As filed with the Securities and Exchange Commission on ^ February 4, 1999
Registration No. 333-^ 69239
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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^PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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FLORIDAFIRST BANCORP
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(Exact name of registrant as specified in charter)
United States 6035 59-3545582
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
205 East Orange Street, Lakeland, Florida 33801-4611
(941) 688-6811
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(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Mr. Gregory C. Wilkes
President
FloridaFirst Bancorp
205 East Orange Street, Lakeland, Florida ^33801-4611
(941) 688-6811
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Charles E. Sloane, Esq.
^Gregory A. Gehlmann, Esq.
Ruel B. Pile, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the following
box [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
To Be Registered Registered Per Share Price Registration Fee
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<S> <C> <C> <C> <C> <C>
Common Stock, $0.10 par 2,703,851 $10.00 $27,038,510 $7,516.71
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</TABLE>
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
PROSPECTUS
Common Stock
of
FloridaFirst Bancorp
^(Holding Company for First Federal Florida)
^ 205 East Orange Street
Lakeland, Florida 33801-4611
(941) 688-6811
No ^ stock will be sold if ^ FloridaFirst Bancorp does not receive
orders for at least the minimum number of shares. The ^ deadline for ordering
stock is __________ p.m. on March ____, 1999, unless extended. All funds
submitted shall be placed in a deposit account at First Federal Florida until
the shares are issued or the funds are returned.
There is currently no public market for the stock. The stock is
expected to be quoted on The Nasdaq Stock Market under the symbol "__________."^
Sandler O'Neill & Partners, L.P. is not required to sell any specific
number or dollar amount of ^ stock but will use their best efforts to sell the
stock offered. ^
<TABLE>
<CAPTION>
<S> <C> <C>
o Price Per Share: $10.00
o Minimum Purchase 25 shares
o Number of Shares
Minimum/Maximum/Maximum, as adjusted: 1,737,825 to 2,351,175 to 2,703,851
o Underwriting Commissions and Expenses
Minimum/Maximum/Maximum, as adjusted: $1,003,000 to $1,046,000 to $1,070,000
o Net Proceeds
Minimum/Maximum/Maximum, as adjusted: $16,375,000 to $22,466,000 to $25,969,000
o Net Proceeds per Share
Minimum/Maximum/Maximum, as adjusted: $9.42 to $9.56 to $9.60
</TABLE>
Please refer to Risk Factors beginning on page ^____ of this document.
These securities are not deposits or savings accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
^
Sandler O'Neill & Partners, L.P.
The Date of this Prospectus is __________ ____, 1999
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[MAP GOES HERE]
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^
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING ^
^ Q: What percentage of the shares to be issued by FloridaFirst Bancorp will
be sold in this offering?
^ A: Forty-seven percent of the shares being issued by FloridaFirst are
being sold in this offering, the other 53% will be owned by
FloridaFirst Bancorp MHC.
Q: How do I purchase ^ stock?
A: You must complete and return the stock order form ^ together with your
payment, on or before ____:____ __________, Florida time on
_________________, 1999. If we do not receive ^ orders for at least
1,737,825 shares by that time, the offering may be extended until
_____, 1999.
Q: ^ Are there any restrictions on the amount of stock I may purchase?
<TABLE>
<CAPTION>
<S> <C> <C>
^ A: Minimum purchase = 25 shares
Maximum purchase = 20,000 shares in the subscription, community or other offerings
= 24,000 shares in the offerings combined
= 24,000 shares for any person or persons acting together
</TABLE>
Q: What happens if there is not enough ^ stock to fill all orders?
A: You might not receive any or all of the ^ stock you want to purchase.
^ Orders received in the subscription offering^ will be filled first in
the following order of ^ priority:
o Priority 1 - Depositors of First Federal ^ at the close of
business on June 30, 1997 with deposits of at least $50.00.
o Priority 2 - The ^ First Federal Florida ^ Employee Stock
Ownership Plan.
o Priority 3 - Depositors of First Federal ^ at the close of
business on December 31, 1998 with deposits of at least
$50.00.
o Priority 4 - Other depositors and certain borrowers of First
Federal ^ as of _______________, 1999 who are entitled to vote
on the reorganization.
If ^ these persons ^ do not ^ submit orders for all of the shares, the
remaining shares may be offered in a community offering. In ^ a
community offering, ^ first preference will be given to ^ persons who
reside in Polk ^ or Manatee Counties, Florida ^ and second preference
will be given to persons who reside in other counties in Florida. Any
remaining shares may be offered to the general public through a group
of brokers/dealers organized by Sandler O'Neill. ^ FloridaFirst and
First Federal have the right to reject any stock order received in the
community offering or ^ offering through broker/dealers.
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^Q: May I sell or transfer my right to buy stock in the subscription
offering?
A: No. Selling or ^ transferring this right is illegal. If you exercise ^
this right you must certify that you are purchasing ^ stock for your
own account. If FloridaFirst believes your order violates this
restriction, your order will not be filled. You also may be subject to
sanctions and penalties imposed by the Office of Thrift Supervision.
Q: If I have other ^ questions about the stock offering, ^ whom should I
call?
A: You should contact:
Stock Information Center
FloridaFirst Bancorp
129 South Kentucky Avenue
Suite 602 ^
Lakeland, Florida 33801
(941) ^ 802-1356
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<PAGE>
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements.
^ FloridaFirst Bancorp
^ FloridaFirst is not an operating company and has not engaged in any
significant business to date. Its primary activity will be owning all the stock
of First Federal. FloridaFirst Bancorp MHC will own 53% of FloridaFirst's stock
and persons who purchase stock in this offering will own 47% of its stock. See
pages _______.
^ The Conversion, Reorganization and Offering
The ^ conversion from mutual to stock form, the reorganization into the
holding company form and the stock offering include the following steps:
o ^ First Federal will initially establish ^ a mutual holding
company, FloridaFirst Bancorp MHC, which will establish both
an interim stock savings institution and ^ Florida First .
FloridaFirst, the mutual holding company, and the interim
institution will have no assets prior to the completion of the
reorganization.
o ^ First Federal will convert from a ^ mutual ^ institution to
a ^ stock ^ institution and merge with the interim stock
savings institution.
o ^ After First Federal merges with the interim stock savings
institution ^, First Federal will be entirely owned by the
mutual holding company.
^o The mutual holding company will then contribute 100% of the ^
First Federal's stock to and FloridaFirst will then be
entirely owned by FloridaFirst.
^o In the stock offering, FloridaFirst will sell 47% of its stock
to the public. The remaining 53% of the stock will continue to
be held by the mutual holding company.
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<PAGE>
^ FloridaFirst's Ownership Structure
This chart shows the ^ ownership structure following completion of the
conversion, reorganization and offering:
- -------------------------------------- ----------------------------------------
FloridaFirst Bancorp, MHC Public Stockholders
- -------------------------------------- ----------------------------------------
| 53% of the | 47% of the
| Common Stock | Common Stock
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FloridaFirst Bancorp
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|
| 100% of the Common Stock
|
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First Federal Florida
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^ Voting rights in the mutual holding company ^ will belong to
depositors in First Federal. The interests of the FloridaFirst Bancorp MHC may
be different from those of the public stockholders of FloridaFirst.
^ How we determined the number of shares we are offering.
^ The number of shares offered is based on an independent appraisal of
the pro forma estimated market value of the ^ stock by Feldman Financial
Advisors, Inc. ^ Feldman Financial has estimated^ that the aggregate pro forma
market value of the ^ stock ranged between $37.0 million and $50.0 million^. The
Board of Directors has decided to offer 47% of the ^ stock, or between 1,737,825
and 2,351,175 shares in the offerings to the public and issue 53% of the ^ stock
to FloridaFirst Bancorp MHC.
^ How we determined the $10.00 purchase price.
The $10.00 price per share was determined by ^ FloridaFirst's board of
directors. It is the price most commonly used in stock offerings involving
conversions of mutual savings institutions.
^ Deadlines for purchasing stock.
The subscription offering will terminate at ____:____ __________,
Florida time, on __________ ____, 1999. The community offering ^ and the other
offering through broker/dealers, if any, may terminate at any time without
notice but no later than __________ ____, 1999.
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<PAGE>
Benefits to ^ Officers, Directors and Employees From the Offering or Within One
Year of the Offering
^ In order to tie our employees' and directors' interests closer to our
stockholders' interests, we intend to establish certain benefit plans that use
our stock as compensation. Because these stock-based benefit plans are intended
as compensation, these plans will not require any cash to be paid to
FloridaFirst or First Federal in exchange for stock benefits.
The following table presents information regarding the participants in
each plan, total amount, the percentage, and the dollar value of the stock that
we intend to set aside for our employee stock ownership plan^ and stock-based
incentive plans. The stock-based incentive plans may not be adopted for at least
six months after the offering and must be approved by a majority vote of the
public stockholders. The table below assumes we sell the maximum amount of
shares proposed to be sold in the offering. The value of the stock in the table
assumes that their value is $10 per share. No value is given for options because
their exercise price will be equal to the fair market value of the stock on the
day the options are granted. As a result, anyone who receives an option will
only realize a benefit if the price of the stock rises and they pay the exercise
price to purchase the stock. See pages __________ for more information,
including regulatory restrictions on the maximum amount of benefits participants
may receive and the rate at which benefits may be earned under the incentive
plans.
Percentage of
Estimated Total Shares Sold
Participants Value of Shares in the Offering
------------ --------------- -----------------
Employee Stock Ownership Plan.. Employees $1,880,940 8.0%
Stock-Based Incentive Plans:
Stock Awards.......... Officers 940,470 4.0
and
Directors
Stock Options......... Officers -- 10.0
------------ ----
and
Directors
Total............ $2,821,410 22.0%
As a public company, it is important for us to reassure our management
of our commitment to their employment with First Federal. With this in mind,
some of our employees will receive employment agreements which could provide
them with cash payments if they are terminated without cause or after a change
in control of FloridaFirst or First Federal. Our stock-based incentive plans may
also provide participants with benefits upon a change in control.
Use of the Proceeds Raised from the Sale of ^ Stock
^ FloridaFirst will use approximately 50% of the cash received in the
offering to purchase all ^ of First Federal's stock. FloridaFirst will also lend
First Federal's employee stock ownership plan cash to enable the plan to buy 8%
of the shares sold in the offering. The balance ^ will be retained as ^
FloridaFirst's initial capitalization. ^ See pages __________.
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<PAGE>
Dividends
We anticipate paying a cash dividend, although the amount and frequency
has not been determined. There are restrictions on our ability to pay dividends.
See pages __________.
^ Conditions to Completion of the Offering and Issuance of the Stock
The stock offering is contingent upon:
o receipt of all required regulatory approvals;
o approval by the members of First Federal; and
o the sale of at least the minimum number of shares offered.
^
^
^
^
^
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RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
^ Takeover Restrictions In Our Governing Instruments and Voting Control of
Management May Discourage or Preclude Takeover Attempts
Mutual Holding Company Structure. Under federal regulations ^,
FloridaFirst Bancorp MHC must own at least a majority of ^ FloridaFirst's stock
at all times after the offering. The directors of FloridaFirst Bancorp MHC will
be elected by depositors of First Federal. FloridaFirst Bancorp MHC will be
controlled by the same directors and officers who control ^ FloridaFirst and
First Federal. Because of this, our directors and management will be able to
control the voting of a majority of our ^ stock.
Provisions in the Company's Governing Instruments. ^ FloridaFirst's
charter and bylaws provide for, among other things, a staggered board of
directors, noncumulative voting for directors, limits on the calling of special
meetings, and limits on a person or group voting shares in excess of 10% of the
outstanding shares. These restrictions may discourage proxy contests and other
takeover attempts, particularly those which have not been negotiated with the
Board of Directors, and thus may perpetuate current management. See
^"Restrictions on Acquisition of the Company."
Ownership and Control of Common Stock by Management. Our directors and
executive officers are expected to purchase approximately 127,500 shares of ^
stock in the offering (6.2% at the midpoint of the offering range). In addition,
approximately 8% of the shares of common stock issued in the offering are
expected to be purchased by the ^ First Federal employee stock ownership plan.
Shares owned by the ^ First Federal employee stock ownership plan but not yet
allocated to the accounts of participants will be voted by the ^ trustee
committee comprised of non-employee directors. Further, because of ^
FloridaFirst Bancorp MHC's ownership of 53% of our stock, current officers and
directors will control ^ approximately 60% of the total number of shares
outstanding at the completion of the ^ offering. To the extent we implement
stock benefit plans, the ownership and control by officers and directors would
increase. See "Management - Executive Compensation - Employee Stock Ownership
Plan" and "- Potential Stock Benefit Plans."
Cash Payments Upon a Change in Control. Certain provisions of
employment agreements with our key officers provide for cash payments in the
event of a change in control. These provisions increase the cost of, and may
discourage a future attempt to acquire ^ FloridaFirst, and thus generally may
serve to perpetuate current management. See "Management - Executive Compensation
- - Employment Agreements."
^ Our Credit Risk Will Increase As We Increase Our Commercial and Consumer
Lending
^ Like any company in the business of lending money, First Federal
faces "credit risk," that is the risk that its borrowers will not pay back their
loans. Because First Federal's lending has traditionally consisted of loans
secured by the borrower's home, its exposure to credit risk has not been as
great as that faced by other lenders. Over the past five years, however, First
Federal has significantly increased its origination of commercial real estate
loans and intends to continue to do so. First Federal also intends to continue
to expand its origination of home equity loans and consumer loan products, such
as automobile loans. This type of lending has a greater degree of credit risk
than traditional one- to four-family residential lending, which could result in
increases in non-performing
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<PAGE>
assets and provisions for loan losses. See "Business of the Bank - Lending
Activities - Consumer Loans."
^ Decline in Return on Equity May Affect the Trading Price of Our Stock
As a result of the offering, equity capital will increase
substantially. Our ability to leverage this capital will be significantly
affected by competition for loans and deposits and economic conditions. Expenses
will increase because of the costs associated with the stock based benefit
plans, and the costs of being a public company. The offering of new types of
commercial and consumer products will also increase ongoing operating expenses.
Because of the increases in equity and expenses, return on equity may decrease
as compared to previous years. A low return on equity could reduce the trading
price of the stock.
Expenses Associated with ^ Stock-Based Benefit Plans Will Reduce Our Earnings
The ESOP currently intends to purchase up to 8% of the common stock
offered in the offering. The net proceeds of the offering available for
investment ^ will be reduced by the cost of the shares (including the costs of
borrowing) bought by the ESOP. ^ In the future, we intend to purchase up to 4%
of our shares to fund stock based incentive plan. This will also reduce the
amount of funds available for other investments. In addition, significant
employee compensation and benefit expenses ^ will be incurred for these plans.
See "Pro Forma Data" and "Management - Executive Compensation - Employee Stock
Ownership Plan."
^ If FloridaFirst Bancorp MHC Converts to Stock Form in the Future, Our
Stockholders Will Have Their Percentage Ownership Reduced.
If FloridaFirst Bancorp MHC converts to stock form in the future,
stockholders of FloridaFirst would exchange their stock for stock of the
converted FloridaFirst Bancorp MHC. The related stock offering would likely (1)
provide subscription rights to members of First Federal, (2) limit the maximum
number of shares that could be purchased by a person and (3) include shares
received in exchange of FloridaFirst stock in the maximum number of shares that
could be purchased. This could mean that FloridaFirst stockholders who own a
large amount of stock might not be able to exercise their subscription rights
for stock sold by the converted FloridaFirst Bancorp MHC or, possibly, be forced
to sell some stock (if the maximum purchase limit were below the number of
shares of stock that such a person would own after they received shares in
exchange of our shares they already owned).
If FloridaFirst pays dividends, FloridaFirst Bancorp MHC may elect not
to receive dividends on the shares it owns. This will enable FloridaFirst to pay
a larger dividend to its public stockholders. If this happens, the amount of the
dividends not received would reduce the percentage ownership that minority
stockholders would receive in exchange of their shares of FloridaFirst for
shares of stock of the converted FloridaFirst Bancorp MHC. See "MHC Conversion
to Stock Form." In addition, the value of assets owned by FloridaFirst Bancorp
MHC also would reduce the percentage ownership that minority stockholders of
FloridaFirst would receive upon the exchange of shares.
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Profitability is Dependent Upon Our Local Economy and Our Ability to Compete for
Business
First Federal primarily conducts its business of attracting deposits
and making loans within its market area. A downturn in the local economy could
reduce the amount of funds available for deposit and the ability of borrowers to
repay their loans. As a result, First Federal's profitability could be hurt.
First Federal has substantial competition for deposits and loans. Many
competitors have greater resources than First Federal. First Federal's ability
to compete successfully will affect its profitability.
If Our Computer Systems Do Not Work Properly with Year 2000 Date, Our Business
Operations will be Significantly Disrupted
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to our operations. Data processing is
also essential to most other financial institutions and many other companies.
Most of ^ our material data processing that could be affected by this
problem is provided by a third party service bureau. ^ If our third party
service bureau ^ does not resolve this problem ^, we would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on ^ our financial condition
and ^ profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - Year 2000
Readiness Disclosure."
Regulatory and Legislative Changes Could Hurt Our Profitability and the Trading
Price of Our Stock
We operate in a highly regulated industry. The government could adopt
regulations or enact laws which restrict our operations or impose burdensome
requirements upon us. This could reduce our profitability and the value of our
franchise which could hurt the trading price of our stock.
Changes in Interest Rates May Reduce Our Profits
Our ability to make a profit largely depends on our net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets (such as mortgage loans and investment
securities) and the interest expense we pay on our interest-bearing liabilities
(such as deposits and borrowings). Most of our mortgage loans have rates of
interest which are fixed for the term of the loan ("fixed rates") and are
generally originated with terms of up to 30 years, while our deposit accounts
have significantly shorter terms to maturity. Because our interest-earning
assets generally have fixed rates of interest and have longer effective
maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities, which are primarily
time deposits. As a result, our net interest income may be adversely affected by
material and prolonged increases in interest rates. In addition, rising interest
rates may adversely affect our earnings because there may be a lack of customer
demand for loans. Declining interest rates may also adversely affect our net
interest income if adjustable rate or fixed rate mortgage loans are refinanced
at lower rates or prepaid, and we reinvest the resulting funds in lower yielding
assets. See "Management's Discussion
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and Analysis of Financial Condition and Results of Operations -- Management of
Interest Rate Risk and Market Risk."
Limited Market for Stock Could Make It Difficult to Buy or Sell Our Stock
Due to the relatively small size of the offering (due, in part from the
public offering of less than half of the shares to be issued), you have no
assurance that an active and liquid market for the stock will exist. You should
consider the potentially illiquid nature of an investment in the stock and
recognize that the absence of an established market might make it difficult to
buy or sell the stock. See "Market for the Stock."
FIRST FEDERAL FLORIDA
First Federal Florida ("First Federal" or "Bank") is a federally
chartered mutual savings institution, originally chartered in 1934 as First
Federal Savings and Loan Association of Lakeland. The Bank became a member of
the Federal Home Loan Bank ("FHLB") System in 1934 and the Bank's deposits are
currently insured by the Savings Association Insurance Fund ("SAIF") as
administered by the FDIC. The Bank is regulated by the ^ Office of Thrift
Supervision ("OTS") and the FDIC.
The Bank is a community-oriented retail savings bank offering
traditional deposit, residential real estate mortgage loans and, to a lesser
extent, commercial real estate loans, consumer loans and other loans. Through ^
its nine offices located in Polk and Manatee Counties in Florida, ^ the Bank
provides retail banking services, with an emphasis on one- to four-family
residential mortgages. Currently, the Bank originates 15 year and 30 year
conforming fixed rate residential mortgage loans primarily for its asset
portfolio. At September 30, 1998, net loans receivable amounted to approximately
$338.6 million or 80.8% of total assets, of which approximately $244.7 million
or 72.3% of such total was secured by one- to four-family residential real
estate. The Bank invests excess liquidity in mortgage-backed and investment
securities (consisting primarily of U.S. government agency securities).
Investment and mortgage-backed securities amounted to $61.0 million or 14.6% of
total assets at September 30, 1998. At September 30, 1998, the Bank had total
assets, deposits and total equity of $419.0 million, $352.2 million, and $36.1
million, respectively. See "Business of the Bank."
FLORIDAFIRST BANCORP
^ FloridaFirst Bancorp ("FloridaFirst" or "Company") is a federally
chartered corporation organized on __________ ____, ^ 1999 at the direction of
the Bank to acquire all of the capital stock that the Bank will issue upon its
conversion from the mutual to stock form of ownership. ^ The Company has not
engaged in any significant business to date but will serve as a holding company
of the Bank following the reorganization. A majority of our ^ stock will, in
turn, be owned by ^ FloridaFirst Bancorp MHC. We have applied for approval to
acquire control of the Bank. We will retain up to 50% of the net proceeds from
the issuance of ^ shares of stock as our initial capitalization ^. Part of the
proceeds retained by us will be used to fund the loan to the Bank's ESOP. We
will use the balance of the net proceeds to purchase all of the common stock of
the Bank to be issued upon conversion. Upon consummation of the reorganization,
we will have no significant assets other than that portion of the net proceeds
of the offering, the promissory note representing the amount of our loan to the
Bank's ESOP, and the shares of the Bank's capital stock acquired in the
reorganization, and we will have no significant liabilities. Our cash flow will
be dependent upon earnings from the investment of the portion of net proceeds we
retain in the reorganization and any dividends received
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from the Bank. See "Use of Proceeds."
Management believes that the holding company structure will provide
flexibility for possible diversification of business activities through existing
or newly-formed subsidiaries, or through acquisitions of or mergers with both
savings institutions and commercial banks, as well as other financial services
related companies. Although there are no current arrangements, understandings,
or agreements regarding any such opportunities, the Company will be in a
position after the reorganization, subject to regulatory limitations and the
Company's financial condition, to take advantage of any such acquisition and
expansion opportunities that may arise. However, some of these activities could
be deemed to entail a greater risk than the activities permissible for federally
chartered savings institutions such as the Bank. The initial activities of the
Company are anticipated to be funded by the portion of the net proceeds retained
by the Company and earnings thereon.
FLORIDAFIRST BANCORP, MHC
As part of the reorganization, the Bank will organize ^ FloridaFirst
Bancorp MHC ("MHC") as a federally chartered mutual holding company. As long as
they remain depositors of the Bank, persons who had liquidation rights with
respect to the Bank as of the date of the reorganization will continue to have
such rights solely with respect to the MHC after the reorganization. Voting
rights in the MHC will be limited to its members. The members of the MHC consist
of persons who have deposits in the Bank or had a loan from the Bank on October
23, 1984 and the loan is still outstanding.
The MHC's principal assets will be the shares of ^ stock of
FloridaFirst received in the reorganization and up to $200,000 received as its
initial capitalization in the reorganization. Immediately after consummation of
the reorganization, it is expected that the MHC will not engage in any business
activity other than its investment in a majority of the common stock of the
Company and its initial capitalization. The MHC will be a mutual corporation
chartered under federal law and regulated by the OTS ^. The MHC will be subject
to the limitations and restrictions imposed on savings ^ and loan holding
companies under federal law. See "Regulation - Regulation of the Company."
USE OF PROCEEDS
The net proceeds will depend on the total number of shares of ^ stock
issued in the offering, which will ^ depend on the independent valuation and
marketing considerations, and the expenses incurred by the Company and the Bank
in connection with the offering. Although the actual net proceeds from the sale
of the common stock cannot be determined until the offering is completed, it is
currently estimated that net proceeds, assuming the sale of 1,737,825 and
2,351,175 shares of stock at $10.00 per share, would be approximately $16.4
million and $22.5 million respectively. The actual net proceeds may vary from
these estimates because, among other things, actual expenses may be more or less
than those estimated.
^ Approximately 50% of the net proceeds ^ will be used by the Company
to purchase ^ all of the ^ stock of the Bank that is issued. The Company intends
to use a portion of the net proceeds it retains to make a loan directly to the
ESOP to enable the ESOP to purchase stock in the offering^. The remainder of the
net proceeds^ will be retained by the Company as its initial capitalization ^.
These funds will initially be invested in U.S. government and federal agency
securities, marketable securities, or a combination of both. Proceeds from the
offering may also be used to fund repurchases of the Company's stock. See "The
Offering - Restrictions on Repurchases of Shares."
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<PAGE>
The ^ funds received by the Bank from the Company in return for the
purchase of all its stock to be issued will be used for general corporate
purposes ^. These funds will increase the Bank's total capital to expand
investment and lending, internal growth, and possible external growth through
the expansion and refurbishment of its branch office system within its existing
market areas, including the installation of automated teller machines ("ATMs"),
technological advancements and expansion of its commercial and consumer lending
programs. However, there are no current agreements ^ or arrangements regarding
expansion. Net proceeds may also be used by the Bank to make contributions to
the ESOP which in turn would be used to repay the loan from the Company.
In the event the ESOP does not purchase common stock in the offering,
the ESOP may purchase shares of common stock in the market after the
reorganization. In the event the purchase price of the common stock is higher
than $10.00 per share, the amount of proceeds required for the purchase by the
ESOP will increase and the resulting stockholders' equity will decrease.
The net proceeds may vary because total expenses of the reorganization
may be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the reorganization are adjusted to reflect a
change in the estimated pro forma market value of the Company and the Bank.
Payments for shares made through withdrawals from existing Bank deposit accounts
will not result in the receipt of new funds for investment by the Bank but will
result in a reduction of the Bank's deposits and interest expense as funds are
transferred from interest bearing certificates or other deposit accounts.
DIVIDEND POLICY
The Company intends to establish a policy to pay cash dividends ^. The
initial annual amount of the dividends ^ has not yet ^ been determined.
Dividends will be subject to determination and declaration by the Company's
Board of Directors ^. In making its decision, the Board of Directors will
consider several factors, including:
o the Company's financial condition^;
o results of operations^;
o tax considerations;
o industry standards; and
o economic conditions;
The MHC, as a stockholder of the Company, is entitled to receive
dividends from the Company. The board of directors of the MHC may decide to
waive the receipt of dividends in order to pay a higher dividend to the public
stockholders of the Company. If the MHC elects not to waive receipt of dividends
from the Company or if the OTS does not approve such a waiver, the amount of
dividends may be adversely affected. See "Risk Factors - ^ If FloridaFirst
Bancorp MHC Converts to Stock Form in the Future, Our Stockholders Will Have
Their Percentage Ownership Reduced" and "Waiver of Dividends by the MHC." There
can be no assurance that dividends will in fact be paid on the ^ stock or that,
if paid, such dividends will not be reduced or eliminated in future periods.
The Company's ability to pay dividends also depends on the receipt of
dividends from the Bank which is subject to a variety of regulatory limitations
on the payment of dividends. See "Regulation -- Regulation of the Bank --
Dividend and Other Capital Distribution Limitations." Furthermore, as a
condition to OTS approval of the reorganization, the Company has agreed that it
will not initiate any action within one year of completion of the reorganization
in the furtherance of payment of a special distribution or return of capital (as
distinguished from a regular or special
14
<PAGE>
dividend payment in the ordinary course of business) to stockholders of the
Company. See also "Waiver of Dividends by the MHC."
In addition to the foregoing, earnings of the Bank appropriated to bad
debt reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then-current tax rate by the Bank on the amount of earnings
deemed to be removed from the reserves for such distribution. See "Taxation" and
Note 10 of the financial statements. The Bank does not contemplate any
distribution out of its bad debt reserve which would cause such tax liability.
WAIVER OF DIVIDENDS BY THE MHC
The MHC, prior to the declaration of any dividends by the Company, will
determine whether to apply to the OTS for permission to waive the receipt of any
dividends paid by the Company to its stockholders. Any waiver of dividends, if
approved by the OTS, will be subject to various conditions. There can be,
however, no assurances that the OTS will approve such application or if such
approval is obtained, that the MHC will continue to waive dividends. In waiving
dividends, the Board of Directors must conclude, among other things, that a
dividend waiver by the MHC, which permits retention of capital by the Company
and the Bank, is in the best interest of the MHC because, among other reasons:
^(1) the MHC has no need for the dividend for its business operations; ^(2) the
cash that would be received by the MHC could be invested by the Company and the
Bank at a more favorable rate of return; ^(3) such waiver increases the capital
of the Company and the Bank and enhances the Bank's business so that customers
will continue to have access to the offices and services of the Bank; and ^(4)
such waiver preserves the net worth of the MHC through its principal asset (the
common stock of the Company), which would be available for distribution in the
unlikely event of a voluntary liquidation of the Company and the Bank after
satisfaction of claims of depositors, other creditors and minority stockholders.
If the MHC determines that the waiver of dividends is in the best
interest of the parties involved:
o The MHC will make prior application to the OTS for approval to waive any
dividends declared on the capital stock of the Company. Such application
will be made on an annual basis with respect to any year in which the MHC
intends to waive such dividends.
o If a waiver is granted, dividends waived by the MHC will not be available
for payment to minority stockholders and will be excluded from the capital
accounts of the Bank for purposes of calculating any dividend payments to
minority stockholders.
o If a waiver is granted, the Bank will, so long as the MHC remains a mutual
holding company, establish a restricted capital account in the cumulative
amount of any dividends waived by the MHC for the benefit of the mutual
members of the MHC. The restricted capital account would be senior to the
claims of minority stockholders of the Company and would not decrease
notwithstanding changes in depositors of the Bank. This restricted capital
account would be added to any liquidation account in the Bank established
in connection with a conversion of the MHC to stock form and would not be
available for distribution to minority stockholders.
o In any conversion of the MHC from mutual to stock form, the Bank, Company
and MHC will comply with the requirements of the OTS.
15
<PAGE>
o In the event that the OTS adopts regulations regarding dividend waivers by
mutual holding companies, the MHC will comply with the applicable
requirements of such regulations. See "MHC Conversion to Stock Form."
Immediately after the reorganization, it is expected that the MHC's
operations will consist of activities relating to its investment in a majority
of the common stock of the Company and its initial capitalization. In the
future, the MHC may accept dividends paid by the Company to be used for other
purposes, including purchasing common stock from time to time in the open market
or from the Company, if permitted. The Company may establish an open market
purchase dividend reinvestment plan, pursuant to which stockholders may elect to
have cash dividends used to purchase additional shares of common stock in the
open market. The MHC may participate in any such plan. There can be no
assurances that the MHC will accept dividends paid by the Company, or if such
dividends are accepted, that the MHC will purchase shares of common stock in the
open market. Any purchases of common stock other than from the MHC will increase
the percentage of the Company's outstanding shares of common stock held by the
MHC and increase the number of shares eligible to be sold in any subsequent
secondary offering or mutual to stock conversion of the MHC.
MHC CONVERSION TO STOCK FORM
Following completion of the reorganization, the MHC may elect to
convert to stock form in accordance with applicable federal law, if any. The
MHC's directors, who will be the initial directors of the Bank and the Company,
have no current plans to convert the MHC to stock form. The terms of such a
conversion cannot be determined at this time and there is no assurance when, if
ever, a conversion will occur. In the event of a conversion, minority
stockholders will be entitled to exchange their shares of common stock for
shares of the converted MHC in a manner that is fair and reasonable to such
stockholders and the MHC. This will include an appropriate downward adjustment
in the exchange ratio to account for waived dividends, if any. See "Risk Factors
- - ^ If FloridaFirst Bancorp MHC Converts to Stock Form in the Future, Our
Stockholders Will Have Their Percentage Ownership Reduced." Moreover, in the
event that the MHC converts to stock form in a conversion, any options or other
convertible securities held by any trustee, officer, or employee of the Company,
will be convertible into the right to acquire shares of the converted MHC (or
its successor) on the same basis as outstanding common stock (pursuant to
applicable exchange ratios); provided, however, that if such shares cannot be so
converted, the holders of such options or other convertible securities shall be
entitled to receive cash equal to the fair value of such options or convertible
securities. Any exchange or redemption will be subject to the approval of the
OTS and the OTS has made no determination as to the permissibility of any
exchange or redemption described in the plan of reorganization.
Although the plan of reorganization allows for such an event, there can
be no assurances when, if ever, a conversion will occur, or what conditions may
be imposed by the OTS. If a conversion does not occur, the MHC will always own a
majority of the common stock of the Company.
MARKET FOR COMMON STOCK
The Company has never issued capital stock. Consequently, there is not,
at this time, any market for the ^ stock. The Company has received preliminary
approval to have the ^ stock quoted on the National Market of the Nasdaq Stock
Market under the symbol "__________." ^ One of the conditions for Nasdaq
quotation ^ is that at least three market makers make, or agree to make, a
market in the stock. The Company will seek to encourage and assist at least
three market makers to
16
<PAGE>
make a market in the ^ stock. Sandler O'Neill intends to make a market in the ^
stock upon the completion of the offering, subject to compliance with applicable
laws and regulations, but is under no obligation to do so. While the Company
anticipates that prior to the completion of the offering it will obtain a
commitment from at least two other broker-dealers to make a market in the ^
stock, there can be no assurance that there will be three or more market makers
for the ^ stock.
An active and liquid market for the ^ stock may not develop or be
maintained. Accordingly, prospective purchasers should consider the potentially
illiquid nature of an investment in the ^ stock and recognize that the absence
of an established market might make it difficult to buy or sell the ^ stock. In
the event the ^ stock is not listed on the National Market, the ^ stock is
expected to be quoted and traded on either the SmallCap Market of The Nasdaq
Stock Market or the OTC Bulletin Board.
The aggregate price of the ^ stock is based upon an independent
appraisal of the pro forma market value of the ^ stock. However, there can be no
assurance that an investor will be able to sell the ^ stock purchased in the
offering at prices in the range of the pro forma book values of the ^ stock or
at or above the initial purchase price of $10.00. See "Pro Forma Data" and "The
Offering Stock Pricing and Number of Shares to be Offered."
17
<PAGE>
CAPITALIZATION
Set forth below is the historical capitalization^ of the Bank as of
September 30, 1998, and the pro forma capitalization of the Company after giving
effect to the ^ offering. The table also gives affect to the assumptions set
forth under "Pro Forma Data." A change in the number of shares ^ sold in the
offering may affect materially ^ the pro forma capitalization.
<TABLE>
<CAPTION>
Pro Forma Capitalization at September 30, 1998
------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
1,737,825 2,044,500 2,351,175 2,703,851
Actual, at Shares at Shares at Shares at Shares at
September 30, $10.00 per $10.00 per $10.00 per $10.00 per
1998 share share share share(1)
-------------- ------------- ------------ --------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................... $352,180 $352,180 $ 352,180 $352,180 $352,180
Borrowed funds............................... 21,000 21,000 21,000 21,000 21,000
------- ------- ------- ------- -------
Total deposits and borrowed funds............. $373,180 $373,180 $373,180 $373,180 $373,180
======= ======= ======= ======= =======
Stockholders' equity:
Preferred stock, no par value, 2,000,000
shares authorized; none to be issued........ $ -- $ -- -- $ -- --
Common stock, $0.10 par value, 8,000,000
shares authorized, assuming shares
outstanding as shown(3)................... -- 370 435 500 575
Additional paid-in capital(3)(4).............. -- 15,805 18,785 21,766 25,193
Retained earnings............................. 35,887 35,887 35,887 35,887 35,887
Unrealized gain on securities available
for sale, net............................... 220 220 220 220 220
Less:
Common stock acquired by ESOP(5)............ -- (1,390) (1,636) (1,881) (2,163)
Common stock acquired by
stock programs(6)......................... -- (695) (818) (940) (1,082)
------- -------- --------- ---------- ----------
Total equity/stockholders' equity............. $ 36,107 $ 50,197 $ 52,873 $ 55,552 $ 58,630
======= ======== ========= ========== ==========
</TABLE>
- ------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the independent valuation and a
commensurate increase in the offering range of up to 15% to reflect changes
in market and financial conditions.
(2) Does not reflect withdrawals from deposit accounts for the purchase of ^
stock in the offering. Such withdrawals would reduce pro forma deposits by
the amount of such withdrawals.
(3) No effect has been given to the issuance of additional shares of ^ stock
pursuant to any stock option plans that may be adopted by the Company and
the Bank and presented for approval by the minority stockholders after the
offering. An amount equal to 10% of the shares of ^ stock sold in the
offering would be reserved for issuance upon the exercise of options to be
granted under the stock option plans within one year following the
reorganization. See "Risk Factors - Expenses Associated with ^ Stock
Benefit Plans Will Reduce Our Earnings" and "Management - Potential Stock
Benefit Plans - Stock Options Plans."
(4) The reduction in additional paid in capital of the Bank reflects the
retention by the MHC of up to $200,000 upon consummation of the
reorganization.
(5) Assumes that 8.0% of the shares sold in the offering will be purchased by
the ESOP, and that the funds used to acquire the ESOP shares will be
borrowed from the Company. For an estimate of the impact of the loan on
earnings, see "Pro Forma Data." The Bank intends to make scheduled
discretionary contributions to the ESOP sufficient to enable the ESOP to
service and repay its debt over a ten year period. The amount of shares to
be acquired by the ESOP is reflected as a reduction of stockholders'
equity. See "Management - Executive Compensation - Employee Stock Ownership
Plan." If the ESOP is unable to purchase ^ stock in the reorganization due
to an oversubscription in the offering by Eligible Account Holders, and the
purchase price in the open market is greater than the original $10.00 price
per share, there will be a corresponding reduction in stockholders' equity.
(6) Assumes that an amount equal to 4% of the shares of ^ stock sold in the
offering is purchased by stock programs within one year following the
reorganization. The ^ stock purchased by the stock programs is reflected as
a reduction of stockholders' equity. See "Risk Factors - Expenses
Associated with ^ Stock Benefit Plans Will Reduce Our Earnings" and
"Management - Potential Stock Benefit Plans - Stock Programs."
18
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the ^ stock cannot be
determined until the offering is completed. However, net proceeds to the Company
are currently estimated to be between $16.2 million and $22.3 million (or $25.8
million in the event the independent valuation is increased by 15%) based upon
the following assumptions: (i) an amount equal to 4% of the shares offered will
be awarded pursuant to the stock programs (which will be adopted no sooner than
six months following the offering), funded through open market purchases; (ii)
Sandler O'Neill will receive an advisory and marketing fee equal to 0.75% of the
aggregate purchase price of the shares of ^ stock sold in the offerings to the
public, excluding any shares purchased by any employee benefit plan of the Bank,
and any director, officer or employee of the Bank or members of their immediate
families; and (iii) other fixed expenses incurred in connection with the
offering are estimated to be $893,000. As part of the reorganization, the MHC
will be capitalized at $200,000, which will result in a reduction of the
Company's assets and equity by the same amount.
Pro forma earnings have been calculated assuming the ^ stock had been
sold at the beginning of the period and the net proceeds had been invested at an
average yield of 4.40% for the year ended September 30, 1998, which approximates
the yield on a one-year U.S. Treasury bill on September 30, 1998. The yield on a
one-year U.S. Treasury bill, rather than an arithmetic average of the average
yield on interest-earning assets and average rate paid on deposits, has been
used to estimate income on net proceeds because it is believed that the one-year
U.S. Treasury bill rate is a more accurate estimate of the rate that would be
obtained on an investment of net proceeds from the offering. The pro forma
after-tax yield is assumed to be 2.75% for the year ended September 30, 1998,
based on an effective tax rate of 37.5%. The effect of withdrawals from deposit
accounts for the purchase of ^ stock has not been reflected. Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of ^ stock, as adjusted (in the
case of pro forma net earnings per share) to give effect to the purchase of
shares by the ESOP. Pro forma stockholders' equity amounts have been calculated
as if the ^ stock had been sold on September 30, 1998 and, accordingly, no
effect has been given to the assumed earnings effect of the transactions.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of consolidated assets and liabilities
of the Company computed in accordance with generally accepted accounting
principles ("GAAP"). The pro forma stockholders' equity is not intended to
represent the fair market value of the ^ stock and may be greater than amounts
that would be available for distribution to stockholders in the event of
liquidation.
The following tables summarize historical data of the Bank and pro
forma data of the Company at or for the year ended September 30, 1998, based on
the assumptions set forth above and in the tables and should not be used as a
basis for projections of market value of the ^ stock following the
reorganization. No effect has been given in the tables to the possible issuance
of additional ^ stock reserved for future issuance pursuant to a stock option
plan that may be adopted by the Board of Directors of the Company within one
year following the reorganization, nor does book value give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or the bad debt reserve in
liquidation. See "The Reorganization - Effects of Reorganization - Liquidation
Rights" and "Management - Potential Stock Benefit Plans - Stock Option Plans."
19
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1998
------------------------------------------------------------
$36,975,000 $43,500,000 $50,025,000 $57,528,750
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
1,737,825 2,044,500 2,351,175 2,703,851
Shares Shares Shares Shares
------ ------ ------ ------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds .................................. $ 17,378 $ 20,445 $ 23,512 $ 27,039
Less expenses ................................... (1,003) (1,025) (1,046) (1,070)
Less capital to MHC ............................ (200) (200) (200) (200)
----------- ----------- ----------- -----------
Estimated net proceeds ....................... 16,175 19,220 22,266 25,769
Less ESOP funded by the Company ................. (1,390) (1,636) (1,881) (2,163)
Less stock programs adjustment .................. (695) (818) (940) (1,082)
----------- ----------- ----------- -----------
Estimated investable net proceeds ............ $ 14,090 $ 16,766 $ 19,445 $ 22,524
=========== =========== =========== ===========
Net Income:
Historical ................................... $ 2,385 $ 2,385 $ 2,385 $ 2,385
Pro forma income on net proceeds ............. 387 461 535 619
Pro forma ESOP adjustments(1) ................ (87) (102) (118) (135)
Pro forma stock programs adjustment(2) ....... (87) (102) (118) (135)
----------- ----------- ----------- -----------
Pro forma net income(1)(3)(4) ................ $ 2,598 $ 2,642 $ 2,684 $ 2,734
=========== =========== =========== ===========
Per share net income
Historical ................................... $ 0.67 $ 0.57 $ 0.49 $ 0.43
Pro forma income on net proceeds ............. 0.11 0.11 0.11 0.11
Pro forma ESOP adjustments(1) ................ (0.02) (0.02) (0.02) (0.02)
Pro forma stock programs adjustment(2) ....... (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share(1)(3)(4) ...... $ 0.73 $ 0.63 $ 0.56 $ 0.49
=========== =========== =========== ===========
Shares used in calculation of income per share(1) 3,572,377 4,202,796 4,833,215 5,558,198
Stockholders' equity:
Historical ................................... $ 36,107 $ 36,107 $ 36,107 $ 36,107
Estimated net proceeds ....................... 16,175 19,220 22,266 25,769
Less: Common Stock acquired ESOP(1)......... (1,390) (1,636) (1,881) (2,163)
Less: Common Stock acquired by stock
programs(2) .................... (695) (818) (940) (1,082)
----------- ----------- ----------- -----------
Pro forma stockholders' equity(1)(3)(4) ...... $ 50,197 $ 52,873 $ 55,552 $ 58,631
=========== =========== =========== =========
Stockholders' equity per share:
Historical ................................... $ 9.77 $ 8.30 $ 7.22 $ 6.28
Estimated net proceeds ....................... 4.37 4.42 4.45 4.48
Less: Common Stock acquired ESOP(1)......... (0.38) (0.38) (0.38) (0.38)
Less: ..Common stock acquired by stock........
programs(2) .................... (0.19) (0.19) (0.19) (0.19)
----------- ----------- ----------- -----------
Pro forma stockholders' equity per share(4) .. $ 13.58 $ 12.15 $ 11.10 $ 10.19
=========== =========== =========== ===========
Offering price as a percentage of pro forma
stockholders' equity per share ................ 73.66% 82.27% 90.05% 98.12%
=========== =========== =========== ===========
Offering price to pro forma
net income per share .......................... 13.75X 15.91X 18.01X 20.33X
=========== =========== =========== ===========
Shares used in calculation of book value/share .. 3,697,500 4,350,000 5,002,500 5,752,875
</TABLE>
- -------------------
(1) Assumes that 8% of the shares of ^ stock sold in the offering will be
purchased by the ESOP and that the ESOP will borrow funds from the
Company. The ^ stock acquired by the ESOP is reflected as a reduction
of stockholder's equity. The Bank intends to make annual contributions
to the ESOP in an amount at least equal to the principal and interest
requirement of the loan. This table assumes a 10 year amortization
period. See "Management - Executive Compensation - Employee Stock
Ownership
20
<PAGE>
Plan." The pro forma net earnings assumes: (i) that the Bank's contribution to
the ESOP for the principal portion of the debt service requirement for the
year ended September 30, 1998 were made at the end of the period; (ii) that
13,903, 16,356, 18,809, and 21,631 shares at the minimum, midpoint,
maximum, and 15% above the maximum of the range, respectively, were
committed to be released during the year ended September 30, 1998 at an
average fair value of $10.00 per share and were accounted for as a charge
to expense in accordance with Statement of Position ("SOP") No. 93-6; and
(iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations, while
all ESOP shares were considered outstanding for purposes of the
stockholders' equity per share calculations. See also "Risk Factors -
Expenses Associated ^ and Stock Benefit ^ Plans Will Reduce Our Earnings'
for a discussion of possible added costs for the ESOP.
(2) Gives effect to the stock programs that may be adopted by the Bank
following the reorganization and presented for approval at a meeting of
stockholders to be held within one year after completion of the
reorganization. If the stock programs are approved by the stockholders, the
stock programs would be expected to acquire an amount of ^ stock equal to
4% of the shares of ^ stock sold in the offering, or 69,513, 81,780,
94,047, and 108,154 shares of ^ stock respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range through open
market purchases. Funds used by the stock programs to purchase the shares
will be contributed to the stock programs by the Bank. In calculating the
pro forma effect of the stock programs, it is assumed that the required
stockholder approval has been received, that the shares were acquired by
the stock programs at the beginning of the year ended September 30, 1998
through open market purchases, at $10.00 per share, and that 20% of the
amount contributed was amortized to expense during the year ended September
30, 1998. There can be no assurance that stockholder approval of the stock
programs will be obtained, or the actual purchase price of the shares will
be equal to $10.00 per share. See "Management - Potential Stock Benefit
Plans -Stock Programs."
(3) The retained earnings of the Company and the Bank will continue to be
substantially restricted after the reorganization. See "Dividend Policy,"
"The Reorganization - Effects of Reorganization - Liquidation Rights" and
"Regulation - Regulation of the Bank - Dividends and Other Capital
Distribution Limitations."
