UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended March 31, 2003
Transition report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the transition period from to
--------- ---------
Commission file number 0-32139
-----------------------
FLORIDAFIRST BANCORP, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-3662010
- ---------------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
205 East Orange Street
Lakeland, Florida 33801-4611
----------------------------------------------------
(Address of Principal Executive Offices)
(863) 688-6811
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common stock, par value $.10 per share 5,378,118 shares
- -------------------------------------- -----------------------------
(class) Outsanding at May 1, 2003
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets -
At March 31, 2003 (unaudited) and At September 30, 2002.................2
Condensed Consolidated Statements of Earnings -
Three and Six Months ended March 31, 2003 and 2002 (unaudited)..........3
Condensed Consolidated Statements of Stockholders' Equity -
Six Months Ended March 31, 2003 and 2002 (unaudited)..................4-5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2003 and 2002 (unaudited)..................6-7
Notes to Condensed Consolidated Financial Statements (unaudited).......8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................13-26
Item 3. Quantitative and Qualitative Disclosure about Market Risk..........27
Item 4. Controls and Procedures...........................................27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................28
Item 2. Changes in Securities and Use of Proceeds.........................28
Item 3. Defaults Upon Senior Securities...................................28
Item 4. Submission of Matters to a Vote of Security Holders...............28
Item 5. Other Information.................................................28
Item 6. Exhibits and Reports on Form 8-K..................................29
SIGNATURES....................................................................30
CERTIFICATIONS.............................................................31-32
1
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands, except per share amounts)
At
-------------------------
March 31, September 30,
Assets 2003 2002
---- ----
(unaudited)
Cash and due from banks ........................................ $ 15,081 14,119
Interest-earning deposits ...................................... 16,618 16,509
--------- ---------
Total cash and cash equivalents ....................... 31,699 30,628
Securities available for sale .................................. 254,385 272,624
Loans, net of allowance for loan losses of $4,444 and $4,519 ... 482,375 499,364
Premises and equipment, net .................................... 14,626 14,721
Federal Home Loan Bank stock, at cost .......................... 6,225 6,966
Cash surrender value of bank-owned life insurance .............. 16,609 16,128
Core deposit intangible, net ................................... 10,766 11,576
Other assets ................................................... 7,110 7,439
--------- ---------
Total assets ..................................... $ 823,795 859,446
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing deposits ............................... 32,780 31,265
Interest-bearing deposits .................................. 548,588 556,166
--------- ---------
Total deposits ................................... 581,368 587,431
Federal Home Loan Bank advances ............................ 114,500 129,500
Other borrowings ........................................... 21,540 34,834
Other liabilities .......................................... 5,829 8,703
--------- ---------
Total liabilities ................................ 723,237 760,468
--------- ---------
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,
5,529,466 and 5,528,452 issued ........................ 553 553
Additional paid-in capital ................................. 52,317 52,044
Retained earnings .......................................... 52,681 50,809
Treasury stock, at cost, 155,048 and 150,000 shares ........ (2,801) (2,680)
Unallocated shares held by the employee stock ownership plan (4,328) (4,869)
Unallocated shares held by the restricted stock plan ....... (2,082) (2,082)
Accumulated other comprehensive income ..................... 4,218 5,203
--------- ---------
Total stockholders' equity ....................... 100,558 98,978
--------- ---------
Total liabilities and stockholders' equity ....... $ 823,795 859,446
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
----------------- -----------------
2003 2002 2003 2002
------- ------- ------- -------
Interest income:
Loans ...................................................................... $ 8,426 8,841 17,275 17,880
Securities and other ....................................................... 3,211 2,984 6,650 5,211
------- ------- ------- -------
Total interest income ................................................. 11,637 11,825 23,925 23,091
------- ------- ------- -------
Interest expense:
Deposits ................................................................... 3,620 4,408 7,744 8,611
Federal Home Loan Bank advances and other borrowings ....................... 1,741 1,722 3,575 3,690
------- ------- ------- -------
Total interest expense ................................................ 5,361 6,130 11,319 12,301
------- ------- ------- -------
Net interest income ............................................................ 6,276 5,695 12,606 10,790
Provision for loan losses ...................................................... 180 170 360 320
------- ------- ------- -------
Net interest income after provision for loan losses ............................ 6,096 5,525 12,246 10,470
------- ------- ------- -------
Noninterest income:
Fees and service charges ................................................... 685 474 1,314 888
Net gain on sale of loans held for sale .................................... 196 99 432 191
Net gain on sale of securities available for sale .......................... 164 199 358 204
Earnings on bank-owned life insurance ...................................... 231 166 481 340
Other ...................................................................... 165 113 384 262
------- ------- ------- -------
Total noninterest income .............................................. 1,441 1,051 2,969 1,885
------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits ............................................. 2,796 2,731 5,531 4,977
Occupancy expense .......................................................... 858 716 1,710 1,315
Professional fees .......................................................... 347 130 461 214
Marketing .................................................................. 112 94 244 205
Data processing ............................................................ 197 141 362 263
Postage and office supplies ................................................ 155 167 337 272
Amortization of core deposit intangible .................................... 405 225 810 225
Other ...................................................................... 1,161 677 2,099 1,282
------- ------- ------- -------
Total noninterest expense ............................................. 6,031 4,881 11,554 8,753
------- ------- ------- -------
Income before income taxes ..................................................... 1,506 1,695 3,661 3,602
Income taxes .......................................................... 431 487 1,090 1,060
------- ------- ------- -------
Net income ..................................................................... $ 1,075 1,208 2,571 2,542
======= ======= ======= =======
Earnings per share:
Basic ...................................................................... $ .21 .24 .51 .50
======= ======= ======= =======
Diluted .................................................................... $ .20 .22 .48 .47
======= ======= ======= =======
Weighted-average common and common equivalent shares outstanding (in thousands):
Basic ...................................................................... 5,055 5,124 5,050 5,121
======= ======= ======= =======
Diluted .................................................................... 5,306 5,409 5,310 5,389
======= ======= ======= =======
Cash dividends per share ....................................................... $ .07 .06 .13 .11
======= ======= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
For the Six Months Ended March 31, 2003 and 2002
($ in thousands, except per share amounts)
Accumulated
Unallocated Other
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, 2001............... 5,521,850 $ 552 52,059 46,454 (481) (5,410) (986) 1,626 93,814
------
Comprehensive income:
Net income............. - - - 2,542 - - - - 2,542
Net change in
unrealized gain
