Exhibit 99.2

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
DESTIN, FLORIDA

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

  

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
DESTIN, FLORIDA

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

CONTENTS

  

	PAGE
Independent Auditor’s Report	1
Consolidated Statements of Financial Condition	2
Consolidated Statements of Income	3
Consolidated Statements of Comprehensive Income	4
Consolidated Statements of Changes in Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Supplementary Information:
Independent Auditor’s Report on Supplementary Information	39
Consolidating Statement of Financial Condition	40
Consolidating Statement of Income	41

  

 

  

INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors
First Florida Bancorp, Inc.
and Subsidiary

Destin, Florida

 

We have audited the accompanying consolidated financial statements of First Florida Bancorp, Inc. and Subsidiary, which comprise the consolidated statements of financial condition as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

 

Management's Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Florida Bancorp, Inc. and Subsidiary as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Correction of Error

 

The disclosures in Note 9 related to stock awards and stock options has been updated to properly reflect the number of options outstanding. As a result, the number of options shown as outstanding were reduced by 12,000 as of December 31, 2018 and 2017. The correction of the error did not have any effect on earnings or retained earnings reported. Our opinion is not modified with respect to this matter.

 

/s/Saltmarsh, Cleaveland & Gund, P.A.

 

Pensacola, Florida

March 7, 2019

 

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2018 AND 2017

 

ASSETS

 

		2018				2017
Cash and due from banks		$	2,229,504			$	2,364,239
Federal funds sold			3,000,000				3,000,000
Interest-bearing deposits in banks			57,879,217				44,613,942
Cash and cash equivalents			63,108,721				49,978,181
Securities available for sale			62,458,177				70,741,644
Securities held to maturity			51,256,793				53,695,041
Restricted equity securities			1,826,150				1,587,850
Loans receivable, net of allowance for loan losses of $3,535,411 in 2018 and $3,029,743 in 2017			217,479,227				200,849,837
Mortgage loans held for sale			4,640,495				4,361,142
Accrued interest receivable			1,617,668				1,487,445
Premises and equipment, net			5,825,732				5,904,669
Deferred income taxes			2,064,263				1,704,564
Other assets			327,689				339,536
Total Assets		$	410,604,915			$	390,649,909

 

LIABILITIES AND STOCKHOLDERS' EQUITY

  

Liabilities:
Noninterest-bearing demand deposits		$	88,877,803			$	93,870,085
Interest-bearing demand deposits			93,833,887				104,926,177
Savings deposits			21,862,928				25,802,099
Time deposits			151,037,735				119,874,831
Total deposits			355,612,353				344,473,192
Federal Home Loan Bank advance			5,000,000				-0-
Notes payable			6,034,432				6,712,406
Accrued interest payable			476,204				261,874
Other liabilities			331,351				203,816
Total liabilities			367,454,340				351,651,288
Commitments and Contingencies			-				-
Stockholders' Equity:
Common stock, $.10 par value; 40,000,000 shares authorized, 6,395,812 and 6,388,312 shares issued and outstanding in 2018 and 2017, respectively			639,581				638,831
Additional paid-in capital			31,635,463				31,582,312
Retained earnings			13,462,247				8,603,888
Accumulated other comprehensive loss			(2,586,716	)			(1,826,410	)
Total stockholders' equity			43,150,575				38,998,621
Total Liabilities and Stockholders' Equity		$	410,604,915			$	390,649,909

  

The accompanying notes are an integral part of these consolidated financial statements.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2018 AND 2017

 

		2018				2017
Interest Income:
Loans receivable and fees on loans		$	14,537,426			$	12,055,898
Investment securities			2,897,528				2,720,549
Deposits in bank and other			1,195,603				664,829
Total interest income			18,630,557				15,441,276
Interest Expense:
Deposits			3,548,868				2,131,339
Other			321,406				230,081
Total interest expense			3,870,274				2,361,420
Net interest income			14,760,283				13,079,856
Provision for Loan Losses			150,000				400,000
Net interest income after provision for loan losses			14,610,283				12,679,856
Noninterest Income:
Service charges on deposit accounts			224,293				209,862
Other service charges and fees			752,248				707,908
Mortgage banking income			2,193,207				1,889,712
(Loss) gain on sales of securities			(19,031	)			27,152
Other income			369,400				410,471
Total noninterest income			3,520,117				3,245,105
Noninterest Expense:
Salaries and employee benefits			6,939,566				6,144,016
Occupancy and equipment expense			1,768,384				1,756,766
Regulatory assessments			193,756				191,275
Data processing			1,031,449				733,394
Professional fees			159,170				271,281
Other expenses			1,699,019				1,387,678
Total noninterest expense			11,791,344				10,484,410
Income Before Income Taxes			6,339,056				5,440,551
Income Taxes			1,480,697				2,028,170
Net Income		$	4,858,359			$	3,412,381

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2018 AND 2017

 

		2018				2017
Net Income		$	4,858,359			$	3,412,381
Other Comprehensive Loss:
Unrealized losses arising during the period on securities available for sale, net of tax of $280,360 in 2018 and $16,671 in 2017			(825,597	)			(30,960	)
Change in unrealized gains (losses) resulting from change in tax rates			-0-				(240,566	)
Reclassification adjustment for losses (gains) included in net income, net tax of $4,824 in 2018 and $9,503 in 2017			14,207				(17,649	)
Accretion of unrealized loss related to transferred securities, net tax of $17,347 in 2018 and $29,711 in 2017			51,084				51,954
Other comprehensive loss			(760,306	)			(237,221	)
Total Comprehensive Income		$	4,098,053			$	3,175,160

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2018 AND 2017

  

		Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total
Balance, January 1, 2017		$	638,356			$	31,554,312			$	5,191,507			$	(1,589,189	)		$	35,794,986
Net income											3,412,381								3,412,381
Other comprehensive loss															(237,221	)			(237,221	)
Stock-based compensation							3,480												3,480
Stock awards			475				24,520												24,995
Balance, December 31, 2017			638,831				31,582,312				8,603,888				(1,826,410	)			38,998,621
Net income											4,858,359								4,858,359
Other comprehensive loss															(760,306	)			(760,306	)
Stock-based compensation							4,176												4,176
Issuance of common stock			750				48,975												49,725
Balance, December 31, 2018		$	639,581			$	31,635,463			$	13,462,247			$	(2,586,716	)		$	43,150,575

