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, 2003
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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 File 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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
YES X NO
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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 March 31, 2003 of $21.56 per share, was
$98.6 million. For purposes of this statement, affiliates include the executive
officers and directors, 10% stockholders, if any, and employee benefit plans.
As of December 5, 2003 there were issued and outstanding 5,374,115 shares of the
Registrant's Common Stock.
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 nineteen offices located in Florida's Highlands, Manatee, Polk 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, 2003, the
Company had total assets, deposits and equity of $818.5 million, $552.9 million,
and $102.0 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 (the "Branch
Acquisition") 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 within three years of its second
step conversion pursuant to regulatory guidelines. The application was filed on
November 4, 2002 with the Office of Thrift Supervision ("OTS"). On March 17,
2003, BB&T withdrew its application to acquire control of the Company within the
three-year period, citing rigorous regulatory standards that are being applied
to recently converted thrifts. As a result of the application being withdrawn,
the Company wrote-off capitalized merger costs of $504,000 ($312,000 after tax)
which were not recoverable or refundable.
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Company's market area of Highlands, Manatee,
Polk and Sumter Counties, Florida. Deposit competition also includes a number of
insurance products sold by local agents and investment products such as mutual
funds and other securities sold by local and regional brokers. Loan competition,
which varies depending upon market conditions, comes from other insured
financial institutions such as commercial banks, thrift institutions, credit
unions, multi-state regional banks, and mortgage bankers and brokers.
Lending Activities
General. The Company primarily originates one-to-four family residential real
estate loans, commercial real estate loans, consumer loans and other loans.
Consumer loans consist primarily of direct and indirect automobile loans, home
equity loans and lines of credit, and other consumer loans. The Company's
commercial real estate loans consist primarily of mortgage loans secured by
small commercial office/retail space, warehouses, small and medium sized
apartment buildings and residential real estate acquisition and development
projects.
2
Loan Portfolio Composition. The following table analyzes the composition of the
Company's loan portfolio by loan category and in percentages of the total loan
portfolios at the dates indicated ($ in thousands).
September 30,
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2003 2002 2001 2000 1999
----------------- ----------------- ------------------ ------------------ ---------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Mortgage loans:
Residential:
Permanent................ $ 270,463 51.3% $ 301,622 57.7% $ 312,309 61.7% $ 304,419 66.1% $ 276,115 65.6%
Construction............. 32,871 6.2 29,058 5.6 35,516 7.0 27,996 6.1 32,974 7.8
Commercial real estate...... 56,078 10.6 58,177 11.1 58,371 11.6 31,786 6.9 25,570 6.1
Land........................ 18,699 3.6 15,806 3.0 8,907 1.8 12,886 2.8 9,548 2.3
Commercial...................... 11,600 2.2 10,806 2.1 5,061 1.0 2,533 .5 1,374 .3
Consumer loans:
Home equity loans (1)....... 73,184 13.9 50,240 9.6 33,200 6.5 28,926 6.3 22,545 5.4
Auto loans.................. 32,921 6.3 39,989 7.6 42,293 8.3 40,717 8.8 42,181 10.0
Other....................... 31,293 5.9 17,352 3.3 10,439 2.1 11,396 2.5 10,318 2.5
------- ----- -------- ----- ------- ----- -------- ----- ------- -----
Total loans..................... 527,109 100.0% 523,050 100.0% 506,096 100.0% 460,659 100.0% 420,625 100.0%
===== ===== ===== ===== =====
Net deferred loan costs......... 23 69 - - -
Less:
Construction loans in
process.................. 25,969 19,167 28,289 16,952 19,774
Allowance for loan losses... 4,479 4,519 3,652 3,321 2,941
--------- -------- -------- -------- ---------
Total loans, net................ $ 496,684 $ 499,433 $ 474,155 $ 440,386 $ 397,910
======= ======= ======= ======= =======
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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, 2003. 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............... $ 33,954 34,543 16,589 7,392 92,478
--------- ------ ------- ------ -------
After 1 Year:
1 to 3 years............. 19,237 8,727 13,344 2,272 43,580
3 to 5 years............. 6,625 10,934 35,032 1,811 54,402
Over 5 years............. 243,518 20,573 72,433 125 336,649
--------- ------ ------- ------ -------
Total due after one year.... 269,380 40,234 120,809 4,208 434,631
--------- ------ ------- ------ -------
Total amount due............ $ 303,334 74,777 137,398 11,600 527,109
========= ====== ======= ====== =======
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(1) Includes $32,871 in construction loans.