on securities
available for
sale, net of tax
benefit of $752...... - - - - - - - (2,158) (2,158)
------
Comprehensive income...... 384
------
10,000 and 29,700 shares
acquired for treasury
and RSP, respectively,
at cost................ - - - - (172) - (535) - (707)
Proceeds from exercise
of stock options....... 2,144 - 18 - - - - - 18
Cash dividends
($.11 per share)....... - - - (604) - - - - (604)
Fair value of ESOP and
RSP shares allocated... - - (9) - - 541 203 - 735
--------- ----- ------ ------ ---- ------ ------ ------ ------
Balance at March 31,
2002................... 5,523,994 $ 552 52,068 48,392 (653) (4,869) (1,318) (532) 93,640
========= ===== ====== ====== ==== ====== ====== ====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
For the Six Months Ended March 31, 2003 and 2002
($ in thousands, except per share amounts)
Accumulated
Unallocated Other
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, 2002............... 5,528,452 $ 553 52,044 50,809 (2,680) (4,869) (2,082) 5,203 98,978
------
Comprehensive income:
Net income............. - - - 2,571 - - - - 2,571
Net change in
unrealized gain
on securities
available for
sale, net of tax
benefit of $578...... - - - - - - - (985) (985)
------
Comprehensive income...... 1,586
------
5,048 shares acquired for
treasury, at cost...... - - - - (121) - - (121)
Proceeds from exercise
of stock options....... 1,014 - 13 - - - - - 13
Cash dividends
($.13 per share)....... - - - (699) - - - - (699)
Fair value of ESOP and
RSP shares allocated... - - 260 - - 541 - - 801
--------- ----- ------ ------ ------ ------ ------ ----- -------
Balance at March 31,
2003................... 5,529,466 $ 553 52,317 52,681 (2,801) (4,328) (2,082) 4,218 100,558
========= ===== ====== ====== ====== ====== ====== ===== =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
March 31,
2003 2002
-------- --------
Cash flows from operating activities:
Net income ....................................................... $ 2,571 2,542
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses ................................... 360 320
Depreciation ................................................ 777 630
Amortization of core deposit intangible ..................... 810 225
Net amortization of premiums and discounts on securities .... 709 52
Net gain on sale of securities available for sale ........... (358) (204)
Net gain on sale of loans held for sale ..................... (432) (191)
Proceeds from sales of loans held for sale .................. 25,825 15,270
Loans originated for sale ................................... (23,681) (14,825)
Deferred income tax provision (benefit) ..................... 22 (491)
Earnings on bank-owned life insurance ....................... (481) (340)
Net decrease (increase) in other assets ..................... 253 (2,886)
Net decrease in other liabilities ........................... (1,517) (500)
-------- --------
Net cash provided by (used in) operating activities .... 4,858 (398)
-------- --------
Cash flows from investing activities:
Proceeds from calls, sales, maturities and repayment of securities
available for sale .......................................... 66,337 31,375
Purchase of securities available for sale ........................ (50,012) (154,611)
Net decrease in loans, exclusive of branch acquisition ........... 14,593 16,463
Net redemption of FHLB stock ..................................... 741 1,195
Purchase of bank-owned life insurance ............................ - (1,800)
Purchases of premises and equipment, exclusive of branch
acquisition ................................................. (682) (2,851)
Proceeds on sale of foreclosed assets ............................ 400 -
-------- --------
Net cash provided by (used in) investing activities .... 31,377 (110,229)
-------- --------
Cash flows from financing activities:
Cash received upon purchase of deposits .......................... - 120,808
Net (decrease) increase in deposits, exclusive of
branch acquisition .......................................... (6,063) 22,739
Net decrease in FHLB advances .................................... (15,000) (38,000)
Net (decrease) increase in other borrowings ...................... (13,294) 3,363
Payments to acquire treasury stock ............................... (121) (172)
Payments to acquire shares held by the RSP ....................... - (535)
Dividends paid ................................................... (699) (604)
Net proceeds received from issuance of common stock .............. 13 18
-------- --------
Net cash (used in) provided by financing activities .... (35,164) 107,617
-------- --------
Net increase (decrease) in cash and cash equivalents ................. 1,071 (3,010)
Cash and cash equivalents at beginning of period ..................... 30,628 21,676
-------- --------
Cash and cash equivalents at end of period ........................... $ 31,699 18,666
======== ========
(continued)
6
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Six Months Ended
March 31,
2003 2002
------------ -------
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest .............................................................. $ 11,674 12,204
============ =======
Taxes ................................................................. $ 493 1,206
============ =======
Supplemental disclosure of noncash information:
Transfer loans to foreclosed assets ........................................ $ 350 330
============ =======
Loans made on sales of foreclosed assets ................................... $ 26 -
============ =======
Change in unrealized gain on securities available for
sale, net of tax benefit .............................................. $ (985) (2,158)
============ =======
Fair value of restricted stock plan shares distributed ..................... $ - 140
============ =======
Fair value of ESOP shares allocated ........................................ $ 801 595
============ =======
Acquisition of branches:
Fair value of premises and equipment acquired ......................... $ - 2,449
============ =======
Fair value of loans acquired .......................................... $ - 26,095
============ =======
Core deposit intangible ............................................... $ - 12,770
============ =======
Total deposits assumed in acquisition of branches ..................... $ - 41,314
============ =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Basis of Presentation
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 nineteen full-service locations.
The Company purchased seven branches during February 2002 (see Note 3).
Principal sources of income are derived through interest earned on loans
and securities. 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 ("OTS").
The accompanying condensed consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do not
include all information necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with
accounting principles generally accepted in the United States of America.
However, all adjustments, consisting of normal recurring accruals, which,
in the opinion of management, are necessary for a fair presentation of the
interim condensed consolidated financial statements have been included. The
results of operations for the three and six-month periods ended March 31,
2003 and 2002 are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other period. These statements
should be read in conjunction with the consolidated financial statements
and related notes, which are included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2002.
(2) Loans
Loans consist of the following (in thousands):
At
-------------------------
March 31, September 30,
2003 2002
--------- -------
(unaudited)
Loans secured by mortgages on real estate: Residential 1-4 (1):
Permanent ........................................................... $ 283,302 301,622
Construction ........................................................ 24,027 29,058
Commercial real estate ................................................. 63,548 58,177
Land ................................................................... 13,494 15,806
--------- -------
Total mortgage loans .................................................... 384,371 404,663
Consumer loans .......................................................... 110,113 107,581
Commercial loans ........................................................ 11,889 10,806
--------- -------
Total loans ............................................................ 506,373 523,050
Allowance for loan losses ............................................... (4,444) (4,519)
Construction loans in process ........................................... (19,554) (19,167)
--------- -------
Loans, net............................................................... $ 482,375 499,364
========= =======
(1) Includes loans held for sale of $1,324 and $3,036 at March 31, 2003 and
September 30, 2002, respectively.
