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 June 30, 2003
OR
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 $.10 per share 5,378,524 shares
- -------------------------------------- -----------------------------
(class) Outstanding at August 4, 2003
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets -
At June 30, 2003 (unaudited) and At September 30, 2002.................2
Condensed Consolidated Statements of Earnings -
Three and Nine Months ended June 30, 2003 and 2002 (unaudited).........3
Condensed Consolidated Statements of Stockholders' Equity -
Nine Months Ended June 30, 2003 and 2002 (unaudited).................4-5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2003 and 2002 (unaudited).................6-7
Notes to Condensed Consolidated Financial Statements (unaudited)......8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................13-26
Item 3. Quantitative and Qualitative Disclosure about Market Risk........27
Item 4. Controls and Procedures..........................................27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................28
Item 2. Changes in Securities and Use of Proceeds........................28
Item 3. Defaults Upon Senior Securities..................................28
Item 4. Submission of Matters to a Vote of Security Holders..............28
Item 5. Other Information................................................29
Item 6. Exhibits and Reports on Form 8-K.................................29
SIGNATURES...................................................................30
1
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands, except per share amounts)
At
-----------------------------
June 30, September 30,
Assets 2003 2002
------ ---- ----
(unaudited)
Cash and due from banks........................................... $ 25,842 14,119
Interest-earning deposits......................................... - 16,509
--------- -------
Total cash and cash equivalents.......................... 25,842 30,628
Securities available for sale..................................... 256,404 272,624
Loans, net of allowance for loan losses of $4,586 and $4,519...... 495,063 499,364
Premises and equipment, net....................................... 14,282 14,721
Federal Home Loan Bank stock, at cost............................. 6,225 6,966
Cash surrender value of bank-owned life insurance................. 16,846 16,128
Core deposit intangible, net...................................... 10,391 11,576
Other assets .................................................... 7,134 7,439
--------- -------
Total assets........................................ $ 832,187 859,446
========= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing deposits.................................. $ 33,809 31,265
Interest-bearing deposits..................................... 542,734 556,166
--------- -------
Total deposits...................................... 576,543 587,431
Federal Home Loan Bank advances............................... 124,500 129,500
Other borrowings.............................................. 20,567 34,834
Other liabilities............................................. 8,155 8,703
--------- -------
Total liabilities................................... 729,765 760,468
--------- -------
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,
5,533,785 and 5,528,452 issued........................... 553 553
Additional paid-in capital.................................... 52,353 52,044
Retained earnings............................................. 54,121 50,809
Treasury stock, at cost, 155,261 and 150,000 shares........... (2,806) (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........................ 4,611 5,203
--------- -------
Total stockholders' equity.......................... 102,422 98,978
--------- -------
Total liabilities and stockholders' equity.......... $ 832,187 859,446
========= =======
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 Nine Months Ended
June 30, June 30,
-------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income:
Loans................................................. $ 8,210 9,184 25,485 27,064
Securities and other.................................. 2,954 3,764 9,604 8,975
--------- -------- -------- ---------
Total interest income............................ 11,164 12,948 35,089 36,039
--------- -------- -------- ---------
Interest expense:
Deposits.............................................. 3,262 4,775 11,006 13,386
Federal Home Loan Bank advances and other borrowings.. 1,639 1,615 5,214 5,305
--------- -------- -------- ---------
Total interest expense........................... 4,901 6,390 16,220 18,691
--------- -------- -------- ---------
Net interest income....................................... 6,263 6,558 18,869 17,348
Provision for loan losses................................. 180 180 540 500
--------- -------- -------- ---------
Net interest income after provision for loan losses....... 6,083 6,378 18,329 16,848
--------- -------- -------- ---------
Noninterest income:
Fees and service charges.............................. 698 697 2,012 1,585
Net gain on sale of loans held for sale............... 56 33 488 224
Net gain on sale of securities available for sale..... 875 296 1,233 500
Earnings on bank-owned life insurance................. 237 244 718 584
Other................................................. 227 318 611 580
--------- -------- -------- ---------
Total noninterest income......................... 2,093 1,588 5,062 3,473
--------- -------- -------- ---------
Noninterest expense:
Salaries and employee benefits........................ 2,669 2,897 8,200 7,874
Occupancy expense..................................... 851 834 2,561 2,149
Marketing............................................. 105 77 349 282
Data processing....................................... 189 172 551 435
