U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2002
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- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission Number: 0-32139
FLORIDAFIRST BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
Florida 59-3662010
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
205 East Orange Street, Lakeland, Florida 33801-4611
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (863) 688-6811
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Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .10 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price of the Registrant's Common Stock as
quoted on the Nasdaq National Market on December 10, 2002 of $24.02 per share,
was $108 million.
As of December 10, 2002, there were issued and outstanding 5,378,957 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
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General
The Registrant, FloridaFirst Bancorp, Inc. (the "Company") is the parent company
of and conducts most of its business operations through FloridaFirst Bank (the
"Bank"). The Bank, a federally-chartered savings bank headquartered in Lakeland,
Florida, is a community-oriented retail savings bank offering a full range of
deposit services to both consumers and commercial entities. The Bank's lending
activities include residential real estate mortgage loans, commercial real
estate loans, other commercial loans and consumer loans. The Bank has operated
within its market areas since 1934 and delivers its products and services
through eighteen offices located in Florida's Highlands, Polk, Manatee and
Sumter Counties.
On April 6, 1999, the Bank reorganized from a mutual savings association into a
mutual holding company named FloridaFirst Bancorp MHC and formed FloridaFirst
Bancorp, a middle-tier holding company, whereby the Bank became a wholly-owned
subsidiary of FloridaFirst Bancorp. In connection with the reorganization,
FloridaFirst Bancorp sold 2,703,851 shares of its Common Stock to the public and
the remaining 3,049,024 shares were held by FloridaFirst Bancorp MHC.
On December 21, 2000, the Company completed its stock offering in connection
with the conversion and reorganization of FloridaFirst Bank and its holding
company, FloridaFirst Bancorp, from the mutual holding company form of
organization to a full stock company. As part of the conversion and
reorganization, the shares formerly held by FloridaFirst Bancorp MHC were
cancelled, the Company sold 3,147,952 new shares to the public and the shares
held by stockholders of FloridaFirst Bancorp were exchanged for 2,372,048 shares
of the Company.
The Company provides commercial and retail banking services, with an emphasis on
one-to-four family residential mortgage loans, home equity loans and lines of
credit and consumer loans as well as certificates of deposit, checking accounts,
money-market accounts and savings accounts. In addition, the Company originates
commercial real estate loans and offers checking accounts and other credit
facilities to businesses within its market area. At September 30, 2002, the
Company had total assets, deposits and equity of $859.4 million, $587.4 million,
and $99.0 million, respectively.
The Company attracts deposits from the general public and uses these deposits
primarily to originate loans and to purchase mortgage-backed and other
securities. The principal sources of funds for the Company's lending and
investing activities are deposits, Federal Home Loan Bank ("FHLB") advances, the
sale of loans held for sale, loan repayments and sale, maturity, and call of
securities. The principal source of income is interest on loans and securities.
The principal expense is interest paid on deposits and FHLB advances.
On February 15, 2002, the Bank acquired seven Florida branches from SunTrust
Bank ("SunTrust") coincident with SunTrust's acquisition of such branches from
Huntington National Bank ("Huntington"). Four of the Huntington branches are
located in Lakeland, Florida, and one each in Avon Park, Sebring and Wildwood,
Florida. In this transaction, the Bank assumed approximately $162 million in
deposits and the purchase of approximately $26 million in loans related to the
seven branches.
On October 2, 2002, the Company signed a definitive agreement with BB&T
Corporation ("BB&T"), Winston-Salem, North Carolina, whereby BB&T would acquire
100% of the outstanding stock of the Company. However, pursuant to discussion
with regulatory officials, BB&T and the Company terminated the agreement on
October 31, 2002 so that BB&T could submit the proper application to request
permission to acquire control of the Company pursuant to regulatory guidelines.
The application was filed on November 4, 2002 with the Office of Thrift
Supervision ("OTS") and no further merger related activities will take place
until proper approval is obtained from the OTS.
1
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Company's market area of Highlands, Polk,
Manatee and Sumter Counties, Florida. Deposit competition also includes a number
of insurance products sold by local agents and investment products such as
mutual funds and other securities sold by local and regional brokers. Loan
competition varies depending upon market conditions and comes from other insured
financial institutions such as commercial banks, thrift institutions, credit
unions, multi-state regional banks, and mortgage bankers and brokers.
Lending Activities
General. The Company primarily originates one-to-four family residential real
estate loans, commercial real estate loans, consumer loans and other loans.
Consumer loans consist primarily of direct and indirect automobile loans, home
equity loans and lines of credit, and other consumer loans. The Company's
commercial real estate loans consist primarily of mortgage loans secured by
small commercial office/retail space, warehouses, small and medium sized
apartment buildings and residential real estate acquisition and development
projects.
2
Loan Portfolio Composition. The following table analyzes the composition of the
Company's loan portfolio by loan category and in percentages of the total loan
portfolios at the dates indicated ($ in thousands).
At September 30,
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2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Type of Loans:
Mortgage loans:
Residential:
Permanent.................. $ 301,622 57.7% $ 312,309 61.7% $ 304,419 66.1% $ 276,115 65.6% $ 244,667 68.3%
Construction............... 29,058 5.6 35,516 7.0 27,996 6.1 32,974 7.8 27,311 7.6
Commercial real estate........ 58,177 11.1 58,371 11.6 31,786 6.9 25,570 6.1 20,598 5.8
Land.......................... 15,806 3.0 8,907 1.8 12,886 2.8 9,548 2.3 6,796 1.9
Commercial........................ 10,806 2.1 5,061 1.0 2,533 .5 1,374 .3 1,083 .3
Consumer loans:
Home equity loans (1)......... 50,240 9.6 33,200 6.5 28,926 6.3 22,545 5.4 13,137 3.7
Auto loans.................... 39,989 7.6 42,293 8.3 40,717 8.8 42,181 10.0 34,795 9.7
Other......................... 17,352 3.3 10,439 2.1 11,396 2.5 10,318 2.5 9,800 2.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans....................... 523,050 100.0% 506,096 100.0% 460,659 100.0% 420,625 100.0% 358,187 100.0%
===== ===== ===== ===== =====
Less:
Construction loans in
process.................... 19,167 28,289 16,952 19,774 17,013
Allowance for loan losses..... 4,519 3,652 3,321 2,941 2,564
--------- --------- --------- --------- ---------
Total loans, net.................. $ 499,364 $ 474,155 $ 440,386 $ 397,910 $ 338,610
========= ========= ========= ========= =========
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(1) Includes home equity lines of credit.
3
Loan Maturity Schedule. The following table sets forth the maturity or repricing
of the Company's loan portfolio at September 30, 2002. Demand loans, loans
having no stated maturity, and overdrafts are shown as due in one year or less
(in thousands).
Commercial
Real Estate
Residential (1) and Land Consumer Commercial Total
--------------- -------- -------- ---------- -----
Amounts Due:
Within 1 Year................ $ 30,271 33,222 16,764 6,644 86,901
--------- ------ ------- ------ -------
After 1 Year:
1 to 3 years.............. 22,517 9,531 15,030 2,474 49,552
3 to 5 years.............. 7,369 13,382 28,567 1,618 50,936
Over 5 years.............. 270,523 17,848 47,220 70 335,661
--------- ------ ------- ------ -------
Total due after one year..... 300,409 40,761 90,817 4,162 436,149
--------- ------ ------- ------ -------
Total amount due............. $ 330,680 73,983 107,581 10,806 523,050
========= ====== ======= ====== =======
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(1) Includes $29,058 in construction loans.
The following table sets forth the dollar amount of all loans due after
September 30, 2003, which have predetermined interest rates or which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In thousands)
Residential........................ $ 271,940 28,469 300,409
Commercial real estate and land.... 39,496 1,265 40,761
Consumer........................... 90,817 - 90,817
Commercial......................... 4,162 - 4,162
--------- ------ -------
Total.............................. $ 406,415 29,734 436,149
========= ====== =======
Residential Lending. The Company's primary lending activity consists of the
origination of one-to-four family residential mortgage loans secured by property
located in the Company's market area. The Company generally originates
one-to-four family residential mortgage loans in amounts up to 80% of the lesser
of the appraised value or selling price of the mortgaged property without
requiring private mortgage insurance. The Company will originate a mortgage loan
in an amount up to 95% of the lesser of the appraised value or selling price of
a mortgaged property, however, private mortgage insurance for the borrower is
generally required on the amount financed in excess of 80%. The Company
currently originates shorter-term fixed-rate and adjustable-rate loans for
retention in its portfolio. Longer-term fixed-rate mortgages are generally sold
to correspondent lenders on a servicing released basis. A mortgage loan
originated by the Company, whether fixed-rate or adjustable-rate, can have a
term of up to 30 years. Adjustable-rate loans limit the periodic interest rate
adjustment and the minimum and maximum rates that may be charged over the term
of the loan.