The following table sets forth the dollar amount of all loans due after
September 30, 2004, which have predetermined interest rates or which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In thousands)
Residential......................... $ 244,813 24,567 269,380
Commercial real estate and land..... 38,772 1,462 40,234
Consumer............................ 120,809 - 120,809
Commercial.......................... 4,208 - 4,208
--------- ------ -------
Total............................... $ 408,602 26,029 434,631
========= ====== =======
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 "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.
4
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, 2003, 86% 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, 2003, approximately 14% 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 $275,000 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 $4.8 million on September 30, 2003 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 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
5
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, 2003, the commercial business loans ranged from
$1,000 to $4.8 million, with an average balance outstanding of $188,000.
Consumer Loans. Consumer loans consist primarily of home equity loans,
manufactured housing loans and automobile loans. 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.
During the past two years the Company has focused its origination efforts on
home equity loans to attract additional loan customers. In fiscal 2003, the
Company revamped its home equity program through special rate incentives based
on the term of the loan and concentrated its marketing efforts for these loans.
The additional advertising and special pricing contributed to the 45.7% growth
in the home equity loan balances in fiscal 2003.
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 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.
6
At September 30, 2003, 57% 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, 2003 was $62.5 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 document preparation. The Company believes these fees approximate the costs
to originate the loans. Therefore, net deferred costs or fees are minimal and
deferrals 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.
7
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.
September 30,
-----------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
($ in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
Residential loans ............................. $ 406 483 320 33 581
Other mortgage loans .......................... 153 190 489 638 103
Commercial loans .................................. 41 - - 45 -
Consumer loans:
Home equity loans ............................. 181 210 69 - -
Other consumer loans .......................... 259 190 82 46 146
------ ------ ------ ------ ------
Total ............................................. $1,040 1,073 960 762 830
====== ====== ====== ====== ======
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 ......................... $1,040 1,073 960 762 830
====== ====== ====== ====== ======
Foreclosed assets ................................. $ 418 347 276 203 203
====== ====== ====== ====== ======
Total nonperforming assets ........................ $1,458 1,420 1,236 965 1,033
====== ====== ====== ====== ======
Total nonperforming loans to gross loans
less LIP ...................................... .21% .22% .20% .17% .21%
====== ====== ====== ====== ======
Total nonperforming loans to total assets ......... .13% .13% .15% .13% .17%
====== ====== ====== ====== ======
Total nonperforming assets to total assets ........ .18% .17% .19% .17% .21%
====== ====== ====== ====== ======
During the year ended September 30, 2003, approximately $59,000 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. Approximately $27,000 of interest was recognized as income on these
nonaccrual loans during the year.
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, 2003,
the Company's classified assets were as follows (in thousands):
Special mention............. $ 5,483
Substandard................. 3,622
Doubtful.................... -
Loss........................ -
-------
Total....................... $ 9,105
=======
A brief description of the significant items in classified assets at September
30, 2003 follows:
Special Mention
- ---------------
> $1.3 million of commercial loans (consisting of 12 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.
> $3.3 million, consisting of seven commercial loans, have been classified
due to certain concerns involving the lack of current financial
information, vacancy rates or potentially inadequate cash flows.
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.
> $1.3 million of commercial loans (consisting of 34 loans) that have been
graded internally as substandard due to poor financial information or lack
of adequate collateral. Approximately 50% of these loans were acquired in
the Branch Acquisition.