Postage and office supplies........................... 133 130 470 402
Professional fees..................................... 122 129 583 343
Amortization of core deposit intangible............... 375 450 1,185 675
Other................................................. 1,032 1,024 3,131 2,306
--------- -------- -------- ---------
Total noninterest expense........................ 5,476 5,713 17,030 14,466
--------- -------- -------- ---------
Income before income taxes................................ 2,700 2,253 6,361 5,855
Income taxes..................................... 883 681 1,973 1,741
--------- -------- -------- ---------
Net income................................................ $ 1,817 1,572 4,388 4,114
========= ======== ======== =========
Earnings per share:
Basic................................................. $ .36 .31 .87 .80
========= ======== ======== =========
Diluted............................................... $ .34 .29 .83 .77
========= ======== ======== =========
Weighted-average common and common equivalent
shares outstanding (in thousands):
Basic................................................. 5,068 5,098 5,056 5,114
========= ======== ======== =========
Diluted............................................... 5,335 5,342 5,318 5,377
========= ======== ======== =========
Cash dividends per share.................................. $ .07 .06 .20 .17
========= ======== ======== =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
For the Nine Months Ended June 30, 2003 and 2002
($ in thousands, except 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............. - - - 4,114 - - - - 4,114
Net change in
unrealized gain
on securities
available for
sale, net of tax
benefit of $590...... - - - - - - - 1,005 1,005
------
Comprehensive income...... 5,119
------
15,000 and 121,700 shares
acquired for treasury
and RSP, respectively,
at cost................ - - - - (2,199) - (2,286) - (4,485)
Proceeds from exercise
of stock options....... 2,144 - 18 - - - - - 18
Cash dividends
($.17 per share)....... - - - (926) - - - - (926)
Fair value of ESOP and
RSP shares allocated... - - (9) - - 541 203 - 735
--------- ----- ------ ------ ------ ------ ------ ----- ------
Balance at June 30,
2002.................. 5,523,994 $ 552 52,068 49,642 (2,680) (4,869) (3,069) 2,631 94,275
========= ===== ====== ====== ====== ====== ====== ===== ======
(Continued)
4
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity (Unaudited), Continued
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,
2002................... 5,528,452 $ 553 52,044 50,809 (2,680) (4,869) (2,082) 5,203 98,978
------
Comprehensive income:
Net income............. - - - 4,388 - - - - 4,388
Net change in
unrealized gain
on securities
available for sale,
net of tax benefit
of $347.............. - - - - - - - (592) (592)
-------
Comprehensive income...... 3,796
-------
5,261 shares acquired for
treasury, at cost...... - - - - (126) - - - (126)
Proceeds from exercise
of stock options....... 5,333 - 49 - - - - - 49
Cash dividends ($.20
per share)............. - - - (1,076) - - - - (1,076)
Fair value of ESOP
shares allocated....... - - 260 - - 541 - - 801
--------- ----- ------ ------ ------ ------ ------ ----- -------
Balance at June 30,
2003................... 5,533,785 $ 553 52,353 54,121 (2,806) (4,328) (2,082) 4,611 102,422
========= ===== ====== ====== ====== ====== ====== ===== =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
June 30,
--------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income............................................................ $ 4,388 4,114
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses........................................ 540 500
Deferred income taxes............................................ 10 -
Depreciation..................................................... 1,149 995
Amortization of core deposit intangible.......................... 1,185 675
Net amortization of premiums and discounts on securities......... 1,111 89
Net gain on sale of securities available for sale................ (1,233) (500)
Net gain on sale of loans held for sale.......................... (488) (224)
Proceeds from sales of loans held for sale....................... 26,648 18,088
Loans originated for sale........................................ (24,861) (16,975)
Earnings on bank-owned life insurance............................ (718) (584)
Net decrease (increase) in other assets.......................... 417 (904)
Net increase in other liabilities................................ 590 624
------- -------
Net cash provided by operating activities................... 8,738 5,898
------- -------
Cash flows from investing activities:
Proceeds from calls, sales, maturities and repayment of securities
available for sale............................................... 131,087 72,366
Purchase of securities available for sale............................. (115,684) (189,799)
Net decrease in loans, exclusive of branch acquisition................ 1,891 7,894
Net redemption of FHLB stock.......................................... 741 864
Purchase of bank-owned life insurance................................. - (4,500)
Purchases of premises and equipment, exclusive of branch
acquisition...................................................... (710) (3,406)
Net proceeds from sales of foreclosed assets.......................... 459 391
------- -------
Net cash provided by (used in) investing activities......... 17,784 (116,190)
------- -------
Cash flows from financing activities:
Cash received upon purchase of deposits............................... - 120,922
Net (decrease) increase in deposits, exclusive of
branch acquisition............................................... (10,888) 13,992
Net decrease in FHLB advances......................................... (5,000) (24,200)
Net decrease in other borrowings...................................... (14,267) (324)