8
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
(2) Loans, Continued
The activity in the allowance for loan losses is as follows (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
Balance at beginning of period $ 4,475 3,746 4,519 3,652
Provision for loan losses .... 180 170 360 320
Allowance acquired ........... - 1,000 - 1,000
Net loan charge-offs ......... (211) (115) (435) (171)
------- ------- ------- -------
Balance at end of period ..... $ 4,444 4,801 4,444 4,801
======= ======= ======= =======
No loans were identified as impaired at or during the three or six months
ended March 31, 2003 or 2002.
Nonaccrual and past due loans were as follows (in thousands):
At
------------------------
March 31, September 30,
2003 2002
---- ----
Nonaccrual loans............................ $ 1,338 1,191
Accruing loans past due 90 days or more..... - -
------- ------
$ 1,338 1,191
======= ======
(3) 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 transaction resulted in the Company receiving 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 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. This intangible asset is being amortized
using an accelerated method over twelve years.
(4) Other Events
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 within three years of its second-step
conversion pursuant to regulatory guidelines. This application was filed on
November 4, 2002. The Company had capitalized approximately $725,000 in
costs related to the acquisition through December 31, 2002.
9
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
(4) Other Events, Continued
On March 17, 2003, BB&T withdrew its application to acquire control of the
Company within the three year period, citing rigorous regulatory standards
that are being applied to recently converted thrifts. BB&T and the Company
both expressed an intention to resume discussions at the end of the three
year period that expires on December 21, 2003. As a result of application
being withdrawn, the Company wrote-off capitalized merger costs of $504,000
($312,000 after tax) which are not recoverable or refundable.
(5) 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 period by the weighted-average
number of shares outstanding. Shares of common stock purchased by the
Employee Stock Ownership Plan ("ESOP") are only considered outstanding when
the shares are released or committed to be released for allocation to
participants. 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 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):
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Weighted-average shares of common stock issued and
outstanding before adjustments for ESOP and
stock options.................................. 5,374 5,483 5,375 5,485
Adjustments to reflect the effect of unallocated ESOP
shares......................................... (319) (359) (325) (364)
------ ------ ------ ------
Weighted-average shares for basic earnings per
share.......................................... 5,055 5,124 5,050 5,121
===== ===== ===== ======
Basic earnings per share............................. $ .21 .24 .51 .50
====== ======= ======= ======
Weighted-average shares for basic earnings per
share.......................................... 5,055 5,124 5,050 5,121
Additional dilutive shares using the average market
value for the period utilizing the treasury
stock method regarding stock options and
outstanding restricted stock shares............ 251 285 260 268
------ ------ ------ -----
Weighted-average common shares and equivalents
outstanding for diluted earnings per share..... 5,306 5,409 5,310 5,389
===== ===== ===== ======
Diluted earnings per share........................... $ .20 .22 .48 .47
====== ======= ======= =======
10
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
(6) Stock Compensation Plans
SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS
No. 148, Accounting for Stock-Based Compensation Transition and Disclosure
(collectively, "SFAS No. 123") 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 ("APB No. 25"), whereby
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plans (the
"Option Plans") have no intrinsic value at the grant date as the stock
options had an exercise price equal to the then current market value of the
underlying common stock, and under APB No. 25 no compensation cost is
recognized for them. The Company has elected to continue with the
accounting methodology in APB 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. Stock awards granted under the Company's Restricted Stock Plan
("RSP Plan") are expensed into current earnings over the vesting period
based on the market value of the common stock on the award date.
Under the Option Plans, the Company is authorized to issue up to 593,848
shares in connection with stock options granted to directors, officers and
employees of the Company. At March 31, 2003, 12,245 options were available
for future grants under the Option Plans. A summary of stock option
transactions for the six months ended March 31, 2003 and 2002 follows:
Range of Per Weighted-
Number of Share Option Average Per
Options Price Share Price
--------- ------------ ------------
Outstanding at September 30, 2001....... 273,624 $ 7.63 - 10.23 8.23
Exercised............................... (2,144) 8.24 8.24
Granted................................. 308,750 16.03 16.03
-------
Outstanding at March 31, 2002........... 580,230 $ 7.63 - 16.03 12.38
======= ============ =====
Outstanding at September 30, 2002....... 578,772 $ 7.63 - 19.20 12.45
Exercised............................... (1.014) 8.24 - 16.03 12.46
Forfeited............................... (6,000) 16.03 - 19.20 17.30
-------
Outstanding at March 31, 2003........... 571,758 $ 7.63 - 19.20 12.41
======= ============ =====
11
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
(6) Stock Compensation Plans, Continued
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 Company accounts for their Option Plans and RSP Plan under the
recognition and measurement principles of APB No. 25. The proforma
information and assumptions used in calculating the fair values of stock
options granted and the related effects on net income and basic and diluted
earnings per share as if the Company had applied the fair value recognition
provision of SFAS No. 123 is as follows ($ in thousands, except per share
amounts):
Six Months Ended
March 31,
--------------------
2003 2002
---- ----
Grant-date fair value per option of options issued
during the period.................................. N/A $ 5.75
=== =====
Assumptions:
Risk-free rate of return........................... N/A 5.43%
Annualized dividend................................ N/A 1.5%
Estimated stock price volatility................... N/A 22%
Expected life of options granted................... N/A 10 years
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported......................... $ 1,075 1,208 2,571 2,542
Deduct: Total stock-based employee
compensation determined under the fair
value based method for stock options
awarded, net of related tax benefit......... (95) (246) (190) (279)
------ ------ ----- ------
Proforma net income............................. 980 962 2,381 2,263
====== ====== ===== ======
Basic earnings per share:
As reported................................. .21 .24 .51 .50
====== ====== ===== =====
Proforma.................................... .19 .19 .47 .44
====== ====== ===== =====
Diluted earnings per share:
As reported................................. .20 .22 .48 .47
====== ====== ===== =====
Proforma.................................... .18 .18 .45 .42
====== ====== ===== =====
Both net income, as reported and proforma was reduced by approximately
$143,000 and $135,000 for the three months and $285,000 and $268,000 for
the six months ended March 31, 2003 and 2002, respectively, relating to the
vesting of shares awarded under the RSP Plan using the grant-date market
value of the common stock.