(4) No effect has been given to the issuance of additional shares of ^ stock
pursuant to the stock option plans that may be adopted by the Bank
following the reorganization which, in turn, would be presented for
approval at a meeting of stockholders to be held within one year after the
completion of the reorganization. If the stock option plans are presented
and approved by stockholders, an amount equal to 10% of the ^ stock sold in
the offering, or 173,782, 204,450, 235,117, and 270,385 shares at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the stock option plans. The issuance of ^ stock
pursuant to the exercise of options under the stock option plans will
result in the dilution of existing stockholders' interests. Assuming
stockholder approval of the stock option plans and the exercise of all
options at the end of the period at an exercise price of $10.00 per share,
the pro forma net earnings per share would be $0.71, $0.61, $0.54, and
$0.48, respectively at the minimum, midpoint, maximum and 15% above the
maximum of the range for the year ended September 30, 1998; pro forma
stockholders' equity per share would be $13.42, $12.06, $11.06 and $10.18,
respectively at the minimum, midpoint, maximum and 15% above the maximum of
the range for the year ended September 30, 1998. See "Management -
Potential Stock Benefit Plans - Stock Option Plans."
21
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the Bank's historical and pro forma
capital position relative to its capital requirements as of September 30, 1998.
For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see "Use of Proceeds," "Capitalization" and "Pro
Forma Data." The definitions of the terms used in the table are those provided
in the capital regulations issued by the OTS. For a discussion of the capital
standards applicable to the Bank, see "Regulation - Regulation of the Bank -
Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1998
----------------------------------------------------------------------------------
Actual, at $17,378,250 $20,445,000 $23,511,750 $27,038,510
September 30, 1998 Offering Offering Offering Offering(1)
------------------- ------------------- -------------------- -------------------- --------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3)............ $36,107 8.6% $44,194 10.3% $45,717 10.7% $47,240 11.0% $48,991 11.3%
====== === ====== ===== ====== ===== ====== ====== ====== =====
Tangible Capital:
Actual or Pro Forma...... $35,887 8.6% $43,974 10.3% $45,497 10.6% $47,020 10.9% $48,771 11.3%
Required................. 6,286 1.5 6,407 1.5 6,430 1.5 6,453 1.5 6,479 1.5
------ --- ------ ----- ------ ----- ------ ------ ------ -----
Excess................... $29,601 7.1% $37,568 8.8% $39,067 9.1% $40,567 9.4% $42,292 9.8%
====== === ====== ===== ====== ===== ====== ====== ======= =====
Core Capital:
Actual or Pro Forma...... $35,887 8.6% $43,974 10.3% $45,497 10.6% $47,020 10.9% $48,771 11.3%
Required(4).............. 16,762 4.0 17,085 4.0 17,146 4.0 17,207 4.0 17,277 4.0
------ --- ------ ----- ------- ----- ------ ----- ------ -----
Excess................... $19,125 4.6% $26,889 6.3% 28,351 6.6% $29,813 6.9% $31,494 7.3%
====== === ====== ===== ======= ===== ====== ===== ====== =====
Risk-Based Capital:
Actual or Pro Forma(5)(6) $38,451 15.5% $46,538 18.5% $48,061 19.1% $49,584 19.6% $51,335 20.2%
Required................. 19,795 8.0 20,119 8.0 20,180 8.0 20,241 8.0 20,311 8.0
------ ---- ------ ----- ------ ----- ------ ----- ------ -----
Excess................... $18,656 7.5% $26,420 10.5% $27,882 11.1% $29,343 11.6% $31,025 12.2%
====== ==== ====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
- -----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted
assets.
3) GAAP Capital includes unrealized gain on available-for-sale securities,
net, which is not included as regulatory capital.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulations - Regulation of the Bank-Regulatory Capital
Requirements.
(5) Assumes net proceeds are invested in assets that carry a 50% risk-weighting
(6) The difference between equity under GAAP and regulatory risk-based capital
is attributable to the addition of the general valuation allowance of
$2,564,000 at September 30, 1998 and the subtraction of the unrealized gain
on available- for-sale securities, net of $220,000.
22
<PAGE>
^ RECENT DEVELOPMENTS
^ The information set forth below at or for the periods ended December
31, 1998 and 1997, is unaudited and, in the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results for the unaudited periods have been made. The
results of operations for the three months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the entire year
or any other period. This information should be read in conjunction with
^"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements contained elsewhere in this
prospectus.^
^ Selected Financial Data
^ At December 31, At September 30,
^ 1998 1998
--------------- ---------------
(Dollars in thousands)
Total Amount of:
Assets ......................................... $429,899 $419,041
Loans receivable, net .......................... 352,574 338,610
Investment securities .......................... 58,950 60,961
Cash and cash equivalents ...................... 7,368 5,217
Deposits ....................................... 348,016 352,180
FHLB advances .................................. 41,000 21,000
Equity (restricted) ............................ 36,565 36,107
Number of:
Real estate loans outstanding .................. 4,554 4,433
Deposit accounts ............................... 38,016 38,409
Full service offices ........................... 9 9
23
<PAGE>
<TABLE>
<CAPTION>
^ Summary of Operations
For the Three Months Ended
December 31,
--------------------------
1998 1997
---- ----
^(In thousands)
<S> <C> <C>
Interest and dividend income.................. $7,753 $8,893
Interest expense.............................. 4,282 5,365
----- -----
Net interest income......................... 3,471 3,528
Provision for loan losses..................... 150 105
------ ------
Net interest income after provision
for loan losses............................. 3,321 3,423
Other income.................................. 542 468
Other expense................................. 2,840 3,035
----- -----
Income before income taxes.................... 1,023 856
Provision for income taxes.................... 379 300
----- -----
^
Net income.................................... $ 644 $ 556
======= =======
</TABLE>
24
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or For the
Three Months Ended
December 31,
----------------------
1998(1) 1997(1)
------- -------
<S> <C> <C>
Performance Ratios:
Return on average assets....................................... .61% .47%
Return on average equity....................................... 7.01 6.40
Net interest rate spread....................................... 3.08 2.73
Net interest margin on average interest-earning assets......... 3.31 3.00
Average interest-earning assets to average
interest bearing liabilities................................... 112 109
Efficiency ratio............................................... 71 76
Asset Quality Ratios:
Non-performing loans to total assets........................... .25% .41%
Non-performing loans to total loans, net....................... .30 .53
Non-performing assets to total assets.......................... .29 .59
Net charge-offs to average loans outstanding................... .05 .07
Allowance for loan losses to total loans....................... .76 .74
Capital Ratios:
Average equity to average assets ratios........................ 8.68 7.38
Equity to assets at period end................................. 8.52 7.42
</TABLE>
- -----------------
(1) Annualized where appropriate.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RECENT DEVELOPMENTS
Comparison of Financial Condition at December 31,1998 and September 30,1998
Assets. Total assets increased $10.9 million, or 2.6%, to $429.9
million at December 31, 1998 from $419.0 million at September 30, 1998. The
increase in total assets resulted primarily from a $14.0 million, or 4.1%,
increase in the loan portfolio.
Liabilities. Total liabilities increased $10.4 million, or 2.7%, to
$393.3 million at December 31, 1998 from $382.9 million at September 30, 1998.
The increase in total liabilities resulted primarily from a $20.0 million
increase in FHLB advances utilized to fund the loan growth, partially offset by
a $4.2 million decrease in deposits and a $4.0 million decrease in amounts due
to banks. The decrease in deposits resulted from an outflow of certificates of
deposit due to the continued low interest rate environment.
Equity. The increase in the Bank's equity reflects the $644,000 in net
income for the three months ended December 31, 1998 and a decrease of $186,000
in the net unrealized gain on investments available for sale.
Comparison of Operating Results for the Three Months Ended December 31, 1998 and
December 31, 1997
Net Income. Net income for the three months ended December 31, 1998
increased 15.8% to $644,000, compared to $556,000 for the same period in 1997.
Net income was affected by an overall reduction in non-interest expenses related
to the Branch Sale.
Net interest income decreased $57,000, or 1.6%, for the three months
ended December 31, 1998 compared to the three months ended December 31, 1997.
This slight decrease resulted from a decrease in interest income of $1.1 million
which substantially offset a smaller decrease in interest expense. Other income
increased to $542,000 for the three months ended December 31, 1998 from $468,000
for the three months ended December 31, 1997, resulting primarily from increased
service fees on customer accounts. Other expenses decreased to $2.8 million for
the three months ended December 31, 1998 from $3.0 million for the three months
ended December 31, 1997, due primarily to cost savings related to the Branch
Sale.
Interest Income. Total interest income decreased to $7.8 million for
the three months ended December 31, 1998 from $8.9 million for the three months
ended December 31, 1997, as a result of a 10% decrease in average
interest-earning assets and a 24 basis point decrease in the overall portfolio
yield. Average interest-earning assets decreased to $411.0 million for the three
months ended December 31, 1998 from $456.9 million for the three months ended
December 31, 1997. This decrease resulted from the $52.5 million transfer of
assets ($44.6 million in loans) in the Branch Sale, partially offset by new loan
growth. The average rate earned on interest-earning assets decreased to 7.54%
for the three months ended December 31, 1998 from 7.79% for the three months
ended December 31, 1997, a decrease of 25 basis points, Interest income on loans
decreased $645,000 to $6.8 million for the three months ended December 31, 1998
from $7.4 million for the three months ended December 31, 1997. This decrease
reflects the strong loan growth, particularly refinancings, that offset the sale
of loans noted above. In addition, the average yield on loans decreased by 40
basis points during the three months, reflecting the general downward trend in
interest rates, Interest income on investment securities and other investments
decreased $495,000 to $958,000 for the three
26
<PAGE>
months ended December 31, 1998 from $1.5 million for the three months ended
December 31, 1997. This decrease was primarily the result of a $31.6 million
decrease in the average balance to $64.0 million in 1998 from $95.6 million in
1997. The decrease in the average balance of investment securities was primarily
due to maturities and calls on investment securities. The cash from these
activities were used to fund new loan growth. Also the average yield on
investment securities and other investments decreased by 9 basis points since
yields on the reinvestment of available assets have decreased with the general
downward trend in interest rates.
Interest Expense. Total interest expense decreased by $1.1 million for
the three months ended December 31, 1998 from $5.4 million for the three months
ended December 31, 1997, as a result of a decrease in average interest-bearing
liabilities and a 44 basis point decrease in the average cost of funds. Average
interest-bearing liabilities decreased to $367.9 million for the three months
ended December 31, 1998 from $421.0 million for the three months ended December
31, 1997. The decrease is attributable to the sale of deposits in the Branch
Sale. The average interest rate paid on interest-bearing liabilities was 4.66%
for the three months ended December 31, 1998 compared to 5.10 % for the three
months ended December 31, 1997, a decrease of 44 basis points. The decrease in
rates paid on interest-bearing liabilities reflects market rates as well as
management's decision to use FHLB advances to control its cost of funds and to
lengthen the maturity of its liabilities. Interest expense on deposits decreased
$1.4 million to $3.9 million for the three months ended December 31, 1998 from
$5.3 million for the three months ended December 31, 1997. This decrease was a
result of a decrease of $84.6 million in the average balance of interest-bearing
deposits to $336.4 million in 1998 from $422.0 million in 1997 and a decrease of
46 basis points in the average rate to 4.64 % in 1998 from 5.10% in 1997, The
decrease in the average balance of interest-bearing deposits resulted from the
$55.3 million in deposits sold in the Branch Sale and a decision to use FHLB
advances as a funding source. The average balance of FHLB advances in the three
months ended December 31, 1998 were $31.5 million at an average cost of 4.81%.
Provision for Loan Losses. The provision for loan losses was $150,000
for the three months ended December 31, 1998 compared to $105,000 for the three
months ended December 31, 1997. The allowance for loan losses was $2.7 million
at December 31, 1998 and 1997. The current allowance represents .76% of total
loans outstanding at December 31, 1998. First Federal had net charge-offs of
$40,000 for the three months ended December 31, 1998 compared to net charge-offs
of $52,000 for the three months ended December 31, 1997.
Other Income. The increase in other income is attributable to fees and
service charges which increased $74,000, or 15.8% from 1997 to 1998, this
reflects First Federal's continuing emphasis on charging appropriate fees for
its services.
Other Expense. Other expense decreased by $195,000 to $2.8 million for
the three months ended December 31, 1998 from $3.0 million for the three months
ended December 31, 1997. Compensation and employee benefits increased $48,000
due to additional personnel and increased benefit costs. Although certain cost
savings were realized through the Branch Sale, new staff personnel were added to
enhance the transition into a full service community bank. Also, loan production
generated through commissioned loan originators was 30% higher in the 1998
period. In addition, benefit programs were changed to be more competitive in the
banking environment. Other expenses decreased $158,000 due to general banking
and loan related expenses that were saved in connection with the Branch Sale.
27
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Selected Financial Data
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------
1998(1) 1997 1996 1995 1994
------- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets............................. $419,041 $466,765 $440,294 $431,414 $409,866
Loans receivable, net.............. 338,610 355,551 321,327 260,675 247,943
Investment securities.............. 60,961 74,573 99,841 138,234 135,270
Cash and cash equivalents.......... 5,217 21,842 3,885 18,222 13,691
Deposits........................... 352,180 429,714 404,184 397,594 378,502
FHLB advances...................... 21,000 -- -- -- --
Equity (restricted)................ 36,107 33,588 30,569 30,774 28,606
Number of:
Real estate loans outstanding...... 4,433 5,149 5,461 5,187 5,396
Deposit accounts................... 38,409 46,012 43,002 40,083 37,310
Full service offices............... 9 14 13 14 14
</TABLE>
- --------------
(1) During fiscal year 1998, First Federal sold five branches (and $55.3
million in related deposits) that were not contiguous to its main
market area for a pre-tax gain of $3.0 million. In connection with the
sale of branches, the Bank transferred $45.1 million in loans and
$700,000 in premises and equipment.
28
<PAGE>
Summary of Operations
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1998 1997 1996 1995 1994
--------------------------- ----------------- ------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income.......... $31,892 $33,790 $31,694 $29,820 $27,532
Interest expense...................... 18,966 19,702 18,961 17,689 14,707
------ ------ ------ ------
Net interest income................. 12,926 14,088 12,733 12,131 12,825
Provision for loan losses............. 405 317 600 75 189
------ ----- ------
Net interest income after
provision for loan losses.......... 12,521 13,771 12,133 12,056 12,636
Other income.......................... 4,961(1) 1,575 1,546 1,064 1,125
Other expense......................... 13,946 11,520 13,382(2) 10,081 9,662
------ ------ ------
Income before income taxes............ 3,536 3,826 297 3,039 4,099
Provision for income taxes............ 1,151 1,299 44 1,057 1,400
------ ----- -----
Income before cumulative
effect of change in
accounting principle................ 2,385 2,527 253 1,982 2,699
Cumulative effect of change
in accounting principle............. -- -- -- -- 118(3)
-------- -------- --------- -------- ----------
Net income............................ $ 2,385 $ 2,527 $ 253 $ 1,982 $ 2,817
</TABLE>
- -----------------
(1) Reflects sale of five branches and related deposits.
(2) Includes a $2.5 million one-time special assessment to recapitalize the
Savings Association Insurance Fund.
(3) Reflects adoption of SFAS 109.
29
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or For the Year Ended
September 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income .68%
divided by average total assets)................. .55% .56% .06% .48%
Return on average equity (net income
divided by average equity)....................... 6.55 7.71 .79 6.58 10.15
Net interest rate spread........................... 2.73 2.96 2.76 2.38 2.83
Net interest margin on average
interest-earnings assets......................... 3.02 3.21 3.03 2.99 3.18
Average interest-earning assets to average
interest-bearing liabilities..................... 110 108 108 107 107
Efficiency ratio (noninterest expense (other
than the Bank's $2.5 million SAIF
special assessment in 1997) divided by the sum of
net interest income and noninterest income)...... 78 74 76 76 69
Asset Quality Ratios:
Non-performing loans to total assets............... .20 .49 .27 .28 .57
Non-performing loans to total loans, net........... .25 .65 .37 .46 .94
Non-performing assets to total assets.............. .32 .53 .28 .36 .62
Net charge-offs to average loans outstanding....... .14 .02 .04 .03 .09
Allowance for loan losses to total loans........... .76 .74 .74 .73 .78
Capital Ratios:
Average equity to average assets ratios
(average equity divided by average total 8.31 7.25 7.41 7.22 6.72
assets)..........................................
Equity to assets at period end..................... 8.62 7.20 6.94 7.13 6.98
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of the Bank's financial condition
and results of operations is intended to provide assistance and understanding of
the Bank's financial condition and results of operations. The information in
this section should be read with the financial statements and the notes to
financial statements beginning at page F-___.
The Bank's results of operations are primarily dependent on its net
interest income. Net interest income is a function of the balances of loans and
investments outstanding in any one period, the yields earned on such loans and
investments and the interest paid on deposits and borrowed funds that were
outstanding in that same period. The Bank's noninterest income consists
primarily of fees and service charges. The results of operations are
significantly impacted by the amount of provisions for loan losses which, in
turn, are dependent upon, among other things, the size and makeup of the loan
portfolio, loan quality and loan trends. The noninterest expenses consist
primarily of employee compensation and benefits, occupancy and equipment
expenses, data processing costs, marketing costs, professional fees and federal
deposit insurance premiums. The Bank's results of operations are affected by
general economic and competitive conditions, including changes in prevailing
interest rates and the policies of regulatory agencies.
Forward - Looking Statements
This document contains statements that project the future operations of
FloridaFirst which involve risks and uncertainties. FloridaFirst's actual
results may differ significantly from the results discussed in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" beginning on page ____
of this document.
Business Strategy
The Bank's business strategy has been to operate as a well-capitalized
independent community savings bank dedicated to providing quality service at
competitive prices. Generally, the Bank has sought to implement this strategy by
maintaining a substantial part of its assets in loans secured by one-
to four- family residential real estate located in the Bank's market area,
consumer loans, home equity loans, mortgage-backed securities and U.S.
Government and agency obligations.
While management intends to continue emphasizing these objectives, the
additional capital will allow the Bank to modify the existing operating strategy
in order to achieve greater growth and profitability. Specifically, the Bank
intends to:
^o increase its percentage of commercial and consumer loans and commercial
deposit accounts, among other products;
^o expand within the Bank's existing market area through its branch network
and through its lending and deposit taking services; and
^o invest in appropriate technology that will enable the Bank to serve its
customers effectively.
By seeking to broaden the range of its products and services offered,
the Bank believes it will offset the declining margins in the competitive market
for one- to four-family residential mortgage loans.
31
<PAGE>
Highlights of the Bank's business strategy are as follows:
Community-Oriented Institution. Based on total assets, Bank is the
largest independent financial institution headquartered in Polk County, Florida.
The Bank is committed to meeting the financial needs of the communities in which
it operates. Management believes that the Bank is large enough to provide a full
range of personal and business financial services, and yet is small enough to
provide such services in a personalized and efficient manner. Management
believes that the Bank can be more effective in servicing its customers than
many of its non-local competitors because of the Bank's ability to quickly and
effectively provide senior management responses to customer needs and inquiries.
The Bank intends to maintain its community orientation by continuing to
emphasize traditional deposit and loan products, primarily single-family
residential mortgages. The Bank has recently added several convenience services
to enhance its capabilities as a full service community bank, including the
issuance of debit cards and placing ATMs at five of its branches. The Bank
expects that, by the end of 1999, all of its branches will be equipped with
ATMs. A complete analysis of the Bank's product and services offerings will be
made in 1999 with the focus to deliver the products and services that meet the
needs of its customers, including internet banking and telephone banking
services.
Market Focus. During 1997, management of the Bank developed a product
and branch profitability model to analyze its operations. Based on the Bank's
strategic analyses and other discussions relative to future growth and
utilization of capital, the Bank entered into an agreement in October 1997 with
another financial institution to sell certain branches and related deposits. The
five branches sold were referred to as the Bank's Tri-County Region (the "Branch
Sale"). The branches were not contiguous to the Bank's main market area, having
been acquired from a troubled financial institution in the early 1980's. In
addition, the growth projections for the area were below the projected growth in
Polk and Manatee Counties. The Bank believed its capital could be more
effectively utilized in Polk and Manatee Counties.
The Branch Sale resulted in the sale of $55.5 million in deposits. The
Bank transferred loans totaling $44.6 million that included the consumer and
mortgage loans from the region and certain mortgage loans from Polk County to
satisfy the deposit sale. The Bank realized a $3.0 million gain on the Branch
Sale.
Commercial Banking. The Bank is expanding its lending programs for
commercial business and commercial real estate loans in an effort to satisfy a
perceived need within its market area and increase its loan portfolio. Also, the
Bank's diversification efforts to become a full service community bank will
place a greater emphasis on providing products and services to meet the credit
and checking needs of small to medium sized businesses.
In 1998, the Bank hired a senior commercial loan officer to head up its
lending and credit activities. Two additional commercial loan staff members were
added to support the Bank's increased activities in this area. To further
enhance its transition to a full service community bank, the Bank plans to hire
additional personnel experienced in commercial lending and will increase its
marketing efforts on smaller businesses operating in the Bank's market areas.
Residential Mortgage Lending. Since its inception, the Bank has
originated mortgage loans and held most of the loans in its loan portfolio. The
Bank has emphasized and will continue to emphasize the origination of mortgage
loans secured by one- to four-family residential properties located in its
market areas. Such mortgage loans generally have less credit risk than loans
collateralized by multi-family or commercial real estate. At September 30, 1998,
one- to four-family
32
<PAGE>
residential mortgage loans totaled $272.0 million, or 75.9% of the Bank's loan
portfolio. Generally, the yield on mortgage loans originated by the Bank is
greater than that of mortgage-backed securities purchased by the Bank.
The Bank is the top residential construction lender in Polk County.
Although the Bank makes residential mortgage loans to local builders to
construct houses that are not pre-sold, the large majority of the construction
loans are made to individual borrowers that have contracted to have their
permanent residence built. These construction loans are modified into permanent
loans upon completion of construction and have less credit risk since the
borrower has previously been qualified for the permanent loan under the Bank's
customary underwriting criteria. Construction loans made to a builder carry the
extra risk of ultimate sale of the completed house to a qualified borrower. The
Bank minimizes its risk on construction loans made directly to builders by
limiting the number of non-pre-sold houses it finances to any individual
builder.
Analysis of Net Interest Income
The Bank's earnings have historically depended primarily upon the
Bank's net interest income, which is the difference between interest income
earned on its loans and investments ("interest-earning assets") and interest
paid on its deposits and any borrowed funds ("interest-bearing liabilities").
Net interest income is affected by ^(a) the difference between rates of interest
earned on the Bank's interest-earning assets and rates paid on its
interest-bearing liabilities ("interest rate spread") and ^(b) the relative
amounts of its interest-earnings assets and interest-bearing liabilities.
33
<PAGE>
Average Balance Sheet. The following table sets forth certain
information relating to the ^ Bank at and for the periods indicated. ^ The
average yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Similar information is provided as of September 30, 1998. Average
balances are derived from month-end balances. Management does not believe that
the use of month-end balances instead of daily average balances has caused any
material differences in the information presented.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------------
At September 30, 1998 1998 1997 1996
-------------------- ------------------------------ ---------------------------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost alance Interest Cost Balance Interest Cost
------- ---- ------ ------- -------- ----- ------- --------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)......... $341,192 7.91% $339,218 $26,992 7.96% 339,992 $27,655 8.13% $288,901 $23,346 8.08%
Investment securities
and other(2).............. 67,905 5.85% 85,594 4,900 5.72 98,836 6,135 6.21 131,145 8,348 6.37
------- ------- ------ ------- ------ ------- ------
Total interest-earning
assets................... 409,097 7.60% 424,812 $31,892 7.51 438,828 $33,790 7.70 420,046 $31,694 7.55
====== ====== ======
Non-interest-earning assets.. 9,944 12,557 13,640 11,434
------- ------ ------- ------
Total assets............... $419,041 $437,369 452,468 $431,480
======= ======= ======= =======
Interest-bearing liabilities:
Checking accounts........... $24,456 1.80% $ 25,177 $ 469 1.86 24,343 $ 607 2.49 $ 21,276 $ 539 2.53
Savings accounts............ 37,758 1.75% 41,456 859 2.07 48,155 1,204 2.50 49,396 1,235 2.50
Money market accounts....... 18,091 3.97% 15,356 582 3.79 11,767 351 2.98 12,259 333 2.72
Certificates of deposit..... 261,382 5.53% 301,093 16,921 5.62 321,938 17,540 5.45 306,256 16,854 5.50
FHLB advances............... 21,000 5.12% 3,539 135 5.10 -- -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Total interest-bearing
liabilities.............. 362,687 4.65% 386,621 $18,966 4.78 406,203 $19,702 4.74 389,187 $18,961 4.79
====== ====== ======
Non-interest-bearing
liabilities(3)............. 20,247 14,354 13,478 10,336
------- ------- ------- -------
Total liabilities........... 382,934 400,975 419,681 399,523
Equity....................... 36,107 36,394 32,787 31,957
------- ------ ------- -------
Total liabilities and
equity.................... $419,041 $437,369 452,468 $431,480
======= ======= ======= =======
Net interest income.......... $12,926 $14,088 $12,733
====== ====== ======
Interest rate spread(4)...... 2.95% 2.73% 2.96% 2.76%
===== ====== ====== ======
Net margin on interest-
earning assets(5).......... 3.37% 3.02% 3.21% 3.03%
===== ====== ====== ======
Ratio of average interest-
earning assets to average
interest-bearing
liabilities................ 113% 110% 108% 108%
=== === === ===
</TABLE>
- --------------------------------
(1) Average balances include non-accrual loans.
(2) Investment securities includes both securities that are available for sale
and held to maturity. Includes interest-bearing deposits in other financial
institutions.
(3) Includes non-interesting-bearing checking accounts.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities and the Bank's investment in FHLB stock.
(5) Net margin on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
34
<PAGE>
Rate/Volume Analysis. The relationship between the volume and rates of
the Bank's interest-bearing assets and interest-bearing liabilities influences
the Bank's net interest income. The following table reflects the sensitivity of
the Bank's interest income and interest expense to changes in volume and in
prevailing interest rates during the periods indicated. Each category reflects
the: (1) changes in volume (changes in volume multiplied by old rate); (2)
changes in rate (changes in rate multiplied by old volume); and (3) net change.
The net change attributable to the combined impact of volume and rate has been
allocated proportionally to the absolute dollar amounts of change in each.
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended September 30,
------------------------------ -----------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------ -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------ -----------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest income:
Loans receivable ..................... $ (75) $ (588) $ (663) $ 4,165 $ 145 $ 4,310
Investment securities and other ...... (739) (496) (1,235) (2,009) (205) (2,214)
------- ------- ------- ------- ------- -------
Total interest-earning assets ....... $ (814) $(1,084) $(1,898) $ 2,156 $ (60) $ 2,096
======= ======= ======= ======= ======= =======
Interest expense:
Checking accounts ..................... $ 24 $ (162 $ (138) $ 109 $ (41) $ 68
Savings accounts ...................... (156) (189) (345) (31) -- (31)
Money market accounts ................. 122 109 231 (13) 31 18
Certificates of deposit ............... (1,156) 537 (619) 842 (156) 686
Other liabilities .................... 135 -- 135 -- -- --
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities . $(1,031) $ 295 $ (736) $ 907 $ (166) $ 741
======= ======= ======= ======= ======= =======
Net change in interest income ......... $ 186 $(1,348) $(1,162) $ 1,249 $ 106 $ 1,355
======= ======= ======= ======= ======= =======
</TABLE>
35
<PAGE>
Management of Interest Rate Risk and Market Risk
Because the majority of the Bank's assets and liabilities are sensitive
to changes in interest rates, the Bank's most significant form of market risk is
interest rate risk^, or changes in interest rates. The Bank, is vulnerable to an
increase in interest rates to the extent that interest-bearing liabilities ^
mature or reprice more rapidly than interest-earning assets. The lending
activities of the Bank have historically emphasized the origination of
long-term, fixed rate loans secured by single-family residences^. The primary
source of funds has been deposits with substantially shorter maturities. While
having interest-bearing liabilities that reprice more frequently than
interest-earning assets is generally beneficial to net interest income during a
period of declining interest rates, such an asset/liability mismatch is
generally detrimental during periods of rising interest rates.
The Board of Directors has established an asset/liability committee
which consists of the Bank's president and senior bank officers. The committee
meets on a monthly basis to review loan and deposit pricing and production
volumes, interest rate risk analysis, liquidity and borrowing needs, and a
variety of other assets and liability management topics.
To reduce the effect of interest rate changes on net interest income
the Bank has adopted various strategies to enable it to improve matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include: (a) the Bank seeks to originate
commercial and consumer loans with adjustable rate features or fixed rate loans
with short maturities; (b) the Bank seeks to lengthen the maturities of its
liabilities when deemed cost effective through the pricing and promotion of
certificates of deposit and utilization of FHLB advances; (c) the Bank seeks to
attract low cost checking and transaction accounts which tend to be less
interest rate sensitive when interest rates rise; and (d) the Bank seeks, when
market conditions permit, to originate and hold in its portfolio adjustable rate
loans which have annual interest rate adjustments. The Bank also maintains an
investment portfolio that provides a stable cash flow, thereby providing
investable funds in varying interest rate cycles.
The Bank has also made a significant effort to maintain its level of
lower cost deposits as a method of enhancing profitability. At September 30,
1998, the Bank had 25.6% of its deposits in low-cost passbook, checking and
money market accounts. These deposits have traditionally remained relatively
stable and ^ are expected to be only moderately affected in a period of rising
interest rates. ^ This stability has enabled the Bank to offset the impact of
rising rates in other deposit accounts.
Exposure to interest rate risk is actively monitored by management. The
Bank's objective is to maintain a consistent level of profitability within
acceptable risk tolerances across a broad range of potential interest rate
environments. The Bank uses the OTS Net Portfolio Value ("NPV") Model to monitor
its exposure to interest rate risk, which calculates changes in net portfolio
value. Reports generated from assumptions provided and modified by management
are reviewed by the Asset/Liability Management Committee and reported to the
Board of Directors quarterly. The Interest Rate Sensitivity of Net Portfolio
Value Report shows the degree to which balance sheet line items and net
portfolio value are potentially affected by a 100 to 400 basis point (1/100th of
a percentage point) upward and downward parallel shift (shock) in the Treasury
yield curve.
The following table presents the Bank's NPV as of September 30, 1998^.
The NPV was calculated by the OTS, based on information provided by the Bank.
36
<PAGE>
Net Portfolio Value ("NPV") NPV as % of Present Value of Assets
--------------------------- ------------------------------------
Change Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400 bp $29,878 $-14,699 -33% 7.56% -291 bp
+300 bp 34,781 -9,797 -22% 8.61% -186 bp
+200 bp 39,155 -5,423 -12% 9.50% -97 bp
+100 bp 42,431 -2,146 -5% 10.12% -35 bp
0 bp 44,578 10.47%
-100 bp 45,285 +708 +2% 10.51% +4 bp
-200 bp 46,215 +1,637 +4% 10.58% +11 bp
-300 bp 48,047 +3,470 +8% 10.83% +36 bp
-400 bp 49,875 +5,297 +12% 11.07% +60 bp
Future interest rates or their effects on NPV or net interest income
are not predictable. Nevertheless, the Bank's management does not expect current
interest rates to have a material adverse effect on the Bank's NPV or net
interest income in the near future. Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, prepayments, and deposit run-offs, and
should not be relied upon as indicative of actual results. Certain shortcomings
are inherent in such computations. Although certain assets and liabilities may
have similar maturity or periods of repricing, they may react at different times
and in different degrees to changes in the market interest rates. The interest
rate on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while rates on other types of assets and
liabilities may lag behind changes in market interest rates. Certain assets such
as adjustable rate mortgages, generally have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. In the
event of a change in interest rates, prepayments and early withdrawal levels
could deviate significantly from those assumed in making calculations set forth
above. Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
Comparison of Financial Condition at September 30, 1998 and 1997
Assets. Total assets decreased $47.8 million, or 10.2%, to $419.0
million at September 30, 1998 from $466.8 million at September 30, 1997. The
decrease in total assets resulted primarily from: the transfer of $44.6 million
in loans in connection with the Branch Sale which was partially offset by a
$27.2 million increase in net loans outstanding from new originations; a
reduction of $14.5 million in the Bank's federal funds sold position; and a
reduction in the investment securities portfolio of $13.6 million, that was used
to fund the new loan growth.
Liabilities. Total liabilities decreased $50.3 million, or 11.6%, to
$382.9 million at September 30, 1998 from $433.2 million at September 30, 1997.
The decrease in total liabilities resulted primarily from: the transfer of $55.5
million in deposits in connection with the Branch Sale; and a $35.2 million
decrease in deposits, primarily certificates of deposit due to the Bank's
elimination of premium pricing on these accounts to reduce its cost of funds.
These deposit outflows were offset partially by $12.9 million in interest
credited to deposit accounts and an increase in FHLB advances of $21.0 million
since the rates on the advances fit into the Bank's strategy to reduce its cost
of funds.
37
<PAGE>
Equity. The increase in the Bank's equity reflects the $2.4 million in
net income for the year ended September 30, 1998 and an increase of $134,000 in
unrealized gains on investments available for sale.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits, and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Savings institution liquidity is normally considered in
terms of the nature and mix of the savings institution's sources and uses of
funds.
Asset liquidity is provided through loan repayments and the management
of maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining sufficient levels of loans and mortgage-backed
securities that generate monthly cash flows.
In addition to the $2.5 million in cash provided by operations, other
significant cash flows or uses (amounts shown in parentheses) were as follows:
(In millions)
-------------
Cash provided by operations ^ $ 2.5
=======
FHLB advances 21.0
^ Decrease in net deposits (excluding Branch Sale) (22.0)
^ Maturities of and repayments on investment securities 47.9
^ Purchases of investment securities (34.0)
^ Cash required to complete Branch Sale (6.7)
^ Net increase in loans (excluding Branch Sale) (30.8)
^ Other net 5.5
---
^ Net decrease in cash ^ $(16.6)
=======
The Bank is subject to federal regulations that impose certain minimum
capital requirements. For a discussion on such capital levels, see "Historical
and Pro Forma Capital Compliance" and "Regulation - Regulation of the Bank -
Regulatory Capital Requirements."
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 Bank's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect.
Comparison of Operating Results for Year Ended September 30, 1998 to Year Ended
September 30, 1997
Net Income. Net income for the year ended September 30, 1998 decreased
4.0% to $2.4 million, compared to $2.5 million for the same period last year.
Net income was affected by certain nonrecurring transactions as follows:
o $3.0 million gain from the Branch Sale. See -- "Market Focus" and "Other
Income."
38
<PAGE>
o $2.2 million in charges resulting from changes in the Bank's employee
benefit plans. The changes relate mainly to the freezing of benefits under
the existing defined benefit pension plan ($1.5 million) and the adoption
of a directors' retirement plan ($400,000). See -- "Other Expense."
Net interest income decreased 8.5% to $12.9 million for the year ended
September 30, 1998 compared to $14.1 million for the year ended September 30,
1997. This decrease resulted from a decrease in interest income of $1.9 million
which was partially offset by a decrease in interest expense of $736,000. Other
income increased to $5.0 million for the year ended September 30, 1998 from $1.6
million for the year ended September 30, 1997, resulting primarily from the
Branch Sale. Other expenses increased to $14.0 million for the year ended
September 30, 1998 from $11.5 million for the year ended September 30, 1997, due
primarily to certain nonrecurring transactions discussed above.
Interest Income. Total interest income decreased to $31.9 million for
the year ended September 30, 1998 from $33.8 million for the year ended
September 30, 1997, as a result of a decrease in average interest-earning assets
and a decrease in the average interest rates earned. Average interest-earning
assets decreased to $424.8 million for the year ended September 30, 1998 from
$438.8 million for the year ended September 30, 1997. This decrease resulted
from the transfer of $45.1 million in interest-earning assets in January 1998 in
connection with the Branch Sale, partially offset by strong loan growth
throughout the year. The average rate earned on interest-earning assets
decreased to 7.51% for the year ended September 30, 1998 from 7.70% for the year
ended September 30, 1997, a decrease of 19 basis points. Interest income on
loans decreased $663,000 to $27.0 million for the year ended September 30, 1998
from $27.7 million for the year ended September 30, 1997. This slight decrease
reflects the strong loan growth, particularly refinancings, that offset the sale
of loans noted above. In addition, the average yield on loans decreased by 17
basis points during the year, reflecting the general downward trend in interest
rates. Interest income on investment securities and other investments decreased
$1.2 million to $4.9 million for the year ended September 30, 1998 from $6.1
million for the year ended September 30, 1997. This decrease was primarily the
result of a $13.2 million decrease in the average balance to $85.6 million in
1998 from $98.8 million in 1997. The decrease in the average balance of
investment securities was primarily due to the maturities and calls of certain
securities and the redeployment of these funds into loans. Also the average
yield on investment securities and other investments decreased by 49 basis
points since yields on the reinvestment of available assets have decreased with
the general downward trend in interest rates.
Interest Expense. Total interest expense decreased by $736,000 for the
year ended September 30, 1998 from $19.7 million for the year ended September
30, 1997, as a result of a decrease in average interest-bearing liabilities,
offset by a slight 4 basis point increase in the average cost of funds. Average
interest-bearing liabilities decreased to $386.6 million for the year ended
September 30, 1998 from $406.2 million for the year ended September 30, 1997.
The decrease is attributable to the sale of $55.3 million in deposits in January
1998 when the Bank sold the deposits of five branches, partially offset by new
deposits and borrowings to fund the asset growth. The average interest rate paid
on interest-bearing liabilities was 4.78% for the year ended September 30, 1998
compared to 4.74% for the year ended September 30, 1997, an increase of 4 basis
points. The increase in rates paid on interest-bearing liabilities reflects
market rates as well as the transfer of lower yielding certificates of deposit
in connection with the Branch Sale. Interest expense on deposits decreased
$871,000 to $18.8 million for the year ended September 30, 1998 from $19.7
million for the year ended September 30, 1997. This decrease was a result of a
decrease of $23.1 million in the average balance of interest-bearing deposits to
$383.1 million in 1998 from $406.2 million in 1997
39
<PAGE>
partially offset by an increase of 18 basis points in the average rate to 4.92%
in 1998 from 4.74% in 1997. The Bank began using FHLB advances in June 1998 to
control its cost of funds and lengthen the maturity of its liabilities.
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Bank, industry standards, the level and status of past
due and nonperforming loans, the general economic conditions in the Bank's
lending area and other factors affecting the collectibility of the Bank's loan
portfolio. The provision for loan losses was $405,000 for the year ended
September 30, 1998 compared to $317,000 for the year ended September 30, 1997.
The allowance for loan losses was $2.6 million at September 30, 1998 and 1997.
The current allowance represents .76% of total loans outstanding at September
30, 1998. The Bank had net charge-offs of $474,000 for the year ended September
30, 1998 compared to net charge-offs of $69,000 for the year ended September 30,
1997. See "Business of the Bank --Non- Performing Loans and Problem Assets." The
Bank monitors its loan portfolio on a continuing basis and intends to continue
to provide for loan losses based on its ongoing review of the loan portfolio and
general market conditions.
Other Income. In addition to the gain from the Branch Sale, fees and
service charges increased $152,000, or 10.4% from 1997 to 1998. This reflects
the Bank's continuing emphasis on charging appropriate fees for its services.
The Bank continues to review its products with a goal to increase sources of
non-interest income, including fees and service charges.
Other Expense. Other expense increased by $2.5 million to $14.0 million
for the year ended September 30, 1998 from $11.5 million for the year ended
September 30, 1997. In addition to the nonrecurring charges discussed in "Net
Income" above, compensation and employee benefits increased due to the hiring of
additional commercial lending staff personnel, an average 5% increase in salary
adjustments, a full year of staff cost associated with the Bank's newest branch
that opened in September 1997, partially offset by the staff costs savings
realized through the Branch Sale. Occupancy and equipment costs increased due to
expenses related to a data processing conversion in 1998 as well as a full
year's cost related to the new customer service platform system installed in May
1997.
The Company expects increased expenses in the future as a result of the
establishment of the ESOP, potential stock benefit plans, and the adoption of
the directors and executive retirement plans, as well as increased costs
associated with being a public company (e.g., periodic reporting, annual meeting
materials, transfer agent, professional and stock listing fees).
Comparison of Operating Results for Year Ended September 30, 1997 to Year Ended
September 30, 1996
Net Income. Net income for the year ended September 30, 1997 increased
31.6% to $2.5 million, compared to $1.9 million for fiscal year 1996, excluding
the one-time SAIF special assessment of $1.7 million after tax. Including the
one-time SAIF special assessment, net income for the year ended September 30,
1996 was $253,000. Net interest income increased 11.0% to $14.1 million for the
year ended September 30, 1997 compared to $12.7 million for the year ended
September 30, 1996. This increase was due to an increase in interest income of
$2.1 million offset by an increase in interest expense of $741,000. Other
expense decreased to $11.5 million for the year ended September 30, 1997 from
$13.4 million for the year ended September 30, 1996, due primarily to the
one-time SAIF special assessment of $2.5 million before taxes.
40
<PAGE>
Interest Income. Total interest income increased to $33.8 million for
the year ended September 30, 1997 from $31.7 million for the year ended
September 30, 1996, as a result of an increase in average interest-earning
assets and an increase in the average interest rate. Average interest-earning
assets increased to $438.8 million for the year ended September 30, 1997 from
$420.0 million for the year ended September 30, 1996. The average rate earned on
interest-earning assets increased to 7.70% for the year ended September 30, 1997
from 7.55% for the year ended September 30, 1996, an increase of 15 basis
points. Interest income on loans increased $4.3 million to $27.7 million for the
year ended September 30, 1997 from $23.4 million for the year ended September
30, 1996. This increase was a result of a $51.1 million increase in the average
balance to $340.0 million in 1997 from $288.9 million in 1996. In addition, the
average yield on loans increased by 5 basis points to 8.13% in 1997 from 8.08%
in 1996. The increase in the average balance of total loans was mainly due to
strong growth in the residential loan portfolio resulting from high levels of
loan originations and significant growth in consumer loans resulting from
concentrated sales efforts in this area. Interest income on investment
securities and other investments decreased $2.2 million to $6.1 million for the
year ended September 30, 1997 from $8.3 million for the year ended September 30,
1996. This decrease was primarily the result of a gradual liquidation of the
investment portfolio to fund the strong loan demand.
Interest Expense. Total interest expense increased to $19.7 million for
the year ended September 30, 1997 from $19.0 million for the year ended
September 30, 1996, as a result of an increase in average interest-bearing
liabilities, partially offset by a decrease in the cost of these funds. Average
interest-bearing liabilities increased to $406.2 million for the year ended
September 30, 1997 from $389.2 million for the year ended September 30, 1996.
The average interest rate paid on interest-bearing liabilities was 4.74% for the
year ended September 30, 1997 compared to 4.79% for the year ended September 30,
1996, a decrease of 5 basis points. The increase in average-interest bearing
liabilities reflects a strong growth in certificates of deposit and checking
accounts used to fund the loan demand.
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Bank, industry standards, the level and status of past
due and nonperforming loans, the general economic conditions in the Bank's
lending area and other factors affecting collectibility of the Bank's loan
portfolio. The provision for loan losses was $317,000 for the year ended
September 30, 1997 compared to $600,000 for the year ended September 30, 1996,
respectively. The allowance for loan losses was $2.6 million and $2.4 million at
September 30, 1997 and 1996, respectively. The allowance was .74% of total loans
at both September 30, 1997 and 1996. The Bank had net charge-offs of $69,000 for
the year ended September 30, 1997 compared to $117,000 for the year ended
September 30, 1996. The Bank monitors its loan portfolio on a continuing basis
and intends to continue to provide for loan losses based on its ongoing review
of the loan portfolio and general market conditions.
Other Income. Other income stayed essentially even at $1.6 million for
the year ended September 30, 1997 compared to $1.5 million for the year ended
September 30, 1996. During the 1997 fiscal year, the Bank recorded a $154,000,
or 11.8%, increase in fees and service charges as the Bank sought to increase
other income through explicit pricing of services. The increase in fees and
service charges was partially offset by a decrease in gains on sales of loans
and investments.
Other Expense. Other expense decreased by $1.9 million to $11.5 million
for the year ended September 30, 1997 from $13.4 million for the year ended
September 30, 1996. The decrease was primarily due to the special assessment to
recapitalize the SAIF fund of $2.5 million for the year
41
<PAGE>
ended September 30, 1996 and a decrease of $547,000 in premiums for the year
ended September 30, 1997 due to lower assessment rates resulting from
recapitalization of the SAIF. Other changes included an increase of $575,000 in
compensation and benefits, and an increase of $394,000 in other expense. The
increase in compensation and benefits is due primarily to additional staff
required to support the growth in loans and deposits.
Provision for Income Taxes. Provision for income taxes increased by
$1.3 million from $44,000 in 1996, or an effective tax rate of 15%, to $1.3
million in 1997, or an effective tax rate of 34%. The effective tax rate in 1997
appears appropriate based upon the income and expenses incurred during the year.
The low effective tax rate reflected for 1996 is attributable to certain
adjustments deemed necessary by the Bank. These adjustments are not anticipated
to be recurring and should not have any effect on the financial condition of the
Bank in the future.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement No. 130) establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Under Statement No. 130, comprehensive income is
divided into net income and other comprehensive income. Other comprehensive
income includes items previously recorded directly in equity, such as unrealized
gains or losses on securities available for sale. Statement No. 130 has not been
adopted by the Bank as of this date, but will apply the provisions of this
statement commencing with the first quarterly reporting period after September
30, 1998. Comparative financial statements provided for earlier periods once
quarterly periods begin, will be reclassified to reflect the application of the
provisions of Statement No. 130. For the Bank, comprehensive income is
determined by adding unrealized investment holding gains or losses during the
period to net income.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information (Statement No. 131)," which changes the
way public companies report information about segments of their business and
requires them to report selected segment information in their quarterly reports
issued to stockholders. Among other things, Statement No. 131 requires public
companies to report ^(1) certain financial and descriptive information about its
reportable operating segments (as defined), and ^(2) certain enterprise-wide
financial information about products and services, geographic areas and major
customers. The required segment financial disclosures include a measure of
profit or loss, certain specific revenue and expense items, and total assets.
Statement No. 131 is effective for reporting by public companies in fiscal years
beginning after December 15, 1997 and, accordingly, would be adopted by the Bank
upon completion of its reorganization. Statement No. 131 is not expected to have
a significant impact on the Bank's financial reporting.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 "Employers Disclosures about Pensions and Other Postretirement
Benefits" (Statement No. 132). Statement 132 revised employers' disclosures
about pension and other postretirement benefits plans. It does not change the
measurement of recognition of those plans. It standardized the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information in changes in the benefit
obligations and fair value of plan assets that will facilitate financial
analysis and eliminates certain required disclosures of previous accounting
pronouncements.
