities. At September 30,
2002, the Company had a securities portfolio of $272.6 million (31.7% of total
assets).
Investment Policies. The investment policy of the Company, which is established
by the Board of Directors, is designed to foster earnings and liquidity within
prudent interest-rate risk guidelines, while complementing the Company's lending
activities. The policy provides for available for sale, held to maturity and
trading classifications. However, the Company does not currently use a trading
classification and does not anticipate doing so in the future. The policy
permits investments in high credit quality instruments with diversified cash
flows while permitting the Company to maximize total return within the
guidelines set forth in the Company's interest-rate risk and liquidity
management policy. Permitted investments include but are not limited to U. S.
government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, mortgage-backed securities
and collateralized mortgage obligations, investment grade corporate debt
securities, commercial paper and common stock. The Company also invests in FHLB
overnight deposits and federal funds, but these instruments are not considered
part of the investment portfolio.
The policy also includes several specific guidelines and restrictions to insure
adherence with safe and sound activities. The policy prohibits investments in
high risk mortgage derivative products (as defined within its policy) without
prior approval from the Board of Directors. Management must demonstrate the
business advantage of such investments. In addition, the policy limits the
maximum amount of the investment in a specific investment category. The Company
does not participate in hedging programs, interest-rate swaps, or other
activities involving the use of off-balance sheet derivative financial
instruments. Further, the Company does not invest in securities that are not
investment grade.
The Board through its Investment and Asset Liability Committee ("ALCO") has
charged the Chief Financial Officer to implement the policy. All transactions
are reported to the Board of Directors monthly, with the entire portfolio
reported quarterly, including market values and unrealized gains (losses).
Securities. The Company maintains a portfolio of securities that are all
classified as available for sale to enhance total return on investments. At
September 30, 2002, the Company's securities included U.S. government agency
obligations with varying characteristics as to rate, maturity and call
provisions, corporate bonds, and municipal bonds. Callable agency securities,
representing 46% of the Company's U.S. government agency obligations at
September 30, 2002, could reduce the Company's investment yield if these
securities are called prior to maturity.
14
Mortgage-backed Securities. The Company invests in mortgage-backed securities to
provide earnings, liquidity, cash flows, and diversification to the Company's
overall balance sheet. These mortgage-backed securities are classified as
available for sale. These securities are participation certificates issued and
guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac and are secured by
interests in pools of mortgages. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Company focuses its investments on mortgage-backed securities
secured by single-family mortgages.
Mortgage-backed securities typically are issued with stated principal amounts.
The securities are backed by pools of mortgages that have loans with interest
rates that are within a set range and have varying maturities. The underlying
pool of mortgages can be composed of either fixed-rate or adjustable-rate
mortgage loans. The interest-rate risk characteristics of the underlying pool of
mortgages (i.e., fixed-rate or adjustable-rate) and the prepayment risk, are
passed on to the security holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). The Company also invests in CMOs,
issued or sponsored by Fannie Mae, Freddie Mac or private issuers. CMOs are a
type of debt security that aggregates pools of mortgages and mortgage-backed
securities and creates different classes of CMO securities with varying
maturities and amortization schedules as well as a residual interest with each
class having different risk characteristics. The cash flows from the underlying
collateral are usually divided into "tranches" or classes whereby tranches have
descending priorities with respect to the distribution of principal and interest
repayment of the underlying mortgages and mortgage-backed securities as opposed
to mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying CMOs are paid
in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche or class may
carry prepayment risk that may be different from that of the underlying
collateral and other tranches. Investing in CMOs allows the Company to moderate
reinvestment risk resulting from unexpected prepayment activity associated with
conventional mortgage-backed securities. Management believes these securities
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
Corporate Bonds. Corporate bonds (including capital trust securities) generally
have longer-term maturities, but include call provisions at earlier dates
(generally after five to ten years). The call provisions usually contain a
premium price to exercise the call feature. The Company has invested in these
longer maturity bonds and securities with fixed rates of interest to provide
higher yields to protect part of its assets from the possible decline in
interest rates over the life of the bond. Although interest rates may rise over
the life of these securities, management believes these securities provide a
good complement to those assets (loans and securities) which are subject to
periodic principal repayments and payoffs before contractual maturities.
Municipal Bonds. Municipal bonds have maturities from 11 to 20 years with
premium call provisions after seven to ten years. These bonds are exempt from
federal income taxes, therefore, have lower stated interest rates. All municipal
bonds owned by the bank have fixed rates of interest. The yields included in the
investment tables reflect the tax equivalent yields for the municipal bonds.
Other Securities. Other securities owned by the Company, but not included in the
security portfolio, consist of FHLB stock, interest-bearing deposits and federal
funds sold. As a member of the FHLB of Atlanta, ownership of FHLB of Atlanta
common shares is required. The remaining securities provide diversification and
complement the Company's overall investment strategy.
15
The following table sets forth the carrying value of the Company's securities
portfolio at the dates indicated.
At September 30,
----------------------------
2002 2001 2000
---- ---- ----
(In thousands)
Securities held to maturity:
- ----------------------------
U.S. government agency securities................. $ - - 1,000
Collateralized mortgage obligations .............. - - 8,687
-------- ------- -------
Total securities held to maturity ................ - - 9,687
-------- ------- -------
Securities available for sale (at fair value):
- ----------------------------------------------
U.S. government agency securities ................ 28,184 8,850 19,357
Collateralized mortgage obligations .............. 46,391 44,045 18,072
Mortgage-backed securities ....................... 145,982 29,551 29,650
Corporate bonds .................................. 31,341 29,554 20,186
Municipal bonds .................................. 20,345 17,533 9,396
Common stock ..................................... 381 - -
-------- ------- -------
Total securities available for sale .............. 272,624 129,533 96,661
-------- ------- -------
Total ............................................ $272,624 129,533 106,348
======== ======= =======
16
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities (or repricing terms for variable
rate securities) of the Company's securities portfolio at September 30, 2002.
Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
At September 30, 2002
---------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Securities
----------------- ----------------- ----------------- ------------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
($ in thousands)
U.S. government agency
securities............ $ 2,050 6.10 12,441 3.90 6,818 4.10 6,875 3.72 28,184 4.07
Collateralized mortgage
obligations........... 2,585 3.62 - - - - 43,806 5.60 46,391 5.49
Mortgage-backed
securities............ 72 4.06 11,037 4.79 48,233 5.49 86,640 5.76 145,982 5.59
Corporate bonds.......... 6,562 6.30 6,580 7.85 2,178 7.99 16,021 8.64 31,341 7.94
Municipal bonds.......... - - - - - - 20,345 7.40 20,345 7.40
Common stock............. 381 1.19 - - - - - - 381 1.19
------- ------- ------- -------- --------
Total.................... $11,650 5.49 $30,058 5.09 $57,229 5.42 $173,687 5.30 $272,624 5.31
======= ======= ======= ======== ========
17
Sources of Funds
General. Deposits are the major source of the Company's funds for lending and
other investment purposes. Borrowings (principally from the FHLB) are used to
compensate for reductions in the availability of funds from other sources. In
addition to deposits and borrowing, the Company derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the maturity,
call and sale of mortgage-backed securities and other securities. Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.
Deposits. The Company offers a variety of deposit accounts, although a majority
of deposits are in fixed-term, market-rate certificate accounts. Deposit account
terms vary, primarily as to the required minimum balance, the time that the
funds must remain on deposit and the applicable interest rate.
The Company's current deposit products include certificate accounts ranging in
terms from 90 days to five years as well as checking, savings and money market
accounts. Individual retirement accounts (IRAs) are included in these accounts,
depending on the customer's investment preference.
Deposits are obtained primarily from residents of Highlands, Polk, Manatee and
Sumter Counties. The Company attracts deposit accounts by offering outstanding
service, competitive interest rates, and convenient locations and service hours.
The Company uses traditional methods of advertising to attract new customers and
deposits, including radio, cable television, direct mail and print media
advertising. The Company utilizes the services of deposit brokers from time to
time and management believes that an insignificant number of deposit accounts
are held by non-residents of Florida.
The Company pays interest on its deposits that are competitive in its market.
Interest rates on deposits are set weekly by management, based on a number of
factors, including:
> projected cash flow;
> a current survey of a selected group of competitors' rates for similar
products;
> external data which may influence interest rates;
> investment opportunities and loan demand; and
> scheduled certificate maturities and loan and securities repayments.
Because of the large percentage of certificate accounts in the deposit portfolio
(61% at September 30, 2002), the Company's liquidity could be reduced if a
significant amount of these accounts, maturing within a short period of time,
were not renewed. A significant portion of the certificate accounts remain with
the Company after they mature and the Company believes that current renewal
patterns will continue. However, the need to retain these accounts could result
in an increase in the Company's cost of funds.
The following table shows the amount (in thousands) of the Company's certificate
accounts of $100,000 or more by time remaining until maturity as of September
30, 2002.
Maturity Period Amount
--------------- ------
Within three months........................ $ 17,782
Three through six months................... 14,023
Six through twelve months.................. 31,240
Over twelve months......................... 49,904
---------
Total............................. $ 112,949
=========
18
Borrowings. Deposits are the primary source of funds of the Company's lending
and investment activities and for general business purposes. The Company, as the
need arises or in order to take advantage of funding opportunities, may borrow
funds in the form of advances from the FHLB, short-term borrowings through the
Federal Reserve's Treasury Investment Program or reverse repurchase agreements
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. Advances from the FHLB are secured by stock in the FHLB and a
blanket lien over the Company's residential mortgage loans. Other borrowings are
secured by other assets, principally securities. The Company typically has
funded loan demand and investment opportunities out of current loan and
mortgage-backed securities repayments, securities maturities and new deposits.
However, the Company utilizes FHLB advances and other borrowings to supplement
these sources and as a match against certain assets in order to better manage
interest-rate risk. The following table sets forth the maximum month-end balance
and the average balance of these types of borrowings for the periods indicated.
For the Year Ended September 30,
--------------------------------
2002 2001 2000
---- ---- ----
($ in thousands)
Maximum amount of borrowings outstanding at any month end:
Advances from FHLB...................................... $ 149,500 151,250 158,000
Short-term Federal Reserve borrowings................... 15,000 11,049 -
Reverse repurchase agreements........................... 19,834 - -
Approximate average borrowings outstanding with respect to:
Advances from FHLB...................................... 130,430 140,120 128,523
Short-term Federal Reserve borrowings................... 6,031 1,670 -
Reverse repurchase agreements........................... 3,004 - -
Approximate weighted average rate paid on:
Advances from FHLB......................................... 5.45% 5.74% 5.93%
Short-term Federal Reserve borrowings...................... 1.61 3.46 -
Reverse repurchase agreements.............................. 2.27 - -
See Note 7 to the consolidated financial statements for additional information.
Personnel
As of September 30, 2002 the Company had 252 full-time employees and 16
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
19
Regulation
Set forth below is a brief description of certain laws relating to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of the Company
General. The Company is registered as a savings and loan holding company with
the OTS. The Company will be required to file reports with the OTS and will be
subject to supervision and periodic examination by the OTS. In addition, the OTS
will have enforcement authority over the Company and any non-savings institution
subsidiaries. The OTS can restrict or prohibit activities that it determines to
be a serious risk to the Company. OTS regulations are intended primarily for the
protection of the depositors and not for the benefit of the Company's
stockholders.
As a unitary savings and loan holding company, the Company generally is not
subject to any restrictions on its business activities. While the
Gramm-Leach-Bliley Act (the "GLB Act"), enacted in November 1999, terminated the
"unitary thrift holding company" exemption from activity restrictions on a
prospective basis, the Company enjoys grandfathered status under this provision
of the GLB Act because it acquired the Bank prior to May 4, 1999. As a result,
the Company's freedom from activity restrictions as a unitary savings and loan
holding company was not affected by the GLB Act. However, if the Company were to
acquire control of an additional savings association, its business activities
would be subject to restriction under the Home Owners' Loan Act. Furthermore, if
the Company were in the future to sell control of the Bank to any other company,
such company would not succeed to the Company's grandfathered status under the
GLB Act and would be subject to the same activity restrictions. The continuation
of the Company's exemption from restrictions on business activities as a unitary
savings and loan holding company is also subject to the Company's continued
compliance with the Qualified Thrift Lender ("QTL") test. See "- Regulation of
the Bank - Qualified Thrift Lender Test."
Regulation of the Bank
General. As a federally chartered, insured savings bank of the Savings
Association Insurance Fund ("SAIF"), the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). Lending
activities and other investments must comply with federal statutory and
regulatory requirements. The Bank is also subject to reserve requirements of the
Federal Reserve System. Federal regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. This
regulatory structure gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies regarding the classification of assets and the
establishment of an adequate allowance for loan losses.
The OTS regularly examines the Bank and prepares reports to Bank's board of
directors on deficiencies, if any, found in its operations. The Bank's
relationship with its depositors and borrowers is also regulated by federal law,
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition, and must obtain regulatory approvals prior to entering
into certain transactions such as mergers with or acquisitions of other
financial institutions. Any change in applicable statutory and regulatory
requirements, whether by the OTS, the FDIC or the United States Congress, could
have a material adverse impact on the Bank or the Company, and their operations.
Insurance of Deposit Accounts. The FDIC administers two separate deposit
insurance funds.
20
Generally, the Bank Insurance Fund ("BIF") insures the deposits of commercial
banks and the SAIF insures the deposits of savings institutions. The FDIC is
authorized to increase deposit insurance premiums if it determines such
increases are appropriate to maintain the reserves of either the SAIF or the BIF
or to fund the administration of the FDIC. In addition, the FDIC is authorized
to levy emergency special assessments on BIF and SAIF members. The FDIC has set
the deposit insurance assessment rates for SAIF member institutions for the
first six months of 2002 at 0% to .027 % of insured deposits on an annualized
basis, with the assessment rate for most savings institutions set at 0%.
In addition, all insured institutions of the FDIC are required to pay
assessments to the corporation at an annual rate of approximately .0212% of
insured deposits to fund interest payments on bonds issued by the Financing
Corporation, an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the Financing
Corporation bonds mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards:
> tangible capital equal to 1.5% of total adjusted assets;
> "Tier 1" or "core" capital equal to at least 3% of total adjusted assets
for savings institutions that receive the highest supervisory rating for
safety and soundness and 4% of total adjusted assets for all other thrifts;
and
> risk-based capital equal to 8% of total risk-weighted assets.
The Bank's capital ratios are set forth in Note 10 to the consolidated financial
statements.
For purposes of the OTS capital regulations, tangible capital is defined as core
capital less all intangible assets except for certain mortgage servicing rights.
Tier 1 and core capital are defined as common stockholders' equity,
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of consolidated subsidiaries, certain nonwithdrawable
accounts and pledged deposits of mutual savings associations and qualifying
supervisory goodwill. Tier 1 and core capital are reduced by an institution's
intangible assets, with limited exceptions for certain mortgage and nonmortgage
servicing rights and purchased credit card relationships. Both core and tangible
capital are further reduced by an amount equal to the savings institution's debt
and equity investments in "nonincludable" subsidiaries engaged in activities not
permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets.
Risk-based capital is comprised of core and supplementary capital. The
components of supplementary capital include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock, and the portion of the
allowance for loan losses not designated for specific loan losses. The portion
of the allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings institution's risk-based
capital is reduced by the amount of capital instruments held by other depository
institutions pursuant to reciprocal arrangements and by the amount of the
institution's equity investments, other than those deducted from core and
tangible capital, and its high loan-to-value ratio land loans and
non-residential construction loans.
A savings institution's risk-based capital requirement is measured against
risk-weighted assets, which equal the sum of each on-balance-sheet asset and the
credit-equivalent amount of each off-balance-sheet item after being multiplied
by an assigned risk weight. These risk weights range from 0% for cash to 100%
for delinquent loans, property acquired through foreclosure, commercial loans,
and other assets.
21
Dividend and Other Capital Distribution Limitations. The OTS imposes various
restrictions or requirements on the ability of savings institutions to make
capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan holding
company, such as the Bank, must file an application or a notice with the OTS at
least 30 days before making a capital distribution. A savings institution must
file an application for prior approval of a capital distribution if:
> it is not eligible for expedited treatment under the applications
processing rules of the OTS;
> the total amount of all capital distributions, including the proposed
capital distribution, for the applicable calendar year would exceed an
amount equal to the savings bank's net income for that year to date plus
the institution's retained net income for the preceding two years;
> it would not adequately be capitalized after the capital distribution; or
> the distribution would violate an agreement with the OTS or applicable
regulation.
The Bank will be required to file a capital distribution notice or application
with the OTS before paying any dividend to the Company. However, capital
distributions by the Company, as a savings and loan holding company, will not be
subject to the OTS capital distribution rules. The OTS may disapprove a notice
or deny an application for a capital distribution by the Bank if:
> the savings institution would be undercapitalized following the capital
distribution;
> the proposed capital distribution raises safety and soundness concerns; or
> the capital distribution would violate a prohibition contained in any
statute, regulation or agreement.
In addition, a federal savings institution cannot distribute regulatory capital
that is required for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a qualified
thrift lender test or they become subject to the business activity restrictions
and branching rules applicable to national banks. To qualify as a qualified
thrift lender, a savings institution must either:
> be deemed a "domestic building and loan association" under the Internal
Revenue Code by maintaining at least 60% of its total assets in specified
types of assets, including cash, certain government securities, loans
secured by and other assets related to residential real property,
educational loans and investments in premises of the institution; or
> satisfy the statutory qualified thrift lender test set forth in the Home
Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in
certain qualified thrift investments, defined to include residential
mortgages and related equity investments, certain mortgage-related
securities, small business loans, student loans and credit card loans, and
50% of certain community development loans. For purposes of the statutory
qualified thrift lender test, portfolio assets are defined as total assets
minus intangible assets, property used by the institution in conducting its
business, and liquid assets equal to 10% of total assets. A savings
institution must maintain its status as a qualified thrift lender on a
monthly basis in at least nine out of every 12 months. The Bank met the
qualified thrift lender test as of September 30, 2002 and in each of the
last 12 months and, therefore, qualifies as a qualified thrift lender.
22
Loans to One Borrower. Under federal law, savings institutions have, subject to
certain exemptions, lending limits to one borrower in an amount equal to the
greater of $500,000 or 15% of the institution's unimpaired capital and surplus.
As of September 30, 2002, the Bank's legal lending limit to one borrower was
$10.0 million.
FHLB System. The Bank is a member of the FHLB of Atlanta, which is one of 12
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
financial institutions and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members pursuant to policies
and procedures established by the board of directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB of
Atlanta in an amount equal to the greater of 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of FHLB advances. The Bank is in compliance
with this requirement. The FHLB imposes various limitations on advances such as
limiting the amount of certain types of real estate related collateral generally
to 30% of a member's capital and limiting total advances to a member.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their checking accounts and non- personal certificate accounts. At
September 30, 2002 the Bank was in compliance with these requirements.