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

		2018				2017
Cash Flows From Operating Activities:
Net income		$	4,858,359			$	3,412,381
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization			554,053				562,615
Provision for loan losses			150,000				400,000
Loss (gain) on sales of securities			19,031				(27,152	)
Net amortization on securities			860,602				869,654
Stock awards			-0-				24,995
Stock-based compensation			4,176				3,480
Deferred income taxes			(101,510	)			635,845
Net change in -
Mortgage loans held for sale			(279,353	)			(1,161,782	)
Accrued interest receivable			(130,223	)			(149,664	)
Other assets			11,847				(29,272	)
Accrued interest payable and other liabilities			341,865				(87,096	)
Net cash provided by operating activities			6,288,847				4,454,004
Cash Flows From Investing Activities:
Purchases of securities available for sale			-0-				(32,769,094	)
Proceeds from sales and maturities of securities available for sale			1,509,690				5,015,625
Proceeds from maturities of securities held to maturity			2,080,000				2,954,150
Principal paydowns received on securities available for sale			5,233,897				3,862,168
Increase in restricted equity securities			(238,300	)			(199,250	)
Net increase in loans			(16,779,390	)			(21,261,641	)
Net purchases of premises and equipment			(475,116	)			(1,673,462	)
Net cash used in investing activities			(8,669,219	)			(44,071,504	)
Cash Flows From Financing Activities:
Net decrease in demand and savings deposits			(20,023,743	)			(1,008,672	)
Net increase in time deposits			31,162,904				24,651,889
Net increase in FHLB advance			5,000,000				-0-
Net (decrease) increase in notes payable			(677,974	)			1,922,174
Issuance of common stock			49,725				-0-
Net cash provided by financing activities			15,510,912				25,565,391
Net Change in Cash and Cash Equivalents			13,130,540				(14,052,109	)
Cash and Cash Equivalents at Beginning of Year			49,978,181				64,030,290
Cash and Cash Equivalents at End of Year		$	63,108,721			$	49,978,181
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	3,655,944			$	2,293,368
Income taxes paid		$	1,505,000			$	1,492,000
Noncash Transactions:
Accretion of unrealized loss on transferred securities		$	68,431			$	81,665

 

The accompanying notes are an integral
part of these consolidated financial statements.

 

  

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization:

 

First Florida Bancorp, Inc. (the “Corporation”) is a one bank holding company which provides a full range of banking services to individuals and businesses through its wholly-owned subsidiary, First Florida Bank, (the “Bank”). The Bank is a state-chartered bank organized in 2006 under the laws of the State of Florida, with its principal banking office located in Destin, Florida. The Corporation and the Bank are regulated by various Federal and State agencies and are subject to periodic examinations by those regulatory authorities.

 

Principles of Consolidation:

 

The consolidated financial statements include the accounts of the Corporation and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

 

Accounting Estimates:

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair value of investment securities, and current and deferred taxes. Actual results could differ from these estimates.

 

While management uses available information to recognize losses on loans further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change. However, the amount of the changes that are reasonably possible cannot be estimated.

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Cash Equivalents:

 

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and due from banks, federal funds sold, and interest-bearing deposits in banks, all of which mature within 90 days.

 

Securities:

 

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and are recorded at amortized cost. Securities not classified as held to maturity are classified as “available for sale” and are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

 

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

 

Restricted Equity Securities:

 

Restricted equity securities consist of stock in the Federal Home Loan Bank of Atlanta, Federal Reserve Bank and First National Bankers Bank, which are held in accordance with certain lender and/or member requirements and are stated at cost, which approximates fair value.

 

Loans Receivable:

 

The Bank grants real estate, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by real estate loans throughout Northwest Florida. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs and the allowance for loan losses. Interest income is accrued on the unpaid principal balance.

 

The accrual of interest on real estate and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Other personal loans are typically charged-off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Loans Receivable (continued):

 

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

Allowance for Loan Losses:

 

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for real estate and commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

 

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual smaller balance consumer loans for impairment disclosures.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Mortgage Loans Held For Sale:

 

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate.

 

Premises and Equipment:

 

Land is carried at cost. Buildings, furniture and equipment and leasehold improvements are carried at cost, less accumulated depreciation and amortization computed principally by the straight-line method over the estimated useful lives of the assets.

 

Foreclosed Real Estate:

 

Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its costs or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed.

 

Advertising:

 

Advertising costs are expensed as incurred.

 

Stock-Based Compensation:

 

The Corporation records stock-based compensation at fair value and expenses the fair value of stock options granted. The Corporation recognizes stock-based compensation in salaries and employee benefits in the accompanying consolidated statements of income on a straight-line basis over the vesting period. The Corporation accounts for forfeitures of stock options as they occur.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Income Taxes:

 

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various assets and liabilities included in the consolidated statements of financial condition and gives current recognition to changes in tax rates and laws.

 

The Corporation and the Bank file consolidated income tax returns, with income tax expense or benefit computed and allocated on a separate return basis.

 

Credit Related Financial Instruments:

 

In the ordinary course of business, the Bank has entered into commitments to extend credit and letters of credit. Such financial instruments are recorded when funded.

 

Comprehensive Income:

 

Annual comprehensive income reflects the change in the Corporation’s equity during the year arising from transactions and events other than investment by and distributions to shareholders. The only components of other comprehensive income consist of realized and unrealized gains and losses related to investment securities.