> The remaining substandard assets consist of normal mortgage foreclosures,
repossessed consumer assets and loans that are in nonaccrual status.
10
Foreclosed Assets. Assets acquired by the Company as a result of foreclosure, by
deed in lieu of foreclosure or through repossession are classified as foreclosed
assets until such time as they are sold. When assets are acquired, they are
recorded at the lower of the unpaid balance of the related loan or its fair
value less disposal costs. Any further write-down of these assets is charged to
earnings.
Allowance for Losses on Loans. It is the policy of management to provide for
losses on unclassified loans in its portfolio in addition to classified loans. A
provision for loan losses is charged to earnings based on management's
evaluation of the potential losses that may be incurred in the Company's loan
portfolio.
Management will continue to review the entire loan portfolio to determine the
extent, if any, to which further additional loan loss provisions may be deemed
necessary. There can be no assurance that the allowance for loan losses will be
adequate to cover losses which may be realized in the future. In addition, there
can be no assurance that additional provisions for losses on loans and
foreclosed assets will not be required.
The following table sets forth information with respect to the Company's
allowance for loan losses at the dates indicated:
At or During the Year Ended September 30,
-------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
($ in thousands)
Allowance for loan losses, beginning of year.... $ 4,519 3,652 3,321 2,941 2,564
-------- -------- -------- -------- --------
Provision for loan losses ...................... 660 680 615 630 540
-------- -------- -------- -------- --------
Allowance acquired during Branch
Acquisition ........................... - 1,000 - - -
-------- -------- -------- -------- --------
Charge-offs:
Residential ................................ - (25) (15) (32) (37)
Commercial and commercial real estate ...... (221) (450) (45) - -
Consumer ................................... (673) (433) (326) (256) (214)
-------- -------- -------- -------- --------
Total charge-offs .............................. (894) (908) (386) (288) (251)
Recoveries ..................................... 194 95 102 38 88
-------- -------- -------- -------- --------
Net charge-offs ................................ (700) (813) (284) (250) (163)
-------- -------- -------- -------- --------
Allowance for loan losses, end of year.......... $ 4,479 4,519 3,652 3,321 2,941
======== ======== ======== ======== ========
Total loans less LIP outstanding................ $501,140 503,883 477,807 443,707 400,851
======== ======== ======== ======== ========
Average loans less LIP outstanding.............. $490,973 482,809 463,569 423,409 368,513
======== ======== ======== ======== ========
Allowance for loan losses as a percent
of total loans less LIP outstanding ........ .89% .90% .76% .75% .73%
Net loans charged off as a percent of
average loans less LIP outstanding ......... .14% .17% .06% .06% .04%
11
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the Company's allowance for loan losses by loan category and the
percent of loans in each category to total net loans at the dates indicated. The
portion of the allowance for loan losses allocated to each loan category does
not represent the total available for future losses which may occur within the
loan category since the total allowance for loan losses is a valuation allowance
applicable to the entire loan portfolio.
September 30,
--------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------------- ----------------- ------------------ ----------------- ------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
($ in thousands)
At end of period allocated to:
Residential........................ $ 1,888 57.5% $ 1,796 63.3% $ 1,846 68.7% $ 1,804 72.2% $ 1,689 73.4%
Commercial real estate and land.... 806 14.2 727 14.1 748 13.4 568 9.7 309 8.4
Commercial......................... 395 2.2 826 2.1 76 1.0 25 .5 17 .3
Consumer .......................... 1,390 26.1 1,170 20.5 982 16.9 924 17.6 926 17.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance.................... $ 4,479 100.0% $ 4,519 100.0% $ 3,652 100.0% $ 3,321 100.0% $ 2,941 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
12
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:
> yields on investment alternatives,
> management's judgment as to the attractiveness of the yields then available
in relation to other opportunities,
> expectation of future yield levels, and
> 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, 2003, the Company had a securities portfolio of $252.9 million
(30.9% 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, 2003, 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 93% of the Company's U.S. government agency obligations at
September 30, 2003, could reduce the Company's investment yield if these
securities are called prior to maturity.