The majority of the Company's one-to-four family residential loans (both
fixed-rate and adjustable-rate) are underwritten in accordance with Fannie Mae
or Freddie Mac guidelines, regardless of whether they will be held in portfolio
or sold in the secondary market. Substantially all of the Company's residential
mortgages include
4
"due on sale" clauses, which give the Company the right to declare a loan
immediately payable if the borrower sells or otherwise transfers an interest in
the property to a third party.
Property appraisals on real estate securing the Company's residential loans are
made by state certified and licensed independent appraisers approved by the
Board of Directors. Appraisals are performed in accordance with applicable
regulations and policies. The Company obtains title insurance policies on all
first mortgage real estate loans originated. Borrowers generally advance funds,
with each monthly payment of principal and interest, to a loan escrow account
from which the Company makes disbursements for such items as real estate taxes,
hazard insurance premiums and mortgage insurance premiums as they become due.
Construction Lending. The Company is an active lender in the construction of
one-to-four family houses. The residential construction loans are made both to
individual homeowners for the construction of their primary residence and to
local builders for the construction of pre-sold houses or houses that are being
built for speculative purposes.
As of September 30, 2002, 75% of all the Company's residential construction
loans were made to individual homeowners. After the house is constructed, the
loan terms are modified to terms that apply to permanent residential loans. The
underwriting guidelines for the construction to permanent loans are the same as
the permanent loans, but additional construction administration procedures and
inspections are followed during the construction process to assure that
satisfactory progress is being made prior to funding the construction draw
requests.
Construction lending is generally considered to involve a higher degree of
credit risk than long-term financing of residential properties. The Company's
risk of loss on a construction loan depends largely on the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction. If the estimate of construction cost and the
marketability of the property after the project is completed prove to be
inaccurate, the Company may be compelled to advance additional funds to complete
the construction. Furthermore, if the final value of the completed property is
less than the estimated amount, the value of the property might not be
sufficient to assure the repayment of the loan.
The Company limits its exposure for construction loans made to local builders
through periodic credit analysis on the individual builder and a series of
inspections throughout the construction phase. In addition, the Company limits
the amount and number of loans made to an individual builder for the
construction of pre-sold and speculative houses based on the financial strength
of the builder. At September 30, 2002, approximately 25% of the Company's
construction loans were to local builders.
Commercial Real Estate and Other Mortgage Loans. The Company originates
commercial real estate mortgage loans and loans on multi-family dwellings and
developed and undeveloped land. The Company's commercial real estate mortgage
loans are primarily permanent loans secured by improved property such as office
buildings, retail stores, commercial warehouses and apartment buildings. The
terms and conditions of each loan are tailored to the needs of the borrower and
based on the financial strength of the project and any guarantors. The average
loan size is approximately $300,000 and loans are typically made at fixed rates
of interest with five to ten year maturities, at which point the loan is repaid
or the terms and conditions are renegotiated. Essentially all originated
commercial real estate loans are within the Company's market area and all are
within the State of Florida. The Company's largest commercial real estate loan
had a balance of $4.9 million on September 30, 2002 and was secured by a Class A
office building. Typically, commercial real estate loans are originated in
amounts up to 80% of the appraised value of the mortgaged property.
Commercial real estate, multi-family and land loans generally have a
significantly greater risk than loans on single family real estate. The
repayment of these loans typically depends on the successful operations and
income stream of the commercial real estate and the borrower. Such risks can be
significantly affected by
5
economic conditions. In addition, commercial real estate lending generally
requires substantially greater oversight efforts compared to residential real
estate lending.
Commercial Loans. To accomplish its mission to become a full-service community
bank, the Company has expanded its products and services offerings to the small-
to medium-size businesses within its market area. Experienced personnel have
been hired to assist in reaching the Company's objectives. Sales call programs,
credit analysis guidelines, loan grading systems, technology upgrades and new
products and services have been implemented to improve our lending capabilities.
The Company not only satisfies the borrowing needs of prospective business
customers, but provides the full complement of deposit services and customer
services related to the checking, savings, and cash management needs of these
businesses.
Unlike residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other income
and which are secured by real property with a value that tends to be more easily
ascertainable, commercial business loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself, which is likely to be dependent upon the general economic environment.
The Company's commercial business loans are sometimes, but not always, secured
by business assets, such as accounts receivable, equipment and inventory, as
well as real estate. However, the collateral securing the loans may depreciate
over time, may be difficult to appraise, and may fluctuate in value based on the
success of the business.
The Company recognizes the generally increased risks associated with commercial
business lending. The Company's commercial business lending policy emphasizes
the following:
> credit file documentation,
> analysis of the borrower's capacity to repay the loan,
> adequacy of the borrower's capital and collateral,
> analysis of the borrower's character, and
> evaluation of the industry conditions affecting the borrower.
Analysis of the borrower's past, present and future cash flows is also an
important aspect of the Company's credit analysis. The Company plans to expand
its commercial business lending, subject to market conditions.
The Company generally obtains annual financial statements from borrowers for
commercial business loans. These statements are analyzed to monitor the quality
of the loan. As of September 30, 2002, the commercial business loans ranged from
$3,000 to $2.2 million, with an average balance outstanding of $275,000.
Consumer Loans. Consumer loans consist primarily of automobile loans and home
equity loans and credit lines. The Company also originates unsecured lines of
credit, loans secured by savings accounts and other consumer loans. Consumer
loans are originated in the Company's market area and generally have maturities
up to 15 years. For savings account loans, the Company will lend up to 90% of
the account balance.
Consumer loans have a shorter term and generally provide higher interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between average loan yield and costs of funds and at the same time
improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one-to-four family residential mortgage
loans, particularly consumer loans secured by depreciable assets such as
automobiles or loans that are unsecured. In such cases, any repossessed
collateral for a defaulted loan may not provide an adequate source of repayment
of
6
the outstanding loan balance, since there is a greater likelihood of damage,
loss or depreciation of the underlying collateral. Further, consumer loan
collections depend on the borrower's continuing financial stability, and
therefore are more likely to be adversely affected by job loss, divorce, illness
or personal bankruptcy. Even for consumer loans secured by real estate, the risk
to the Company is greater than in the single-family loan portfolio, in that the
security for consumer loans is generally not the first lien on the property and
ultimate collection of amounts due may depend on whether any value remains after
collection by a holder with a higher priority than the Company. Finally, the
application of various federal laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans after
a default.
At September 30, 2002, 54% of the Company's automobile loans outstanding were
loans originated through local automobile dealerships. Although this type of
lending generally carries a greater risk factor, the Company has experienced
personnel to handle this type of lending. The dealer arrangements are limited
primarily to a few local dealers where long-term relationships have been
established and the loans acquired typically are those made to higher-credit
quality borrowers.
The underwriting standards employed by the Company for consumer loans include a
determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.
Loan Solicitation and Processing. The Company's customary sources of mortgage
loan applications include repeat customers, walk-ins, and referrals from home
builders and real estate brokers. Commercial customer relationships are
developed through the officer call program and from referrals developed through
the branch network.
After receiving a loan application from a prospective borrower, a credit report
and verifications are ordered to confirm specific information relating to the
loan applicant's employment, income and credit standing. An appraisal of the
real estate intended to secure the proposed loan is undertaken by an independent
fee appraiser. In connection with the loan approval process, the Company's staff
analyzes the loan applications and the property involved. Officers and lenders
are granted lending authority based on the loan types they handle and their
level of experience. Generally, a management loan committee approves loans
exceeding individual authorities, with the Executive Committee or the full Board
of Directors approving loans in excess of management's authority.
Loan applicants are promptly notified of the decision of the Company by a letter
setting forth the terms and conditions of the decision. If approved, these terms
and conditions include the amount of the loan, interest- rate basis,
amortization term, a brief description of real estate to be mortgaged to the
Company, tax escrow and the notice of requirement of insurance coverage to be
maintained to protect the Company's interest. The Company requires title
insurance on first mortgage loans and fire and casualty insurance on all
properties securing loans, which insurance must be maintained during the entire
term of the loan.
Loan Commitments. The Company generally grants commitments to fund fixed- and
adjustable-rate single family mortgage loans for periods of 60 days at a
specified term and interest rate. The total amount of the Company's commitments
to extend credit, including letters of credit, unfunded construction and line of
credit loans, as of September 30, 2002 was $51.4 million.