Payments to acquire treasury stock.................................... (126) (2,199)
Payments to acquire shares held by the RSP............................ - (2,286)
Dividends paid........................................................ (1,076) (926)
Net proceeds received from issuance of common stock................... 49 18
------- -------
Net cash (used in) provided by financing activities......... (31,308) 104,997
------- -------
Net decrease in cash and cash equivalents................................. (4,786) (5,295)
Cash and cash equivalents at beginning of period.......................... 30,628 21,676
------- -------
Cash and cash equivalents at end of period................................ $25,842 16,381
======= =======
(continued)
6
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Nine Months Ended
June 30,
--------------------
2003 2002
---- ----
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest.................................................. $16,606 18,556
======= =======
Taxes..................................................... $ 880 1,799
======= =======
Supplemental disclosure of noncash information:
Transfer loans to foreclosed assets............................ $ 597 801
======= =======
Loans originated on sale of foreclosed assets.................. $ 26 -
======= =======
Change in unrealized gain on securities available
for sale, net of tax...................................... $ (592) 1,005
======= =======
Fair value of restricted stock plan shares distributed......... $ - 140
======= =======
Fair value of ESOP shares allocated............................ $ 801 595
======= =======
Transfer land from premises and equipment to other assets...... $ - 1,199
======= =======
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.......................................... $ - 41,200
======= =======
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 nine-month periods ended June 30,
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
-----------------------------
June 30, September 30,
2003 2002
----------- --------------
(unaudited)
Loans secured by mortgages on real estate:
Residential 1-4 (1):
Permanent..................................... $ 282,353 301,622
Construction.................................. 25,163 29,058
Commercial real estate........................... 63,365 58,177
Land............................................. 11,504 15,806
--------- --------
Total mortgage loans.............................. 382,385 404,663
Consumer loans.................................... 120,752 107,581
Commercial loans.................................. 11,860 10,806
--------- --------
Total loans ..................................... 514,997 523,050
Allowance for loan losses......................... (4,586) (4,519)
Construction loans in process..................... (15,348) (19,167)
--------- --------
Loans, net ..................................... $ 495,063 499,364
========= ========
(1) Includes loans held for sale of $1,737 and $3,036 at June 30, 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 Nine Months Ended
June 30, June 30,
------------------ ---------------------
2003 2002 2003 2002
---- ---- ---- ----
Balance at beginning of period............... $ 4,444 4,801 4,519 3,652
Provision for loan losses.................... 180 180 540 500
Allowance acquired........................... - - - 1,000
Net loan charge-offs......................... (38) (267) (473) (438)
------- ----- ----- -----
Balance at end of period..................... $ 4,586 4,714 4,586 4,714
======= ===== ===== =====
No loans were identified as impaired at or during the three months or nine
months ended June 30, 2003 or 2002.
Nonaccrual and past due loans were as follows (in thousands):
At
--------------------------
June 30, September 30,
2003 2002
---- ----
Nonaccrual loans............................. $ 1,277 1,191
Accruing loans past due 90 days or more...... - -
------- -----
$ 1,277 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 Nine Months Ended
June 30, June 30,
--------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Weighted-average shares of common stock issued and
outstanding before adjustments for ESOP........ 5,374 5,479 5,376 5,484
Adjustments to reflect the effect of unallocated ESOP
shares......................................... (306) (381) (320) (370)
------ ------ ------ ------
Weighted-average shares for basic earnings per
share.......................................... 5,068 5,098 5,056 5,114
====== ====== ====== ======
Basic earnings per share............................. $ .36 .31 .87 .80
====== ====== ====== ======
Weighted-average shares for basic earnings per
share.......................................... 5,068 5,098 5,056 5,114
Additional dilutive shares using the average market
value for the period utilizing the treasury
market stock method regarding stock
options and outstanding restricted stock shares 267 244 262 263
------ ------ ------ ------
Weighted-average common shares and equivalents
outstanding for diluted earnings per share..... 5,335 5,342 5,318 5,377
====== ====== ====== ======
Diluted earnings per share .......................... $ .34 .29 .83 .77
====== ====== ====== ======
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 June 30, 2003, 13,958 options were available
for future grants under the Option Plans. A summary of stock option
transactions for the nine months ended June 30, 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.................................. 311,750 16.03 - 19.20 16.06
-------
Outstanding at June 30, 2002............. 583,230 $ 7.63 - 19.20 12.47
======= ============== ======
Outstanding at September 30, 2002........ 578,772 $ 7.63 - 19.20 12.45
Exercised................................ (5,333) 8.24 - 16.03 9.04
Forfeited................................ (7,713) 16.03 - 19.20 17.18
-------