 

Subsequent Events:

 

Management has evaluated subsequent events through March 7, 2019, the date which the consolidated financial statements were available for issue.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recent Accounting Pronouncements:

 

In February 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 - Leases (Topic 842). The guidance in this topic supersedes the requirements in ASC Topic 840, Leases. The update will require business entities to recognize lease assets and liabilities on the balance sheet and to disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For nonpublic business entities, this update will be effective for interim and annual periods beginning after December 15, 2019, and is to be applied on a modified retrospective basis. Adoption of this guidance is expected to increase the assets and liabilities of the Corporation.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now include forward-looking information in the determination of their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. This update clarified the effective date of ASC 2016-13 for nonpublic business entities to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early application of ASU 2016-13 will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Corporation is currently evaluating the impact that the standard will have on its consolidated financial statements.

 

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. For nonpublic business entities, this update will be effective for annual periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Management does not expect adoption of this ASU to have a significant impact on the Corporation’s consolidated financial statements.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 - INVESTMENT SECURITIES

 

Investment securities have been classified in the consolidated statements of financial condition according to management’s intent. The amortized cost of securities and their approximate fair values were as follows:

 

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Available-for-Sale:
December 31, 2018 -
U.S. Treasury securities		$	4,806,757			$	-0-			$	(233,108	)		$	4,573,649
U.S. government agency securities			19,062,203				-0-				(1,128,483	)			17,933,720
Mortgage-backed securities			26,902,863				-0-				(1,004,197	)			25,898,666
Corporate bonds			14,922,159				-0-				(870,017	)			14,052,142
		$	65,693,982			$	-0-			$	(3,235,805	)		$	62,458,177
December 31, 2017 -
U.S. Treasury securities		$	5,784,566			$	-0-			$	(169,375	)		$	5,615,191
U.S. government agency securities			19,074,403				-0-				(874,583	)			18,199,820
Mortgage-backed securities			32,448,419				-0-				(587,308	)			31,861,111
Corporate bonds			15,583,135				-0-				(517,613	)			15,065,522
		$	72,890,523			$	-0-			$	(2,148,879	)		$	70,741,644
Held-to-Maturity:
December 31, 2018 - Municipal securities		$	51,256,793			$	271,685			$	(1,072,786	)		$	50,455,692
December 31, 2017 - Municipal securities		$	53,695,041			$	589,100			$	(625,659	)		$	53,658,482

 

Investment securities with a fair value of approximately $21,546,000 and $22,833,000 at December 31, 2018 and 2017, respectively, were pledged to secure public funds and for other purposes required or permitted by law.

 

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 - INVESTMENT SECURITIES (Continued)

 

Gross realized gains and losses on the sale of securities available for sale amounted to $-0- and $19,031, respectively, in 2018 and $27,152 and $-0-, respectively, in 2017. Proceeds from the sale of securities available for sale amounted to approximately $510,000 in 2018 and $5,016,000 in 2017.

 

During 2013, the Bank transferred approximately $28 million of securities classified as available for sale to securities classified as held to maturity. The securities were transferred at fair value, which became the cost basis for the securities held to maturity. At the date of transfer, the net unrealized holding loss on the securities available for sale amounted to approximately $755,400. The net unrealized holding loss is being amortized over the remaining life of the securities in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of the transfer. At December 31, the net unamortized unrealized loss on the transferred securities included in accumulated other comprehensive income in the accompanying consolidated statements of financial condition amounted to approximately $171,000, net of tax of approximately $58,000 in 2018, and approximately $222,000, net of tax of approximately $75,000 in 2017.

 

The scheduled maturities of securities based on the weighted average lives of the securities at December 31, 2018, were as follows:

 

		Available-For-Sale								Held-To-Maturity
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Due in one year or less		$	-0-			$	-0-			$	1,600,144			$	1,606,170
Due from one to five years			8,436,459				8,146,047				500,906				501,565
Due from five to ten years			34,936,547				32,997,901				7,720,159				7,654,082
Due after ten years			22,320,976				21,314,229				41,435,584				40,693,875
		$	65,693,982			$	62,458,177			$	51,256,793			$	50,455,692

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 - INVESTMENT SECURITIES (Continued)

 

For purposes of the maturity table above, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the estimated weighted-average lives of the underlying collateral. The mortgage-backed securities may mature earlier than their estimated weighted-average lives because of principal prepayments.

 

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

		Less Than Twelve Months								Over Twelve Months
		Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value
Available-for-Sale:
December 31, 2018 -
U.S. Treasury securities		$	-0-			$	-0-			$	(233,108	)		$	4,573,649
U.S. government agency securities			-0-				-0-				(1,128,483	)			17,933,720
Mortgage-backed securities			-0-				-0-				(1,004,197	)			25,898,666
Corporate bonds			-0-				-0-				(870,017	)			14,052,142
		$	-0-			$	-0-			$	(3,235,805	)		$	62,458,177
December 31, 2017 -
U.S. Treasury securities		$	(6,500	)		$	994,490			$	(162,875	)		$	4,620,701
U.S. government agency securities			(180,241	)			5,895,065				(694,342	)			12,304,755
Mortgage-backed securities			(330,001	)			19,754,224				(257,307	)			12,106,887
Corporate bonds			(15,726	)			1,541,850				(501,887	)			13,523,672
		$	(532,468	)		$	28,185,629			$	(1,616,411	)		$	42,556,015
Held-to-Maturity:
December 31, 2018 - Municipal securities		$	(45,515	)		$	9,889,441			$	(1,027,271	)		$	16,063,844
December 31, 2017 - Municipal securities		$	(11,326	)		$	3,101,330			$	(614,333	)		$	13,505,624

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 - INVESTMENT SECURITIES (Continued)

 

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

At December 31, 2018 and 2017, unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities for the foreseeable future, no declines are deemed to be other-than- temporary.