23
Item 2. Description of Property
- ------- -----------------------
The Company's corporate office is located at 205 East Orange Street in Lakeland,
Florida and conducts its business through eighteen offices, which are located in
Highlands, Polk, Manatee and Sumter Counties in Florida. The following table
sets forth the location of each of our offices, the year the office was opened
and the net book value (in thousands) of each office and its related equipment.
Year
opened or Leased or Net book value at
Building/Office Location acquired Owned September 30, 2002
-------------------------------------- ---------- --------------- ------------------
Corporate Headquarters and
Downtown Branch Office 1957 Owned $ 3,115
Branch Offices:
Avon Park 2002 Owned 407
Combee 2002 Owned 390
Cortez (Bradenton) 1972 Leased (1) 64
Edgewood 2002 Owned 497
Grove Park 1961 Owned 405
Harden 2002 Owned 565
Highlands 1972 Owned 621
Interstate 1985 Owned 439
Lakewood Ranch 2001 Owned 2,467
Marcum 2002 Owned 464
Scott Lake 1997 Owned 517
Sebring 2002 Owned 541
Town and Country 2000 Leased (2) 231
West Bradenton 1989 Owned 862
Wildwood 2002 Owned 378
Winter Haven North 1978 Owned 438
Winter Haven South 1995 Owned 770
Operations Center 1964 Owned 237
Residential Lending Office 1999 Leased (3) 45
Other construction in progress (4) 1,268
- ------------------
(1) Five-year lease that terminates December 31, 2003, but has two three-year
renewal options.
(2) Ten year lease with two five year options.
(3) Three-year lease that terminates April 30, 2005, but has five one-year
renewal options.
(4) Represents primarily land and construction costs of a new branch office.
24
Item 3. Legal Proceedings
- ------- -----------------
From time to time the Company and the Bank are involved as plaintiff or
defendant in various legal actions arising in the normal course of business.
Presently, neither the Company nor the Bank is a party to any material pending
legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
25
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------------
Matters
-------
Stock Market Information and Dividends
Since its issuance on April 6, 1999, the Company's common stock has traded on
the Nasdaq National Market under the symbol FFBK. Upon completion of the
conversion and reorganization on December 21, 2000, the common stock continues
to trade on the Nasdaq National Market under the same symbol, FFBK. The
following table sets forth market price information, based on closing prices, as
reported by the Nasdaq National Market for the common stock high and low sales
prices for the periods indicated. The stock prices prior to December 22, 2000
are adjusted to reflect the exchange ratio of 1.0321 after the conversion and
reorganization. See Note 18 of the consolidated financial statements for a
summary of quarterly financial data.
Cash Dividends
High Low Per Share Declared
---- --- ------------------
Fiscal 2002
- -----------
First Quarter................... $ 16.60 $ 14.70 $ .05
Second Quarter.................. 18.40 16.20 .06
Third Quarter................... 20.07 18.10 .06
Fourth Quarter.................. 19.59 16.46 .06
Fiscal 2001
- -----------
First Quarter................... 12.56 10.62 .04
Second Quarter.................. 15.00 12.31 .05
Third Quarter................... 16.10 14.53 .05
Fourth Quarter.................. 17.48 13.75 .05
The number of stockholders of record of common stock as of September 30, 2002
was approximately 700, which does not include the number of persons or entities
who held stock in nominee or "street" name through various brokerage firms.
26
Item 6. Selected Financial Data
- ------- -----------------------
Selected Financial Highlights
(In thousands except per share data)
2002 2001 2000 1999 1998 (3)
---------- ------- ------- ------- -------
At Septembe 30:
Assets................................... $ 859,446 660,369 582,180 498,358 414,472
Loans, net............................... 499,364 474,155 440,386 397,910 338,610
Securities............................... 272,624 129,534 106,348 80,876 60,961
Cash and cash equivalents................ 30,628 21,676 6,734 2,598 647
Deposits................................. 587,431 399,537 354,554 339,224 352,180
FHLB advances and other borrowings....... 164,334 160,548 160,937 92,472 21,000
Stockholders' equity..................... 98,978 93,814 61,081 61,337 36,107
Actual number (not in thousands):
Real estate loans outstanding............ 4,189 4,481 4,615 4,696 4,433
Deposit Accounts......................... 49,244 36,168 36,747 38,409 38,409
Full service offices..................... 18 11 9 9 9
For the year ended September 30:
Interest income.......................... $ 48,910 44,846 39,840 32,648 32,141
Interest expense......................... 24,948 25,895 23,575 17,128 18,966
---------- ------- ------- ------- -------
Net interest income...................... 23,962 18,951 16,265 15,520 13,175
Provision for loan losses................ 680 615 630 540 405
---------- ------- ------- ------- -------
Net interest income after provision
for loan losses........................ 23,282 18,336 15,635 14,980 12,770
Noninterest income....................... 5,196 2,487 2,114 1,473 4,347
Noninterest expenses..................... 20,517 13,776 11,813 11,448 13,581
---------- ------- ------- ------- -------
Income before income taxes............... 7,961 7,047 5,936 5,005 3,536
Income taxes............................. 2,357 2,178 2,094 1,748 1,151
---------- ------- ------- ------- -------
Net income............................... $ 5,604 4,869 3,842 3,257 2,385
========== ======= ======= ======= =======
Basic earnings per share (1) (2)......... $ 1.10 .92 .71 .33 -
========== ======= ======= ======= =======
Diluted earnings per share (1) (2)....... $ 1.05 .90 .70 .33 -
========== ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding: (1) (2)
Basic (4).......................... 5,095 5,293 5,424 5,727 -
Diluted (4)........................ 5,339 5,429 5,516 5,727 -
- -----------------
(1) Year 2001 includes $30.6 million in net proceeds from the issuance of
common stock in connection with the conversion from a mutual holding
company to a full stock company on December 21, 2000.
(2) Years 2000 and 1999 include $25.7 million in net proceeds from the
reorganization on April 6, 1999. Prior to April 6, 1999, the Bank was a
mutual institution. Therefore, earnings per share and weighted average
shares outstanding in 1999 are for the six months ended September 30, 1999
(period subsequent to the reorganization.)
(3) During fiscal year 1998, the Bank sold five branches (and $55.5 million in
related deposits) that were not contiguous to its primary market area for a
pre-tax gain of $3.0 million. In connection with the sale of branches, the
Bank transferred $44.6 million in loans. In addition, noninterest expenses
includes special benefit plan adjustments of $2.2 million.
(4) Shares outstanding for the years ended 2000 and 1999 have been adjusted as
of the beginning of the periods to give effect to the 1.0321 exchange ratio
of previously issued shares in conjunction with the conversion that was
effective December 21, 2000.
27
Selected Financial Ratios
At or For the Year Ended September 30,
---------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Performance Ratios:
Return on average assets (net income
divided by average total assets).............. .74% .80% .70% .72% .55%
Return on average equity (net income
divided by average equity).................... 5.92 5.61 6.43 6.65 6.55
Net interest-rate spread.......................... 3.04 2.51 2.54 2.95 2.65
Net interest margin on average
interest-earnings assets...................... 3.47 3.30 3.13 3.56 3.10
Average interest-earning assets to
average interest-bearing liabilities.......... 112 118 113 116 110
Efficiency ratio (noninterest expense less
amortization of core deposit intangible,
divided by the sum of net interest income
and noninterest income)....................... 67 64 64 67 78
Asset Quality Ratios:
Nonperforming loans to total loans, net........... .22 .20 .17 .21 .25
Nonperforming assets to total assets.............. .17 .30 .17 .21 .32
Net charge-offs to average loans less LIP
outstanding................................... .17 .06 .06 .04 .14
Allowance for loan losses to total loans
less LIP...................................... .90 .76 .75 .74 .76
Capital Ratios:
Average equity to average assets
(average equity divided by average
total assets)................................. 12.57 14.17 10.94 10.84 8.31
Equity to assets at period end.................... 11.52 14.21 10.49 12.31 8.62
Dividend payout ratio............................. 22 19 10 12 -
28
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- ------------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Selected
Financial Highlights, Selected Financial Ratios and the Consolidated Financial
Statements - See Part II, Items 6 and 8 of this report.
Overview
On April 6, 1999, FloridaFirst Bank reorganized from a mutual savings
association into a mutual holding company named FloridaFirst Bancorp MHC and
formed FloridaFirst Bancorp, a middle-tier holding company, whereby FloridaFirst
Bank became a wholly-owned subsidiary of FloridaFirst Bancorp. In connection
with the reorganization, FloridaFirst Bancorp sold 2,703,851 shares of its
Common Stock to the public and the remaining 3,049,024 shares were held by
FloridaFirst Bancorp MHC.
On December 21, 2000, FloridaFirst Bancorp, Inc. (the "Company") completed its
stock offering in connection with the conversion and reorganization of
FloridaFirst Bank (the "Bank") and its holding company, FloridaFirst Bancorp,
from the mutual holding company form of organization to a full stock company. As
part of the conversion and reorganization, the shares formerly held by
FloridaFirst Bancorp MHC were cancelled, the Company sold 3,147,952 new shares
to the public and the shares held by stockholders of FloridaFirst Bancorp were
exchanged for 2,372,048 shares of the Company. The conversion and reorganization
was accounted for in a manner similar to a pooling of interests, whereby the
assets and liabilities of FloridaFirst Bancorp became the Company's assets and
liabilities.
On October 2, 2002, the Company signed a definitive agreement with BB&T
Corporation ("BB&T"), Winston-Salem, North Carolina, whereby BB&T would acquire
100% of the outstanding stock of the Company. However, pursuant to discussion
with regulatory officials, BB&T and the Company terminated the agreement on
October 31, 2002 so that BB&T could submit the proper application to request
permission to acquire control of the Company pursuant to regulatory guidelines.
The application was filed on November 4, 2002 with the Office of Thrift
Supervision ("OTS") and no further merger related activities will take place
until proper approval is obtained from the OTS.
Forward-Looking Statements
The following discussions contain forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of the Bank
and the Company. These forward-looking statements are generally identified by
use of the words "believe," "expect," "intend," "anticipate," "estimate,"
"project," or similar expressions. The Company's ability to predict results or
the actual effect of future plans or strategies is inherently uncertain. Factors
that could have a material adverse effect on the operations of the Company and
its subsidiaries include, but are not limited to, changes in interest rates,
general economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan and investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area, and changes in relevant
accounting principles. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. The Company does not undertake--and specifically disclaims--any
obligation to publicly release the results of any revisions after the date of
the statements or to reflect the occurrence of anticipated or unanticipated
events.
Business Strategy
The Company believes that pursuing a strategy to broaden the range of products
and services offered should offset the declining margins in the competitive
market for one-to-four family residential mortgage loans. The strategy includes:
> increasing the percentage of higher yielding and more interest sensitive
assets;
> increasing the percentage of commercial and consumer loans and commercial
deposit accounts;
> utilizing alternative sources of funding at reasonable rates;
> increasing sources of non-interest income;
> utilizing its computer network for enhanced sales, service and security
features; and
29
> utilizing alternative delivery systems, including its internet banking
product, and investigating an enhanced customer care center strategy.
Highlights of the business strategy are as follows:
Community-Oriented Institution. Based on total assets, the Bank is the largest
independent financial institution headquartered in Polk County, Florida. The
Bank is committed to meeting the financial needs of the communities in which it
operates. Management believes that the Bank is large enough to provide a full
range of personal and business financial services, and yet is small enough to
provide such services in a personalized and efficient manner. It is the Bank's
current plan to deliver the products and services that meet the needs of its
customers.
Commercial Banking. The Bank continues to expand its lending programs for
commercial business and commercial real estate loans in an effort to satisfy a
perceived need within its market area and increase its loan portfolio. The Bank
continues to realize a positive impact on its net interest margin since
commercial customers provide fair yields on loans, loans that generally provide
for shorter maturities or repricing periods than the traditional residential
mortgage loan, and provide a source of lower cost funds. The risks of commercial
lending relate to the source of repayment of the loan which is weighted toward
the ability to repay versus being primarily collateral dependent. In recent
years, the Bank has assembled an experienced commercial lending team to support
its increased activities in this area and to increase its penetration into the
smaller businesses operating in its market areas.
Branch Acquisition. On February 15, 2002, the Company finalized the purchase of
seven Florida retail sales offices ("Branch Acquisition") from SunTrust Bank
coincident with SunTrust Bank's acquisition of such offices from Huntington
National Bank ("Huntington"). The transaction resulted in the Company receiving
approximately $120.9 million in cash, and included approximately $162.1 million
in deposits and approximately $26.1 million in loans related to those seven
offices. The Company paid a premium of approximately 7.6%. This premium, along
with additional acquisition costs, resulted in a core deposit intangible asset
of $12.7 million being recorded which is subject to periodic amortization over a
period of twelve years. The cash received from the purchase was primarily used
to reduce $30.0 million in short-term fixed-rate and adjustable-rate FHLB
advances and fund the purchase of approximately $85.0 million in securities. The
securities were primarily mortgage-backed securities with average lives less
than five years that provide cash flow from the time of purchase. This strategy
allows the Company to immediately earn a fair rate of return on the invested
funds and utilize the cash flow from the securities to fund new loan
originations.
Comparison of Financial Condition at September 30, 2002 and September 30, 2001
Assets. Total assets increased $199.0 million, or 30.1 %, to $859.4 million at
September 30, 2002 from $660.4 million at September 30, 2001. The increase in
total assets resulted primarily from the assets acquired in the Branch
Acquisition (total assets added were $162.1 million), less the funds that were
utilized to immediately reduce our borrowing position by $30.0 million. Overall
securities increased $143.1 million, or 110.5%, through deployment of the funds
in the Branch Acquisition and additional purchases of securities that fit the
Company's strategic plan to increase profitability and leverage its capital. The
loan portfolio remained basically flat during the year, except for the $26.0
million in commercial and consumer loans acquired in the Branch Acquisition.
Management continues to concentrate its efforts to grow the commercial and
consumer loan portfolio to gradually leverage its capital. The capital
leveraging strategy also includes the purchase of securities to complement its
loan origination efforts.
Cash and cash equivalents increased $9.0 million due to excess funds resulting
from $15.0 million in a U. S. Treasury borrowing program that placed funds in
the bank just prior to year end.
Premises and equipment increased $3.8 million primarily due to the construction
of a new office, offices acquired in the Branch Acquisition, equipment for two
offices, renovations at several offices and capital expenditures to implement
certain phases of the strategic technology plan.
Cash surrender value of bank owned life insurance increased $5.3 million
primarily due the purchase of $4.5 million of additional policies, together with
an increase in the cash surrender value of the policies.
Liabilities. Total liabilities increased $193.9 million, or 34.2%, to $760.5
million at September 30, 2002 from $566.6 million at September 30, 2001. The
increase in total liabilities resulted mainly due to a net
30
deposit increase of $187.9 million. The increase in deposits resulted primarily
from the $162.1 million of deposits acquired in the Branch Acquisition. In
addition, checking and money market accounts experienced continued strong growth
through expansion of the customer base.
Management continues to evaluate the available funding sources. The attributes
of the alternative funding sources that management considers in its analysis
include the interest and other costs of such funding, the maturity
considerations and the nature and characteristics of assets being funded.
Stockholder's Equity. The $5.2 million increase in the stockholders' equity
includes:
> $5.6 million in net income;
> repurchase of 115,000 shares of the Company's stock at a cost of $2.2
million;
> purchase of 124,658 shares of the Company's stock for the restricted stock
plan at a cost of $2.3 million, less shares issued at a cost of
approximately $1.2 million;
> net distribution of $1.1 million from the restricted stock plan for vesting
of certain awards;
> increase in accumulated other comprehensive income of $3.6 million;
> repayment of $541,000 on the Employee Stock Ownership Plan ("ESOP") loan;
and
> dividends paid totaling $1.2 million.
The increased value in accumulated other comprehensive income resulted from the
fluctuation in market value of the Company's securities available for sale.
Because of continued interest rate volatility, accumulated other comprehensive
income and stockholders' equity could materially fluctuate for each interim and
year-end period.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of market opportunities. Funding loan requests, providing for
liability outflows, and managing interest rate fluctuations require continuous
analysis in order to match the maturities of short-term loans and investments
with specific types of deposits and borrowings. An institution's liquidity is
normally considered in terms of the nature and mix of the institution's sources
and uses of funds.
Assets providing liquidity are generated through loan repayments, loan sale and
the management of maturity distributions for loans and securities. An important
aspect of liquidity management lies in maintaining sufficient levels of loans
and mortgage-backed securities that generate monthly cash flows.
31
Cash and cash equivalents increased $9.0 million to $30.6 million for the year
ended September 30, 2002. Significant cash flows or uses (amounts shown in
parentheses) were as follows (in millions):
Cash provided by operations................................................... $ 6.1
Cash received upon purchase of deposits....................................... 120.9
Federal Home Loan Bank advances and other borrowings.......................... 3.8
Increase in net deposits, exclusive of branch acquisition..................... 25.8
Sales, maturities of and repayments on securities............................. 103.1
Net purchases of securities and FHLB stock.................................... (239.0)
Net purchases of premises and equipment, exclusive of branch acquisition...... (3.5)
Net decrease in loans, exclusive of branch acquisition........................ 1.0
Purchase of bank owned life insurance......................................... (4.5)
Payments to acquire treasury stock and restricted stock plan shares........... (4.5)
Dividends paid................................................................ (1.2)
Other, net.................................................................... 1.0
------
Net increase in cash and cash equivalents..................................... 9.0
======
The Company is subject to federal regulations that impose certain minimum
capital requirements. For a discussion on such capital levels, see Note 10 in
the consolidated financial statements.
Management is not aware of any known trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the Company's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily on its net interest
income, which is the difference between interest income earned on its loans and
securities ("interest-earning assets") and interest paid on its deposits and any
borrowed funds ("interest-bearing liabilities"). Net interest income is affected
by:
> the interest-rate spread - the difference between rates of interest earned
on interest-earning assets and rates paid on its interest-bearing
liabilities; and
> the aggregate amounts of its interest-earning assets and interest-bearing
liabilities.
32
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the periods indicated. The average yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Similar information is
provided as of September 30, 2002. Average balances are derived from daily
average balances.