Outstanding at June 30, 2003............. 565,726 $ 7.63 - 16.03 12.73
======= ============== ======
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):
Nine Months Ended
June 30,
--------------------
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 Nine Months Ended
June 30, June 30,
-------------------- --------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported......................... $ 1,817 1,572 4,388 4,114
Deduct: Total stock-based employee
compensation determined under the fair
value based method for stock options
awarded, net of related tax benefit......... (95) (246) (285) (525)
-------- ------- ------ ---------
Proforma net income............................. $ 1,722 1,326 4,103 3,589
======== ======= ====== =========
Basic earnings per share:
As reported................................. $ .36 .31 .87 .80
======== ======= ====== =========
Proforma.................................... $ .34 .26 .81 .70
======== ======= ====== =========
Diluted earnings per share:
As reported................................. $ .34 .29 .83 .77
======== ======= ====== =========
Proforma.................................... $ .32 .25 .77 .67
======== ======= ====== =========
Both net income, as reported and proforma was reduced by approximately
$143,000 and $136,000 for the three months and $428,000 and $405,000 for
the nine months ended June 30, 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 decreased $4.8 million for the nine months ended June
30, 2003 to $25.8 million. Significant cash flows or uses (amounts shown in
parentheses) were as follows:
(In Millions)
-------------
Cash provided by operations....................................... $ 8.7
Net decrease in FHLB advances..................................... (5.0)
Net decrease in other borrowings.................................. (14.3)
Net decrease in deposits.......................................... (10.9)
Maturities, sales, calls and repayments on securities available
for sale........................................................ 131.1
Purchases of securities available for sale........................ (115.7)
Net decrease in loans............................................. 1.9
Purchase premises and equipment................................... (.7)
Dividends paid.................................................... (1.1)
Other, net........................................................ 1.2
-------
Net increase in cash and cash equivalents......................... $ (4.8)
=======
See "Comparison of Financial Condition at June 30, 2003 and September 30, 2002"
for discussion of significant cash flows.
14
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
On June 30, 2003, the Bank was in compliance with its three minimum regulatory
capital requirements as follows:
Amount Percent
------ -------
(In thousands)
Tangible capital..................... $ 68,464 8.42%
Tangible capital requirement......... 12,199 1.50
Excess over requirement.............. 56,265 6.92
Core capital......................... 68,464 8.42
Core capital requirement............. 32,530 4.00
Excess over requirement.............. 35,934 4.42
Risk based capital................... 73,050 14.04
Risk based capital requirement....... 41,610 8.00
Excess over requirement.............. 31,440 6.04
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.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, unused lines
of credit and construction loans and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amounts recognized in the consolidated balance sheet. The
contract or notional amounts of those instruments reflect the extent of the
Company's involvement in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit, unused
lines of credit and construction loans and standby letters of credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed-expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total committed amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counter party.
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 loans to customers.
15
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
A summary of the amounts of the Company's financial instruments, with
off-balance sheet risk at June 30, 2003, follows (in thousands):
Contractual
Amount
------
Loan commitments and letters of credit................ $ 10,927
========
Undisbursed construction and line of credit loans..... $ 50,265
========
Loans sold with recourse obligations ................ $ 27,503
========
Management believes that the Company has adequate resources to fund all of its
commitments and that substantially all its existing commitments will be funded
in 2003.
16
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Comparison of Financial Condition at June 30, 2003 and September 30, 2002
Assets. Total assets decreased $27.3 million, or 3.2%, to $832.2 million at June
30, 2003 from $859.4 million at September 30, 2002. The decrease in total assets
resulted primarily from:
>> a $16.2 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,
>> a $4.3 million net decrease in the loan portfolio. The decrease in loans
resulted from increased refinance activity (increased loan repayments) in
the residential mortgage loan portfolio throughout the period as
longer-term interest rates continued to decline. In addition, during the
first three months of the period, the Company's residential mortgage
strategy was to originate and sell longer-term fixed-rate loans in order to
minimize future interest rate risk. 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 $83.3 million for
the nine months ended June 30, 2003, and
>> a $4.8 million decrease in cash and cash equivalents. The decision to
retain the majority of mortgage originations during the recent quarter,
together with the increased consumer and commercial loan originations, has
caused the decline in the balance of cash and cash equivalents.