Loan Origination and Other Fees. In addition to interest earned on loans, the
Company may charge loan origination and commitment fees for originating or
purchasing certain loans. Since most loans are originated without points being
charged, the Company has assessed customers certain fees related to underwriting
and
7
document preparation. The Company believes these fees approximate the costs to
originate the loans. Therefore, net deferred fees are minimal and deferrals
would have an immaterial effect on operating results.
The Company also receives other fees and charges relating to existing loans,
which include late charges and fees collected in connection with a change in
borrower or other loan modifications. These fees and charges have not
constituted a material source of income.
Nonperforming Loans and Problem Assets
Collection Procedures. The Company's collection procedures provide that when a
loan is 15 days delinquent, the borrower is notified. If the loan becomes 30
days delinquent, the borrower is sent a written delinquency notice requiring
payment. If the delinquency continues, subsequent efforts are made to contact
the delinquent borrower. In certain instances, the Company may modify the loan
or grant a limited moratorium on loan payments to enable the borrower to
reorganize his financial affairs and the Company attempts to work with the
borrower to establish a repayment schedule to cure the delinquency. As to
mortgage loans, if the borrower is unable to cure the delinquency or reach a
payment agreement with the Company within 90 days, the Company will institute
foreclosure actions. If a foreclosure action is taken and the loan is not
reinstated, paid in full or refinanced, the property is sold at judicial sale at
which the Company may be the buyer if there are no adequate offers to satisfy
the debt. Any property acquired as the result of foreclosure or by deed in lieu
of foreclosure is classified as foreclosed assets until such time as it is sold
or otherwise disposed of by the Company. When foreclosed assets are acquired,
they are recorded at the lower of the unpaid principal balance of the related
loan or its fair market value less estimated selling costs. The initial
writedown of the property is charged against the allowance for loan losses.
As to commercial-related loans, the main thrust of the Company's collection
efforts is through telephone contact and a sequence of collection letters. If
the Company is unable to resolve the delinquency within 90 days or in some
situations shorter time periods, the Company will pursue all available legal
remedies. The Company's commercial lenders are required to evaluate each
assigned account on a case-by-case basis, within the parameters of the Company's
policies.
Loans are reviewed on a regular basis and are placed on a nonaccrual status when
they are more than 90 days delinquent. Loans may be placed on a nonaccrual
status at any time if, in the opinion of management, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan.
8
Nonperforming Assets. The following table provides information regarding the
Company's non-performing loans and other nonperforming assets as of the end of
each of the last five fiscal years. As of each of the dates indicated, the
Company did not have any troubled debt restructurings within the meaning of
Statement of Financial Accounting Standards ("SFAS") No. 15.
At September 30,
--------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
($ in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
Residential loans ............................. $ 483 320 33 581 445
Other mortgage loans .......................... 190 489 638 103 -
Commercial loans .................................. 18 - 45 - -
Consumer loans:
Home equity loans ............................. 175 69 - - -
Other consumer loans .......................... 245 82 46 146 391
------ ----- --- ----- -----
Total ............................................. $1,111 960 762 830 836
====== ===== === ===== =====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Residential loans ............................. - - - - -
Other mortgage loans .......................... - - - - -
Commercial loans .................................. - - - - -
Consumer loans:
Home equity loans ............................. - - - - -
Other consumer loans .......................... - - - - -
------ ----- --- ----- -----
Total ............................................ $ - - - - -
====== ===== === ===== =====
Total nonperforming loans ......................... $1,111 960 762 830 836
====== ===== === ===== =====
Foreclosed assets ................................. $ 347 276 203 203 494
====== ===== === ===== =====
Total nonperforming assets ........................ $1,458 1,236 965 1,033 1,330
====== ===== === ===== =====
Total nonperforming loans to gross loans
less LIP ...................................... .22% .20% .17% .21% .25%
====== ===== === ===== =====
Total nonperforming loans to total assets ......... .13% .15% .13% .17% .20%
====== ===== === ===== =====
Total nonperforming assets to total assets ........ .17% .19% .17% .21% .32%
====== ===== === ===== =====
During the year ended September 30, 2002, approximately $47,000 of interest
would have been recorded on loans accounted for on a nonaccrual basis if such
loans had been current according to the original loan agreements for the entire
period.
9
Classified Assets. Management, in compliance with regulatory guidelines, has
instituted an internal loan review program whereby loans are classified as
special mention, substandard, doubtful or loss. When a loan is classified as
substandard or doubtful, management is required to establish a valuation
allowance for loan losses in an amount that is deemed prudent. When management
classifies a loan as a loss asset, a reserve equal to 100% of the loan balance
is required to be established or the loan is charged-off. This allowance for
loan losses is composed of an allowance for both inherent risk associated with
lending activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by the
paying capacity and net worth of the borrower or the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a loss
reserve is not warranted. Assets which do not currently expose the insured
institution to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated special mention by management. In
addition, each loan that exceeds $500,000 and each group of loans to one
borrower that exceeds $500,000 is monitored more closely due to the potentially
greater losses from such loans.
Management's evaluation of the classification of assets and the adequacy of the
allowance for loan losses is reviewed by the Board on a regular basis and by the
regulatory agencies as part of their examination process. At September 30, 2002,
the Company's classified assets were as follows (in thousands):
Special mention........... $ 5,046
Substandard............... 3,723
Doubtful.................. -
Loss...................... -
-------
Total..................... $ 8,769
=======
A brief description of classified assets at September 30, 2002 follows:
Special Mention
- ---------------
> $1.8 million in corporate bonds that have a split investment rating,
meaning that one national rating agency has rated the bond as investment
grade while another rating agency rates the bond below investment grade.
The Company's policy allows purchase of bonds where one nationally
recognized rating agency has given a rating as investment grade. Both bonds
are debt of financial institutions where the Company has evaluated the
performance characteristics of the companies. Both securities have an
unrealized gain as of September 30, 2002.
> $1.1 million of commercial loans (consisting of 27 loans) acquired in the
Branch Acquisition have been classified due to the poor financial
information, creating an increased level of risk concerning the repayment
on these loans.
> $1.2 million, consisting of two commercial loans, have been classified due
to certain concerns involving the lack of current financial information,
vacancy rates or potentially inadequate cash flows.
10
Substandard
- -----------
> $875,000 for vacant land that was originally purchased for the construction
of a retail sales office. However, a change in plans has caused the Company
to actively market the land. Therefore, as a nonearning asset, the land has
been classified as substandard for regulatory reporting purposes.
> $1.4 million of commercial loans (consisting of 35 loans) that have been
graded internally as substandard due to poor financial information or lack
of adequate collateral. Approximately 50% of these loans were acquired in
the Branch Acquisition.
> The remaining substandard assets consist of normal mortgage foreclosures,
repossessed consumer assets and loans that are in nonaccrual status.
Foreclosed Assets. Assets acquired by the Company as a result of foreclosure, by
deed in lieu of foreclosure or through repossession are classified as foreclosed
assets until such time as they are sold. When assets are acquired, they are
recorded at the lower of the unpaid balance of the related loan or its fair
value less disposal costs. Any further write-down of these assets is charged to
earnings.
Allowance for Losses on Loans. It is the policy of management to provide for
losses on unclassified loans in its portfolio in addition to classified loans. A
provision for loan losses is charged to earnings based on management's
evaluation of the potential losses that may be incurred in the Company's loan
portfolio.
Management will continue to review the entire loan portfolio to determine the
extent, if any, to which further additional loan loss provisions may be deemed
necessary. There can be no assurance that the allowance for loan losses will be
adequate to cover losses which may be realized in the future. In addition, there
can be no assurance that additional provisions for losses on loans and
foreclosed assets will not be required.