Year Ended September 30,
--------------------------------------------------------------------------------------
At September 30, 2002 2002 2001 2000
--------------------- -------------------------- ---------------------------- ---------------------------
Actual Average Average Average
Actual Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
Interest-earning
assets:
Residential $ 316,923 7.02% $ 314,686 23,066 7.33% $ 322,388 24,544 7.61% $ 305,854 22,686 7.42%
Consumer 107,581 7.91 95,926 7,838 8.17 82,966 7,233 8.72 78,438 6,487 8.27
Commercial 79,379 6.93 72,197 5,344 7.40 58,215 4,894 8.41 39,117 3,297 8.43
--------- --------- -------- --------- -------- --------- --------
Total loans (1) 503,883 7.20 482,809 36,248 7.51 463,569 36,671 7.91 423,409 32,470 7.67
Securities and
other (2)(6) 296,099 5.56 220,793 13,128 5.95 121,925 8,552 7.01 102,800 7,592 7.39
--------- --------- -------- --------- -------- --------- --------
Total interest-
earning assets 799,982 6.61 703,602 49,376 7.02 585,494 45,223 7.72 526,209 40,062 7.61
-------- -------- --------
Noninterest-earning
assets 59,464 49,113 26,915 19,890
--------- --------- --------- ---------
Total assets $ 859,446 $ 752,715 $ 612,409 $ 546,099
========= ========= ========= =========
Interest-bearing
liabilities:
Checking accounts 74,923 1.31 58,195 844 1.45 32,937 590 1.79 31,416 576 1.83
Savings accounts 54,432 1.58 44,832 722 1.61 27,940 486 1.74 31,012 581 1.87
Money market accounts 68,634 1.99 54,762 1,404 2.56 28,766 1,205 4.19 25,008 1,068 4.27
Certificate accounts 358,177 3.94 329,291 14,874 4.52 263,512 15,519 5.89 245,754 13,519 5.50
--------- --------- -------- --------- -------- --------- --------
Total deposits 556,166 3.11 487,080 17,844 3.66 353,155 17,800 5.04 333,190 15,744 4.73
FHLB advances and
other borrowings 164,334 4.99 139,482 7,104 5.09 142,536 8,018 5.63 132,054 7,831 5.93
--------- --------- -------- --------- -------- --------- --------
Total interest-
bearing
liabilities 720,500 3.54 626,562 24,948 3.98 495,691 25,818 5.21 465,244 23,575 5.07
-------- --------
Noninterest-bearing
liabilities (3)(7) 39,968 31,534 29,960 77 21,094
--------- --------- --------- -------- ---------
Total liabilities 760,468 658,096 525,651 25,895 486,338
Stockholders' equity 98,978 94,619 86,758 59,761
--------- --------- --------- ---------
Total liabilities
and stockholders'
equity $ 859,446 $ 752,715 $ 612,409 $ 546,099
========= ========= ========= =========
Net interest income (6) $ 24,428 $ 19,328 $ 16,487
======== ======== ========
Interest rate spread (4) 3.08% 3.04% 2.51% 2.54%
==== ==== ==== ====
Net margin on interest-
earning assets (5) 3.36% 3.47% 3.30% 3.13%
==== ==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities 109% 112% 118% 113%
=== === === ===
- ------------------------
(1) Average balances include nonaccrual loans.
(2) Securities and other includes securities available for sale and held to
maturity, interest-bearing deposits and FHLB stock.
(3) Includes noninterest-bearing checking accounts.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net margin on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(6) Interest income and net interest income do not agree to the consolidated
statement of earnings because the tax equivalent income (based on effective
tax rate of 34%) on municipal bonds is included in this schedule.
(7) Interest in 2001 includes interest expense on $80.9 million of funds
received from the public stock offering.
33
Rate/Volume Analysis. The relationship between the volume and rates of the
Company's interest-earning assets and interest-bearing liabilities affects the
Company's net interest income. The following table reflects the sensitivity of
the Company's interest income and interest expense to changes in volume and in
prevailing interest rates during the periods indicated. Each category reflects
the: (1) changes in volume (changes in volume multiplied by old rate); (2)
changes in rate (changes in rate multiplied by old volume); and (3) net change.
The net change attributable to the combined impact of volume and rate has been
allocated proportionally to the absolute dollar amounts of change in each.
Year Ended September 30,
---------------------------------------------------------------------------------
2002 vs. 2001 2001 vs. 2000
--------------------------------------- --------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------------------- --------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars in thousands)
Interest income:
Residential............. $ (578) (900) (1,478) 1,248 610 1,858
Consumer................ 1,079 (474) 605 385 361 746
Commercial.............. 1,086 (636) 450 1,520 77 1,597
------- -------- ------- -------- ------ -------
Total loans.......... 1,587 (2,010) (423) 3,153 1,048 4,201
Securities and other.... 6,034 (1,458) 4,576 1,315 (355) 960
------- -------- ------- -------- ------ -------
Total interest income... $ 7,621 (3,468) 4,153 4,468 693 5,161
======= ======== ======= ======== ====== =======
Interest expense:
Checking accounts....... 384 (130) 254 27 (13) 14
Savings accounts........ 274 (38) 236 (55) (40) (95)
Money-market accounts... 796 (597) 199 157 (20) 137
Certificates of deposit. 3,407 (4,052) (645) 1,011 989 2,000
------- -------- ------- -------- ------ -------
Total deposits....... 4,861 (4,817) 44 1,140 916 2,056
------- -------- ------- -------- ------ -------
FHLB advances and other
borrowings............ (170) (821) (991) 567 (303) 264
------- -------- ------- -------- ------ -------
Total interest expense.. $ 4,691 (5,638) (947) 1,707 613 2,320
======= ======== ======= ======== ====== =======
Change in net interest
income................ $ 2,930 2,170 5,100 2,761 80 2,841
======= ======== ======= ======== ====== =======
34
Comparison of Operating Results for the Years Ended September 30, 2002 and
September 30, 2001
Net Income. Net income for the year ended September 30, 2002 increased $735,000,
or 15.1% to $5.6 million, compared to $4.9 million for the year ended September
30, 2001.
> Net interest income increased $5.0 million, or 26.4%, for the year ended
September 30, 2002 compared to the same period in 2001. This increase
resulted primarily from interest income increasing $4.1 million, together
with a decrease in interest expense of $947,000,
> Noninterest income increased by $2.7 million from 2001 to 2002 due mainly
to:
o increased fees and service charges mainly related to the Branch
Acquisition;
o earnings related to bank owned life insurance policies;
o gains on sale of mortgage loans;
o net gains on sale of securities.
> Noninterest expenses increased $6.7 million to $20.5 million for the year
ended September 30, 2002 from $13.8 million for the year ended September
30, 2001, due to increases in several expense categories, as discussed
below.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the year ended September 30, 2002
compared to the prior year. Detailed changes are contained in the Average
Balance Sheet table.
> While residential loan balances decreased as a result of loan sales and
accelerated repayments, consumer and commercial loan balances increased
primarily due to the addition of the loans acquired in the Branch
Acquisition. The Company continues to emphasize commercial and consumer
loan growth in an effort to restructure its loan portfolio.
> The average yield on loans decreased, as the sharp decrease in shorter-term
interest rates throughout calendar 2001 had a major impact on consumer and
commercial loan yields. The decrease in the commercial loan yield can also
be attributed to a change in the mix of the portfolio and the intense
competition for these loans. Increased refinance activity, due to the
overall lower interest rate environment, brought about a decrease in
residential loan yields.
> The average balances in the securities portfolio grew 111% as the Company
invested funds received from the Branch Acquisition, while it continued to
pursue the strategy of leveraging the capital raised in April 1999 and
December 2000.
> The lower yield in the securities portfolio resulted from a shift to
shorter duration and adjustable-rate securities in fiscal 2002 to manage
the interest-rate risk profile of the Company, as well as the previously
mentioned Federal Reserve policy to reduce short-term interest rates.
Interest Expense. The following discussion highlights the major factors that
impacted the changes in interest expense during the year ended September 30,
2002 when compared to the prior year. Detailed changes are contained in the
Average Balance Sheet table.
> Deposit growth of 47% was primarily attributable to the Branch Acquisition.
However, our increased sales effort to attract new and retain current
deposits, as well as customer concerns about equity investments, provided
additional deposit growth.
> Average FHLB advances and other borrowings decreased due to the repayment
of short-term fixed-rate and adjustable-rate advances with funds provided
by the Branch Acquisition.
> The growth in average balances in interest checking and money-market
accounts helped to reduce the overall cost of deposits, which is reflective
of the significant decrease in interest rates over the past year.
> The reduction in cost of funds related to the FHLB advances and other
borrowings reflects the Company's decision to replace short-term fixed-rate
advances with short-term daily rate credit advances and advances utilizing
the Treasury Investment Program. Actions by the Federal Reserve to decrease
short-term interest rates has provided a reduction in the cost of
adjustable-rate credit advances; however, greater declines in the overall
cost of advances were not achieved due to higher-rate convertible advances
taken out in 2000 when the consensus of opinion at that time was that rates
would continue to increase.
35
Provision for Loan Losses. The provision for loan losses is charged to earnings
to bring the total allowance for loan losses to an amount that represents
management's best estimates of the losses inherent in the loan portfolio at the
balance sheet date, based on historical experience, volume and type of lending
conducted by the Company, industry standards, the level and status of past due
and nonperforming loans, the general economic conditions in the Company's
lending area and other factors affecting the collectability of the loans in its
portfolio. The allowance for loan losses is maintained at a level that
represents management's best estimates of losses in the loan portfolio at the
balance sheet date. However, there can be no assurance that the allowance for
losses will be adequate to cover losses, which may be realized in the future,
and that additional provisions for losses will not be required.
The provision for loan losses was $680,000 for the year ended September 30, 2002
compared to $615,000 for fiscal 2001. The provision for loan losses increased
for the current year primarily as a result of increased consumer loan growth
from the seven new retail sales offices. The allowance for loan losses increased
to $4.5 million at September 30, 2002 from $3.7 million at September 30, 2001.
An additional $1.0 million was added to the allowance for loan losses related to
loans acquired in the Branch Acquisition due to the loans being underwritten on
a different basis than the Company's guidelines. A higher charge-off percentage
is anticipated on the loans acquired. The current allowance represents .90% of
loans outstanding at September 30, 2002. The Company had net charge-offs of
$813,000, approximately 50% of which related to loans acquired in the branch
acquisition, for the year ended September 30, 2002 compared to net charge-offs
of $284,000 for fiscal 2001. In addition, our classified assets increased $5.1
million as further discussed at page 10. The Company intends to maintain its
allowance for loan losses commensurate with its loan portfolio and classified
assets, especially its commercial real estate and consumer loan portfolio.
Noninterest Income. Noninterest income increased by $2.7 million to $5.2 million
for the year ended September 30, 2002. The major components of the increase was
due to the following:
> gains of $274,000 recognized on the sale of $19.4 million in long term
fixed-rate mortgage loans, an increase of $65,000 from fiscal 2001,
> an increase in net gain on sale of securities available for sale of
$919,000, including $679,000 in net gains on the sales of $48.2 million
securities available for sale. The current year gains include the recovery
of $88,000 on a corporate bond previously written down due to a decline
that was deemed to be other than temporary,
> an increase of $651,000 in earnings on bank-owned life insurance due to the
purchase of an additional $9.5 million in insurance contracts in 2001 and
2002 and the recognition of $381,000 in equity securities received in the
demutualization of an insurance company where the Company was a policy
holder,
> an increase of $813,000 in account fees and service charges, primarily due
to the overall increase in deposit accounts, the majority of which relate
to the Branch Acquisition.
> an increase of $261,000 in other noninterest income, primarily due to
recognition a $201,000 deferred gain related to the sale of a former Bank
property (previously deferred due to possible environmental cleanup
concerns).
Noninterest Expenses. Noninterest expenses increased by $6.7 million to $20.5
million for the year ended September 30, 2002 from $13.8 million for the year
ended September 30, 2001. The major components of the increase was due to the
following:
> Compensation and employee benefits increased $3.1 million due primarily to:
o increase of $808,000 due to the addition of the seven retail sales
offices (56 staff members) related to the Branch Acquisition, and
$106,000 in additional costs for the full year operation of two
branches opened in the past two years;
o 5% average salary increases due to merit and cost of living
adjustments;
o increase in mortgage loan commissions of $224,000 due to a change in
commission structure, and a $26.4 million increase in loan origination
volume over the prior year;
o a $303,000 increase for health insurance costs due to the growth in
the employee base, including the
36
Branch Acquisition, as well as increased claims experience;
o increased costs of $481,000 related to the 2002 Restricted Stock Plan;
o increase of $240,000 related to the cost of the ESOP due to the
increase in the Company's stock price.
> Occupancy and equipment costs increased $838,000, due primarily to:
o full year utilization of new customer delivery software, including an
internet banking package;
o the opening of two new retail sales offices; o operation of seven new
retail sales offices acquired in the Branch Acquisition; and
o extensive remodeling at several retail sales offices.
> Postage and office supplies expense increased $164,000, primarily
attributable to the Branch Acquisition and the conversion to proof of
deposit ("POD").
> Amortization of $1.1 million of the core deposit intangible that was
established in the Branch Acquisition transaction.
> Other expenses increased by $1.5 million primarily due to the following:
o increase of $202,000 for the 2002 Restricted Stock Plan for Directors;
o increase of $160,000 in correspondent bank charges primarily relating
to the higher costs relating to the POD conversion and the Branch
Acquisition creating an increased volume of items processed;
o increase of $319,000 in other operating expense primarily due to the
write-down of a Winter Haven property that was originally scheduled to
be a retail sales office, but is now being actively marketed for
sale;.
o increase of $128,000 in security guard expenses related to a series of
robberies that occurred during the year;
o increase of $128,000 in debit card expenses related to increased
volume from additional card holders acquired in the Branch
Acquisition;
o $120,000 in acquisition related costs that could not be capitalized;
o $138,000 in additional telephone and data communication costs due to
the expanded branch network and upgrade of communication channels.
37
Comparison of Operating Results for the Years Ended September 30, 2001 and
September 30, 2000
Net Income. Net income for the year ended September 30, 2001 increased $1.0
million, or 26.7% to $4.9 million, compared to $3.8 million for the year ended
September 30, 2000. Net income for the year ended September 30, 2001 benefited
from the deployment of $30.6 million in new capital received from stock issued
in December 2000.
> Net interest income increased $2.7 million, or 16.5%, for the year ended
September 30, 2001 compared to the same period in 2000. This increase
resulted primarily from interest income increasing $5.0 million, offset by
an increase in interest expense of $2.3 million,
> Noninterest income increased by $630,000 from 2000 to 2001 due mainly to
increase in cash surrender value on the bank owned life insurance product
and gains on sale of mortgage loans, and
> Noninterest expenses increased $2.0 million to $13.8 million for the year
ended September 30, 2001 from $11.8 million for the year ended September
30, 2000, due to a net increase in the expense categories, as discussed
below.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the year ended September 30, 2001
when compared to the prior year. Detailed changes are contained in the Average
Balance Sheet table.
> Loan growth reflected strong commercial loan demand over the past year.
While the Company's major emphasis was on commercial and consumer loan
origination efforts, mortgage originations remained strong throughout 2001.
> The yield on loans increased due to the emphasis placed on commercial and
consumer loans in our market areas. New mortgage loan rates decreased
throughout the latter half of 2001. Although new mortgage loan rates
decreased throughout most of the year, about 54% of the Company's new
originations were construction loans that were not fully disbursed during
the year. The result of the timing on the construction loan disbursements
kept the yields on mortgage loans from decreasing in relation to the
overall decrease in mortgage loan pricing.
> The average balances in the securities portfolio grew 5.2% primarily due to
the Company's strategy to leverage capital that was raised in the stock
offering.
> The yield in the securities portfolio decreased as a result of a steady
decrease in market interest rates throughout fiscal 2001. In addition,
securities growth followed a strategy of purchasing securities that had
slightly shorter average lives.
Interest Expense. The following discussion highlights the major factors that
impacted the changes in interest expense during the year ended September 30,
2001 when compared to the prior year. Detailed changes are contained in the
Average Balance Sheet table.
> Deposits grew 6.0% because the Company pursued a slightly aggressive
pricing strategy as interest rates fell and the equity markets experienced
significant volatility.
> FHLB advances grew because the Company considers the advances to be a
cost-effective funding alternative. Although the costs of the advances
exceed the cost of certificate accounts, funding asset growth through
certificate accounts was deemed to be more expensive than wholesale
funding. In addition, FHLB advances provide a funding vehicle to assist the
Company in extending the duration of its liabilities.
> The reduction in cost of funds related to the FHLB advances is reflective
of the drop in interest rates over the past year. The reduction in the cost
of the advances was not as significant as the overall drop in interest
rates because of certain higher rate convertible advances taken in fiscal
2000 that have extended liability duration as rates have dropped.
38
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level that
represents management's best estimates of the losses inherent in the portfolio,
based on historical experience, volume and type of lending conducted by the
Company, industry standards, the level and status of past due and nonperforming
loans, the general economic conditions in the Company's lending area and other
factors affecting the collectibility of the loans in its portfolio. For the year
ended September 30, 2001, the provision for loan losses was $615,000 compared to
$630,000 for fiscal 2000. The allowance for loan losses at September 30, 2001
increased $331,000 from September 30, 2000. Non-performing loans increased
$198,000 for the period, classified assets increased $2.0 million and commercial
and consumer loans increased in the aggregate of approximately $22.5 million
from September 30, 2000. Such increases in classified loans and commercial and
consumer loans precipitated the increase in the provision for loan losses. The
allowance for loan losses is maintained at a level that represents management's
best estimates of losses in the loan portfolio at the balance sheet date.
However, there can be no assurance that the allowance for losses will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.
Noninterest Income. Noninterest income increased by $373,000 to $2.5 million for
the year ended September 30, 2001. The major components of the increase was due
to the following:
> Gains of $228,000 recognized on the sale of $13.9 million in long term
fixed-rate mortgage loans.
> Increase of $331,000 in cash surrender value of bank-owned life insurance.
> Increase of $60,000 in checking and savings account service fees.
> Increase of $64,000 in income from increased debit card and ATM usage.
> Loss of $257,000 due to the impairment of a security classified as
available for sale. The security had been downgraded below investment grade
and during the fourth quarter, the issuer filed for bankruptcy. The fair
value of this security could decline further and the Company could
recognize further losses.
Noninterest Expenses. Noninterest expenses increased by $2.0 million to $13.8
million for the year ended September 30, 2001 from $11.8 million for the year
ended September 30, 2000. The major components of the increase was due to the
following:
> Compensation and employee benefits increased $1.4 million due primarily to:
o an approximate 10% increase in staffing;
o annual salary adjustments;
o increased health insurance claims during the year;
o increased expenses related to the ESOP due to the increase in the
Company's stock price.