Liabilities. Total liabilities decreased $30.7 million, or 4.0%, to $729.8
million at June 30, 2003 from $760.5 million at September 30, 2002. The decrease
in total liabilities resulted from:
>> a $10.9 million decrease in deposits. The decrease in deposits was
primarily attributable to a $39.2 million decrease in certificate accounts,
partially offset by a $28.3 million increase in transaction accounts. We
believe that the decrease in certificate accounts 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. In
addition, $15.5 million from the State of Florida certificate program
matured during the period.
>> a $19.3 million decrease in FHLB advances and other borrowings, primarily
due to the maturity and repayment of $15.0 million of FHLB term advances
and maturity of $5.5 million of reverse repurchase agreements. In addition,
an $8.8 million decrease of funds borrowed by the Company under the
Treasury Investment Program was replaced with $10.0 million of FHLB
overnight borrowings.
Stockholders' Equity. The increase of $3.4 million in the Company's
stockholders' equity reflects:
>> net income for the nine months ended June 30, 2003 of $4.4 million
>> repurchase shares of Company stock held in treasury at a cost of $126,000
>> 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 $592,000
>> dividends paid that totaled $1.1 million.
The decreased value in accumulated other comprehensive income resulted from the
fluctuation in market value of the Company's securities available for sale.
Because of continued interest-rate volatility, accumulated other comprehensive
income and stockholders' equity could materially fluctuate for each interim and
year-end period.
17
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Results of Operations
The following tables set forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields based on various
interest methods; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost; (iii) net interest
income; (iv) interest-rate spread; and (v) net interest margin.
Three Months Ended June 30,
-------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
($ in thousands)
Interest-earning assets (IEA):
Mortgage loans.......................... $ 290,009 $ 4,752 6.55% $ 313,507 $ 5,690 7.26%
Consumer loans.......................... 113,489 2,144 7.56 101,725 2,075 8.16
Commercial loans........................ 81,963 1,314 6.41 73,488 1,419 7.72
--------- -------- -------- --------
Total loans (1)..................... 485,461 8,210 6.76 488,720 9,184 7.52
Securities and other (2)(3)............. 265,019 3,076 4.64 254,561 3,883 6.10
--------- -------- --------- --------
Total IEA (2)....................... 750,480 11,286 6.02 743,281 13,067 7.03
-------- --------
Other assets............................... 67,633 59,891
--------- ---------
Total assets........................ $ 818,113 $ 803,172
========= =========
Interest-bearing liabilities (IBL):
Interest checking....................... $ 84,990 156 .74 $ 70,835 323 1.83
Savings accounts........................ 54,887 128 .94 55,315 230 1.67
Money-market accounts................... 81,501 254 1.25 64,799 374 2.31
Certificate accounts.................... 321,356 2,724 3.40 354,429 3,848 4.35
--------- -------- --------- --------
Total interest-bearing deposits..... 542,734 3,262 2.41 545,378 4,775 3.51
FHLB advances and other borrowings...... 134,855 1,639 4.81 127,007 1,615 5.03
--------- -------- --------- --------
Total IBL........................... 677,589 4,901 2.90 672,385 6,390 3.80
-------- --------
Noninterest-bearing liabilities (4)........ 38,964 37,078
--------- ----------
Total liabilities................... 716,553 709,463
Stockholders' equity....................... 101,560 93,709
--------- ---------
Total liabilities and
stockholders' equity............ $ 818,113 $ 803,172
========= =========
Net interest income (2).................... $ 6,385 $ 6,677
======== ========
Average IEA to IBL......................... 111% 111%
=== ===
Interest-rate spread....................... 3.12% 3.23%
==== ====
Net interest margin........................ 3.40% 3.59%
==== ====
- ------------------------------------
(1) Includes nonaccrual loans.