(8) Reclassifications
Certain amounts in the 2002 condensed consolidated financial statements
have been reclassified to conform to the presentation for 2003.
12
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 nineteen full-service locations. The Company purchased
seven retail sales offices during February 2002, see "Overview" below. Principal
sources of income are derived through interest earned on loans and securities.
The primary sources of funds are customer deposits and Federal Home Loan Bank
("FHLB") 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 ("OTS").
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders. Statements made in such documents, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such forward-looking statements are made based
upon management's belief as well as assumptions made by, and information
currently available to management, pursuant to "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from the results anticipated in forward-looking statements
due to a variety of factors, including governmental monetary and fiscal
policies, deposit levels, loan demand, loan collateral values, securities
portfolio values, and interest rate risk management; the effects of competition
in the banking business from other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating through the Internet; changes in
governmental regulation relating to the banking industry, including regulations
relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for losses, including the value of collateral
underlying delinquent loans, and other factors. The Company cautions that such
factors are not exclusive.
Recent Legislation to Curtail Corporate Accounting Irregularities
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Act"). The Securities and Exchange Commission (the "SEC") has promulgated
certain regulations pursuant to the Act and will continue to propose additional
implementing or clarifying regulations as necessary in furtherance of the Act.
The passage of the Act and the regulations implemented by the SEC subject
publicly-traded companies to additional and more cumbersome reporting
regulations and disclosure. Compliance with the Act and corresponding
regulations may increase the Company's expenses.
13
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Overview
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 $120.9 million in cash, and
included $162.1 million in deposits and $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 and which provide cash flow from the time of purchase. This
strategy allows the Company to immediately earn an acceptable yield on the
invested funds and utilize the cash flow from the securities to fund new loan
originations.
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 interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowing. Savings institution liquidity is normally considered in terms of
the nature and mix of the savings institution's sources and uses of funds.
Asset liquidity is provided through loan repayments and the management of
maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining sufficient levels of loans and mortgage-backed
securities that generate monthly cash flows.
Cash and cash equivalents increased $1.1 million for the six months ended March
31, 2003 to $31.7 million. Significant cash flows or uses (amounts shown in
parentheses) were as follows:
(In Millions)
Cash provided by operations........................................$ 4.9
Net decrease in FHLB advances...................................... (15.0)
Net decrease in other borrowings................................... (13.3)
Net decrease in deposits........................................... (6.1)
Maturities, sales, calls and repayments on securities available ...
for sale......................................................... 66.3
Purchases of securities available for sale......................... (50.0)
Net decrease in loans.............................................. 14.6
Purchase premises and equipment.................................... (.7)
Dividends paid..................................................... (.7)
Other, net......................................................... 1.1
-----
Net increase in cash and cash equivalents.......................... $ 1.1
=====
See "Comparison of Financial Condition at March 31, 2003 and September 30, 2002"
for discussion of significant cash flows.
14
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
On March 31, 2003, the Bank was in compliance with its three minimum regulatory
capital requirements as follows:
Amount Percent
------ -------
(In thousands)
Tangible capital......................... $ 66,226 8.21%
Tangible capital requirement............. 12,101 1.50
Excess over requirement.................. 54,125 6.71
Core capital............................. 66,226 8.21
Core capital requirement................. 32,270 4.00
Excess over requirement.................. 33,956 4.21
Risk based capital....................... 70,670 13.76
Risk based capital requirement........... 41,080 8.00
Excess over requirement.................. 29,590 5.76
Management believes that under current regulations, the Bank will continue to
exceed its minimum capital requirements for the foreseeable future. Events
beyond the control of the Bank, such as increased interest rates or a downturn
in the economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
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 March 31, 2003 are as follows (in
thousands):
Contractual
Amount
-----------
Loan commitments and letters of credit $ 21,311
========
Undisbursed construction and line of credit loans $ 41,717
========
Loans sold with recourse obligations $ 26,617
========
15
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Comparison of Financial Condition at March 31, 2003 and September 30, 2002
Assets. Total assets decreased $35.7 million, or 4.1%, to $823.8 million at
March 31, 2003 from $859.4 million at September 30, 2002. The decrease in total
assets resulted primarily from:
> a $18.2 million decrease in securities available for sale. Strong mortgage
refinancing activities, resulting from the continued decline in longer-term
interest rates, has accelerated the repayments on many mortgage-related
securities. The Company elected not to reinvest most of the funds to
provide the liquidity to repay certain FHLB advances in early January, and
> a $17.0 million net decrease in the loan portfolio. The decrease in loans
resulted from the Company's residential mortgage loan origination strategy
during most of the period to originate and sell, on a servicing- released
basis, fixed-rate loans due to the low interest-rate environment. This
strategy has caused residential loan balances to decline, while increasing
gains from selling the loans and related servicing rights. An increase in
refinance activity has resulted in increased loan repayments as longer-term
interest rates continued to decline. The reduction in the residential
mortgage loan portfolio was offset partially by continued growth in the
consumer and commercial loans outstanding. Management continues to focus on
commercial and consumer loan originations, which totaled $39.7 million for
the six months ended March 31, 2003.
Liabilities. Total liabilities decreased $37.2 million, or 4.9%, to $723.2
million at March 31, 2003 from $760.5 million at September 30, 2002. The
decrease in total liabilities resulted from:
> a $6.1 million decrease in deposits. The decrease in deposits was primarily
attributable to a $27.6 million decrease in certificates of deposit,
partially offset by a $21.5 million increase in transaction accounts. We
believe that the decrease in deposits in recent months has been caused by
certain retail customers moving maturing certificates into the more liquid
checking and money-market accounts due to the low interest-rate
environment, or seeking higher yielding alternative investments or higher
rates with our competitors. In addition, $5.5 million of maturing
certificates from the State of Florida certificate program did not renew
during the period, and
> a $28.3 million decrease in FHLB advances and other borrowings, primarily
due to the maturity and repayment of $15.0 million of fixed-rate and
adjustable-rate FHLB advances as well as a decrease of funds invested by
the Company under the Treasury Investment Program, and
> a $2.9 million decrease in other liabilities. This decrease is primarily
attributable to payment of mortgage customers annual real estate taxes held
in escrow, as well as the vesting of the accrued contribution to the
employee stock ownership plan for the plan year ended December 31, 2002.