> Occupancy and equipment costs of $410,000, due primarily to:
o new customer delivery software, including an internet banking package;
o the opening of two new branch office locations;
o remodeling costs at the main office.
> Other expenses increased by $303,000 primarily due to the following:
o increased telephone expense due to enhanced data and voice
communications;
o increase in ATM and debit card usage;
o increased check clearing charges due to increased volume of items
processed;
> Offsetting the increase in noninterest expenses was a $116,000 decrease in
marketing expense due to:
o a bidding process instituted for vendors in order to better control
costs;
o emphasis on community support programs versus media advertising,
providing greater exposure within the communities we serve.
39
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
Management of Interest Rate-Risk and Market Risk
Market risk is the risk of loss due to adverse changes in market prices and
rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit gathering activities. To that end,
management actively monitors and manages its interest-rate risk exposure. The
measurement of market risk associated with financial instruments is meaningful
only when all related and offsetting on and off balance sheet transactions are
aggregated, and the resulting net positions are identified. Disclosures about
the fair value of financial instruments, which reflect changes in market prices
and rates, can be found in Note 14 of the Notes to Consolidated Financial
Statements.
The Company does not engage in trading or hedging activities and does not invest
in interest-rate derivatives or enter into interest-rate swaps. The Company's
primary objective in managing interest-rate risk is to minimize the adverse
impact of changes in interest rates on the Company's net interest income and
capital, while adjusting the Company's asset-liability structure to obtain the
maximum yield-cost spread on that structure. The Company relies primarily on its
asset-liability structure to control interest-rate risk.
Qualitative Analysis. Because the majority of the Company's assets and
liabilities are sensitive to changes in interest rates, its most significant
form of market risk is interest-rate risk, or changes in interest rates. The
Company is vulnerable to an increase in interest rates to the extent that
interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. Its lending activities have historically emphasized the
origination of long-term, fixed-rate loans secured by single-family residences.
The primary source of funds has been deposits with substantially shorter
maturities. While having interest-bearing liabilities that reprice more
frequently than interest-earning assets is generally beneficial to net interest
income during a period of declining interest rates, such an asset-liability
mismatch is generally detrimental during periods of rising interest rates. In
addition, the customers' optionality to repay a loan or renegotiate the interest
rate on the loan when interest rates move in their favor creates an additional
variable in managing the asset-liability structure of the Bank.
The Board of Directors has established an asset-liability committee that
consists of the Company's president and senior banking officers. The committee
meets on a monthly basis to review loan and deposit pricing and production
volumes, interest-rate risk analysis, liquidity and borrowing needs, and a
variety of other asset and liability management issues.
To reduce the effect of interest rate changes on net interest income, the
Company has adopted various strategies to improve the matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include:
> the origination of commercial and consumer loans with adjustable-rate
features or fixed-rate loans with shorter term maturities;
> lengthening the maturities of liabilities when deemed cost effective
through the pricing and promotion of certificates of deposit and
utilization of Federal Home Loan Bank advances;
> attracting low cost checking and transaction accounts which tend to be less
sensitive to rising rates; and
> when market conditions permit, to originate and hold in its portfolio
adjustable-rate mortgage loans which have periodic interest rate
adjustments. The Company also maintains a securities portfolio that
provides a stable cash flow, thereby providing investable funds in varying
interest rate cycles.
The Company has also made a significant effort to maintain its level of lower
cost deposits as a method of enhancing profitability. At September 30, 2002, the
Company had 39.0% of its deposits in savings, checking and money-market
accounts. These deposits have traditionally remained relatively stable and are
expected to be only moderately affected in a period of rising interest rates.
This stability has enabled the Company to offset the impact of rising rates in
other deposit accounts.
Quantitative Analysis. Exposure to interest-rate risk is actively monitored by
management. The Company's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Company uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in NPV. The NPV Model measures interest-rate risk by
computing estimated changes in the NPV of cash flow from assets, liabilities and
off-balance sheet items in the event of a range of assumed changes in market
interest rates. The NPV
40
Model shows the degree to which balance sheet line items and NPV are potentially
affected by a 100 to 300 basis point change. One basis point equals 1/100th of a
percentage point. Reports generated by the NPV Model are reviewed by the
Asset/Liability Management Committee and reported to the Board of Directors
quarterly.
The NPV Model uses an option-based pricing approach to value one-to-four family
mortgages, mortgages serviced by or for others, and firm commitments to buy,
sell, or originate mortgages. This approach makes use of an interest rate
simulation program to generate numerous random interest rate paths that, in
conjunction with a prepayment model, are used to estimate mortgage cash flows.
Prepayment options and interest rate caps and floors contained in mortgages and
mortgage-related securities introduce significant uncertainty in estimating the
timing of cash flows for these instruments that warrants the use of this
sophisticated methodology. All other financial instruments are valued using a
static discounted cash flow method. Under this approach, the present value is
determined by discounting the cash flows the instrument is expected to generate
by the yields currently available to investors from an instrument of comparable
risk and duration.
Future interest rates and their effects on NPV and net interest income are not
predictable. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments, and deposit run-offs, and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing, they may react at different times and in different
degrees to changes in the market interest rates. The interest rate on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable-rate
mortgages, generally have features that restrict changes in interest rates on a
short-term basis and over the life of the asset. After a change in interest
rates, prepayments and early withdrawal levels could deviate significantly from
those assumed in making calculations set forth above. Additionally, an increased
credit risk may result if our borrowers are unable to meet their repayment
obligations as interest rates increase.
The following table presents the NPV as of September 30, 2002. The NPV was
calculated by the OTS, based upon the above model assumptions and financial
information provided by the Company. As illustrated in the table, the
calculations show that the Company would be adversely affected by increases in
interest rates and would benefit slightly by decreases in interest rates
(dollars in thousands).
NPV as % of
Net Portfolio Value ("NPV") Present Value of Assets
------------------------------- -------------------------
Change Basis Point
In Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
+300 bp 55,378 (35,542) (39)% 6.66% (351)
+200 bp 70,073 (20,847) (23)% 8.20% (197)
+100 bp 83,494 (7,425) (8)% 9.52% (65)
0 bp 90,919 - - % 10.17% -
-100 bp 91,271 352 .4% 10.08% (9)
The OTS defines the sensitivity measure as the change in NPV ratio with a 200
basis point shock. Our sensitivity measure reflects an 197 basis point decline
in NPV ratio as of September 30, 2002 compared to a sensitivity measure of 373
basis points as of September 30, 2001. The improvement in our sensitivity
measure at September 30, 2002 primarily reflects the decrease in short-term
interest rates from September 30, 2001 and the lengthening in the maturities of
certain liabilities.
41
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The financial statements and supplementary data required by Regulation S-X and
by Item 302 of Regulation S-K are set forth in the pages listed below:
Page
----
Independent Auditors' Report............................................. 43
Consolidated Balance Sheets at September 30, 2002 and 2001............... 44
Consolidated Statements of Earnings for the Years Ended
September 30, 2002, 2001 and 2000.................................... 45
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 2002, 2001 and 2000.................................... 46-47
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2002, 2001 and 2000.................................... 48-49
Notes to Consolidated Financial Statements............................... 50-71
42
[Hacker, Johnson & Smith PA Letterhead]
Independent Auditors' Report
Board of Directors
FloridaFirst Bancorp, Inc.
Lakeland, Florida:
We have audited the accompanying consolidated balance sheets of
FloridaFirst Bancorp, Inc. and Subsidiary (the "Company") at September 30, 2002
and 2001, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 2002. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at September 30, 2002 and 2001, and the results of its operations and its cash
flows for each of the years in the three-year period ended September 30, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
/s/HACKER, JOHNSON & SMITH PA
HACKER, JOHNSON & SMITH PA
Tampa, Florida
November 15, 2002
43
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except share amounts)
At September 30,
----------------------
2002 2001
--------- --------
Assets
Cash and due from banks $ 14,119 7,439
Interest-bearing deposits 16,509 14,237
--------- --------
Total cash and cash equivalents 30,628 21,676
Securities available for sale 272,624 129,534
Loans, net of allowance for loan losses of $4,519 and $3,652 499,364 474,155
Premises and equipment, net 14,721 10,944
Federal Home Loan Bank stock, at cost 6,966 7,670
Cash surrender value of bank-owned life insurance 16,128 10,795
Core deposit intangible, net 11,576 --
Other assets 7,439 5,595
--------- --------
Total assets $ 859,446 660,369
========= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing deposits 31,265 20,306
Interest-bearing deposits 556,166 379,231
--------- --------
Total deposits 587,431 399,537
Federal Home Loan Bank advances 129,500 149,500
Other borrowings 34,834 11,048
Other liabilities 8,703 6,470
--------- --------
Total liabilities 760,468 566,555
--------- --------
Commitments and contingencies (Notes 5, 14 and 15)
Stockholders' equity:
Preferred stock, no par value, 20,000,000 shares authorized,
none issued or outstanding - -
Common stock, $.10 par value, 80,000,000 shares authorized,
5,528,452 and 5,521,850 issued 553 552
Additional paid-in capital 52,044 52,059
Retained earnings 50,809 46,454
Treasury stock, at cost, 150,000 and 35,000 shares (2,680) (481)
Unallocated shares held by the employee stock ownership plan (4,869) (5,410)
Unallocated shares held by the restricted stock plan (2,082) (986)
Accumulated other comprehensive income 5,203 1,626
--------- --------
Total stockholders' equity 98,978 93,814
--------- --------
Total liabilities and stockholders' equity $ 859,446 660,369
========= =======
See Accompanying Notes to Consolidated Financial Statements.
44
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Earnings
(In thousands, except per share amounts)
Year Ended September 30,
-------------------------------------
2002 2001 2000
-------- -------- --------
Interest and dividend income:
Loans $ 36,248 36,671 32,470
Securities 12,082 7,526 6,837
Other 580 649 533
-------- -------- --------
Total interest and dividend income 48,910 44,846 39,840
-------- -------- --------
Interest expense:
Deposits 17,844 17,800 15,744
Federal Home Loan Bank advances and other borrowings 7,104 8,095 7,831
-------- -------- --------
Total interest expense 24,948 25,895 23,575
-------- -------- --------
Net interest income 23,962 18,951 16,265
Provision for loan losses 680 615 630
-------- -------- --------
Net interest income after provision for loan losses 23,282 18,336 15,635
-------- -------- --------
Noninterest income:
Fees and service charges 2,359 1,546 1,365
Net gain on sale of loans held for sale 274 209 14
Net gain (loss) on sale of securities 685 (234) 5
Earnings on bank-owned life insurance 1,214 563 232
Other 664 403 498
-------- -------- --------
Total noninterest income 5,196 2,487 2,114
-------- -------- --------
Noninterest expenses:
Salaries and employee benefits 10,781 7,689 6,325
Occupancy expense 3,003 2,165 1,755
Data processing 598 500 498
Postage and office supplies 579 415 381
Amortization of core deposit intangible 1,080 - -
Other 4,476 3,007 2,854
-------- -------- --------
Total noninterest expenses 20,517 13,776 11,813
-------- -------- --------
Income before income taxes 7,961 7,047 5,936
Income taxes 2,357 2,178 2,094
-------- -------- --------
Net income $ 5,604 4,869 3,842
======== ======== ========
Earnings per share:
Basic $ 1.10 0.92 0.71
======== ======== ========
Diluted $ 1.05 0.90 0.70
======== ======== ========
Weighted-average common and common equivalent
shares outstanding (in thousands):
Basic 5,095 5,293 5,424
======== ======== ========
Diluted 5,339 5,429 5,516
======== ======== ========
See Accompanying Notes to Consolidated Financial Statements.
45
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Stockholders' Equity
($ in thousands, except share and per share amounts)
Accumulated
Shares Unallocated Compre-
Common Stock Additional Held Shares hensive Total
------------------- Paid-In Retained Treasury by the Held by Income Stockholders'
Shares Amount Capital Earnings Stock ESOP the RSP (Loss) Equity
------ ------ ------- -------- ----- ---- ------- ------ ------
Balance at September 30, 1999 5,752,875 $ 575 25,124 39,037 - (2,163) - (1,236) 61,337
-------
Comprehensive income:
Net income - - - 3,842 - - - - 3,842
Change in unrealized
loss on securities
available for sale, net - - - - - - - 5 5
-------
Total comprehensive income 3,847
Shares repurchased, at cost - - - - (3,606) - - - (3,606)
Fair value of ESOP shares
allocated - - (39) - - 325 - - 286
Shares acquired for RSP,
at cost - - - - - - (410) - (410)
Dividends ($.16 per share) - - - (373) - - - - (373)
--------- ----- ------ ------ ---- ------ ---- ----- ------
Balance at September 30, 2000 5,752,875 575 25,085 42,506 (3,606) (1,838) (410) (1,231) 61,081
-------
Comprehensive income:
Net income - - - 4,869 - - - - 4,869
Change in unrealized
loss on securities
available for sale, net - - - - - - - 2,857 2,857
-------
Total comprehensive income 7,726
Stock issuance, net of issuance
costs of $1,007 3,147,952 315 30,245 - - - - - 30,560
Convert common and retire
treasury stock (3,381,206) (338) (3,268) - 3,606 - - - -
Proceeds from exercise of
stock options 2,229 - 18 - - - - - 18
35,000 shares repurchased,
at cost - - - - (481) - - - (481)
Fair value of ESOP and RSP
shares allocated - - (21) - - 325 157 - 461
Shares acquired for ESOP and
RSP, at cost - - - - - (3,897) (733) - (4,630)
Dividends ($.19 per share) - - - (921) - - - - (921)
--------- ----- ------ ------ ---- ------ ---- ----- ------
Balance at September 30, 2001 5,521,850 $ 552 52,059 46,454 (481) (5,410) (986) 1,626 93,814
========= ===== ====== ====== ==== ====== ==== ===== ======
46
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Stockholders' Equity, Continued
($ in thousands, except share and per share amounts)
Unallocated Accumulated
Shares Unallocated Other
Common Stock Additional Held Shares Compre- Total
------------------- Paid-In Retained Treasury by the Held by hensive Stockholders'
Shares Amount Capital Earnings Stock ESOP the RSP Income Equity
------ ------ ------- -------- ----- ---- ------- ------ ------
Balance at September 30, 2001 5,521,850 $ 552 52,059 46,454 (481) (5,410) (986) 1,626 93,814
------
Comprehensive income:
Net income - - - 5,604 - - - - 5,604
Change in unrealized gain
on securities available
for sale, net - - - - - - - 3,577 3,577
------
Total comprehensive income 9,181
------
Proceeds from exercise of
stock options 6,602 1 53 - - - - - 54
Fair value of ESOP and RSP
shares allocated - - (169) - - 541 1,190 - 1,562
Tax benefit from stock options
and RSP shares - - 101 - - - - - 101
115,000 and 124,658 shares acquired
for treasury and RSP, at cost - - - - (2,199) - (2,286) - (4,485)
Cash dividends ($.23 per share) - - - (1,249) - - - - (1,249)
--------- ----- ------ ------ ------ ------ ------ ----- ------
Balance at September 30, 2002 5,528,452 $ 553 52,044 50,809 (2,680) (4,869) (2,082) 5,203 98,978
========= ===== ====== ====== ====== ====== ====== ===== ======
See Accompanying Notes to Consolidated Financial Statements.
47
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended September 30,
---------------------------------------
2002 2001 2000
--------- --------- --------
Cash flows from operating activities:
Net income $ 5,604 4,869 3,842
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 680 615 630
Depreciation 1,004 995 700
Amortization of core deposit intangible 1,080 - -
Net amortization of premiums and discounts on securities 270 (129) (98)
Deferred income tax benefit (62) (278) (187)
Net (gain) loss on sale of securities (685) 234 (5)
Tax benefit from stock options and RSP shares 101 - -
Net gain on sale of loans held for sale (274) (209) (14)
Proceeds from sales of loans held for sale 19,631 15,258 -
Loans originated for sale (21,200) (14,989) -
Earnings on bank-owned life insurance (1,214) (563) (232)
Net increase in other assets (1,186) (76) (752)
Net increase in other liabilities 2,370 1,323 390
--------- --------- --------
Net cash provided by operating activities 6,119 7,050 4,274
--------- --------- --------
Cash flows from investing activities:
Proceeds from calls, sales, maturities and repayments of securities
available for sale 103,062 37,008 16,451
Proceeds from sales, maturities and repayments of securities
held to maturity - 9,675 3,037
Purchase of securities available for sale (239,677) (65,440) (44,845)
Net decrease (increase) in loans, exclusive of branch acquisition 1,038 (34,742) (42,813)
Net redemption (purchase) of FHLB stock 704 255 (3,450)
Purchase of bank-owned life insurance (4,500) (5,000) (5,000)
Purchases of premises and equipment, exclusive of branch
acquisition (3,531) (3,408) (2,843)
Net proceeds from sales of foreclosed assets 937 - -
Net proceeds on sale of premises and equipment - 404 26
--------- --------- --------
Net cash used in investing activities (141,967) (61,248) (79,437)
--------- --------- --------
Cash flows from financing activities:
Cash received upon purchase of deposits in branch acquisition 120,922 - -
Net increase in deposits, exclusive of branch acquisition 25,772 44,983 15,330
Net (decrease) increase in FHLB advances (20,000) (8,500) 70,400
Net increase(decrease) in other borrowings 23,786 8,111 (1,935)
Payments to acquire treasury stock (2,199) (481) (3,606)
Payments to acquire shares held by the ESOP - (3,897) -
Payments to acquire shares held by the RSP (2,286) (733) (410)
Dividends paid (1,249) (921) (480)
Net proceeds received from issuance of common stock 54 30,578 -
--------- --------- --------
Net cash provided by financing activities 144,800 69,140 79,299
--------- --------- --------
Net increase in cash and cash equivalents 8,952 14,942 4,136
Cash and cash equivalents at beginning of year 21,676 6,734 2,598
--------- --------- --------
Cash and cash equivalents at end of year $ 30,628 21,676 6,734
========= ========= ========
(continued)
48
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(In thousands)
Year Ended September 30,
-------------------------------------
2002 2001 2000
---- ---- ----
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 24,808 25,948 22,966
======== ====== ======
Income taxes $ 2,894 2,374 2,099
======== ====== ======
Supplemental disclosure of noncash information:
Transfer loans to foreclosed assets $ 1,011 298 221
======== ====== ======
Change in unrealized gain or loss on securities available for
sale, net of tax $ 3,577 2,857 5
======== ====== ======
Net distribution of restricted stock plan shares 967 177 -
======== ====== ======
Net allocation of shares held by the ESOP $ 595 284 286
======== ====== ======
Transfer of land from premises and equipment to other assets $ 1,199 - -
======== ====== ======
Common stock distribution received $ 381 - -
======== ====== ======
Acquisition of branches:
Fair value of premises and equipment acquired $ 2,449 - -
======== ====== ======
Fair value of loans acquired $ 26,095 - -
======== ====== ======
Core deposit intangible $ 12,656 - -
======== ====== ======
Deposits assumed in acquisition of branches $ 41,200 - -
======== ====== ======
See Accompanying Notes to Consolidated Financial Statements.