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES

 

The components of loans in the consolidated statements of financial condition were as follows:

 

		2018				2017
Real estate -
Commercial		$	62,596,650			$	55,454,275
Construction, land development, and other land			55,212,862				59,549,738
Residential			90,772,024				71,778,231
Commercial			10,999,496				14,196,911
Consumer			2,108,251				3,412,346
			221,689,283				204,391,501
Deferred loan fees			(674,645	)			(511,921	)
Allowance for loan losses			(3,535,411	)			(3,029,743	)
		$	217,479,227			$	200,849,837

 

The Bank primarily grants real estate, commercial, and consumer loans in the State of Florida with primary concentration being in Northwest Florida. Although the Bank’s loan portfolio is diversified, a significant portion of its loans are secured by real estate. The Bank has divided the loan portfolio into five portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Bank are real estate - commercial, real estate - construction, land development and other land, real estate - residential, commercial and consumer.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Real Estate - Commercial: Commercial real estate loans consist of loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. These loans may be secured by first liens on office buildings, apartments, retail and mixed-use properties, churches, warehouses and restaurants located primarily within the Bank’s market area. The Bank’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s financial condition, and a detailed analysis of the borrower’s underlying cash flows. Commercial real estate loans are larger than residential loans and involve greater credit risk. The repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic conditions also affect the repayment ability to a greater extent than residential real estate loans.

 

Real Estate - Construction, land development, and other land: Construction, land development, and other land loans consist of loans to companies and individuals for vacant residential lots, commercial lots, raw land, farmland, and the construction of both residential and commercial properties. To the extent construction, land development, and other land loans are made on raw land, vacant residential lots, and residential speculative construction, the more vulnerable they are to changes in economic conditions. Further, the nature of these loans is such that they are more difficult to evaluate and monitor. The risk of loss on a construction, land development, and other land loans is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project.

 

Real Estate - Residential: The Bank originates residential real estate loans for the purchase or refinancing of a mortgage or to provide home equity lines of credit for homeowners. These loans are collateralized by owner-occupied properties primarily located in the Bank’s market area.

 

Commercial: Commercial business loans are made to small and medium sized companies located primarily in the Bank’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Most of the Bank’s commercial loans are secured loans, along with a small amount of unsecured loans. The Bank’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Bank seeks to minimize these risks through its underwriting standards.

 

Consumer: Consumer loans mainly consist of loans for home improvements, automobiles, boats, motorcycles, overdraft protection lines of credit, and other consumer goods. The Bank’s consumer loans may be uncollateralized and rely on the borrower’s income for repayment.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Allowance for Loan Losses:

 

The following schedule presents a rollforward of the allowance for loan losses as of December 31:

 

		2018				2017
Balance, beginning of year		$	3,029,743			$	3,034,810
Charge-offs:
Real estate - commercial			-0-				(27,229	)
Real estate - construction, land development, and other land			-0-				(33,636	)
Real estate - residential			(42,607	)			(714	)
Commercial			(2,819	)			(397,095	)
Consumer			(25,113	)			(36,550	)
Total charge-offs			(70,539	)			(495,224	)
Recoveries:
Real estate - commercial			345,219				7,019
Real estate - construction, land development, and other land			13,800				15,300
Real estate - residential			-0-				50,000
Commercial			57,845				12,993
Consumer			9,343				4,845
Total recoveries			426,207				90,157
Net recoveries (charge-offs)			355,668				(405,067	)
Provision charged to operations			150,000				400,000
Balance, end of year		$	3,535,411			$	3,029,743

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Allowance for Loan Losses (Continued):

 

The following tables present the allocation of loan loss reserves and the recorded investment in loans based on impairment method:

 

						Real Estate -
						Construction,
						Land
		Real Estate -				Development,				Real Estate -
		Commercial				and Other Land				Residential				Commercial				Consumer				Total
December 31, 2018 - Reserves allocated for loans:
Individually evaluated for impairment		$	59,875			$	-0-			$	-0-			$	120,148			$	-0-			$	180,023
Collectively evaluated for impairment			876,795				1,016,164				1,168,345				251,915				42,169				3,355,388
		$	936,670			$	1,016,164			$	1,168,345			$	372,063			$	42,169			$	3,535,411
December 31, 2018 - Loans:
Individually evaluated for impairment		$	1,119,803			$	-0-			$	-0-			$	120,148			$	-0-			$	1,239,951
Collectively evaluated for impairment			61,476,847				55,212,862				90,772,024				10,879,348				2,108,251				220,449,332
		$	62,596,650			$	55,212,862			$	90,772,024			$	10,999,496			$	2,108,251			$	221,689,283

 

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Allowance for Loan Losses (Continued):

 

						Real Estate -
						Construction,
						Land
		Real Estate -				Development,				Real Estate -
		Commercial				and Other Land				Residential				Commercial				Consumer				Total
December 31, 2017 - Reserves allocated for loans:
Individually evaluated for impairment		$	135,350			$	-0-			$	-0-			$	161,558			$	-0-			$	296,908
Collectively evaluated for impairment			778,067				886,940				786,584				244,668				36,576				2,732,835
		$	913,417			$	886,940			$	786,584			$	406,226			$	36,576			$	3,029,743
December 31, 2017 - Loans:
Individually evaluated for impairment		$	1,362,563			$	257,008			$	-0-			$	161,558			$	-0-			$	1,781,129
Collectively evaluated for impairment			54,091,712				59,292,730				71,778,231				14,035,353				3,412,346				202,610,372
		$	55,454,275			$	59,549,738			$	71,778,231			$	14,196,911			$	3,412,346			$	204,391,501

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Impaired Loans:

 

The following tables present information on impaired loans disaggregated by class as of December 31, 2018 and 2017:

 

		With no Related
		Allowance Recorded								With an Allowance Recorded
						Unpaid								Unpaid
		Recorded				Principal				Recorded				Principal				Related
		Investment				Balance				Investment				Balance				Allowance
December 31, 2018 -
Real estate - commercial		$	585,628			$	585,628			$	534,175			$	534,175			$	59,875
Real estate - construction, land development, and other land			-0-				-0-				-0-				-0-				-0-
Real estate - residential			-0-				-0-				-0-				-0-				-0-
Commercial			-0-				-0-				120,148				470,148				120,148
Consumer			-0-				-0-				-0-				-0-				-0-
		$	585,628			$	585,628			$	654,323			$	1,004,323			$	180,023
December 31, 2017 -
Real estate - commercial		$	649,979			$	649,979			$	712,584			$	712,584			$	135,350
Real estate - construction, land development, and other land			257,008				257,008				-0-				-0-				-0-
Real estate - residential			-0-				-0-				-0-				-0-				-0-
Commercial			92,025				372,025				69,533				139,533				161,558
Consumer			-0-				-0-				-0-				-0-				-0-
		$	999,012			$	1,279,012			$	782,117			$	852,117			$	296,908