42
<PAGE>
Statement No. 132 is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for earlier periods provided for
comparative purposes is required unless the information is not readily
available. As Statement No. 132 affects disclosure requirements, it is not
expected to have a material impact on the financial statements of the Bank.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(Statement No. 133). Statement No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Statement No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Initial application of
this Statement should be as of the beginning of an entity's fiscal quarter, on
that date, hedging relationships must be designated anew and documented pursuant
to the provisions of this Statement. Earlier application of all of the
provisions of Statement No. 133 is encouraged, but it is permitted only as of
the beginning of any fiscal quarter that begins after issuance of this
Statement. This Statement should not be applied retroactively to financial
statements of prior periods. Statement No. 133 is not expected to have a
material impact on the Bank's financial statement presentations.
Year 2000 Readiness Disclosure
Rapid and accurate data processing is essential to the Bank's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) are
expected to read entries for the year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data.
The following discussion of the implications of the year 2000 problem
for the Bank, contains numerous forward looking statements based on inherently
uncertain information. The cost of the project and the date on which the Bank
plans to complete the internal year 2000 modifications are based on management's
best estimates, which are derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these statements will be achieved and actual results could differ.
Moreover, although management believes it will be able to make the necessary
modifications in advance, there can be no guarantee that failure to modify the
systems would not have a material adverse effect on the Bank or the Company.
The Bank places a high degree of reliance on computer systems of third
parties, such as customers, suppliers, and other financial and governmental
institutions. Although the Bank is assessing the readiness of these third
parties and preparing contingency plans, there can be no guarantee that the
failure of these third parties to modify their systems in advance of December
31, 1999 would not have a material adverse affect on the Bank.
The Bank's Year 2000 Plan (the "Plan") was presented to the Board of
Directors in September 1997. The Plan was developed using the guidelines
outlined in the Federal Financial Institutions Examination Council's "The Effect
of Year 2000 on Computer Systems." The Year 2000 Committee is responsible for
the Plan with the Board of Directors receiving Year 2000 progress reports on a
quarterly basis. Our primary operating systems, as provided by a third party
service bureau ("External Provider"), have been tested satisfactorily. The main
hardware and software used to serve our customer base and maintain the customer
transaction histories and company accounting records are currently operating on
Year 2000 compliant systems.
43
<PAGE>
An OTS on-site examination was conducted in April 1998, and based upon
the examination results, the Bank was progressing satisfactorily towards
completing the Plan requirements.
The primary operating software for the Bank is the External Provider.
The Bank is maintaining ongoing contact with this vendor so that modification of
the software for Year 2000 readiness is a top priority. The Bank has performed
significant testing of the software utilized by the External Provider with
successful results. The External Provider has represented that the software
currently being utilized for the Bank's current operations is Year 2000
compliant.
The Bank has contacted all other material vendors and suppliers
regarding their Year 2000 readiness. Each of these third parties has delivered
written assurance to the Bank that they expect to be Year 2000 compliant prior
to the Year 2000. The Bank is in the process of contacting all significant
customers and non-information technology suppliers (i.e. utility systems,
telephone systems, etc.), regarding their year 2000 state of readiness.
The Bank has identified 19 vendors and systems as mission critical and
68% of the Bank's mission critical vendors are Year 2000 compliant. The only
critical vendors that have not confirmed that they are Year 2000 compliant are
the utility companies and certain correspondent banks.
Testing has been completed on the most significant vendor applications,
except the utilities as noted above, however, final testing remains on a few
critical applications. This final testing, and development of contingency plans,
is expected to be completed for all critical and important applications and
services by June 30, 1999. Most of the items identified as minor are services
that are performed by outside vendors. We have received communication from these
vendors indicating they will be in compliance for Year 2000 without any
disruption in service. Appropriate testing, if possible, and any related
contingency plans would be performed in the second and third quarter of 1999.
We are unable to test the Year 2000 readiness of our significant
suppliers of utilities. We are relying on the utility companies' internal
testing and representations to provide the required services that drive our data
systems.
Software provided by our External Provider is supported by a
contractual agreement that states the software will be Year 2000 compliant prior
to January 1, 2000. No other significant contract is in place for other systems
and services since they have longer terms and were not subject to specific
contract negotiation in the past few years.
All non-information technology providers that were identified have been
contacted and we have been given assurances that Year 2000 will not be an issue
or that the issue will be satisfactorily resolved prior to the end of 1999.
Individual mortgage loan, consumer loan and smaller commercial loan
customers were not contacted as a practical matter; it was deemed to be beyond
the scope of our testing parameters, because most of these are individuals with
adequate collateral on the loans.
Major commercial loan customers (loan balances in excess of $500,000)
have been contacted in writing. In addition, the commercial loan relationship
managers have implemented an active telephone and personal contact program with
all these customers to determine any potential exposure that might be present
due to the customer's failure to prepare adequately for the Year 2000. This
contact program should be completed by March 31, 1999. Any potential risk
exposure will be
44
<PAGE>
identified and adequate consideration given to adjusting the loan loss
provision.
If the Plan fails to significantly address the Year 2000 issues of the
Bank, the following, among other things, could negatively affect the Bank:
(a) utility service companies may be unable to provide the
necessary service to drive our data systems or provide
sufficient sanitary conditions for our offices;
(b) our primary software provider could have a major malfunction
in its system or their service could be disrupted due to its
utility providers, or some combination of the two; or
(c) the Bank may have to transact its business manually.
The Bank will attempt to monitor these uncertainties by continuing to
request an update on all critical and important vendors throughout the remainder
of 1999. If the Bank identifies any concern related to any critical or important
vendor, the contingency plans will be implemented immediately to assure
continued service to the Bank's customers.
Costs will be incurred to replace certain non-compliant software and
hardware. The Bank does not anticipate that direct costs for renovating or
replacing non-compliant hardware and software will exceed $325,000, of which
approximately $221,000 had been expended as of September 30, 1998. No assurance
can be given that the Year 2000 Plan will be completed successfully by the Year
2000, in which event the Bank could incur significant costs. If the External
Provider fails to maintain its system in compliant state or incurs other
obstacles prior to Year 2000, the Bank would likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the financial statements of the Bank.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
External Provider, testing plans, and all vendors, suppliers and customer
readiness.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with the Bank, such as customers, vendors, payment system providers and other
financial institution, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have material adverse
impact on the operations of the Bank.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented
elsewhere in this Prospectus have been prepared in accordance with GAAP which
generally requires the measurement of financial position and operating results
in terms of historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. As a
result, interest rates have a greater impact on the Bank's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or, to the same extent, as prices of goods and
services.
45
<PAGE>
BUSINESS OF THE COMPANY
Upon consummation of the reorganization we will own all of the stock of
the Bank. We have not engaged in any significant business to date. ^ Prior to
the reorganization, we will not transact any material business. We will invest
our initial capitalization as discussed in the "Use of Proceeds" section. In the
future, we may pursue other business activities, including ^ mergers and
acquisitions, investment alternatives and diversification of operations. There
are, however, no current plans for such activities. ^ Initially, we will not
maintain offices separate from those of the Bank or employ any persons other
than their officers. Company officers will not be separately compensated for
such service.
BUSINESS OF THE BANK
General
The Bank provides 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 and
savings accounts. In addition, the Bank originates commercial real estate loans
and offers checking accounts and other credit facilities to businesses within
its market area. At September 30, 1998, the Bank had total assets, deposits and
equity of $419.0 million, $352.2 million, and $36.1 million, respectively.
The Bank attracts deposits from the general public and uses these
deposits primarily to originate loans and to purchase investment,
mortgage-backed and other securities. The principal sources of funds for the
Bank's lending and investing activities are deposits, FHLB advances, the
repayment and maturity of loans and sale, maturity, and call of securities. The
principal source of income is interest on loans and investment and
mortgage-backed securities. The principal expense is interest paid on deposits
and FHLB advances.
Market Area and Competition
The Bank operates seven offices (including the main office) in Polk
County and two offices in Manatee County. Polk County is situated in central
Florida and Manatee County is located in west central Florida. There are
approximately 680,000 residents and 268,000 households within the Bank's primary
market area. Polk County had an estimated 1997 population of 445,000 and
includes Lakeland, Winter Haven, and Bartow among its most populous cities. The
Bank operates primarily in Lakeland and Winter Haven. Polk County is positioned
for continued growth as it is situated between the rapidly developing counties
of Orange (Orlando) and Hillsborough (Tampa). Manatee County had an estimated
1997 population of 235,000 and includes Bradenton and Palmetto as its most
populous cities. The Bank operates five offices in Lakeland, two in Winter
Haven, and two in Bradenton.
The Polk County economy had long been dependent on the citrus and
phosphate mining industries. These industries remain strong and are continuing
to grow through capital investment. The citrus industry however, remains
vulnerable to severe weather conditions and increased competition, both domestic
and international. In addition, the economy has diversified and has strengthened
the area's business development. Polk County is home to the largest privately
owned employer in the state, a grocery chain that operates over 575 stores in
four states. Because of Polk County's location in central Florida between
Orlando and Tampa and its accessibility to major interstate highways, Polk
County is considered a major distribution location and has become a home for
large transportation and distribution companies and related warehousing and
supplies operations.
46
<PAGE>
The weather conditions, affordable labor pool and lifestyle amenities have
attracted other major employers in the insurance servicing area and a variety of
other industries.
Manatee County is situated southwest of Polk County and just south of
Tampa and St. Petersburg, Florida. Manatee and neighboring Sarasota County have
experienced growth rates among the highest in the nation over the past several
years. Local economies have been supported primarily by the services industry
(which includes tourism). However, recent efforts have resulted in
diversification into light manufacturing operations.
Based on deposits at June 30, 1997, the Bank ranked fifth among FDIC
insured financial institutions operating in Polk County. The Bank is the only
remaining thrift institution based in Polk ^ County and had a deposit market
share of 7.9%. The Bank ranked twelfth in Manatee County among 16 FDIC insured
financial institutions and had a deposit market share of 2.3%. The deposit
markets in both of these counties are dominated by large regional banks that are
headquartered outside of Florida.
The Bank faces strong competition in its primary market area for the
attraction of retail deposits and in the origination of loans. The Bank's most
direct competition for deposits has historically come from commercial banks,
thrift institutions, and credit unions operating in its primary market area. The
Bank's competition for loans also comes from banks, thrifts, and credit unions,
in addition to mortgage bankers and brokers. The Bank's market area can be
characterized as a market with moderate incomes, increasing wealth, and strong
population growth, representing an attractive market that can be served by a
community financial institution such as the Bank.
Lending Activities
General. The Bank primarily originates one- to four-family residential
real estate loans and, to a lesser extent 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
purpose loans. The Bank's commercial real estate loans consist primarily of
mortgage loans secured by small commercial office/retail space, warehouses and
small and medium sized apartment buildings.
47
<PAGE>
Loan Portfolio Composition. The following table analyzes the
composition of the Bank's loan portfolio by loan category at the dates
indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- ----------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loans:
Mortgage loans:
Residential:
Permanent....................... $244,667 68.3% $256,742 69.3% $247,609 73.7% $206,415 77.1% $200,639 77.8%
Construction.................... 27,311 7.6 22,350 6.0 19,778 5.9 9,729 3.6 11,710 4.5
Multi-family...................... 4,464 1.2 4,154 1.1 4,564 1.4 5,510 2.1 6,740 2.6
Commercial and real estate (1).... 17,217 4.8 12,282 3.3 8,562 2.5 4,260 1.6 4,860 1.9
Land.............................. 6,796 1.9 6,153 1.7 779 .2 629 .2 1,738 .7
Consumer Loans:
Home equity loans(2)............ 13,137 3.7 18,310 4.9 18,361 5.5 18,396 6.9 16,511 6.4
Auto loans...................... 34,795 9.7 43,504 11.7 30,911 9.2 19,307 7.2 12,669 4.9
Other........................... 9,959 2.8 7,415 2.0 5,311 1.6 3,586 1.3 3,156 1.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans....................... 358,346 100.0% 370,910 100.0% 335,875 100.0% 267,832 100.0% 258,023 100.0%
===== ===== ===== ===== =====
Less:
Loans in process(3)............. 17,013 12,589 12,072 5,060 7,865
Deferred loan fees and
unearned interest............. 159 137 91 195 313
Allowance for loan losses....... 2,564 2,633 2,385 1,902 1,902
-------- -------- -------- -------- --------
Total loans, net.................. $338,610 $355,551 $321,327 $260,675 $247,943
======= ======= ======= ======= =======
</TABLE>
- --------------------
(1) Includes commercial loans of $1,085,000 in 1998 and $218,000 in 1997 which
were not secured by real estate.
(2) Includes home equity lines of credit.
(3) Relates to construction loans.
48
<PAGE>
Loan Maturity Schedule. The following table sets forth the maturity or
repricing of Bank's loan portfolio at September 30, 1998. Demand loans, loans
having no stated maturity and overdrafts are shown as due in one year or less.
<TABLE>
<CAPTION>
Commercial Home Auto and
Multi- Real Estate Equity Other
Residential(1) family and Land Loans Consumer Total
-------------- ------ -------- ----- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts Due:
Within 1 Year............ $85,636 $ -- $ 5,325 $ -- $8,623 $ 99,584
------ ------- ------ ------- ----- -------
After 1 year:
1 to 3 years........... 11,049 1,127 3,002 2,089 12,020 29,287
3 to 5 years........... 19,799 1,131 2,659 2,348 22,345 48,282
5 to 10 years.......... 9,341 841 6,165 4,246 1,766 22,359
10 to 20 years......... 66,278 1,037 6,862 4,451 -- 78,628
Over 20 years.......... 79,875 328 -- 3 -- 80,206
------ ------ ------- ------ ------- -------
Total due after one year. 186,342 4,464 18,688 13,137 36,131 258,762
------- ----- ------ ------ ------ -------
Total amount due......... $271,978 $4,464 $24,013 $13,137 $44,754 $358,346
======= ===== ====== ====== ====== =======
</TABLE>
- --------------
(1) Includes $27,311,000 in construction loans.
The following table sets forth the dollar amount of all loans due after
September 30, 1999, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
Residential........................ $149,074 $37,268 $186,342
Multi-family....................... 3,571 893 4,464
Commercial real estate and land.... 14,016 4,672 18,688
Home equity loans.................. 10,153 2,984 13,137
Auto and other consumer............ 36,131 -- 36,131
------- -------- -------
Total............................ $212,945 $45,817 $258,762
======= ====== =======
Residential Lending. The Bank's primary lending activity consists of
the origination of one- to four-family residential mortgage loans secured by
property located in the Bank's market area. The Bank 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 Bank 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 required on
the amount financed in excess of 80%. The Bank originates fixed rate and
adjustable rate loans for retention in its portfolio. A mortgage loan originated
by the Bank, 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.
49
<PAGE>
The majority of the Bank's one- to four-family residential loans (both
fixed rate and adjustable rate) are underwritten in accordance with Federal
National Mortgage Association ("FNMA") guidelines, regardless of whether they
will be sold in the secondary market. However, the Bank also originates both
fixed and adjustable residential loans that do not conform to FNMA guidelines.
Substantially all of the Bank's residential mortgages include "due on sale"
clauses, which are provisions giving the Bank the right to declare a loan
immediately payable if the borrower sells or otherwise transfers an interest in
the property to a third party.
Property appraisals on real estate securing the Bank's single-family
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 Bank 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 Bank makes disbursements for such items as
real estate taxes and hazard insurance premiums and mortgage insurance premiums
as they become due.
Construction Lending. The Bank is an active lender in the construction
of one- to four-family homes. 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, 1998, 65% of all the Bank's residential
construction loans were made to individual homeowners. Upon completion of the
construction of the house, 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 Bank's
risk of loss on a construction loan is dependent largely upon 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 upon completion of the project prove to be
inaccurate, we 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 Bank 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 Bank 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.
Commercial Real Estate and Other Loans. The Bank originates commercial
real estate mortgage loans and, to a lesser extent, loans on multi-family
dwellings and developed and undeveloped land. The Bank'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 $150,000 and typically are
made with 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
50
<PAGE>
all originated commercial real estate loans are within the Bank's market area
and all are within the State of Florida. As of September 30, 1998, the Bank had
commercial real estate loans, totalling $16.1 million, or 4.5% of the Bank's
total loan portfolio. The Bank's largest commercial real estate loan had a
balance of $1.4 million on September 30, 1998 and was secured by a commercial
warehouse. See also "-Loans to One Borrower." 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 are
deemed to entail significantly greater risk than that which is involved with
single family real estate lending. The repayment of these loans typically is
dependent 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 Banking. To accomplish the Bank's mission to become a full
service community bank, plans have been developed to expand its products and
services offerings to the small to medium size businesses within its market
area. Experienced personnel have been added within the past year and the plans
call for the hiring of additional personnel over the next few years to assist in
reaching its objectives. New sales call programs, credit analysis guidelines,
loan grading systems, technology upgrades and new products and services either
have been implemented or are in the process of implementation. The Bank plans to
satisfy not only the borrowing needs of new prospective business customers, but
plans to have the full complement of deposit services and customer services
related to the checking, savings, and cash management needs of these businesses.
Consumer Loans. As of September 30, 1998 consumer loans amounted to
$57.9 million or 16.2% of the Bank's total loan portfolio and consist primarily
of direct and indirect auto loans and home equity loans and credit lines. To a
lesser extent, the Bank originates lines of credit, loans secured by savings
accounts and other consumer loans. Consumer loans are originated in the Bank's
market area and generally have maturities of up to 10 years. For savings account
loans, the Bank will lend up to 90% of the account balance.
Consumer loans have a shorter term and generally provide higher
interest rates than residential loans. The consumer loan market can be helpful
in improving the spread between average loan yield and costs of funds and at the
same time improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one- to four-family
residential mortgage loans, particularly consumer loans secured by rapidly
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 are dependent 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 Bank is greater than that inherent 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 be dependent on whether any value remains after collection by a holder
with a higher priority than the Bank. 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 in the event of a default.
51
<PAGE>
At September 30, 1998, 70% of the Bank's automobile loans outstanding
were loans originated through local automobile dealerships. Although this type
of lending generally carries a greater risk factor, the Bank 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 Bank 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.
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, 1998, the Bank's largest aggregation of loans to
one borrower was $4.7 million, consisting of fifteen loans secured primarily by
commercial warehouses, in the Lakeland, Florida area, which was within the
Bank's legal lending limit to one borrower of $5.4 million at such date. At
September 30, 1998, the loans were current. The increase in the capital of the
Bank from this offering will increase its lending limit.
Loan Solicitation and Processing. The Bank'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.
Upon receipt of any 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 Bank's staff analyze the loan applications and the property involved.
Officers and lenders are granted lending authority based on the loan types that
they work with and their level of experience. An officers' loan committee
approves loans exceeding individual authorities, with the Executive Committee
approving loans between $500,000 and $1 million, and the full Board of Directors
approving loans in excess of $1 million.
Loan applicants are promptly notified of the decision of the Bank 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
Bank, tax escrow and the notice of requirement of insurance coverage to be
maintained to protect the Bank's interest. The Bank 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 Bank 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 Bank's commitments to
extend credit as of September 30, 1998, 1997, and 1996 was $2.7 million, $3.7
million and $2.7 million, respectively.
52
<PAGE>
Loan Origination and Other Fees. In addition to interest earned on
loans, the Bank receives loan origination and commitment fees for originating or
purchasing certain loans. Since most loans are originated without points being
charged, the Bank has assessed customers certain fees related to underwriting
and document preparation. The Bank believes these fees are just slightly above
the costs to originate the loans. Therefore, the net deferred fees are minimal
and deferrals have an immaterial effect on operating results.
The Bank 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.
Non-performing Loans and Problem Assets
Collection Procedures. The Bank's collection procedures provide that
when a loan is 15 to 20 days delinquent, the borrower is notified. If the loan
becomes 30 days delinquent, the borrower is sent a written delinquent notice
requiring payment. If the delinquency continues, subsequent efforts are made to
contact the delinquent borrower. In certain instances, the Bank may modify the
loan or grant a limited moratorium on loan payments to enable the borrower to
reorganize his financial affairs and the Bank 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 Bank within 90 days, the Bank 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 Bank 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
real estate owned ("REO") until such time as it is sold or otherwise disposed of
by the Bank. When REO is acquired, it is 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 to the allowance
for loan losses.
As to commercial related loans, the main thrust of the Bank's
collection efforts is through telephone contact and a sequence of collection
letters. If the Bank is unable to resolve the delinquency within 90 days or in
some situations shorter time periods, the Bank will pursue all available legal
remedies. The Bank's commercial lenders are required to evaluate each assigned
account on a case-by-case basis, within the parameters of the Bank's policies.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when they are more than 90 days delinquent. Loans may be placed on a
non-accrual 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 non-accrual 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. At September 30, 1998, the Bank had $836,000 of
loans that were held on a non-accrual basis and held five residential properties
as REO with an aggregate book balance of $403,000 and $91,000 in other
non-performing assets consisting primarily of repossessed vehicles.
53
<PAGE>
Non-Performing Assets. The following table provides information
regarding the Bank's non-performing loans and other non-performing assets as of
the end of each of the last five fiscal years. As of each of the dates
indicated, the Bank did not have any troubled debt restructurings within the
meaning of Statement of Financial Accounting Standards No. 114.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential.................................... $ 445 $1,624 $ 654 $ 605 $ 721
Multi-family................................... -- -- -- -- --
All other mortgage loans....................... -- 491 491 584 1,612
Consumer loans:
Home equity loans.............................. -- -- -- -- --
Other consumer................................. 391 199 39 17 --
------ ------ ------ ------ ------
Total............................................ $ 836 $2,314 $1,184 $1,206 $2,333
====== ===== ===== ===== =====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Residential ................................... $ -- $ -- $ -- $ -- $ --
Multi-family................................... -- -- -- -- --
All other mortgage loans....................... -- -- -- -- --
Consumer loans:
Home equity and second mortgages............... -- -- -- -- --
Other consumer................................. -- -- -- -- --
------- ------- ------- ------ ------
Total............................................ $ -- $ -- $ -- $ -- $ --
======= ====== ======= ====== ======
Total non-performing loans...................... $ 836 $ 2,314 $ 1,184 $1,206 $2,333
======= ===== ======= ====== ======
Real estate owned............................... $ 403 $ 67 $ 8 $ 337 $ 187
======= ====== ======= ====== ======
Other non-performing assets...................... $ 91 $ 104 $ 42 $ 11 $ 14
======= ====== ====== ====== ======
Total non-performing assets...................... $ 1,330 $ 2,485 $ 1,234 $1,554 $2,534
======= ====== ====== ===== ======
Total non-performing loans to net loans.......... .25% .65% .37% .46% .94%
======= ====== ====== ===== =====
Total non-performing loans to total assets....... .20% .49% .27% .28% .57%
======= ====== ====== ===== ======
Total non-performing assets to total assets...... .32% .53% .28% .36% .62%
======= ====== ====== ===== ======
</TABLE>
The increase in non-accrual loans during the year ended September 30,
1997 was attributable primarily to $698,000 in residential construction loans
which were placed in non-accrual status after the builder declared bankruptcy.
During the year ended September 30, 1998, the Bank foreclosed on and sold the
properties securing the loans which consisted of six individual houses. During
fiscal year 1998, the Bank also resolved foreclosure and counterclaim litigation
relating to a $491,000 loan secured by a retail strip shopping center. In
connection with the settlement of this litigation, the Bank received payments
totalling $348,000 from the borrower and charged off the remainder of its
investment. As a result of these events, total non-performing assets declined to
$1.3 million at September 30, 1998 from $2.5 million at September 30, 1997.
54
<PAGE>
During the year ended September 30, 1998, approximately $71,000 of
interest would have been recorded on loans accounted for on a non-accrual basis
if such loans had been current according to the original loan agreements for the
entire period. These amounts were not included in the Bank's interest income for
the respective periods. The amount of interest income on loans accounted for on
a non-accrual basis that was included in income during the same periods was
insignificant during September 30, 1998. ^
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 reserve 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 to be 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 obligor 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,
1998
----
(In thousands)
Special mention............................. $ 717
Substandard................................. 1,119
Doubtful.................................... --
-------
Total.................................. $1,836
=====
Allowance for Loan Losses and REO. The Bank segregates the loan
portfolio for loan losses into the following broad categories: residential real
estate, commercial real estate, commercial loans, home equity loans and lines of
credit, automobile loans including both direct and dealer originated loans and
other consumer loans. The Bank provides for a general allowance for losses
inherent in the portfolio by the above categories, which consists of two
components. General loss percentages are calculated based upon historical
analyses and other factors. A supplemental portion of the allowance is
calculated for inherent losses which probably exist as of the evaluation date
even though they might
55
<PAGE>
not have been identified by the more objective processes used. This is due to
the risk of error and/or inherent imprecision in the process. This portion of
the allowance is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact mathematical
calculations such as:
o trends in delinquencies and nonaccruals;
o trends in volume, terms and portfolio mix;
o new credit products;
o changes in lending policies and procedures;
o changes in the outlook for the local, regional and national economy; and
o peer group comparisons.
At least quarterly, the Bank's management evaluates the need to
establish reserves against losses on loans and other assets based on estimated
losses on specific loans and on any real estate held for sale or investment when
a finding is made that a loss is estimable and probable. Such evaluation
includes a review of all loans for which full collectibility may not be
reasonably assured and considers, among other matters^: (1) the estimated market
value of the underlying collateral of problem loans, (2) prior loss experience,
(3) economic conditions and (4) overall portfolio quality.
Provisions for losses are charged against earnings in the period they
are established. The Bank had $2.6 million in allowances for loan losses at
September 30, 1998.
While the Bank believes it has established its existing allowance for
loan losses in accordance with GAAP, there can be no assurance that regulators,
in reviewing the Bank's loan portfolio, will not request the Bank to
significantly increase its allowance for loan losses, or that general economic
conditions, a deteriorating real estate market, or other factors will not cause
the Bank to significantly increase its allowance for loans losses, therefore
negatively affecting the Bank's financial condition and earnings.
In making loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.
During 1998, the Bank's charge-offs increased to $474,000 from $68,000
in 1997. The increase in charge-offs related primarily to loans to two
borrowers. One loan was secured by a small shopping center that the Bank had
been litigating for several years. Final resolution and repayment of the loan
occurred in 1998 with the Bank incurring a loss approximating $140,000. Another
large charge-off involved loans made to a local builder for the construction of
single family houses. The Bank foreclosed on the properties and recognized a
charge-off of $110,000 in 1998. See further discussion of these loans under --
"Non Performing Assets."
It is the Bank's policy to review its loan portfolio, in accordance
with regulatory classification procedures, on at least a quarterly basis.
Additionally, the Bank maintains a program of reviewing loan applications prior
to making the loan and immediately after loans are made in an effort to maintain
loan quality.
56
<PAGE>
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance balance (at beginning of period)...... $ 2,633 $ 2,385 $ 1,902 $ 1,902 $ 1,942
------- ------- ------- ------- -------
Provision for loan losses........................ 405 317 600 75 188
------- ------- ------- ------- -------
Charge-offs:
Residential.................................... (218) (19) (70) (55) (163)
Commercial real estate......................... (146) (12) -- -- --
Consumer....................................... (110) (38) (49) (20) (65)
------- ------ ------ ------- -------
Total charge-offs................................ (474) (69) (119) (75) (228)
Recoveries...................................... -- -- 2 -- --
----- ----- ----- ------ ------
Net (charge-offs) recoveries..................... (474) (69) (117) (75) (228)
----- ------ ----- ------ -------
Allowance balance (at end of period)............. $ 2,564 $ 2,633 $ 2,385 $ 1,902 $ 1,902
======= ======= ======= ======= =======
Total loans outstanding.......................... $338,610 $355,551 $321,327 $260,675 $247,943
======= ======= ======= ======= =======
Average loans outstanding........................ $339,218 $339,992 $288,901 $261,259 $248,729
======= ======= ======= ======= =======
Allowance for loan losses as a percent of
total loans outstanding.......................... .76% .74% .74% .73% .78%
Net loans charged off as a percent of
average loans outstanding........................ .14% .02% .04% .03% .09%
</TABLE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------------------
1998 1997 1996
------------------------ -------------------------- --------------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At end of period allocated
to:
Residential................. $1,521 75.9% $1,760 75.3% $1,620 79.6%
Multi-family................. 17 1.2 -- 1.1 -- 1.4
Commercial real estate and
land......................... 315 6.7 358 5.0 350 2.7
Consumer..................... 711 16.2 515 18.6 415 16.3
------ ------- ------ ------- ------ -------
Total allowance.............. $2,564 100.00% $2,633 100.00% $2,385 100.00%
===== ====== ===== ====== ===== ======
</TABLE>
57
<PAGE>
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 Bank maintains liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -
Regulation of the Bank - Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources". Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives and upon management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities and its expectation of future yield levels, as well as
management's projections as to the short-term demand for funds to be used in the
Bank's loan origination and other activities. The Bank maintains an investment
securities portfolio and a mortgage-backed securities portfolio as part of its
investment portfolio. At September 30, 1998, the Bank had an investment
securities portfolio of $33.7 million (8.0% of total assets) and a
mortgage-backed securities portfolio of $27.3 million (6.5% of total assets),
consisting primarily of U.S. government agency obligations. At September 30,
1998, the market value of the investment securities portfolio was $33.7 million
and the market value of the mortgage-backed securities portfolio was $27.1
million. See Notes 2 and 3 of the financial statements.
Investment Policies. The investment policy of the Bank, which is
established by the Board of Directors, is designed to foster earnings and
liquidity within prudent interest rate risk guidelines, while complementing the
Bank's lending activities. The policy provides for available for sale, held to
maturity and trading classifications. However, the Bank 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 Bank to maximize total return within the
guidelines set forth in the Bank'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 guaranteed by government or
government-sponsored agencies, investment grade corporate debt securities, and
commercial paper. The Bank 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 Bank does not participate in hedging programs, interest rate swaps, or other
activities involving the use of off-balance sheet derivative financial
instruments. Further, the Bank does not invest in securities which are not rated
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).
58
<PAGE>
Investment Securities. The Bank maintains a portfolio of investment
securities, classified as either available for sale or held to maturity, to
enhance total return on investments. At September 30, 1998, all of the Bank's
investment securities were U.S. Government Agency obligations with varying
characteristics as to rate, maturity and call provisions. Callable agency
securities, representing 79.0% of the Bank's U.S. Government Agency obligations
at September 30, 1998, could reduce the Bank's investment yield if these
securities are called prior to maturity.
Mortgage-backed Securities. The Bank invests in mortgage-backed
securities to provide earnings, liquidity, cash flows, and diversification to
the Banks' overall balance sheet. These mortgage-backed securities are
classified as either available for sale or held to maturity. These securities
are participation certificates issued and guaranteed by the Government National
Mortgage Association ("GNMA"), the FNMA and the Federal Home Loan Mortgage
Corporation ("FHLMC") and secured by interest in pools of mortgages.
Mortgage-backed securities typically represent a participation interest in a
pool of single-family or multi-family mortgages, although the Bank focuses its
investments on mortgage-backed securities secured by single-family mortgages.
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.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. 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 certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). The Bank also invests in
CMOs, issued or sponsored by FNMA and FHLMC. CMOs are a type of debt security
that aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules as well as a residual interest with each class having different risk
characteristics. The cash flows from the underlying collateral are usually
divided into "tranches" or classes whereby tranches have descending priorities
with respect to the distribution of principal and interest repayment of the
underlying mortgages and mortgage-backed securities as opposed to pass through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed ^ securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying CMOs are paid
in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche or class may
carry prepayment risk which may be different from that of the underlying
collateral and other tranches. Investing in CMOs allows the Bank to moderate
reinvestment risk resulting from unexpected prepayment activity associated with
conventional mortgage-backed securities. Management believes these securities
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
Other Securities. Other securities used by the Bank, but not
necessarily included in the investment portfolio, consist of equity securities,
interest-bearing deposits and federal funds sold. Equity securities owned
consist of a $2.9 million investment in FHLB of Atlanta common stock (this
59
<PAGE>
amount is not shown in the securities portfolio). 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 Bank's overall investment
strategy.
The following table sets forth the carrying value of the Bank's
investment and mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------
1998 1997 1996
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Securities Held to Maturity:
U.S. Government Agency Securities.................. $ 8,998 $27,993 $34,983
Collateralized Mortgage Obligations................ 9,738 9,819 9,818
------ ------ ------
Total Securities Held to Maturity.................. 18,736 37,812 44,801
------ ------ ------
Securities Available for Sale (at fair value):
U.S. Government Agency Securities ................. 24,711 31,126 38,501
Collateralized Mortgage Obligations................ 3,229 -- --
Mortgage-Backed Securities......................... 14,285 5,635 6,619
Mutual Funds....................................... -- -- 9,920
------ ------ ------
Total Securities Available for Sale................ 42,225 36,761 55,040
------ ------ ------
Total Investment and
Mortgage-Backed Securities....................... $60,961 $74,573 $99,841
====== ====== ======
</TABLE>
60
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Bank's investment
and mortgage-backed securities portfolio at September 30, 1998.
<TABLE>
<CAPTION>
At September 30, 1998
--------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
---------------- ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------ ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Agency
Securities....... $ 4,999 5.71% $21,620 5.92% $7,090 6.79% $ -- --% $33,709 6.10% $33,677
Mortgage-backed
securities:
Adjustable rate.. 10,082 5.35 -- -- -- -- -- -- 10,082 5.35 10,082
Fixed rate....... -- -- -- -- 4,203 6.18 -- -- 4,203 6.18 4,203
Collateralized
mortgage
obligations.... 9,738 5.94 -- -- -- -- 3,229 5.76 12,967 5.90 12,784
------- ---- ------- ----- ------- ----- ------ ---- ------ ---- -------
Total............ $24,819 5.65% $21,620 5.92% $11,293 6.56% $3,229 5.76% $60,961 5.94% $60,746
====== ==== ====== ===== ====== ==== ===== ==== ====== ==== ======
</TABLE>
61
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. Borrowings (principally from the FHLB) are used
to compensate for reductions in the availability of funds from other sources. In
addition to deposits and borrowings, the Bank derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the maturity,
call and sale of mortgage-backed securities and investment securities. Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.
Deposits. The Bank 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 amount,
the amount of time that the funds must remain on deposit and the applicable
interest rate.
The Bank's current deposit products include certificates of deposit
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 customers investment preference.
Deposits are obtained primarily from residents of Polk and Manatee
Counties. The Bank attracts deposit accounts by offering outstanding service,
competitive interest rates, and convenient locations and service hours. The Bank
uses traditional methods of advertising to attract new customers and deposits,
including radio, cable television, direct mail and print media advertising. The
Bank does not utilize the services of deposit brokers and management believes
that an insignificant number of deposit accounts are held by non-residents of
Florida.
The Bank pays interest on its deposits which are competitive in its
market. Interest rates on deposits are set weekly by senior management, based
upon a number of factors, including: (1) projected cash flow; (2) a current
survey of a selected group of competitors' rates for similar products; (3)
external data which may influence interest rates; (4) investment opportunities
and loan demand; and (5) scheduled certificate maturities and loan and
investment repayments.
Because of the large percentage of certificates of deposit in the
deposit portfolio (74.4% at September 30, 1998), the Bank's liquidity could be
reduced if a significant amount of certificates of deposit, maturing within a
short period of time, were not renewed. A significant portion of the
certificates of deposit remain with the Bank after they mature and the Bank
believes that this will continue. However, the need to retain these time
deposits could result in an increase in the Bank's cost of funds.
62
<PAGE>
Deposits in the Bank as of September 30, 1998, were represented by
various types of savings programs described below.
<TABLE>
<CAPTION>
Minimum Balance at Percentage of
Category Term Interest Rate(1) Balance Amount September 30, 1998 Total Deposits
- -------- ---- ---------------- -------------- ------------------ --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Checking Accounts None 0-2.25% $ -- $34,949 9.9%
Savings Accounts None 1.75% $ -- 37,758 10.7
Money Market Accounts 4.75%(2) $ -- 18,091 5.2
Certificates of Deposit:
All Other CD's Various $ 500 23,971 6.8
Fixed Term, Fixed Rate 4-6 Months 4.50% $ 500 31,672 9.0
Fixed Term, Fixed Rate 7-12 Months 4.75% $ 500 61,864 17.6
Fixed Term, Fixed Rate 13-24 Months 5.00% $ 500 29,458 8.4
Fixed Term, Fixed Rate 25-36 Months 5.05% $ 500 7,728 2.2
Fixed Term, Fixed Rate 37-48 Months 5.10% $ 500 2,877 .8
Fixed Term, Fixed Rate 49-60 Months 5.10% $ 500 51,432 14.6
Fixed Term, Fixed Rate 12-18 Months 4.75% $ 500 3,390 .9
Jumbo Certificates Same as above $ 75,000 3,312 .9
Jumbo Certificates Same as above $ 100,000 45,678 13.0
------- -----
Total $352,180 100.0%
======= =====
</TABLE>
- ---------------
(1) Interest rate offerings as of September 30, 1998.
(2) Tiered-rate shown is for highest tier.
The following table sets forth the time deposits in the Bank classified
by interest rate as of the dates indicated.
At September 30,
----------------
1998 1997 1996
---- ---- ----
(In thousands)
Interest Rate
4.00% or less................. $ 66 $ 1,959 $ 2,206
4.00-4.99%.................... 53,555 7,334 73,958
5.00-5.99%................... 130,910 228,331 178,519
6.00-6.99%.................... 74,719 92,676 51,949
7.00-7.99%................... 2,132 2,696 7,210
------- ------- -------
Total....................... $261,382 $332,996 $313,842
======= ======= =======
63
<PAGE>
The following table sets forth the amount and maturities of time
deposits at September 30, 1998.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------------------
After
September 30, September 30, September 30, September 30,
Interest Rate 1999 2000 2001 2002 Total
- ------------- ----- ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
4.00% or less...... $ 51 $ 15 $ -- $ -- $ 66
4.00-4.99%......... 53,089 466 -- -- 53,555
5.00-5.99%......... 84,818 27,795 9,034 9,263 130,910
6.00-6.99%......... 27,447 23,781 2,680 20,811 74,719
7.00-7.99%......... -- 2,132 -- -- 2,132
-----
Total $261,382
========
=======
</TABLE>
The following table shows the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of September 30,
1998.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Within three months................................... $12,031
Three through six months.............................. 8,611
Six through twelve months............................. 9,974
Over twelve months.................................... 15,062
------
$45,678
=======
The following table sets forth the deposit activities of the Bank for
the periods indicated:
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited....$(35,158) $11,843 $(7,262)
Deposits sold in January 1998....................... (55,305) -- --
Interest credited................................... 12,931 13,687 13,852
------- ------ ------
Net increase (decrease) deposits....................$(77,532) $25,530 $ 6,590
======= ====== ======
</TABLE>
After reviewing its funding alternatives and related costs in 1998, the
Bank decided to reduce its premium pricing on certain certificate accounts and
began pricing other deposit accounts more competitively to reduce the Bank's
overall cost of funds. Accordingly, the Bank experienced a reduction in deposit
balances, primarily in certificate accounts, for 1998.
64
<PAGE>
Borrowings. Deposits are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes. The
Bank, as the need arises or in order to take advantage of funding opportunities,
may borrow funds in the form of advances from the FHLB to supplement its supply
of lendable funds and to meet deposit withdrawal requirements. Advances from the
FHLB are typically secured by the Bank's stock in the FHLB and a portion of the
Bank's residential mortgage loans and may be secured by other assets
(principally securities which are obligations of or guaranteed by the U.S.
Government). The Bank typically has funded loan demand and investment
opportunities out of current loan and mortgage-backed securities repayments,
investment maturities and new deposits. However, the Bank recently has utilized
FHLB advances to supplement these sources and as a match against certain assets
in order to better manage interest rate risk. See Note 8 to Notes to Financial
Statements.
Subsidiary Activity
The Bank is permitted to invest its assets in the capital stock of, or
originate secured or unsecured loans to, subsidiary corporations. The Bank does
not have any subsidiaries.
Personnel
As of September 30, 1998, the Bank had 150 full-time employees and 10
part-time employees. The employees are not represented by a collective
bargaining unit. The Bank believes its relationship with its employees to be
satisfactory.
Competition
The Bank faces strong competition in its attraction of deposits, which
are its primary source of funds for lending, and in the origination of real
estate, commercial and consumer loans. The Bank's competition for deposits and
loans historically has come from local and regional commercial banks and credit
unions located in the Bank's market area. The Bank also competes with mortgage
banking companies for real estate loans, and commercial banks and savings
institutions for consumer loans; and faces competition for investor funds from
mutual fund accounts, short-term money funds and corporate and government
securities. The Bank's primary market area is Polk and Manatee Counties in
Florida.
The Bank competes for loans by charging competitive interest rates and
loan fees, and emphasizing outstanding service for its customers. The Bank
offers consumer banking services such as checking and savings accounts,
certificates of deposit, retirement accounts, overdraft protection, and consumer
and mortgage loans. The Bank also provides drive-up facilities and offers a
debit card program. The Bank has recently added five ATMs and plans to purchase
additional ATMs for its remaining branches during the next year. The emphasis on
outstanding services differentiates the Bank in its competition for deposits.
The Bank offers overall market rates on deposits. Although the Bank is the
largest locally based financial institution in terms of deposit share in its
primary market area, many of the regional commercial banking competitors of the
Bank offer a much broader array of services and products.
65
<PAGE>
Properties and Equipment
The Bank's executive offices are located at 205 East Orange Street in
Lakeland, Florida. The Bank conducts its business through nine offices, which
are located in Polk and Manatee Counties in Florida. The following table sets
forth the location of each of the Bank's offices, the year the office was opened
and the net book value of each office and its related equipment.
Year Net Book
Facility Value at
Opened or Leased or September 30,
Building/Office Location Acquired Owned 1998
- ------------------------ --------- ------- -------------
Main Office/Corporate Headquarters 1957 Owned $ 2,300,000
Branch Offices:
Grove Park 1961 Owned 255,000
Highlands 1972 Owned 455,000
Interstate 1985 Owned 440,000
Winter Haven North 1978 Owned 433,000
Winter Haven South 1995 Owned 874,000
West Bradenton 1989 Owned 744,000
Cortez (Bradenton) 1972 Leased(1) 63,000
Scott Lake 1997 Owned 700,000
Operations Center 1964 Owned 288,000
- -----------------
(1) This is a five-year lease that terminates December 31, 2003, but has
two three-year renewal options.
As of September 30, 1998, the net book value of land, buildings,
furniture, and equipment owned by the Bank, less accumulated depreciation,
totalled $6.8 million.
At September 30, 1998, the Bank held two additional properties which
formerly housed branches that were sold in connection with the Branch Sale.
These properties were under contract for sale to another financial institution
which was leasing the sites from the Bank pending closing. In connection with
the sale of these properties, the Bank has agreed to indemnify the purchaser for
the costs of obtaining closure with state environmental authorities regarding
the necessity of further remediation of certain environmental contamination on
the sites due to outside sources. The sale of one property was completed in
December 1998 after the Bank received a notice of no further action required
from the State of Florida. Closing on the other property is scheduled to take
place on or before April 15, 1999. The Bank does not currently anticipate that
it will incur additional material expense associated with the sale of this
property.
Legal Proceedings
The Bank, from time to time, is a party to routine litigation, which
arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Bank. There were no lawsuits
pending or known to be contemplated against the Bank at September 30, 1998 that
would have a material effect on our
66
<PAGE>
operations or income.
REGULATION
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the 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 members. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.
The OTS regularly examines the Bank and prepares reports for
consideration by the Bank's board of directors on deficiencies, if any, found in
the Bank's operations. The Bank's relationship with its members 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 such regulations, whether by the
OTS, the FDIC or the United States Congress, could have a material adverse
impact on the Company and the Bank, and their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits during 1996 and prior years.
The FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits. In 1996, the annual insurance
premium for most BIF members was lowered to $2,000. The lower insurance premiums
for BIF members placed SAIF members at a competitive disadvantage to BIF
members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
0.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the
deposit insurance assessment for most SAIF members was
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reduced to 0.064% of deposits on an annual basis through the end of 1999. During
this same period, BIF members will be assessed approximately 0.013% of deposits.
After 1999, assessments for BIF and SAIF members should be the same. It is
expected that these continuing assessments for both SAIF and BIF members will be
used to repay outstanding Financing Corporation bond obligations. As a result of
these changes, beginning January 1, 1997, the rate of deposit insurance assessed
the Bank declined by approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk- weighted
assets. The Bank's capital ratios are set forth under "Historical and Pro Forma
Capital Compliance."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk- based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. 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 association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The OTS has adopted a rule requiring a deduction from capital for
institutions with certain levels of interest rate risk. The OTS calculates the
sensitivity of an institution's net portfolio value based on data submitted by
the institution in a schedule to its quarterly Thrift Financial Report and using
the interest rate risk measurement model adopted by the OTS. The amount of the
interest rate risk component, if any, to be deducted from an institution's total
capital will be based on the institution's Thrift Financial Report filed two
quarters earlier. Federal savings institutions with less than $300 million in
assets and a risk-based capital ratio above 12% are generally exempt from filing
the interest rate risk schedule with their Thrift Financial Reports. However,
the OTS may require any exempt institution that it determines may have a high
level of interest rate risk exposure to file such schedule on a quarterly basis
and may be subject to an additional capital requirement based upon its level of
interest rate risk as compared to its peers.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including dividend payments.
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OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all capital requirements before and
after a proposed capital distribution ("Tier 1 institution") and has not been
advised by the OTS that it is in need of more than the normal supervision can,
after prior notice but without the approval of the OTS, make capital
distributions during a calendar year equal to the greater of ^(1) 100% of its
net income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year, or ^ (2)
75% of its net income over the most recent four-quarter period. Any additional
capital distributions require prior regulatory notice. As of September 30, 1998,
the Bank was a Tier 1 institution.
In the event the Bank's capital falls below its fully phased-in
requirement or the OTS notified it that it was in need of more than normal
supervision, the Bank would become a Tier 2 or Tier 3 institution and, as a
result, its ability to make capital distributions could be restricted. Tier 2
institutions, which are institutions that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75% of net income over the most recent
four-quarter period. Tier 3 institutions, which are institutions that do not
meet current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. The OTS recently relaxed certain
approval and notice requirements for well-capitalized institutions.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which are eligible for expedited
treatment under current OTS regulations are not required to file a notice or an
application with the OTS if ^(1) the savings association would remain at least
adequately capitalized following the capital distribution and ^(2) the amount of
capital distribution does not exceed an amount equal to the savings
association's net income for that year to date, plus the savings association's
retained net income for the previous two years. Thus, under the proposed
regulation, only undistributed net income for the prior two years may be
distributed in addition to the current year's undistributed net income without
the filing of an application with the OTS. Savings associations which do not
qualify for expedited treatment or which desire to make a capital distribution
in excess of the specified amount, must file an application with, and obtain the
approval of, the OTS prior to making the capital distribution. Under certain
other circumstances, savings associations will be required to file a notice with
OTS prior to making the capital distribution. The OTS proposed limitations on
capital distributions are similar to the limitations imposed upon national
banks. We are unable to predict whether or when the proposed regulation will
become effective.