13
Mortgage-backed Securities ("MBSs"). The Company invests in MBSs to provide
earnings, liquidity, cash flows, and diversification to the Company's overall
balance sheet. These MBSs are classified as available for sale and represent
participation certificates, issued and guaranteed by Ginnie Mae, Fannie Mae and
Freddie Mac, that are secured by interests in pools of mortgages. MBSs typically
represent a participation interest in a pool of single-family or multi-family
mortgages, although the Company focuses its investments on MBSs secured by
single-family mortgages.
MBSs 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 MBSs 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 MBSs as opposed to MBSs where cash flows are
distributed pro rata to all security holders. Unlike MBSs from which cash flow
is received and prepayment risk is shared pro rata by all securities holders,
cash flows from the mortgages and MBSs 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 MBSs.
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 remaining maturities from 7 to 25 years
with premium call provisions after two to eight 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 Interest-Earning Assets. Other interest-earning assets owned by the
Company, but not included in the security portfolio, consist of FHLB stock,
interest-earning 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.
14
The following table sets forth the carrying value of the Company's securities
portfolio at the dates indicated.
September 30,
-----------------------------
2003 2002 2001
---- ---- ----
(In thousands)
Securities available for sale (at fair value):
U.S. government agency securities............... $ 40,749 28,184 8,850
Collateralized mortgage obligations............. 28,377 46,391 44,045
Mortgage-backed securities...................... 136,270 145,982 29,551
Corporate bonds................................. 25,722 31,341 29,554
Municipal bonds................................. 21,216 20,345 17,533
Common stock.................................... 563 381 -
--------- ------- -------
Total........................................... $ 252,897 272,624 129,533
========= ======= =======
15
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, 2003.
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.
September 30, 2003
------------------------------------------------------------------------------------------------------
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.............. $ 4,992 3.38% $ 20,275 4.09% $ 10,377 2.98% $ 5,105 3.65% $ 40,749 3.66%
Collateralized mortgage
obligations............. - - - 28,377 3.54 28,377 3.54
Mortgage-backed
securities.............. 11,160 3.14 36,713 3.23 47,505 4.46 40,892 4.61 136,270 4.06
Corporate bonds............ 7,063 4.48 3,029 4.40 602 8.04 15,028 8.50 25,722 6.91
Municipal bonds............ - - 3,027 5.76 18,189 7.49 21,216 7.24
Common stock............... 563 .81 - - - - 563 .81
-------- -------- -------- --------- ---------
Total...................... $ 23,778 3.53% $ 60,017 3.58% $ 61,511 4.31% $ 107,591 5.31% $ 252,897 4.49%
======== ======== ======== ========= =========
16
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 and to
adjust the maturities of its liabilities for asset-liability management
purposes. In addition to deposits and borrowing, the Company derives funds from
loan and MBSs principal repayments, and proceeds from the maturity, call and
sale of MBSs and other securities. Loan and MBSs 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, Manatee, Polk 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, print media
advertising and the posting of certain rate information on its website. 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
nonresidents 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
(54% at September 30, 2003), the Company's liquidity could be reduced if a
significant amount of these accounts, maturing within a short period of time,
were not renewed. Historically, 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, 2003.
Maturity Period Amount
--------------- ------
Within three months.......................... $ 5,386
Three through six months..................... 8,438
Six through twelve months.................... 38,614
Over twelve months........................... 36,968
--------
Total............................... $ 89,406
========
17
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 MBSs
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.