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Impaired Loans (Continued):

 

The following table presents the average recorded investment and interest income recognized on impaired loans disaggregated by class for the years ended December 31, 2018 and 2017:

 

		2018								2017
		Average								Average
		Recorded				Interest				Recorded				Interest
		Investment				Recognized				Investment				Recognized
Real estate - commercial		$	1,231,569			$	58,651			$	1,705,227			$	117,304
Real estate - construction, land development, and other land			-0-				33,487				257,008				-0-
Real estate - residential			-0-				-0-				351,520				33,405
Commercial			134,079				-0-				827,094				13,153
Consumer			-0-				-0-				9,586				827
		$	1,365,648			$	92,138			$	3,150,435			$	164,689

 

The allocated allowance for loan losses attributable to restructured loans included in the table above was

$120,148 at December 31, 2018 and $161,558 at December 31, 2017. There were no troubled debt restructurings that occurred during 2018 or 2017.

 

There was no foreclosed residential real estate held by the Bank at December 31, 2018 or 2017, and no residential real estate properties were in process of foreclosure.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Credit Quality:

 

Internal risk-rating grades are assigned to loans by lending, credit administration or loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances. This analysis is performed at least annually. The Bank uses the following definitions for its risk ratings:

 

Pass. Loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk. The borrower exhibits the ability to service the debt based on prior history and an ability to service debt through the conversion of liquid assets, cash flow, or perhaps, letters of credit from quality financial institutions.

 

Watch. Assets in this category are currently protected but are potentially weak. These assets constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific asset. A watch category has potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date.

 

Substandard. A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful. An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include: proposed merger, acquisition or liquidation procedures, capital injection, perfection liens on additional collateral, and refinancing plans.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Credit Quality (Continued):

 

The tables below set forth credit exposure for the loan portfolio disaggregated by class based on internally assigned risk ratings:

 

Credit Exposure Based on Risk Ratings:

 

		Pass				Watch				Substandard				Doubtful
December 31, 2018 - Loan Category
Real estate - commercial		$	61,017,216			$	459,631			$	1,119,803			$	-0-
Real estate - construction, land development and other land			55,212,862				-0-				-0-				-0-
Real estate - residential			89,140,089				1,631,935				-0-				-0-
Commercial			10,438,838				440,510				120,148				-0-
Consumer			2,028,651				8,800				70,800				-0-
		$	217,837,656			$	2,540,876			$	1,310,751			$	-0-
December 31, 2017 - Loan Category
Real estate - commercial		$	53,889,699			$	680,575			$	884,001			$	-0-
Real estate - construction, land development and other land			59,292,730				-0-				257,008				-0-
Real estate - residential			71,090,105				688,126				-0-				-0-
Commercial			13,544,720				490,633				161,558				-0-
Consumer			2,849,113				13,870				549,363				-0-
		$	200,666,367			$	1,873,204			$	1,851,930			$	-0-

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Past Due and Nonaccrual Loans:

 

The following tables present an aging of past due loans disaggregated by class:

 

						Greater																Loans > 90
		30-89 Days				Than				Total				Current				Total				Days and
		Past Due				90 Days				Past Due				Loans				Loans				Accruing
December 31, 2018 -
Real estate - commercial		$	625,000			$	440,043			$	1,065,043			$	61,531,607			$	62,596,650			$	-0-
Real estate - construction, land development and other land			-0-				-0-				-0-				55,212,862				55,212,862				-0-
Real estate - residential			-0-				-0-				-0-				90,772,024				90,772,024				-0-
Commercial			220,274				-0-				220,274				10,779,222				10,999,496				-0-
Consumer			6,923				-0-				6,923				2,101,328				2,108,251				-0-
		$	852,197			$	440,043			$	1,292,240			$	220,397,043			$	221,689,283			$	-0-
December 31, 2017 -
Real estate - commercial		$	-0-			$	478,563			$	478,563			$	54,975,712			$	55,454,275			$	478,563
Real estate - construction, land development and other land			178,778				257,008				435,786				59,113,952				59,549,738				-0-
Real estate - residential			218,668				-0-				218,668				71,559,563				71,778,231				-0-
Commercial			35,326				-0-				35,326				14,161,585				14,196,911				-0-
Consumer			545				2,393				2,938				3,409,408				3,412,346				2,392
		$	433,317			$	737,964			$	1,171,281			$	203,220,220			$	204,391,501			$	480,955

 

Included in the balance of current loans above are approximately $120,000 and $162,000 of loans classified as non-accrual as of December 31, 2018 and 2017, respectively. These loans primarily consist of restructured loans that are current per the new contract or modified terms as of December 31, 2018 and 2017, where the source of repayment is not assured. Management maintains these loans on non-accrual status until either the primary or secondary source of repayment assures full repayment of the loan.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

 

Past Due and Nonaccrual Loans (Continued):

 

The following table presents the composition of nonaccrual loans disaggregated by class at December 31, 2018 and 2017:

 

		2018				2017
Real estate - commercial		$	440,043			$	-0-
Real estate - construction, land development and other land			-0-				257,008
Real estate - residential			-0-				-0-
Commercial			120,148				161,558
Consumer			-0-				-0-
		$	560,191			$	418,566

 

NOTE 4 - PREMISES AND EQUIPMENT

 

Components of premises and equipment included in the consolidated statements of financial condition were as follows:

 

		2018				2017
Land		$	1,048,155			$	1,048,155
Buildings			3,240,210				2,441,412
Leasehold improvements			1,850,457				1,850,457
Furniture and equipment			2,816,696				2,341,581
			8,955,518				7,681,605
Less: Accumulated depreciation and amortization			(3,129,786	)			(2,575,734	)
			5,825,732				5,105,871
Construction in process			-0-				798,798
		$	5,825,732			$	5,904,669

  

Depreciation and amortization expense charged to operations amounted to $554,053 in 2018 and $562,615 in 2017.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017

 

NOTE 4 - PREMISES AND EQUIPMENT (Continued)

 

Leases:

 

The Bank leases certain branch facilities under operating leases expiring at various dates through 2026. These leases require payment of taxes, insurance and maintenance costs in addition to rental payments. In addition, the Bank leases certain office equipment.