(2) Interest income and net interest income do not agree to the condensed
consolidated statements 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
Nine Months Ended June 30,
--------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---------
($ in thousands)
Interest-earning assets (IEA):
Mortgage loans.......................... $ 297,594 $ 15,124 6.78% $ 314,656 $ 17,388 7.37%
Consumer loans.......................... 110,405 6,333 7.65 93,021 5,726 8.21
Commercial loans........................ 81,861 4,028 6.56 70,600 3,950 7.46
--------- -------- --------- --------
Total loans (1)..................... 489,860 25,485 6.94 478,277 27,064 7.54
Securities and other (2)(3)............. 269,169 9,967 4.94 204,658 9,362 6.10
--------- -------- --------- --------
Total IEA (2)....................... 759,029 35,452 6.23 682,935 36,426 7.11
-------- --------
Other assets............................... 68,158 43,980
--------- ---------
Total assets........................ $ 827,187 $ 726,915
========= =========
Interest-bearing liabilities (IBL):
Interest checking....................... $ 79,813 572 .96 $ 53,034 694 1.75
Savings accounts........................ 54,844 471 1.15 41,689 496 1.59
Money-market accounts................... 75,411 901 1.60 50,702 922 2.43
Certificate accounts.................... 336,154 9,062 3.60 320,686 11,274 4.70
--------- -------- --------- --------
Total interest-bearing deposits..... 546,222 11,006 2.69 466,111 13,386 3.84
FHLB advances and other borrowings...... 143,116 5,214 4.81 136,887 5,305 5.11
--------- -------- --------- --------
Total IBL........................... 689,338 16,220 3.13 602,998 18,691 4.13
-------- --------
Noninterest-bearing liabilities (4)........ 36,947 29,752
--------- ---------
Total liabilities................... 726,285 632,750
Stockholders' equity....................... 100,902 94,165
--------- ---------
Total liabilities and
stockholders' equity............ $ 827,187 $ 726,915
========= =========
Net interest income (2).................... $ 19,232 $ 17,735
======== ========
Average IEA and IBL........................ 110% 111%
=== ===
Interest-rate spread....................... 3.10% 2.98%
==== ====
Net interest margin........................ 3.38% 3.46%
==== ====
- ---------------------------------
(1) Includes nonaccrual loans.
(2) Interest income and net interest income do not agree to the condensed
consolidated statements 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.
19
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Comparison of Operating Results for the Three Months Ended June 30, 2003 and
2002
Net Income. Net income for the three months ended June 30, 2003 increased 15.6%
to $1.8 million or $.34 per diluted share, compared to $1.6 million or $.29 per
diluted share for the same period in 2002. Net interest income decreased
$295,000, or 4.5%, for the three months ended June 30, 2003 compared to the same
period in 2002. This decrease resulted from a $1.8 million decrease in interest
income, partially offset by a decrease in interest expense of $1.5 million.
Noninterest income increased $505,000 to $2.1 million from $1.6 million, while
noninterest expense decreased $237,000 to $5.5 million from $5.7 million. 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, 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 $40.6 million during the quarter, $35.2
million in loans were paid off during the period. 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 40.3% of the average balance of the loan
portfolio, compared to 35.3% last year.
>> The average yield on loans decreased 76 basis points to 6.76%, for the
three months ended June 30, 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 refinance activity not only impacts 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 4% as the
Company reinvested accelerated loan repayments.
>> The lower yield in the securities portfolio resulted from a shift to
shorter duration and adjustable rate investments in fiscal year 2003 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 18.
20
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
>> The growth in average balances in interest checking and money-market
accounts, together with certificate accounts renewing at lower rates in the
current interest rate environment, helped to reduce the overall cost of
interest-bearing deposits by 110 basis points.
>> Average FHLB advances and other borrowings outstanding increased $7.8
million this quarter compared to the same quarter last year. Certain FHLB
fixed-rate and adjustable-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 $14.3 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 a 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 both three-month periods ended
June 30, 2003 and June 30, 2002, respectively. The allowance for loan losses
decreased to $4.6 million at June 30, 2003 from $4.7 million at June 30, 2002,
due to higher charge-offs throughout the period. An additional $1.0 million was
added to the allowance for loan losses during 2002 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 .92% of loans outstanding at June 30,
2003. The Company had net charge-offs of $38,000 for the three months ended June
30, 2003 compared to net charge-offs of $267,000 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 $505,000 to $2.1 million for
the three months ended June 30, 2003 from $1.6 million for the three months
ended June 30, 2002. The major changes were:
>> An increase of $23,000 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 26% compared to the same period last year.
>> Net gains on the sale of securities available for sale were $579,000 more
than the gains in the comparable 2002 period; and,
>> A decrease of $91,000 in other income, primarily due to the recognition of
a $201,000 gain related to the sale of a former Bank property in 2002,
partially offset by $164,000 of commission income received from the
Company's annuity sales program that began in September 2002.
21
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Noninterest Expense. Noninterest expense decreased by $237,000 to $5.5 million
for the three months ended June 30, 2003 from $5.7 million for the three months
ended June 30, 2002.