Year Ended September 30,
------------------------------------------------
2003 2002 2001
---- ---- ----
($ in thousands)
Borrowings outstanding at the end of reporting period:
Advances from FHLB.............................. $ 136,175 129,500 149,500
Weighted interest rate.......................... 4.68% 5.23% 5.22%
Short-term Federal Reserve borrowings........... 6,309 15,000 11,048
Weighted interest rate.......................... .78% 1.51% 2.50%
Reverse repurchase agreements................... 14,334 19,834 -
Weighted interest rate.......................... 2.38% 2.26% -
Maximum amount of borrowings outstanding at any month end:
Advances from FHLB.............................. 136,175 149,500 151,250
Short-term Federal Reserve borrowings........... 12,368 15,000 11,049
Reverse repurchase agreements................... 19,834 19,834 -
Average borrowings outstanding:
Advances from FHLB.............................. 120,604 130,430 140,120
Weighted interest rate.......................... 5.39% 5.45% 5.74%
Short-term Federal Reserve borrowings........... 2,618 6,031 1,670
Weighted interest rate.......................... .98% 1.61% 3.46%
Reverse repurchase agreements................... 18,153 3,004 -
Weighted interest rate.......................... 2.32% 2.27% -
See Note 7 to the consolidated financial statements for additional information.
Personnel
As of September 30, 2003 the Company had 238 full-time employees and 15
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
18
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 is required to file reports with the OTS and is subject to
supervision and periodic examination by the OTS. In addition, the OTS has
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. 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.
19
The FDIC has set the deposit insurance assessment rates for SAIF member
institutions for the second half of 2003 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 with FDIC-insured deposits are required to
pay assessments to the FDIC 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, the current annual
rate of which is approximately .0152% of insured deposits, 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 at least 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 core deposit intangibles, certain
servicing rights, purchased credit card relationships and other qualifying
intangible assets. 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. Total
risk-based capital equals the sum of core capital plus 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 certain other assets.
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;
20
> 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 that has converted from mutual to
stock form 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, 2003 and in each of the
last 12 months and, therefore, qualifies as a qualified thrift lender.
21
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, 2003, the Bank's legal lending limit to one borrower was
$11.4 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, 2003 the Bank was in compliance with these requirements.
22
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 nineteen offices, which are located in
Highlands, Manatee, Polk 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, 2003
------------------------ -------- ----- ------------------
Corporate Headquarters and Downtown Lakeland
Office 1957 Owned $ 2,531
Offices:
Avon Park 2002 Owned 363
Combee 2002 Owned 366
Cortez (Bradenton) 1972 Leased (1) 31
Edgewood 2002 Owned 480
Grove Park 1961 Owned 348
Harden 2002 Owned 531
Highlands 1972 Owned 557
Interstate 1985 Owned 412
Lakewood Ranch 2001 Owned (2) 2,389
Marcum 2002 Owned 431
Plantation 2002 Owned 1,796
Scott Lake 1997 Owned 483
Sebring 2002 Owned 522
Town and Country 2000 Leased (3) 179
West Bradenton 1989 Owned 815
Wildwood 2002 Owned 360
Winter Haven North 1978 Owned 413
Winter Haven South 1995 Owned 718
Operations Center 1964 Owned 221
Residential Lending Office 1999 Leased (4) 32
- ------------
(1) First renewal option has been exercised, extending the lease termination to
December 31, 2006, and there is one additional three-year renewal option.
(2) Approximately one-third of the usable square footage is occupied by the
Company's retail office and the remainder is available for lease.
Approximately one-half of the leasable space has been leased and the
Company is seeking additional tenants.
(3) Ten year lease with two five year options.
(4) Three-year lease that terminates April 30, 2005, but has five one-year
renewal options.
23
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.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------------
Matters
-------
The Company's common stock has traded on the Nasdaq National Market under the
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.
Cash Dividends
High Low Per Share Declared
---- --- ------------------
Fiscal 2003
- -----------
First Quarter.................. $ 24.51 $ 17.46 $ .06
Second Quarter................. 24.30 20.46 .07
Third Quarter.................. 24.00 21.70 .07
Fourth Quarter................. 27.16 23.47 .07
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
The number of stockholders of record of common stock as of September 30, 2003
was approximately 800, which does not include the number of persons or entities
who held stock in nominee or "street" name through various brokerage firms.