Stockholders' Equity. The increase of $1.6 million in the Company's
stockholders' equity reflects:
> net income for the six months ended March 31, 2003 of $2.6 million
> repurchase shares of Company stock held in treasury at a cost $121,000 -
> repayment of $541,000 on the Employee Stock Ownership Plan ("ESOP") loan
and allocation of the released shares
> decrease in accumulated other comprehensive income of $985,000 -
> dividends paid that totaled $699,000.
The decreased value in accumulated other comprehensive income resulted from the
fluctuation in market value of the Company's securities available for sale.
Because of continued interest rate volatility, accumulated other comprehensive
income and stockholders' equity could materially fluctuate for each interim and
year-end period.
16
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Results of Operations
The following tables set forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields based on various
interest methods; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost; (iii) net interest
income; (iv) interest-rate spread; and (v) net interest margin.
Three Months Ended March 31,
----------------------------------------------------------------------
2003 2002
------------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
($ in thousands)
Interest-earning assets (IEA):
Mortgage loans.......................... $ 295,008 5,033 6.83% $ 312,564 5,748 7.36%
Consumer loans.......................... 109,770 2,062 7.45 92,141 1,838 8.09
Commercial loans........................ 82,388 1,331 6.32 70,693 1,255 7.10
--------- ------ --------- ------
Total loans (1)..................... 487,166 8,426 6.88 475,398 8,841 7.46
Securities and other (2) (3)............ 268,147 3,333 4.97 207,102 3,099 5.99
--------- ------ --------- ------
Total IEA (2)....................... 755,313 11,759 6.20 682,500 11,940 7.01
------ ------
Noninterest-earning assets................. 68,445 38,735
--------- ---------
Total assets........................ $ 823,758 $ 721,235
========= =========
Interest-bearing liabilities (IBL):
Checking accounts....................... 79,463 193 .96 51,898 225 1.76
Savings accounts........................ 54,830 148 1.07 41,899 163 1.58
Money-market accounts................... 75,327 310 1.63 51,460 300 2.36
Certificate accounts.................... 336,120 2,969 3.50 322,565 3,720 4.68
--------- ------ --------- ------
Total interest-bearing deposits..... 545,740 3,620 2.63 467,822 4,408 3.82
FHLB advances and other borrowings...... 140,932 1,741 4.83 132,349 1,722 5.20
--------- ------ --------- ------
Total IBL........................... 686,672 5,361 3.08 600,171 6,130 4.13
------ ------
Noninterest-bearing liabilities (4)........ 35,586 26,297
------- -------
Total liabilities................... 722,258 626,468
Stockholders' equity....................... 101,500 94,767
------- ------- -
Total liabilities and stockholders'
equity.......................... $ 823,758 $ 721,235
========= =========
Net interest income (2).................... $ 6,398 $ 5,810
======== ========
Average IEA to IBL......................... 110% 114%
=== ===
Interest-rate spread....................... 3.12% 2.88%
==== ====
Net interest margin........................ 3.39% 3.41%
==== ====
(1) Includes nonaccrual loans.
(2) Interest income and net interest income do not agree to the statement of
earnings because the tax equivalent income (based on an effective tax
rate of 34%) on municipal bonds is included in this schedule.
(3) Includes securities available for sale, interest-earning deposits and
FHLB stock.
(4) Includes noninterest-bearing checking accounts.
17
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Six Months Ended March 31,
----------------------------------------------------------------------
2003 2002
------------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
($ in thousands)
Interest-earning assets (IEA):
Mortgage loans.......................... $ 301,387 10,372 6.88% $ 318,112 11,697 7.35%
Consumer loans.......................... 108,863 4,189 7.70 88,669 3,651 8.24
Commercial loans........................ 81,810 2,714 6.63 66,275 2,532 7.64
--------- ------ --------- ------
Total loans (1)..................... 492,060 17,275 7.02 473,056 17,880 7.56
Securities and other (2) (3)............ 271,243 6,892 5.08 172,336 5,439 6.31
--------- ------ --------- ------
Total IEA (2)....................... 763,303 24,167 6.33 645,392 23,319 7.23
------ ------
Noninterest-earning assets................. 68,421 43,394
--------- ---------
Total assets........................ $ 831,724 $ 688,786
========= =========
Interest-bearing liabilities (IBL):
Checking accounts....................... 77,225 416 1.08 44,133 374 1.70
Savings accounts........................ 54,822 343 1.25 34,875 268 1.54
Money-market accounts................... 72,366 647 1.79 43,653 544 2.49
Certificate accounts.................... 343,552 6,338 3.69 303,814 7,425 4.89
--------- ------ --------- ------
Total interest-bearing deposits..... 547,965 7,744 2.83 426,475 8,611 4.04
FHLB advances and other borrowings...... 147,247 3,575 4.86 141,828 3,690 5.20
--------- ------ --------- ------
Total IBL........................... 695,212 11,319 3.26 568,303 12,301 4.33
------ ------
Noninterest-bearing liabilities (4)........ 35,939 25,853
-------- ---------
Total liabilities................... 731,151 594,156
Stockholders' equity....................... 100,573 94,630
--------- -------- -
Total liabilities and
stockholders' equity............ $ 831,724 $ 688,786
========= =========
Net interest income (2).................... $ 12,848 $ 11,018
======== ========
Average IEA and IBL........................ 110% 114%
=== ===
Interest-rate spread....................... 3.07% 2.90%
==== ====
Net interest margin........................ 3.37% 3.41%
==== ====
(1) Includes nonaccrual loans.
(2) Interest income and net interest income do not agree to the statement of
earnings because the tax equivalent income (based on an effective tax
rate of 34%) on municipal bonds is included in this schedule.
(3) Includes securities available for sale, interest-earning deposits and
FHLB stock.
(4) Includes noninterest-bearing checking accounts.
18
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Comparison of Operating Results for the Three Months Ended March 31, 2003 and
2002
Net Income. Net income for the three months ended March 31, 2003 decreased 11.0%
to $1.1 million or $.20 per diluted share, compared to $1.2 million or $.22 per
diluted share for the same period in 2002, as a result of an increase in
noninterest expense, partially offset by increases in net interest income and
noninterest income. Net interest income increased $581,000, or 10.2%, for the
three months ended March 31, 2003 compared to the same period in 2002. This
increase resulted from a $769,000 decrease in interest expense, partially offset
by a decrease in interest income of $188,000. See the following discussions for
an analysis of these items as well as discussions of noninterest income and
noninterest expense.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the quarter when compared to the
prior year. Details are contained in the Average Balance Sheet table at page 17.