 

Future minimum lease payments under these agreements are summarized as follows:

 

2019			$	710,400
2020				688,400
2021				684,100
2022				505,400
2023				94,700
Thereafter				276,100
Total future minimum lease payments			$	2,959,100

 

Rental expense relating to operating leases amounted to approximately $816,000 in 2018 and $789,000 in 2017.

 

NOTE 5 - TIME DEPOSITS

 

The aggregate amount of time deposits at December 31, each with a minimum denomination of $250,000, was approximately $48,541,000 in 2018 and $42,845,000 in 2017.

 

At December 31, 2018, the scheduled maturities of time deposits were as follows:

 

2019			$	145,260,660
2020				5,581,448
2021				65,966
2022				-0-
2023				129,661
			$	151,037,735

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 6 - FEDERAL HOME LOAN BANK ADVANCE

 

At December 31, 2018, the Bank had an advance from the Federal Home Loan Bank (“FHLB”) amounting to $5,000,000 with a fixed interest rate of 2.67% and final maturity in May 2019. There were no FHLB advances in 2017. The advance is secured by a blanket floating lien on 1-4 family residential mortgage and commercial real estate loans. As of December 31, 2018, the Bank had a remaining available line with the FHLB of approximately $49.6 million based on the availability of qualifying collateral.

 

NOTE 7 - NOTE PAYABLE

 

In June 2016, the Corporation obtained a $5,000,000 term loan and in June 2017, the Corporation obtained a $2,500,000 term loan. At December 31, 2018 and 2017, the outstanding balances of the notes payable amounted to $6,034,432 and $6,712,406, respectively. Under the agreements, quarterly principal and interest payments of $150,836 and $76,501 are required. The notes payable mature in June 2021 and June 2022, and accrue interest at 3.80% and 4.10% per annum, and are secured by the stock of the Bank.

 

NOTE 8 - STOCKHOLDERS’ EQUITY

 

The Corporation and the Bank are subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval.

 

NOTE 9 - STOCK AWARDS AND STOCK OPTIONS

 

During 2017, the Corporation awarded 4,750 shares of common stock to certain officers with a value of approximately $25,000. The Corporation did not have any stock awards in 2018. The value of the awards is included in salaries and employee benefits in the consolidated statements of income.

 

The Corporation’s Board of Directors approved the adoption of the First Florida Bank Equity Incentive Plan (“the Plan”). The Plan provides for both “incentive stock options” and “nonqualified stock options”. The incentive stock options are intended to qualify under Section 422 of the Internal Revenue Code for favorable tax treatment. The Plan authorized the issuance of up to 300,000 shares of common stock with an initial term of ten years with shares vesting over five years. The Bank estimates the compensation cost by determining the grant date fair value using the Black-Scholes option pricing model and expenses the cost straight-line over the requisite service period. On October 1, 2017, 5,000 options granted in 2007 pursuant to the Plan expired. As of December 31, 2018, there were 110,731 shares available for grant under the Plan.

 

Stock-based compensation related to the Plan in 2018 and 2017 was $4,176 and $3,480, respectively, and is included in salaries and employee benefits in the consolidated statements of income.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 - STOCK OPTIONS (Continued)

 

A summary of the status of the Corporation’s outstanding stock options is presented below:

 

		2018								2017
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
		Number				Price				Number				Price
Outstanding at beginning of period			152,500			$	3.09				177,500			$	3.08
Granted			-0-				-0-				-0-				-0-
Forfeited			-0-				-0-				(20,000	)			3.00
Expired			-0-				-0-				(5,000	)			3.00
Exercised			-0-				-0-				-0-				-0-
Outstanding at end of year			152,500			$	3.09				152,500			$	3.09
Weighted average fair value per option of options granted during the year						$	N/A							$	N/A

 

							Remaining
			Number of				Weighted				Weighted
			Remaining				Average				Average				Number of
Grant Date			Shares				Contractual				Exercise				Shares
by Year			Outstanding				Life in Years				Price				Exercisable
2010				142,500				2.00			$	3.00				142,500
2014				10,000				6.00				4.40				10,000
				152,500				2.26			$	3.09				152,500

 

The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. There is no remaining stock-based compensation to be recognized as of December 31, 2018.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 10 - INCOME TAXES

 

The provision for income taxes consists of the following:

 

		2018				2017
Current tax provision:
Federal		$	1,188,308			$	1,129,592
State			393,899				262,733
Deferred (benefit) expense:			1,582,207				1,392,325
Federal			(79,637	)			618,875
State			(21,873	)			16,970
			(101,510	)			635,845
		$	1,480,697			$	2,028,170

 

The difference between the actual income tax expense and the amount computed by applying the statutory federal income tax rate to income before taxes is as follows:

 

		2018				2017
Tax expense based on statutory rate		$	1,331,202			$	1,849,788
State taxes, net of federal benefit			293,901				184,604
Tax-exempt income			(264,394	)			(446,817	)
Change in federal tax rate			-0-				519,707
Other, net			119,988				(79,112	)
		$	1,480,697			$	2,028,170

 

In December 2017, the Congress passed the Tax Cuts and Jobs Act that resulted in a decrease in the federal corporate income tax rate from 34% to 21%. This resulted in a reduction in the Bank’s deferred tax assets of $519,707.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 10 - INCOME TAXES (Continued)

 

The tax effects of each type of significant item that gave rise to deferred income taxes were as follows:

 

		2018				2017
Deferred tax assets:
Allowance for loan losses		$	895,188			$	768,187
Accumulated depreciation			6,670				66,351
Deferred compensation			33,613				33,613
Organizational costs			52,069				69,922
Net unrealized losses on securities			878,410				620,221
Deferred loan fees			177,456				121,968
Other, net			20,857				24,302
Net deferred tax asset		$	2,064,263			$	1,704,564

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES

 

Unused Lines of Credit:

 

The Bank has unsecured federal funds lines of credit with other financial institutions enabling the Bank to borrow up to $10,000,000 with interest determined at the time of any advance. The arrangements are reviewed annually for renewal of the credit lines.