11
The following table sets forth information with respect to the Company's
allowance for loan losses at the dates indicated:
At or During the Year Ended September 30,
-------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
($ in thousands)
Allowance for loan losses, beginning of
year................................... $ 3,652 3,321 2,941 2,564 2,633
-------- ------- ------- ------- -------
Provision for loan losses ...................... 680 615 630 540 405
-------- ------- ------- ------- -------
Allowance acquired during branch
acquisition ........................... 1,000 - - - -
-------- ------- ------- ------- -------
Charge-offs:
Residential ................................ (25) (15) (32) (37) (218)
Commercial and commercial real
estate .................................. (450) (45) - - (146)
Consumer ................................... (433) (326) (256) (214) (110)
-------- ------- ------- ------- -------
Total charge-offs .............................. (908) (386) (288) (251) (474)
Recoveries ..................................... 95 102 38 88 -
-------- ------- ------- ------- -------
Net charge-offs ................................ (813) (284) (250) (163) (474)
-------- ------- ------- ------- -------
Allowance for loan losses, end of year.......... $ 4,519 3,652 3,321 2,941 2,564
======== ======= ======= ======= =======
Total loans less LIP outstanding................ $503,883 477,807 443,707 400,851 341,174
======== ======= ======= ======= =======
Average loans less LIP outstanding.............. $482,809 463,569 423,409 368,513 339,218
======== ======= ======= ======= =======
Allowance for loan losses as a percent
of total loans less LIP outstanding ........ .90% .76% .75% .73% .75%
Net loans charged off as a percent of
average loans less LIP outstanding ......... .17% .06% .06% .04% .14%
12
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the Company's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the allowance for loan losses allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total allowance for loan losses is a
valuation allowance applicable to the entire loan portfolio.
At September 30,
----------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
($ in thousands)
At end of period allocated to:
Residential....................... $ 1,796 63.3% $ 1,846 68.7% $ 1,804 72.2% $ 1,689 73.4% $ 1,564 75.9%
Commercial real estate and land... 727 14.1 748 13.4 568 9.7 309 8.4 226 7.7
Commercial........................ 826 2.1 76 1.0 25 .5 17 .3 13 .3
Consumer ......................... 1,170 20.5 982 16.9 924 17.6 926 17.9 761 16.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance................... $ 4,519 100.0% $ 3,652 100.0% $ 3,321 100.0% $ 2,941 100.0% $ 2,564 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
13
Investment Activities
General. Federally-chartered savings banks have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various Federal agencies (including securities collateralized by
mortgages), certain certificates of deposits of insured banks and savings
institutions, municipal securities, corporate debt securities and loans to other
banking institutions.
The Company maintains liquid assets which may be invested in specified
short-term securities and certain other investments. Liquidity levels may be
increased or decreased depending on the yields on investment alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other opportunities and its expectation of future yield levels,
as well as management's projections as to the short-term demand for funds to be
used in the Company's loan origination and other activities. At September 30,
2002, the Company had a securities portfolio of $272.6 million (31.7% of total
assets).
Investment Policies. The investment policy of the Company, which is established
by the Board of Directors, is designed to foster earnings and liquidity within
prudent interest-rate risk guidelines, while complementing the Company's lending
activities. The policy provides for available for sale, held to maturity and
trading classifications. However, the Company does not currently use a trading
classification and does not anticipate doing so in the future. The policy
permits investments in high credit quality instruments with diversified cash
flows while permitting the Company to maximize total return within the
guidelines set forth in the Company's interest-rate risk and liquidity
management policy. Permitted investments include but are not limited to U. S.
government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, mortgage-backed securities
and collateralized mortgage obligations, investment grade corporate debt
securities, commercial paper and common stock. The Company also invests in FHLB
overnight deposits and federal funds, but these instruments are not considered
part of the investment portfolio.
The policy also includes several specific guidelines and restrictions to insure
adherence with safe and sound activities. The policy prohibits investments in
high risk mortgage derivative products (as defined within its policy) without
prior approval from the Board of Directors. Management must demonstrate the
business advantage of such investments. In addition, the policy limits the
maximum amount of the investment in a specific investment category. The Company
does not participate in hedging programs, interest-rate swaps, or other
activities involving the use of off-balance sheet derivative financial
instruments. Further, the Company does not invest in securities that are not
investment grade.
The Board through its Investment and Asset Liability Committee ("ALCO") has
charged the Chief Financial Officer to implement the policy. All transactions
are reported to the Board of Directors monthly, with the entire portfolio
reported quarterly, including market values and unrealized gains (losses).
Securities. The Company maintains a portfolio of securities that are all
classified as available for sale to enhance total return on investments. At
September 30, 2002, the Company's securities included U.S. government agency
obligations with varying characteristics as to rate, maturity and call
provisions, corporate bonds, and municipal bonds. Callable agency securities,
representing 46% of the Company's U.S. government agency obligations at
September 30, 2002, could reduce the Company's investment yield if these
securities are called prior to maturity.
14
Mortgage-backed Securities. The Company invests in mortgage-backed securities to
provide earnings, liquidity, cash flows, and diversification to the Company's
overall balance sheet. These mortgage-backed securities are classified as
available for sale. These securities are participation certificates issued and
guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac and are secured by
interests in pools of mortgages. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Company focuses its investments on mortgage-backed securities
secured by single-family mortgages.
Mortgage-backed securities typically are issued with stated principal amounts.
The securities are backed by pools of mortgages that have loans with interest
rates that are within a set range and have varying maturities. The underlying
pool of mortgages can be composed of either fixed-rate or adjustable-rate
mortgage loans. The interest-rate risk characteristics of the underlying pool of
mortgages (i.e., fixed-rate or adjustable-rate) and the prepayment risk, are
passed on to the security holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). The Company also invests in CMOs,
issued or sponsored by Fannie Mae, Freddie Mac or private issuers. CMOs are a
type of debt security that aggregates pools of mortgages and mortgage-backed
securities and creates different classes of CMO securities with varying
maturities and amortization schedules as well as a residual interest with each
class having different risk characteristics. The cash flows from the underlying
collateral are usually divided into "tranches" or classes whereby tranches have
descending priorities with respect to the distribution of principal and interest
repayment of the underlying mortgages and mortgage-backed securities as opposed
to mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying CMOs are paid
in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche or class may
carry prepayment risk that may be different from that of the underlying
collateral and other tranches. Investing in CMOs allows the Company to moderate
reinvestment risk resulting from unexpected prepayment activity associated with
conventional mortgage-backed securities. Management believes these securities
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
Corporate Bonds. Corporate bonds (including capital trust securities) generally
have longer-term maturities, but include call provisions at earlier dates
(generally after five to ten years). The call provisions usually contain a
premium price to exercise the call feature. The Company has invested in these
longer maturity bonds and securities with fixed rates of interest to provide
higher yields to protect part of its assets from the possible decline in
interest rates over the life of the bond. Although interest rates may rise over
the life of these securities, management believes these securities provide a
good complement to those assets (loans and securities) which are subject to
periodic principal repayments and payoffs before contractual maturities.
Municipal Bonds. Municipal bonds have maturities from 11 to 20 years with
premium call provisions after seven to ten years. These bonds are exempt from
federal income taxes, therefore, have lower stated interest rates. All municipal
bonds owned by the bank have fixed rates of interest. The yields included in the
investment tables reflect the tax equivalent yields for the municipal bonds.
Other Securities. Other securities owned by the Company, but not included in the
security portfolio, consist of FHLB stock, interest-bearing deposits and federal
funds sold. As a member of the FHLB of Atlanta, ownership of FHLB of Atlanta
common shares is required. The remaining securities provide diversification and
complement the Company's overall investment strategy.
15
The following table sets forth the carrying value of the Company's securities
portfolio at the dates indicated.
At September 30,
----------------------------
2002 2001 2000
---- ---- ----
(In thousands)
Securities held to maturity:
- ----------------------------
U.S. government agency securities................. $ - - 1,000
Collateralized mortgage obligations .............. - - 8,687
-------- ------- -------
Total securities held to maturity ................ - - 9,687
-------- ------- -------
Securities available for sale (at fair value):
- ----------------------------------------------
U.S. government agency securities ................ 28,184 8,850 19,357
Collateralized mortgage obligations .............. 46,391 44,045 18,072
Mortgage-backed securities ....................... 145,982 29,551 29,650
Corporate bonds .................................. 31,341 29,554 20,186
Municipal bonds .................................. 20,345 17,533 9,396
Common stock ..................................... 381 - -
-------- ------- -------
Total securities available for sale .............. 272,624 129,533 96,661
-------- ------- -------
Total ............................................ $272,624 129,533 106,348
======== ======= =======
16
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities (or repricing terms for variable
rate securities) of the Company's securities portfolio at September 30, 2002.
Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
At September 30, 2002
---------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Securities
----------------- ----------------- ----------------- ------------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
($ in thousands)
U.S. government agency
securities............ $ 2,050 6.10 12,441 3.90 6,818 4.10 6,875 3.72 28,184 4.07
Collateralized mortgage
obligations........... 2,585 3.62 - - - - 43,806 5.60 46,391 5.49
Mortgage-backed
securities............ 72 4.06 11,037 4.79 48,233 5.49 86,640 5.76 145,982 5.59
Corporate bonds.......... 6,562 6.30 6,580 7.85 2,178 7.99 16,021 8.64 31,341 7.94
Municipal bonds.......... - - - - - - 20,345 7.40 20,345 7.40
Common stock............. 381 1.19 - - - - - - 381 1.19
------- ------- ------- -------- --------
Total.................... $11,650 5.49 $30,058 5.09 $57,229 5.42 $173,687 5.30 $272,624 5.31
======= ======= ======= ======== ========
17
Sources of Funds
General. Deposits are the major source of the Company's funds for lending and
other investment purposes. Borrowings (principally from the FHLB) are used to
compensate for reductions in the availability of funds from other sources. In
addition to deposits and borrowing, the Company derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the maturity,
call and sale of mortgage-backed securities and other securities. Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.
Deposits. The Company offers a variety of deposit accounts, although a majority
of deposits are in fixed-term, market-rate certificate accounts. Deposit account
terms vary, primarily as to the required minimum balance, the time that the
funds must remain on deposit and the applicable interest rate.
The Company's current deposit products include certificate accounts ranging in
terms from 90 days to five years as well as checking, savings and money market
accounts. Individual retirement accounts (IRAs) are included in these accounts,
depending on the customer's investment preference.
Deposits are obtained primarily from residents of Highlands, Polk, Manatee and
Sumter Counties. The Company attracts deposit accounts by offering outstanding
service, competitive interest rates, and convenient locations and service hours.
The Company uses traditional methods of advertising to attract new customers and
deposits, including radio, cable television, direct mail and print media
advertising. The Company utilizes the services of deposit brokers from time to
time and management believes that an insignificant number of deposit accounts
are held by non-residents of Florida.
The Company pays interest on its deposits that are competitive in its market.
Interest rates on deposits are set weekly by management, based on a number of
factors, including:
> projected cash flow;
> a current survey of a selected group of competitors' rates for similar
products;
> external data which may influence interest rates;
> investment opportunities and loan demand; and
> scheduled certificate maturities and loan and securities repayments.
Because of the large percentage of certificate accounts in the deposit portfolio
(61% at September 30, 2002), the Company's liquidity could be reduced if a
significant amount of these accounts, maturing within a short period of time,
were not renewed. A significant portion of the certificate accounts remain with
the Company after they mature and the Company believes that current renewal
patterns will continue. However, the need to retain these accounts could result
in an increase in the Company's cost of funds.
The following table shows the amount (in thousands) of the Company's certificate
accounts of $100,000 or more by time remaining until maturity as of September
30, 2002.
Maturity Period Amount
--------------- ------
Within three months........................ $ 17,782
Three through six months................... 14,023
Six through twelve months.................. 31,240
Over twelve months......................... 49,904
---------
Total............................. $ 112,949
=========
18
Borrowings. Deposits are the primary source of funds of the Company's lending
and investment activities and for general business purposes. The Company, as the
need arises or in order to take advantage of funding opportunities, may borrow
funds in the form of advances from the FHLB, short-term borrowings through the
Federal Reserve's Treasury Investment Program or reverse repurchase agreements
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. Advances from the FHLB are secured by stock in the FHLB and a
blanket lien over the Company's residential mortgage loans. Other borrowings are
secured by other assets, principally securities. The Company typically has
funded loan demand and investment opportunities out of current loan and
mortgage-backed securities repayments, securities maturities and new deposits.
However, the Company utilizes FHLB advances and other borrowings to supplement
these sources and as a match against certain assets in order to better manage
interest-rate risk. The following table sets forth the maximum month-end balance
and the average balance of these types of borrowings for the periods indicated.
For the Year Ended September 30,
--------------------------------
2002 2001 2000
---- ---- ----
($ in thousands)
Maximum amount of borrowings outstanding at any month end:
Advances from FHLB...................................... $ 149,500 151,250 158,000
Short-term Federal Reserve borrowings................... 15,000 11,049 -
Reverse repurchase agreements........................... 19,834 - -
Approximate average borrowings outstanding with respect to:
Advances from FHLB...................................... 130,430 140,120 128,523
Short-term Federal Reserve borrowings................... 6,031 1,670 -
Reverse repurchase agreements........................... 3,004 - -
Approximate weighted average rate paid on:
Advances from FHLB......................................... 5.45% 5.74% 5.93%
Short-term Federal Reserve borrowings...................... 1.61 3.46 -
Reverse repurchase agreements.............................. 2.27 - -
See Note 7 to the consolidated financial statements for additional information.
Personnel
As of September 30, 2002 the Company had 252 full-time employees and 16
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
19
Regulation
Set forth below is a brief description of certain laws relating to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of the Company
General. The Company is registered as a savings and loan holding company with
the OTS. The Company will be required to file reports with the OTS and will be
subject to supervision and periodic examination by the OTS. In addition, the OTS
will have enforcement authority over the Company and any non-savings institution
subsidiaries. The OTS can restrict or prohibit activities that it determines to
be a serious risk to the Company. OTS regulations are intended primarily for the
protection of the depositors and not for the benefit of the Company's
stockholders.
As a unitary savings and loan holding company, the Company generally is not
subject to any restrictions on its business activities. While the
Gramm-Leach-Bliley Act (the "GLB Act"), enacted in November 1999, terminated the
"unitary thrift holding company" exemption from activity restrictions on a
prospective basis, the Company enjoys grandfathered status under this provision
of the GLB Act because it acquired the Bank prior to May 4, 1999. As a result,
the Company's freedom from activity restrictions as a unitary savings and loan
holding company was not affected by the GLB Act. However, if the Company were to
acquire control of an additional savings association, its business activities
would be subject to restriction under the Home Owners' Loan Act. Furthermore, if
the Company were in the future to sell control of the Bank to any other company,
such company would not succeed to the Company's grandfathered status under the
GLB Act and would be subject to the same activity restrictions. The continuation
of the Company's exemption from restrictions on business activities as a unitary
savings and loan holding company is also subject to the Company's continued
compliance with the Qualified Thrift Lender ("QTL") test. See "- Regulation of
the Bank - Qualified Thrift Lender Test."
Regulation of the Bank
General. As a federally chartered, insured savings bank of the Savings
Association Insurance Fund ("SAIF"), the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). Lending
activities and other investments must comply with federal statutory and
regulatory requirements. The Bank is also subject to reserve requirements of the
Federal Reserve System. Federal regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. This
regulatory structure gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies regarding the classification of assets and the
establishment of an adequate allowance for loan losses.
The OTS regularly examines the Bank and prepares reports to Bank's board of
directors on deficiencies, if any, found in its operations. The Bank's
relationship with its depositors and borrowers is also regulated by federal law,
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition, and must obtain regulatory approvals prior to entering
into certain transactions such as mergers with or acquisitions of other
financial institutions. Any change in applicable statutory and regulatory
requirements, whether by the OTS, the FDIC or the United States Congress, could
have a material adverse impact on the Bank or the Company, and their operations.
Insurance of Deposit Accounts. The FDIC administers two separate deposit
insurance funds.
20
Generally, the Bank Insurance Fund ("BIF") insures the deposits of commercial
banks and the SAIF insures the deposits of savings institutions. The FDIC is
authorized to increase deposit insurance premiums if it determines such
increases are appropriate to maintain the reserves of either the SAIF or the BIF
or to fund the administration of the FDIC. In addition, the FDIC is authorized
to levy emergency special assessments on BIF and SAIF members. The FDIC has set
the deposit insurance assessment rates for SAIF member institutions for the
first six months of 2002 at 0% to .027 % of insured deposits on an annualized
basis, with the assessment rate for most savings institutions set at 0%.
In addition, all insured institutions of the FDIC are required to pay
assessments to the corporation at an annual rate of approximately .0212% of
insured deposits to fund interest payments on bonds issued by the Financing
Corporation, an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the Financing
Corporation bonds mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards:
> tangible capital equal to 1.5% of total adjusted assets;
> "Tier 1" or "core" capital equal to at least 3% of total adjusted assets
for savings institutions that receive the highest supervisory rating for
safety and soundness and 4% of total adjusted assets for all other thrifts;
and
> risk-based capital equal to 8% of total risk-weighted assets.
The Bank's capital ratios are set forth in Note 10 to the consolidated financial
statements.
For purposes of the OTS capital regulations, tangible capital is defined as core
capital less all intangible assets except for certain mortgage servicing rights.