24
Item 6. Selected Financial Data
- ------- -----------------------
Selected Financial Highlights
(In thousands, except per share data)
At September 30: 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Assets................................... $ 818,482 859,446 660,369 582,180 498,358
Loans, net............................... 496,684 499,433 474,155 440,386 397,910
Securities............................... 252,897 272,624 129,534 106,348 80,876
Cash and cash equivalents................ 13,775 30,628 21,676 6,734 2,598
Deposits................................. 552,909 587,431 399,537 354,554 339,224
FHLB advances and other borrowings....... 156,818 164,334 160,548 160,937 92,472
Stockholders' equity..................... 101,972 98,978 93,814 61,081 61,337
Full service offices..................... 19 18 11 9 9
For the year ended September 30:
Interest income.......................... $ 45,730 48,910 44,846 39,840 32,648
Interest expense......................... 20,843 24,948 25,895 23,575 17,128
--------- ------- ------- ------- ------
Net interest income...................... 24,887 23,962 18,951 16,265 15,520
Provision for loan losses................ 660 680 615 630 540
--------- ------- ------- ------- ------
Net interest income after provision
for loan losses........................ 24,227 23,282 18,336 15,635 14,980
Noninterest income....................... 7,060 5,196 2,487 2,114 1,473
Noninterest expenses..................... 22,527 20,517 13,776 11,813 11,448
--------- ------- ------- ------- ------
Income before income taxes............... 8,760 7,961 7,047 5,936 5,005
Income taxes............................. 2,739 2,357 2,178 2,094 1,748
--------- ------- ------- ------- ------
Net income............................... $ 6,021 5,604 4,869 3,842 3,257
========= ======= ======= ======= =======
Basic earnings per share (1) (2)......... $ 1.19 1.10 .92 .71 .33
========= ======= ======= ======= =======
Diluted earnings per share (1) (2)....... $ 1.13 1.05 .90 .70 .33
========= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding: (1) (2)
Basic (3).......................... 5,062 5,095 5,293 5,424 5,727
Diluted (3)........................ 5,322 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) 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.
25
Selected Financial Ratios
At or For the Year Ended September 30,
--------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Performance Ratios:
Return on average assets (net income
divided by average total assets).............. .73% .74% .80% .70% .72%
Return on average equity (net income
divided by average equity).................... 5.94 5.92 5.61 6.43 6.65
Net interest-rate spread (1)...................... 3.07 3.04 2.51 2.54 2.95
Net interest margin on average
interest-earnings assets (1).................. 3.36 3.47 3.30 3.13 3.56
Average interest-earning assets to
average interest-bearing liabilities.......... 110 112 118 113 116
Efficiency ratio.................................. 70 67 64 64 67
Asset Quality Ratios:
Nonperforming loans to total loans, net........... .21 .22 .20 .17 .21
Nonperforming assets to total assets.............. .18 .17 .30 .17 .21
Net charge-offs to average loans less LIP
outstanding................................... .14 .17 .06 .06 .04
Allowance for loan losses to total loans
less LIP...................................... .89 .90 .76 .75 .74
Capital Ratios:
Average equity to average assets
(average equity divided by average
total assets)................................. 12.32 12.57 14.17 10.94 10.84
Equity to assets at period end.................... 12.46 11.52 14.21 10.49 12.31
Dividend payout ratio............................. 24 22 19 10 12
Book value at year end............................ $ 18.93 18.38 17.10 11.07 10.33
(1) Presented on taxable equivalent basis.
26
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 February 15, 2002, the Company finalized the purchase of seven Florida retail
sales offices 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.
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 within three years of its second
step conversion pursuant to regulatory guidelines. The application was filed on
November 4, 2002 with the Office of Thrift Supervision ("OTS"). On March 17,
2003, BB&T withdrew its application to acquire control of the Company within the
three-year period, citing rigorous regulatory standards that are being applied
to recently converted thrifts. As a result of application being withdrawn, the
Company wrote-off capitalized merger costs of $504,000 ($312,000 after tax)
which were not recoverable or refundable.