 

Financial Instruments:

 

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. These financial instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statements of financial condition.

 

The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

 

At December 31, the following financial instruments were outstanding whose contract amounts represent credit risk:

 

		2018				2017
Commitments to extend credit		$	6,199,000			$	9,990,000
Unfunded commitments		$	56,616,000			$	42,020,000
Letters of credit		$	532,000			$	745,000

 

Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitment amounts for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer.

 

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit may be uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Bank is committed.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

 

Financial Instruments (Continued):

 

Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral for those commitments for which collateral is deemed necessary.

 

The Bank has not incurred any losses on its commitments in 2018 or 2017.

 

Other:

 

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Corporation’s consolidated financial statements.

  

NOTE 12 - RELATED PARTY TRANSACTIONS

 

The Bank has entered into various credit arrangements with its directors, significant stockholders, and their affiliates (related parties). Loans to related parties as of December 31, 2018 and 2017, along with a summary of the activity in loans to related parties for the year ended December 31, 2018 is as follows:

 

Loans outstanding, December 31, 2017		$	596,576
New loans during the year			928,921
Repayments during the year			(53,541	)
Loans outstanding, December 31, 2018		$	1,471,956

 

Also, certain related parties and their related interest maintain deposit balances with the Bank in the aggregate amount of approximately $44,332,000 and $44,875,000 at December 31, 2018 and 2017, respectively. Of this amount approximately $28,971,000 and $31,914,000 at December 31, 2018 and 2017, respectively, was to one related party.

 

The Bank sub-leased a building, where the main branch is located, from a third party through September 2017. However, the building is owned by certain stockholders and members of the Board of Directors of the Bank and the Corporation. In October 2017, the Bank signed a new lease directly with the aforementioned related party. Payments under these building leases amounted to approximately

$457,000 in 2018 and $434,000 in 2017.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 13 - CONCENTRATIONS

 

At various times throughout the year, the Bank maintained cash balances with financial institutions that exceeded federally insured limits. The Bank monitors the capital adequacy of these financial institutions on a quarterly basis.

 

One related party maintained deposit balances amounting to approximately 8.1% and 9.3% of the Bank’s total deposits at December 31, 2018 and 2017, respectively.

 

NOTE 14 - REGULATORY MATTERS

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total Capital, Tier I capital, and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2018, that the Bank meets all capital adequacy requirements to which it is subject.

 

As of December 31, 2018, the Bank has met the applicable regulatory guidelines to be considered well capitalized. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the following table. There are no conditions or events that management believes have changed the Bank’s category.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 14 - REGULATORY MATTERS (Continued)

 

The Bank’s actual capital amounts and ratios as of December 31, 2018 and 2017, are presented in the following table:

 

														Minimum																Minimum
														Capital																To Be Well
		Actual												Requirement:																Capitalized:
		Amount				Ratio								Amount								Ratio								Amount								Ratio
As of December 31, 2018:
Total Capital
(to Risk Weighted Assets)		$	53,865,000				24.38	%			≥			$	17,675,000				≥				8.00	%			≥			$	22,094,000				≥				10.00	%
Tier I Capital
(to Risk Weighted Assets)		$	51,094,000				23.13	%			≥			$	13,256,000				≥				6.00	%			≥			$	17,675,000				≥				8.00	%
Common Equity Tier 1 Capital
(to Risk Weighted Assets)		$	51,094,000				23.13	%			≥			$	9,942,000				≥				4.50	%			≥			$	14,361,000				≥				6.50	%
Tier I Capital
(to Average Assets)		$	51,094,000				12.07	%			≥			$	16,938,000				≥				4.00	%			≥			$	21,172,000				≥				5.00	%
As of December 31, 2017:
Total Capital
(to Risk Weighted Assets)		$	49,668,000				23.08	%			≥			$	17,216,000				≥				8.00	%			≥			$	21,520,000				≥				10.00	%
Tier I Capital
(to Risk Weighted Assets)		$	46,974,000				21.83	%			≥			$	12,912,000				≥				6.00	%			≥			$	17,216,000				≥				8.00	%
Common Equity Tier 1 Capital
(to Risk Weighted Assets)		$	46,974,000				21.83	%			≥			$	9,684,000				≥				4.50	%			≥			$	13,988,000				≥				6.50	%
Tier I Capital
(to Average Assets)		$	46,974,000				11.93	%			≥			$	15,754,000				≥				4.00	%			≥			$	19,693,000				≥				5.00	%

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 15 - FAIR VALUE MEASUREMENT

 

Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The statement describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a bank’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other products. All of the Bank’s securities available for sale fall into Level 2 of the fair value hierarchy. These securities are generally priced via independent service providers. In obtaining such valuation information, the Bank has evaluated the valuation methodologies used to develop the fair values. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

 

Impaired Loans. A loan is considered to be impaired when it is probable the Bank will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. In most cases, the Bank measures fair value based on the value of the collateral securing the loan. Collateral may be in the form of real estate and/or business or personal assets, including but not limited to equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The fair value of real estate collateral is determined based on third party appraisals by qualified licensed appraisers as well as internal estimates. The fair value of other business or personal assets is generally based on amounts reported on the financial statements of the customer or customer’s business. Appraised and reported values may be adjusted based on management’s historical knowledge, changes in market conditions from the time of valuation and management’s knowledge of the customer and the customer’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified as Level 3. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified.