Tier 1 and core capital are defined as common stockholders' equity,
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of consolidated subsidiaries, certain nonwithdrawable
accounts and pledged deposits of mutual savings associations and qualifying
supervisory goodwill. Tier 1 and core capital are reduced by an institution's
intangible assets, with limited exceptions for certain mortgage and nonmortgage
servicing rights and purchased credit card relationships. Both core and tangible
capital are further reduced by an amount equal to the savings institution's debt
and equity investments in "nonincludable" subsidiaries engaged in activities not
permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets.
Risk-based capital is comprised of core and supplementary capital. The
components of supplementary capital include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock, and the portion of the
allowance for loan losses not designated for specific loan losses. The portion
of the allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings institution's risk-based
capital is reduced by the amount of capital instruments held by other depository
institutions pursuant to reciprocal arrangements and by the amount of the
institution's equity investments, other than those deducted from core and
tangible capital, and its high loan-to-value ratio land loans and
non-residential construction loans.
A savings institution's risk-based capital requirement is measured against
risk-weighted assets, which equal the sum of each on-balance-sheet asset and the
credit-equivalent amount of each off-balance-sheet item after being multiplied
by an assigned risk weight. These risk weights range from 0% for cash to 100%
for delinquent loans, property acquired through foreclosure, commercial loans,
and other assets.
21
Dividend and Other Capital Distribution Limitations. The OTS imposes various
restrictions or requirements on the ability of savings institutions to make
capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan holding
company, such as the Bank, must file an application or a notice with the OTS at
least 30 days before making a capital distribution. A savings institution must
file an application for prior approval of a capital distribution if:
> it is not eligible for expedited treatment under the applications
processing rules of the OTS;
> the total amount of all capital distributions, including the proposed
capital distribution, for the applicable calendar year would exceed an
amount equal to the savings bank's net income for that year to date plus
the institution's retained net income for the preceding two years;
> it would not adequately be capitalized after the capital distribution; or
> the distribution would violate an agreement with the OTS or applicable
regulation.
The Bank will be required to file a capital distribution notice or application
with the OTS before paying any dividend to the Company. However, capital
distributions by the Company, as a savings and loan holding company, will not be
subject to the OTS capital distribution rules. The OTS may disapprove a notice
or deny an application for a capital distribution by the Bank if:
> the savings institution would be undercapitalized following the capital
distribution;
> the proposed capital distribution raises safety and soundness concerns; or
> the capital distribution would violate a prohibition contained in any
statute, regulation or agreement.
In addition, a federal savings institution cannot distribute regulatory capital
that is required for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a qualified
thrift lender test or they become subject to the business activity restrictions
and branching rules applicable to national banks. To qualify as a qualified
thrift lender, a savings institution must either:
> be deemed a "domestic building and loan association" under the Internal
Revenue Code by maintaining at least 60% of its total assets in specified
types of assets, including cash, certain government securities, loans
secured by and other assets related to residential real property,
educational loans and investments in premises of the institution; or
> satisfy the statutory qualified thrift lender test set forth in the Home
Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in
certain qualified thrift investments, defined to include residential
mortgages and related equity investments, certain mortgage-related
securities, small business loans, student loans and credit card loans, and
50% of certain community development loans. For purposes of the statutory
qualified thrift lender test, portfolio assets are defined as total assets
minus intangible assets, property used by the institution in conducting its
business, and liquid assets equal to 10% of total assets. A savings
institution must maintain its status as a qualified thrift lender on a
monthly basis in at least nine out of every 12 months. The Bank met the
qualified thrift lender test as of September 30, 2002 and in each of the
last 12 months and, therefore, qualifies as a qualified thrift lender.
22
Loans to One Borrower. Under federal law, savings institutions have, subject to
certain exemptions, lending limits to one borrower in an amount equal to the
greater of $500,000 or 15% of the institution's unimpaired capital and surplus.
As of September 30, 2002, the Bank's legal lending limit to one borrower was
$10.0 million.
FHLB System. The Bank is a member of the FHLB of Atlanta, which is one of 12
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
financial institutions and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members pursuant to policies
and procedures established by the board of directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB of
Atlanta in an amount equal to the greater of 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of FHLB advances. The Bank is in compliance
with this requirement. The FHLB imposes various limitations on advances such as
limiting the amount of certain types of real estate related collateral generally
to 30% of a member's capital and limiting total advances to a member.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their checking accounts and non- personal certificate accounts. At
September 30, 2002 the Bank was in compliance with these requirements.
23
Item 2. Description of Property
- ------- -----------------------
The Company's corporate office is located at 205 East Orange Street in Lakeland,
Florida and conducts its business through eighteen offices, which are located in
Highlands, Polk, Manatee and Sumter Counties in Florida. The following table
sets forth the location of each of our offices, the year the office was opened
and the net book value (in thousands) of each office and its related equipment.
Year
opened or Leased or Net book value at
Building/Office Location acquired Owned September 30, 2002
-------------------------------------- ---------- --------------- ------------------
Corporate Headquarters and
Downtown Branch Office 1957 Owned $ 3,115
Branch Offices:
Avon Park 2002 Owned 407
Combee 2002 Owned 390
Cortez (Bradenton) 1972 Leased (1) 64
Edgewood 2002 Owned 497
Grove Park 1961 Owned 405
Harden 2002 Owned 565
Highlands 1972 Owned 621
Interstate 1985 Owned 439
Lakewood Ranch 2001 Owned 2,467
Marcum 2002 Owned 464
Scott Lake 1997 Owned 517
Sebring 2002 Owned 541
Town and Country 2000 Leased (2) 231
West Bradenton 1989 Owned 862
Wildwood 2002 Owned 378
Winter Haven North 1978 Owned 438
Winter Haven South 1995 Owned 770
Operations Center 1964 Owned 237
Residential Lending Office 1999 Leased (3) 45
Other construction in progress (4) 1,268
- ------------------
(1) Five-year lease that terminates December 31, 2003, but has two three-year
renewal options.
(2) Ten year lease with two five year options.
(3) Three-year lease that terminates April 30, 2005, but has five one-year
renewal options.
(4) Represents primarily land and construction costs of a new branch office.
24
Item 3. Legal Proceedings
- ------- -----------------
From time to time the Company and the Bank are involved as plaintiff or
defendant in various legal actions arising in the normal course of business.
Presently, neither the Company nor the Bank is a party to any material pending
legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
25
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------------
Matters
-------
Stock Market Information and Dividends
Since its issuance on April 6, 1999, the Company's common stock has traded on
the Nasdaq National Market under the symbol FFBK. Upon completion of the
conversion and reorganization on December 21, 2000, the common stock continues
to trade on the Nasdaq National Market under the same symbol, FFBK. The
following table sets forth market price information, based on closing prices, as
reported by the Nasdaq National Market for the common stock high and low sales
prices for the periods indicated. The stock prices prior to December 22, 2000
are adjusted to reflect the exchange ratio of 1.0321 after the conversion and
reorganization. See Note 18 of the consolidated financial statements for a
summary of quarterly financial data.
Cash Dividends
High Low Per Share Declared
---- --- ------------------
Fiscal 2002
- -----------
First Quarter................... $ 16.60 $ 14.70 $ .05
Second Quarter.................. 18.40 16.20 .06
Third Quarter................... 20.07 18.10 .06
Fourth Quarter.................. 19.59 16.46 .06
Fiscal 2001
- -----------
First Quarter................... 12.56 10.62 .04
Second Quarter.................. 15.00 12.31 .05
Third Quarter................... 16.10 14.53 .05
Fourth Quarter.................. 17.48 13.75 .05
The number of stockholders of record of common stock as of September 30, 2002
was approximately 700, which does not include the number of persons or entities
who held stock in nominee or "street" name through various brokerage firms.