Application of Critical Accounting Policies
Management's discussion and analysis of the Company's financial condition and
results of operations are based on the consolidated financial statements which
are prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of such financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an ongoing basis, management evaluates its estimates,
including those related to the allowance for loan losses. Management bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis in making judgments about the carrying values of assets that are not
readily apparent from other
27
sources. Actual results could differ from the amount derived from management's
estimates and assumptions under different assumptions or conditions.
Management believes the allowance for loan losses policy is a critical
accounting policy that required the most significant estimates and assumptions
used in the preparation of the consolidated financial statements. The allowance
for loan losses is based on management's evaluation of the level of the
allowance required in relation to the estimated loss exposure in the loan
portfolio. Management believes the allowance for loan losses is a significant
estimate and therefore regularly evaluates it for adequacy by taking into
consideration factors such as prior loan loss experience, the character and size
of the loan portfolio, business and economic conditions and management's
estimation of future losses. The use of different estimates or assumptions could
produce different provisions for loan losses. Refer to the discussion of
allowance for loan losses in the Lending Activities section and Notes 1 and 4 to
consolidated financial statements for a detailed description of management's
estimation process and methodology related to the allowance for loan losses.
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.
Comparison of Financial Condition at September 30, 2003 and September 30, 2002
Assets. Total assets decreased $41.0 million, or 4.8%, to $818.5 million at
September 30, 2003 from $859.4 million at September 30, 2002. The decrease in
total assets resulted primarily from:
> a $19.7 million decrease in securities available for sale. Strong mortgage
refinancing activities, resulting from the continued decline in longer-term
interest rates, has accelerated the repayments on many mortgage-related
securities. The Company elected not to reinvest certain funds to provide
the liquidity to repay FHLB advances in January 2003,
> a $2.7 million net decrease in the loan portfolio. The decrease in loans
resulted from increased refinance activity in the residential mortgage loan
portfolio throughout the year, resulting in increased loan repayments, as
longer-term interest rates continued to decline. In addition, during the
first three months of the period, the Company's residential mortgage
strategy was to originate and sell longer-term, fixed-rate loans in order
to minimize future interest rate risk. The reduction in the residential
mortgage loan portfolio was almost entirely offset by continued growth in
the consumer and commercial loans outstanding. While new residential
mortgage loan originations achieved a record level of production at $149.2
million for the year, $133.2 million in loans were paid-off during the
period. Management continues to focus on commercial and consumer loan
originations, where new loan production totaled $122.1 million for the
period.
> a $16.9 million decrease in cash and cash equivalents. The decision to
retain the majority of residential mortgage originations during the last
two quarters, together with increased commercial and consumer loan
originations has caused the decline in the balance of cash and cash
equivalents.
> core deposit intangible decreased $1.6 million during the year due to
normal amortization.
28
Liabilities. Total liabilities decreased $44.0 million, or 5.8%, to $716.5
million at September 30, 2003 from $760.5 million at September 30, 2002. The
decrease in total liabilities resulted primarily from:
> a $34.5 million decrease in deposits. The decrease in deposits was
primarily attributable to a $59.0 million decrease in certificate accounts,
partially offset by a $24.5 million increase in transaction accounts. We
believe that the decrease in certificate accounts in recent months has been
caused by certain retail customers moving maturing certificate accounts
into more liquid checking and money-market accounts due to due to the low
interest-rate environment, or seeking higher yielding alternative
investments. In addition, $22.5 million from the State of Florida
certificate program matured during the period.
> a $7.5 million decrease in FHLB advances and other borrowings, primarily
due to the maturity and repayment of $15.0 million of FHLB term advances
and maturity of $5.5 million of reverse repurchase agreements. In addition,
an $8.7 million decrease of funds borrowed under the Treasury Investment
Program was replaced with $21.7 million of FHLB overnight borrowings.