49
FLORIDAFIRST BANCORP, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2002 and each of the years in the three-year period ended
September 30, 2002
(1) General, Reorganization and Summary of Significant Accounting Policies
General. FloridaFirst Bancorp, Inc. (the "Company") is the parent of and
conducts its business principally through FloridaFirst Bank (the "Bank").
The Bank, a federally-chartered savings bank headquartered in Lakeland,
Florida, is a community-oriented savings institution that delivers retail
and commercial banking services through eighteen full-service locations.
The Company purchased seven branches during February 2002 (see Footnote
13). Principal sources of income are derived through interest earned on
loans and investments. The primary sources of funds are customer deposits
and Federal Home Loan Bank advances. The Bank is subject to various
regulations governing savings institutions and is subject to periodic
examination by its primary regulator, the Office of Thrift Supervision
(the "OTS").
Reorganization. On April 6, 1999, the Bank reorganized from a mutual
savings association into a mutual holding company named FloridaFirst
Bancorp MHC ("MHC") and formed FloridaFirst Bancorp (the "Bancorp"), a
middle-tier holding company, whereby the Bank became a wholly-owned
subsidiary of the Bancorp (the "Reorganization"). In connection with the
Reorganization, the Bancorp sold 2,703,851 shares of its Common Stock to
the public and the remaining 3,049,024 shares were held by MHC. On
December 21, 2000, the Company completed its stock offering in connection
with the conversion and reorganization of the Bank and its holding
company, the Bancorp, from the mutual holding company form of
organization to a full stock company (the "Conversion"). As part of the
conversion and reorganization, the shares formerly held by MHC were
cancelled, the Company sold 3,147,952 new shares to the public and the
shares held by stockholders of the Bancorp were exchanged for 2,372,048
shares of the Company.
At the time of the Conversion, the Bank established a liquidation
account in an amount equal to the MHC's applicable equity as defined
in regulations (approximately $36 million). The liquidation account
will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their
accounts at the Bank after the Conversion. The liquidation account
will be reduced annually, to the extent that eligible and supplemental
eligible account holders have reduced their qualifying deposits as of
each anniversary date. Subsequent increases in balances will not
restore an eligible or supplemental eligible account holder's interest
in the liquidation account. In the event of a complete liquidation of
the Bank, each eligible and supplemental eligible account holder will
be entitled to receive a distribution from the liquidation account in
an amount proportionate to the current adjusted qualifying balances
for accounts then held.
Subsequent to the Conversion, the Bank may not declare or pay cash
dividends on its shares of common stock if the effect thereof would cause
equity to be reduced below applicable regulatory capital maintenance
requirements or if such declaration and payment would otherwise violate
regulatory requirements.
Summary of Significant Accounting Policies. A summary of significant
accounting policies used in preparation of the consolidated financial
statements is as follows:
Principles of Consolidation. The consolidated financial statements have
been prepared in conformity with accounting principles generally accepted
in the United States of America and include the accounts of the Company
and the Bank. All intercompany transactions and balances have been
eliminated in consolidation.
50
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amount of revenues and expenses during the reporting period. The
major estimate by management that is critical to the consolidated
financial statements is the appropriate level of allowance for loan
losses which can be significantly impacted by future industry, market and
economic trends and conditions. Actual results could differ from these
estimates. Regulatory agencies, as a part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize changes in the allowance
based on their judgements of information available to them at the time of
their examination.
Cash and Cash Equivalents. For financial statement purposes, the Company
considers cash, due from banks and interest-bearing accounts with
original maturities of three months or less in other financial
institutions to be cash and cash equivalents.
Securities. Securities available for sale are stated at fair value.
Unrealized gains and losses on securities available for sale, net of
taxes, are included in accumulated other comprehensive income in the
consolidated balance sheets until these gains or losses are realized.
Securities available for sale that experience a decline in fair value
that is other than temporary are written down to fair value and the
resultant losses are reflected in the consolidated statements of
earnings. Gains and losses on the sale of securities available for sale
are recorded on the trade date and determined using the specific
identification method.
Capital stock in the Federal Home Loan Bank of Atlanta ("FHLB") is held
in accordance with certain requirements of the FHLB. The Company's
investment is carried at cost and serves as collateral for FHLB advances.
Loans Held For Sale. Loans originated and held for sale by the Company
are carried at the lower of cost or market using the specific
identification method. Gains and losses on the sale of such loans are
recognized using the specific identification method. The Company held
$3.0 million and $1.2 million of loans held for sale at September 30,
2002 and September 30, 2001, respectively.
Mortgage Loan Interest Income. The Company provides an allowance for
uncollected interest generally on all accrued interest related to loans
90 days or more delinquent. This allowance is netted against accrued
interest receivable for financial statement disclosure. Such interest, if
ultimately collected, is credited to income in the period of recovery.
Loans and Provisions for Losses. Loans are stated at unpaid principal
balances, less loans in process and an allowance for loan losses.
The Company follows a consistent procedural discipline and accounts for
loan loss contingencies in accordance with Statement of Financial
Accounting Standards (SFAS) No. 5, Accounting for Contingencies, and
accounts for impaired loans in conformity with SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure. The following is a description of how each portion of the
allowance for loan losses is determined.
The Company segregates the loan portfolio for loan loss purposes into the
following broad segments: commercial and commercial real estate,
residential real estate, and consumer. The Company provides for an
allowance for losses in the portfolio by the above categories, which
consists of two components: general loss percentages and specific loss
analysis.
51
General loss percentages are calculated based upon historical analyses. A
portion of the allowance is calculated for inherent losses which
management believes exist as of the evaluation date even though they
might not have been identified by the more objective processes used. This
is due to the risk of error and/or inherent imprecision in the process.
This portion of the allowance is particularly subjective and requires
judgments based on qualitative factors which do not lend themselves to
exact mathematical calculations such as: trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume, terms,
and portfolio mix; new credit products and/or changes in the geographic
distribution of those products; changes in lending policies and
procedures; loan review reports on the efficacy of the risk
identification process; changes in the outlook for local, regional and
national economic conditions; concentrations of credit; and peer group
comparison.
Allowances are also provided in the event the specific collateral
analysis on a loan indicates the estimated loss upon liquidation of
collateral would be in excess of the general percentage allocation. The
provision for loan losses is debited or credited in order to state the
allowance for loan losses to the required level as determined above.
The Company considers a loan to be impaired when it is probable the
Company will be unable to collect all amounts due, both principal and
interest, according to the contractual terms of the loan agreement. When
a loan is impaired, the Company may measure impairment based on (a) the
present value of the expected future cash flows of the impaired loan
discounted at the loan's original effective interest rate; (b) the
observable market price of the impaired loan; or (c) the fair value of
the collateral of a collateral-dependent loan. The Company selects the
measurement method on a loan-by-loan basis, except for
collateral-dependent loans for which foreclosure is probable must be
measured at the fair value of the collateral. In a troubled debt
restructuring involving a restructured loan, the Company measures
impairment by discounting the total expected future cash flows at the
loan's original effective interest rate.
Premises and Equipment. Depreciation of premises and equipment is
accumulated using the straight-line method over the estimated useful
lives of the related assets. Estimated lives are 10 to 50 years for
buildings and leasehold improvements, and 3 to 10 years for furniture,
fixtures and equipment.
Maintenance and repairs are charged to expense when incurred.
Expenditures for renewals and betterments generally are capitalized. The
costs and accumulated depreciation relating to office properties and
equipment retired or otherwise disposed of are eliminated from the
accounts, and any resulting gains and losses are reflected in the
consolidated statements of earnings.
Foreclosed Assets. Assets acquired through foreclosure or deed in lieu of
foreclosure are recorded at the lower of cost (principal balance of the
former mortgage loan) or estimated fair value, less estimated selling
expenses. The carrying value of foreclosed assets, which includes
repossessed consumer assets, was $347,000 and $276,000 at September 30,
2002 and 2001 and is included in Other Assets in the consolidated balance
sheets. The Company reported net expenses related to these foreclosed
assets of $70,000, $47,000 and $49,000 during the fiscal years ended
September 30, 2002, 2001 and 2000, respectively.
Transfer of Financial Assets. Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered. Control
over financial assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets, and (3) the Company
does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
52
Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
include the enactment date.
Financial Instruments With Off-Balance Sheet Risk. In the ordinary course
of business, the Company is a party to financial instruments with
off-balance sheet risk. These financial instruments include commitments
to extend credit at both fixed- and variable-interest rates, standby
letters of credit, undisbursed construction and line of credit loans and
loans sold with recourse obligations. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized, if any, in the consolidated balance sheets. The Company's
exposure to credit loss for commitments to extend credit, undisbursed
loans and standby letters of credit is represented by the contractual
amount of these instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed-expiration dates or other termination
clauses and may require payment of a fee. The Company evaluates each
customer's credit worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
Loans sold with recourse obligations relate to loans the Company
originates and sells in the secondary market. These sales usually require
the Company to repurchase the loans if the borrower defaults within a
certain time period after the sale, usually three to twelve months.
Self-Insurance. The Company is self-insured for employee medical and
dental benefits, but has a reinsurance contract to limit the amount of
liability for these benefits in any plan year. Benefits are administered
through a third party administrator and the related liabilities are
reflected in the consolidated financial statements. The Company accrues a
liability to target a certain percentage of average claims paid over the
past three years. The plan covers only active employees as defined in the
plan. During the years ended September 30, 2002, 2001 and 2000, the
Company recognized expenses, including claims and administrative fees,
net of amounts received under the reinsurance contract and premiums
received from employees, of $1,053,000, $750,000 and $563,000,
respectively.
Derivative Instruments. The Company does not purchase, sell or enter into
derivative financial instruments or derivative commodity instruments as
defined by Statement of Financial Accounting Standards (SFAS) No. 119,
Disclosures About Derivative Financial Instruments and Fair Value of
Financial Instruments.
Stock Compensation Plans. SFAS No. 123, Accounting for Stock-Based
Compensation, encourages all entities to adopt a fair value based method
of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, whereby compensation cost is the excess, if
any, of the quoted market price of the stock at the grant date (or other
measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plan have no
intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to
continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided pro forma disclosures of net income and earnings per
share and other disclosures, as if the fair value based method of
accounting had been applied (See note 12).
53
Earnings Per Share of Common Stock. The Company follows the provisions of
SFAS No. 128, "Earnings Per Share". SFAS No. 128 provides accounting and
reporting standards for calculating earnings per share. Basic earnings
per share of common stock has been computed by dividing the net income
for the year by the weighted-average number of shares outstanding. Shares
of common stock purchased by the ESOP (see Note 11) are only considered
outstanding when the shares are released or committed to be released for
allocation to participants. For the years ended September 30, 2002 and
2001, shares released for allocation to participants each month were
3,400 and 2,707. Diluted earnings per share is computed by dividing net
income by the weighted-average number of shares outstanding including the
dilutive effect of stock options (see Note 12) and shares needed to
satisfy the requirements of the restricted stock plan, if any, computed
using the treasury stock method prescribed by SFAS No. 128. The following
table presents the calculation of basic and diluted earnings per share of
common stock (in thousands, except per share amounts):
Year Ended September 30,
----------------------------
2002 2001 2000
------ ------ ------
Weighted-average shares of common stock issued and
outstanding before adjustments for ESOP and stock options 5,457 5,520 5,602
Adjustment to reflect the effect of unallocated ESOP shares (362) (227) (178)
------ ------ ------
Weighted-average shares for basic earnings per share 5,095 5,293 5,424
====== ====== ======
Basic earnings per share $ 1.10 .92 .71
====== ====== ======
Weighted-average shares for basic earnings per share 5,095 5,293 5,424
Additional dilutive shares using the average market
value for the period utilizing the treasury stock method
regarding stock options and outstanding restricted 244 136 92
------ ------ ------
Weighted-average common shares and equivalents
outstanding for diluted earnings per share 5,339 5,429 5,516
====== ====== ======
Diluted earnings per share $ 1.05 .90 .70
====== ====== ======
Recent Accounting Pronouncements. In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard
("SFAS") No. 141 Business Combinations and No. 142 Goodwill and Other
Intangible Assets.
SFAS 141 changes the accounting for business combinations under APB
Opinion 16 - Business Combinations ("APB 16"). This Statement requires
that all business combinations be accounted for under the purchase
method. Also, intangible assets that meet certain criteria must be
recognized as an asset and apart from goodwill. The provisions of this
Statement apply to all business combinations initiated after June 30,
2001, as well as purchase method business combinations completed after
June 30, 2001.
SFAS 142 requires that an identifiable intangible asset that is acquired
either individually or with a group of other assets (but not those
acquired in a business combination) is to be initially recognized and
measured based on its fair value. An identifiable intangible asset with a
finite useful life is amortized over its estimated useful life. An
intangible asset with an indefinite useful life is not amortized, but is
tested for impairment. Goodwill recognized in business combinations is
not amortized, but is tested for impairment under the provisions of SFAS
142 at a level of reporting referred to as a reporting unit. To the
extent a reporting unit's carrying amount exceeds its fair value, an
indication exists that the reporting unit's goodwill may be impaired and
the Company must perform a second step of the impairment test. In the
second step, if the carrying amount of reporting unit goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized
in an amount equal to that excess. Goodwill of a reporting unit is tested
for impairment on an annual basis and between annual tests in certain
circumstances. For purchase business combinations that are consummated
after June 30, 2001, goodwill and identifiable intangibles will be
recorded in accordance with SFAS 142, which requires no amortization of
goodwill and separately identifiable intangible assets with indefinite
lives.
The Company accounted for the intangible assets acquired in branch
acquisition described in Note 13 in accordance with SFAS 141 and 142.
54
Comprehensive Income. Accounting principles generally require recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate
component of the equity section of the consolidated balance sheets, such
items, along with net income are components of comprehensive income. The
components of other comprehensive income and related tax effects are as
follows (in thousands):
2002 2001 2000
------- ------- ------
Unrealized gain on securities available for sale arising
during year, net of taxes $ 4,009 2,710 8
------- ------- ------
Less reclassification adjustment for gain (loss) included in
net income 685 (234) 5
Income taxes (benefit) 253 (87) 2
------- ------- ------
Reclassification adjustment for realized gain (loss), net of taxes 432 (147) 3
------- ------- ------
Unrealized gain on securities available for sale,
net of taxes $ 3,577 2,857 5
======= ======= ======
Reclassifications. Certain amounts in the 2001 and 2000 consolidated
financial statements have been reclassified to conform to the 2002
presentation.
(2) Securities Available for Sale
The amortized cost and estimated fair values of securities available for
sale are as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- -------- ------- --------
September 30, 2002:
Obligations of U.S. government agencies $ 28,028 506 (350) 28,184
Collateralized mortgage obligations 46,226 632 (467) 46,391
Mortgage-backed securities 141,975 4,289 (282) 145,982
Corporate bonds 28,454 2,951 (64) 31,341
Municipal bonds 19,301 1,044 - 20,345
Common stock 381 - - 381
--------- -------- ------- --------
Total $ 264,365 9,422 (1,163) 272,624
========= ======== ======= ========
September 30, 2001:
Obligations of U.S. government agencies 8,504 346 - 8,850
Collateralized mortgage obligations 43,429 653 (37) 44,045
Mortgage-backed securities 28,644 907 - 29,551
Corporate bonds 28,962 999 (406) 29,555
Municipal bonds 17,415 262 (144) 17,533
--------- -------- ------- --------
Total $ 126,954 3,167 (587) 129,534
========= ======== ======= ========
55
The maturity distribution for the portfolio of securities available for
sale at September 30, 2002 is as follows (in thousands):
Amortized Fair
Cost Value
---------- -------
Due in one year or less $ 6,504 6,668
Due after one year through five years 18,085 19,021
Due after five years through ten years 8,284 8,490
Due after ten years 42,910 45,691
--------- -------
75,783 79,870
Collateralized mortgage obligations 46,226 46,391
Mortgage-backed securities 141,975 145,982
Common stock 381 381
--------- -------
Total $ 264,365 272,624
========= =======
A summary of sales of securities available for sale follows (in
thousands):
Year Ended September 30,
---------------------------------
2002 2001 2000
-------- ------ -----
Proceeds from sales $ 48,196 10,349 5,700
======== ====== =====
Gross gains $ 828 51 5
Gross losses (143) (16) -
-------- ------ -----
Net gain $ 685 35 5
======== ====== =====
During 2002, the Company received a distribution of 18,165 shares of
common stock relating to the demutualization of the Principal Financial
Group. The Company recorded this investment at the then current fair
value of $381,000 and recorded a gain which is included in earnings on
bank-owned life insurance in the consolidated statements of earnings.
During 2001, a $257,000 loss on the impairment of a security was recorded
since the decline in value was determined to be other than temporary.
Securities available for sale with carrying values of $68.6 million and
$33.3 million were pledged as collateral to secure public funds, Treasury
Investment Program funds, Federal Reserve discount advances, and reverse
repurchase agreements at September 30, 2002 and 2001, respectively.
(3) Securities Held to Maturity
In August 2001, the entire securities held to maturity portfolio was
sold. The decision to sell the entire portfolio was based on a variety of
reasons including price compression due to balance decline, a lagging
index, which was unpopular in the falling rate environment, and recently
increased values, resulting from the recent falling rate environment. As
a result of the sale of the held to maturity portfolio, Securities and
Exchange Commission ("SEC") regulations prohibit further classification
of securities as held to maturity for a period of two years.
Proceeds from sales of securities held to maturity for the year ended
September 30, 2001 were $8.6 million. Gross gains of $34,000 and gross
losses of $46,000 were realized on those sales during 2001. There were no
other sales of held to maturity securities.