26
Item 6. Selected Financial Data
- ------- -----------------------
Selected Financial Highlights
(In thousands except per share data)
2002 2001 2000 1999 1998 (3)
---------- ------- ------- ------- -------
At Septembe 30:
Assets................................... $ 859,446 660,369 582,180 498,358 414,472
Loans, net............................... 499,364 474,155 440,386 397,910 338,610
Securities............................... 272,624 129,534 106,348 80,876 60,961
Cash and cash equivalents................ 30,628 21,676 6,734 2,598 647
Deposits................................. 587,431 399,537 354,554 339,224 352,180
FHLB advances and other borrowings....... 164,334 160,548 160,937 92,472 21,000
Stockholders' equity..................... 98,978 93,814 61,081 61,337 36,107
Actual number (not in thousands):
Real estate loans outstanding............ 4,189 4,481 4,615 4,696 4,433
Deposit Accounts......................... 49,244 36,168 36,747 38,409 38,409
Full service offices..................... 18 11 9 9 9
For the year ended September 30:
Interest income.......................... $ 48,910 44,846 39,840 32,648 32,141
Interest expense......................... 24,948 25,895 23,575 17,128 18,966
---------- ------- ------- ------- -------
Net interest income...................... 23,962 18,951 16,265 15,520 13,175
Provision for loan losses................ 680 615 630 540 405
---------- ------- ------- ------- -------
Net interest income after provision
for loan losses........................ 23,282 18,336 15,635 14,980 12,770
Noninterest income....................... 5,196 2,487 2,114 1,473 4,347
Noninterest expenses..................... 20,517 13,776 11,813 11,448 13,581
---------- ------- ------- ------- -------
Income before income taxes............... 7,961 7,047 5,936 5,005 3,536
Income taxes............................. 2,357 2,178 2,094 1,748 1,151
---------- ------- ------- ------- -------
Net income............................... $ 5,604 4,869 3,842 3,257 2,385
========== ======= ======= ======= =======
Basic earnings per share (1) (2)......... $ 1.10 .92 .71 .33 -
========== ======= ======= ======= =======
Diluted earnings per share (1) (2)....... $ 1.05 .90 .70 .33 -
========== ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding: (1) (2)
Basic (4).......................... 5,095 5,293 5,424 5,727 -
Diluted (4)........................ 5,339 5,429 5,516 5,727 -
- -----------------
(1) Year 2001 includes $30.6 million in net proceeds from the issuance of
common stock in connection with the conversion from a mutual holding
company to a full stock company on December 21, 2000.
(2) Years 2000 and 1999 include $25.7 million in net proceeds from the
reorganization on April 6, 1999. Prior to April 6, 1999, the Bank was a
mutual institution. Therefore, earnings per share and weighted average
shares outstanding in 1999 are for the six months ended September 30, 1999
(period subsequent to the reorganization.)
(3) During fiscal year 1998, the Bank sold five branches (and $55.5 million in
related deposits) that were not contiguous to its primary market area for a
pre-tax gain of $3.0 million. In connection with the sale of branches, the
Bank transferred $44.6 million in loans. In addition, noninterest expenses
includes special benefit plan adjustments of $2.2 million.
(4) Shares outstanding for the years ended 2000 and 1999 have been adjusted as
of the beginning of the periods to give effect to the 1.0321 exchange ratio
of previously issued shares in conjunction with the conversion that was
effective December 21, 2000.
27
Selected Financial Ratios
At or For the Year Ended September 30,
---------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Performance Ratios:
Return on average assets (net income
divided by average total assets).............. .74% .80% .70% .72% .55%
Return on average equity (net income
divided by average equity).................... 5.92 5.61 6.43 6.65 6.55
Net interest-rate spread.......................... 3.04 2.51 2.54 2.95 2.65
Net interest margin on average
interest-earnings assets...................... 3.47 3.30 3.13 3.56 3.10
Average interest-earning assets to
average interest-bearing liabilities.......... 112 118 113 116 110
Efficiency ratio (noninterest expense less
amortization of core deposit intangible,
divided by the sum of net interest income
and noninterest income)....................... 67 64 64 67 78
Asset Quality Ratios:
Nonperforming loans to total loans, net........... .22 .20 .17 .21 .25
Nonperforming assets to total assets.............. .17 .30 .17 .21 .32
Net charge-offs to average loans less LIP
outstanding................................... .17 .06 .06 .04 .14
Allowance for loan losses to total loans
less LIP...................................... .90 .76 .75 .74 .76
Capital Ratios:
Average equity to average assets
(average equity divided by average
total assets)................................. 12.57 14.17 10.94 10.84 8.31
Equity to assets at period end.................... 11.52 14.21 10.49 12.31 8.62
Dividend payout ratio............................. 22 19 10 12 -
28
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- ------------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Selected
Financial Highlights, Selected Financial Ratios and the Consolidated Financial
Statements - See Part II, Items 6 and 8 of this report.
Overview
On April 6, 1999, FloridaFirst Bank reorganized from a mutual savings
association into a mutual holding company named FloridaFirst Bancorp MHC and
formed FloridaFirst Bancorp, a middle-tier holding company, whereby FloridaFirst
Bank became a wholly-owned subsidiary of FloridaFirst Bancorp. In connection
with the reorganization, FloridaFirst Bancorp sold 2,703,851 shares of its
Common Stock to the public and the remaining 3,049,024 shares were held by
FloridaFirst Bancorp MHC.
On December 21, 2000, FloridaFirst Bancorp, Inc. (the "Company") completed its
stock offering in connection with the conversion and reorganization of
FloridaFirst Bank (the "Bank") and its holding company, FloridaFirst Bancorp,
from the mutual holding company form of organization to a full stock company. As
part of the conversion and reorganization, the shares formerly held by
FloridaFirst Bancorp MHC were cancelled, the Company sold 3,147,952 new shares
to the public and the shares held by stockholders of FloridaFirst Bancorp were
exchanged for 2,372,048 shares of the Company. The conversion and reorganization
was accounted for in a manner similar to a pooling of interests, whereby the
assets and liabilities of FloridaFirst Bancorp became the Company's assets and
liabilities.
On October 2, 2002, the Company signed a definitive agreement with BB&T
Corporation ("BB&T"), Winston-Salem, North Carolina, whereby BB&T would acquire
100% of the outstanding stock of the Company. However, pursuant to discussion
with regulatory officials, BB&T and the Company terminated the agreement on
October 31, 2002 so that BB&T could submit the proper application to request
permission to acquire control of the Company pursuant to regulatory guidelines.
The application was filed on November 4, 2002 with the Office of Thrift
Supervision ("OTS") and no further merger related activities will take place
until proper approval is obtained from the OTS.
Forward-Looking Statements
The following discussions contain forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of the Bank
and the Company. These forward-looking statements are generally identified by
use of the words "believe," "expect," "intend," "anticipate," "estimate,"
"project," or similar expressions. The Company's ability to predict results or
the actual effect of future plans or strategies is inherently uncertain. Factors
that could have a material adverse effect on the operations of the Company and
its subsidiaries include, but are not limited to, changes in interest rates,
general economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan and investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area, and changes in relevant
accounting principles. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. The Company does not undertake--and specifically disclaims--any
obligation to publicly release the results of any revisions after the date of
the statements or to reflect the occurrence of anticipated or unanticipated
events.
Business Strategy
The Company believes that pursuing a strategy to broaden the range of products
and services offered should offset the declining margins in the competitive
market for one-to-four family residential mortgage loans. The strategy includes:
> increasing the percentage of higher yielding and more interest sensitive
assets;
> increasing the percentage of commercial and consumer loans and commercial
deposit accounts;
> utilizing alternative sources of funding at reasonable rates;
> increasing sources of non-interest income;
> utilizing its computer network for enhanced sales, service and security
features; and
29
> utilizing alternative delivery systems, including its internet banking
product, and investigating an enhanced customer care center strategy.
Highlights of the business strategy are as follows:
Community-Oriented Institution. Based on total assets, the Bank is the largest
independent financial institution headquartered in Polk County, Florida. The
Bank is committed to meeting the financial needs of the communities in which it
operates. Management believes that the Bank is large enough to provide a full
range of personal and business financial services, and yet is small enough to
provide such services in a personalized and efficient manner. It is the Bank's
current plan to deliver the products and services that meet the needs of its
customers.
Commercial Banking. The Bank continues to expand its lending programs for
commercial business and commercial real estate loans in an effort to satisfy a
perceived need within its market area and increase its loan portfolio. The Bank
continues to realize a positive impact on its net interest margin since
commercial customers provide fair yields on loans, loans that generally provide
for shorter maturities or repricing periods than the traditional residential
mortgage loan, and provide a source of lower cost funds. The risks of commercial
lending relate to the source of repayment of the loan which is weighted toward
the ability to repay versus being primarily collateral dependent. In recent
years, the Bank has assembled an experienced commercial lending team to support
its increased activities in this area and to increase its penetration into the
smaller businesses operating in its market areas.
Branch Acquisition. On February 15, 2002, the Company finalized the purchase of
seven Florida retail sales offices ("Branch Acquisition") from SunTrust Bank
coincident with SunTrust Bank's acquisition of such offices from Huntington
National Bank ("Huntington"). The transaction resulted in the Company receiving
approximately $120.9 million in cash, and included approximately $162.1 million
in deposits and approximately $26.1 million in loans related to those seven
offices. The Company paid a premium of approximately 7.6%. This premium, along
with additional acquisition costs, resulted in a core deposit intangible asset
of $12.7 million being recorded which is subject to periodic amortization over a
period of twelve years. The cash received from the purchase was primarily used
to reduce $30.0 million in short-term fixed-rate and adjustable-rate FHLB
advances and fund the purchase of approximately $85.0 million in securities. The
securities were primarily mortgage-backed securities with average lives less
than five years that provide cash flow from the time of purchase. This strategy
allows the Company to immediately earn a fair rate of return on the invested
funds and utilize the cash flow from the securities to fund new loan
originations.