Stockholder's Equity. The $3.0 million increase in the stockholders' equity
includes:
> $6.0 million in net income;
> repurchase shares of Company stock at a cost of $126,000;
> net distribution of $971,000 from the restricted stock plan for vesting of
certain awards;
> decrease in accumulated other comprehensive income of $3.5 million;
> additional paid-in-capital of $566,000 resulting from exercise of stock
options and capital adjustments related to stock plans;
> repayment of $541,000 on the Employee Stock Ownership Plan ("ESOP") loan;
and
> dividends paid totaling $1.5 million.
The decreased value in accumulated other comprehensive income resulted from the
fluctuation in market value of the Company's securities available for sale.
Because of continued interest rate volatility, accumulated other comprehensive
income and stockholders' equity could materially fluctuate for each interim and
year-end period.
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 sales 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.
29
Cash and cash equivalents decreased $16.9 million to $13.8 million for the year
ended September 30, 2003. Significant cash flows or uses (amounts shown in
parentheses) were as follows (in millions):
Cash provided by operations............................................ $ 13.3
Net repayment of Federal Home Loan Bank advances and other borrowings.. (7.5)
Decrease in deposits................................................... (34.5)
Sales, maturities of and repayments on securities...................... 197.7
Purchases of securities................................................ (183.2)
Purchases of premises and equipment.................................... (.8)
Net increase in loans.................................................. (1.4)
Dividends paid......................................................... (1.5)
Other, net............................................................. 1.0
-------
Net decrease in cash and cash equivalents.............................. $ (16.9)
=======
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.
30
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. Average balances are
derived from daily average balances.
Year Ended September 30,
---------------------------------------------------------------------------------------------------------
2003 2002 2001
-------------------------------------- ------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Interest-earning assets:
Residential $ 293,520 19,531 6.65% $ 314,686 23,066 7.33% $ 322,388 24,544 7.61%
Consumer 114,965 8,674 7.54 95,926 7,838 8.17 82,966 7,233 8.72
Commercial 82,488 5,341 6.47 72,197 5,344 7.40 58,215 4,894 8.41
--------- ------ --------- ------ --------- ------
Total loans (1) 490,973 33,546 6.83 482,809 36,248 7.51 463,569 36,671 7.91
Securities and other (2)(6) 263,912 12,671 4.80 220,793 13,128 5.95 121,925 8,552 7.01
--------- ------ --------- ------ --------- ------
Total interest-earning
assets 754,885 46,217 6.12 703,602 49,376 7.02 585,494 45,223 7.72
------ ------ ------
Noninterest-earning assets 68,052 49,113 26,915
--------- --------- ---------
Total assets $ 822,937 $ 752,715 $ 612,409
========= ========= =========
Interest-bearing liabilities:
Checking accounts $ 81,592 706 0.87 $ 58,195 844 1.45 $ 32,937 590 1.79
Savings accounts 54,716 578 1.06 44,832 722 1.61 27,940 486 1.74
Money-market accounts 77,082 1,117 1.45 54,762 1,404 2.56 28,766 1,205 4.19
Certificate accounts 329,084 11,579 3.52 329,291 14,874 4.52 263,512 15,519 5.89
--------- ------ --------- ------ --------- ------
Total interest-bearing
deposits 542,474 13,980 2.58 487,080 17,844 3.66 353,155 17,800 5.04
FHLB advances and other
borrowings 141,375 6,863 4.85 139,482 7,104 5.09 142,536 8,018 5.63
--------- ------ --------- ------ --------- ------
Total interest-bearing
liabilities 683,849 20,843 3.05 626,562 24,948 3.98 495,691 25,818 5.21
------ ------
Noninterest-bearing
liabilities (3)(7) 37,664 31,534 29,960 77
--------- --------- ---------
Total liabilities 721,513 658,096 525,651 25,895
------
Stockholders' equity 101,424 94,619 86,758
--------- --------- ---------
Total liabilities and
stockholders' equity $ 822,937 $ 752,715 $ 612,409
========= ========= =========
Net interest income (6) $ 25,374 $ 24,428 $ 19,328
====== ====== ======
Interest rate spread (4) 3.07%