> While the amount of residential loans outstanding decreased, consumer and
commercial loan growth remained steady. Average balances of residential
mortgages declined due to the Company's decision to sell low-rate mortgages
during much of the year, coupled with the significant refinancing activity.
While new loan originations totaled $32.0 million, $30.6 million in loans
were paid off during the period. The consumer and commercial growth from
quarter to quarter was impacted by loans acquired in the Branch Acquisition
being included in the average balances for half a quarter for the three
months ended March 31, 2002, versus the entire quarter for the three months
ended March 31, 2003. The Company continues to emphasize commercial and
consumer loan growth in an effort to restructure its loan portfolio to
shorten the loan maturities. Commercial and consumer loans represent
approximately 39% of the average balance of the loan portfolio, compared to
34% last year.
> The average yield on loans decreased 58 basis points to 6.88%, for the
three months ended March 31, 2003 compared to the same period in 2002. The
decrease in loan yields is directly attributable to the continued decline
in market rates of interest for loans that we retain in our portfolio. The
high level of refinancings not only impact the residential mortgage loan
yields, it also creates pricing pressure on new and existing loans in the
commercial area. Consumer loans have relatively short average lives
historically, therefore, the lower interest rate environment has caused the
yield on the consumer loan portfolio to decline from last year as new loans
are generated in this lower interest environment to replace the loans being
paid off.
> The average balances in the securities and other portfolio grew 29% as the
Company invested approximately $85 million from the funds that were
received in the Branch Acquisition, and to a lesser extent, continued to
leverage the capital raised in recent years through strategic purchases of
securities.
> The lower yield in the securities portfolio resulted from a shift to
shorter duration and adjustable rate investments in fiscal year 2002 to
manage the interest rate risk profile of the Company, as well as the
overall reduction in interest rates as previously discussed.
Interest Expense. The following discussion highlights the major factors that
impacted the changes in Interest Expense during the quarter when compared to the
prior year. Detailed changes are contained in the Average Balance Sheet table at
page 17.
19
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
> The increase in average deposits is mainly attributable to $162 million in
deposits assumed in the Branch Acquisition. The acquired deposits were
included in the average balances for only half the quarter ended March 31,
2002, compared to a full quarter for the quarter ended March 31, 2003.
Also, the increased sales effort to attract and retain new deposits, as
well as customer concerns about equity investments, provided additional
deposit growth. The growth in average balances in interest checking and
money-market accounts, together with certificates of deposit maturing and
renewing at lower rates in the current interest rate environment, helped to
reduce the overall cost of interest-bearing deposits by 119 basis points.
> Average FHLB advances and other borrowings outstanding increased $8.6
million this quarter compared to the same quarter last year. Certain FHLB
fixed-rate advances were either prepaid or repaid at maturity, causing the
advance balances to decline. However, a leveraging transaction involving
U.S. agency securities was funded with $19.8 million in borrowings
utilizing lower-cost reverse repurchase agreements.
> Actions by the Federal Reserve to decrease short-term interest rates over
the past two years has provided an immediate reduction in the cost of
deposits, as well as advances and other borrowings.
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 estimate of the losses inherent in the loan 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 ability to collect on 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 $180,000 for the three months ended March 31,
2003 compared to $170,000 for the three months ended March 31, 2002. The
provision for loan losses increased for the current three-month period primarily
as a result of increased consumer and commercial loan growth. The allowance for
loan losses decreased to $4.4 million at March 31, 2003 from $4.8 million at
March 31, 2002, due to higher charge-offs throughout the period. 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. Higher charge-offs were
anticipated on the loans acquired. The current allowance represents .91% of
loans outstanding at March 31, 2003. The Company had net charge-offs of $211,000
for the three months ended March 31, 2003 compared to net charge-offs of
$115,000 for the same period in 2002. The Company intends to maintain its
allowance for loan losses commensurate with its loan portfolio, especially its
commercial real estate and consumer loan portfolios.
Noninterest Income. Noninterest income increased $390,000 to $1.4 million for
the three months ended March 31, 2003 from $1.1 million for the three months
ended March 31, 2002. The major changes were:
> An increase of $211,000 in service charges on loans and deposit accounts
compared to the prior period, primarily related to the overall increase in
accounts from the Branch Acquisition.
> An increase of $97,000 in net gain on sale of loans held for sale, as sales
of residential mortgage loans in the secondary market increased slightly,
while the average combination of servicing release premiums and sales
premiums increased 72% compared to the same period last year.
20
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
> Net gains on the sale of securities available for sale were $35,000 less
than the gains in the comparable 2002 period;
> An increase of $65,000 in earnings on bank-owned life insurance policies,
primarily due to earnings on premiums of $4.5 million for additional
policies purchased in March and April 2002; and
> An increase of $52,000 in other income, primarily due to commission income
received from the Company's annuity sales program that began in September
2002.
Noninterest Expense. Noninterest expense increased by $1.2 million to $6.0
million for the three months ended March 31, 2003 from $4.9 million for the
three months ended March 31, 2002. >> Salaries and employee benefits increased
$65,000 primarily due to:
- an increase of $113,000 related to the seven retail sales offices
acquired in the Branch Acquisition (56 staff members), and $26,000 for
one new full-service branch that was opened during the quarter,
- 4% average salary increases due to merit and cost of living
adjustments,
- a $40,000 increase due to ten additional staff positions, including
two management positions,
- Commissions increased $118,000 as residential mortgage loan
origination production increased over 26%, a revised retail incentive
plan resulted in increased sales of products and services, and annuity
sales generated incentive payments during the year,
- a $60,000 increase in ESOP costs due to the increased price of Company
stock,
- an increase of $73,000 for health insurance costs due to the growth in
our employee base as well as increased claims experience,
- a decrease of $131,000 for various incentive bonuses that were paid in
2002,
- a decrease of $32,000 in overtime compensation, and
- a change in the estimate of the direct cost of originating loans
reduced compensation by $236,000.
> Occupancy expense increased $142,000, primarily due to the addition of
seven new offices in the Branch Acquisition and the opening of one new
retail sales office in November 2002.
> Core deposit intangible amortization expense increased $180,000 due to a
full quarter amortization in 2003 versus a partial quarter amortization in
2002.
> Data processing expense increased $56,000 due to the expanded branch
network resulting from the Branch Acquisition and the opening of one new
retail sales office in November 2002.