>> Salaries and employee benefits decreased $228,000 primarily due to:
* a reduction in staff of approximately 20 full-time employees, offset
by a 4% average salary increases due to merit and cost of living
adjustments,
* a $25,000 increase due to the opening of one new retail sales office
(4 new staff positions),
* commissions increased $190,000 as residential mortgage loan
origination production increased approximately 93%, a revised retail
incentive plan resulted in increased sales of products and services,
and annuity sales generated incentive payments during the year,
* a change in the estimate of the direct cost of originating loans
reduced compensation by $572,000,
* a $60,000 increase in ESOP costs due to the increased price of Company
stock,
* an increase of $179,000 for health insurance costs due to the growth
in our employee base as well as increased claims experience.
>> Core deposit intangible amortization expense decreased $75,000 due to the
annual adjustment of periodic amortization.
>> Marketing expense increased $28,000, primarily due to increased advertising
coverage for commercial and mortgage lending, as well as retail deposit
services.
>> Other noninterest expenses increased slightly due to the offsetting impact
of the following:
* a $70,000 increase in consumer loan expenses related to the special no
closing cost consumer loan program during the recent quarter ended,
* a $21,000 increase in insurance expense due to the higher premiums
that prevail in the commercial insurance marketplace,
* a $173,000 decrease in deposit charge-offs and miscellaneous deposit
losses primarily attributable to the proof of deposit (POD) conversion
in 2002, and
* a $48,000 increase in loss on repossessed assets due to additional
write-downs on several repossessed vehicles and mobile homes during
the recent quarter.
Other increases are attributable to increased investor relations expenses,
telecommunication expenses, and debit card expenses related to the overall
growth of the Company.
22
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
Comparison of Operating Results for the Nine Months Ended June 30, 2003 and 2002
Net Income. Net income for the nine months ended June 30, 2003 increased 6.7% to
$4.4 million or $.83 per diluted share, compared to $4.1 million or $.77 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. Net interest income increased $1.5 million, or 8.8%, for the nine
months ended June 30, 2003 compared to the same period in 2002. This increase
resulted from a decrease in interest expense of $2.5 million, partially offset
by a decrease in interest income of $950,000. 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 nine months ended June 30,
2003 when compared to the prior year. Details are contained in the Average
Balance Sheet table at page 19.
>> 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 $112.2 million during the nine months
ended June 30, 2003, $99.9 million in loans were paid-off during the
period. While consumer and commercial growth increased for the nine months
ended June 30, 2003, compared to the same period in 2002, approximately
$10.5 million, or 38% of the consumer and commercial growth was impacted by
loans acquired in the Branch Acquisition being included in the average
balances for the entire nine months ended June 30, 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 39% of the average balance of
the loan portfolio, compared to 34% last year.
>> The average yield on loans decreased 60 basis points to 6.94%, for the nine
months ended June 30, 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 refinance activity not only impacts 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 32% 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 2003 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 nine months ended June 30,
2003 when compared to the prior year. Detailed changes are contained in the
Average Balance Sheet table at page 19.
>> 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 certificate accounts maturing and renewing at lower rates in the
current interest rate environment, helped reduce the overall cost of
interest-bearing deposits by 115 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 $540,000 for the nine months ended June 30,
2003 compared to $500,000 for the nine months ended June 30, 2002. The provision
for loan losses increased for the current nine-month period primarily as a
result of increased consumer and commercial loan growth. The allowance for loan
losses decreased to $4.6 million at June 30, 2003 from $4.7 million at June 30,
2002 due to higher charge-offs throughout the period. An additional $1.0 million
was added to the allowance for loan losses during the 2002 period 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 .92% of
loans outstanding at June 30, 2003. The Company had net charge-offs of $473,000
for the nine months ended June 30, 2003 compared to net charge-offs of $438,000
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 $1.6 million to $5.1 million
for the nine months ended June 30, 2003 from $3.5 million for the nine months
ended June 30, 2002. The major changes were:
>> An increase of $427,000 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 $264,000 in net gain on sale of loans held for sale,
resulting from a 54% increase in loan sales during the current period
together with a 41% increase in premiums received,
>> Net gains on the sale of securities available for sale were $733,000 higher
than the gains for the same period in 2002,
>> An increase of $134,000 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 $31,000 in other income, primarily due to $372,000 of
commission income received from the Company's annuity sales program that
began in September 2002, offset by a $121,000 reclassification of loan
related fees that offset loan related costs, and a $201,000 gain on the
sale of a former bank property during the prior period.
Noninterest Expense. Noninterest expense increased by $2.6 million to $17.0
million for the nine months ended June 30, 2003 from $14.5 million for the nine
months ended June 30, 2002.