A federal savings institution is prohibited from making a capital
distribution if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a federal savings institution cannot distribute
regulatory capital that is needed for its liquidation account.
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Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender ("QTL") test or they become subject to certain operating
restrictions. If we maintain an appropriate level of qualified thrift
investments ("QTIs") (primarily residential mortgages and related investments,
including certain mortgage-related securities) and otherwise qualify as a QTL,
we will have full borrowing privileges from the FHLB of Atlanta. The required
percentage of QTIs is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the institution in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, federal savings
institutions may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months.
Transactions With Affiliates. Generally, federal banking law requires
that transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. In
addition, a savings institution may not extend credit to any affiliate engaged
in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat subsidiaries of savings institution as affiliates on a case-by-case
basis.
Liquidity Requirements. All federal savings institutions are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement
may vary from time to time (between 4% and 10%) depending upon economic
conditions and savings flows of all savings institutions. Monetary penalties may
be imposed upon institutions for violations of liquidity requirements.
Federal Home Loan Bank System. We are 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 savings institutions and proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of Atlanta in an amount equal to at least 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year. We are 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 to 30% of a member's capital and limiting total
advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
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Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
Regulation of the Company
General. Upon completion of the reorganization, the Company will become
a federal mutual holding company within the meaning of Section 10(o) of the Home
Owners' Loan Act ("HOLA"). The Company will be required to register and file
reports with the OTS and will be subject to regulation and examination by the
OTS. In addition, the OTS will have enforcement authority over the Company and
any non-savings institution subsidiaries. This will permit the OTS to restrict
or prohibit activities that it determines to be a serious risk to us. This
regulation is intended primarily for the protection of our members and not for
the benefit of you, as stockholders of the Company.
QTL Test. Since the Company will only own one savings institution, it
will be able to diversify its operations into activities not related to banking,
but only so long as we satisfy the QTL test. If the Company controls more than
one savings institution, it would lose the ability to diversify its operations
into nonbanking related activities, unless such other savings institutions each
also qualify as a QTL or were acquired in a supervised acquisition. See
"Regulation of the Bank Qualified Thrift Lender Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
TAXATION
Federal Taxation
Savings institutions are subject to the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), in the same general manner as other
corporations. Prior to certain changes to the Code in 1996, thrift institutions
enjoyed a tax advantage over banks with respect to determining additions to its
bad debt reserves. All thrift institutions, prior to 1996, were generally
allowed a deduction for additions to a reserve for bad debts. In contrast, only
"small banks" (the average adjusted bases of all assets of such institution
equals $500 million or less) were allowed a similar deduction for additions to
their bad debt reserves. In addition, while small banks were only allowed to use
the experience method in determining their annual addition to a bad debt
reserve, all thrift institutions generally enjoyed a choice between ^(1) the
percentage of taxable income method and, ^(2) the experience method, for
determining the annual addition to their bad debt reserve. This choice of
methods provided a distinct advantage to thrift institutions that continually
experienced little or no losses from bad debts, over small banks in a similar
situation, because thrift institutions in comparison
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to small banks were generally allowed a greater tax deduction by using the
percentage of taxable income method (rather than the experience method) to
determine their deductible addition to their bad debt reserves.
The Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with respect
to deductions for bad debt. Now only thrift institutions that are treated as
small banks under the Code may continue to account for bad debts under the
reserve method; however such institutions may only use the experience method for
determining additions to their bad debt reserve. Thrift institutions that are
not treated as small banks may no longer use the reserve method to account for
their bad debts but must now use the specific charge-off method.
The revisions to the Code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of ^(1) the balance of its bad debt reserves as of
the close of its taxable year beginning before January 1, 1996, over ^(2) the
balance of such reserves as of the close of its last taxable year beginning
before January 1, 1988 ("pre-1988 reserves"). The Bank will be required to
recapture ^ $350,000 of applicable excess reserve.
In addition, all thrift institutions must continue to keep track of
their pre-1988 reserves because this amount remains subject to recapture in the
future under the Code. A thrift institution such as the Bank, would generally be
required to recapture into its taxable income its pre-1988 reserves in the case
of certain excess distributions to, and redemptions of the Bank's stockholders
and in the case of a reduction in the Bank's outstanding loans when comparing
loans currently outstanding to loans outstanding at the end of the base year.
For taxable years after 1995, the Bank will continue to account for its bad
debts under the reserve method. The balance of the Bank's pre-1988 reserves
equaled ^ $5.8 million.
The Company may exclude from its income 100% of dividends received from
the Bank as a member of the same affiliated group of corporations. A 70%
dividends received deduction generally applies with respect to dividends
received from corporations that are not members of such affiliated group.
The Bank's federal income tax returns for the last five tax years have
not been audited by the IRS.
State Taxation
The Bank files Florida franchise tax returns. For Florida franchise tax
purposes, savings institutions are presently taxed at a rate equal to 5.5% of
taxable income which is calculated based on federal taxable income, subject to
certain adjustments (including the addition of interest income on state and
municipal obligations). The Bank also for Florida Franchise tax purposes
reflects a credit for Florida Intangible taxes paid.
The Bank's state tax returns have not been audited for the past five
years.
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MANAGEMENT
Directors and Executive Officers
Our board of directors is composed of eight members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our proposed charter and bylaws require that directors be divided
into three classes, as nearly equal in number as possible. Our officers are
elected annually by our board and serve at the board's discretion. These same
provisions apply to the Bank and mutual holding company, which will have the
same directors and executive officers that we have.
The following table sets forth information with respect to ^ the
directors and executive officers, all of whom will continue to serve in the same
capacities after the reorganization.
<TABLE>
<CAPTION>
Age at Current
September 30, Director Term
Name 1998 Position Since Expires (1)
- ------------------------------- ------------------- -------------------------------- ------------- -----------
<S> <C> <C> <C> <C>
Charles W. Bovay 70 Chairman of the Board 1987 2000
Gregory C. Wilkes 50 President, Director 1995 2001
Robert H. Artman 66 Director 1986 2002
Llewellyn N. Belcourt 66 Director 1989 2002
Stephen A. Moore, Jr. 56 Director 1998 2002
Nis Nissen 57 Director 1996 2000
Rudy H. Thornberry 70 Director 1986 2000
G.F. Zimmermann, III 54 Director 1993 2001
Don A. Burdett 52 SVP - Retail Sales and
Service
Kerry P. Charlet 45 SVP - Chief Financial
Officer
William H. Cloyd 41 SVP - Chief Lending
Officer
Marion Moore 58 SVP - Deposit
Administration
</TABLE>
- -------------------
(1) The terms for directors of the Company and the MHC are the same as those of
the Bank.
The business experience for the past five years of each of the
directors and executive officers is as follows:
Charles W. Bovay has been a Director of the Bank since 1987 and is
currently the Chairman of the Board. Mr. Bovay was also, until December 31,
1998, Chairman of the Board and Chief Executive Officer of Lanier Upshaw, Inc.,
an insurance company located in Lakeland, Florida, where he was employed since
1963. He has served as Chairman of the Lakeland Regional Medical Center and the
Lakeland Area Chamber of Commerce, and is a member of the Rotary Club of
Lakeland.
Gregory C. Wilkes has been the Bank's President, Director and Chief
Executive Officer since 1995. From 1990 to 1995, Mr. Wilkes was employed by Home
Federal Savings Bank in Rome,
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Georgia, where he served as President, Director and Chief Executive Officer. He
also serves as a board member for the Lakeland Chamber of Commerce, Lakeland
Rotary Club, Polk Theatre, the YMCA, the Salvation Army, the Florida Southern
College President's Council, and the Lakeland Regional Hospital Foundation. In
addition, Mr. Wilkes is the elected director for the State of Florida for the
FHLB of Atlanta and is a member of the board of the Florida Bankers Association
and board and faculty member of the Florida School of Banking.
Robert H. Artman has been a Director of the Bank since 1986. Mr. Artman
has been employed for the past 31 years by Traman Corp., a real estate
management and development company located in Lakeland, Florida, and is
currently serving as President. He is also a member of the Kiwanis Club of
Lakeland.
Llewellyn N. Belcourt has been a Director of the Bank since 1989. Mr.
Belcourt is a shareholder, Director and Vice President of Carter, Belcourt &
Atkinson, P.A., an accounting firm located in Lakeland, Florida. He also is an
Advisory Board Member of the Imperial Symphony Orchestra and a Professional
Advisory Council Member of the Lakeland Regional Medical Center Foundation.
Stephen A. Moore, Jr. has been a Director of the Bank since February 1998.
Mr. Moore is President, Director and majority stockholder of Moore Business
Service, Inc., an accounting firm located in Lakeland, Florida. He has been with
Moore Business Service, Inc. since 1974. Mr. Moore is also a member of the
Lakeland Rotary Club, a Director and officer of the Central Florida Speech &
Hearing Center, and a Board member of the Polk Community College Foundation.
Nis H. Nissen, III has been a Director of the Bank since 1996. Mr.
Nissen is President and Chief Executive Officer of Nissen Advertising, Inc., an
advertising and public relations firm located in Lakeland, Florida that he has
been affiliated with since 1971. He also is a member of the Rotary Club, a
Director of the Central Florida Speech & Hearing Center, a Director of
Crimestoppers of Polk County, Vice Chairman of the Public Information Committee,
Community Foundation of Lakeland, a member of the Fine Arts Council of the
Florida Southern Foundation of Lakeland, and a member of the Board of Governors
of Florida Southern College.
Rudolph H. Thornberry has been a Director of the Bank since 1988. Mr.
Thornberry is currently retired from other employment.
G.F. Zimmermann, III has been a Director of the Bank since 1993. Mr.
Zimmermann is President and majority stockholder of Zimmermann Associates, Inc.,
a building design firm located in Lakeland, Florida, which he has been with
since 1974. He has been active with the Salvation Army, the Kiwanis Club of
Lakeland, the Lakeland Kiwanis Foundation and the Chamber of Commerce. He also
has served as a member of the Habitat for Humanity Board of Directors, the City
of Lakeland Civil Service Board, the Pension Board, the Arbitration Board and
the Lakeland Regional Medical Center Community Board.
Don A. Burdett joined the Bank as Senior Vice President of Retail Banking
in November 1998. Prior to joining the Bank, Mr. Burdett served as a market
executive and various sales management positions at Barnett Bank from 1979 to
1998. Mr. Burdett has completed various graduate banking programs during his
career. Mr. Burdett has held leadership positions in the Clearwater Chamber of
Commerce, Suncoast Junior Achievement, Eastlake Optimist and has
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participated in both the Leadership Manatee and Leadership Lakeland Programs.
Kerry P. Charlet has been Chief Financial and Operations Officer of the
Bank since March 1998. Prior to joining the Bank, Mr. Charlet served in varying
positions from 1986 to 1995 at FloridaBank, FSB, including Executive Vice
President and Chief Financial Officer. He was also employed by AmSouth Bank of
Florida from 1995 to 1998, where he served as Senior Vice President and Chief
Financial Officer for the State. Mr. Charlet has also served as officer and
committee chairman for the Gator Bowl Association, Chairman of Payment Systems
Network, President and Treasurer of Jacksonville Biddy Basketball, Inc., and
President and Board member of the Beaches Youth Basketball Association.
William H. Cloyd has been Chief Lending Officer of the Bank since
January 1998. Previously, Mr. Cloyd was Senior Vice President of SunTrust Bank
Mid-Florida, N.A. He has also been active with the United Way, the Lakeland
North Rotary Club, the Lakeland Chamber of Commerce, and has served as Chairman
of the Lakeland Downtown Development Authority.
Marion L. Moore serves as Senior Vice President of Deposit Administration
for the Bank. Mr. Moore has been employed at the Bank since 1984. He has also
been active with the Rotary Club, the Boy Scouts of America, the Lakeland
Chamber of Commerce and the Winter Haven Chamber of Commerce.
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended September
30, 1998, the board of directors held 13 regular meetings. No director attended
fewer than 75% of the total meetings of the board of directors and committees on
which such director served during the year ended September 30, 1998. The Bank
has a standing audit committee, as well as other standing committees such as the
executive, building, marketing, retirement plan and asset liability committees.
The entire board of directors serves as a nominating committee and a
compensation committee.
The audit committee of the Bank consists of Directors Belcourt, Artman,
Moore and Nissen. The audit committee meets at least semi-annually and meets
with the Bank's independent certified public accountants to review the results
of the annual audit and other related matters. The audit committee met four
times during the year ended September 30, 1998.
Director Compensation
Board Fees. During 1998 each director was paid a fee of $1,000 for each
board meeting attended and each director emeritus was paid $667 per Board
meeting attended. The chairman of the board receives an additional $1,500 fee
for each board meeting. Each non-management director was paid $200 for each
committee meeting attended. The total fees paid to the directors for the year
ended September 30, 1998 were approximately $177,000.
Directors Consultant and Retirement Plan ("DRP"). The DRP provides
retirement benefits to directors following retirement and completion of at least
10 years of service. If a director agrees to become a consulting director to our
board upon retirement, he or she will receive a monthly payment equal to the
Board fee in effect at the date of retirement for a period of 120 months.
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Benefits under our DRP will begin upon a director's retirement. In the event
there is a change in control, all directors will be presumed to have not less
than 10 years of service and each director will receive a lump sum payment equal
to the present value of future benefits payable.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer for
the year ended September 30, 1998. No other current executive officer received a
total annual salary and bonus in excess of $100,000 during the reporting
periods.
Annual Compensation
--------------------------------
Other Annual
Fiscal Compensation
Name and Principal Position Year Salary Bonus (1)
- --------------------------- ---- ------ ----- ------------
George C. Wilkes, President 1998 $164,500 $2,400 $13,000
and Chief Executive Officer
- --------------------
(1) Includes directors fees.
Employment Agreements. The Bank has entered into an employment
agreement with its President, Gregory C. Wilkes. Mr. Wilkes' current base salary
under the employment agreement is $182,000. The employment agreement has a term
of three years. The agreement is terminable by us for "just cause" as defined in
the agreement. If we terminate Mr. Wilkes without just cause, he will be
entitled to a continuation of his salary from the date of termination through
the remaining term of the agreement, but in no event for a period of less than 1
year. The employment agreement contains a provision stating that in the event of
the termination of employment in connection with any change in control of us,
Mr. Wilkes will be paid a lump sum amount equal to 2.99 times his five-year
average annual taxable cash compensation. If a payment had been made under the
agreement as of September 30, 1998, the payment would have equaled approximately
$496,000. The aggregate payment that would have been made to Mr. Wilkes would be
an expense to us and would have resulted in reductions to our net income and
capital. The agreement may be renewed annually by our board of directors upon a
determination of satisfactory performance within the board's sole discretion. If
Mr. Wilkes shall become disabled during the term of the agreement, he shall
continue to receive payment of 100% of the base salary for a period of 12 months
and 65% of such base salary for the remaining term of the agreement. Such
payments shall be reduced by any other benefit payments made under other
disability programs in effect for our employees. The Bank has also entered into
employment agreements with four other executive officers and the aggregate
payment (based upon current salaries) that may have to be made to these four
executives upon a change in control of the Bank is approximately $__________.
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Pension Plan. The following table indicates the annual retirement
benefit that would be payable under the Bank's Pension Plan upon retirement at
age 65 in calendar year 1998, expressed in the form of a single life annuity for
the average annual salary and benefit service classifications specified below.
<TABLE>
<CAPTION>
Average Annual
Compensation Years of Service and Benefit Payable at Retirement
3 5 10 15 20 25
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 2,625 4,375 8,750 13,125 17,500 21,875
$ 75,000 4,020 6,700 13,400 20,100 26,800 33,500
$100,000 5,745 9,575 19,150 28,725 38,300 47,875
$125,000 7,470 12,450 24,900 37,350 49,800 62,250
$160,000 9,885 16,475 32,950 49,425 65,900 82,375
</TABLE>
The Pension Plan provides for benefits as a life annuity payable
monthly after retirement or termination. The benefits listed in the pension plan
table above are not subject to any deduction for Social Security or other offset
amounts. As of September 30, 1998, Mr. Wilkes had 3 years of credited service
under the Pension Plan.
Generally, the Annual Compensation covered under the Pension Plan
includes total cash compensation paid to a participant during a plan year as
reported for income tax withholding purposes on Wage and Tax Statement Form W-2,
but after excluding all pay for overtime work, commissions, bonuses or other
extra pay over basic compensation, plus any contributions by the Bank for such
year pursuant to a salary reduction agreement on behalf of the participant. If a
participant retires at age 65 his monthly income payable will be 1/12 of an
annual income equal to 1.75% of the participant's Average Annual Compensation up
to his Covered Compensation, plus 2.30% of his Average Annual Compensation above
his Covered Compensation, both multiplied by the number of years of service
under the Pension Plan (not to exceed 25 years). Covered Compensation generally
means the average (without indexing) of the maximum amount of a participant's
earnings that are considered to be wages for Social Security purposes for each
calendar year during the 35 year period ending with the last day of the calendar
year in which the participant attains (or will attain) Social Security
Retirement Age (as defined in the Pension Plan). The Bank anticipates that it
will terminate the Pension Plan effective April 15, 1999. Upon such termination,
all participant benefits shall become immediately veste^ d.
Supplemental Executive Retirement Plan. We have implemented a
supplemental executive retirement plan ("SERP") for the benefit of senior
officers, including our President, Gregory C. Wilkes. The Bank intends to
terminate the existing defined benefit pension plan ("Pension Plan") as of April
15, 1999. The SERP will provide benefits at age 65 that would be comparable to
approximately 83% of the benefits that would have accrued under the terminating
Pension Plan upon retirement at age 65. The SERP will provide each participant
with a defined annual deferred compensation amount; therefore, no future
actuarial calculations will be required. The annual accruals under the SERP for
Mr. Wilkes will be $59,000, during the term of his continued employment.
Benefits will accrue annually and will be credited with interest earnings of not
less than 5% per annum on the aggregate account accruals. If a participant
terminates employment prior to age 65, then the target retirement benefits will
be reduced. The accumulated deferred compensation account for each participant
will be payable to such participant at anytime following termination of
employment after attainment of age 55, the death or disability of the
participant, or termination of employment following a change in control of the
Bank whereby the Bank or its parent company is not the resulting entity.
Benefits under the SERP are not taxable to the participant or deductible by the
Bank until they are actually pai ^ d.
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Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the reorganization.
Participating employees are employees who have completed one year of service
with us or our subsidiary and have attained the age of 21. An application for a
letter of determination as to the tax-qualified status of the ESOP will be
submitted to the IRS. Although no assurances can be given, we expect that the
ESOP will receive a favorable letter of determination from the IR^ S.
The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the plan, the ESOP may borrow funds with which to acquire up to
8% of the common stock to be issued in the offering. The ESOP intends to borrow
funds from the Company. The loan is expected to be for a term of ten years at an
annual interest rate equal to the prime rate as published in The Wall Street
Journal. Presently it is anticipated that the ESOP will purchase up to 8% of the
common stock to be issued in the offering (i.e., -- shares, based on the
midpoint of the offering range). The loan will be secured by the shares
purchased and earnings of ESOP assets. Shares purchased with such loan proceeds
will be held in a suspense account for allocation among participants as the loan
is repaid. It is anticipated that all such contributions will be tax-deductible.
This loan is expected to be fully repaid in approximately 10 year^ s.
Shares sold above the maximum of the offering range (i.e., more than
2,351,175 shares) may be sold to the ESOP before satisfying remaining unfilled
orders of Eligible Account Holders to fill the ESOP's subscription or the ESOP
may purchase some or all of the shares covered by its subscription after the
offering in the open marke^ t.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become fully vested in plan
allocations following five years of service. Employment prior to the adoption of
the ESOP shall be credited for the purposes of vesting. Our contributions to the
ESOP are discretionary and may cause a reduction in other forms of compensation.
Therefore, benefits payable under the ESOP cannot be estimate^ d.
The board of directors has appointed the non-employee directors to the
ESOP Committee to administer the ESOP and to serve as the initial ESOP
Directors. The ESOP Directors must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees. Unallocated
shares and allocated shares for which no timely direction is received will be
voted by the ESOP Directors as directed by the board of directors or the ESOP
Committee, subject to the Directors' fiduciary dutie^ s.
401(k) Savings Plan. Effective January 1, 1999, the Bank sponsors a
tax-qualified defined contribution savings plan ("401(k) Plan") for the benefit
of its employees. Employees become eligible to participate under the 401(k) Plan
after reaching age 21 and completing three months of service. Under the 401(k)
Plan, employees may voluntarily elect to defer between 0% and 15% of
compensation, not to exceed applicable limits under the Code (i.e., $10,000 in
calendar 1998). The Bank matches a minimum of 25% of the first 6% of employee
contributions. Employee and matching contributions immediately vest. The Bank
intends to amend the 401(k) Plan to permit voluntary investments of plan assets
by participants in the common stock following the offerin^ g.
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Benefits are payable upon termination of employment, retirement, death,
disability, or plan termination. Normal retirement age under the 401(k) Plan is
65. Additionally, funds under the 401(k) Plan may be distributed upon
application to the plan administrator upon severe financial hardship in
accordance with uniform guidelines which comply with those specified by the
Code. It is intended that the 401(k) Plan operate in compliance with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the requirements of Section 401(a) of the Code. Contributions to
the 401(k) Plan by the Bank for employees may be reduced in the future or
eliminated as a result of contributions made to the Employee Stock Ownership
Plan. See "-Employee Stock Ownership Plan^."
Potential Stock Benefit Pla^ ns
Stock Option Plans. Following the offering, we intend to adopt a stock
option plan for directors and key employees within one year after the
reorganization. Any plan adopted will be subject to stockholder approval and
applicable laws. Any plan adopted within one year of the reorganization will
require the approval of a majority of our stockholders, other than the mutual
holding company and will also be subject to various other regulatory
limitations. Up to 10% of the shares of common stock sold in the offering will
be reserved for issuance under the stock option plan. No determinations have
been made as to the specific terms of, or awards under, the stock option pla^ n.
The purpose of the stock option plan will be to attract and retain
qualified personnel in key positions, provide officers, key employees and
directors with a proprietary interest in the Company as an incentive to
contribute to our success and reward officers and key employees for outstanding
performance. Although the terms of the stock option plan have not yet been
determined, it is expected that the stock option plan will provide for the grant
of: ^(2) options to purchase the common stock intended to qualify as incentive
stock options under the Code (incentive stock options); and ^(2) options that do
not so qualify (non-statutory stock options). Any stock option plans would be in
effect for up to ten years from the earlier of adoption by the board of
directors or approval by the stockholders.
Under the OTS conversion regulations, a stock option plan adopted
within a year of the reorganization, would provide for a term of 10 years, after
which no awards could be made, unless earlier terminated by the board of
directors pursuant to the option plan and the options would vest over a five
year period (i.e., 20% per year), beginning one year after the date of grant of
the option. Options would expire no later than 10 years from the date granted
and would expire earlier if the option committee so determines or in the event
of termination of employment. Options would be granted based upon several
factors, including seniority, job duties and responsibilities, job performance,
our financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
Stock Programs. Following the offering, we also intend to establish
stock programs to provide our officers and outside directors with a proprietary
interest in the Company. The stock programs are expected to provide for the
award of common stock, subject to vesting restrictions, to eligible officers,
employees and directors. Any plan adopted within one year of the reorganization
would require the approval of a majority of our stockholders other than the MHC
and will also be subject to various other regulatory limitations.
We expect to contribute funds to stock programs to acquire, in the
aggregate, up to 4% of the shares of common stock sold in the offering. Shares
used to fund the stock programs may be
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acquired through open market purchases or from authorized but unissued shares.
No determinations have been made as to the specific terms of stock programs.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event we implement stock option or management and/or employee stock benefit
plans within one year from the date of reorganization, such plans must comply
with the following restrictions:
^o the plans must be fully disclosed in the prospectus^;
o for stock option plans, the total number of shares for which options may be
granted may not exceed 10% of the shares issued in the conversion^;
o for restricted stock plans such as the MRP, the shares may not exceed 3% of
the shares issued in the conversion (4% for institutions with 10% or
greater tangible capital)^;
o the aggregate amount of stock purchased by the ESOP in the conversion may
not exceed 10% (12% for well-capitalized institutions utilizing a 4%
management recognition plan)^;
o no individual employee may receive more than 25% of the available awards
under the option plan or a restricted stock plan^;
o directors who are not employees may not receive more than 5% individually
or 30% in the = aggregate of the awards under any plan^;
o all plans must be approved by a majority of the total votes eligible to be
cast at any duly called meeting of the Company's stockholders held no
earlier than six months following the reorganization^;
o for stock option plans, the exercise price must be at least equal to the
market price of the stock at the time of grant^ ;
o for restricted stock plans, no stock issued in a mutual-to-stock conversion
may by used to fund the plan^;
o neither stock option awards nor restricted stock awards may vest earlier
than 20% as of one year after the date of stockholder approval and 20% per
year thereafter, and vesting may be accelerated only in the case of
disability of death (or if not inconsistent with applicable OTS regulations
in effect at such time, in the event of a change in control,
^o the proxy material must clearly state that the OTS in no way endorses or
approves of the plans^; and
^o prior to implementing the plans, all plans must be submitted to the
Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the
same plans that were filed with and disclosed in the proxy materials
relating to the meeting at which stockholder approval was received.
Transactions with Management and Others
No directors, executive officers or immediate family members of such
individuals were engaged in transactions with the Bank or any subsidiary
involving more than $60,000 (other than through a loan) during the year ended
September 30, 1998. Furthermore, the Bank had no "interlocking" relationships in
which ^(2) any executive officer is a member of the board of directors or of
another entity, one of whose executive officers are a member of the Bank's board
of directors, or where ^(2) any executive officer is a member of the
compensation committee of another entity, one of whose executive officers is a
member of the Bank's board of directors.
The Bank has followed the policy of offering residential mortgage loans for
the financing of
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personal residences, share loans, and consumer loans to its officers, directors
and employees. Loans are made in the ordinary course of business and also made
on substantially the same terms and conditions, including interest rate and
collateral, as those of comparable transactions prevailing at the time with
other persons, and do not include more than the normal risk of collectibility or
present other unfavorable features. As of September 30, 1998, the aggregate
principal balance of loans outstanding to all directors, executive officers and
immediate family members of such individuals was approximately $34,000.
Proposed Stock Purchases by Management
The following table sets forth for each of the directors and executive
officers of the Bank and for all such directors and executive officers as a
group (including in each case all "associates" of such persons) the number of
shares of common stock which such person or group intends to purchase, assuming
the sale of __________ shares of common stock at $10.00 per share. The table
does not include purchases by the ESOP (8% of the common stock sold in the
offering or 163,560 shares), and does not take into account any stock benefit
plans to be adopted within one year following the reorganization. See
"Management - Potential Stock Benefit Plans."
Percentage of
^Total Number ^Total Dollar 2,044,500 Total
of Shares Amount of Shares Shares Sold in
Name to be Purchased to be Purchased the Offering(1)
---- --------------- --------------- ---------------
Charles W. Bovay 20,000 $200,000 1.0%
Gregory C. Wilkes 20,000 200,000 1.0
Robert H. Artman 1,000 10,000 *
Llewellyn N. Belcourt 2,500 25,000 *
Stephen A. Moore, Jr. 20,000 200,000 1.0
Nis Nissen 20,000 200,000 1.0
Rudy H. Thornberry 1,000 10,000 *
G. F. Zimmermann, III 5,000 50,000 *
Don A. Burdett 7,500 75,000 *
Kerry P. Charlet 20,000 200,000 1.0
William H. Cloyd 10,000 100,000 *
Marion Moore 500 5,000 *
-------- --------- -----
Total 127,500 $ 1,275,000 6.2%
======== ========== ======
- ------------
* Less than 1.0%
(1) In the event the stockholders of the Company approve the stock benefit
plans as discussed in this prospectus (stock programs (4% of the common
stock sold in the offering) and the stock option plans (10% of the common
stock sold in the offering)), and all of the common stock is awarded
pursuant to the stock benefit plans and all options are exercised
(increasing the number of outstanding shares), directors and executive
officers would own 413,730 or 18.4% of the shares of common stock owned by
persons other than the MHC (9.1% of the total shares outstanding, including
those held by the mutual holding company). If fewer than 2,044,500 shares
were publicly sold, these percentage ownership estimates would increase.
See "- Potential Stock Benefit Plans."
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^ THE REORGANIZATION
^THE BOARD OF DIRECTORS OF THE BANK HAS ADOPTED THE PLAN AUTHORIZING THE
REORGANIZATION, SUBJECT TO THE APPROVAL OF THE OTS AND OF THE MEMBERS OF THE
BANK AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. OTS APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
^General
On ^ September 28, 1998, the Board of Directors of the Bank adopted the
plan of reorganization and stock issuance which was subsequently amended,
pursuant to which the Bank proposes to reorganize from a federally chartered,
mutual savings institution to a federally chartered stock savings institution.
The Bank will be a wholly owned subsidiary of the Company, the majority of whose
shares are to be owned by the MHC. Concurrently with the reorganization, the
Company will sell a minority percentage of its common stock in the offering to
the Bank's depositors and members of the general public. The Board of Directors
unanimously adopted the Plan after consideration of the advantages and the
disadvantages of the reorganization and offering and alternative transactions,
including a full conversion from the mutual to stock form of organization.
Following the receipt of all required regulatory approvals, the approval of the
plan by the Bank's and the satisfaction of all other conditions precedent to the
reorganization, the Bank will effect the reorganization ^(1) by exchanging its
federal mutual savings institution charter for a federal stock savings
institution charter and becoming a wholly owned subsidiary of the Company and
the Company then becoming a majority-owned subsidiary of the MHC, and having the
depositors of the Bank receive such liquidation interests in the MHC as they
have in the Bank before the reorganization; or ^(2) in any other manner
consistent with the plan or reorganization and applicable regulations. See "-
Description of the Reorganization." On the effective date, the Company will
commence business as FloridaFirst Bancorp, a ^ savings and loan holding company,
and the Bank will commence business as First Federal Florida, a federally
chartered stock savings institution, and the MHC will commence business as
FloridaFirst Bancorp, MHC, majority owner of the common stock of the Company.
The reorganization will be accomplished in accordance with the procedures set
forth in the plan, the requirements of applicable laws and regulations, and the
policies of the OTS.
For additional information concerning the offering, see "The Offering."
Purposes of the Reorganization
The Board of Directors of the Bank has determined that the
reorganization is in the best interest of the Bank and has several business
purposes for the reorganization.
The reorganization will structure the Bank in the stock form, which is
used by commercial banks, most major business corporations and an increasing
number of savings institutions. Formation of the Bank as a capital stock savings
institution subsidiary of the Company will permit the Company to issue common
stock, which is a source of capital not available to mutual savings institutions
or savings and loan associations. At the same time, the Bank's mutual form of
ownership will be preserved in the MHC, and the MHC, as a mutual corporation,
will control at least a majority of the common stock of the Company so long as
the MHC remains in existence as a mutual institution. The reorganization will
enable the Bank to achieve certain benefits of a stock company without a loss of
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control that sometimes follows standard conversions from mutual to stock form.
Sales of locally based, independent savings institutions to larger, regional
financial institutions following such mutual to stock conversions can result in
closed branches, fewer choices for consumers, employee layoffs and the loss of
community support and involvement by a financial institution. The Bank is
committed to being an independent, community-oriented institution, and the Board
of Directors believes that the mutual holding company structure is best suited
for this purpose. The mutual holding company structure also will give the
Company flexibility to issue its common stock at various times and in varying
amounts as market conditions permit, rather than in a single stock offering. The
MHC may convert from mutual to stock form of organization in the future. The
holding company form of organization is expected to provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with other
financial institutions, as well as other companies. Although the Bank has no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the reorganization and
offering, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise.
The Company is offering for sale up to 47% of the common stock in an
offering at an aggregate price based upon an independent appraisal. The proceeds
from the sale of common stock of the Company will provide the Bank with new
equity capital, which will support future deposit growth and expanded
operations. The ability of the Company to sell common stock also will enable the
Company and the Bank to increase capital in response to the changing capital
requirements of the OTS. While the Bank currently meets or exceeds all
regulatory capital requirements, the sale of common stock in connection with the
reorganization, coupled with the accumulation of earnings (net of dividends)
from year to year, represents a means for the orderly preservation and expansion
of the Bank's capital base, and allows flexibility to respond to sudden and
unanticipated capital needs. After the reorganization, the Company may
repurchase common stock. The investment of the net proceeds of the offering also
will provide additional income to enhance further the Bank's future capital
position.
The ability of the Company to issue common stock also will enable it in
the future to establish stock benefit plans for management and employees of the
Company and the Bank, including incentive stock option plans, stock award plans,
and employee stock ownership plans.
The formation of the Company also will allow the Company to borrow
funds, on a secured and unsecured basis, and to issue debt to the public or in a
private placement. The proceeds of any such borrowings or debt issuance may be
contributed to the Bank as core capital for regulatory capital purposes. The
Company has not made a determination to borrow funds or issue debt at the
present time.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which include:
the inability of the Company to sell shares of common stock representing 50% or
more so long as the MHC remains in existence; the more limited liquidity of the
common stock, as compared to a full conversion; and the inability of
stockholders other than the MHC to obtain a majority ownership of the Company
which may result in the perpetuation of the existing management and Board of
Directors of the Company and the Bank. The MHC will be able to elect all members
of the Board of Directors of the Company, and will be able to control the
outcome of all matters presented to the stockholders of the Company for
resolution by vote, except for matters which by regulation must be approved by a
majority of the shares owned by persons other than the MHC (the "minority
stockholders"), including certain matters relating to stock
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<PAGE>
compensation plans and certain votes regarding a conversion to stock form by the
MHC. No assurance can be given that the Company will not take action adverse to
the interests of the minority stockholders. For example, the Company can revise
the dividend policy, prevent the sale of control of the Company or defeat a
candidate for the Board of Directors of the Company or other proposal put forth
by the minority stockholders.
Description of the Reorganization
Following receipt of all required regulatory approvals and ratification
of the plan of reorganization by the voting depositors, the reorganization will
be effected by a series of mergers or in any manner approved by the OTS that is
consistent with the purposes of the plan of reorganization and applicable laws
and regulations. The Bank's intention is to complete the reorganization using a
series of mergers, although it may elect to use any method consistent with
applicable regulations, subject to OTS approval.
For a detailed description of the merger structure, see "- Federal and
State Tax Consequences of the Reorganization." Upon consummation of the
reorganization, the legal existence of the Bank will not terminate, the
converted stock bank will be a continuation of the Bank and all property of the
Bank, including its right, title, and interest in and to all property of any
kind and nature, interest and asset of every conceivable value or benefit then
existing or pertaining to the Bank, or which would inure to the Bank immediately
by operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will continue to be owned by the Bank as the
survivor of the merger. The Bank will possess, hold and enjoy the same in its
right and fully and to the same extent as the same was possessed, held and
enjoyed by the Bank. The Bank will continue to have, succeed to, and be
responsible for all the rights, liabilities, and obligations of the Bank and
will maintain its headquarters operations at the Bank's present location.
The foregoing description of the reorganization is qualified in its
entirety by reference to the plan and the charter and bylaws of the Bank, the
MHC and the Company to be effective upon consummation of the reorganization.
Effects of the Reorganization
General. The reorganization will not have any effect on the Bank's
present business of accepting deposits and investing its funds in loans and
other investments permitted by law. The reorganization will not result in any
change in the existing services provided to depositors and borrowers, or in
existing offices, management, and staff. Upon completion of the reorganization,
the Bank will continue to be subject to regulation, supervision, and examination
by the OTS and the FDIC.
Deposits and Loans. Each holder of a deposit account in the Bank at the
time of the reorganization will continue as an account holder in the Bank after
the reorganization, and the reorganization will not affect the deposit balance,
interest rate, and other terms of such accounts. Each such account will be
insured by the FDIC to the same extent as before the reorganization. Depositors
will continue to hold their existing certificates, passbooks, checkbooks, and
other evidence of their accounts. The reorganization will not affect the loans
of any borrower from the Bank. The amount, interest rate, maturity, security
for, and obligations under each loan will remain contractually fixed as they
existed prior to the reorganization. See "- Voting Rights" and "- Liquidation
Rights"
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<PAGE>
below for a discussion of the effects of the reorganization on the voting and
liquidation rights of the depositors and borrowers of the Bank.
Voting Rights. As a federally chartered mutual savings institution, the
Bank has no authority to issue capital stock and thus, no stockholders. Control
of the Bank in its mutual form is vested in the Board of Directors of the Bank.
^ The Directors are elected by the Bank's members. Holders of qualifying
deposits in the Bank and borrowers of the Bank with loans outstanding on October
23, 1984 which remain outstanding are members of the Bank. In the consideration
of ^ all questions requiring action by members of the Bank, each holder of
qualifying ^ deposit is permitted to cast one vote for each $100, or fraction
thereof, of the withdrawal value of the voting depositor's account ^. Voting
borrowers are entitled to cast one vote. No member may cast more than 1,000
votes.
After the reorganization, the affairs of the Bank will be under the
direction of the Board of Directors of the Company and the Bank and all voting
rights as to the Bank will be vested exclusively in the holders of the
outstanding voting capital stock of the Company, which initially will consist
exclusively of common stock. By virtue of its ownership of a majority of the
outstanding shares of common stock, the MHC will be able to elect all members of
the Board of Directors of the Company and generally will be able to control the
outcome of most matters presented to the stockholders of the Company for
resolution by vote, excluding certain matters where shares held by the MHC are
not counted.
The MHC will be controlled by its Board of Directors, which will
initially consist of the current directors of the Bank. Under the mutual form of
ownership, current directors elect new directors, which can perpetuate existing
management and control of the MHC, the Company and the Bank. All depositors of
the Bank at the time of the reorganization will become members of and have
voting rights in the MHC.
Liquidation Rights. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, existing holders of deposit accounts of the
Bank would be entitled to share in a liquidating distribution after the payment
of claims of all creditors (including the claims of all account holders to the
withdrawal value of their accounts). Each account holder's pro rata share of
such liquidating distribution would be in the same proportion as the value of
his or her deposit accounts was to the total value of all deposit accounts in
the Bank at the time of liquidation.
Upon a complete liquidation of the Bank after the reorganization, the
Company, as holder of the Bank's common stock, would be entitled to any assets
remaining upon a liquidation or dissolution of the Bank. Each depositor would
not have a claim in the assets of the Bank. However, upon a complete liquidation
of the MHC after the reorganization, each depositor would have a claim up to the
pro rata value of his or her accounts, in the assets of the MHC remaining after
the claims of the creditors of the MHC are satisfied. Depositors who have
liquidation rights in the Bank immediately prior to the reorganization will
continue to have such rights in the MHC after the reorganization for so long as
they maintain deposit accounts in the Bank after the reorganization.
Upon a complete liquidation of the Company, each holder of shares of
the common stock would be entitled to receive a pro rata share of the Company's
assets, following payment of all debts, liabilities and claims of greater
priority of or against the Company.
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Federal and State Tax Consequences of the Reorganization
The reorganization may be effected in any manner approved by the OTS
that is consistent with the purposes of the plan and applicable law regulations
and policies. However, the Bank intends to consummate the reorganization using a
series of mergers as described below. This structure enables the Bank to retain
all of its historical tax attributes and produces significant savings to the
Bank because it simplifies regulatory approvals and conditions associated with
the completion of the reorganization.
The merger structure will be accomplished as follows:
^o the Bank will organize the MHC initially as an interim federal stock
savings institution as its wholly owned subsidiary;
^o the MHC will organize a capital stock corporation under federal law (i.e.,
the Company) as its wholly owned subsidiary that will subsequently hold
100% of the Bank's common stock;
^o the MHC will also organize an interim federal stock savings institution as
its wholly owned subsidiary ("Interim"). The following transactions will
then occur simultaneously^;
o the Bank will exchange its charter for a federal stock savings institution
charter (the "Reorganization");
^o the MHC (while in its stock form) will cancel its outstanding stock and
exchange its charter for a federal mutual savings institution holding
company charter and thereby become the MHC;
^o Interim will merge with and into the Bank with the Bank being the surviving
institution; and ^o the initially issued stock of the Bank (which will be
constructively received by former Bank depositors when the Bank becomes the
Bank pursuant to step^;
o will be issued to the MHC in exchange for liquidation interests in the MHC
which will be held by the Bank's depositors^;
o the MHC will then contribute 100% of the stock of the Bank to the Company,
its wholly owned subsidiary^; and
o the Company will subsequently offer for sale 47% of its common stock
pursuant to the plan.
As a result of these transactions: (a) the Bank will be a wholly owned
subsidiary of the Company; (b) the Company will be a majority-owned subsidiary
of the MHC; and (c) the former depositors of the Bank will hold liquidation
interests in the MHC.
Under this structure: ^(1) the Reorganization is intended to be a
tax-free reorganization under Code section 368(a)(1)(F); and ^(2) the exchange
of the shares of the Bank's initial common stock deemed constructively received
by the Bank's depositors for liquidation interests in the MHC (the "Exchange")
is intended to be a tax-free exchange under Code section 351.
Under the plan, consummation of the Reorganization is conditioned upon,
among other things, the prior receipt by the Bank of either a private letter
ruling from the IRS and from the federal taxing authorities or an opinion of the
Bank's counsel as to the federal and Florida income tax consequences of the
Reorganization to the Bank (in both its mutual and stock form), the Company and
the Eligible Account Holders and Supplemental Account Holders. In Revenue
Procedure 99-3, the IRS announced that it will not rule on whether a transaction
qualifies as a tax-free reorganization under Code section 368(a)(1)(F) or as a
tax-free exchange of stock for stock in the formation of a holding company under
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Code section 351, but that it will rule on significant sub-issues that must be
resolved to determine whether the transaction qualifies under either of these
Code sections.
The Bank has requested a private letter ruling from the IRS regarding
certain significant sub- issues associated with the Reorganization. Based in
part upon this private letter ruling, Malizia, Spidi, Sloane & Fisch, P.C. will
issue its opinion regarding certain federal income tax consequences of the
reorganization. There is no assurance that a private letter ruling will be
obtained.
In the following discussion, "Mutual Bank" refers to the Bank before
the Reorganization and "Stock Bank" refers to the Bank after the Reorganization.
With regard to the Reorganization, Malizia, Spidi, Sloane & Fisch, P.C.
intends to issue an opinion that:
^o the Reorganization will constitute a reorganization under Code section
368(a)(1)(F), and the Bank (in either its status as Mutual Bank or
Stock Bank) will recognize no gain or loss as a result of the
Reorganization;
^o the basis of each asset of Mutual Bank received by Stock Bank in the
Reorganization will be the same as Mutual Bank's basis for such asset
immediately prior to the Reorganization;
^o the holding period of each asset of Mutual Bank received by Stock Bank
in the Reorganization will include the period during which such asset
was held by Mutual Bank prior to the Reorganization;
^o for purposes of Code section 381(b), Stock Bank will be treated as if
there had been no Reorganization and, accordingly, the taxable year of
the Mutual Bank will not end on the effective date of the
reorganization and the tax attributes of Mutual Bank (subject to
application of Code sections 381, 382, and 384) will be taken into
account by Stock Bank as if the Reorganization had not occurred;
^o Mutual Bank's qualifying depositors will recognize no gain or loss upon
their constructive receipt of shares of Stock Bank common stock solely
in exchange for their interest (i.e., liquidation rights) in Mutual
Bank; and
^o no gain or loss will be recognized by depositors of Mutual Bank upon
the issuance to them of deposits in Stock Bank in the same dollar
amount as their deposits in the Mutual Bank.
Unlike private rulings of the IRS, an opinion of counsel is not binding
on the IRS and the IRS could disagree with conclusions reached therein. In the
event of such disagreement, there can be no assurance that the IRS would not
prevail in a judicial or administrative proceeding.
Hahn, McClurg, Watson, Griffith & Bush, P.A. intends to opine, subject
to the limitations and qualifications in its opinion, that, for purposes of the
Florida corporate income tax, the Reorganization will not become a taxable
transaction to the Bank (in either its status as Mutual Bank or Stock Bank), the
MHC, the Company, the stockholders of the Stock Bank or the depositors of the
Bank.
Accounting Consequences
The reorganization will be accounted for in a manner similar to a
pooling-of-interests under GAAP. Accordingly, the carrying value of the Bank's
assets, liabilities, and capital will be
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unaffected by the reorganization and will be reflected in the Company's and
Bank's consolidated financial statements based on their historical amounts.
Conditions to the Reorganization
Consummation of the reorganization is subject to the receipt of all
requisite regulatory approvals, including various approvals or non-objections,
as the case may be, of the OTS. The receipt of such approvals or non-objections
from the OTS does not constitute a recommendation or endorsement of the plan or
reorganization by the OTS. Consummation of the reorganization also is subject to
ratification of the plan by a majority of the total votes of depositors at a
special meeting called for the purpose of approving the plan, as well as the
receipt of satisfactory rulings or opinions with respect to the tax consequences
of the reorganization, as discussed under "The Reorganization Effects of the
Reorganization - Federal and State Tax Consequences" above. The board of
directors may decide to consummate the reorganization even if the offering is
terminated. If this happens the MHC will own all the stock of the Company and
the Company will own all the stock of the Bank. The Company would have the right
to hold a new offering in the future.
Capital and Financial Resources of the MHC
The Company intends to capitalize the MHC with up to $200,000 in the
reorganization. Subsequent to the reorganization, the MHC's capital and
financial resources will initially be dependent primarily on earnings from the
investment of its initial capitalization and dividends from the Company. The
payment of dividends by the Company will be subject to declaration by the
Company's Board of Directors, which will take into account the Company's
financial condition, results of operations, tax considerations, industry
standards, economic conditions, regulatory restrictions which affect the payment
of dividends by the Company to the MHC and other factors.
Additional financial resources also may be available to the MHC (and,
through contribution by the MHC, to the Company) through borrowings from an
unaffiliated lender or lenders. In connection with any such borrowings, the MHC
could grant a security interest in the assets of the MHC, including the common
stock held by the MHC. However, a mutual holding company generally may not
pledge the stock of a subsidiary savings association and may not be able to
pledge the Stock of the Company unless the proceeds of the loan secured by the
pledge are infused into the institution whose stock is pledged and the OTS is
notified of such pledge within 10 days thereafter. Any borrowings of the MHC
would be serviced with available resources, which initially will consist of
dividends from the Company, subject to applicable regulatory and tax
considerations. The MHC does not have any plans to incur any indebtedness
following consummation of the reorganization.
Amendment or Termination of the Plan of Reorganization
If deemed necessary or desirable by the Board of Directors of the Bank,
the plan may be amended by a two-thirds vote of the Bank's Board of Directors,
with the concurrence of the OTS, at any time prior to or after submission of the
plan to voting depositors of the Bank for ratification. The plan may be
terminated by the Board of Directors of the Bank at any time prior to or after
ratification by the voting depositors, by a two-thirds vote with the concurrence
of the OTS.