56
(4) Loans
Loans consist of the following:
September 30,
--------------------
2002 2001
--------- -------
($ in thousands)
First mortgage loans:
Residential 1-4:
Permanent $ 301,622 312,309
Construction 29,058 35,516
Commercial real estate 58,177 58,371
Land 15,806 8,907
--------- --------
Total first mortgage loans 404,663 415,103
--------- --------
Other loans:
Consumer loans 107,581 85,932
Commercial loans 10,806 5,061
--------- --------
Total other loans 118,387 90,993
--------- --------
Total loans 523,050 506,096
Allowance for loan losses (4,519) (3,652)
Construction loans in process (19,167) (28,289)
--------- --------
Loans, net $ 499,364 474,155
========= ========
Weighted-average yield on loans at year end 7.20% 7.66%
========= ========
The activity in the allowance for loan losses was as follows (in
thousands):
Year Ended September 30,
---------------------------
2002 2001 2000
------- ------- -------
Balance at beginning of year $ 3,652 3,321 2,941
Provision for loan losses 680 615 630
Branch acquisition 1,000 -
Charge-offs (908) (386) (288)
Recoveries 95 102 38
------- ------- -------
Balance at end of year $ 4,519 3,652 3,321
======= ======= =======
The Company was also servicing approximately $7.8 million and $11.2
million in loans for the benefit of others at September 30, 2002 and
2001, respectively. The Company holds custodial escrow deposits for
these serviced loans totaling approximately $89,000 and $127,000 at
September 30, 2002 and 2001, respectively.
57
The Company makes loans to certain executive officers and directors and
their related interests and associates. These loans were made in the
ordinary course of business at prevailing terms and conditions. These
loans were as follows (in thousands):
Year Ended September 30,
------------------------
2002 2001
---- ----
Balance at beginning of year $ 317 152
New loans originated - 170
Principal repayments (11) (5)
----- -----
Balance at end of year $ 306 317
===== =====
Impaired loans have been recognized in conformity with SFAS No. 114, as
amended by SFAS No. 118. Impaired loans, all of which are collateral
dependent, and related information are as follows:
September 30,
-----------------------------
2002 2001 2000
---- ---- ----
(In thousands)
Impaired loans at year end $ 1,073 960 762
======= ===== =====
Allowance for loan losses for impaired loans at year-end 215 192 189
======= ===== =====
Average balance of impaired loans during the year 1,221 1,028 454
======= ===== =====
Interest income received and recognized during the year 47 14 43
======= ===== =====
(5) Premises and Equipment
Premises and equipment consists of the following:
September 30,
-------------------
2002 2001
---- ----
(In thousands)
Land $ 4,151 3,629
Buildings and leasehold improvements 11,219 8,167
Furniture, fixtures and equipment 6,187 5,205
Construction in progress 486 589
-------- -------
Total, at cost 22,043 17,590
Less accumulated depreciation and amortization (7,322) (6,646)
-------- -------
Premises and equipment, net $ 14,721 10,944
======== =======
The Company conducts a portion of its operations from three leased
facilities and leases certain equipment under operating leases. As of
September 30, 2002, the Company was committed to noncancelable operating
leases with annual minimum lease payments approximating $193,000 through
September 30, 2003, $94,000 through September 30, 2005 and $75,000 per
year thereafter through fiscal year 2010. All leases contain options to
renew. Rent expense under all operating leases was approximately
$172,000, $159,000 and $106,000 for the years ended September 30, 2002,
2001 and 2000, respectively.
58
(6) Deposits
Deposits and weighted-average interest rates are as follows:
September 30,
-----------------------------------------------
2002 2001
--------------------- ----------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
($ in thousands)
Noninterest-bearing checking $ 31,265 - % $ 20,306 - %
--------- ---------
Interest-bearing checking 74,923 1.31 34,705 1.67
--------- ---------
Savings accounts 54,432 1.58 27,547 1.51
--------- ---------
Money-market accounts 68,634 1.99 33,768 3.19
--------- ---------
Certificate accounts:
1.00% - 1.99% 21,146 -
2.00% - 2.99% 101,169 -
3.00% - 3.99% 64,047 -
4.00% - 4.99% 65,813 98,731
5.00% - 5.99% 73,927 73,605
6.00% and above 32,075 110,875
--------- ---------
Total certificates accounts 358,177 3.94 283,211 5.64
--------- ---------
Total deposits $ 587,431 2.95 $ 399,537 4.52
========= =========
Certificate accounts in amounts of $100,000 or more totaled approximately
$112.9 million and $85.7 million at September 30, 2002 and 2001,
respectively. Deposits in excess of $100,000 are not federally insured.
The Company had certificate accounts totaling $50.2 million and $37.7
million under public deposits programs, primarily with the State of
Florida, at September 30, 2002 and 2001, respectively. Deposits under
these programs are collateralized with securities with a carrying value
of $31.0 million and $18.3 million at September 30, 2002 and 2001,
respectively, in accordance with applicable regulations.
Interest expense on deposits is summarized as follows:
Year Ended September 30,
------------------------------------
2002 2001 2000
-------- ------- -------
(In thousands)
Interest on interest-bearing checking and money-market
accounts $ 2,234 1,795 1,648
Interest on savings and certificate accounts 15,673 16,086 14,173
Less early withdrawal penalties (63) (81) (77)
-------- ------- -------
Total interest expense on deposits $ 17,844 17,800 15,744
======== ======= =======
59
Certificate accounts by year of scheduled maturity are as follows (in
thousands):
September 30,
----------------------
Fiscal Year Ending 2002 2001
------------------ ---- ----
2002 $ - 191,523
2003 204,071 54,409
2004 79,991 20,012
2005 28,963 17,267
2006 6,916 -
2007 37,494 -
2008 742 -
--------- -------
Total $ 358,177 283,211
========= =======
(7) Advances From Federal Home Loan Bank and Other Borrowings
The Company had $129.5 million and $149.5 million in FHLB advances with
weighted-average interest rates of 5.23% and 5.22% at September 30, 2002
and 2001, respectively. The advances as of September 30, 2002 include
$114.5 million in convertible advances whereby the FHLB has the option at
a predetermined time to convert the fixed-interest rate to an adjustable
rate tied to LIBOR (London interbank offering rate). The Company then has
the option to prepay the advances without penalty if the FHLB converts
the interest rate. Should the Company elect to otherwise prepay these
borrowings prior to maturity, prepayment penalties may be incurred.
Advances from the FHLB are collateralized with a blanket floating lien on
qualifying first mortgage residential loans and all the Company's FHLB
stock.
The Company's advances from the FHLB are as follows ($ in thousands):
Conversion
Option Rate Maturity Rate
------ ---- -------- ----
At September 30, 2002:
2003 $ 81,000 5.53% $ 15,000 4.41%
2004 5,000 5.13 5,000 5.72
2005 10,000 5.10 10,000 6.49
2006 13,500 4.94 15,000 5.33
2007 5,000 4.66 5,000 4.09
2008 - - 15,000 5.07
2010 - - 26,000 6.11
2011 - - 23,500 5.06
2012 - - 15,000 4.25
---------- ---------
Total and weighted-average rate $ 114,500 5.37% $ 129,500 5.23%
========== =========
60
Conversion
Option Rate Maturity Rate
------ ---- -------- ----
At September 30, 2001:
2002 $ 56,000 5.86% $ 40,000 4.54%
2003 15,000 5.29 10,000 5.67
2004 5,000 5.13 5,000 5.72
2005 5,000 6.10 10,000 6.49
2006 13,500 4.94 15,000 5.33
2008 - - 15,000 5.07
2009 - - 5,000 3.15
2010 - - 26,000 6.11
2011 - - 23,500 5.06
-------- --------
Total and weighted-average rate $ 94,500 5.61% $149,500 5.22%
======== ========
As of September 30, 2002 and 2001, respectively, the Company had $15.0
and $11.0 million in overnight borrowings utilizing the Treasury
Investment Program (TIP) through the Federal Reserve bearing interest at
1.51% and 2.50%, respectively per annum. These borrowings are
collateralized by securities with carrying values of $17.1 million and
$11.0 million at September 30, 2002 and 2001, respectively.
As of September 30, 2002, the Company also has reverse repurchase
agreements with third parties totaling $19.8 million at an average rate
of 2.26% per annum. The Company has pledged $20.5 million in securities
related to these agreements.
(8) Income Taxes
Income taxes consists of the following (in thousands):
Current Deferred Total
------- -------- -----
Year Ended September 30, 2002:
Federal $ 2,024 (53) 1,971
State 395 (9) 386
------- ------ ------
$ 2,419 (62) 2,357
======= ====== ======
Year Ended September 30, 2001:
Federal 2,074 (234) 1,840
State 382 (44) 338
------- ------ ------
$ 2,456 (278) 2,178
======= ====== ======
Year Ended September 30, 2000:
Federal 1,943 (160) 1,783
State 338 (27) 311
------- ------ ------
$ 2,281 (187) 2,094
======= ====== ======
61
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows (in thousands):
September 30,
--------------------
2002 2001
---- ----
Deferred tax assets:
Allowance for loan losses $ 1,278 1,305
Deferred compensation plans 442 354
Core deposit intangible 195 -
Self-insurance reserve 135 132
Other real estate owned 122 -
Other 13 196
------- -------
Total deferred tax assets 2,185 1,987
------- -------
Deferred tax liabilities:
Unrealized gain on securities available for sale (3,056) (954)
FHLB stock (267) (365)
Other securities (144) -
Depreciation (143) (53)
------- -------
Total deferred tax liabilities (3,610) (1,372)
------- -------
Net deferred tax (liability) asset $(1,425) 615
======= =======
The net deferred tax liability at September 30, 2002 is included in other
liabilities and the net deferred tax asset at September 30, 2001 is
included in other assets in the consolidated balance sheets.
The Company's effective rate on pretax income differs from the statutory
Federal income tax rate as follows ($ in thousands):
Year Ended September 30,
--------------------------------------------------------
2002 % 2001 % 2000 %
------- --- ------- --- ------- ---
Taxes at federal statutory
rate $ 2,707 34% $ 2,396 34% $ 2,018 34%
Increase (decrease) in tax
resulting from:
Tax-exempt income, net (565) (7) (356) (5) (148) (2)
State income taxes, net of
Federal income tax benefit 255 3 234 3 205 3
Other, net (40) - (96) (1) 19 -
------- ---- ------- ---- ------- ----
Total $ 2,357 30% $ 2,178 31% $ 2,094 35%
======= ==== ======= ==== ======= ====
Until 1997, the Internal Revenue Code (the "Code") allowed the Company a
special bad debt deduction for additions to bad debt reserves for tax
purposes. Provisions in the Code permitted the Company to determine its
bad debt deduction by either the experience method or the percentage of
taxable income method. The statutory percentage used to calculate bad
debt deductions by the percentage of taxable income method was 8% before
such deduction. The experience method was calculated using actual loss
experience of the Company.
62
The Small Business Job Protection Act of 1996 repealed the percentage of
taxable income method of accounting for bad debts for tax years beginning
after 1995. The Company switched to the experience method above to
compute its bad debt deduction in 1997 and future years. As a result of
the change in the Code, the Company is required to recapture into taxable
income the portion of its bad debt reserves that exceeds its bad debt
reserves calculated under the experience method since 1987; a recapture
of approximately $366,000 ratably over six years beginning in 1999.
Retained earnings at September 30, 2002 includes approximately $5.8
million base year, tax basis bad debt reserve for which no deferred
Federal and state income tax liability has been accrued. These amounts
represent an allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which would be subject to the
then current corporate income tax rate. The unrecorded deferred income
tax liability on the above amounts was approximately $2.2 million at
September 30, 2002. Certain events, as defined, will still trigger the
recapture of the base year reserve. The base year reserves also remain
subject to income tax penalty provisions which, in general, require
recapture upon certain stock redemptions or excess distributions to
stockholders.
(9) Concentration of Credit Risk
The Company originates real estate, consumer, and commercial loans
primarily in its Central Florida market area. Although the Company has a
diversified loan portfolio, a substantial portion of its borrowers'
ability to honor their contracts depends on the economic conditions of
Central Florida. The Company does not have a significant exposure to any
individual customer or counterparty.
The Company manages its credit risk by limiting the total amount of
arrangements outstanding with individual customers, by monitoring the
size and maturity structure of the loan portfolio, by obtaining
collateral based on management's credit assessment of the customers, and
by applying a uniform credit process for all credit exposures.
(10) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of risk-based and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined) and adjusted total
assets (as defined).
As of September 30, 2002, the most recent notification from the OTS
categorized the Bank as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well capitalized,"
the Bank must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed
the Bank's category.
63
The Bank's actual capital amounts and percentages are as follows ($ in
thousands):
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective Action
Actual Purpose Provisions
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
--------- ------ ------ ------ ------ ------
September 30, 2002:
Risk-based capital
(to risk-weighted assets) $ 66,708 13.0% $ 40,982 8.0% $ 51,227 10.0%
Tier I capital (to risk-
weighted assets) 62,189 12.1 20,491 4.0 30,736 6.0
Tier I capital
(to adjusted total assets) 62,189 7.4 33,525 4.0 41,906 5.0
September 30, 2001:
Risk-based capital
(to risk-weighted assets) 72,867 16.9 34,432 8.0 43,040 10.0
Tier I capital (to risk-
weighted assets) 69,215 16.1 17,216 4.0 25,824 6.0
Tier I capital
(to adjusted total assets) 62,215 11.3 24,496 4.0 30,620 5.0
The payment of dividends by the Bank to the Company are restricted. OTS
regulations impose limitations on all capital distributions by savings
institutions. Capital distributions include cash dividends, payments to
repurchase or otherwise acquire the institution's capital stock, payments
to stockholders of another institution in a cash-out merger and other
distributions charged against capital. A savings institution that is a
subsidiary of a savings and loan holding company, such as the Bank, must
file an application or a notice with the OTS at least 30 days before
making a capital distribution. Savings institutions are not required to
file an application for permission to make a capital distribution and
need only file a notice if the following conditions are met: (1) they are
eligible for expedited treatment under OTS regulations, (2) they would
remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year
to date added to retained net income for the two preceding years, and (4)
the capital distribution would not violate any agreements between the OTS
and the savings institution or any OTS regulations. Any other situation
would require an application to the OTS.
(11) Benefit Plans
Director Retirement Plan. The Company sponsors a nonqualified Director
Retirement Plan (the "Director Plan"). The Director Plan will pay all
Directors that have served on the board at least ten years, an amount
equal to the regular board fee as of the date of the Directors'
retirement (currently $1,000 per month) for 120 months beginning at the
end of their final three-year term. If a Director dies prior to
retirement or prior to receipt of all monthly payments under the plan,
the Company has no further financial obligations to the Director or his
or her estate. For both of the years ended September 30, 2002 and 2001,
the Company recognized costs of approximately $25,000 related to this
Director Plan. For the year ended September 30, 2000 the Company
recognized a net reduction in expense of $34,000 related to adjusting the
remaining liability after the death of a Director. The amounts were
determined by discounting the anticipated cash flow required, based on
the years of service rendered by each covered director. The
weighted-average discount rate used to measure the expense was 5.50%.
64
Employee Stock Ownership Plan. The Company sponsors an employee stock
ownership plan ("ESOP"). The ESOP covers eligible employees who have
completed twelve months of continuous employment with the Company during
which they worked at least 1,000 hours and who have attained the age of
21. As part of the Reorganization in April 1999, the ESOP borrowed $2.2
million from the Company to purchase 223,251 shares of the common stock
of the Company. After the Conversion in December 2000, the ESOP acquired
an additional 251,836 shares at a total cost of $3.9 million. The funds
were obtained through a loan from the Company. Since the ESOP is
internally leveraged, the Company does not report the loan receivable
from the ESOP as an asset and does not report the loan payable from the
ESOP as a liability. The Company's accounting for its ESOP is in
accordance with AICPA Statement of Position 93-6, Employers Accounting
for Employee Stock Ownership Plans, which requires the Company to
recognize compensation expense equal to the fair value of the ESOP shares
during the periods in which they became committed to be released. As
shares are committed to be released, the shares become outstanding for
earnings per share computations. To the extent that the fair value of the
ESOP shares differs from the cost of such shares, this differential will
be charged or credited to equity as additional paid-in capital.
Management expects the recorded amount of expense to fluctuate as
continuing adjustments are made to reflect changes in the fair value of
the ESOP shares. As of September 30, 2002 and 2001, 30,600 and 32,481
shares were committed for release and the Company recorded employee
benefits expense of $700,000, $480,000 and $284,000 for the years ended
September 30, 2002, 2001 and 2000, respectively, relating to the ESOP.
Dividends paid by the Company that relate to unallocated shares of the
ESOP are used to make payments on the ESOP loan or are allocated as
earnings to the participants. As of September 30, 2002, the fair value of
the 367,201 unallocated shares held by the ESOP was $6.5 million.
401(k) Retirement Plan. The Company has a 401(k) plan for eligible
employees. Subject to certain restrictions, eligible employees may
voluntarily contribute up to 15% of their annual compensation and the
Company may authorize discretionary contributions to eligible
participants. For the years ended September 30, 2002, 2001 and 2000 the
Company recognized $134,000, $117,900 and $94,000, respectively, of
employee benefits expense for the Company's matching contribution under
the plan.
Supplemental Executive Retirement Plan ("SERP"). The Company has a
nonqualified defined contribution plan to provide supplemental retirement
benefits for certain executive officers. For the years ended September
30, 2002, 2001 and 2000 the Company recognized $191,000, $144,000 and
$130,000, respectively, of employee benefits expense related to the SERP.
(12) Stock-Based Compensation Plans
Restricted Stock Plan ("RSP"). On October 19, 1999 the Company adopted,
and the stockholders approved, the 1999 RSP for directors and officers to
enable the Bank to attract and retain experienced and qualified
personnel. Under the 1999 RSP, directors and officers of the Bank were
initially awarded 111,625 shares of the Company's stock. These restricted
shares are earned at a rate of 20% each year of continued service to the
Company. The fair value of the shares awarded was $919,000, using the
market closing price of $8.24 on the date of grant. This amount is being
amortized over a five-year period to employee benefits expense,
commencing October 1, 1999.
During 2002, the Company adopted and the shareholders approved a 2002 RSP
under which 124,750 shares of the Company stock were awarded to directors
and officers. These shares vest over three or five year terms. The fair
value of these shares was $2.0 million using the market closing price of
$16.03 on the date of grant. During the years ended September 30, 2002,
2001 and 2000, the Company recognized $862,000, $181,000 and $215,000,
respectively in employee benefits expense related to the RSP.
65
In the event of death or disability of a participant or change of control
of the Company, all shares awarded to the participant become immediately
vested. All shares awarded under the RSP are considered as shares
outstanding for purposes of calculating earnings per share. The shares
earned under this plan are entitled to all voting and other stockholder
rights, except that, while restricted, the shares must be held in escrow
and cannot be sold, pledged or otherwise conveyed. The Company acquires
the shares for the plan through open market purchases. During 2002 and
2001, the RSP purchased 124,658 and 51,889 shares, respectively, at an
average price of $18.34 and $14.13 per share, respectively. At September
30, 2002 the plan held 128,151 unvested shares at an average price of
$16.25 per share.