>> Salaries and employee benefits increased $326,000 primarily due to:
* An increase of $723,000 related to seven retail sales offices acquired
in the Branch Acquisition (66 staff members), and $64,000 for one new
full-service office that was opened during the period,
* 4% average salary increases due to merit and cost of living
adjustments, partially offset by a gradual reduction in staff over the
past year,
* a $58,000 decrease in overtime compensation,
* commissions increased $459,000 as residential mortgage loan
origination production increased over 46%, a revised retail incentive
plan resulted in increased sales of products and services, and annuity
sales generated incentive payments during the period.
* a change in the estimate of the direct cost of originating loans
reduced compensation by $1.1 million.
* a $180,000 increase in ESOP costs due to the increased price of
Company stock,
* an increase of $371,000 for health insurance costs due to the growth
in our employee base as well as increased claims experience, and
>> Occupancy expense increased $412,000, 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 increase $68,000 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 $510,000
resulting from the Branch Acquisition.
>> Data processing expense increased $116,000 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 $240,000 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 $825,000 due to:
* the write-off of $262,000 of merger-related investment banking
expenses resulting from the cancellation of the merger agreement
between the Company and BB&T,
* a $147,000 increase in consumer loan expenses related to the special
no closing cost consumer loan program during the year,
* a $119,000 increase in telecommunication expenses related to the
expanded branch network and communication channel upgrades,
* a $81,000 increase in insurance expense due to the higher premiums
that prevail in the commercial insurance marketplace,
* a $227,000 decrease in deposit charge-offs and miscellaneous deposit
losses primarily attributable to the Branch Acquisition and the proof
of deposit (POD) conversion in 2002, and
* a $142,000 increase 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 and debit card expenses
related to the overall growth of the Company.
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
March 31, 2003. Although the results of the NPV model are not yet available for
June 30, 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 $ 61,274 (33,469) (35)% 7.63% (338)
+200 bp 74,703 (20,040) (21)% 9.07% (194)
+100 bp 87,059 (7,684) (8)% 10.32% (69)
0 bp 94,743 - - % 11.01% -
-100 bp 97,806 3,063 3 % 11.22% 21
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's management
evaluated, with the participation of the Company's Chief Executive Officer and
Chief Financial Officer, the effectiveness of the Company's disclosure controls
and procedures, as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
Changes in Internal Controls. There were no changes in the Company's internal
control over financial reporting that occurred during the Company's last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
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
The Annual Meeting of Shareholders (the "Annual Meeting") of FloridaFirst
Bancorp, Inc. was held on June 27, 2003, to consider: (i) the election of two
directors each for a term of three years and (ii) the ratification of the
appointment of the Company's independent auditors for the year ending September
30, 2003. At the Annual Meeting, incumbent Directors Arthur J. Rowbotham and J.
Larry Durrence were reelected. The terms of Directors Llewellyn N. Belcourt,
Gregory C. Wilkes, G.F. Zimmermann, III, Stephen A. Moore, Jr. and Nis H.
Nissen, III continued after the Annual Meeting.
At the Annual Meeting, 4,763,814 shares were present in person or by proxy. The
following is a summary and tabulation of the matters that were voted upon at the
Annual Meeting:
Proposal I.
The election of two directors, each for a term of three years:
Abstentions
and Broker
For Withheld Against Nonvotes
--------- -------- ------- --------
Arthur J. Rowbotham 4,730,403 33,411 - -
========= ====== ======== ========
J. Larry Durrence 4,723,531 40,283 - -
========= ====== ======== ========
Proposal II:
To ratify the appointment of Hacker, Johnson & Smith PA as the Company's
independent auditors for the year ending September 30, 2003:
Abstentions
and Broker
For Withheld Against Nonvotes
--------- -------- ------- -----------
4,756,088 - 6,768 958
========= ======== ===== ===
28
FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION, CONTINUED
ITEM 5. OTHER INFORMATION
Not Applicable.
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 ***
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange
Act
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange
Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of Sarbanes-Oxley Act of 2002
99 Report on Review by Independent Accountants.
- --------------------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 initially filed with the Commission on September 5, 2000 (File No.
333-45150).
** Incorporated by reference to the identically numbered exhibits to the Form
10-K filed by FloridaFirst Bancorp on December 29, 1999 (File No. 0-25693).
*** 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 May 8, 2003 as notification under Item 9 that the
Company issued a press release announcing the Company's second quarter
earnings.
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: August 13, 2003 By: /s/Gregory C. Wilkes
------------------------- ------------------------------------------------
Gregory C. Wilkes, President and Chief Executive
Officer (Principal Executive Officer)
Date: August 13, 2003 By: /s/Kerry P. Charlet
------------------------- ------------------------------------------------
Kerry P. Charlet, Chief Financial Officer
(Principal Accounting Officer)
30