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Management of the MHC
After the reorganization, the MHC will operate under essentially the
same mutual organization structure as was previously applicable to the Bank.
Directors of the MHC will be classified into three classes as equal in size as
is possible, with one of such classes being elected on an annual basis for
three-year terms by the Board of Directors of the MHC. All current members of
the Board of Directors of the Bank will be the initial members of the Board of
Directors of the MHC. For information about these persons, whose terms as
directors of the MHC will be the same as their terms as directors of the Bank,
see "Management." The initial executive officers of the Company will be persons
who are executive officers of the Bank.
It is not anticipated that the directors and executive officers of the
MHC will receive separate compensation in their capacities as such until such
time as such persons devote significant time to the separate management of the
MHC's affairs, which is not expected to occur unless the MHC becomes actively
involved in other investments. The MHC, however, may determine that such
compensation is appropriate in the future.
THE OFFERING
General
Concurrently with the reorganization, we, the Company, are offering
shares of common stock to persons other than the MHC. We are offering between a
minimum of 1,737,825 shares and an anticipated maximum of 2,351,175 shares of
common stock in the offering (subject to adjustment to up to 2,703,851 shares in
the event our estimated pro forma market value has increased at the conclusion
of the offering), which will expire at ____:____ __________, Florida time, on
__________ ____, 1998 unless extended. The shares of common stock that will be
sold in the offering will constitute no more than 47% of the shares that will be
outstanding upon completion of the offering. The minimum purchase is 25 shares
of common stock (minimum investment of $250). Our common stock is being offered
at a fixed price of $10.00 per share in the offering.
Subscription funds may be held by the Bank for up to 45 days after the
last day of the subscription offering in order to consummate the reorganization
and offering and thus, unless waived by the Bank, all orders will be irrevocable
until __________ __, 1999. In addition, the reorganization and offering may not
be consummated until the Bank receives approval from the OTS. Approval by the
OTS is not a recommendation of the reorganization or offering. Consummation of
the reorganization and offering will be delayed, and resolicitation will be
required, in the event the OTS does not issue a letter of approval within 45
days after the last day of the subscription offering, or in the event the OTS
requires a material change to the offering prior to the issuance of its
approval. In the event the reorganization and offering are not consummated by
________, 1999, subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with interest at the
Bank's passbook rate and all withdrawal authorizations will be canceled.
We may cancel the offering at any time, and orders for common stock
which have been submitted are subject to cancellation under such circumstances.
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Conduct of the Offering
Subject to the limitations of the plan, shares of common stock are
being offered in descending order of priority in the subscription offering to:
^o Eligible Account Holders;
^o the ESOP;
^o Supplemental Eligible Account Holders; and
^o Other Members. To the extent that shares remain available and subject to
market conditions at or near the completion of the subscription offering,
we will conduct one or more of a community, public and syndicated public
offering.
We have the right, in our sole discretion, to determine whether
prospective purchasers are "associates" or "acting in concert." All such
determinations are in our sole discretion and may be based on whatever evidence
we choose to use in making any such determination.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe for
the purchase of common stock have been granted under the plan of reorganization
to the following persons:
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase up to $200,000 of common stock
offered in the subscription offering; subject to the overall limitations
described under " - Limitations on Purchases of Common Stock." If there are
insufficient shares available to satisfy all subscriptions of Eligible Account
Holders, shares will be allocated to Eligible Account Holders so as to permit
each subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to 25 shares. Thereafter,
unallocated shares will be allocated to remaining subscribing Eligible Account
Holders whose subscriptions remain unfilled in the same proportion that each
such subscriber's qualifying deposit bears to the total amount of qualifying
deposits of all subscribing Eligible Account Holders, in each case on June 30,
1997, whose subscriptions remain unfilled. Subscription rights received by
executive officers and directors, based on their increased deposits in the Bank
in the one year preceding the eligibility record date will be subordinated to
the subscription rights of other eligible account holders. To ensure proper
allocation of stock, each Eligible Account Holder must list on his order form
all accounts in which he had an ownership interest as of the Eligibility Record
Date.
Priority 2: The ESOP. The tax-qualified employee stock benefit plans
may be given the opportunity to purchase in the aggregate up to 10% of the
common stock issued in the subscription offering. It is expected that the ESOP
will purchase up to 8% of the common stock issued in the offering. In the event
of a an oversubscription in the offering by Eligible Account Holders, the ESOP
may, in whole or in part, fill its order through open market purchases
subsequent to the closing of the offering. See also "Risk Factors - Expenses
Associated with ^ Stock Benefit Plans^ Will Reduce Our Earnings."
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the ESOP and other tax-qualified employee stock benefit
plans, if any, each Supplemental Eligible Account Holder shall have the
opportunity to purchase up to $200,000 of common stock offered in the
subscription
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offering, subject to the overall limitations described under "Limitations on
Purchases of Common Stock." In the event Supplemental Eligible Account Holders
subscribe for a number of shares which, when added to the shares subscribed for
by Eligible Account Holders and the ESOP and other tax-qualified employee stock
benefit plans, if any, is in excess of the total number of shares offered in the
offering, the shares of common stock will be allocated among subscribing
Supplemental Eligible Account Holders first so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of shares sufficient
to make his total allocation equal to 25 shares. Thereafter, unallocated shares
will be allocated to each subscribing Supplemental Eligible account Holder whose
subscription remains unfilled in the same proportion that such subscriber's
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Supplemental Eligible Account Holders, in each case on December 31,
1998, whose subscriptions remain unfilled. To ensure proper allocation of stock
each Supplemental Eligible Account Holder must list on his order form all
accounts and loans in which he had an ownership interest as of the Supplemental
Eligible Date.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of all subscriptions by the Eligible Account
Holders, the tax-qualified employee stock benefit plans, and Supplemental
Eligible Account Holders, each Other Member who is not an Eligible or
Supplemental Eligible Account Holder shall have the opportunity to purchase up
to $200,000 of common stock offered in the subscription offering, subject to the
overall limitations described under "- Limitations on Purchases of Common
Stock." In the event Other Members subscribe for a number of shares which, when
added to the shares subscribed for by Eligible Account Holders, the
tax-qualified employee stock benefit plans and Supplemental Eligible Account
Holder, is in excess of the total number of shares offered in the offering, the
subscriptions of Other Members will be allocated among subscribing Other Members
so as to permit each subscribing Other Member, to the extent possible, to
purchase a number of shares sufficient to make his total allocation of common
stock equal to the lesser of 25 shares or the number of shares subscribed for by
Other Members. Any shares remaining will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied on a 25 shares (or whatever
lesser amount is available) per order basis until all orders have been filled or
the remaining shares have been allocated.
State Securities Laws. We, in our sole discretion, may make reasonable
efforts to comply with the securities laws of any state in the United States in
which Bank depositors reside, and will only offer and sell the common stock in
states in which the offers and sales comply with state securities laws. However,
no person will be offered or allowed to purchase any common stock under the plan
if he resides in a foreign country or in a state of the United States with
respect to which: (i) a small number of persons otherwise eligible to purchase
shares under the plan reside in such state or foreign country; and/or (ii) the
offer or sale of shares of common stock to such persons would require us or the
Bank or our employees to register, under the securities laws of such state or
foreign country, as a broker or dealer or to register or otherwise qualify its
securities for sale in such state or foreign country and such registration or
qualification would be impracticable for reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares. The plan
prohibits any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the plan
or the shares of common stock to be issued upon their exercise. Such rights may
be exercised only by the person to whom they are granted and only for his or her
account. Each person subscribing for shares will be required to certify that
such person is purchasing shares solely for his or her own account and that such
person
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has no agreement or understanding regarding the sale or transfer of such shares.
The regulations also prohibit any person from offering or making an announcement
of an offer or intent to make an offer to purchase such subscription rights or
shares of common stock prior to the completion of the offering.
We and the Bank will pursue any and all legal and equitable remedies in
the event we become aware of the transfer of subscription rights and will not
honor orders we know to involve the transfer of such rights.
Expiration Date. The subscription offering will expire at ____:____
__________, Florida time, on __________ ____, 1999, unless it is extended, up to
an additional 45 days with the approval of the OTS, if necessary, but without
additional notice to subscribers (the "expiration date"). Subscription rights
will become void if not exercised prior to the expiration date.
Community Offering
If less than the total number of shares of common stock to be
subscribed for in the offering are sold in the subscription offering, shares
remaining unsubscribed may be made available for purchase in the community
offering to certain members of the general public^. The maximum amount of common
stock that any person may purchase in the community offering is $200,000. In the
community offering, if any, shares will be available for purchase by the general
public with preference given first to natural persons residing in either Polk or
Manatee County in Florida and second, to natural persons residing in the State
of Florida. We will attempt to issue common stock in such a manner as to promote
a wide distribution of common stock.
If purchasers in the community offering (if any), whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among persons
submitting orders in the community offering in an equitable manner we determine.
The community offering, if any, may commence simultaneously with,
during or subsequent to the completion of the subscription offering and if
commenced simultaneously with or during the subscription offering the community
offering may be limited to residents of Polk or Manatee County in Florida. The
community offering, if any, must be completed within 45 days after the
completion of the subscription offering unless otherwise extended by the OTS.
We, in our absolute discretion, reserve the right to reject any or all
orders in whole or in part which are received in the community offering, at the
time of receipt or as soon as practicable following the completion of the
community offering.
Syndicated Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we may offer
shares, to selected persons in a syndicated community offering on a best-efforts
basis through Sandler O'Neill in such a manner as to promote a wide distribution
of the common stock. Orders received in connection with the syndicated community
offering, if any, will receive a lower priority than orders received in the
subscription offering. Common stock sold in the syndicated community offering
will be sold at the same price as all other
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shares in the subscription offering. We have the right to reject orders, in
whole or in part, in our sole discretion in the syndicated community offering.
No person^ will be permitted to purchase more than 20,000 shares or
$200,000 of common stock in the syndicated community offering. To order common
stock in the syndicated community offering, if held, an executed stock order and
account withdrawal authorization (if applicable) must be received by Sandler
O'Neill prior to the termination of the syndicated community offering. Promptly
upon receipt of available funds, together with a properly executed stock order
and account withdrawal authorization, if applicable, and certification, Sandler
O'Neill will forward such funds to the Bank to be deposited in a subscription
escrow account.
The date by which orders must be received in the syndicated community
offering will be set by us at the time of commencement of the syndicated
community offering; provided however, if the syndicated community offering is
extended beyond ___________, 1999, each purchaser will have the opportunity to
maintain, modify, or rescind his order. In such event, all funds received in the
syndicated community offering will be promptly returned with interest to each
purchaser unless he affirmatively indicates otherwise.
If an order in the syndicated community offering is accepted, promptly
after the completion of the reorganization, a certificate for the appropriate
amount of shares will be forwarded to Sandler O'Neill as nominee for the
beneficial owner. In the event that an order is not accepted or the
reorganization is not consummated, the Bank will promptly refund with interest
the funds received to Sandler O'Neill which will then return the funds to
subscribers' accounts. If the aggregate pro forma market value of the Bank, as
converted, is less than $37.0 million or more than $50.0 million, each purchaser
will have the right to modify or rescind his or her order.
Limitations on Purchases of Common Stock
The following additional limitations have been imposed upon purchases
of shares of common stock:
1. The aggregate amount of our outstanding common stock owned or
controlled by persons other than the mutual holding company at
the close of the offering will be less than 50% of the Company's
total outstanding common stock.
2. The maximum number of shares of common stock which may be
purchased in the subscription offering by any person ^ in the
first priority, third priority and fourth priority shall not
exceed 20,000 shares or $200,000.
3. The maximum number of shares of common stock which may be
subscribed for or purchased in all categories in the offering by
any person ^ together with any associate or group of persons
acting in concert shall not exceed ^ 24,000 shares or ^ $240,000
except for our employee plans, which in the aggregate may
subscribe for up to 10% of the common stock issued in the
offering.
4. The maximum number of shares of common stock which may be
purchased in all categories in the offering by officers and
directors of the Bank and their associates in the aggregate shall
not exceed 27% of the total number of shares of common stock
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issued in the offering to persons other than the mutual holding
company.
5. A minimum of 25 shares of common stock must be purchased by each
person purchasing shares in the offering to the extent those
shares are available.
6. If the number of shares of common stock otherwise allocable to
any person or that person's associates would be in excess of the
maximum number of shares permitted as set forth above, the number
of shares of common stock allocated to each such person shall be
reduced to the lowest limitation applicable to that person, and
then the number of shares allocated to each group consisting of a
person and that person's associates shall be reduced so that the
aggregate allocation to that person and his associates complies
with the above maximums, and such maximum number of shares shall
be reallocated among that person and his associates in proportion
to the shares subscribed by each (after first applying the
maximums applicable to each person, separately).
7. Depending upon market or financial conditions, the Board of
Directors of the Bank, without further approval of the
depositors, may decrease or increase the purchase limitations in
the plan, provided that the maximum purchase limitations may not
be increased to a percentage in excess of 5% of the offering. If
the Company increases the maximum purchase limitations, the
Company is only required to resolicit Persons who subscribed for
the maximum purchase amount and may, in the sole discretion of
the Company, resolicit certain other large subscribers.
8. In the event of an increase in the total number of shares offered
in the offering due to an increase in the maximum of the
estimated valuation range of up to 15% (the adjusted maximum")
the additional shares will be used in the following order of
priority: (i) in the event that there is an oversubscription at
the Eligible Account Holder level, to fill unfilled subscriptions
of Eligible Account Holders exclusive of the adjusted maximum;
(ii) in the event that there is an oversubscription at the
Employee Plan level, fill the Employee Plan's subscription up to
10% of the adjusted maximum; (iii) in the event that there is an
oversubscription at the Supplemental Eligible Account Holder
level, to fill unfilled subscriptions of Supplemental Eligible
Account Holders exclusive of the adjusted maximum; (iv) in the
event that there is an oversubscription at the depositor level,
to fill unfilled subscriptions of depositors exclusive of the
adjusted maximum; and (v) to fill unfilled Subscriptions in the
community offering exclusive of the adjusted maximum, with
preference given to persons residing in the local community.
9. No person shall be entitled to purchase any common stock to the
extent such purchase would be illegal under any federal law or
state law or regulation or would violate regulations or policies
of the NASD, particularly those regarding free riding and
withholding. The Bank and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such
opinion is not timely furnished.
10. The Board of Directors has the right to reject any order
submitted by a person whose representations the Board of
Directors believes to be false or who it otherwise believes,
either alone or acting in concert with others, is violating,
circumventing, or
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intends to violate, evade, or circumvent the terms and conditions
of the plan.
11. The foregoing restrictions on purchases by any person also apply
to purchases by persons acting in concert under applicable
regulations of the OTS. Under regulations of the OTS, directors
of the Bank are not deemed to be affiliates or a group acting in
concert with other directors solely as a result of membership on
the Board of Directors of the Bank.
The term "associate" of a person is defined in the plan to mean ^(1)
any corporation or organization (other than the Bank or a majority-owned
subsidiary of the Bank) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, ^(2) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, (excluding tax-qualified employee stock benefit
plans or tax-qualified employee stock benefit plans in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity and except that, for purposes of aggregating total shares that may be
held by officers and directors, the term "Associate" does not include any
tax-qualified employee stock benefit plan), and ^(3) any relative or spouse of
such person or any relative of such spouse, who has the same home as such person
or who is a trustee or officer of the Bank, or any of its parents or
subsidiaries. For example, a corporation of which a person serves as an officer
would be an associate of such person, and therefore, all shares purchased by
such corporation would be included with the number of shares which such person
individually could purchase under the above limitations.
Each person purchasing shares of the common stock in the offering will
be deemed to confirm that such purchase does not conflict with the maximum
purchase limitation. In the event that such purchase limitation is violated by
any person (including any associate or group of persons affiliated or otherwise
acting in concert with such persons), we will have the right to purchase from
such person at the purchase price per share all shares acquired by such person
in excess of such purchase limitation or, if such excess shares have been sold
by such person, to receive the difference between the purchase price per share
paid for such excess shares and the price at which such excess shares were sold
by such person. Our right to purchase such excess shares will be assignable.
Common stock purchased pursuant to the offering will be freely
transferable, except for shares purchased by directors and officers of the Bank.
For certain restrictions on the common stock purchased by directors and
officers, see "- Restrictions on Transferability by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by
completion of an order form. Any person receiving an order form who desires to
subscribe for shares of common stock must do so prior to the applicable
expiration date by delivering (by mail or in person ) to the Bank a properly
executed and completed order form, together with full payment of the purchase
price for all shares for which subscription is made; provided, however, that if
the Employee Plans subscribe for shares during the subscription offering, the
Employee Plans will not be required to pay for the shares at the time they
subscribe but rather may pay for the shares upon consummation of the
reorganization. Except for institutional investors, all subscription rights
under the plan will expire on the expiration
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date, whether or not the Bank has been able to locate each person entitled to
such subscription rights. The Bank shall have the right, in its sole discretion,
to permit institutional investors to submit contractually irrevocable orders in
the public offering at any time prior to the completion of the offering. Once
tendered, subscription orders cannot be revoked without the consent of the Bank
unless the reorganization is not completed within 45 days of the expiration
date.
In the event an order form^: (1) is not delivered and is returned to
the Bank by the United States Postal Service or the Bank is unable to locate the
addressee; ^(2) is not received or is received after the applicable expiration
date^; (3) is defectively completed or executed; ^(4) is not accompanied by the
full required payment for the shares subscribed for (including instances where a
savings account or certificate balance from which withdrawal is authorized is
insufficient to fund the amount of such required payment, but excluding
subscriptions by the Employee Plans) or, in the case of an institutional
investor in the public offering, by delivering irrevocable orders together with
a legally binding commitment to pay the full purchase price prior to 48 hours
before the completion of the reorganization; or ^(5) is not mailed pursuant to a
"no mail" order placed in effect by the account holder, the subscription rights
for the person to whom such rights have been granted will lapse as though such
person failed to return the completed order form within the time period
specified. However, we may, but will not be required to, waive any irregularity
on any order form or require the submission of corrected order forms or the
remittance of full payment for subscribed shares by such date as we may
otherwise specify. The waiver of an irregularity on an order form in no way
obligates us to waive any other irregularity on any other order form. Waivers
will be considered on a case by case basis. We reserve the right in our sole
discretion to accept or reject orders received on photocopies or facsimile order
forms, or whose payment is to be made by wire transfer or payment from private
third parties. Our interpretation of the terms and conditions of the plan and of
the acceptability of the order forms will be final, subject to the authority of
the OTS.
To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior to
such date. Execution of the order form will confirm receipt or delivery in
accordance with Rule 15c2-8. Order forms will only be distributed with a
prospectus.
Payment for Shares. For subscriptions to be valid, payment for all
subscribed shares will be required to accompany all properly completed order
forms, on or prior to the expiration date specified on the order form unless we
extend the date. Employee Plans subscribing for shares during the subscription
offering may pay for such shares upon consummation of the offering. Payment for
shares of common stock may be made ^(1) in cash, if delivered in person, ^(2) by
check or money order, or ^ (3) for shares of common stock subscribed for in the
subscription offering, by authorization of withdrawal from savings accounts
(including certificates of deposit) maintained with the Bank. Appropriate means
by which such withdrawals may be authorized are provided in the order form. Once
such a withdrawal has been authorized, none of the designated withdrawal amount
may be used by a subscriber for any purpose other than to purchase the common
stock for which a subscription has been made until the offering has been
completed or terminated. In the case of payments authorized to be made through
withdrawal from savings accounts, all sums authorized for withdrawal will
continue to earn interest at the contract rate until the offering has been
completed or terminated. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares, however, if a partial withdrawal results in a certificate account
with a balance less than the applicable minimum balance requirement, the
certificate shall be canceled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the
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passbook savings account rate subsequent to the withdrawal. In the case of
payments made in cash or by check or money order, such funds will be placed in a
segregated account and interest will be paid by the Bank at the passbook savings
account rate from the date payment is received until the offering is completed
or terminated. An executed order form, once we receive it, may not be modified,
amended, or rescinded without our consent, unless the offering is not completed
within 45 days after the conclusion of the subscription offering, in which event
subscribers may be given the opportunity to increase, decrease, or rescind their
subscription for a specified period of time. In the event that the offering is
not consummated for any reason, all funds submitted pursuant to the offerings
will be promptly refunded with interest as described above.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of common stock in the offerings, provided that such IRAs are
not maintained on deposit at the Bank. Persons with IRAs maintained at the Bank
must have their accounts transferred to an unaffiliated institution or broker to
purchase shares of common stock in the offerings. There is no early withdrawal
or IRS interest penalties for such transfers. Instructions on how to transfer
self-directed IRAs maintained at the Bank can be obtained from the stock
information center. Depositors interested in using funds in a Bank IRA to
purchase common stock should contact the stock information center as soon as
possible so that the necessary forms may be forwarded, executed and returned
prior to the expiration date.
Federal regulations prohibit the Bank from lending funds or extending
credit to any person to purchase the common stock in the reorganization.
Stock Information Center. The stock information center is located at ^
129 South Kentucky Avenue, Suite 602, Lakeland, Florida 33801. Its phone number
is (941) ^ 802-1356.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering will be mailed to the persons entitled thereto at the
address noted on the order form, as soon as practicable following consummation
of the offering. Any certificates returned as undeliverable will be held until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for the common stock are
available and delivered to subscribers, subscribers may not be able to sell the
shares of stock for which they subscribed.
Restriction on Sales Activities
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock in jurisdictions where such
participation is not prohibited. Other employees of the Bank may participate in
the offering in ministerial capacities. Such other employees have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock. Questions of prospective purchasers will
be directed to executive officers of the Bank or registered representatives of
Sandler O'Neill. No officer, director or employee of the Bank will be
compensated in connection with such person's solicitations or other
participation in the offering by the payment of commissions or other
remuneration based either directly or indirectly on transactions in the common
stock.
Restrictions on Repurchase of Shares
Generally, during the first year following the reorganization, the
Company may not repurchase its shares. During each of the second and third years
following the reorganization, the
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Company may repurchase up to five percent of the outstanding shares provided
they are purchased in open-market transactions. Repurchases must not cause us to
become undercapitalized and at least 10 days prior notice of the repurchase must
be provided to the OTS. The OTS may disapprove a repurchase program upon a
determination that (1) the repurchase program would adversely affect our
financial condition, (2) the information submitted is insufficient upon which to
base a conclusion as to whether the financial condition would be adversely
affected, or (3) a valid business purpose was not demonstrated. In addition, SEC
rules also govern the method, time, price, and number of shares of common stock
that may be repurchased by the Company and affiliated purchasers. If, in the
future, the rules and regulations regarding the repurchase of stock are
liberalized, the Company may utilize the rules and regulations then in effect.
Stock Pricing and the Number of Shares to be Offered
Feldman Financial, which is experienced in the valuation and appraisal
of business entities, including savings institutions, has been retained to
prepare an appraisal of the estimated pro forma market value of the common stock
(the "Independent Valuation"). This independent valuation will express our pro
forma market value in terms of an aggregate dollar amount. Feldman Financial
will receive fees of $23,500 for its appraisal services, including the
independent valuation and subsequent updates, and $5,000 for assistance in
preparation of our business plan, plus its reasonable out-of-pocket expenses
incurred in connection with the independent valuation and business plan. The
Bank has agreed to indemnify Feldman Financial under certain circumstances
against liabilities and expenses (including certain legal fees) arising out of
or based on any misstatement or untrue statement of a material fact contained in
the information supplied by the Bank to Feldman Financial, except where Feldman
Financial is determined to have been negligent or failed to exercise due
diligence in the preparation of the independent valuation.
Pursuant to the plan, the number of shares of common stock to be
offered in the offering will be based upon the estimated pro forma market value
of the common stock and the purchase price of $10.00 per share. The final
minority ownership percentage will be determined as follows: ^(1) the numerator
will be the product of (x) the number of shares of common stock sold in the
offering and (y) the purchase price ($10.00 per share); and ^(2) the denominator
will be the updated valuation of our pro forma market value immediately upon
conclusion of the offering as determined by Feldman Financial.
Feldman Financial has determined that as of December ^ 14, 1998, our
estimated aggregate pro forma market value was $43.5 million. Pursuant to
regulations, this estimate must be included within a range with a minimum of
$37.0 million and a maximum of $50.0 million. We have determined to offer shares
of common stock in the offering at a price of $10.00 per share. We are offering
a maximum of 2,351,175 shares in the offering (subject to adjustment),
representing a 47% minority ownership percentage. In determining the offering
range, the Board of Directors reviewed Feldman Financial's appraisal and in
particular, considered ^(1) the Bank's financial condition and results of
operations for the year ended September 30, 1998, ^(2) financial comparisons of
the Bank in relation to financial institutions of similar size and asset quality
and ^(3) stock market conditions generally and in particular for financial
institutions, all of which are set forth in the appraisal. The Board also
reviewed the methodology and the assumptions used by Feldman Financial in
preparing its appraisal. The number of shares, and the minority ownership
interest, are subject to change if the independent valuation changes at the
conclusion of the offering.
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The number of shares and price per share of common stock was determined
by the Board of Directors based upon the independent valuation. The actual
number of shares to be sold in the offering may be increased or decreased prior
to the completion of the offering, subject to approval and conditions that may
be imposed by the OTS, to reflect any change in our estimated pro forma market
value. The total number of shares of common stock that may be sold to persons
other than the mutual holding company in the offering may not exceed 49.99% of
our issued and outstanding voting stock.
Depending on market and financial conditions at the time of the
completion of the offering, the Bank may increase or decrease the number of
shares to be issued in the reorganization and offering. No resolicitation of
purchasers will be made and purchasers will not be permitted to modify or cancel
their purchase orders unless the change in the number of shares to be issued in
the offering results in fewer than 1,737,825 shares or more than 2,351,175
shares being sold in the offering at the purchase price of $10.00, in which
event the Bank may also elect to terminate the offering. In the event that the
Bank elects to terminate the offering, purchasers will receive a prompt refund
of their purchase orders (including termination of withdrawal authorizations),
together with interest earned thereon from the date of receipt to the date of
termination of the offering. In the event we receive orders for less than
1,737,825 shares, at the discretion of the Board of Directors and subject to
approval of the OTS, we may establish a new offering range and resolicit
purchasers. In the event of such a resolicitation, purchasers will be permitted
to modify or cancel their purchase orders. Any adjustments in our pro forma
market value as a result of market and financial conditions or a resolicitation
of prospective purchasers would be subject to OTS approval. A resolicitation, if
any, following conclusion of the offering would not extend beyond the expiration
date, without prior approval of the OTS.
The independent valuation will be updated at the time of the completion
of the offering, and the minority ownership interest may increase or decrease to
reflect the changes in market conditions, the estimated pro forma market value
of the Bank, or both. If the updated estimate of the pro forma market value of
the Bank immediately upon conclusion of the offering changes, there will be a
corresponding change to the 4,350,000 shares issued, in the aggregate, to the
mutual holding company in the reorganization and sold to subscribers in the
offering. For example, if the independent valuation at the conclusion of the
offering increases to $50.0 million, or decreases to $37.0 million, then the
total number of shares outstanding after the reorganization and offering will be
5,002,500 or 3,697,500, respectively. If the updated independent valuation
increases, the Company may increase the number of shares sold in the offering
(to up to 2,703,851 shares), and will increase the number of shares issued to
the mutual holding company. Subscribers will not be given the opportunity to
change or withdraw their orders unless more than 2,351,175 shares or fewer than
1,737,825 shares are sold in the offering. Any adjustment of shares of common
stock sold will have a corresponding effect on the estimated net proceeds of the
offering and the pro forma capitalization and per share data of the Bank.
The independent valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing the common
stock. In preparing the independent valuation, Feldman Financial has relied upon
and assumed the accuracy and completeness of financial and statistical
information provided by the Bank. Feldman Financial did not independently verify
the financial statements and other information provided by the Bank, nor did
Feldman Financial value independently the assets and liabilities of the Bank.
The independent valuation considers the Bank only as a going concern and should
not be considered as a indication of the liquidation value of the Bank.
Moreover, because such independent valuation is based upon estimates and
projections on a number of matters, all of
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which are subject to change from time to time, no assurance can be given that
persons purchasing the common stock will be able to sell such shares at a price
equal to or greater than the purchase price.
No sale of shares of common stock may be consummated unless^ Feldman
Financial confirms that, to the best of its knowledge, nothing of a material
nature has occurred that, taking into account all relevant factors, would cause
Feldman Financial to conclude that the independent valuation is incompatible
with its estimate of our pro forma market value at the conclusion of the
offering. Any change that would result in an aggregate value that is below $37.0
million or above $50.0 million would be subject to OTS approval. If confirmation
from Feldman Financial is not received, the Bank may extend the offering, reopen
or commence a new offering, request a new Independent Valuation, establish a new
offering range and commence a resolicitation of all purchasers with the approval
of the OTS, or take such other action as permitted by the OTS in order to
complete the offering.
Plan of Distribution/Marketing Arrangements
The common stock will be offered in the offering principally by the
distribution of this prospectus and through activities conducted at the stock
information center. It is expected that a registered representative employed by
Sandler O'Neill will be working at, and supervising the operation of, the stock
information center. Sandler O'Neill will be responsible for overseeing the
mailing of material relating to the offering, responding to questions regarding
the reorganization and the offering and processing order forms.
The Bank and Company have entered into an agency agreement with Sandler
O'Neill under which Sandler O'Neill will provide advisory assistance and assist,
on a best efforts basis, in the solicitation of subscriptions and purchase
orders for the common stock in the offering. Sandler O'Neill is a broker-dealer
registered with the National Association of Securities Dealers, Inc.
Specifically, Sandler O'Neill will assist in the offering in the following
manner: ^(1) assisting in the design and implementation of a marketing strategy
for the offering; ^(2) assisting Bank management in scheduling and preparing for
meetings with potential investors and broker-dealers; and ^(3) providing such
other general advice and assistance as may be requested to promote the
successful completion of the offering.
Sandler O'Neill will receive, as compensation, an advisory and
marketing fee of 0.75% of the aggregate amount of stock sold in the Subscription
and Community Offerings, excluding shares sold to the Bank's employee benefit
plans, any director, officer or employee of the Bank or any members of their
immediate families. In the event common stock is sold through licensed brokers
under a selected dealers agreement, we will pay the sales commission payable to
the selected dealer pursuant to the agreement, any sponsoring dealer's fees and
a managing dealer's fee to Sandler O'Neill of 0.75% of the aggregate price of
such shares. Sandler O'Neill's fee shall not exceed 0.75% for any shares sold.
Sandler O'Neill will also be reimbursed for its legal fees and out-of-pocket
expenses, not to exceed $35,000. The Bank has agreed to indemnify Sandler
O'Neill, to the extent allowed by law, for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Pro Forma Data" for further
information regarding expenses of the offering.
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Restrictions on Transferability by Directors and Officers
Shares of the common stock purchased by directors or officers of the
Bank cannot be sold for a period of one year following completion of the
reorganization, except for a disposition of shares in the event of the death of
the stockholder. Accordingly, shares of the common stock issued to directors and
officers will bear a legend restricting their sale. Any shares issued to
directors and officers as a stock dividend, stock split, or otherwise with
respect to restricted stock will be subject to the same restriction.
For a period of three years following the reorganization, no director
or officer of the Bank or their associates may, without the prior approval of
the OTS, purchase our common stock except from a broker or dealer registered
with the SEC. This prohibition does not apply to negotiated transactions
including more than 1% of our common stock or purchases made for tax qualified
or non-tax qualified employee stock benefit plans which may be attributable to
individual officers or directors.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Offering
Prior to the completion of the reorganization and offering, no
depositor may transfer or enter into an agreement or understanding to transfer
any subscription rights or the legal or beneficial ownership of the shares of
common stock to be purchased by such person in the offering. Depositors who
submit an order form will be required to certify that their purchase of common
stock is solely for their own account and there is no agreement or understanding
regarding the sale or transfer of their shares. We intend to pursue any and all
legal and equitable remedies in the event it becomes aware of any such agreement
or understanding, and will not honor orders we reasonably believe to involve
such an agreement or understanding.
Conditions to the Offering
Consummation of the offering is subject to ^(1) consummation of the
reorganization, which requires the receipt of various approvals from the OTS,
the ratification of the Bank's voting ^ depositor and borrower members, and the
receipt of rulings and/or opinions of counsel as to the tax consequences of the
reorganization, ^(2) the receipt of all required federal approvals for the
issuance of common stock in the offering, including without limitation the
approval of the OTS, and ^(3) the sale of a minimum of 1,737,825 shares of
common stock. In the event that conditions ^(1) and ^(2) are not satisfied prior
to completion of the offering, all funds received will be promptly returned with
interest at the Bank's passbook rate and all withdrawal authorizations will be
canceled.
^ RESTRICTIONS ON ACQUISITION OF THE COMPANY
General
The following discussion is a summary of statutory and regulatory
restrictions on the acquisition of our common stock. In addition, the following
discussion summarizes the mutual holding company structure, certain provisions
of certificates of incorporation and bylaws and certain regulatory provisions
that have an anti-takeover effect.
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Mutual Holding Company Structure
The mutual holding company structure will restrict the ability of our
stockholders of the Company to effect a change of control of management because
mutual holding company, as long as it remains in existence as a mutual entity,
will control a majority of our voting stock. In addition, voting rights in the
mutual holding company are vested in the Board of Directors, as such, management
of the Bank (which is also management of the Company and the mutual holding
company) will be able to exert voting control over the mutual holding company.
Change in Bank Control Act
Federal law provides that no person, acting directly or indirectly or
through or in concert with one or more other persons, may acquire control of a
savings association unless the OTS has been given 60 days prior written notice.
Federal law provides that no company may acquire control of a bank holding
company without the prior approval of the OTS. Any company that acquires control
becomes a "savings and loan holding company" subject to registration,
examination and regulation by the OTS. Pursuant to federal regulations, control
is conclusively deemed to have occurred when an entity, among other things, has
acquired more than 25 percent of any class of voting stock of the institution or
the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have occurred, subject to
rebuttal, upon the acquisition of more than 10 percent of any class of voting
stock, or of more than 25 percent of any class of stock, of a savings
institution, where certain enumerated control factors are also present in the
acquisition. The OTS may prohibit an acquisition of control if: ^(1) it would
result in a monopoly or substantially lessen competition; ^(2) the financial
condition of the acquiring person might jeopardize the financial stability of
the institution; or ^(3) the competence, experience or integrity of the
acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
The foregoing restrictions do not apply to the acquisition of stock by one or
more tax-qualified employee stock benefit plans, provided that the plan or plans
do not have beneficial ownership in the aggregate of more than 25 percent of any
class of our equity security.
The Company's Charter and Bylaws
General. Our charter and bylaws are available at our administrative
office or by writing or calling us, 205 East Orange Street, Lakeland, Florida
33801 (our telephone number is (941) 688- 6811).
Classified Board of Directors and Related Provisions. Our board of
directors is divided into three classes which are as nearly equal in number as
possible. Directors serve for terms of three years. As a result, each year, only
one-third of the directors are eligible to be elected and it would take at least
two years to elect a majority of our directors. A director may be removed only
by the affirmative vote of the holders of at least 80% of the shares then
entitled to vote.
Restrictions on Voting of Securities. The charter provides that any
shares of common stock beneficially owned directly or indirectly in excess of
10% by any person, other than the mutual holding company will not be counted as
shares entitled to vote, shall not be voted by any person or counted as voting
shares in connection with any matter submitted to stockholders for a vote, and
shall not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote. It is possible for such a person to
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have voting authority for less than 10% of our shares, depending on how the
shares are registered. The purpose of this provision is to reduce the chance
that minority stockholders could challenge our management.
Prohibition Against Cumulative Voting. Our charter prohibits cumulative
voting by stockholders in the election of directors. The absence of cumulative
voting rights effectively means that the holders of a majority of the shares
voted at a meeting of stockholders may, if they so choose, elect all directors
elected at the meeting, thus precluding a minority stockholder from obtaining
representation on the Board of Directors unless the minority stockholder is able
to obtain the support of a majority. In accordance with the law governing mutual
holding companies, the mutual holding company must remain the majority holder of
our voting stock.
Additional Anti-Takeover Provisions. The provisions described above are
not the only provisions of our charter and bylaws having an anti-takeover
effect. For example, the charter authorizes the issuance of up to five million
shares of preferred stock, which conceivably would represent an additional class
of stock required to approve any proposed acquisition. This preferred stock,
none of which has been issued, together with authorized but unissued shares of
the common stock (the charter authorizes the issuance of up to 10 million shares
of the common stock), also could represent additional capital required to be
purchased by the acquiror.
In addition to discouraging a takeover attempt which a majority of our
stockholders might determine to be in their best interest or in which our
stockholders might receive a premium over the current market prices for their
shares, the effect of these provisions may render the removal of our management
more difficult. It is possible that incumbent officers and directors might be
able to retain their positions (at least until their term of office expires)
even though a majority of our stockholders, other than the mutual holding
company, desire a change.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 8,000,000 shares of common stock, par value
$0.10 per share and 2,000,000 shares of preferred stock, no par value. We
currently expect to issue between 3,697,500 and 5,002,500 shares of common stock
in the reorganization (between 1,737,825 and 2,351,175 shares to persons other
than the mutual holding company). See "Capitalization." Upon payment of the
purchase price shares of common stock issued in the offering will be fully paid
and non-assessable. The common stock will represent nonwithdrawable capital,
will not be an account of insurable type and will not be insured by the FDIC or
any other governmental agency. See also "Dividend Policy" and "Waiver of
Dividends by the MHC."
Voting Rights
The holders of common stock will possess exclusive voting rights in the
Company. The holder of shares of common stock will be entitled to one vote for
each share held on all matters subject to stockholder vote. See also "The
Reorganization - Effects of the Reorganization - Voting Rights"
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Liquidation Rights
In the event of any liquidation, dissolution, or winding-up of the
Company, the holders of the common stock generally would be entitled to receive,
after payment of all debts and liabilities of the Company (including all debts
and liabilities of the Bank), all assets of the Company available for
distribution. See also "The Reorganization - Effects of the Reorganization -
Liquidation Rights."
Preemptive Rights; Redemption
The holders of the common stock do not have any preemptive rights with
respect to any shares we may issue. Any subsequent stock issuance, however, may
only be effected through a Stock Issuance Plan approved by the OTS which would
grant subscription priorities to the MHC's members unless the Company
demonstrates that a non-conforming stock issuance would be more beneficial to
the Company. The common stock will not be subject to any redemption provisions.
Preferred Stock
We are authorized to issue up to 2,000,000 shares of preferred stock
and to fix and state voting powers, designations, preferences, or other special
rights of such shares and the qualifications, limitations and restrictions of
those shares as the Board of Directors may determine in its discretion.
Preferred stock may be issued in distinctly designated series, may be
convertible into common stock and may rank prior to the common stock as to
dividends rights, liquidation preferences, or both, and may have full or limited
voting rights. Accordingly, the issuance of preferred stock could adversely
affect the voting and other rights of holders of common stock.
The authorized but unissued shares of preferred stock and the
authorized but unissued and unreserved shares of common stock will be available
for issuance in future mergers or acquisitions, in future public offerings or
private placements. Except as otherwise required to approve the transaction in
which the additional authorized shares of preferred stock would be issued, no
stockholder approval generally would be required for the issuance of these
shares. Depending on the circumstances, however, stockholder approval may be
required pursuant to requirements for eligibility for quotation of the common
stock on The Nasdaq Stock Market or by any exchange on which the common stock
may then be listed.
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and
certain matters relating to the reorganization and federal taxation will be
passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
Certain matters relating to state taxation will be passed upon for us by Hahn,
McClurg, Watson, Griffith & Bush, P.A., Lakeland, Florida. Certain legal matters
will be passed upon for Sandler O'Neill & Partners, L.P. by Housley Kantarian &
Bronstein, P.C., Washington, D.C.
EXPERTS
The financial statements of First Federal Florida as of September 30,
1998 and 1997 and for each of the years in the three year period ended September
30, 1998 have been included in this prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants,
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appearing elsewhere in this prospectus, and upon the authority of said firm as
experts in accounting and auditing.
Feldman Financial has consented to the publication in this document of
a summary of its letter to First Federal Florida setting forth its opinion as to
the estimated pro forma market value of us in the converted form and its opinion
setting forth the value of subscription rights and to the use of its name and
statements with respect to it appearing in this document.
REGISTRATION REQUIREMENTS
Our common stock will be registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We will be
subject to the information, proxy solicitation, insider trading restrictions,
tender offer rules, periodic reporting and other requirements of the SEC under
the Exchange Act. We may not deregister the common stock under the Exchange Act
for a period of at least three years following the reorganization.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act
and must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling 1-800-SEC-0330. The SEC also maintains an internet
address ("Web site") that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the SEC. The address for this Web site is
"http://www.sec.gov." The statements contained in this document as to the
contents of any contract or other document filed as an exhibit to the Form S-1
are, of necessity, brief descriptions and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
A copy of our charter and bylaws, as well as those of the Bank and the
MHC, are available without charge from First Federal Florida. Copies of the plan
of reorganization are also available without charge.
The Bank has filed notice of mutual holding company reorganization with
the OTS. This prospectus omits certain information contained in that
application.
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INDEX TO FINANCIAL STATEMENTS
First Federal Florida
Independent Auditors' Reports F-1
Statements of Financial Condition at September 30, 1998
and September 30, 1997 F-2
Statements of Earnings for each of the years in the
three-year period ended September 30, 1998 ^F-3
Statements of Equity Capital for each of the years in the
three-year period ended September 30, 1998 ^F-4
Statements of Cash Flows for each of the years in the
three-year period ended September 30, 1998 ^F-5
Notes to Financial Statements ^F-7
Other schedules are omitted as they are not required or are not applicable or
the required information is shown in the financial statements or related notes.
Financial statements of FloridaFirst Bancorp, MHC and FloridaFirst Bancorp have
not been provided because they have conducted no operations.
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Independent Auditors' Report
The Board of Directors
First Federal Savings and Loan Association of Florida:
We have audited the accompanying statements of financial condition of First
Federal Savings and Loan Association of Florida (the Bank) as of September 30,
1998 and 1997, and the related statements of earnings, equity capital, and cash
flows for each of the years in the three-year period ended September 30, 1998.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Federal Savings and Loan
Association of Florida at September 30, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended September 30, 1998 in conformity with generally accepted accounting
principles.
Tampa, Florida
October 23, 1998
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Statements of Financial Condition
September 30, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Assets 1998 1997
-------------- -------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,137 3,272
Federal funds sold 4,080 18,570
Investments available for sale, at fair value 42,225 36,761
Investment securities held to maturity, market value
$18,524 in 1998 and $37,311 in 1997 18,736 37,811
Loans receivable, net of allowance for loan losses of
$2,564 and $2,633 in 1998 and 1997, respectively 338,610 355,551
Premises and equipment, at cost less accumulated depreciation
and amortization 6,845 7,800
Real estate owned 493 167
Federal Home Loan Bank stock, at cost 2,864 2,864
Accrued interest receivable on loans, net 1,793 1,900
Accrued interest receivable on investments available for sale and
investments held to maturity 605 793
Income tax receivable 166 --
Deferred income taxes, net 936 151
Other assets 551 1,125
============== =============
$ 419,041 466,765
============== =============
Liabilities and Equity Capital
Liabilities:
Deposits $ 352,180 429,714
Federal Home Loan Bank advances 21,000 --
Advance payments by borrowers for taxes and insurance 1,971 2,004
Due to banks 4,569 483
Current income tax payable -- 364
Other liabilities 3,214 612
-------------- -------------
Total liabilities 382,934 433,177
-------------- -------------
Equity capital:
Retained income, restricted 35,887 33,502
Unrealized gain on investments available for sale, net 220 86
-------------- -------------
Total equity capital 36,107 33,588
============== =============
$ 419,041 466,765
============== =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Statements of Earnings
Years Ended September 30, 1998, 1997 and 1996
^
<TABLE>
<CAPTION>
Years ended September 30,
(In thousands)
1998 1997 1996
----------------- ------------------ ---------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans.............................. $ 26,992 27,655 23,346
Interest and dividends on investment securities
available for sale and held to maturity............... 3,906 5,513 7,617
Other interest income................................... 9,994 622 731
------ ------ ------
Total interest income................................ 31,892 33,790 31,694
------ ------ ------
Interest expense:
Interest on deposits.................................... 18,831 19,702 18,961
Interest on Federal Home Loan Bank advances............. 135 -- --
------ ------ ------
Total interest expense............................... 18,966 19,702 18,961
------ ------ ------
Net interest income before loan loss provision....... 12,521 13,771 12,133
Provision for loan losses................................. 405 317 600
------ ------ ------
Net interest income.................................. 12,521 13,771 12,133
------ ------ ------
Other income:
Fees and service charges................................ 1,607 1,455 1,301
Gain (loss) on sale of loans and investments available 117 114 170
for sale..................................................