> Professional fees increased $217,000 primarily due to the write-off of
merger-related legal expenses resulting from the cancellation of the merger
agreement between the Company and BB&T.
21
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
> Other non-interest expenses increased $484,000 due to:
- the write-off of $262,000 of merger-related expenses resulting from
the cancellation of the merger agreement between the Company and BB&T,
and
- a $35,000 increase in telecommunication expenses and related to the
expanded branch network and communication channel upgrades, and
- a $39,000 increase in insurance expense due to the higher premiums
that prevail in the commercial insurance marketplace, and
- $40,000 in security guard expense for increased protection of
customers and employees deemed necessary after the Company experienced
a series of robberies during fiscal 2002. The actual dollar losses
from the robberies were not significant.
The other increases are attributable to correspondent bank service charges,
item processing costs, debit card expenses related to the overall growth of
the Company and consumer loan expenses related to a no-closing-cost home
equity loan program ran during the last half of 2002.
22
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Comparison of Operating Results for the Six Months Ended March 31, 2003 and 2002
Net Income. Net income for the six months ended March 31, 2003 increased 1.1% to
$2.6 million or $.48 per diluted share, compared to $2.5 million or $.47 per
diluted share for the same period in 2002, as a result of increases in net
interest income and noninterest income, offset by an increase in noninterest
expense, partially offset by an increase in noninterest expense. Net interest
income increased $1.8 million, or 16.8%, for the six months ended March 31, 2003
compared to the same period in 2002. This increase resulted from an increase in
interest income of $834,000 and a decrease in interest expense of $982,000. See
the following discussions for an analysis of these items as well as discussions
of noninterest income and noninterest expense.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the quarter when compared to the
prior year. Details are contained in the Average Balance Sheet table at page 18.
While the amount of residential loans outstanding decreased slightly, consumer
and commercial loan growth remained steady. Average balances of residential
mortgages declined due to the Company's decision to sell low-rate mortgages
during much of the year, coupled with the significant refinancing activity.
While new loan originations totaled $71.7 million during the six months ended
March 31, 2003, $64.7 million in loans were paid-off during the period. The
consumer and commercial growth for the six months ended March 31, 2003 compared
to the same period in 2002 was impacted by loans acquired in the Branch
Acquisition being included in the average balances for the entire six months
ended March 31, 2003 compared to only four and one-half months for the same
period in 2002. The Company continues to emphasize commercial and consumer loan
growth in an effort to restructure its loan portfolio to shorten the loan
maturities. Commercial and consumer loans represent approximately 38% of the
average balance of the loan portfolio, compared to 33% last year.
> The average yield on loans decreased 54 basis points to 7.02%, for the six
months ended March 31, 2003 compared to the same period in 2002. The
decrease in loan yields is directly attributable to the continued decline
in market rates of interest for loans that we retain in our portfolio. The
high level of refinancings not only impact the residential mortgage loan
yields, it also creates pricing pressure on new and existing loans in the
commercial area. Consumer loans have relatively short average lives
historically, therefore, the lower interest rate environment has caused the
yield on the consumer loan portfolio to decline from last year as new loans
are generated in this lower interest environment to replace the loans being
paid off.
> While the amount of residential loans outstanding decreased slightly,
consumer and commercial loan growth remained steady. The Company continues
its increased emphasis on commercial and consumer loan growth in an effort
to restructure its loan portfolio to shorten the loan maturities.
> The average balances in the securities and other portfolio grew 57% as the
Company invested approximately $85 million from the funds that were
received in the Branch Acquisition, and to a lesser extent, continued to
leverage the capital raised in recent years through strategic purchases of
securities.
> The lower yield in the securities and other portfolio resulted from a shift
to shorter duration and adjustable rate investments in fiscal year 2002 to
manage the interest rate risk profile of the Company, as well as the
overall reduction in interest rates as previously discussed.
23
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Interest Expense. The following discussion highlights the major factors that
impacted the changes in Interest Expense during the quarter when compared to the
prior year. Detailed changes are contained in the Average Balance Sheet table at
page 18.
> The increase in average deposits is mainly attributable to $162 million in
deposits assumed in the Branch Acquisition. Also, the increased sales
effort to attract and retain new deposits, as well as customer concerns
about equity investments, provided additional deposit growth. The growth in
average balances in interest checking and money-market accounts, together
with certificates of deposit maturing and renewing at lower rates in the
current interest rate environment, helped reduce the overall cost of
interest-bearing deposits by 121 basis points.
> Average FHLB advances and other borrowings outstanding increased only
slightly this period compared to the same period last year. Certain FHLB
fixed-rate advances were either prepaid or repaid at maturity, causing the
advance balances to decline. However, leveraging transactions involving
U.S. agency securities were funded with borrowings through lower-cost
reverse repurchase agreements.
> Actions by the Federal Reserve to decrease short-term interest rates over
the past two years has provided an immediate reduction in the cost of
deposits, as well as advances and other borrowings.
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 estimate of the losses inherent in the loan 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 ability to collect on 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 $360,000 for the six months ended March 31,
2003 compared to $320,000 for the six months ended March 31, 2002. The provision
for loan losses increased for the current six-month period primarily as a result
of increased consumer and commercial loan growth. The allowance for loan losses
decreased to $4.4 million at March 31, 2003 from $4.8 million at March 31, 2002
due to higher charge-offs throughout the period. 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. Higher charge-offs were anticipated on the loans acquired.
The current allowance represents .91% of loans outstanding at March 31, 2003.
The Company had net charge-offs of $435,000 for the six months ended March 31,
2003 compared to net charge-offs of $171,000 for the same period in 2002. The
Company intends to maintain its allowance for loan losses commensurate with its
loan portfolio, especially its commercial real estate and consumer loan
portfolios.
Noninterest Income. Noninterest income increased $1.1 million to $3.0 million
for the six months ended March 31, 2003 from $1.9 million for the six months
ended March 31, 2002. The major changes were:
> An increase of $426,000 in service charges on loans and deposit accounts
compared to the prior period, primarily related to the overall increase in
accounts from the Branch Acquisition,
24
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
> An increase of $241,000 in net gain on sale of loans held for sale, as the
majority of the residential mortgage loan production during the current
period was sold in the secondary market due to current interest rates being
below the Company's threshold for retaining the loans in its portfolio,
> Net gains on the sale of securities available for sale were $154,000 higher
than the gains for the same period in 2002,
> An increase of $141,000 in earnings on bank-owned life insurance policies,
primarily due to earnings on premiums of $4.5 million for additional
policies purchased in March and April 2002, and
> An increase of $122,000 in other income primarily due to commission income
received from the Company's annuity sales program that began in September
2002.