Stock Option Plans. The Company has two Stock Option Plans (the "Option
Plans") under which a total of 593,848 common shares were authorized to
be granted to directors, officers and employees of the Company. Shares
granted under the Option Plans are exercisable at the market price at the
date of the grant and vest over three or five years. Options generally
expire at the earlier of ten years from the date of grant or three months
following the date an officer or employee terminates the employment
relationship for reasons other than disability (options expire one year
after disability) or death (options expire two years after death). Total
stock options available for future grants under both Option Plans at
September 30, 2002 was 6,245.
During the years ended September 30, 2002 and 2000, 311,750 and 279,053
options were granted under the Option Plans, respectively. SFAS No. 123
requires pro forma fair value disclosures if the intrinsic value method
is being utilized. For purposes of pro forma disclosures, the estimated
fair value was included in expense over the period vesting occurs. The
pro forma information has been determined as if the Company had accounted
for its stock options under the fair value method of SFAS No. 123. The
proforma information and assumptions used in calculating the fair values
of stock options granted is as follows ($ in thousands, except per share
amounts):
Year Ended September 30,
----------------------------------------
2002 2001 2000
---- ---- ----
Risk-free rate of return 5.43% N/A 6.00%
Annualized dividend 1.50% N/A 2.50%
Estimated volatility 22% N/A 65%
Expected life of options granted 10 years N/A 10 years
Weighted-average grant-date fair value of options issued
during the year $ 5.75 N/A 4.78
========= ===== =====
Proforma net income $ 4,833 4,655 3,462
========= ===== =====
Proforma basic earnings per share $ 0.95 0.88 0.64
========= ===== =====
Proforma diluted earnings per share $ 0.91 0.86 0.63
========= ===== =====
The following is a summary of option transactions:
Range of Per Weighted
Number of Share Option Average Per
Shares Price Share Price
------ ----- -----------
Outstanding, September 30, 2000 278,536 $ 8.23 $ 8.23
Exercised (2,229) 8.24 8.24
Forfeited (2,683) 8.24 8.24
-------
Outstanding, September 30, 2001 273,624 7.63-10.23 8.23
Exercised (6,602) 8.24 8.24
Granted 311,750 16.03-19.20 16.06
-------
Outstanding, September 30, 2002 578,772 7.63-19.20 12.45
======= ========== =====
66
The weighted average remaining contractual life of the outstanding
options at September 30, 2002 was 8.6 years. The outstanding options at
September 30, 2002 are exercisable as follows:
Weighted Weighted Average
Number of Average Remaining Contractual
Year Ending Shares Exercise Price Life
----------- ------ -------------- ---------------------
Already vested 254,916 $ 8.23 7.0
2003 147,003 11.90 8.0
2004 147,003 13.25 8.0
2005 15,378 15.58 9.0
2006 14,472 16.06 9.0
-------
Total 578,772 12.45 8.6
=======
(13) Branch Acquisition
On February 15, 2002, the Company finalized the purchase of seven Florida
retail sales offices ("Branch Acquisition") from SunTrust Bank coincident
with SunTrust Bank's acquisition of such offices from Huntington National
Bank ("Huntington"). Four of these Huntington offices are located in
Lakeland, Florida, and one each in Avon Park, Sebring and Wildwood,
Florida. The Company received approximately $120.9 million in cash,
$162.1 million in deposits, $26.1 million in loans and $2.4 million in
premises and equipment related to these seven offices. The transaction
resulted in a deposit premium of approximately 7.6%. This premium, along
with additional acquisition costs, resulted in a core deposit intangible
asset of $12.7 million. This intangible asset is being amortized using a
150% declining balance method over twelve years and the Company
recognized $1.1 million of amortization expense for the year ended
September 30, 2002.
(14) Fair Values of Financial Instruments
Fair value estimates, methods and assumptions are set forth below.
Cash and Cash Equivalents. The carrying amounts of cash and cash
equivalents (demand deposits maintained at various financial
institutions) represent fair value.
Securities. The Company's securities represent investments in U.S.
government agency obligations, CMOs, MBS, corporate bonds, municipal
bonds and common stock. The fair value of these securities was estimated
based on quoted market prices or bid quotations received from securities
dealers.
FHLB Stock. The FHLB stock is not publicly traded and the carrying
amounts were used to estimate the fair value.
Loans. 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 residential, commercial real estate, commercial
and consumer loans other than variable rate loans are estimated using
discounted cash flow analysis, using the Office of Thrift Supervision
("OTS") pricing model. Fair values of impaired loans are estimated using
discounted cash flow analysis or underlying collateral values, where
applicable.
Deposits. The fair values disclosed for noninterest bearing demand
deposits are, by definition, equal to the amount payable on demand at
September 30, 2002 and 2001 (that is their carrying amounts). The
carrying amounts of variable-rate, fixed-term money-market accounts and
interest-bearing demand deposits approximate their fair value at the
reporting date. Fair values for fixed-rate time deposits are estimated
using the OTS pricing model.
Federal Home Loan Bank Advances. Fair value for Federal Home Loan Bank
advances are estimated using the OTS pricing model.
Other Borrowings. Fair values of other borrowings are estimated using
discounted cash flow analysis based on the Company's current borrowing
rates for similar types of borrowing arrangements.
67
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
At September 30,
---------------------------------------------------
2002 2001
----------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and cash equivalents $ 30,628 30,628 21,676 21,676
Securities available for sale 272,624 272,624 129,534 129,534
Federal Home Loan Bank stock 6,966 6,966 7,670 7,670
Loans 499,364 524,850 474,155 485,300
========= ========= ======== =========
Financial liabilities:
Deposits:
Without stated maturities 229,254 229,254 116,326 116,326
With stated maturities 358,177 368,125 283,211 289,854
Federal Home Loan Bank advances 129,500 142,851 149,500 157,076
Other borrowings 34,834 35,772 11,048 11,048
========= ========= ======== =========
Commitments. The Company makes commitments in the normal course of
business to originate loans and to fund undisbursed construction and line
of credit loans. All such commitments are for relatively short periods of
time, so the market value of the loans on the commitment date and
origination or delivery date is seldom materially different. The Company
also has recourse obligations on loans sold in the secondary market.
These recourse obligations require the Company to repurchase loans if the
borrower defaults within a certain time period after the loan is sold,
usually three to twelve months. The Company has not had to repurchase any
loan sold in the secondary market in relation to these recourse
obligations. The Company's commitments at September 30, 2002 are as
follows (in thousands):
Estimated
Notional Carrying Fair
Amount Amount Value
------ ------ -----
Loan commitments and letters of credit $ 6,143 - -
======== ===== =====
Undisbursed construction and line of credit loans $ 45,240 - -
======== ===== =====
Loans sold with recourse obligations $ 17,936 - -
======== ===== =====
(15) Legal Contingencies
Various legal claims also arise from time to time in the normal course of
business which, in the opinion of management of the Company, will not
have a material effect on the Company's consolidated financial
statements.
(16) Subsequent Event
On October 2, 2002, the Company entered into a definitive agreement with
BB&T Corporation ("BB&T") whereby BB&T would acquire 100% of the
outstanding common stock of the Company. However, pursuant to discussions
with regulatory officials, BB&T and the Company terminated the agreement
on October 31, 2002 so that BB&T could submit the proper application to
acquire control of the Company pursuant to regulatory guidelines. This
application was filed on November 4, 2002. The Company has expended
approximately $610,000 in costs related to the acquisition, including
approximately $120,000 during the year ended September 30, 2002.
68
(17) Parent Company Only Financial Statements
The unconsolidated condensed financial statements of FloridaFirst Bancorp,
Inc. are as follows (in thousands):
Condensed Balance Sheets
------------------------
At September 30,
--------------------------------
2002 2001
---- ----
Assets
Cash and cash equivalents $ 141 86
Loans to subsidiary 17,621 20,547
Securities available for sale 2,507 2,402
Investment in subsidiary 78,739 70,769
Other assets 59 52
-------- ------
Total assets $ 99,067 93,856
======== ======
Liabilities and Stockholders' Equity
Other liabilities 89 42
Stockholders' equity 98,978 93,814
-------- ------
Total liabilities and stockholders' equity $ 99,067 93,856
======== ======
Condensed Statements of Earnings
--------------------------------
Year Ended September 30,
---------------------------------
2002 2001 2000
---- ---- ----
Interest income:
Securities available for sale $ 213 209 135
Loans to subsidiary 852 976 500
------- ------ ------
Total income 1,065 1,185 635
------- ------ ------
Operating expenses (227) (212) (102)
------- ------ ------
Income before income taxes and equity in undistributed
earnings of subsidiary 838 973 533
Income taxes (317) (340) (191)
------- ------ ------
Income before equity in undistributed earnings of subsidiary 521 633 342
Equity in undistributed earnings of subsidiary 5,083 4,236 3,500
------- ------ ------
Net income $ 5,604 4,869 3,842
======= ====== ======
69
Condensed Statements of Cash Flows
----------------------------------
Year Ended September 30,
--------------------------------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income $ 5,604 4,869 3,842
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiary (5,083) (4,236) (3,500)
Net decrease (increase) in other 2 (12) (126)
-------- -------- -------
Net cash provided by operating activities 523 621 216
-------- -------- -------
Cash flows from investing activities:
Capital contribution to subsidiary - (16,000) -
Purchase securities available for sale - - (2,263)
Repayment (issuance) of loans to subsidiary 2,926 (13,761) 6,133
-------- -------- -------
Net cash provided by (used in) investing activities 2,926 (29,761) 3,870
-------- -------- -------
Cash flows from financing activities:
Payments to acquire treasury stock (2,199) (481) (3,606)
Dividends paid (1,249) (921) (480)
Net proceeds from stock issuances 54 30,578 -
-------- -------- -------
Net cash (used in) provided by financing activities (3,394) 29,176 (4,086)
-------- -------- -------
Net increase in cash 55 36 -
Cash at beginning of year 86 50 50
-------- -------- -------
Cash at end of year $ 141 86 50
======== ======== =======
70
(18) Quarterly Financial Data (Unaudited)
Unaudited quarterly financial data is as follows ($ in thousands, except
per share data):
Year Ended September 30, 2002 Year Ended September 30, 2001
---------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Interest income $ 11,266 11,825 12,948 12,871 10,947 11,025 11,385 11,489
Interest expense 6,171 6,130 6,390 6,257 6,761 6,334 6,431 6,369
--------- ------- ------- ------- ------- ------- ------- -------
Net interest income 5,095 5,695 6,558 6,614 4,186 4,691 4,954 5,120
Provision for loan
losses 150 170 180 180 180 135 150 150
--------- ------- ------- ------- ------- ------- ------- -------
Net interest income
after provision
for loan losses 4,945 5,525 6,378 6,434 4,006 4,556 4,804 4,970
--------- ------- ------- ------- ------- ------- ------- -------
Noninterest income 834 1,051 1,588 1,723 573 677 729 508
Noninterest expense 3,872 4,881 5,713 6,051 3,124 3,535 3,459 3,658
--------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes 1,907 1,695 2,253 2,106 1,455 1,698 2,074 1,820
Income taxes 573 487 681 616 483 520 640 535
--------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,334 1,208 1,572 1,490 972 1,178 1,434 1,285
========= ======= ======= ======= ======= ======= ======= =======
Basic earnings per
share $ .26 .24 .31 .29 0.18 0.22 0.27 0.25
========= ======= ======= ======= ======= ======= ======= =======
Diluted earnings
per share $ .25 .22 .30 .28 0.18 0.21 0.26 0.25
========= ======= ======= ======= ======= ======= ======= =======
71
Item 9. Changes in and Disagreements With Accountants on Accounting and
- --------- ---------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
72
PART III
Item 10. Directors and Executive Officers
- -------- --------------------------------
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the 1934 Act, requires the Company's directors and executive
officers to file reports of ownership and changes in ownership of their equity
securities of the Company with the Securities and Exchange Commission and to
furnish the Company with copies of such reports. To the best of the Company's
knowledge, all of the filings by the Company's directors and executive officers
were made on a timely basis during the 2002 fiscal year. The Company is not
aware of other beneficial owners of more than ten percent of its common stock.
Biographical Information
The business experience of each director and executive officer of the Company is
set forth below. All persons have held their present positions for five years
unless otherwise stated.
Llewellyn N. Belcourt, 70, is a stockholder of Carter, Belcourt & Atkinson,
P.A., a certified public accounting firm located in Lakeland, Florida. He is
Treasurer and a Board member of the Community Foundation of Greater Lakeland and
a Board member of the Lakeland Regional Medical Center Foundation.
J. Larry Durrence, 63, is President of Polk Community College, a state
institution with campuses in Lakeland and Winter Haven, Florida. He was an
executive manager in the Florida Department of Revenue from late 1992 to early
1998, and prior to that was in higher education. He was also a City Commissioner
and Mayor of Lakeland, 1981-1989. He currently serves on the boards of United
Way of Central Florida, Lakeland Chamber of Commerce, Polk Economic Education
Council, Polk Workforce Development Board, Volunteers in Service to the Elderly
(Advisory), and the Board of Governors of Polk Museum of Art. He serves on the
Commission on Economic and Workforce Development for the American Association of
Community Colleges and is a graduate of the AACC President's Academy.
Stephen A. Moore, Jr., 60, is President, Chief Executive Officer and a Director
of Moore Business Service, Inc., an accounting firm and major franchisee for H&R
Block in central Florida with corporate offices in Lakeland, Florida. He has
been with Moore Business Service, Inc. since 1974. Mr. Moore is a member and
Past President of the Lakeland Rotary Club. He has been active as a board member
of the Polk Community College Foundation, as an officer and board member of the
Central Florida Speech and Hearing Center, as a board member and Past President
of Goodwill Industries, Heart of Florida, Inc., as a board member of the
Lakeland Area Chamber of Commerce and as a member of the Lakeland Regional
Medical Center Community Counselor program.
Nis H. Nissen, III, 61, is President and Chief Executive Officer of Nissen
Advertising, Inc., an advertising and public relations firm located in Lakeland,
Florida that he has been affiliated with since 1971. He also is a member of the
Rotary Club, a Director of the Central Florida Speech & Hearing Center, a
Director of Crimestoppers of Polk County, Vice Chairman of the Public
Information Committee, Community Foundation of Lakeland, a member of the Fine
Arts Council of the Florida Southern Foundation of Lakeland, and a member of the
Board of Governors of Florida Southern College.
Arthur J. Rowbotham, 54, is an attorney and is President of Hall Communications,
Inc., a company that operates four radio stations in Lakeland, Florida, which he
has been with since 1977 as a director and since 1983 as General Manager. He
currently serves as a director for Cross Country Communications, LLC, Imperial
Symphony Orchestra Advisory Board, City of Lakeland Civil Service Board, City of
Lakeland Pension Board, and Florida Association of Broadcasters. He is a member
of the Broadcasters' Foundation and the Lakeland Regional Medical Center
Community Counselor.
Gregory C. Wilkes, 54, has been FloridaFirst Bank's President, Director and
Chief Executive Officer since 1995. From 1990 to 1995, Mr. Wilkes was employed
by Home Federal Savings Bank in Rome, Georgia, where he served as President,
Director and Chief Executive Officer. He is the Past Chairman of the Lakeland
Chamber of
73
Commerce and also serves as a board member for the Lakeland Chamber of Commerce,
Lakeland Rotary Club, Polk Theater, the YMCA, the Salvation Army, the Florida
Southern College President's Council, and the Lakeland Regional Hospital
Foundation. In addition, Mr. Wilkes is the elected director for the State of
Florida for the Federal Home Loan Bank of Atlanta and is a member of the board
of the Florida Bankers Association and board and faculty member of the Florida
School of Banking.
G. F. Zimmermann, III, 58, is President and majority stockholder of Zimmermann
Associates, Inc., a building design firm located in Lakeland, Florida, which he
has been with since 1974. He has been active with the Salvation Army, the
Kiwanis Club of Lakeland, the Lakeland Kiwanis Foundation and the Chamber of
Commerce. He also has served as a member of the Habitat for Humanity Board of
Directors, the City of Lakeland Civil Service Board, the Pension Board, the
Arbitration Board and the Lakeland Regional Medical Center Community Board.
Named Executive Officers Who Are Not Directors
Don A. Burdett, 57, has been Senior Vice President of Retail Banking of
FloridaFirst Bank since November 1998. Prior to joining FloridaFirst Bank, Mr.
Burdett served as a market executive and held various sales management positions
at Barnett Bank from 1979 to 1998.
Kerry P. Charlet, 49, has been Chief Financial and Operations Officer of
FloridaFirst Bank since March 1998. Prior to joining FloridaFirst Bank, Mr.
Charlet served in various positions from 1986 to 1994 at Florida Bank, FSB,
including Executive Vice President and Chief Financial Officer. He was also
employed by AmSouth Bank of Florida from 1995 to 1998, where he served as Senior
Vice President and Chief Financial Officer. Mr. Charlet has also served as an
officer and committee chairman for the Gator Bowl Association, Chairman of
Payment Systems Network, and president and board member of various youth
basketball organizations.
William H. Cloyd, 45, has been Chief Lending Officer of FloridaFirst Bank since
January 1998. Previously, Mr. Cloyd was Senior Vice President of Sun Trust Bank
Mid-Florida, N.A. He has also been active with the United Way, the North
Lakeland Rotary Club, the Lakeland Chamber of Commerce, and has served as
Chairman of the Lakeland Downtown Development Authority.
Certain Other Executive Officer Who Is Not A Director
Marion L. Moore, 63, has been Senior Vice President of Deposit Operations of
FloridaFirst Bank since 1984. He has also been active with the Rotary Club, the
Boy Scouts of America, the Lakeland Chamber of Commerce and the Winter Haven
Chamber of Commerce.
74
Item 11. Executive Compensation
- -------- ----------------------
Director Compensation. During the fiscal year ended September 30, 2002, each
director was paid a fee of $1,000 for each board annual meeting attended. The
chairman of the board receives an additional $1,500 monthly fee. Each
non-management director was paid $200 for each committee annual meeting
attended. The total fees paid to the directors for the fiscal year ended
September 30, 2002 were approximately $156,000.
In addition, the Bank maintains a Directors Consultant and Retirement Plan. If a
director agrees to become a consulting director to our Board after retirement
and completion of at least 10 years of service, he will receive a monthly
payment equal to the Board fee in effect at the date of retirement, currently
$1,000 per month, for a period of 120 months. Benefits under such plan will
begin after a director's retirement. If there is a change in control, all
directors will be presumed to have completed not less than 10 years of service,
and each director will receive a lump sum payment equal to the present value of
future benefits payable. During the fiscal year ended September 30, 2002,
$24,000 was paid to former directors under the Plan.