Gain on sale of branches................................ 3,016 -- --
Other, net.............................................. 221 6 75
----- ------ ------
Total other income................................... 4,961 1,575 1,546
----- ----- -----
Other expenses:
Compensation and employee benefits...................... 6,323 5,863 5,288
Other compensation and employee benefits................ 2,085 -- --
Occupancy and equipment costs........................... 1,818 1,646 1,453
Marketing............................................... 495 488 471
Data processing costs................................... 558 479 443
Federal insurance premiums.............................. 338 456 1,003
Savings Association Insurance Fund special assessment... -- -- 2,513
Real estate operations, net............................. 180 22 39
Other................................................... 2,149 2,566 2,172
------ ------ ------
Total other expenses................................. 13,946 11,520 13,382
------ ------ ------
Income before income taxes........................... 3,536 3,826 297
Income tax expense........................................ 1,151 1,299 44
====== ====== ======
Net income........................................... $ 2,385 2,527 253
====== ====== ======
</TABLE>
^
F-3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Statements of Equity Capital
Years ended September 30, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Unrealized
gain (loss) on
investments Total
Retained available equity
income for sale capital
--------------- -------------- --------------
<S> <C> <C> <C>
Balance at September 30, 1995 $ 30,722 52 30,774
Net income for the year ended September 30, 1996 253 -- 253
Change in unrealized gain on investments
available for sale, net -- (458) (458)
--------------- -------------- --------------
Balance at September 30, 1996 30,975 (406) 30,569
Net income for the year ended September 30, 1997 2,527 -- 2,527
Change in unrealized gain on investments
available for sale, net -- 492 492
--------------- -------------- --------------
Balance at September 30, 1997 33,502 86 33,588
Net income for the year ended September 30, 1998 2,385 -- 2,385
Change in unrealized gain on investments
available for sale, net -- 134 134
=============== ============== ==============
Balance at September 30, 1998 $ 35,887 220 36,107
=============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Statements of Cash Flows
September 30, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,385 2,527 253
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 405 317 600
Provision for loss on real estate owned 18 6 80
Provision for deferred income taxes (864) 588 (939)
Depreciation 632 478 399
Amortization of discount on investments and mortgage-backed securities
available for sale and held to maturity (9) (16) (75)
(Gain) loss on sale of investments and mortgage-backed securities
available for sale (117) 35 (170)
Gain on sale of loans available for sale -- (149) --
Gain on sale of investments held to maturity -- -- (2)
Gain on sale of branches (3,016) -- --
Loss (gain) on sale of assets, net 123 30 (92)
Decrease (increase) in deferred loan fees and costs (10) (48) 88
Decrease (increase) in accrued interest receivable 295 (44) 201
Increase in other assets 574 (99) (190)
(Decrease) increase in other liabilities 2,602 (2,578) 2,379
Increase (decrease) in advance payments by borrowers for taxes and insurance (33) 189 404
Decrease (increase) in federal income tax receivable (530) 440 (58)
-------- -------- --------
Net cash provided by operating activities 2,455 1,676 2,878
-------- -------- --------
Cash flows from investing activities:
Proceeds from the sale of FHLB stock -- 1,123 --
Proceeds from the sale of loans available for sale -- 9,927 --
Proceeds from sales of investments available for sale 3,386 10,965 21,714
Proceeds from the sale of investments held to maturity -- -- 4,002
Proceeds from the maturity of investment securities available for sale 24,131 8,000 11,503
Proceeds from the maturity of investment securities held to maturity 19,000 7,000 22,350
Proceeds from the sale of assets 1,824 313 897
Principal repayments of mortgage-backed securities available for sale 1,413 1,054 1,985
Principal repayments of mortgage-backed securities held to maturity -- -- 765
Increase in loans, net (30,299) (44,726) (62,067)
Purchases of premises and equipment (434) (1,862) (558)
Purchase of investments available for sale (33,981) (990) (23,003)
Cash transferred in connection with sale of branches, net (10,186) -- --
Purchases of investment securities held to maturity -- -- (1,000)
Dividends reinvested in mutual fund -- -- (402)
-------- -------- --------
Net cash used in investing activities (25,146) (9,196) (23,814)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits (19,020) 25,530 6,590
Net increase in FHLB advances 21,000 -- --
Net increase (decrease) in due to banks 4,086 (53) 10
-------- -------- --------
Net cash provided by financing activities 6,066 25,477 6,600
-------- -------- --------
Net increase (decrease) in cash (16,625) 17,957 (14,336)
Cash amounts due from depository institutions and cash equivalents
at beginning of period 21,842 3,885 18,221
-------- -------- --------
Cash amounts due from depository institutions and cash equivalents
at end of period $ 5,217 21,842 3,885
======== ======== ========
</TABLE>
(Continued)
F-5
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Statements of Cash Flows, Continued
September 30, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1997
------- ------ -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $18,971 19,677 18,969
======= ====== =======
Taxes $ 2,557 270 1,034
======= ====== =======
Supplemental disclosure of non-cash information:
Additions to investment in real estate acquired through foreclosure $ 2,238 456 727
======= ====== =======
Change in unrealized gain (loss) on investments available for sale, net of
deferred taxes of $79, $(289) and $269, respectively $ 134 492 (458)
======= ====== =======
Net assets transferred in connection with branch sale:
Loans receivable $44,607 -- --
Premises and equipment 705 -- --
Deposits 55,498 -- --
======= ====== =======
Transfer of investments and mortgage-backed securities from
held to maturity to available for sale $ -- -- 39,167
======= ====== =======
Transfer of loans from held to maturity to available for sale $ -- -- 9,778
======= ====== =======
</TABLE>
F-6
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(1) Summary of Significant Accounting Policies
The following is a description of significant accounting and reporting
policies which First Federal Savings and Loan Association of Florida (the
"Bank") follows in preparing and presenting its financial statements:
(a) Reorganization Plan
On September 28, 1998, the Board of Directors of the Bank unanimously
adopted the "Plan of Mutual Holding Company Reorganization and Stock
Issuance" (Reorganization). Pursuant to the Reorganization, the Bank
will reorganize from a federal mutual savings and loans association
into a federally chartered capital stock savings bank. All of the
stock of the capital stock bank will be owned by a "mid-tier" holding
company. A majority of the shares of stock of the "mid-tier" holding
company will be owned by a mutual holding company, and a minority of
shares will be issued to minority shareholders in a public offering.
The Reorganization must be approved by the Office of Thrift
Supervision and by depositors and borrower members of the Bank. There
are no assurances that the above transaction will be consummated.
The Bank, in conjunction with the reorganization plan and the initial
public offering, has revised its accounting policies used in preparing
its financial statements in accordance with generally accepted
accounting principles. Management believes the financial statements of
the Bank as presented are in accordance with generally accepted
accounting principles on a consistent basis for all periods presented.
(b) Accounting Principles
The financial statements have been prepared in conformity with
generally accepted accounting principles.
(c) Mortgage Loan Interest Income
The Bank provides an allowance for uncollected interest generally on
all accrued interest related to loans 90 days or more delinquent. This
allowance is netted against accrued interest receivable for financial
statement disclosure. Such interest, if ultimately collected, is
credited to income in the period of recovery.
(d) Loan Fees
Loan origination and commitment fees and certain related costs are
deferred and amortized over the estimated loan life as an adjustment
to yield using methods which approximate the level-yield method. For
loans on non-accrual, such amortization is ceased.
(e) Loans and Provisions for Losses
Loans are stated at unpaid principal balances, less loans in process,
the allowances for loan losses, unearned interest, and net deferred
loan origination fees.
The Bank follows a consistent procedural discipline and accounts for
loan loss contingencies in accordance with Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies (SFAS No. 5).
The following is a description of how each portion of the allowance
for loan losses is determined.
(Continued)
F-7
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
The Bank segregates the loan portfolio for loan loss purposes into
the following broad segments: commercial real estate, residential
real estate, and consumer. The Bank provides for a general
allowance for losses inherent in the portfolio by the above
categories, which consists of two components. General loss
percentages are calculated based upon historical analyses. A
supplemental portion of the allowance is calculated for inherent
losses which probably exist as of the evaluation date even though
they might not have been identified by the more objective
processes used. This is due to the risk of error and/or inherent
imprecision in the process. This portion of the allowance is
particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact
mathematical calculations such as: trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume,
terms, and portfolio mix; new credit products and/or changes in
the geographic distribution of those products; changes in lending
policies and procedures; loan review reports on the efficacy of
the risk identification process; changes in the outlook for local,
regional and national economic conditions; concentrations of
credit; and peer group comparison.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the
probable loss upon liquidation of collateral would be in excess of
the general percentage allocation. The provision for loan loss is
debited or credited in order to state the allowance for loan
losses to the required level as determined above.
The Bank considers a loan to be impaired when it is probable that
the Bank will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan
agreement. When a loan is impaired, the Bank may measure
impairment based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original
effective interest rate; (b) the observable market price of the
impaired loans; or (c) the fair value of the collateral of a
collateral-dependent loan. The Bank selects the measurement method
on a loan-by-loan basis, except for collateral-dependent loans for
which foreclosure is probable must be measured at the fair value
of the collateral. In a troubled debt restructuring involving a
restructured loan, the Bank measures impairment by discounting the
total expected future cash flows at the loan's original effective
rate of interest.
(e) Investment Securities and Mortgage-Backed Securities
Investments available for sale are recorded at fair value. Both
unrealized gains and losses on investments available for sale, net
of taxes, are included as a separate component of equity capital
in the statement of financial condition until these gains or
losses are realized. If a security has a decline in fair value
that is other than temporary, then the security will be written
down to its fair value by recording a loss in the statements of
earnings.
(Continued)
F-8
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
Investments that management has the intent and the Bank has the
ability at the time of purchase to hold until maturity are
classified as securities held to maturity. Securities in this
category are carried at amortized cost adjusted for accretion of
discounts and amortization of premiums over the estimated life of
the securities. If a security has a decline in fair value below
its amortized cost that is other than temporary, then the security
will be written down to its new cost basis by recording a loss in
the statements of earnings.
Regulations require the Bank to maintain, in cash and U.S.
Government and other approved securities, an amount equal to 5% of
deposits (net of loans on deposits) plus short-term borrowings.
The Bank maintained a liquidity ratio of approximately 9.6% and
13.4% at September 30, 1998 and 1997, respectively.
Capital stock in the Federal Home Loan Bank of Atlanta is held in
accordance with certain requirements of the Federal Home Loan Bank
of Atlanta, and is carried at cost and serves as collateral for
FHLB advances.
(f) Loans Held For Sale
Loans originated and held for sale by the Bank are carried at the
lower of cost or market using the specific identification method.
Gains and losses on the sale of such loans are recognized using
the specific identification method.
(g) Real Estate Owned
Real estate owned represents real estate acquired through
foreclosure or deed in lieu of foreclosure. Real estate so
acquired is recorded at the lower of cost (principal balance of
the former mortgage loan) or estimated fair value, less estimated
selling expenses.
(h) Premises and Equipment
Depreciation of office properties and equipment is accumulated on
a straight-line basis over the estimated useful lives of the
related assets. Estimated lives are 10 to 50 years for buildings
and leasehold improvements, and 4 to 10 years for furniture,
fixtures and equipment.
Maintenance and repairs are charged to expense as incurred.
Expenditures for renewals and betterments generally are
capitalized. The costs and accumulated depreciation relating to
office properties and equipment retired or otherwise disposed of
are eliminated from the accounts, and any resulting gains and
losses are credited or charged to income.
(Continued)
F-9
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment
date.
(j) Discount and Premium on Investment Securities Purchased
Discount and premium on investment securities purchased are
amortized over the estimated remaining lives of the loans using
methods which approximate the level-yield method.
(k) Financial Instruments With Off-Balance Sheet Risk
In the ordinary course of business, the Bank is a party to
financial instruments with off-balance sheet risk to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit at both fixed and variable
rates and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized, if any, in the balance sheet. The Bank's exposure to
credit loss for commitments to extend credit and standby letters
of credit is represented by the contractual amount of these
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. The
Bank evaluates each customer's credit worthiness on a case-by-case
basis.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers.
(l) Cash and Cash Equivalents
For statements of cash flows purposes, the Bank considers federal
funds sold, generally of one day duration, to be cash equivalents.
(Continued)
F-10
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(m) Mortgage Servicing Rights
The Bank originates mortgage servicing rights by selling loans
and retaining servicing rights. In May 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 122, Accounting for Mortgage Servicing
Rights ("SFAS No. 122"). This Statement provides guidance for the
recognition of mortgage servicing rights as an asset when a
mortgage loan is sold and servicing rights are retained. The Bank
adopted SFAS No. 122 effective October 1, 1996. The results of
this adoption were material to the Bank.
(n) Use of 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 financial statements, and the
reported amount of revenues and expenses during the reporting
period. Estimates by management that are critical to the
accompanying financial statements are the appropriate level of
allowance for loan losses which can be significantly impacted by
future industry, market and economic trends and conditions. Actual
results could differ from these estimates.
(o) Self-Insurance
The Bank is partially self-insured for certain employee benefits,
namely medical and dental claims. The policies are administrated
through an insurance company and the related liabilities are
included in the accompanying financial statements. The Bank's
policy is to accrue a liability equal to the average claims paid
for the past three years. The accrual is based on historical
information along with certain assumptions about future events.
Changes in assumptions, for such matters as medical and
administrative costs, and changes in actual experience could cause
these estimates to change in the future.
(p) Reclassifications
Certain amounts in the 1997 and 1996 financial statements have
been reclassified to conform to the 1998 presentation.
(q) Derivative Instruments
The Bank does not purchase, sell or enter into derivative
financial instruments or derivative commodity instruments as
defined by SFAS No. 119, Disclosures About Derivative Financial
Instruments and Fair Value of Financial Instruments, other than
fixed rate loan commitments.
(Continued)
F-11
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(r) New Accounting Pronouncements
SFAS No. 130, Reporting Comprehensive Income, establishes
standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial
statements. Under SFAS No. 130, comprehensive income is divided
into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly
in equity, such as unrealized gains or losses on securities
available for sale. SFAS No. 130 has not been adopted by the Bank
as of this date, but will apply the provisions of this statement
commencing with the first quarterly reporting period after
September 30, 1998. Comparative financial statements, provided for
earlier periods once quarterly periods begin, will be reclassified
to reflect the application of the provisions of SFAS No. 130. SFAS
No. 130 requires total comprehensive income and its components to
be reported in a financial statement with equal prominence as
other financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which changes
the way public companies report information about segments of
their business and requires them to report selected segment
information in their quarterly reports issued to stockholders.
Among other things, SFAS No. 131 requires public companies to
report (a) certain financial and descriptive information about its
reportable operating segments (as defined); and (b) certain
enterprise-wide financial information about products and services,
geographic areas, and major customers. The required segment
financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets. SFAS No. 131
is effective for reporting by the Bank to the extent such segments
are defined, beginning with the quarter ended December 31, 1998.
SFAS No. 131 is not expected to have a significant impact on the
Bank's financial reporting.
In February 1998, the FASB issued SFAS No. 132, Employers
Disclosures About Pensions and Other Postretirement Benefits. SFAS
No. 132 revised employers' disclosures about pension and other
postretirement benefits plans. It does not change the measurement
of recognition of those plans. It standardized the disclosure
requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information in changes in
the benefit obligations and fair value of plan assets that will
facilitate financial analysis, and eliminates certain required
disclosures of previous accounting pronouncements. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for
comparative purposes is required unless the information is not
readily available. As SFAS No. 132 affects disclosure
requirements, it is not expected to have a material impact on the
financial statements of the Bank.
F-12
(Continued)
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this
Statement should be as of the beginning of an entity's fiscal
quarter; on that date, hedging relationships must be designated
anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is
encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. This
Statement should not be applied retroactively to financial
statements of prior periods. SFAS No. 133 is not expected to have
a material impact on the Bank's financial statement presentations.
(2) Investments Available For Sale
The amortized cost and estimated fair values of investments available for
sale are as follows:
<TABLE>
<CAPTION>
1998
(In thousands)
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Governmental agencies $ 24,426 285 -- 24,711
Collateralized Mortgage
Obligations 3,185 44 -- 3,229
Mortgage-backed securities 14,265 31 (11) 14,285
============== ============ ============= ==============
$ 41,876 360 (11) 42,225
============== ============ ============= ==============
</TABLE>
(Continued)
F-13
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
<TABLE>
<CAPTION>
1997
(In thousands)
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Governmental agencies $ 31,158 136 (168) 31,126
Mortgage-backed securities 5,467 186 (18) 5,635
============== ============ ============= ==============
$ 36,625 322 (186) 36,761
============== ============ ============= ==============
</TABLE>
The following table shows the maturity distribution of the investments
available for sale portfolio at amortized cost and fair value at
September 30, 1998:
<TABLE>
<CAPTION>
Amortized Fair
cost value
-------------- ------------
(In thousands)
<S> <C> <C>
Due after one year through five years $ 17,349 17,500
Due after five years through ten years 7,077 7,211
Due after ten years 3,185 3,228
-------------- ------------
27,611 27,939
Mortgage-backed securities 14,265 14,286
-------------- ------------
$ 41,876 42,225
============== ============
</TABLE>
Proceeds from sales of investments available for sale during the year
ended September 30, 1998, 1997 and 1996 were $3.4 million, $11 million
and $21.7 million, respectively. Gross gains of $135,672 and gross losses
of $31,694 were realized on those sales during 1998. Gross gains of $313
and gross losses of $34,964 were realized on those sales during 1997.
Gross gains of $182,003 and gross losses of $11,831 were realized on
those sales during 1996.
Mortgage-backed securities available for sale aggregating $1.0 million
and $896,820, with a fair value of $1.0 million and $932,592, were
pledged as collateral to secure public funds at September 30, 1998 and
1997, respectively.
(Continued)
F-14
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(3) Investment Securities Held to Maturity
The amortized cost and estimated fair values of investment securities
held to maturity are as follows:
<TABLE>
<CAPTION>
1998
(In thousands)
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Governmental agencies $ 8,998 11 (40) 8,969
Collateralized Mortgage
Obligations 9,738 40 (223) 9,555
============== ============ ============= ==============
$ 18,736 51 (263) 18,524
============== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
1997
(In thousands)
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Governmental agencies $ 27,993 15 (255) 27,753
Collateralized Mortgage
Obligations 9,818 28 (288) 9,558
============== ============ ============= ==============
$ 37,811 43 (543) 37,311
============== ============ ============= ==============
</TABLE>
Proceeds from the sale of investments held to maturity, within 90 days of
the date the investment matured or became callable, during the year ended
September 30, 1996 were $4,002,344. Gross gains of $3,906 and gross
losses of $1,562 were realized on those sales during 1996.
The collateralized mortgage obligations ("CMOs") have both a principal
and interest component and have predominately variable rates of return.
The weighted average rates at September 30, 1998, 1997 and 1996 were
5.80%, 5.94% and 5.93%, respectively.
(Continued)
F-15
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
On November 15, 1995, the FASB issued Special Report No. 115-B, A Guide
to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities (the Special Report). Pursuant to the
Special Report, the Bank was permitted to conduct a one-time reassessment
of the classifications of all securities held at that time. Any
reclassifications from the held to maturity category made in conjunction
with that reassessment would not call into question a bank's intent to
hold other debt securities to maturity in the future.
The Bank's investment in obligations of U.S. Government agencies include
step-up and floating interest rate bonds. The step-up bonds have a
carrying value of $4.0 million and $9.0 million at September 30, 1998 and
1997, respectively, and pay interest on a predetermined schedule of
escalating rates. These step-up bonds have an estimated fair value of
approximately $4.01 million and $9.0 million at September 30, 1998 and
1997, respectively. The floating interest rate bonds have a carrying
value of $5.0 million and $16.0 million at September 30, 1998 and 1997,
respectively, and pay interest on a variable basis depending on relevant
market rates. These floating interest rate bonds have an estimated fair
value of approximately $5.0 million and $15.8 million at September 30,
1998 and 1997, respectively. The Bank purchased these bonds to offset its
risk related to its portfolio of adjustable and fixed rate mortgages and
these bonds subject the Bank to a certain degree of market risk as these
rates change with prevailing market interest rates.
The amortized cost and estimated fair value of investment securities held
to maturity at September 30, 1998, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
-------------- --------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 4,999 5,009
Due after one year through five years 3,999 3,960
Due after five years through ten years 3,499 3,442
Due after ten years 6,239 6,113
-------------- --------------
$ 18,736 18,524
============== ==============
</TABLE>
(Continued)
F-16
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(4) Loans Receivable, Net
Loans receivable at September 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
(In thousands)
<S> <C> <C>
Loans secured by first mortgages on real estate:
Residential:
Permanent $ 244,667 256,742
Construction 27,311 22,350
Multi-family 4,464 4,154
Commercial real estate 16,132 12,064
Land 6,796 6,153
-------------- -------------
Total first mortgage loans 299,370 301,463
-------------- -------------
Other loans:
Consumer loans 57,891 69,229
Other loans 1,085 218
-------------- -------------
Total other loans 58,976 69,447
-------------- -------------
Total loans 358,346 370,910
Deferred loan costs (fees), net (18) (8)
Unearned interest on installment loans (141) (129)
Allowance for loan losses (2,564) (2,633)
Loans in process (17,013) (12,589)
-------------- -------------
$ 338,610 355,551
============== =============
Weighted average yield on total loans
at dates indicated 7.91% 8.07%
============== =============
</TABLE>
(Continued)
F-17
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Balance at September 30, 1995 $ 1,902
Provision for losses 600
Charge offs (119)
Recoveries 2
-------------
Balance at September 30, 1996 2,385
Provision for losses 317
Charge offs (69)
Recoveries --
-------------
Balance at September 30, 1997 2,633
Provision for losses 405
Charge offs (474)
Recoveries --
-------------
Balance at September 30, 1998 $ 2,564
=============
</TABLE>
Outstanding mortgage loan commitments amounted to approximately $2.1
million and $2.0 million for fixed rate loans, and $540,400 and $1.7
million for variable rate loans at September 30, 1998 and 1997,
respectively, with terms generally of 30 days. There were no letters of
credit outstanding at September 30, 1998 and 1997. Furthermore, the Bank
was servicing approximately $23.3 million, $16.1 million and $9.7 million
in loans for the benefit of others in 1998, 1997 and 1996, respectively.
The Bank holds custodial escrow deposits for these serviced loans
totaling approximately $57,000 and $70,000 at September 30, 1998 and
1997, respectively.
Loan customers of the Bank include certain executive officers and
directors and their related interests and associates. All loans to this
group were made in the ordinary course of business at prevailing terms
and conditions. As of September 30, 1998, these loans amounted to
approximately $34,000.
The Bank's loan portfolio is predominantly secured by residential first
mortgages of property located in Central Florida.
Impaired loans amounted to $1.1 million, $1.9 million and $1.1 million at
September 30, 1998, 1997 and 1996, respectively, and have been recognized
in conformity with FASB Statement No. 114, as amended by FASB Statement
No. 118. The average recorded investment in impaired loans during 1998,
1997 and 1996 was approximately $1.9 million, $1.9 million and $1.2
million, respectively. The allowance for loan losses related to loans
at September 30, 1998, 1997, and 1996 was $224,000, $380,000, and
$216,000, respectively. Interest income on impaired loans of
approximately $96,000, $167,000 and $220,000 was recognized for cash
payments received in 1998, 1997 and 1996, respectively.
(Continued)
F-18
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(5) Premises and Equipment
Premises and equipment at September 30, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Land $ 1,887 2,142
Buildings and leasehold improvements 7,054 7,589
Furniture, fixtures and equipment 3,703 3,583
----------- -----------
12,644 13,314
Less accumulated depreciation and amortization (5,799) (5,514)
----------- -----------
$ 6,845 7,800
=========== ===========
</TABLE>
The Bank conducts a portion of its operations from leased facilities and
leases certain equipment under operating leases. As of September 30,
1998, the Bank was committed to noncancelable operating leases with the
following minimum lease payments:
Minimum
Year ended lease
September 30, payments
---------------------- --------------
(In thousands)
1999 $ 112
2000 86
2001 70
2002 69
--------------
$ 337
==============
Rent expense under all operating leases was approximately $296,000,
$152,000 and $173,000 for the years ended September 30, 1998, 1997 and
1996, respectively.
(Continued)
F-19
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(6) Deposits
A summary of deposits by interest rates at September 30, 1998 and 1997
follows:
<TABLE>
<CAPTION>
Weighted Weighted
average average
interest interest
1998 rate 1997 rate
--------------- ----------- -------------- ------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing checking $ 10,492 0% 10,529 0%
Interest-bearing checking 24,456 1.94% 24,149 2.46%
Savings accounts 37,758 1.77% 47,354 2.50%
Money market accounts 18,092 3.99% 14,686 3.53%
Certificate accounts:
2.00% - 2.99% -- 1,958
4.00% - 4.99% 31,676 7,335
5.00% - 5.99% 166,610 228,331
6.00% - 6.99% 63,096 92,676
7.00% - 7.99% -- 2,696
--------------- --------------
Total certificates 261,382 5.52% 332,996 5.23%
---------------
==============
Total deposits $ 352,180 4.63% 429,714 4.88%
=============== ==============
</TABLE>
Certificates of deposit issued in amounts of $100,000 or more totaled
approximately $45.7 million and $57.5 million at September 30, 1998
and 1997, respectively.
Interest on deposits at September 30, 1998 and 1997 is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Interest on interest-bearing checking and
money market accounts $ 1,051 958 872
Interest on savings and certificate accounts 17,868 18,841 18,174
Less early withdrawal penalties (88) (97) (85)
---------- ---------- ----------
$ 18,831 19,702 18,961
========== ========== ==========
</TABLE>
(Continued)
F-20
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
A summary of certificate accounts by year of scheduled maturity at
September 30, 1998 and 1997 follows:
Year ended
September 30, 1998 1997
------------- -------------- ------------
(In thousands)
1998 $ -- 221,586
1999 165,547 49,946
2000 54,045 30,166
2001 11,715 8,827
2002 21,527 22,471
2003 8,548 --
============== ============
$ 261,382 332,996
============== ============
(7) Advances From Federal Home Loan Bank
A summary of the Bank's borrowings from the Federal Home Loan Bank of
Atlanta by year of maturity as of September 30, 1998 is as follows:
1998 Rate
---------------- -----------
(In thousands)
1999 $ 1,000 6.00%
2008 20,000 5.08%
---------------- -----------
Total weighted average rate $ 21,000 5.12%
================ ===========
Fixed interest rate advances in the amounts of $5 million, $10 million
and $5 million can be converted to variable interest rates by the Federal
Home Loan Bank of Atlanta in years 2000, 2001 and 2003, respectively.
There were no borrowings from the Federal Home Loan Bank as of September
30, 1997. Should the Bank elect to prepay these borrowings prior to
maturity, prepayment penalties may be incurred. Advances from the Federal
Home Loan Bank are secured with a blanket floating lien which includes a
security interest in the FHLB stock held by the Bank and first mortgage
loans of the Bank.
(Continued)
F-21
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(8) Income Taxes
The provision for income taxes for 1998, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
Current Deferred Total
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Year ended September 30, 1998:
Federal $ 1,825 (782) 1,043
State 190 (82) 108
============= ============ ============
$ 2,015 (864) 1,151
============= ============ ============
Year ended September 30, 1997
Federal $ 681 531 1,212
State 30 57 87
============= ============ ============
$ 711 588 1,299
============= ============ ============
Year ended September 30, 1996:
Federal $ 888 (848) 40
State 95 (91) 4
============= ============ ============
$ 983 (939) 44
============= ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1998 and 1997 are presented below.
<TABLE>
<CAPTION>
1998 1997
-------- ---------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to allowance for loan losses, net $ 827 781
Pension asset 379 --
Prepaid interest income 21 10
Self-insurance reserve 339 11
-------- ---------
Total deferred tax assets 1,566 802
Less valuation allowance -- --
-------- ---------
Net deferred tax assets 1,566 802
-------- ---------
</TABLE>
(Continued)
F-22
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------- ---------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
FHLB stock $ (457) (456)
Unrealized gain on investments available for sale (129) (50)
Loans receivable, due to deferred loan fees (1) (25)
Premises and equipment, due to differences in
depreciation methods and useful lives (42) (32)
Pension liability -- (88)
Other (1) --
-------- ---------
Total deferred tax liabilities (630) (651)
-------- ---------
Net deferred tax assets (liabilities) $ 936 (151)
======== =========
</TABLE>
The Bank's effective rate on pretax income differs from the statutory
Federal income tax rate as follows:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------------------------------------
1998 % 1997 % 1996 %
---------- ------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory $ 1,202 34% 1,301 34% 101 34%
rate
Increase (decrease) in tax
resulting from:
Tax-exempt interest,
net of (17) (1%) (22) (1%) (45) (15%)
scaleback
State income taxes,
net of
Federal income tax 65 2% 78 38% (38) (13%)
benefit
Other, net (99) (2%) (58) (26%) (26) (9%)
---------- ------- --------- --------- ---------- -------
$ 1,151 33% 1,299 44% 44 15%
========== ======= ========= ========= ========== =======
</TABLE>
Until 1997, under the Internal Revenue Code (Code), the Bank was allowed
a special bad debt deduction for additions to tax bad debt reserves
established for the purpose of absorbing losses. Provisions of the Code
permitted the Bank two methods of determining the bad debt deduction: the
experience method or the percentage of taxable income method. The
statutory percentage used to calculate the percentage of taxable income
method bad debt deduction was 8% before such deduction. The experience
method was calculated using actual loss experience of the Bank.
(Continued)
F-23
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
The Small Business Job Protection Act of 1996 repealed the percentage of
taxable income method of accounting for bad debts for tax years beginning
after 1995. The Bank switched solely to the experience method to compute
its bad debt deduction in 1997 and future years. The Bank is required to
recapture into taxable income the portion of its bad debt reserves that
exceed its bad debt reserves calculated under the experience method since
1987. The Bank will recapture bad debt reserves totaling approximately
$350,000 as a result of this change in law.
The Bank elected to use the percentage of taxable income method for the
year ended September 30, 1996. The Code also imposes an alternative
minimum tax at a 20% rate on taxable income plus certain adjustments and
preference items. The alternative minimum tax is imposed only if it
exceeds the regular tax liability.
Retained income at September 30, 1998 includes approximately $5.8 million
base year tax bad debt reserve for which no deferred Federal and state
income tax liability has been recognized. These amounts represent an
allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt
losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which would be subject to the
then current corporate income tax rate. The unrecorded deferred income
tax liability on the above amounts was approximately $4.9 million at
September 30, 1998.
(9) Concentration of Credit Risk
The Bank originates real estate, consumer, and commercial loans primarily
in its Central Florida market area. Although the Bank has a diversified
loan portfolio, a substantial portion of its borrowers' ability to honor
their contracts is dependent upon the economy of Central Florida. The
Bank does not have a significant exposure to any individual customer or
counterparty.
The Bank manages its credit risk by limiting the total amount of
arrangements outstanding with individual customers, by monitoring the
size and maturity structure of the loan portfolio, by obtaining
collateral based on management's credit assessment of the customers, and
by applying a uniform credit process for all credit exposures.
(Continued)
F-24
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(10) 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 and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined).
As of May 15, 1998, the most recent notification from the Office of
Thrift Supervision categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized," the Bank must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------------------------------------
To be well
capitalized
For capital under prompt
adequacy corrective action
Actual purpose provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Total capital (to risk-
weighted assets) $38,451 15.6% $19,786 8.0% $24,732 10.0%
Tier I capital (to risk-
weighted assets) 35,887 14.5% 9,893 4.0% 14,839 6.0%
Tier I capital
(to average assets) 35,887 8.7% 16,599 4.0% 20,748 5.0%
========== ========= ========== ========= ========== ==========
</TABLE>
(Continued)
F-25
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------------------------------------
To be well
capitalized
For capital under prompt
adequacy corrective action
Actual purpose provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total capital (to risk-
weighted assets) $36,135 13.6% $21,288 8.0% $26,610 10.0%
Tier I capital (to risk-
weighted assets) 33,502 12.6% 10,644 4.0% 15,966 6.0%
Tier I capital
(to average assets) 33,502 7.2% 18,715 4.0% 23,394 5.0%
========== ========= ========== ========= ========== ==========
</TABLE>
(11) Savings Association Insurance Fund
The Bank pays deposit insurance premiums to the FDIC's Savings
Association Insurance Fund (SAIF). The majority of commercial banks pay
such premiums to the FDIC's Bank Insurance Fund (BIF). The SAIF and BIF
previously assessed deposit insurance premiums at the same rate. However,
effective September 30, 1995, the FDIC reduced the minimum assessment
rate applicable to BIF deposits, but not SAIF deposits, from 23 basis
points of covered deposits to four basis points of covered deposits, and
effective January 1, 1996, further reduced the BIF rate to zero. This
disparity in assessment rates may place the Bank at a competitive
disadvantage to institutions whose deposits are exclusively or primarily
BIF insured (such as most commercial banks).
(Continued)
F-26
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
On September 30, 1996, President Clinton signed into law H.R. 3610, which
is intended to recapitalize the SAIF and substantially bridge the
assessment rate disparity existing between SAIF and BIF insured
institutions. The new law subjects institutions with SAIF assessable
deposits, including the Bank, to a one-time assessment estimated to be
approximately .657% of covered deposits as of March 31, 1995, and
provides for a 20% reduction of this assessment for certain institutions,
including the Bank. The new law remains to be implemented by the FDIC and
the FDIC's interpretation of the new law may affect actual amounts paid
by depository institutions. This one-time assessment resulted in a
pre-tax charge of approximately $2.5 million. Under the provisions of the
new law, the assessment may be treated for tax purposes as a fully
deductible "ordinary and necessary business expense." Results of
operations for the year ended September 30, 1996 included this one-time
assessment.
(12) Sale of Branches
On October 29, 1997, the Bank entered into an agreement to sell
substantially all of the loans, with a majority of the loans sold on a
servicing-released basis, and certain liabilities (primarily deposit
liabilities) of the branches located in north Florida. The sale included
loans at 80% of the deposit liability. The remaining 20% of the purchase
was funded with cash. The purchase included the branches, except for two
branches which were closed by the Bank because the Bank is precluded from
conducting any further business at those locations. The transaction was
completed January 30, 1998. Assets of approximately $52.5 million,
including loans of $44.6 million, property and equipment of $705,000,
cash of $10.1 million, and liabilities consisting primarily of deposit
accounts of $55.5 million, were sold for a gain of approximately $3.0
million. The remaining two branches are under contract for sale to a
third party. The sale of the two branches is expected to close in 1999 at
no loss to the Bank.
(13) Benefit Plans
On September 28, 1998, the Board of Directors approved a non-qualified
Director Retirement Plan (Retirement Plan). The Retirement Plan will pay
all Directors that have served on the board at least ten years, $1,000
per month for 120 months beginning at the end of their final three-year
term. For the year ended September 30, 1998, the Bank has recognized
expense of $410,000 related to this Retirement Plan. The weighted-average
discount rate used to measure the expense for the year ended September
30, 1998 was 5.5%. This expense is a component of compensation expense on
the statements of earnings.
The Bank maintains a noncontributory defined benefit pension plan
("Plan") covering substantially all employees who meet minimum service
requirements. The benefit formula of the Plan generally bases payments to
retired employees upon their length of service and a percentage of
qualifying compensation during the final years of employment.
(Continued)
F-27
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
On September 28, 1998, the Board of Directors froze benefit accruals for
the Plan effective November 3, 1998. The Bank anticipates allocating to the
participants their full present value of accrued benefits based on the Plan
liquidation guidelines, as prescribed by the Internal Revenue Code. The
present value of benefit obligations at September 30, 1998 is approximately
$5.7 million and the plan assets at fair value are approximately $4.0
million. As a result, the Bank recognized compensation and employee
benefits expense for 1998 of $1.7 million as an actuarial estimate of
benefits payable upon liquidation, and the related liability is a component
of other liabilities on the statement of financial condition.
The following table sets forth the funded status of the Plan and amounts
recognized in the Bank's balance sheet at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefit obligation $ (5,672) (3,272)
---------- ----------
Accumulated benefit obligation (5,672) (3,272)
Additional benefits based on estimated future salary levels
-- (1,132)
---------- ----------
Projected benefit obligation (5,672) (4,404)
Plan assets at fair value 3,997 3,616
---------- ----------
Funded status $ (1,675) (788)
==========
Unrecognized net assets at October 1, 1987 being
recognized over 13 years (117)
Unrecognized net loss 52
Unrecognized prior service cost 440
----------
$ (413)
==========
</TABLE>
(Continued)
F-28
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
Pension cost for the year ended September 30, 1997 and 1996 included the
following components:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Service cost - benefits earned during the period $ 207 200
Interest cost 304 272
Actual return on assets held in plan (580) (155)
Net amortization and deferral 335 (64)
--------- ---------
Net periodic pension cost $ 266 253
========= =========
</TABLE>
The weighted-average discount rate used to measure the projected benefit
obligation is approximately 6% at September 30, 1998 and approximately 8%
at September 30, 1997 and 1996; the rate of increase in future
compensation levels is 5% at September 30, 1997 and 1996; and the
expected long-term rate of return on assets is approximately 6.5% for
September 30, 1998 and approximately 8.25% for September 30, 1997 and
1996. No increase in future compensation levels was used at September 30,
1998 as the Plan has been frozen by the Board of Directors.
(14) Fair Values of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for
the Bank's financial instruments at September 30, 1998 and 1997.
Cash and cash equivalents: The carrying amount of cash and cash
equivalents (demand deposits maintained by the Bank at various financial
institutions and federal funds sold) represents fair value.
Investments: The Bank's investment securities represent investments in
U.S. Government Agency obligations, Collateralized Mortgage Obligations
and mortgage-backed securities. The fair value of these investments was
estimated based on quoted market prices or bid quotations received from
securities dealers.
Federal Home Loan Bank stock: The Federal Home Loan Bank stock is not
publicly traded and the carrying amount was used to estimate the fair
value.
(Continued)
F-29
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
Loans: Fair values are estimated for the Bank's portfolio of loans by
grouping loans with similar financial characteristics. The loans have
been segregated by type, such as fixed and variable rate first mortgage
loans and other loans. The fair value of loans is estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings and for
similar maturities.
Deposit liabilities: The fair value of deposits with no stated maturity
(i.e., interest and noninterest-bearing checking accounts and savings
accounts) is equal to the amount payable as of September 30, 1998 and
1997. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered by the Bank for deposits of
similar remaining maturities.
Federal Home Loan Bank advances: The fair value of advances is based on
the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered by creditors for advances of
similar remaining maturities.
Due to banks: The carrying value of cash due to other financial
institutions represents fair value.
Commitments: The Bank makes commitments in the normal course of business
to originate loans. All such commitments are for relatively short periods
of time, so the market value of the loan on the commitment date and
origination or delivery date is seldom materially different.
(Continued)
F-30
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
The estimated fair values of the Bank's financial instruments at
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
-----------------------------
Carrying Estimated
amount fair value
----------- ------------
(In thousands)
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,217 5,217
Investments available for sale 42,225 42,225
Investment securities held to maturity 18,736 18,524
Federal Home Loan Bank stock 2,863 2,864
Loans (carrying amount net of allowance
for loan loss of $2,564) 338,610 341,513
=========== ============
Financial liabilities:
Deposits:
Without stated maturities $ 90,798 90,798
With stated maturities 261,382 258,744
Federal Home Loan Bank advances 21,000 19,149
Due to banks 4,569 4,569
=========== ============
Commitments:
Loan commitments $ -- 1,985
=========== ============
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------
Carrying Estimated
amount fair value
----------- ------------
(In thousands)
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 21,842 21,842
Investments available for sale 36,761 36,761
Investment securities held to maturity 37,812 37,311
Federal Home Loan Bank stock 2,864 2,864
Loans (carrying amount net of allowance
for loan loss of $2,633) 355,551 364,311
=========== ============
Financial liabilities:
Deposits:
Without stated maturities $ 96,718 96,718
With stated maturities 332,996 332,465
Due to banks 483 483
=========== ============
Commitments:
Loan commitments $ -- 3,721
=========== ============
</TABLE>
(Continued)
F-31
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF FLORIDA
Notes to Financial Statements
September 30, 1998 and 1997
(15) Commitments and Contingencies
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Bank is a defendant
in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the financial conditions of the Bank.
F-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================================ ==================================================
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different.This
document does not constitute an offer to sell, or the solicitation of an offer
to buy, any of the securities offered hereby to any person in any jurisdiction
in which such offer or solicitation would be unlawful. The affairs of First
Federal Florida or FloridaFirst Bancorp may change after the date of this
prospectus. Delivery of this document and the sales of shares made hereunder
does not mean otherwise.
TABLE OF CONTENTS
Page
Questions and Answers.......................................................
Summary ....................................................................
^ Risk Factors..............................................................
First Federal Florida ......................................................
FloridaFirst Bancorp........................................................
FloridaFirst Bancorp, MHC...................................................
Use of Proceeds.............................................................
Dividend Policy............................................................. ^
Wavier of Dividends by the MHC..............................................
MHC Conversion to Stock Form................................................
Market for Common Stock.....................................................
Capitalization..............................................................
Pro Forma Data..............................................................
Historical and Pro Forma Capital Compliance................................. FloridaFirst Bancorp
^ Selected Financial and Other Data.........................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................
Business of the Company.....................................................
Business of the Bank........................................................
Regulation .................................................................
Taxation.................................................................... -------------------
Management .................................................................
The Reorganization..........................................................
The Offering................................................................ PROSPECTUS
^ Restrictions on Acquisition of ^ the Company..............................
Description of Capital Stock................................................
Legal and Tax Opinions...................................................... -------------------
Experts.....................................................................
Registration Requirements...................................................
Where You Can Find Additional Information...................................
Index to Financial Statements ............................................. Sandler O'Neill & Partners, L.P.
Until the later of __________ ____, 1999 or 25 days after commencement of the ____________ ____, 1999
offering, all dealers effecting transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as THESE SECURITIES ARE NOT DEPOSITS OR
underwriters and with respect to their unsold allotments or subscriptions. SAVINGS ACCOUNTS AND ARE NOT FEDERALLY
INSURED OR GUARANTEED.
================================================================================ ==================================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECT^ US
^
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) List of Exhibits:
1 Agency Agreement with Sandler O'Neill & Partners, L.P.*
2 Plan of Mutual Holding Company Reorganization and Stock Issuance
3(i) Charter of FloridaFirst Bancorp*
3(ii) Bylaws of FloridaFirst Bancorp*
4 Specimen Stock Certificate of FloridaFirst Bancorp *
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities
registered*
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 ^ Florida Tax Opinion of Hahn, McClurg, Watson, Griffith & Bush, P.A.
8.3 Statement of Feldman Financial Advisors, Inc. as to the value of subscription
rights*
10.1 Employment Agreement with Gregory C. Wilkes*
10.2 Form of Employment Agreement*^
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included with Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP*
23.3 Consent of Feldman Financial Advisors, Inc.*
24 Power of Attorney (included with signature page)*
27 Financial Data Schedule ^(filed electronically only)*
99.1 Marketing Materials*
99.2 Appraisal Report^
^99.3 Prospectus Supplement For Syndicated Community Offering
- -------------------
* Previously filed ^
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Lakeland,
Florida as of ^ February 4, 1999.
FLORIDAFIRST BANCORP
/s/ Gregory C. Wilkes*
-----------------------------------
Gregory C. Wilkes
President, Chief Executive Officer,
and Director
(Duly authorized representative)
We the undersigned directors and officers of FloridaFirst Bancorp do
hereby severally constitute and appoint Gregory C. Wilkes and Kerry P. Charlet
our true and lawful attorneys and agents, to do any and all things and acts in
our names in the capacities indicated below and to execute all instruments for
us and in our names in the capacities indicated below which said Gregory C.
Wilkes and Kerry P. Charlet may deem necessary or advisable to enable
FloridaFirst Bancorp to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-1 relating
to the offering of FloridaFirst Bancorp's common stock, including specifically
but not limited to, power and authority to sign for us or any of us in our names
in the capacities indicated below the registration statement and any and all
amendments (including post-effective amendments) thereto; and we hereby ratify
and confirm all that Gregory C. Wilkes and Kerry P. Charlet shall do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities indicated as of ^ February 4, 1999.
<TABLE>
<CAPTION>
<S> <C>
/s/ Gregory C. Wilkes* /s/ Kerry P. Charlet*
- ------------------------------------- --------------------------------------------
Gregory C. Wilkes Kerry P. Charlet
President, Chief Executive Officer Senior Vice President and Chief
and Director Financial Officer
(Principal Financial and Accounting Officer)
/s/ Charles W. Bovay* /s/ Llewellyn N. Belcourt*
- ------------------------------------- --------------------------------------------
Charles W. Bovay Llewellyn N. Belcourt
Chairman of the Board Director
/s/ Robert H. Artman* /s/ Rudy H. Thornberry*
- ------------------------------------- --------------------------------------------
Robert H. Artman Rudy H. Thornberry
Director Director
- ----------------
* Signed pursuant to a Power of Attorney.
</TABLE>
<PAGE>
/s/ Nis Nissen* /s/ Stephen A. Moore, Jr.*
- ------------------------------------- --------------------------------------
Nis Nissen Stephen A. Moore, Jr.
Director Director
/s/ G.F. Zimmermann, III*
- -------------------------------------
G.F. Zimmermann, III
Director
- ----------------
* Signed pursuant to a Power of Attorney.
<PAGE>
As filed with the Securities and Exchange Commission on ^ February 4, 1999
Registration No. 333-^ 69239
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
^EXHIBIT TO
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
FLORIDAFIRST BANCORP
(Exact name of registrant as specified in charter)
United States 6035 59-3545582
- ---------------------------- ----------------- -------------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
205 East Orange Street, Lakeland, Florida 33801-4611
(941) 688-6811
--------------
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Mr. Gregory C. Wilkes
President
FloridaFirst Bancorp
205 East Orange Street, Lakeland, Florida ^33801-4611
(941) 688-6811
--------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Charles E. Sloane, Esq.
^Gregory A. Gehlmann, Esq.
Ruel B. Pile, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
<PAGE>
INDEX ^ OF EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-1
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
(a) List of Exhibits:
1 Agency Agreement with Sandler O'Neill & Partners, L.P.*
2 Plan of Mutual Holding Company Reorganization and Stock Issuance
3(i) Charter of FloridaFirst Bancorp*
3(ii) Bylaws of FloridaFirst Bancorp*
4 Specimen Stock Certificate of FloridaFirst Bancorp*
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered*
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 ^ Florida Tax Opinion of Hahn, McClurg, Watson, Griffith & Bush, P.A.
8.3 Statement of Feldman Financial Advisors, Inc. as to the value of subscription rights*
10.1 Employment Agreement with Gregory C. Wilkes*
10.2 Form of Employment Agreement*^
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included with Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP*
23.3 Consent of Feldman Financial Advisors, Inc.*
24 Power of Attorney (included with signature page)
27 Financial Data Schedule ^(filed electronically only)*
99.1 Marketing Materials*
99.2 Appraisal Report^
^99.3 Prospectus Supplement For Syndicated Community Offering
</TABLE>
- -------------------
* ^ Previously filed
EXHIBIT 2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF FLORIDA
LAKELAND, FLORIDA
PLAN OF MUTUAL HOLDING COMPANY REORGANIZATION
AND STOCK ISSUANCE
(AS AMENDED)
Adopted by the Board of Directors
on
September 28, 1998
<PAGE>
PLAN OF MUTUAL HOLDING COMPANY REORGANIZATION AND STOCK ISSUANCE
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF FLORIDA
TABLE OF CONTENTS
-----------------
PAGE
----
1. Introduction.................................................. A-1
2. Definitions................................................... A-2
3. Method of Reorganization and Certain Effects of
Reorganization.............................................. A-6
4. Special Meeting of Members.................................... A-9
5. Conditions to Implementation of Reorganization................ A-9
6. Stock Offering Documents......................................A-10
7. Stock Offering................................................A-10
8. Subscription Rights of Eligible Account Holders
(First Priority)............................................A-11
9. Subscription Rights of Employee Plans (Second Priority).......A-12
10. Supplemental Eligible Account Holders (Third Priority)........A-12
11. Subscription Rights of Other Members (Fourth Priority)........A-13
12. Community Offering............................................A-14
13. Syndicated Community Offering.................................A-14
14. Limitation on Purchases.......................................A-15
15. Payment for Common Stock......................................A-17
16. Manner of Exercising Subscription Rights Through Order Forms..A-18
17. Undelivered, Defective or Late Order Forms:
Insufficient Payment........................................A-19
18. Restrictions on Resale or Subsequent Disposition..............A-19
19. Charter and Bylaws of the Stock Association...................A-20
20. Charter and Bylaws of Stock Holding Company...................A-20
21. Charter and Bylaws of the Mutual Holding Company..............A-20
22. Conversion of Mutual Holding Company to Stock Form............A-20
- i -
<PAGE>
PAGE
----
23. Continuity of the Association and Status of Deposit
Accounts and Loans Subsequent to Reorganization.............A-21
24. Rights of Owners of the Mutual Holding Company................A-22
25. Payment of Dividends and Repurchase of Stock..................A-22
26. Residents of Foreign Countries and Certain States.............A-22
27. Registration and Market Making................................A-23
28. Establishment of Liquidation Account..........................A-23
29. Expenses of Reorganization....................................A-24
30. Amendment or Termination of the Plan..........................A-24
31. Miscellaneous.................................................A-25
- ii -
<PAGE>
1. INTRODUCTION
On September 28, 1998, the Board of Directors of First Federal Savings
and Loan Association of Florida (the "Association"), by at least a two-thirds
vote, resolved to adopt this Mutual Holding Company Plan of Reorganization and
Stock Issuance (the "Plan"), pursuant to which the Association proposes to
reorganize from a federally chartered mutual savings association into a
federally chartered mutual holding company under the name "FloridaFirst Bancorp
MHC" (the "Mutual Holding Company") pursuant to the laws of the United States of
America and the Rules and Regulations of the Office of Thrift Supervision
("OTS"). A principal part of the reorganization into the Mutual Holding Company
(the "Reorganization") is the incorporation of a federally chartered stock
holding company (the "Stock Holding Company"), a majority of the voting stock of
which will be owned by the Mutual Holding Company at all times so long as the
Mutual Holding Company remains in the mutual form of organization and the
conversion of the Association to a federal capital stock savings association
(the "Stock Association"), which will be a wholly owned subsidiary of the Stock
Holding Company as long as the Mutual Holding Company is in existence.