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 15 - FAIR VALUE MEASUREMENT (Continued)

 

The following table presents the financial instruments carried at fair value as of December 31, 2018 and 2017, by caption on the consolidated statements of financial condition and by valuation hierarchy (as described above):

 

Assets and liabilities measured at fair value on a recurring basis are as follows:

 

Total

Internal

Internal

carrying

models with

models with

value in the

Quoted

significant

significant

consolidated

market prices

observable

unobservable

statements of

in an active

market

market

financial

market

parameters

parameters

condition

(Level 1)

(Level 2)

(Level 3)

December 31, 2018 -

Securities available for sale

$

62,458,000

$

-0-

$

62,458,000

$

-0-

December 31, 2017 -

Securities available for sale

$

70,742,000

$

-0-

$

70,742,000

$

-0-

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 15 - FAIR VALUE MEASUREMENT (Continued)

 

Assets and liabilities measured at fair value on a nonrecurring basis are as follows:

 

Total

Internal

Internal

carrying

models with

models with

value in the

Quoted

significant

significant

consolidated

market prices

observable

unobservable

statements of

in an active

market

market

financial

market

parameters

parameters

condition

(Level 1)

(Level 2)

(Level 3)

December 31, 2018 -

Impaired loans, net of specific reserves

$

1,060,000

$

-0-

$

-0-

$

1,060,000

December 31, 2017 -

Impaired loans, net of specific reserves

$

1,484,000

$

-0-

$

-0-

$

1,484,000

 

There were no transfers between levels of the fair value hierarchy for the years ended December 31, 2018 and 2017.

 

 

SUPPLEMENTARY INFORMATION

 

 

 

 

INDEPENDENT AUDITOR’S REPORT

ON SUPPLEMENTARY INFORMATION

 

To the Board of Directors

First Florida Bancorp, Inc. and Subsidiary

Destin, Florida

 

We have audited the consolidated financial statements of First Florida Bancorp, Inc. and Subsidiary as of December 31, 2018, and our report appears on page 1. Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information on pages 40 and 41 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

 

 

 

 

Pensacola, Florida

March 7, 2019

 

 

 

  

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

DECEMBER 31, 2018

 

ASSETS

 

						Holding				Eliminating
		Bank				Company				Entries				Consolidated
Cash and due from banks		$	2,229,504			$	188,371			$	(188,371	)		$	2,229,504
Federal funds sold			3,000,000												3,000,000
Interest-bearing deposits in banks			57,379,217				500,000								57,879,217
Cash and cash equivalents			62,608,721				688,371				(188,371	)			63,108,721
Securities available for sale			62,458,177												62,458,177
Securities held to maturity			51,256,793												51,256,793
Restricted equity securities			1,826,150												1,826,150
Loans receivable, net of allowance for loan losses			217,479,227												217,479,227
Mortgage loans held for sale			4,640,495												4,640,495
Accrued interest receivable			1,617,668												1,617,668
Premises and equipment, net			5,825,732												5,825,732
Deferred income taxes			2,056,817				7,446								2,064,263
Investment in Subsidiary			-0-				48,509,482				(48,509,482	)			-0-
Other assets			327,689												327,689
Total Assets		$	410,097,469			$	49,205,299			$	(48,697,853	)		$	410,604,915
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits		$	89,066,174			$				$	(188,371	)		$	88,877,803
Interest-bearing demand deposits			93,833,887												93,833,887
Savings deposits			21,862,928												21,862,928
Time deposits			151,037,735												151,037,735
Total deposits			355,800,724				-0-				(188,371	)			355,612,353
Federal Home Loan Bank advance			5,000,000												5,000,000
Notes payable			-0-				6,034,432								6,034,432
Accrued interest payable			455,912				20,292								476,204
Other liabilities			331,351												331,351
Total liabilities			361,587,987				6,054,724				(188,371	)			367,454,340
Commitments and Contingencies			-				-				-				-
Stockholders' Equity:
Common stock			6,346,791				639,581				(6,346,791	)			639,581
Additional paid-in capital			33,068,221				31,635,463				(33,068,221	)			31,635,463
Retained earnings			11,681,186				13,462,247				(11,681,186	)			13,462,247
Accumulated other comprehensive loss			(2,586,716	)			(2,586,716	)			2,586,716				(2,586,716	)
Total stockholders' equity			48,509,482				43,150,575				(48,509,482	)			43,150,575
Total Liabilities and Stockholders' Equity		$	410,097,469			$	49,205,299			$	(48,697,853	)		$	410,604,915

 

 

FIRST FLORIDA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2018

 

						Holding				Eliminating
		Bank				Company				Entries				Consolidated
Interest Income:
Loans receivable and fees on loans		$	14,537,426			$	-0-			$	-0-			$	14,537,426
Investment securities			2,897,528												2,897,528
Deposits in bank and other			1,195,603												1,195,603
Total interest income			18,630,557				-0-				-0-				18,630,557
Interest Expense:
Deposits			3,548,868								-0-				3,548,868
Other			68,237				253,169								321,406
Total interest expense			3,617,105				253,169				-0-				3,870,274
Net interest income			15,013,452				(253,169	)			-0-				14,760,283
Provision for Loan Losses			150,000												150,000
Net interest income after provision for loan losses			14,863,452				(253,169	)			-0-				14,610,283
Noninterest Income:
Equity in earnings of subsidiary			-0-				5,050,920				(5,050,920	)			-0-
Service charges on deposit accounts			224,293												224,293
Other service charges and fees			752,248												752,248
Mortgage banking income			2,193,207												2,193,207
Loss on sales of securities			(19,031	)											(19,031	)
Other income			369,400												369,400
Total noninterest income			3,520,117				5,050,920				(5,050,920	)			3,520,117
Noninterest Expense:
Salaries and employee benefits			6,939,566												6,939,566
Occupancy and equipment expense			1,768,384												1,768,384
Regulatory assessments			193,756												193,756
Data processing			1,031,449												1,031,449
Professional fees			159,170												159,170
Other expenses			1,699,019				-0-								1,699,019
Total noninterest expense			11,791,344				-0-				-0-				11,791,344
Income Before Income Taxes			6,592,225				4,797,751				(5,050,920	)			6,339,056
Income Taxes			1,541,305				(60,608	)							1,480,697
Net Income		$	5,050,920			$	4,858,359			$	(5,050,920	)		$	4,858,359