1999 Option Plan and Restricted Stock Plan. Under the 1999 Option Plan, each
non-employee director, except Messrs. Durrence and Rowbotham, was previously
granted 11,146 options to purchase shares of common stock at $8.24 per share.
Under the 1999 Restricted Stock Plan ("RSP"), each non-employee director, except
Messrs. Durrence and Rowbotham, was previously awarded 4,783 shares of common
stock. Option shares and restricted stock plan shares are exercisable at the
rate of 20% per year commencing on October 19, 2000. Under the 1999 Option Plan
and RSP, Mr. Wilkes received 65,832 options and 27,905 RSP shares, respectively.
In accordance with the RSP, dividends are paid on shares awarded or held in the
plan
2002 Option Plan and RSP. The 2002 Option Plan was ratified by shareholders on
January 29, 2002. Under the 2002 Option Plan, each non-employee director was
previously granted 15,750 options to purchase shares of common stock at $16.03
per share. Under the 2002 Restricted Stock Plan, which was also ratified by
shareholders on January 29, 2002, each non-employee director was previously
awarded 6,250 shares of common stock. These option shares and restricted stock
plan shares are exercisable at the rate of 33 1/3% per year commencing on
September 30, 2002. Under the 2002 Option Plan and Restricted Stock Plan, Mr.
Wilkes received 60,000 options and 25,000 shares of restricted stock,
respectively. In accordance with the 2002 Restricted Stock Plan, dividends are
paid on shares awarded or held in the plan.
Executive Compensation. The following table sets forth the cash and non-cash
compensation awarded to or earned, for services rendered by the named executive
officers of the Company for each of the three years ended September 30, 2002. No
other executive officer of the Company or the Bank had a combined salary and
bonus that exceeded $100,000.
75
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
------------------------------- -------------------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation($) Awards(s)($)(1) Options#(3) Compensation($)
- ------------------ ---- --------- -------- --------------- --------------- ----------- ---------------
Gregory C. Wilkes, 2002 $262,000 $60,000 $3,000 $400,625 (1) 60,000 91,864(4)
President and 2001 229,277 - 13,000 - 78,622
Chief Executive Officer 2000 201,440 - 13,000 229,823 (2) 65,832 79,608
Don A. Burdett 2002 116,250 18,914 192,300 (1) 25,000 22,788(5)
Senior Vice President 2001 106,750 7,500 - - 12,780
2000 98,750 10,000 - 85,000 (2) 18,061 2,963
Kerry P. Charlet, 2002 156,250 26,914 288,450 (1) 30,000 70,285(6)
Senior Vice President and 2001 139,076 10,000 - - 49,129
Chief Financial Officer 2000 127,370 10,000 - 153,000 (2) 33,543 50,628
William H. Cloyd, 2002 141,000 12,000 240,375 (1) 25,000 71,065(7)
Senior Vice President and 2001 129,508 7,500 - - 47,816
Chief Lending Officer 2000 113,500 5,000 - 127,500 (2) 25,802 47,221
- -----------------
(1) For Messrs. Wilkes, Burdett, Charlet and Cloyd represents awards of
25,000, 12,000, 18,000 and 15,000 shares of Common Stock, respectively,
under the 2002 Restricted Stock Plan as of December 21, 2001 on which
date the market price of such stock was $16.03 per share. Such stock
awards become non-forfeitable at the rate of 33 1/3%shares per year
commencing on September 30, 2002. Dividend rights associated with such
stock are accrued and held in arrears to be paid at the time that such
stock becomes non-forfeitable. Based upon a market price of $17.64 per
share as of September 30, 2002, such unvested shares for Messrs. Wilkes,
Burdett, Charlet and Cloyd had a market value of $294,000, $141,000,
$212,000 and $176,000, respectively.
(2) For Messrs. Wilkes, Burdett, Charlet and Cloyd represents awards of
27,905, 10,320, 18,577 and 15,481 shares of common stock, respectively,
under the 1999 Restricted Stock Plan as of October 19, 1999 on which date
the market price of such stock was $8.24 per share. Such stock awards
become non-forfeitable at the rate of 20% per year commencing on October
19, 2000. Dividend rights associated with such stock are accrued and held
in arrears to be paid at the time that such stock becomes
non-forfeitable. Based upon a market price of $17.64 per share as of
September 30, 2002, such unvested shares for Messrs. Wilkes, Burdett,
Charlet and Cloyd had a market value of $295000, $109,000, $197,000 and
$164,000, respectively.
(3) Such awards under the 1999 Option Plan are first exercisable at the rate
of 20% per year commencing on October 19, 2000, and such awards under the
2002 Option Plan are first exercisable at the rate of 33 1/3% per year
commencing on September 30, 2002. See "Stock Awards" below.
(4) Includes $64,000 related to an accrual under the supplemental executive
retirement plan; 1,573 shares of common stock allocated under the ESOP at
a cost basis of $13.26 per share (such shares had an aggregate market
value at September 30, 2002 of $27,748); and $7,006 in the Company's
matching funds in the 401(k) retirement plan.
(5) Includes 1,386 shares of common stock allocated under the ESOP at a cost
basis of $13.26 per share (such shares had an aggregate market value at
September 30, 2002 of $24,449); and $4,410 in the Company's matching
funds in the 401(k) retirement plan.
(6) Includes $45,000 related to an accrual under the supplemental executive
retirement plan; 1,573 shares of common stock allocated under the ESOP at
a cost basis of $13.26 per share (such shares had an aggregate market
value at September 30, 2002 of $27,748); and $4,427 in the Company's
matching funds in the 401(k) retirement plan.
(7) Includes $46,000 related to an accrual under the supplemental executive
retirement plan; approximately 1,573 shares of common stock scheduled to
be allocated under the ESOP at a cost basis of $13.26 per share (such
shares had an aggregate market value at September 30, 2002 of $27,748);
and $4,207 in the Company's matching funds in the 401(k) retirement plan.
76
Stock Awards. The following tables sets forth information with respect to
options granted to the named executive officers and held by them as of September
30, 2002. The Company has not granted to the named executive officers any stock
appreciation rights.
OPTION GRANTS TABLE
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
----------------- --------------------------
Number of % of Total
Securities Option
Underlying Granted to Exercise or
Option Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh)(1) Date 5% ($) 10% ($)
---- ----------- ----------- --------- ----------------- -------- ----------
Gregory C. Wilkes 60,000 27.6% $16.03 December 20, 2010 $605,000 $1,532,000
Don A. Burdett 25,000 11.5% $16.03 December 20, 2010 252,000 638,500
Kerry P. Charlet 30,000 13.8% $16.03 December 20, 2010 302,000 766,000
William H. Cloyd 25,000 11.5% $16.03 December 20, 2010 252,000 638,500
- --------------
(1) The amounts represent certain assumed rates of appreciation only over a
ten-year period. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the
Common Stock and overall stock market conditions. There can be no
assurance that the amount reflected in the table will be achieved. The
values in the table are based upon the exercise price of $16.03.
77
OPTION EXERCISES AND YEAR END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value
------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options at FY-End(#) Options at FY-End($)
-------------------- --------------------
Shares Acquired Value
Name on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------------- ----------- ------------------------- -------------------------
Gregory C. Wilkes
1999 Option Plan __ __ 26,332 / 39,500 $247,600 / $371,500(1)
2002 Option Plan __ __ 20,000 / 40,000 32,300 / 64,600(2)
Don A. Burdett
1999 Option Plan __ __ 7,224 / 10,837 67,900 / 101,900(1)
2002 Option Plan __ __ 8,333 / 16,667 13,500 / 26,900(2)
Kerry P. Charlet
1999 Option Plan __ __ 13,418 / 20,125 126,200 / 189,300(1)
2002 Option Plan __ __ 10,000 / 20,000 16,100 / 32,300(2)
William H. Cloyd
1999 Option Plan __ __ 10,320 / 15,482 97,100 / 145,600(1)
2002 Option Plan __ __ 8,333 / 16,667 13,500 / 26,900(2)
(1) Based on the exercise price of $8.24 and the closing price on September
30, 2002 of $17.64.
(2) Based on the exercise price of $16.03 and the closing price on September
30, 2002 of $17.64.
Other Benefits
Employment Agreements. The Bank has entered into separate employment agreements
with Messrs. Wilkes, Burdett, Charlet and Cloyd. Messrs. Wilkes' and Charlet's
employment agreements have a term of three years, while Messrs. Burdett's and
Cloyd's agreement have a term of two years. The agreements may be terminated by
the Bank for "just cause" as defined in the agreement. If the Bank terminates
any of these individuals without just cause, they will be entitled to a
continuation of their salary from the date of termination through the remaining
term of the agreement, but in no event for a period of less than one year. The
employment agreements contain a provision stating that after Messrs. Wilkes',
Burdett's, Charlet's or Cloyd's employment is terminated in connection with any
change in control, the individual will be paid a lump sum amount equal to 2.99
times his five-year average annual taxable cash compensation. In the event of a
change in control as of September 30, 2002, Messrs. Wilkes, Burdett, Charlet and
Cloyd would have received approximately $750,000, $360,000, $525,000 and
$450,000, respectively.
Supplemental Executive Retirement Plan. The Bank has implemented a supplemental
executive retirement plan for the benefit of Messrs. Wilkes, Charlet and Cloyd.
The supplemental executive retirement plan will provide benefits at age 65 that
would be comparable to approximately 83% of the benefits that would have accrued
under the terminated pension plan after retirement at age 65. If a participant
terminates employment prior to age 65, then the target retirement benefits will
be reduced. The accumulated deferred compensation account for each participant
will be payable to such participant at anytime following termination of
employment after attainment of age 55, the death or disability of the
participant, or termination of employment following a change in control of the
Bank whereby the Bank or its parent company is not the resulting entity. As of
the fiscal year ended September 30, 2002, Messrs. Wilkes, Charlet and Cloyd had
aggregate benefit accruals under the supplemental executive retirement plan of
approximately $248,000, $154,000, and $156,000, respectively, and such benefits
for the individuals were not vested.
78
Item 12. Security Ownership of Certain Beneficial Owners and Management and
- -------- ---------------------------------------------------------------------
Related Stockholder Matters
---------------------------
Securities Authorized for Issuance Under Equity Compensation Plans
Set forth below is information as of September 30, 2002 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under equity
exercise of outstanding compensation plans (excluding
outstanding options, options, warrants securities reflected in
warrants and rights and rights column (a))
------------------- ---------- -----------
Equity compensation plans approved by shareholders:
1999 Stock Option Plan 270,221 $ 8.23 3,200
2002 Stock Option Plan 311,750 $16.06 3,045
1999 Restricted Stock Plan (1) 63,995 __ __
2002 Restricted Stock Plan (1) 84,400 __ __
Equity compensation plans not
approved by shareholders: __ __ __
------- -----
TOTAL 730,366 $12.45 6,245
======= ====== =====
- -------------------
(1) Represents the shares that have previously been awarded under these plans
but have not vested as of September 30, 2002. The restricted stock trust
has purchased and currently owns sufficient shares to satisfy the shares
that will be required for future vesting periods.
79
Security Ownership of Certain Beneficial Owners and Management and Related
- --------------------------------------------------------------------------------
Stockholder Matters
- -------------------
Percent of Shares of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership (4) Outstanding (%)
- ------------------------------------ ------------------------ ---------------
FloridaFirst Bank Employee Stock Ownership Plan ("ESOP") 467,799(1) 8.29%
205 East Orange Street
Lakeland, Florida
Wellington Management Company, LLP 313,300(2) 5.55%
75 State Street
Boston, MA 02109
Thomson Horstmann & Bryant, Inc. 295,607(3) 5.24%
Park 80 West, Plaza Two
Saddle Brook, NJ 07663
Llewellyn N. Belcourt (5) (6) 19,011 *
Don A. Burdett 30,650 *
Kerry P. Charlet 74,433 1.32%
William H. Cloyd 42,117 *
J. Larry Durrence (5) (6) 7,939 *
Stephen A. Moore, Jr. (5) (6) 64,705 1.15%
Nis H. Nissen, III (5) (6) 53,737 *
Arthur J. Rowbotham (5) (6) 7,533 *
Gregory C. Wilkes 125,228 2.22%
G. F. Zimmermann, III (5) (6) 28,320 *
All directors and named executive officers 473,131 8.39%
Of the Company as a group (11 persons)
- ----------------
(1) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from the Company. These shares are held
in a suspense account and will be allocated among ESOP participants
annually as the ESOP debt is repaid. The board of directors of
FloridaFirst Bank has appointed a committee consisting of non-employee
directors Llewellyn N. Belcourt, J. Larry Durrence, Stephen A. Moore,
Jr., Nis H. Nissen, III, Arthur J. Rowbotham and G.F. Zimmermann, III to
serve as the ESOP administrative committee ("ESOP Committee") and to
serve as the ESOP trustees ("ESOP Trustee"). The ESOP Committee or the
Board instructs the ESOP Trustee regarding investment of ESOP plan
assets. The ESOP Trustee must vote all shares allocated to participant
accounts under the ESOP as directed by participants. Unallocated shares
and shares for which no timely voting direction is received will be voted
by the ESOP Trustee as directed by the ESOP Committee. As of September
30, 2002, 99,945 shares have been allocated under the ESOP to participant
accounts.
(2) Pursuant to an amended Schedule 13G dated December 31, 2000 by Wellington
Management Company, LLP ("WMC"). WMC has shared voting power with respect
to 58,000 shares and shared dispositive power with respect to 300,000
shares.
(3) Pursuant to a Schedule 13G dated February 5, 2001 by Thomson Horstmann &
Bryant, Inc. ("TH&B"). TH&B has sole voting power with respect to 98,407
shares and sole dispositive power with respect to 295,067 shares.
80
(4) The share amounts include shares of common stock that the following
persons may acquire through the exercise of stock options under the 1999
and 2002 Option Plan within 60 days of the record date: Llewellyn N.
Belcourt - 11,938, Don A. Burdett - 19,170, Kerry P. Charlet - 30,126,
William H. Cloyd - 23,815, J. Larry Durrence 5,250, Stephen A. Moore, Jr.
- 11,938, Nis H. Nissen, III - 11,938, Arthur J. Rowbotham - 5,250,
Gregory C. Wilkes - 59,499, and G. F. Zimmermann, III - 9,709.
(5) Excludes 467,799 shares under the ESOP for which such individuals
exercise shared voting and investment power with respect to such shares
as an ESOP trustee. Such individuals disclaim beneficial ownership with
respect to such shares held in a fiduciary capacity.
(6) Excludes 63,995 1999 RSP shares and 85,400 2002 RSP shares which were
previously awarded but subject to forfeiture for which such individuals
exercise shared voting and investment power with respect to such shares
as a member of the 1999 RSP and 2002 RSP committee. Such individuals
disclaim beneficial ownership with respect to such shares held in a
fiduciary capacity.
* Less than 1% of the common stock outstanding.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The Bank, like many financial institutions, has followed a policy of granting
various types of loans to officers, directors, and employees. The loans have
been made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with the Bank's other customers, and do not involve
more than the normal risk of collection, or present other unfavorable features.
81
PART IV
Item 14. Controls and Procedures
- -------- -----------------------
(a) Evaluation of disclosure controls and procedures. Based on their
--------------------------------------------------
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls. There were no significant changes in
----------------------------
the Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------- ---------------------------------------------------------------
(a) (1) Financial Statements:
See Item 8.
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the
information is not required under the related instructions or
is inapplicable.
(a) (3) Exhibits:
3(i) Articles of Incorporation of FloridaFirst Bancorp, Inc.*
3(ii) Bylaws of FloridaFirst Bancorp, Inc.*
4 Specimen Stock Certificate of FloridaFirst Bancorp, Inc.*
10.1 Form of Employment Agreements entered into with the named
Executive Officers of FloridaFirst Bank*
10.2 1999 Stock Option Plan **
10.3 1999 Restricted Stock Plan **
10.4 Supplemental Executive Retirement Plan for the benefit of
Certain Senior Officers*
10.5 2002 Stock Option Plan***
10.6 2002 Restricted Stock Plan***
21 Subsidiaries of Registrant (See Item 1 - Description of the
Business)
23 Consent of Accountants
99 Certification pursuant to 18 U.S.C. Section 1150, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 initially filed with the Commission on September 5, 2000 (File
No. 333-45150).
** Incorporated by reference to the identically numbered exhibits to the
Form 10-K filed by FloridaFirst Bancorp on December 29, 1999 (File No.
0-25693).
*** Incorporated by reference to the Registrant's Proxy Statement filed with
the Commission on December 21, 2001.
82
(b) Reports on Form 8-K:
(i) A report on Form 8-K was filed on October 3, 2002 under items 5
and 7 announcing that the Registrant entered into a definitive
Agreement and Plan of Reorganization with BB&T Corporation.
(ii) An amended Form 8-K was filed on October 10, 2002 under Item 5
announcing a revision to the Agreement and Plan of Reorganization
filed with the 8-K on October 3, 2002.
(iii) A Form 8-K was filed on November 1, 2002 under Items 5 and 7
announcing the termination of the Agreement and Plan of
Reorganization with BB&T Corporation.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORIDAFIRST BANCORP, INC.
Date: December 24, 2002 By: /s/Gregory C. Wilkes
-------------------------------------
Gregory C. Wilkes
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of December 24, 2002, by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
/s/Gregory C. Wilkes /s/Kerry P. Charlet
- ----------------------------------------- --------------------------------------------
Gregory C. Wilkes Kerry P. Charlet
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/Nis H. Nissen, III /s/Stephen A. Moore, Jr.
- ----------------------------------------- --------------------------------------------
Nis H. Nissen, III Stephen A. Moore, Jr.
Chairman of the Board Director
/s/Llewellyn N. Belcourt /s/Arthur J. Rowbotham
- ----------------------------------------- --------------------------------------------
Llewellyn N. Belcourt Arthur J. Rowbotham
Director Director
/s/J. Larry Durrence /s/G. F. Zimmermann, III
- ----------------------------------------- --------------------------------------------
J. Larry Durrence G. F. Zimmermann, III
Director Director
84
SECTION 302 CERTIFICATION
I, Gregory C. Wilkes of FloridaFirst Bancorp, Inc., certify that:
1. I have reviewed this annual report on Form 10K of FloridaFirst Bancorp,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 24, 2002 /s/ Gregory C. Wilkes
----------------------- -------------------------------------
Gregory C. Wilkes
President and Chief Executive Officer
85
SECTION 302 CERTIFICATION
I, Kerry P. Charlet of FloridaFirst Bancorp, Inc., certify that:
1. I have reviewed this annual report on Form 10K of FloridaFirst Bancorp,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 24, 2002 /s/ Kerry P. Charlet
------------------- -----------------------------
Kerry P. Charlet
Chief Financial Officer
86