One or more stock offerings of up to but less than 50% in the aggregate
of the total voting stock of the Stock Holding Company may be made
simultaneously, or following the Reorganization, subject to the approval of the
OTS, as may be necessary. As long as the Association is chartered under the laws
of the United States of America, any offer and sale of any equity securities,
regardless of when it occurs, will be conducted in accordance with the laws of
the United States and the rules and regulations of the OTS.
In adopting the Plan, the Board of Directors has determined that the
Reorganization is advisable and in the best interest of the Association and its
members. The Reorganization will enable the Association to increase its capital
through the issuance of capital stock without undertaking a full conversion from
the mutual to stock form of organization. The Reorganization will not foreclose
the opportunity to effect a conversion of the Mutual Holding Company from the
mutual-to-stock form of organization following the Reorganization. The
Reorganization may facilitate the possible acquisition of other assets, branch
offices, financial institutions, possible diversification into other related
financial service activities and other purposes and will further enhance the
Association's ability to render services to the public. The Reorganization will
afford the Association as a capital stock savings association subsidiary of the
Stock Holding Company access to capital sources not legally available to a
mutual savings association, while at the same time preserving the mutual form of
ownership in the holding company structure. The mutual holding company structure
also will allow the Association to minimize over-capitalization by providing the
flexibility to raise capital through the issuance of stock in a manner designed
to meet the Association's growth needs, rather than in a single stock offering
as required in a standard mutual-to-stock conversion. This access to the capital
markets will make it possible for the Association to be more responsive to
possible future changes in bank regulatory agencies' regulations mandating
higher capital reserves and/or capital ratios.
This Plan, which has been approved by at least two-thirds of the Board
of Directors present at a duly called meeting of the Board, must also be
approved by the members of the Association by the affirmative vote of a majority
of the total votes eligible to be cast by the members in person or by proxy at a
Special Meeting to be called for that purpose. Prior to submission of this Plan
to the Members for consideration, the Plan must be approved by the OTS.
A - 1
<PAGE>
Pursuant to Section 10(o) of the Home Owners' Loan Act, as amended 12
U.S.C. 1467(a)(0), ("HOLA"), the Reorganization will be accomplished in
accordance with the procedures contained in this Plan, the Rules and Regulations
of the OTS, and as otherwise may be required by the OTS.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
Account Holder: The term Account Holder means any Person holding a
Savings Account in the Association.
Acting in Concert: The Term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel
action towards a common goal whether or not pursuant to an express
agreement; (ii) a combination or pooling of voting or other interests
in the securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise; or (iii) a person or company which acts
in concert with another person or company ("other party") shall also be
deemed to be acting in concert with any person or company who is also
acting in concert with that other party, except that any tax-qualified
employee stock benefit plan will not be deemed to be acting in concert
with its trustee or a person who serves in a similar capacity solely
for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated.
Associate: The term Associate when used to indicate a relationship with
any person, means (i) any corporation or organization (other than the
Association or a majority-owned subsidiary of the Association) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity
securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity except that for the purposes
of Sections 9 and 14 hereof, the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee
Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and
except that, for purposes of aggregating total shares that may be held
by Officers and Directors the term "Associate" does not include any
Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or
spouse of such person, or any relative of such spouse, who has the same
home as such person or who is a Director or Officer of the Association
or the Holding Company, or any of its parents or subsidiaries.
Association: First Federal Savings and Loan Association of Florida, in
its current mutual form or post-Reorganization stock form, as indicated
by the context.
Capital Stock: Any and all authorized stock of the Stock Holding
Company.
Common Stock: Common stock, par value $0.10, issued by the Stock
Holding Company simultaneously with or after the Reorganization,
including securities convertible into common stock, pursuant to its
stock organization certificate.
A - 2
<PAGE>
Community Offering: The term Community Offering, if applicable, means
the offering for sale to certain members of the general public directly
by the Stock Holding Company, of any shares not subscribed for in the
Subscription Offering.
Director: A member of the Board of Directors of the Holding Company.
Effective Date: The effective date of the Reorganization which shall be
the date of consummation of the Reorganization and Offering in
accordance with this Plan and the Rules and Regulations of the OTS.
Eligible Account Holder: The term Eligible Account Holder means any
Person holding a Qualifying Deposit in a Savings Account at the
Association on the Eligibility Record Date. Only the name(s) of the
Person(s) listed on the account as of the Eligibility Record Date (or a
successor entity or estate) is an Eligible Account Holder. Any
Person(s) added to a Savings Account after the Eligibility Record Date
is not an Eligible Account Holder.
Eligibility Record Date: The term Eligibility Record Date means the
date for determining Eligible Account Holders in the Association and is
the close of business on June 30, 1997.
Employee: A person who is an Employee of the Association at the date
of the Reorganization.
Employee Plans: The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans, including the Employee Stock Ownership
Plan, approved by the Board of Directors of the Association.
FDIC: Federal Deposit Insurance Corporation.
Independent Appraiser: The term Independent Appraiser means an
appraiser retained by the Association to prepare an appraisal of the
pro forma market value of the Common Stock.
Independent Valuation: The term Independent Valuation means the
estimated pro forma market value of the Common Stock as determined by
the Independent Appraiser prior to the Subscription Offering and as it
may be amended from time to time thereafter.
Local Community: The term Local Community means the counties in which
the Association has an office.
Majority Interest: Greater than fifty percent (50%) of the combined
voting power or value of all classes of stock of the Stock Holding
Company.
Members: All persons or entities who qualify as members of the
Association pursuant to its Charter and Bylaws.
Minority Stock Offering: Any offering of Capital Stock of the Stock
Holding Company to persons other than the Mutual Holding Company of up
to but less than 50% in the aggregate of the total common stock of the
Stock Holding Company.
A - 3
<PAGE>
Mutual Association: First Federal Savings and Loan Association of
Florida in the mutual form of organization.
Mutual Holding Company: The mutual holding company established by the
Association incident to the Reorganization.
Notice of Reorganization: The Notice of Mutual Holding Company
Reorganization, to be submitted by the Association to the OTS to
notify the OTS of the Reorganization.
Officer: An executive officer of the Association which includes the
President, Chief Executive Officer, and Vice Presidents in charge of
principal business functions, and any other person participating in
major policy making functions of the Association.
Order Form: The term Order Form means any form together with attached
cover letter, sent by the Association to any Person containing among
other things a description of the alternatives available to such Person
under the Plan and by which any such Person may make elections
regarding subscriptions for Common Stock in the Subscription and
Community Offerings.
Other Member: The term Other Member means any person, who is a Member
of the Association (other than Eligible Account Holders or Supplemental
Eligible Account Holders) at the close of business on the voting record
date.
OTS: Office of Thrift Supervision or any successor agency.
Participants: The term Participants means the Eligible Account Holders,
Employee Plans, Supplemental Eligible Account Holders and Other
Members.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust (including Individual Retirement Accounts
and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan: This Plan of Mutual Holding Company Reorganization and Stock
Issuance of the Association as it exists on the date hereof and as it
may hereafter be amended in accordance with its terms.
Preferred Stock: Preferred Stock authorized pursuant to the Stock
Holding Company's stock charter.
Purchase and Assumption Transaction: The method of effecting the
transfer of assets and liabilities of the Association to the Stock
Association as described more particularly in the Plan.
Purchase Price: The term Purchase Price means the per share price at
which the Common Stock will be sold in accordance with the terms
hereof.
Qualifying Deposit: The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the Association at the close of
business on the Eligibility Record Date or Supplemental Eligibility
Record Date. Savings Accounts with total deposit balances of less than
$50 shall not constitute a Qualifying Deposit.
A - 4
<PAGE>
Reorganization: Collectively, all steps necessary for the Association
to reorganize into the mutual holding company form of organization and
the creation of the Mutual Holding Company, the Stock Association and
the Stock Holding Company pursuant to this Plan and in accordance with
the laws of the United States of America and the Rules and Regulations
of the OTS.
SAIF: The Savings Association Insurance Fund, which is administered by
the FDIC.
Savings Account: The term Savings Account includes savings accounts as
defined in the Rules and Regulations of the OTS and includes
certificates of deposit and demand accounts.
SEC: The Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members of the Association and
any adjournments thereof held to consider and vote upon this Plan.
Stock Association:The newly organized federally chartered stock savings
association established by the Association as part of the
Reorganization.
Stock Holding Company: The federal capital stock corporation that will
own all of the Stock Association's common stock and will be majority
owned by the Mutual Holding Company so long as the Mutual Holding
Company is in existence.
Subscription Offering: The term Subscription Offering means the
offering of Common Stock of the Stock Holding Company for purchase
through Order Forms to Participants.
Supplemental Eligibility Record Date: The term Supplemental Eligibility
Record Date means the close of business on the last day of the calendar
quarter preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder: The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the
Association (other than an officer or director or their Associates) at
the close of business on the Supplemental Eligibility Record Date.
Tax-Qualified Employee Stock Benefit Plan: The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock
bonus plan, profit-sharing plan or other plan, which, with its related
trust, meets the requirements to be "qualified" under Section 401 of
the Internal Revenue Code.
Voting Members: Those members of the Association that qualify as
voting members as of the voting record date.
Voting Record Date: The date fixed by the Directors of the Association
for determining eligibility to vote at the Special Meeting.
Voting Stock: Common or preferred stock, or any other type of equity
security, including (without limitation) other securities that are
convertible into common or preferred stock, having voting power for the
election of directors or management of the Stock Holding Company.
A - 5
<PAGE>
3. METHOD OF REORGANIZATION AND CERTAIN EFFECTS OF REORGANIZATION
A. Organization of a Mutual Holding Company, the Stock Holding
Company and the Stock Association
A principal part of the Reorganization will be the
organization of a federally chartered capital stock savings association
which will be a wholly owned subsidiary of the Stock Holding Company,
and the organization of a federally chartered Stock Holding Company, of
which the Mutual Holding Company will own a Majority Interest as long
as the Mutual Holding Company remains in existence.
The Reorganization will be effected in either of the following
ways, or in any manner approved by the OTS that is consistent with the
purposes of this Plan and applicable laws and regulations. The
Association's intention is to complete the Reorganization using the
Merger Alternative, although it may elect to use any method at the
discretion of the OTS consistent with applicable Regulations and
subject to OTS approval.
"Merger Alternative" Under the Merger Alternative: (i) the
Association will organize an interim federal stock savings association
as a wholly owned subsidiary ("Interim One"); (ii) Interim One will
organize an interim federal stock savings association as a wholly owned
subsidiary ("Interim Two"); (iii) Interim One will organize a federal
stock corporation (Stock Holding Company) as a wholly owned subsidiary
of Interim One; (iv) the Association will exchange its charter for a
federal stock savings association charter (Stock Association); (v)
Interim One will cancel its outstanding stock and exchange its charter
for a federal mutual holding company charter (Mutual Holding Company);
(vi) Interim Two will merge with and into Stock Association, with Stock
Association surviving; (vii) former members of the Association will
become members of the Mutual Holding Company; (viii) Mutual Holding
Company will receive all of the stock of Stock Association in exchange
for its shares of Interim Two stock; (ix) the Mutual Holding Company
will transfer all of the outstanding shares of Stock Association to
Stock Holding Company. Upon consummation of the Reorganization, the
legal existence of the Association will not terminate, but the
converted Stock Holding Company will be a continuation of the
Association and all property of the Association, including its right,
title, and interest in and to all property of whatsoever kind and
nature, interest and asset of every conceivable value or benefit then
existing or pertaining to the Association, or which would inure to the
Association immediately by operation of law and without the necessity
of any conveyance or transfer and without any further act or deed, will
vest in the Stock Association. The Stock Association will have, hold,
and enjoy the same in its right and fully and to the same extent as the
same was possessed, held, and enjoyed by the Association. The Stock
Association will continue to have, succeed to, and be responsible for
all the rights, liabilities, and obligations of the Association and
will maintain its headquarters operations at the Association's present
locations.
"Purchase and Assumption Alternative" Under the Purchase and
Assumption Alternative the Association will: (i) incorporate the Stock
Association; (ii) transfer substantially all of its assets (all except
up to $200,000, subject to OTS approval) and all of its liabilities,
including all of its deposit liabilities, to the Stock Association in
exchange for at least a majority of the initially issued and
outstanding shares of Common Stock of the Stock Association; and (iii)
adopt a new charter changing its form to that of a federal mutual
holding company.
A - 6
<PAGE>
The MHC will not retain any assets of the Association which
are required by the Stock Association in order to satisfy capital and
reserve requirements of federal law. All assets, rights, obligations
and liabilities of whatever nature of the Association that are not
expressly retained by the MHC shall be deemed transferred to the Stock
Association. The Association will apply to the OTS to retain up to
$200,000 at the MHC level in connection with the Reorganization. The
Association may distribute additional capital to the MHC following the
Reorganization, subject to OTS regulations governing capital
distributions.
The Mutual Association shall submit a Notice of Reorganization
to the OTS. Upon filing the Notice, the Mutual Association shall
publish a "Notice of Filing Application for Mutual Holding Company
Reorganization" in a newspaper of general circulation in each community
in which the Association has an office. The Association shall
prominently display a copy of the Notice in each of its offices. Copies
of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Association.
At the conclusion of the Reorganization, the Stock Association will be
the majority owned subsidiary of the Stock Holding Company, and the Stock
Holding Company will be majority owned by the Mutual Holding Company. Based upon
tax, regulatory, economic or other business reasons, the Reorganization can be
revised to eliminate the Stock Holding Company or otherwise without any further
Member ratification.
B. Ownership and Operation of the Mutual Holding Company
The Mutual Holding Company will be a mutual corporation organized under
federal law. As a mutual corporation, the Mutual Holding Company will have no
stockholders. The Mutual Holding Company will own between 50.1% and 100% of the
Voting Stock of the Stock Holding Company, and will be required to own at least
a majority of the Voting Stock of the Stock Holding Company so long as the
Mutual Holding Company remains in existence. The Mutual Holding Company will
have a board of directors which is expected initially to consist of all of the
members of the board of directors of the Association. It is expected that
management of the Mutual Holding Company will consist initially of senior
management persons of the Association.
The rights and powers of the Mutual Holding Company will be defined by
the Mutual Holding Company's Charter and Bylaws and by the statutory and
regulatory provisions applicable to mutual holding companies under federal law.
Depositors who have liquidation rights in the Association immediately prior to
the Reorganization will continue to have such rights in the Mutual Holding
Company after the Reorganization for so long as they maintain deposit accounts
in the Stock Association after the Reorganization. Initially, the sole business
of the Mutual Holding Company will be the ownership of at least a majority of
the voting stock of the Stock Holding Company. The Board of Directors will
continue to have the sole voting rights to govern the Mutual Holding Company,
just as they do now for the Association.
The Association will apply to the OTS to have the Mutual Holding
Company receive or retain (as the case may be) up to $200,000, in connection
with the Reorganization. The Stock Holding Company may distribute additional
capital to the Mutual Holding Company following the Reorganization subject to
applicable state and federal regulations regarding capital distributions.
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C. Ownership and Operation of the Stock Holding Company
The Stock Holding Company will be a capital stock corporation organized
under federal law. The Mutual Holding Company initially will be the sole
stockholder of the Stock Holding Company, and so long as the Mutual Holding
Company is in existence, the Mutual Holding Company will be required to own at
least a majority of the Voting Stock of the Stock Holding Company. However, the
Stock Holding Company may issue any amount of Non-Voting Stock to persons other
than the Mutual Holding Company, and will be authorized to undertake one or more
Minority Stock Offerings provided the aggregate amount of Voting Stock sold in
such Minority Stock Offerings of less than a majority in the aggregate of the
total outstanding Voting Stock of the Stock Holding Company, subject to any
required regulatory approvals. The Stock Holding Company will own 100% of the
Voting Stock of the Stock Association so long as the Mutual Holding Company is
in existence.
The initial members of the board of directors of the Stock Holding
Company will be the existing members of the board of directors of the
Association. Thereafter, the holders of shares of the Stock Holding Company's
Voting Stock will elect the members of the Board of Directors of the Stock
Holding Company for three year terms with approximately one-third of the members
of the Stock Holding Company's board of directors elected annually. The initial
officers of the Stock Holding Company will be senior officers of the
Association.
The Stock Holding Company will be able to exercise all of the powers
authorized to a federal corporation, subject to the restrictions applicable to
mutual holding companies under federal law. Initially, the sole business
activity of the Stock Holding Company will be the ownership of 100% of the
Voting Stock of the Stock Association.
The Association will apply to the OTS to have the Stock Holding Company
receive or retain (as the case may be) up to $200,000 in connection with the
Reorganization. The Stock Association may distribute additional capital to the
Stock Holding Company following the Reorganization, subject to applicable
federal regulations governing capital distributions.
D. Ownership and Operation of the Stock Association
The Stock Association will be a capital stock savings association
organized under federal law. The initial members of the Board of Directors of
the Stock Association will be the existing Board of Directors of the
Association. Thereafter, the Stock Holding Company, as the sole stockholder of
the Stock Association, will elect the members of the Stock Association's Board
of Directors for three year terms with approximately one-third of the directors
up for election each year. The present management of the Association will
continue as the management of the Stock Association following the
Reorganization.
The Stock Association will be authorized to exercise any and all
powers, rights and privileges of, and shall be subject to all limitations
applicable to, capital stock savings banks under federal law. The Reorganization
will not result in any reduction of the amount of retained earnings (other than
the assets of the Association retained by, or distributed to, the Mutual Holding
Company or the Stock Holding Company), undivided profits, and general loss
reserves that the Association had prior to the Reorganization. Such retained
earnings and general loss reserves will be accounted for by the Mutual Holding
Company, the Stock Holding Company and the Stock Association on a consolidated
basis in accordance with generally accepted accounting principles.
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All insured deposit accounts of the Stock Association will continue to
be federally insured up to the legal maximum by the FDIC in the same manner as
deposit accounts existing in the Association immediately prior to the
Reorganization. All loans and other borrowings from the Association shall retain
the same status with the Stock Association after the Reorganization as they had
with the Association immediately prior to the Reorganization.
So long as the Mutual Holding Company is in existence, the Stock
Holding Company will be required to own 100% of the Voting Stock of the Stock
Association. The Stock Association may issue any amount of Non-Voting Stock to
persons other than the Stock Holding Company.
4. SPECIAL MEETING OF MEMBERS
Subsequent to the approval of the Plan by the OTS, the Special Meeting
of Members shall be scheduled in accordance with the Mutual Association's
Bylaws. The Special Meeting shall be held upon written notice given no less than
20 days nor more than 45 days prior to the date of such meeting. Such notice
shall consist of a notice of special meeting and be accompanied by a proxy
statement and proxy card which includes information as is required by applicable
laws and regulations or as the OTS may otherwise require. At the Special
Meeting, each depositor member shall be entitled to cast one vote in person or
by proxy for every one hundred dollars ($100), or fraction thereof, of the
aggregate withdrawal value of all of the their deposit accounts in the
Association as of the Voting Record Date and each borrower member as of the
Voting Record Date shall be entitled to one vote; provided, however, that no
member shall be eligible to cast more than 1,000 votes.
Pursuant to the regulations of the OTS, an affirmative vote of not less
than a majority of the total votes of members eligible to be cast is required
for approval of the Plan, including adoption of the charter and bylaws of the
Mutual Holding Company, the charter and bylaws of the Stock Holding Company and
the charter and bylaws of the Stock Association. Voting may be in person or by
proxy in accordance with the charter and bylaws of the Mutual Association. The
OTS shall be notified promptly of the actions of the Members.
5. CONDITIONS TO IMPLEMENTATION OF REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon the
following:
1. The Plan is approved by at least two-thirds of the Board of
Directors;
2. A Notice of Reorganization is filed with the OTS and either:
(a) The OTS has given written notice of its intent not to
disapprove the proposed Reorganization; or
(b) Sixty days (or such period of time as the OTS may
specify if the review period is extended under ss.
575.3(b)(ii) of the OTS Regulations) have passed
since the OTS received the Notice of Reorganization
and deemed it sufficient under ss. 516.2(c) of the
OTS Regulations, and the OTS has not given written
notice that the proposed Reorganization is
disapproved;
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3. The Plan is approved by a majority of the total votes of the
Voting Members of the Mutual Association eligible to be cast
at the Special Meeting;
4. All necessary approvals have been obtained from the OTS in
connection with the charter and bylaws of the Mutual Holding
Company, the Stock Holding Company and the Stock Association
and the transfer of assets and liabilities of the Association
to the Stock Association; and all conditions specified or
otherwise imposed by the OTS in connection with approval of
the Notice of Reorganization and all transactions related
thereto, have been satisfied; and, if applicable, the FDIC has
approved the insurance of accounts of the Stock Association;
5. Receipt by the Mutual Association of a favorable ruling of the
Internal Revenue Service ("IRS") or an opinion of the Mutual
Association's tax advisor with respect to federal taxation to
the effect that consummation of the Reorganization will not be
a taxable event to the Mutual Holding Company, the Stock
Holding Company, the Stock Association or the Mutual
Association's depositors; and
6. Receipt by the Mutual Association of either a private letter
ruling of the Florida Department of Revenue or an opinion of
the Mutual Association's tax advisor with respect to state
taxation to the effect that consummation of the Reorganization
will not be a taxable event to the Mutual Holding Company, the
Stock Holding Company, the Stock Association or to the Mutual
Association's depositors.
Completion of the stock offering is not a condition to the
consummation of the reorganization. If the reorganization is
consummated but the offering is not completed, the Mutual
Holding Company will own all of the stock of the Stock Holding
Company and the Stock Holding Company will own all of the
stock of the Stock Association.
6. STOCK OFFERING DOCUMENTS
The Stock Holding Company and the Association intend to commence a
Minority Stock Offering concurrent with the formation of the Mutual Holding
Company. The Association may close the Minority Stock Offering before the
Effective Date, provided that the offer and sale of the Common Stock shall be
conditioned upon the receipt of all required regulatory and Member approvals.
The Association may send Participants a Summary of the Reorganization and
require Participants, to return to the Association by a reasonable date certain
a postage prepaid card or other written communication requesting receipt of the
prospectus. The Stock Holding Company and the Association shall not distribute
the final prospectus until such prospectus has been approved for use by the OTS
and declared effective by the SEC.
7. STOCK OFFERING
A. Number of Shares. The number of shares and price per share of Common
Stock to be offered pursuant to the Plan shall be initially determined by the
Board of Directors of the Association in conjunction with the determination of
the Independent Appraiser. The number of shares to be issued will be on a
minimum-maximum basis within a range determined by the Board of Directors (the
"Offering Range") and may be adjusted at or immediately subsequent to the
completion of the Minority Stock
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<PAGE>
Offering without notifying Participants and without a resolicitation of
subscriptions. The number of shares to be offered or Offering Range may be
subsequently adjusted at or immediately subsequent to the completion of the
Minority Stock Offering for any reason, including a change in the appraisal. The
total number of shares of Common Stock that may be issued to persons other than
the Mutual Holding Company at the close of the Minority Stock Offering must be
less than 50% of the issued and outstanding shares of the Stock Holding Company.
B. Independent Evaluation and Purchase Price of Shares. All shares of
Common Stock sold in the Minority Stock Offering shall be sold at a uniform
price per share, referred to in this Plan as the "Purchase Price". The Purchase
Price and number of shares shall be determined by the Board of Directors of the
Association immediately prior to the simultaneous completion of all such sales
contemplated by this Plan on the basis of the estimated pro forma market value
of the Association and the fact that the shares offered represent a minority
interest in the Stock Holding Company (the "Independent Evaluation"). Therefore,
the Independent Evaluation and the resulting Purchase Price may reflect a
discount to the valuation applied to a standard mutual-to-stock conversion. The
aggregate Purchase Price for the Common Stock will not be inconsistent with such
market value of the Association. The Independent Evaluation of the Association
shall be determined for such purpose by an Independent Appraiser on the basis of
such appropriate factors as are not inconsistent with OTS regulations. The total
amount of Common Stock that may be issued to persons other than the Mutual
Holding Company must be less than 50% of the outstanding stock of the Stock
Holding Company. The Common Stock to be issued in the Minority Stock Offering
shall be fully paid and nonassessable.
C. Minority Ownership Percentage. Based upon the Independent
Appraiser's valuation of the Association as updated prior to the commencement of
the Minority Stock Offering, the Board of Directors will establish the minimum
and maximum ownership percentage applicable to the Minority Stock Offering
("Minority Ownership Range"). The final minority ownership percentages or
interest will be determined by the Association as follows: (a) the product of
(x) the total number of shares of Common Stock to be issued and sold and (y) the
Purchase Price shall be by divided by (b) the estimated aggregate pro forma
market value of the Association immediately after the Minority Stock Offering as
determined by the Independent Appraiser, expressed in terms of a specific
aggregate dollar amount upon the closing of the Minority Stock Offering or sale
of all the Common Stock.
D. Method of Offering Shares. Subject to the discretion of the
Association and the limitations set forth in Section 14, the opportunity to
purchase Common Stock will be given, at no cost, in accordance with Sections 8,
9, 10, 11, 12 and 13 of the Plan and pursuant to priorities established by the
Board of Directors in accordance with the Plan. The Minority Stock Offering
shall be conducted on a minimum-maximum basis, setting forth the minimum and
maximum amount of stock that must be offered and sold before closing. The Stock
Holding Company and the Association may elect to pay fees on either a fixed fee
or commission basis or combination thereof to an investment bank firm which
assists it in the sale of the Common Stock in the Minority Stock Offering.
The Stock Holding Company and the Association may also elect to offer
to pay fees on a per share basis to brokers who assist Persons in determining to
purchase shares in the Syndicated Public Offering and whose broker's name
appears on the purchaser's Order Form.
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<PAGE>
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Common Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Offering Range of up to 15%. Only a Person(s) with a
Qualifying Deposit as of the Eligibility Record Date (or a successor entity or
estate) shall receive subscription rights. Any Person(s) added to a Savings
Account after the Eligibility Record Date is not an Eligible Account Holder.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Common Stock in excess of the total number of
such shares eligible for subscription, the shares of Common Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Common Stock
equal to the lesser of 100 shares or the number of shares subscribed for by the
Eligible Account Holder. Any shares remaining after that allocation will be
allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Common Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Stock
Holding Company or the Association.
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<PAGE>
10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Common Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Common Stock Offered; and (iii) or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Offering Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Common Stock received
by an Eligible Account Holder in accordance with Section 8 shall reduce to the
extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Common Stock
pursuant to this Section, shares of Common Stock shall be allocated among the
subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Common Stock shall be allocated so as to permit
each such Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares of Common Stock sufficient to make his
total allocation (including the number of shares of Common Stock, if
any, allocated in accordance with Section 8) equal to 100 shares of
Common Stock or the total amount of his subscription, whichever is
less.
(2) Any shares of Common Stock not allocated in accordance
with subparagraph (1) above shall be allocated among the subscribing
Supplemental Eligible Account Holders on an equitable basis, related to
the amounts of their respective Qualifying Deposits as compared to the
total Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Common Stock in an amount equal
to the greater of the maximum purchase limitation established for the Community
Offering or one-tenth of one percent of the Common Stock offered, subject to the
maximum and minimum purchase limitations specified in Section 14 and exclusive
of an increase in the total number of shares issued due to an increase in the
maximum of the Offering Range of up to 15%, which will be allocated only after
first allocating to Eligible Account Holders, the Employee Plans and
Supplemental Eligible Account Holders all shares of Common Stock subscribed for
pursuant to Sections 8, 9 and 10 above.
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<PAGE>
B. In the event that such Other Members subscribe for a number of
shares of Common Stock which, when added to the shares of Common Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Common Stock being issued, the subscriptions of such Other Members will be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his total allocation of Common Stock equal to the lesser of 100 shares
or the number of shares subscribed for by the Other Member. Any shares remaining
will be allocated among the subscribing Other Members whose subscriptions remain
unsatisfied on a 100 shares (or whatever lesser amount is available) per order
basis until all orders have been filled or the remaining shares have been
allocated.
12. COMMUNITY OFFERING
If less than the total number of shares of Common Stock to be
subscribed for in the Minority Offering are sold in the Subscription Offering,
shares remaining may be made available for purchase in the Community Offering to
certain members of the general public. The Subscription Offering may be
commenced prior to the Special Meeting of Members and, in that event, the
Community Offering may also be commenced prior to the Special Meeting of
Members. The offer and sale of Common Stock, prior to the Special Meeting of
Members shall, however, be conditioned upon approval of the Plan by the Voting
Members.
The maximum amount of Common Stock that any Person may purchase in the
Community Offering, subject to the further limitations of Section 14 hereof (and
exclusive of an increase in the total number of shares issued due to an increase
in the Maximum of the Offering Range of up to 15%), shall not exceed $200,000.
The maximum amount may be decreased or increased to up to 5% of the total
offering of shares in the Minority Offering, subject to any required regulatory
approval but without the further approval of Members, subject to the preferences
set forth in Section 14 of this Plan. In the Community Offering, if any, shares
will be available for purchase by the general public with preference given first
to natural persons residing in the Local Community and second, to natural
persons residing in the State of Florida ("Community Purchasers"). The
Association shall make distribution of the Common Stock to be sold in the
Community Offering in such a manner as to promote a wide distribution of Common
Stock.
If the Persons whose orders would otherwise be accepted, subscribe for
more shares than are available for purchase, the shares available to them will
be allocated among those persons submitting orders in the Community Offering in
an equitable manner as determined by the Board of Directors. The Association may
establish all terms and conditions of such offer.
The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering and if
commenced simultaneously with or during the Subscription Offering the Community
Offering may be limited to Community Purchasers. The Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
The Association and the Stock Holding Company, in their absolute
discretion, reserve the right to reject any or all orders in whole or in part
which are received in the Community Offering, at the time of receipt or as soon
as practicable following the completion of the Community Offering.
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<PAGE>
13. SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may then be sold through the Underwriter to the
general public at the Purchase Price in a Syndicated Community Offering, subject
to such terms, conditions and procedures as may be determined by the Board of
Directors of the Association, in a manner that will achieve a wide distribution
of the Common Stock and subject to the right of the Association and the Stock
Holding Company, in their absolute discretion, to accept or reject in whole or
in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, if any, any person together with any Associate or
group of persons Acting in Concert may purchase up to the maximum purchase
limitation established for the Community Offering, subject to the maximum and
minimum purchase limitations specified in Section 14 and exclusive of an
increase in the total number of shares issued due to an increase in the maximum
of the Offering Range of up to 15%. Shares purchased by any Person together with
any Associate or group of persons Acting in Concert pursuant to Section 12 shall
be counted toward meeting the maximum purchase limitation specified for this
Section. Provided that the Subscription Offering has commenced, the Association
may commence the Syndicated Community Offering at any time after the mailing to
the Members of the proxy statement to be used in connection with the special
meeting of Members, provided that the completion of the offer and sale of the
Common Stock shall be conditioned upon the ratification of this Plan by the
Voting Members. It is expected that the Syndicated Community Offering, if any,
will commence just prior to, or as soon as practicable after, the termination of
the Subscription Offering. The Syndicated Community Offering shall be completed
within 45 days after the termination of the Subscription Offering, unless such
period is extended as provided above.
14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Common Stock in the Minority Stock Offering:
A. The maximum number of shares of Common Stock which may be purchased
in the Subscription Offering by any Person in the First Priority, Third Priority
and Fourth Priority shall not exceed $200,000 divided by the Purchase Price.
B. The number of shares of Common Stock which may be purchased by any
Person in the Community and/or Syndicated Community Offering shall not exceed
$200,000 divided by the Purchase Price.
C. The maximum number of shares of Common Stock which may be subscribed
for or purchased in all categories in the Minority Stock Offering by any Person
together with any Associate or group of persons Acting in Concert shall not
exceed ^$240,000 divided by the Purchase Price per share, except for Employee
Plans, which in the aggregate may subscribe for up to 10% of the Common Stock
issued in the Minority Stock Offering.
D. The maximum number of shares of Common Stock which may be purchased
in all categories in the Minority Stock Offering by Officers and Directors of
the Association and their Associates in the aggregate shall not exceed 27% of
the total number of shares of Common Stock issued in the Minority Stock
Offering.
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<PAGE>
E. A minimum of 25 shares of Common Stock must be purchased by each
Person purchasing shares in the Minority Stock Offering to the extent those
shares are available; provided, however, that the minimum number of shares
requirement will not apply if the number of shares of Common Stock purchased
times the price per share exceeds $500.
F. If the number of shares of Common Stock otherwise allocable pursuant
to Sections 8 through 13, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Common Stock allocated to each such Person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his Associates complies with the above maximums, and such maximum number of
shares shall be reallocated among that Person and his Associates as they may
agree, or in the absence of an agreement, in proportion to the shares subscribed
by each (after first applying the maximums applicable to each Person,
separately).
G. Depending upon market or financial conditions, the Board of
Directors of the Association, without further approval of the Members, may
decrease or increase the purchase limitations in this Plan, provided that the
maximum purchase limitations may not be increased to a percentage in excess of
5% of the Minority Stock Offering. If the Association increases the maximum
purchase limitations, the Association is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the Association, resolicit certain other large subscribers with respect to
increasing their orders. For purposes of this Section 14, the Directors of the
Association shall not be deemed to be Associates or a group affiliated with each
other or otherwise Acting in Concert solely as a result of their being Directors
of the Association.
H. In the event of an increase in the total number of shares offered in
the Minority Stock Offering due to an increase in the maximum of the Offering
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employees Plan's
subscription to up to 10% of the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8; (iii) in the event that there is an oversubscription at
the Supplemental Eligible Account Holder level, to fill unfilled subscriptions
of Supplemental Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 10; (iv) in the event that there is an oversubscription at
the Other Member level, to fill unfilled subscriptions of Other Members
exclusive of the Adjusted Maximum in accordance with Section 11; and (v) to fill
unfilled Subscriptions in the Community Offering exclusive of the Adjusted
Maximum, with preference given to Persons residing in the Local Community.
I. Each Person purchasing Common Stock in the Minority Stock Offering
shall be deemed to confirm that such purchase does not conflict with the above
purchase limitations contained in this Plan.
J. For a period of three years following the Reorganization, no
Officer, Director or their Associates shall purchase, without the prior written
approval of the OTS, any outstanding shares of common stock of the Stock Holding
Company, except from a registered broker-dealer. This provision shall not apply
to negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Stock Holding Company, the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Stock
Holding Company, made by or held by any Tax-Qualified Employee Stock Benefit
Plan or Non-Tax Qualified Employee Stock Benefit Plan of the Stock Association
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<PAGE>
or Stock Holding Company (including the Employee Plans) which may be
attributable to any Officer or Director. As used herein, the term "negotiated
transaction" means a transaction in which the securities are offered and the
terms and arrangements relating to any sale are arrived at through direct
communications between the seller or any person acting on its behalf and the
purchaser or his investment representative. The term "investment representative"
shall mean a professional investment advisor acting as agent for the purchaser
and independent of the seller and not acting on behalf of the seller in
connection with the transaction.
15. PAYMENT FOR COMMON STOCK
All payments for Common Stock subscribed for in the Subscription and
Community Offering (if any), must be delivered in full to the Association,
together with a properly completed and executed Order Form, on or prior to the
expiration date specified on the Order Form or purchase order, as the case may
be, unless such date is extended by the Stock Association; provided, however,
that if the Employee Plans subscribe for shares during the Subscription
Offering, the Employee Plans will not be required to pay for the shares at the
time they subscribe but rather may pay for such shares of Common Stock upon
consummation of the Reorganization. The Association may make scheduled
discretionary contributions to Employee Plans provided such contributions do not
cause the Association to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the Association and the Stock Holding
Company shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering
(if any), and to thereafter submit payment for the Common Stock for which they
are subscribing in the Community Offering (if any), at any time prior to the
completion of the Reorganization.
Payment for Common Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offering (if any) may pay for the shares
subscribed for by authorizing the Association on the Order Form to make a
withdrawal from the subscriber's Savings Account at the Association in an amount
equal to the purchase price of such shares. Such authorized withdrawal, whether
from a savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Savings Account but may not be used by the subscriber until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
OTS) following the Subscription Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the Purchase Price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Association at not less than the annual passbook rate on payments for Common
Stock received in cash or by money order or check. Such interest will be paid
from the date payment is received by the Association until consummation or
termination of the Minority Offering. If for any reason the Minority Offering is
not consummated, all payments made by subscribers in the Minority Offering will
be refunded to them with interest. In case of amounts authorized for withdrawal
from Savings Accounts, refunds will be made by canceling the authorization for
withdrawal.
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<PAGE>
The Association is prohibited by regulation from knowingly making any
loans or granting any lines of credit for the purchase of stock in the
Reorganization.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Association
has been approved by the OTS and declared effective by the SEC, Order Forms will
be distributed to the Participants at their last known addresses appearing on
the records of the Association for the purpose of subscribing to shares of
Common Stock in the Subscription Offering and may be made available for use in
the Community Offering. Notwithstanding the foregoing, the Association may elect
to send Order Forms only to those Persons who request them after such notice as
is approved by the OTS and is adequate to apprise the Participants of the
pendency of the Subscription Offering has been given. Such notice may be
included with the proxy statement for the Special Meeting of Members and may
also be included in a notice of the pendency of the Reorganization and the
Special Meeting of Members in accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Offering
Circular describing the Association, the Common Stock and the Subscription and
Community Offering (if any). Each Order Form will contain, among other things,
the following:
A. A specified date by which all Order Forms must be received by the
Association, which date shall be not less than twenty (20), nor more than
forty-five (45) days, following the date on which the Order Forms are mailed by
the Association, and which date will constitute the termination of the
Subscription Offering;
B. The purchase price per share for shares of Common Stock to be sold
in the Subscription and Community Offering (if any);
C. A description of the minimum and maximum number of shares of Common
Stock which may be subscribed for pursuant to the exercise of Subscription
Rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to
indicate thereon the number of shares of Common Stock for which such person
elects to subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received
a final copy of the prospectus, as the case may be, prior to execution of the
Order Form.
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Common Stock for which the recipient elects to
subscribe in the Subscription Offering (or by authorizing on the Order Form that
the Association withdraw said amount from the subscriber's Savings Account at
the Association) to the Association; and
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<PAGE>
G. A statement to the effect that the executed Order Form, once
received by the Association, may not be modified or amended by the subscriber
without the consent of the Association.
Notwithstanding the above, the Association reserves the right in its
sole discretion to accept or reject orders received on photocopied or
facsimilied order forms or whose payment is to be made by wire transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Association by the United States Postal Service or the Association is unable to
locate the addressee, (b) are not received back by the Association or are
received by the Association after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the purchase
price prior to 48 hours before the completion of the conversion for the shares
of Common Stock subscribed for (including cases in which Savings Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the person to whom such
rights have been granted will lapse as though such person failed to return the
completed Order Form within the time period specified thereon; provided,
however, that the Association may, but will not be required to, waive any
immaterial irregularity on any Order Form or require the submission of corrected
Order Forms or the remittance of full payment for subscribed shares by such date
as the Association may specify. The interpretation of the Association of terms
and conditions of the Plan and of the Order Forms will be final, subject to the
authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Common Stock purchased by Directors or Officers of the
Association in the Minority Stock Offering shall be subject to the restriction
that, except as provided in Section 18B below, or as may be approved by the OTS,
no interest in such shares may be sold or otherwise disposed of for value for a
period of one (1) year following the date of purchase.
B. The restriction on disposition of shares of Common Stock set forth
in Section 18A above shall not apply to any disposition of such shares following
the death of the person to whom such shares were initially sold under the terms
of the Plan.
C. With respect to all shares of Common Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply;
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
to recognize or effect any transfer of any certificate or record of ownership of
any such shares in violation of the restriction on transfer; and
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<PAGE>
(iii) Any shares of capital stock of the Stock Holding Company
issued with respect to a stock dividend, stock split, or otherwise with respect
to ownership of outstanding shares of Common Stock subject to the restriction on
transfer hereunder shall be subject to the same restriction as is applicable to
such Common Stock.
19. CHARTER AND BYLAWS OF THE STOCK ASSOCIATION
As part of the Reorganization, a charter and bylaws of the Stock
Association shall be adopted to authorize the Stock Association to operate as a
federally chartered stock savings association.
20. CHARTER AND BYLAWS OF THE STOCK HOLDING COMPANY
As part of the Reorganization, a Charter and Bylaws of the Stock
Holding Company shall be adopted pursuant to federal law. The Stock Holding
Company's charter may authorize a number of shares of Common Stock greater than
the number of shares that shall be issued to the Stock Holding Company in the
Reorganization. The charter may contain provisions that for a period of five
years from the effective date of the charter, (i) prohibit any person other than
the Mutual Holding Company from acquiring beneficial ownership of greater than
10% of the Common Stock of the Stock Holding Company, unless approved by a
majority of the Directors of the Association; (ii) prohibit persons beneficially
owning shares in excess of 10% from voting such excess shares in connection with
any matter submitted to stockholders for a vote; (iii) prohibit persons other
than the Board of Directors of the Stock Holding Company from calling special
meetings of the stockholders of the Stock Holding Company; and (iv) prohibit
cumulative voting by stockholders for directors. The charter for the Stock
Holding Company may also contain provisions which allow for the issuance of
Preferred Stock in accordance with applicable federal law. Additional
anti-takeover provisions may be adopted subsequent to the Reorganization
provided they are permitted under the laws of Florida. By their approval of the
Plan, Voting Members shall have approved and adopted the Charter and Bylaws of
the Stock Holding Company. The number of shares of Common Stock authorized under
the Stock Holding Company Charter will exceed the shares of Common Stock to be
issued to the Mutual Holding Company in the Reorganization. The Charter may
include any provision authorized under federal law.
21. CHARTER AND BYLAWS OF THE MUTUAL HOLDING COMPANY
As part of the Reorganization, the Association will reorganize into a
mutual holding company under federal law and will adopt a charter and bylaws for
the Mutual Holding Company. By their approval of the Plan, the Board of
Directors of the Mutual Association and its Voting Members have approved and
adopted the charter and bylaws of the Mutual Holding Company. A copy of the
proposed Charter and Bylaws of the Mutual Holding Company, the Stock Holding
Company and the Stock Association are required to be mailed only to those
members requesting them.
22. CONVERSION OF MUTUAL HOLDING COMPANY TO STOCK FORM
Once the Reorganization is completed, the Mutual Holding Company may,
if approved by the OTS, elect to convert to the stock form of ownership pursuant
to federal law. As long as required by
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<PAGE>
federal law or regulation, any such conversion is also subject to the approval
of the Members of the Stock Association. The terms and conditions of such a
conversion cannot be determined at this time and there is no assurance when, if
ever, such a conversion will occur. If the conversion does not occur, the Mutual
Holding Company will always own a majority of the Common Stock of the Stock
Holding Company.
If the Mutual Holding Company converts to stock form, either on a
stand-alone basis or in the context of a conversion-merger ("Conversion
Transaction"), under federal law, shares of stock issued in connection with the
Conversion Transaction shall be subject to subscription rights granted in
accordance with OTS regulations. In addition, pursuant to federal law and OTS
Regulations, in the Conversion Transaction, the shares of stock held by the
stockholders of the Stock Association or Stock Holding Company shall be
exchanged for shares of the converted Mutual Holding Company in a proportion
established by independent appraisals of the Mutual Holding Company, the Stock
Holding Company and the Stock Association. If, in a Conversion Transaction, the
stockholders of the Stock Association or Stock Holding Company do not receive,
for any reason, shares of the converted Mutual Holding Company (or its
successor) on such proportionate basis, the Mutual Holding Company (or its
successor) shall be obligated to purchase all shares not owned by it
simultaneously with the closing of such Conversion Transaction at the fair
market value of such shares, determined as if such shares had such exchange
rights, as determined by the independent appraisals. Moreover, in the event that
the Mutual Holding Company converts to stock form in a Conversion Transaction,
any options or other convertible securities held by any Officer, Director, or
Employee of the Stock Holding Company, convertible into shares of the Stock
Holding Company shall be convertible into shares of the converted Mutual Holding
Company (or its successor), provided, that any exchange ratio shall provide the
holder of such options or convertible securities with shares at least equal in
value to those exchanged; provided, further however, that if such shares cannot
be so converted, the holders of such options or other convertible securities
shall be entitled to receive cash payment for such options and other convertible
securities in an amount equal to the appraised value of the underlying
securities represented by such options or other convertible securities.
In any Conversion Transaction, stockholders of the Stock Holding
Company other than the Mutual Holding Company ("Minority Stockholders"), if any,
will be entitled to maintain the same percentage ownership interest in the Stock
Holding Company after the Conversion Transaction as their ownership interest in
the Stock Holding Company immediately prior to the Conversion Transaction,
subject only to certain adjustments (i.e., waiver of dividends and the transfer
of assets held solely by the Mutual Holding Company to the resulting stock
company) that may be required by the OTS. These adjustments may result in a
decrease of ownership interest of the Minority Stockholders.
Each certificate representing shares of Common Stock shall bear a
legend giving appropriate notice of the provisions applicable to a Conversion
Transaction.