Noninterest Expense. Noninterest expense increased by $2.8 million to $11.6
million for the six months ended March 31, 2003 from $8.8 million for the six
months ended March 31, 2002.
> Salaries and employee benefits increased $554,000 primarily due to:
- $405,000 related to seven retail sales offices acquired in the Branch
Acquisition (56 staff members), and $39,000 for one new full-service
branch that was opened during the period,
- 4% average salary increases due to merit and cost of living
adjustments,
- a $120,000 increase due to ten additional staff positions, including
two management positions.
- a $40,000 decrease in overtime compensation,
- commissions increased $268,000 as residential mortgage loan
origination production increased over 28%, a revised retail incentive
plan resulted in increased sales of products and services, and annuity
sales generated incentive payments during the period.
- a $75,000 increase in ESOP costs due to the increased price of Company
stock,
- an increase of $192,000 for health insurance costs due to the growth
in our employee base as well as increased claims experience, and
- a change in the estimate of the direct cost of originating loans
reduced compensation by $526,000.
> Occupancy expense increased $395,000, primarily due to the addition of
seven new offices in the Branch Acquisition and the opening of one new
retail sales office in November 2002.
> Postage and office supplies increased $65,000 primarily due to the Branch
Acquisition and the conversion to a proof of deposit ("POD") balancing
environment.
> An increase in core deposit intangible amortization expense of $585,000
resulting from the Branch Acquisition.
> Data processing expense increased $99,000 due to the expanded branch
network resulting from the Branch Acquisition and the opening of one new
retail sales office in November 2002.
> Professional fees increased $247,000 primarily due to the write-off of
merger-related legal expenses resulting from the cancellation of the merger
agreement between the Company and BB&T.
25
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
> Other noninterest expenses increased $817,000 due to:
- the write-off of $262,000 of merger-related expenses resulting from
the cancellation of the merger agreement between the Company and BB&T,
and
- a $103,000 increase in telecommunication expenses related to the
expanded branch network and communication channel upgrades, and
- a $60,000 increase in insurance expense due to the higher premiums
that prevail in the commercial insurance marketplace, and
- $131,000 in security guard expense for increased protection of
customers and employees deemed necessary after the Company experienced
a series of robberies during fiscal 2002. The actual dollar losses
from the robberies were not significant.
The other increases are attributable to correspondent bank service charges,
data processing expenses, item processing costs, debit card expenses
related to the overall growth of the Company and consumer loan expenses
related to a no-closing-cost home equity loan program ran during the last
half of 2002.
26
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Qualitative Analysis. There have been no material changes from the Qualitative
Analysis information regarding market risk disclosed under the heading
"Management of Interest Rate Risk and Market Risk" in the Company's Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the annual report on Form 10-K for the year ended September 30,
2002.
Quantitative Analysis. Exposure to interest rate risk is actively monitored by
management. The Company's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Company uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in net portfolio value. Reports generated from assumptions
provided and modified by management are reviewed by the Asset/Liability
Management Committee and reported to the Board of Directors quarterly. The
Interest Rate Sensitivity of Net Portfolio Value Report shows the degree to
which balance sheet line items and net portfolio value are potentially affected
by a 100 to 300 basis point (1 basis point equals 1/100th of a percentage point)
upward and downward parallel shift (shock) in the Treasury yield curve.
Since the OTS Net Portfolio Value ("NPV") Model measures exposure to interest
rate risk of the Bank to assure capital adequacy for the protection of the
depositors, only the Bank's financial information is used for the model.
However, the Bank is the only subsidiary and significant asset of the Company,
therefore the OTS NPV model provides a reliable basis upon which to perform the
quantitative analysis. The following table presents the Company's NPV as of
December 31, 2002. Although the results of the NPV model are not yet available
for March 31, 2003, it is anticipated that the NPV Ratio for all rate scenarios
will not be materially different than those below. The NPV was calculated by the
OTS, based on information provided by the Company ($ 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 57,284 (32,719) (36)% 6.98% (325)
+200 bp 70,821 (19,182) (21)% 8.41% (182)
+100 bp 83,433 (6,570) (7)% 9.67% (57)
0 bp 90,003 - - % 10.23% -
-100 bp 90,051 48 .1 10.12% (12)
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company maintains controls
and procedures designed to ensure that information required to be disclosed in
the reports that the Company files or submits under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of those controls and procedures performed within 90
days of the filing date of this report, the chief executive and chief financial
officers of the Company concluded that the Company's disclosure controls and
procedures were adequate.
Changes in Internal Controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the Chief
Executive and Chief Financial officers.
27
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
28
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION, CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number
--------------
3(i) Articles of Incorporation for 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 ***
99 Report on Review by Independent Certified Public
Accountants.
99.1 CEO Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 CFO Certification Pursuant to 18 U.S.C. Section 1350,
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 Proxy Statement filed by the Registrant
on December 21, 2001.
(b) Reports on Form 8-K:
A Form 8-K was filed on March 17, 2003 under Item 5 announcing that
BB&T Corporation withdrew their application previously filed with the
OTS to acquire more than 10% of the Registrant's stock within three
years of its second-step conversion.
29
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: May 14, 2003 By: /s/Gregory C. Wilkes
----------------------- ----------------------------------------------------------
Gregory C. Wilkes, President and Chief Executive
Officer (Principal Executive Officer)
Date: May 14, 2003 By: /s/Kerry P. Charlet
----------------------- ----------------------------------------------------------
Kerry P. Charlet, Chief Financial Officer
(Principal Accounting Officer)
30
CERTIFICATIONS
--------------
I, Gregory C. Wilkes, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of FloridaFirst Bancorp,
Inc.;
2. Based on my knowledge, the quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 function):
(a) all significant deficiencies in the design or operation of the
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
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 By: /s/ Gregory C. Wilkes
--------------- ---------------------------------------
Gregory C. Wilkes, President and Chief
Executive Officer
31
I, Kerry P. Charlet, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of FloridaFirst Bancorp,
Inc.;
2. Based on my knowledge, the quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 function):
(a) all significant deficiencies in the design or operation of the
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
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 By: /s/ Kerry P. Charlet
------------------- -----------------------------------------------
Kerry P. Charlet, Chief Financial Officer