Comparison of Financial Condition at September 30, 2002 and September 30, 2001
Assets. Total assets increased $199.0 million, or 30.1 %, to $859.4 million at
September 30, 2002 from $660.4 million at September 30, 2001. The increase in
total assets resulted primarily from the assets acquired in the Branch
Acquisition (total assets added were $162.1 million), less the funds that were
utilized to immediately reduce our borrowing position by $30.0 million. Overall
securities increased $143.1 million, or 110.5%, through deployment of the funds
in the Branch Acquisition and additional purchases of securities that fit the
Company's strategic plan to increase profitability and leverage its capital. The
loan portfolio remained basically flat during the year, except for the $26.0
million in commercial and consumer loans acquired in the Branch Acquisition.
Management continues to concentrate its efforts to grow the commercial and
consumer loan portfolio to gradually leverage its capital. The capital
leveraging strategy also includes the purchase of securities to complement its
loan origination efforts.
Cash and cash equivalents increased $9.0 million due to excess funds resulting
from $15.0 million in a U. S. Treasury borrowing program that placed funds in
the bank just prior to year end.
Premises and equipment increased $3.8 million primarily due to the construction
of a new office, offices acquired in the Branch Acquisition, equipment for two
offices, renovations at several offices and capital expenditures to implement
certain phases of the strategic technology plan.
Cash surrender value of bank owned life insurance increased $5.3 million
primarily due the purchase of $4.5 million of additional policies, together with
an increase in the cash surrender value of the policies.
Liabilities. Total liabilities increased $193.9 million, or 34.2%, to $760.5
million at September 30, 2002 from $566.6 million at September 30, 2001. The
increase in total liabilities resulted mainly due to a net
30
deposit increase of $187.9 million. The increase in deposits resulted primarily
from the $162.1 million of deposits acquired in the Branch Acquisition. In
addition, checking and money market accounts experienced continued strong growth
through expansion of the customer base.
Management continues to evaluate the available funding sources. The attributes
of the alternative funding sources that management considers in its analysis
include the interest and other costs of such funding, the maturity
considerations and the nature and characteristics of assets being funded.
Stockholder's Equity. The $5.2 million increase in the stockholders' equity
includes:
> $5.6 million in net income;
> repurchase of 115,000 shares of the Company's stock at a cost of $2.2
million;
> purchase of 124,658 shares of the Company's stock for the restricted stock
plan at a cost of $2.3 million, less shares issued at a cost of
approximately $1.2 million;
> net distribution of $1.1 million from the restricted stock plan for vesting
of certain awards;
> increase in accumulated other comprehensive income of $3.6 million;
> repayment of $541,000 on the Employee Stock Ownership Plan ("ESOP") loan;
and
> dividends paid totaling $1.2 million.
The increased value in accumulated other comprehensive income resulted from the
fluctuation in market value of the Company's securities available for sale.
Because of continued interest rate volatility, accumulated other comprehensive
income and stockholders' equity could materially fluctuate for each interim and
year-end period.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of market opportunities. Funding loan requests, providing for
liability outflows, and managing interest rate fluctuations require continuous
analysis in order to match the maturities of short-term loans and investments
with specific types of deposits and borrowings. An institution's liquidity is
normally considered in terms of the nature and mix of the institution's sources
and uses of funds.
Assets providing liquidity are generated through loan repayments, loan sale and
the management of maturity distributions for loans and securities. An important
aspect of liquidity management lies in maintaining sufficient levels of loans
and mortgage-backed securities that generate monthly cash flows.
31
Cash and cash equivalents increased $9.0 million to $30.6 million for the year
ended September 30, 2002. Significant cash flows or uses (amounts shown in
parentheses) were as follows (in millions):
Cash provided by operations................................................... $ 6.1
Cash received upon purchase of deposits....................................... 120.9
Federal Home Loan Bank advances and other borrowings.......................... 3.8
Increase in net deposits, exclusive of branch acquisition..................... 25.8
Sales, maturities of and repayments on securities............................. 103.1
Net purchases of securities and FHLB stock.................................... (239.0)
Net purchases of premises and equipment, exclusive of branch acquisition...... (3.5)
Net decrease in loans, exclusive of branch acquisition........................ 1.0
Purchase of bank owned life insurance......................................... (4.5)
Payments to acquire treasury stock and restricted stock plan shares........... (4.5)
Dividends paid................................................................ (1.2)
Other, net.................................................................... 1.0
------
Net increase in cash and cash equivalents..................................... 9.0
======
The Company is subject to federal regulations that impose certain minimum
capital requirements. For a discussion on such capital levels, see Note 10 in
the consolidated financial statements.
Management is not aware of any known trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the Company's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily on its net interest
income, which is the difference between interest income earned on its loans and
securities ("interest-earning assets") and interest paid on its deposits and any
borrowed funds ("interest-bearing liabilities"). Net interest income is affected
by:
> the interest-rate spread - the difference between rates of interest earned
on interest-earning assets and rates paid on its interest-bearing
liabilities; and
> the aggregate amounts of its interest-earning assets and interest-bearing
liabilities.
32
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the periods indicated. The average yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Similar information is
provided as of September 30, 2002. Average balances are derived from daily
average balances.
Year Ended September 30,
--------------------------------------------------------------------------------------
At September 30, 2002 2002 2001 2000
--------------------- -------------------------- ---------------------------- ---------------------------
Actual Average Average Average
Actual Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
Interest-earning
assets:
Residential $ 316,923 7.02% $ 314,686 23,066 7.33% $ 322,388 24,544 7.61% $ 305,854 22,686 7.42%
Consumer 107,581 7.91 95,926 7,838 8.17 82,966 7,233 8.72 78,438 6,487 8.27
Commercial 79,379 6.93 72,197 5,344 7.40 58,215 4,894 8.41 39,117 3,297 8.43
--------- --------- -------- --------- -------- --------- --------
Total loans (1) 503,883 7.20 482,809 36,248 7.51 463,569 36,671 7.91 423,409 32,470 7.67
Securities and
other (2)(6) 296,099 5.56 220,793 13,128 5.95 121,925 8,552 7.01 102,800 7,592 7.39
--------- --------- -------- --------- -------- --------- --------
Total interest-
earning assets 799,982 6.61 703,602 49,376 7.02 585,494 45,223 7.72 526,209 40,062 7.61
-------- -------- --------
Noninterest-earning
assets 59,464 49,113 26,915 19,890
--------- --------- --------- ---------
Total assets $ 859,446 $ 752,715 $ 612,409 $ 546,099
========= ========= ========= =========
Interest-bearing
liabilities:
Checking accounts 74,923 1.31 58,195 844 1.45 32,937 590 1.79 31,416 576 1.83
Savings accounts 54,432 1.58 44,832 722 1.61 27,940 486 1.74 31,012 581 1.87
Money market accounts 68,634 1.99 54,762 1,404 2.56 28,766 1,205 4.19 25,008 1,068 4.27
Certificate accounts 358,177 3.94 329,291 14,874 4.52 263,512 15,519 5.89 245,754 13,519 5.50
--------- --------- -------- --------- -------- --------- --------
Total deposits 556,166 3.11 487,080 17,844 3.66 353,155 17,800 5.04 333,190 15,744 4.73
FHLB advances and
other borrowings 164,334 4.99 139,482 7,104 5.09 142,536 8,018 5.63 132,054 7,831 5.93
--------- --------- -------- --------- -------- --------- --------
Total interest-
bearing
liabilities 720,500 3.54 626,562 24,948 3.98 495,691 25,818 5.21 465,244 23,575 5.07
-------- --------
Noninterest-bearing
liabilities (3)(7) 39,968 31,534 29,960 77 21,094
--------- --------- --------- -------- ---------
Total liabilities 760,468 658,096 525,651 25,895 486,338
Stockholders' equity 98,978 94,619 86,758 59,761
--------- --------- --------- ---------
Total liabilities
and stockholders'
equity $ 859,446 $ 752,715 $ 612,409 $ 546,099
========= ========= ========= =========
Net interest income (6) $ 24,428 $ 19,328 $ 16,487
======== ======== ========
Interest rate spread (4) 3.08% 3.04%