23. CONTINUITY OF THE ASSOCIATION AND STATUS OF DEPOSIT ACCOUNTS AND
LOANS SUBSEQUENT TO REORGANIZATION
Upon the Effective Date of the Reorganization, except for those assets
expressly retained by the Mutual Holding Company or the Stock Holding Company,
the Stock Association will succeed to all of the assets, rights, powers,
franchises, debts, liabilities, interests, duties and obligations of the Mutual
Association before the Reorganization, including but not limited to, all rights
and interests of the Mutual Association in and to its assets and properties,
whether real, personal or mixed.
A - 21
<PAGE>
All deposit accounts in the Mutual Association shall retain the same
status after the Reorganization as these accounts had prior to Reorganization,
except that each deposit account holder shall retain, without payment therefor,
a withdrawable deposit account or accounts in the Stock Association after the
Reorganization, equal in amount to the withdrawable value of such holders'
deposit account or accounts prior to the Reorganization. All deposit accounts
which are transferred to the Stock Association will continue to be insured by
the FDIC up to the applicable limits of insurance coverage.
All loans shall retain the same status after the Reorganization as they
had prior to the Reorganization. The amount, interest rate, maturity, and
security for each loan will remain contractually fixed as they existed prior to
the Reorganization. Following the Reorganization, all of such loans will be held
by the Stock Association.
All other assets of the Mutual Association at the time of
Reorganization will retain the same status as prior to the Reorganization,
except that substantially all of such other assets will become assets of the
Stock Association.
24. RIGHTS OF OWNERS OF THE MUTUAL HOLDING COMPANY
Following the Reorganization, all persons who had membership or
liquidation rights with respect to the Association as of the Date of the
Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company. All existing proxies granted by members of the
Association to the Board of Directors of the Association shall automatically
become proxies granted to the Board of Directors of the Mutual Holding Company,
provided, however, such proxies may not be voted by the Board of Directors at
the Special Meeting to approve the Plan. In addition, all persons who become
depositors of the Stock Association subsequent to the Reorganization also will
have membership and liquidation rights with respect to the Mutual Holding
Company. In each case, no person who ceases to be the holder of a deposit
account with the Stock Association shall have any membership or liquidation
rights with respect to the Mutual Holding Company. Borrowers of the Stock
Association who were borrower members of the Association at the time of
Reorganization will have the same membership rights in the Mutual Holding
Company as they had in the Association immediately prior to the Reorganization
for so long as their pre-Reorganization borrowings remain outstanding. Borrowers
will not receive membership rights in connection with any new borrowings made
after the Reorganization.
25. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Stock Association and the Stock Holding Company may declare
dividends or make other capital distributions or repurchase stock in accordance
with applicable laws and regulations. In accordance with applicable law, and the
regulations and policies of the OTS, the Mutual Holding Company may waive its
right to receive dividends declared to it by the Stock Holding Company.
26. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Association will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Common Stock pursuant to the Plan reside. However, no
such Person will be issued subscription rights or be permitted to purchase
shares
A - 22
<PAGE>
of Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which all of
the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Common Stock to such
Persons would require the Association, under the securities laws of such state,
to register as a broker, dealer, salesman or agent or to register or otherwise
qualify its securities for sale in such state; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
27. REGISTRATION AND MARKET MAKING
Within the time period required by applicable laws and regulations, the
Stock Association will register the securities issued in connection with the
Reorganization pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Stock Association. In addition, the Stock
Association will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the common stock issued in the
Reorganization and to list those securities on a national or regional securities
exchange or the Nasdaq System.
28. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The Association shall establish at the time of Reorganization a
liquidation account in an amount equal to its net worth as of the latest
practicable date prior to the Reorganization. The liquidation account will be
maintained by the Stock Association for the benefit of the Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain their
Savings Accounts at the Stock Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to his Savings Account,
hold a related inchoate interest in a portion of the liquidation account
balance, in relation to his Savings Account balance at the Eligibility Record
Date and Supplemental Eligibility Record Date, respectively, or to such balance
as it may be subsequently reduced, as hereinafter provided.
In the unlikely event of a complete liquidation of the Stock
Association (and only in such event), following all liquidation payments to
creditors (including those to Account Holders to the extent of their Savings
Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidating distribution from the liquidation
account, in the amount of the then adjusted subaccount balance for his Savings
Account then held, before any liquidation distribution may be made to any
holders of the Stock Association's capital stock. No merger, consolidation,
purchase of bulk assets with assumption of Savings Accounts and other
liabilities, or similar transactions with an FDIC-insured institution, in which
the Stock Association is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account
A - 23
<PAGE>
Holders in the Association. Such initial subaccount balance shall not be
increased, but shall be subject to downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on
or after the effective date of Reorganization, the deposit balance in the
Savings Account of an Eligible Account Holder or Supplemental Eligible Account
Holder is less than the lesser of (i) the balance in the Savings Account at the
close of business on any other annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, as applicable, or (ii) the
amount of the Qualifying Deposit in such Savings Account, the subaccount balance
of such Savings Account shall be adjusted by reducing such subaccount balance in
an amount proportionate to the reduction in such deposit balance. In the event
of such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the liquidation account shall not
operate to restrict the use or application of any of the net worth accounts of
the Stock Association.
29. EXPENSES OF REORGANIZATION
The Association shall use its best efforts to assure that expenses
incurred by it in connection with the Reorganization shall be reasonable.
30. AMENDMENT OR TERMINATION OF THE PLAN
This Plan may be substantively amended by the Board of Directors of the
Association as a result of comments from the regulatory authorities or otherwise
prior to submission of the Plan and proxy materials to Members, and at any time
thereafter with the concurrence of the OTS. This Plan may be terminated by the
Board of Directors of the Association at any time prior to the Special Meeting
of members, and at any time thereafter with the concurrence of the OTS. This
Plan shall be terminated if not completed within 24 months from the date upon
which members approve this Plan.
An increase or decrease in the maximum purchase limitation or number of
shares sold in the Minority Stock Offering by the Board of Directors pursuant to
Section 14 subsequent to the Special Meeting of Members is specifically
authorized by this Plan, and is not an amendment to the Plan which would require
Member approval. In the event that mandatory new regulations pertaining to
mutual holding companies are adopted by the OTS prior to the completion of the
Reorganization, the Plan may be amended to conform to the new mandatory
regulations. In the event that new mutual holding company regulations adopted by
the OTS prior to completion of the Reorganization contain optional provisions,
the Plan may be amended to utilize such optional provisions at the discretion of
the Board of Directors.
By adoption of the Plan, the Members of the Association authorize the
Board of Directors to amend or terminate the Plan under the circumstances set
forth in this Section.
A - 24
<PAGE>
31. MISCELLANEOUS
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
Association shall be final, subject to the authority of the OTS.
If any term, provision, covenant or restriction contained in this Plan
is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in this Plan shall remain in
full force and effect, and shall in no way be affected, impaired or invalidated.
This Plan is to be governed by and construed in accordance with the
laws of the United States. None of the cover page, the table of contents, or the
section headings are to be considered a part of this Plan, but are included
solely for convenience of reference and shall in no way define, limit, extend,
or describe the scope or intent of any of the provisions hereof. Words in the
singular include the plural, and words in the plural include the singular.
Except for such rights as are set forth herein for Members, this Plan shall
create no rights in any Person.
A - 25
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
February 3, 1999
Board of Directors
First Federal Florida
205 East Orange Street
Lakeland, Florida 33801-4611
Dear Board Members:
In accordance with your request, set forth herein is the opinion of
this firm regarding the material federal income tax consequences of the proposed
reorganization of First Federal Florida (the "Bank") from a federally chartered
mutual savings association into the mutual holding company form, the formation
of the Bank as the stock savings association successor to its mutual form (the
"Reorganization") pursuant to the Plan of Mutual Holding Company Reorganization
and Stock Issuance adopted by the Board of Directors of the Bank (the "Plan of
Reorganization"), and the proposed sale of FloridaFirst Bancorp's ("Stock
Holding Company") common stock pursuant to the Plan of Reorganization. The
Reorganization and its component and related transactions are described in the
Plan of Reorganization. As used in this letter, "Mutual Bank" refers to the Bank
before the Reorganization and "Stock Bank" refers to the Bank after the
Reorganization. All other capitalized terms used but not defined in this letter
shall have the meanings assigned to them in the Plan of Reorganization.
The Reorganization will be effected, pursuant to the Plan of
Reorganization, as follows: (i) Mutual Bank will organize an interim federal
stock savings association as its wholly-owned subsidiary ("Interim One") and
(ii) Interim One will organize an interim federal stock savings association as
its wholly-owned subsidiary ("Interim Two") and the Stock Holding Company. The
following transactions will then occur simultaneously: (iii) Mutual Bank will
exchange its charter for a federal stock savings association charter and thereby
become Stock Bank (the "Conversion"); (iv) Interim One will cancel its
outstanding stock and exchange its charter for a federal mutual holding company
charter and thereby become the "Mutual Holding Company;" (v) Interim Two will
merge with and into Stock Bank with Stock Bank being the surviving institution
and (vi) the initially issued shares of common stock of Stock Bank (which will
be constructively received by former Mutual Bank members when Mutual Bank
becomes Stock Bank pursuant to step (iii)) will be issued to the Mutual Holding
Company in exchange for membership interests in the Mutual Holding Company (the
"Exchange"). As a result of these transactions, (a) Stock Bank will be a
wholly-owned subsidiary of the Mutual Holding Company and (b) the former members
of Mutual Bank will own membership interests in the Mutual Holding Company. The
Mutual Holding Company will then contribute 100% of Stock Bank's common stock to
the Stock Holding Company.
<PAGE>
Board of Directors
February 3, 1999
Page 2
Simultaneously with the Reorganization, the Stock Holding Company will
offer to sell shares of its common stock pursuant to the Plan of Reorganization,
with priority subscription rights granted in descending order to certain members
in Mutual Bank, to certain employee stock benefit plans of Mutual Bank, to other
members of Mutual Bank, and to certain members of the general public.
In connection with the opinion expressed herein, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan of Reorganization, the Prospectus, and of such
corporate records of the parties to the Reorganization as we have deemed
appropriate. We have assumed that the parties to the Reorganization will act in
accordance with the Plan of Reorganization. In addition, we have made such
investigations of law as we have deemed appropriate to form a basis for the
opinion expressed below.
Based on and subject to the foregoing, it is our opinion that for
federal income tax purposes, under current law -
(a) With regard to the Conversion:
(1) the Conversion will constitute a reorganization under section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Bank (in either its status as Mutual Bank or Stock Bank) will recognize no
gain or loss as a result of the Conversion;
(2) The basis of each asset of Mutual Bank held by Stock Bank
immediately after the Conversion will be the same as Mutual Bank's basis for
such asset immediately prior to the Conversion;
(3) the holding period of each asset of Mutual Bank held by Stock Bank
immediately after the Conversion will include the period during which such asset
was held by Mutual Bank prior to the Conversion;
(4) for purposes of Code section 381(b), Stock Bank will be treated as
if there had been no reorganization and, accordingly, the taxable year of the
Mutual Bank will not end on the effective date of the Conversion and the tax
attributes of Mutual Bank (subject to application of Code sections 381, 382 and
384), including Mutual Bank's bad debt reserves and earnings and profits, will
be taken into account by Stock Bank as if the Conversion had not occurred;
(5) Mutual Bank's members will recognize no gain or loss upon their
constructive receipt of shares of Stock Bank common stock, pursuant to the
Conversion, solely in exchange for their interest (i.e., liquidation and voting
rights) in Mutual Bank; and
(6) no gain or loss will be recognized by members of Mutual Bank upon
the issuance to them of deposits in Stock Bank in the same dollar amount and
upon the same terms as their deposits in Mutual Bank.
<PAGE>
(b) With regard to the Exchange:
(7) the Exchange will qualify as an exchange of property for stock
under Code section 351;
(8) the initial shareholders of Stock Bank (the former Mutual Bank
members) will recognize no gain or loss upon the constructive transfer to the
Mutual Holding Company of the shares of Stock Bank common stock they
constructively received in the Conversion in exchange for mutual interests
(i.e., liquidation and voting rights) in the Mutual Holding Company; and
(9) the Mutual Holding Company will recognize no gain or loss upon its
receipt from the shareholders of Stock Bank of shares of Stock Bank common stock
in exchange for interests in the Mutual Holding Company.
(c) With regard to the Mutual Holding Company's transfer of 100% of the
common stock of Stock Bank to Stock Holding Company:
(10) the Stock Holding Company will recognize no gain or loss upon its
receipt of 100% of the common stock of Stock Bank from the Mutual Holding
Company; and
(11) the Mutual Holding Company will recognize no gain or loss upon its
transfer of 100% of the common stock of Stock Bank to the Stock Holding Company.
This opinion is given solely for the benefit of the parties to the Plan
of Reorganization, the shareholders of Stock Bank and Eligible Account Holders,
Supplemental Eligible Account Holders and other investors who purchase pursuant
to the Plan of Reorganization, and may not be relied upon by any other party or
entity or referred to in any document without our express written consent. We
consent to the filing of this opinion as an exhibit to (a) Registration
Statement on Form S-1 to be filed with the SEC, and (b) the Form MHC-1 to be
filed with the Office of Thrift Supervision, and to the references to this firm
in the Stock Holding Company's Prospectus related to the common stock offering
described in the Plan of Reorganization.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
---------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.2
<PAGE>
HAHN, McCLURB, WATSON, GRIFFITH & BUSH, P.A.
ATTORNEYS AT LAW
JAMES P. HAHN* P.O. BOX 38
E.V. McCLURG C.V. McCLURG BLDG.
STEPHEN C. WATSON* 101 S. FLORIDA AVENUE
JOHN R. GRIFFITH* LAKELAND, FLORIDA 33802-0038
PHILIP H. BUSH (941) 688-7747
JAMES M. CRAIG, II FAX 9941) 683-4582
----------
J. TOM WATSON
(1919-1996)
*BOARD CERTIFIED REAL ESTATE LAWYER
February 3, 1999
Board of Directors
First Federal Florida
205 East Orange Street
Lakeland, Florida 33801-4611
Dear Board Members:
You have asked us to give certain limited opinions as to the Florida income
tax consequences of the Plan of Mutual Holding Company Reorganization and Stock
Issuance of First Federal Florida (the "Bank") adopted by the Board of Directors
(the "Plan of Reorganization"). With respect to this opinion, the capitalized
terms used but not defined herein shall have the same meanings as set forth in
the Plan of Reorganization.
You have previously received an opinion of Malizia, Spidi, Sloane & Fisch,
P.C. regarding certain federal income tax consequences to the Bank and its
members under the terms of the Plan of Reorganization (the "Federal Tax
Opinion"). Based upon the facts stated in the Federal Tax Opinion, including
certain representations of the Bank, the Federal Tax Opinion concludes, among
other things, that the mutual-to-stock conversion (the "Conversion") qualifies
as a tax-free reorganization under Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended, and that the Bank, the Stock Bank, MHC, and the
depositors of the Bank will not recognize income, gain, or loss for federal
income tax purposes upon the implementation of the Plan of Reorganization.
Based on the foregoing, it is our opinion that for purposes of the Florida
corporate income tax:
1. The Bank will recognize no gain or loss as a result of the Conversion.
<PAGE>
February 3, 1999
Page 2
2. Mutual Bank's depositors will recognize no gain or loss upon their
constructive receipt of shares of Stock Bank's common stock solely in exchange
for their mutual interests (i.e., liquidation and voting rights) in Mutual Bank.
3. The initial shareholders of Stock Bank (the former Mutual Bank members)
will recognize no gain or loss upon the transfer of the Stock Bank common stock,
constructively received by certain Mutual Bank depositors in the Conversion,
solely in exchange for mutual interests (i.e., liquidation and voting rights) in
the MHC.
4. The MHC will recognize no gain or loss upon its receipt from the initial
shareholders of Stock Bank of shares of Stock Bank common stock in
exchange for mutual interests in the MHC.
This opinion is limited to the effect of the income tax laws of the State
of Florida and to the specific conclusions set forth above, and no other
opinions are expressed or implied. Changes to the law or its interpretation that
we have relied upon may be applied retroactively and may affect the opinion
expressed herein. In rendering our opinion, we are relying upon the relevant
provisions of the Code, the laws of the State of Florida, as amended, the
regulations and rules thereunder and judicial and administrative interpretations
thereof, which are all subject to change or modification by subsequent
legislative, regulatory, administrative, or judicial decisions. Any such change
could also have an effect on the validity of our opinion. We undertake no
responsibility to update or supplement our opinion. Our opinion is not binding
on the Internal Revenue Service or the State of Florida, nor can any assurance
be given that any of the foregoing parties will not take a contrary position or
that our opinion will be upheld if challenged by such parties.
This opinion is based upon our understanding that the State of Florida
has not specifically adopted provisions similar to those of Section 368 of the
Internal Revenue Code of 1986 and that since the terms used in the Florida
Income Tax Code generally have the same meaning as when used in the Internal
Revenue Code, the result to the parties to the exchange should be the same for
Florida state tax purposes as if Florida had specifically adopted said Section
368.
This opinion is given solely for the benefit of the parties to the Plan of
Reorganization, the depositors of the Mutual Bank, and the shareholders
of Stock Bank and
<PAGE>
February 3, 1999
Page 3
may not be relied upon by any other person or entity or referred to in any
document without our express written consent. We consent to the filing of this
opinion as an exhibit to FloridaFirst Bancorp's Registration Statement on Form
S-1, the Bank's Form MHC-1 and Form MHC-2 to be filed with the Office of Thrift
Supervision and to the reference to our opinion in the Prospectus of
FloridaFirst Bancorp.
Sincerely,
/s/Hahn, McClurg, Watson, Griffith & Bush, P.A.
-----------------------------------------------
Hahn, McClurg, Watson, Griffith & Bush, P.A.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,137
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,080
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,225
<INVESTMENTS-CARRYING> 18,736
<INVESTMENTS-MARKET> 18,524
<LOANS> 341,174
<ALLOWANCE> 2,564
<TOTAL-ASSETS> 419,041
<DEPOSITS> 352,180
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 9,754
<LONG-TERM> 20,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 419,041
<INTEREST-LOAN> 26,992
<INTEREST-INVEST> 3,906
<INTEREST-OTHER> 994
<INTEREST-TOTAL> 31,892
<INTEREST-DEPOSIT> 18,831
<INTEREST-EXPENSE> 18,966
<INTEREST-INCOME-NET> 12,926
<LOAN-LOSSES> 405
<SECURITIES-GAINS> 117
<EXPENSE-OTHER> 13,946
<INCOME-PRETAX> 3,536
<INCOME-PRE-EXTRAORDINARY> 3,536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,385
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.91
<LOANS-NON> 836
<LOANS-PAST> 2,167
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,200
<ALLOWANCE-OPEN> 2,633
<CHARGE-OFFS> 474
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,564
<ALLOWANCE-DOMESTIC> 2,564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 635
</TABLE>
EXHIBIT 99.2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------------------------------------------------------
1725 K STREET, NW o SUITE 205
WASHINGTON, DC 20006
(202) 476-6862 o FAX (202) 467-6963
================================================================================
First Federal Florida
Lakeland, Florida
Conversion Valuation Appraisal Report
Valued as of December 14, 1998
Prepared By
Feldman Financial Advisors, Inc.
Washington, D.C.
==============================================================================
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------------------------------------------------------
1725 K STREET, NW o SUITE 205
WASHINGTON, DC 20006
(202) 476-6862 o FAX (202) 467-6963
December 14, 1998
Board of Directors
First Federal Florida
205 East Orange Street
Lakeland, Florida 33801
Gentlemen:
At your request, we have completed and hereby provide an independent
appraisal of the aggregate estimated pro forma market value of First Federal
Florida (the "Bank") in connection with its mutual holding company
reorganization (the "Reorganization"). The transaction structure will include
the formation of a federally chartered stock savings institution as the
successor to the Bank in its mutual form, and concurrent formation of
FloridaFirst Bancorp, Inc. (the "Stock Company") as a majority-owned subsidiary
of FloridaFirst Bancorp, MHC (the "Mutual Company"). The Stock Company will
offer shares of its common stock for sale to eligible depositors and to the
Bank's employee stock benefit plans in a Subscription Offering. Shares not
subscribed for in the Subscription Offering will be offered for sale to certain
members of the general public in a Community Offering.
This appraisal report is being furnished pursuant to the filing of
regulatory applications for the Reorganization by the Bank with the Office of
Thrift Supervision and the Securities and Exchange Commission. Feldman Financial
Advisors, Inc. ("Feldman Financial") is a financial consulting and economic
research firm that specializes in financial valuations and analyses of business
enterprises and securities in the thrift, banking, and mortgage industries. The
background of Feldman Financial is presented in Exhibit I.
In preparing our appraisal, we conducted an analysis of the Bank that
included discussions with the Bank's management, the Bank's independent
accountants, KPMG Peat Marwick LLP, the Bank's offering manager, Sandler O'Neill
& Partners, L.P., and the Bank's Reorganization counsel, Malizia, Spidi, Sloane
& Fisch, P.C. In addition, where appropriate, we considered information based on
other available published sources that we believe are reliable; however, we
cannot guarantee the accuracy and completeness of such information.
We also reviewed, among other factors, the economy in the Bank's
primary market area and compared the Bank's financial condition and operating
performance with that of selected publicly traded thrift institutions. We
reviewed conditions in the securities markets in general and in the market for
thrift institution common stocks in particular.
Our appraisal is based on the Bank's representation that the
information contained in the regulatory applications and additional evidence
furnished to us by the Bank and its independent auditors are truthful, accurate,
and complete. We did not independently verify the financial statements and other
information provided by the Bank and its independent accountants, nor did we
independently value the assets or liabilities of the Bank. The valuation
considers the Bank only as a going concern and should not be considered as an
indication of the liquidation value of the Bank.
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
First Federal Florida
December 14, 1998
Page Two
It is our opinion that, as of December 14, 1998, the aggregate
estimated pro forma market value of the Bank was within the valuation range of
$36,975,000 to $50,025,000 with a midpoint of $43,500,000. The valuation range
was based upon a 15 percent decrease from the midpoint to determine the minimum
and a 15 percent increase to establish the maximum. Assuming an additional 15
percent increase above the maximum value would result in an adjusted maximum of
$57,528,750.
The Board of Directors has determined to offer for sale in the
Reorganization a minority ownership interest equal to 47 percent of all the
common stock to be issued and outstanding. Therefore, the aggregate value of
common stock to be sold in the Reorganization will be equal to $17,378,250 at
the minimum valuation, $20,445,000 at the midpoint valuation, $23,511,750 at the
maximum valuation, and $27,038,513 at the adjusted maximum.
Our valuation is not intended, and must not be construed, to be a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the Reorganization. Moreover, because the valuation is necessarily
based upon estimates and projections of a number of matters, all of which are
subject to change from time to time, no assurance can be given that persons who
purchase shares of stock in the Reorganization will thereafter be able to sell
such shares at prices related to the foregoing estimate of the Bank's pro forma
market value. Feldman Financial is not a seller of securities within the meaning
of any federal or state securities laws and any report prepared by Feldman
Financial shall not be used as an offer or solicitation with respect to the
purchase or sale of any securities.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Bank's operating performance, financial condition, or management policies, and
current conditions in the securities markets for thrift institution common
stocks. Should any such new developments or changes be material, in our opinion,
to the valuation of the Bank, appropriate adjustments to the estimated pro forma
market value will be made. The reasons for any such adjustments will be
explained in detail at that time.
Respectfully,
Feldman Financial Advisors, Inc.
By: /s/Trent R. Feldman
-----------------------------------
Trent R. Feldman
President
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB PAGE
--- ----
<S> <C> <C>
INTRODUCTION.............................................................................. 1
I. Chapter One - BUSINESS OF FIRST FEDERAL FLORIDA
General................................................................................... 4
Financial Condition....................................................................... 10
Income and Expense Trends ................................................................ 18
Asset and Liability Management............................................................ 25
Asset Quality............................................................................. 28
Properties and Equipment.................................................................. 31
Market Area............................................................................... 33
Summary .................................................................................. 38
II. Chapter Two - COMPARISONS WITH PUBLICLY TRADED THRIFTS
General .................................................................................. 39
Selection Criteria ....................................................................... 40
Recent Financial Comparisons ............................................................. 44
III. Chapter Three - MARKET VALUE ADJUSTMENTS
General................................................................................... 55
Earnings Prospects........................................................................ 56
Market Area............................................................................... 57
Management................................................................................ 58
Dividend Policy........................................................................... 58
Liquidity of the Issue.................................................................... 59
Subscription Interest..................................................................... 59
Stock Market Conditions .................................................................. 60
Recent Acquisition Activity............................................................... 65
New Issue Discount........................................................................ 67
MHC Structure............................................................................. 70
Adjustments Conclusion.................................................................... 73
Valuation Approach........................................................................ 73
Valuation Conclusion...................................................................... 75
IV. Appendix - EXHIBITS
I Background of Feldman Financial Advisors, Inc.................................. I-1
II-1 Statement of Financial Condition............................................... II-1
II-2 Statement of Income............................................................ II-2
II-3 Loan Portfolio Composition..................................................... II-3
II-4 Investment Portfolio Composition............................................... II-4
II-5 Deposit Account Distribution................................................... II-5
II-6 Office Facilities.............................................................. II-6
III Financial Performance and Market Data for All Public Thrifts................... III-1
IV-1 Pro Forma Assumptions.......................................................... IV-1
IV-2 Pro Forma Valuation Range: Full Conversion Basis............................... IV-2
IV-3 Pro Forma Valuation Range: MHC Offering........................................ IV-3
IV-4 Comparative Valuation Ratios: Full Conversion Valuation....................... IV-4
IV-5 Pro Forma Full Conversion Analysis at Midpoint Value........................... IV-5
</TABLE>
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
LIST OF TABLES
<TABLE>
<CAPTION>
TAB PAGE
--- ----
<S> <C> <C>
I. Chapter One - BUSINESS OF FIRST FEDERAL FLORIDA
Table 1 - Selected Financial Condition Data.......................................... 10
Table 2 - Relative Balance Sheet Concentrations...................................... 11
Table 3 - Income Statement Summary................................................... 19
Table 4 - Income Statement Ratios.................................................... 20
Table 5 - Yield and Cost Summary..................................................... 24
Table 6 - Net Portfolio Value........................................................ 27
Table 7 - Non-performing Asset Summary............................................... 29
Table 8 - Allowance for Loan Losses Summary.......................................... 30
Table 9 - Key Demographic Data....................................................... 36
Table 10 - Deposit Market Share Analysis by County....................................... 37
II. Chapter Two - COMPARISONS WITH PUBLICLY TRADED THRIFTS
Table 11 - Comparative Group Operating Summary........................................ 43
Table 12 - Key Financial Comparisons.................................................. 46
Table 13 - General Financial Performance Ratios....................................... 50
Table 14 - Income and Expense Analysis................................................ 51
Table 15 - Yield-Cost Structure and Growth Rates...................................... 52
Table 16 - Balance Sheet Composition.................................................. 53
Table 17 - Capital Ratios, Asset Quality, and Loan Composition........................ 54
III. Chapter Three - MARKET VALUE ADJUSTMENTS
Table 18 - Comparative Stock Market Indexes........................................... 61
Table 19 - Comparative Stock Market Performance....................................... 62
Table 20 - Selected Interest Rate Benchmarks.......................................... 64
Table 21 - Acquisition Summary of Florida Financial Institutions...................... 66
Table 22 - Summary of Recent Publicly Traded Thrift Conversions....................... 68
Table 23 - Fully Converted Valuation Ratios for MHC Thrifts........................... 72
Table 24 - Comparative Market Valuation Analysis: Full Conversion..................... 76
Table 25 - Comparative Discount and Premium Analysis.................................. 77
Table 26 - Comparative Market Valuation Analysis: MHC Offering........................ 78
</TABLE>
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
INTRODUCTION
As requested, Feldman Financial Advisors, Inc. ("Feldman Financial")
has prepared an independent appraisal of the aggregate estimated pro forma
market value of First Federal Florida (the "Bank") in connection with its mutual
holding company reorganization (the "Reorganization"). The transaction structure
will include the formation of a stock savings institution as the successor to
the Bank in its mutual form, and concurrent formation of FloridaFirst Bancorp
(the "Stock Company") as the holding company of the Bank and a majority-owned
subsidiary of FloridaFirst Bancorp, MHC (the "Mutual Company"). The Stock
Company will offer shares of its common stock for sale to eligible depositors in
a Subscription Offering. Shares not sold in the Subscription Offering will be
offered for sale to certain members of the general public in a Community
Offering.
The Bank will organize the Mutual Company as a federally chartered
mutual holding company, which will own a majority of the common shares of the
Stock Company. The Bank will be a wholly owned subsidiary of the Stock Company.
The Stock Company expects to sell in the Stock Offering a minority ownership
interest equal to 47% of its common stock. The remaining shares of the Stock
Company will be owned by the Mutual Company.
In the course of preparing this appraisal report, we reviewed and
discussed with the Bank's management, and with the Bank's independent
accountants, KPMG Peat Marwick LLP, the audited financial statements of the
Bank's operations for the fiscal years ended September 30, 1997 and 1998. We
also discussed matters related to the Reorganization with the Bank's legal
counsel, Malizia, Spidi, Sloane & Fisch, P.C., and with the Bank's offering
manager,
-1-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Sandler O'Neill & Partners, L.P. We also reviewed and discussed with management
other financial matters of the Bank.
Where appropriate, we considered information based upon other available
public sources, which we believe to be reliable; however, we cannot guarantee
the accuracy or completeness of such information. We visited the Bank's primary
market area and examined the prevailing economic conditions. We also examined
the competitive environment within which the Bank operates and assessed the
Bank's relative strengths and weaknesses.
We examined and compared the Bank's financial performance with selected
segments of the thrift industry and selected publicly traded thrift
institutions. We reviewed conditions in the securities markets in general and
the market for thrift institution common stocks in particular. We included in
our analysis an examination of the potential effects of the Reorganization on
the Bank's operating characteristics and financial performance as they relate to
the estimated pro forma market value of the Bank.
In preparing our valuation, we have relied upon and assumed the
accuracy and completeness of financial and statistical information provided by
the Bank and its independent auditors. We did not independently verify the
financial statements and other information provided by the Bank and its
independent auditors, nor did we independently value the assets or liabilities
of the Bank. The valuation considers the Bank only as a going concern and should
not be considered as an indication of the liquidation value of the Bank.
Our valuation is not intended, and must not be construed, to be a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the Reorganization. Moreover, because such valuation is necessarily
based on estimates and
-2-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons who purchase shares of common
stock in the Reorganization will thereafter be able to sell such shares at
prices related to the foregoing valuation of the pro forma market value thereof.
Feldman Financial is not a seller of securities within the meaning of any
federal and state securities laws and any report prepared by Feldman Financial
shall not be used as an offer or solicitation with respect to the purchase or
sale of any securities.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Bank's financial performance or management policies, and current conditions in
the securities market for thrift institution common stocks. Should any such
developments or changes be material, in our opinion, to the Reorganization
valuation of the Bank, appropriate adjustments to the estimated pro forma market
value will be made. The reasons for any such adjustments will be explained in
detail at that time.
-3-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
I. BUSINESS OF FIRST FEDERAL FLORIDA
General
First Federal Florida is a federally chartered mutual savings
institution, originally chartered in 1934 as First Federal Savings and Loan
Association of Lakeland. The Bank conducts business from its main office in
Lakeland, Florida and eight other branch offices located in Polk and Manatee
Counties in Florida. The Bank is subject to regulation by the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), the
insurer of its deposit accounts up to applicable limits through the Savings
Association Insurance Fund ("SAIF"). The Bank is a member of the Federal Home
Loan Bank ("FHLB") of Atlanta. As of September 30, 1998, First Federal Florida
had total assets of $419.0 million, total deposits of $352.2 million, and total
equity of $36.1 million or 8.62% of total assets.
The Bank has historically operated as a consumer-oriented savings
institution with a focus on offering traditional savings deposit and mortgage
loan products to its local market area. In recent years, the Bank's operating
strategy has been to maintain profitability while improving its operating
efficiency, diversifying its lending activity, and limiting its credit and
interest rate risk exposure. In order to accomplish these objectives, the Bank
has sought to: (i) continue emphasizing the origination of single-family,
owner-occupied residential mortgage loans; (ii) offer outstanding service and
competitive rates to increase the core deposit base consistent with its capital
management goals; (iii) invest funds in excess of loan demand in investment and
mortgage-backed securities; (iv) expand and diversify its lending activity to
-4-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
include higher-yielding loans and respond to the financing needs of its consumer
and commercial customers; and (v) enhance operating efficiency by blending cost
control with revenue generation. In order to improve operating efficiency and
concentrate its market focus on Polk and Manatee counties, the Bank completed
the sale in 1998 of five small branch offices located in north central Florida
with total deposits of $55.3 million.
With industry consolidation eliminating many locally headquartered
competitors, the Bank recognized an opportunity to fill a perceived void for
locally delivered commercial and consumer financial products and services. As
such, the Bank initiated efforts in recent years to transform itself into a more
diversified community financial institution. The composition of the Bank's
portfolio has changed moderately to include increased proportions of commercial
real estate and consumer loans. Management recognizes that the diversification
of the Bank's loan products may expose the Bank to a higher degree of credit
risk than is involved in its one-to-four family residential mortgage lending. As
a consequence of this strategy, management has developed a credit policy
focusing on quality underwriting, diligent loan administration, and regular
Board monitoring. In addition, the Bank recently added key executive management
in the areas of finance, lending, and retail operations. The new management team
assembled by the Bank consists of personnel formerly associated with commercial
banks such as First Union, AmSouth, Barnett, and SunTrust.
The Bank expects to continue to capitalize on its strengths - the
delivery of traditional thrift products and services with a high level of
customer service, thereby maintaining its community orientation. The Bank's
mission is to be a profitable, sound, and responsive community financial
institution. The Bank's operating goals are outlined as follows:
-5-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
o achieve and maintain high standards of capital, profitability, and asset
quality;
o gain wide recognition as a community financial institution offering a broad
range of products and services to its consumer and business customers;
o develop and deliver high-quality banking products and services with an
emphasis on efficiency, technology, and personalized service;
o maintain a sales-oriented, well-trained, and motivated staff and provide a
work environment that encourages, develops, and rewards outstanding
performance;
o support the continued growth and development of the communities served by
the Bank.
During 1997, management of the Bank developed a product and branch
profitability model to analyze its operations. Based on the Bank's strategic
analyses and other discussions related to future growth and capital deployment,
the Bank entered into an agreement in October 1997 with another financial
institution to sell five branch offices in north central Florida and their
related deposits. The five branches sold were referred to as the Bank's
"Tri-County Region," which was not contiguous to the Bank's primary market area
covering west and west central Florida. The branches had been acquired from
troubled financial institution in the early 1980's. In addition, the growth
projections for the Tri-County Region were below the projected growth in Polk
and Manatee Counties. The Bank believed that its capital and financial resources
could be more effectively and strategically utilized in its primary market area.
The impact of the branch and deposit sale transaction resulted in the sale of
$55.3 million in deposits and a gain on sale of $3.0 million.
The Bank's profitability over the past five fiscal years has
averaged a 0.46% return on average assets. The mediocre earnings levels were
chiefly attributable to narrowing net interest spreads and above-average expense
ratios. Before the recent branch sale, the Bank
-6-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
operated a comparatively large number of branch offices (fourteen) for a
financial institution of its size, which contributed to increased operating
expenses. In addition, the Bank's traditional savings and loan orientation under
former management did not fully exploit market share advantages into additional
revenue generation (through higher loan yields, increased fees, and
cross-selling other products) or maximum cost efficiency. Also, growth prospects
and opportunities in the Bank's primary market area have only recently turned
favorable. The Bank's headquarters city of Lakeland is located almost midway
between Tampa and Orlando on the Interstate-4 highway corridor, and the local
area has begun to benefit from the business spillover effects of both of these
rapidly developing metropolitan regions.
The Bank seeks to become the primary financial institution for
an increased proportion of its customer base. In order to achieve this goal, the
Bank recognizes the importance of continuing its evolution to a comprehensive
provider of financial products and services through an attractive, convenient,
and accessible delivery system. The Bank also realizes that it will require
appropriate investments in technology and personnel to implement current
strategic initiatives such as installing automated teller machines ("ATMs"),
introducing a debit card product, expanding commercial real estate lending
activity, and enhancing its market area penetration through additional branch
offices. The investment in its operating infrastructure in the form of added
personnel, technology, and offices will require some lead time for
implementation and development before improved earnings results are immediately
achievable. However, the Bank believes that it is important to broaden the range
of its product and service capability to offset the declining margins in the
competitive market for residential mortgage loans.
-7-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The addition of capital proceeds from the Stock Offering will
help the Bank to take advantage of diversified lending and expansion
opportunities within its market area. Management believes it can increase the
market share of its mortgage loans and commercial lending by providing quick
loan approvals and offering truly personalized customer service. The addition of
capital will also enable the Bank to attract deposit accounts by enhancing its
competitive posture. The Bank will utilize increased funds, through the addition
of offering proceeds and increased deposits, to meet the credit needs of its
local market area, as well as to avail itself of strategic and profitable
investment opportunities.
In order to achieve its growth objectives and maintain an appropriate
level of capital, the Bank plans to convert from the mutual to stock form of
organization and offer shares of common stock for sale through the Stock
Company. The Board of Directors has determined that the Reorganization is in the
best interest of the Bank, and has also noted specific business purposes for
effecting the proposed Reorganization. The Reorganization will structure the
Bank in the stock form, which is used by commercial banks, most major business
corporations, and an increasing majority of savings institutions. Formation of
the stock company will permit the Bank to issue common stock, which is a source
of capital not available to mutual institutions.
Concurrently, the Bank's mutual form of ownership will be
sustained by the mutual holding company ("MHC") structure, which permits the
Mutual Company to control at least a majority of the common stock issued in the
Reorganization. Such control will mitigate pressure from public stockholders to
leverage capital quickly and unwisely. The MHC structure will also enable the
Bank to raise significantly less capital than otherwise would result
-8-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
from a full stock conversion in today's equity market. The Reorganization will
not foreclose the opportunity for the Bank to effect a full stock conversion at
some future time.
Additionally the mid-tier Stock Company allows flexibility to
structure mergers and acquisitions, diversify business operations, and to
repurchase shares of common stock, thereby affording the MHC format some of the
advantages that were available previously only to savings institutions that
opted for full conversions. The ability to issue common stock also will enable
the Bank to establish stock benefit plans for management and employees, thereby
improving the Bank's capacity to attract and retain qualified personnel. If, for
some unforeseen reason, the Reorganization is not completed, the Board of
Directors intends for the Bank to continue in its present mutual form until such
time as the Board determines the best interest of its members and the community
are served by the Bank pursuing an alternative organizational structure.
The remainder of Chapter I examines in more detail the trends
addressed in this section, including the impact of changes in the Bank's
economic and competitive environment, and recent management initiatives. The
discussion is supplemented by the exhibits in the Appendix. Exhibit II-1
summarizes the Bank's statements of financial condition as of fiscal year-ends
September 30, 1997 and 1998. Exhibit II-2 presents the Bank's statements of
income for the fiscal years ended September 30, 1996 to 1998.
-9-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Financial Condition
Table 1 presents selected data concerning the Bank's financial position
as of the fiscal year-ends September 30, 1994 through 1998. Table 2 displays
relative balance sheet concentrations for the Bank over the same period.
Table 1
Selected Financial Condition Data
As of September 30, 1994 to 1998
(Dollars in Thousands)
================================================================================
September 30,
-----------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Total Assets 419,041 466,765 440,294 431,414 409,866
Loans Receivable, net 338,610 355,551 321,327 260,675 247,943
Mortgage-backed Secs., net 14,286 5,635 6,619 20,271 23,238
Investment Securities 46,675 68,938 93,222 117,963 112,032
Cash and Cash Equivalents 5,217 21,842 3,885 18,222 13,691
Total Deposits 352,182 429,714 404,184 397,594 378,502
FHLB Advances 21,000 -- -- -- --
Equity Capital 36,107 33,588 30,569 30,774 28,606
- ------------------------------ ------- ------- ------- ------- -------
Allowance for Loan Losses 2,564 2,633 2,385 1,902 1,902
Non-performing Loans 836 2,314 1,184 1,206 2,333
1,330 2,485 1,234 1,554 2,534
================================================================================
Source: First Federal Florida, prospectus.
Asset Composition
- -----------------
The Bank's asset base expanded at a compound annual growth rate of 4.4
between September 30, 1994 and September 30, 1997, before decreasing by 10.2%
during fiscal year 1998. The decline resulted from the Tri-County branch sale
transaction, which involved the transfer of $55.3 million in deposits along with
$45.1 million in loans that included consumer and mortgage loans associated with
the branches and certain mortgages from Polk County.
-10-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 2
Relative Balance Sheet Concentrations
As of September 30, 1994 to 1998
(Percent of Total Assets)
===============================================================================
September 30,
-------------------------------------------
1998 1997 1996 1995 1994
================================================================================
Assets
------
Cash and Investments 15.8 20.6 23.5 36.3 36.3
Loans Receivable, net 80.8 76.2 73.0 60.4 60.5
Other Assets 3.4 3.2 3.4 3.3 3.2
----- ----- ----- ----- -----
Total Assets 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
Liabilities and Equity
----------------------
Total Deposits 84.0 92.1 91.8 92.2 92.3
FHLB Advances 5.0 0.0 0.0 0.0 0.0
Other Liabilities 2.4 0.7 1.3 0.7 0.7
Equity Capital 8.6 7.2 6.9 7.1 7.0
----- ----- ----- ----- -----
Total Liabilities and Equity 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
================================================================================
Source: First Federal Florida, prospectus; Feldman Financial calculations.
Over the five-year period, the Bank significantly increased its lending
activity. The Bank's loan portfolio expanded at a compound annual growth rate of
12.8% between September 30, 1994 and September 30, 1997, before decreasing by
4.8% during fiscal year 1998 due to the transfer of loans in conjunction with
the branch sale. The ratio of loans to assets increased from 60.5% at September
30, 1994 to 80.8% at September 30, 1998. In addition to funding from deposit
growth, much of the loan expansion was also supported by reductions in
investments. The relative balance of cash and investments to total assets
declined from 36.3% at September 30, 1994 to 15.8% at September 30, 1998.
The Bank's loan portfolio is predominantly secured by
one-to-four family residential real estate properties. As displayed in Exhibit
II-3, the Bank's gross loan portfolio at
-11-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
September 30, 1998 totaled $358.3 million, of which 68.3% ($244.7 million) were
permanent residential loans, 7.6% ($27.3 million) were construction residential
loans, 7.9% ($28.5 million) were commercial and other real estate loans, and
16.2% ($57.9 million) were consumer loans.
The Bank's primary lending activity consists of the
origination of one-to-four family residential mortgage loans secured by property
located in the Bank's market area. The Bank generally originates residential
loans for retention in its portfolio with a substantial majority of recent
originations comprising fixed-rate mortgages as compared to adjustable-rate
mortgages. Most of the Bank's residential loans are underwritten in accordance
with secondary mortgage market guidelines, and the Bank has periodically sold
loans. As of September 30, 1998, the Bank's portfolio of loans serviced for
others amounted to $23.3 million.
The Bank is also an active lender in the construction of
one-to-four family homes located in the Polk County market. As of September 30,
1998, the Bank's portfolio of construction loans outstanding amounted to $27.3
million, less $17.0 million of loans in progress. Construction loans are
extended mainly to individual homeowners for the construction of their primary
residence. The Bank also originates construction loans to a customer base of
approximately 25 to 35 local homebuilders who have a borrowing history with the
Bank or who are otherwise known to the Bank. The Bank attempts to mitigate its
credit risk exposure for construction lending to builders through site
inspections, limited borrowing concentrations, and periodic credit analysis.
The Bank originates commercial real estate mortgage loans and,
to a lesser extent, loans on multi-family dwellings and developed and
undeveloped land. The Bank's commercial
-12-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
real estate loans are typically secured by improved property such as office
buildings, commercial warehouses, retail stores, and apartment buildings. The
average loan size is approximately $150,000 and usually carries fixed interest
rates with five to ten year maturities, at which point the loan is repaid or the
terms and conditions are renegotiated. The Bank's largest commercial real estate
loan outstanding as of September 30, 1998 had a balance of $1.4 million and was
secured by a commercial warehouse. This loan was also included in the Bank's
largest aggregation of loans to one borrower totaling $4.7 million, which was
within the Bank's legal lending limit to one borrower of $5.4 million. These
fifteen loans outstanding were current as of September 30, 1998 and were secured
primarily by commercial warehouses in the Lakeland area.
To accomplish its mission to become a full service community
bank, the Bank has developed plans to expand its products and services offerings
to the small to medium size business within its market area. The Bank has added
experienced commercial business lending personnel within the past year and
expects to hire additional staff over the next few years. Various business
development plans, loan policies and procedures, and technology systems either
have been implemented or are being effected. The Bank plans to satisfy not only
the borrowing needs of new prospective business customers, but anticipates
providing the full complement of deposit and customer services customary of a
commercial banking relationship. Commercial loans not secured by real estate
increased from $218,000 at September 30, 1997 to $1.1 million at September 30,
1998.
The Bank's consumer loan portfolio increased significantly
from $32.3 million at September 30, 1994 to $69.2 million at September 30, 1997.
The consumer portfolio declined
-13-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
to $57.9 million as of September 30, 1998 and consisted primarily of direct and
indirect automobile loans and home equity loans and credit lines. Automobile
loans comprised $34.8 million of the Bank's consumer loan portfolio at September
30, 1998. Approximately 70% of the automobile loans were originated through
local automobile dealerships. Although this loan category generally carries a
greater risk factor, the Bank believes that it has experienced personnel to
manage this type of lending activity. 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 Bank's charge-off experience with automobile loans has
been better than industry standards, which the Bank accredits to the procedures
in which the dealer program is administered. The automobile loan portfolio
shrank during fiscal 1998 due to very competitive rate offerings by automobile
finance companies along with the Bank's determination to place added emphasis on
other lending activities.
Exhibit II-4 displays the composition of the Bank's investment
portfolio. Investment securities totaled $61.0 million or 14.5% of total assets
at September 30, 1998, and consisted primarily of U.S. Government agency
securities ($33.7 million), mortgage-backed securities ($14.3 million), and
collateralized mortgage obligations ($13.0 million). The Bank's portfolio of
investment securities is classified as either available for held or held to
maturity.
The investment policy of the Bank is designed to foster
earnings and liquidity within prudent interest rate risk guidelines, while
complementing the Bank's lending activities. Liquidity levels may be increased
or decreased depending upon the yields on investment alternatives and upon
management's judgment as to the attractiveness of the yields then
-14-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
available in relation to other opportunities and its expectation of future yield
levels, as well as management's projections as to the short-term demand for
funds to be used in the Bank's loan origination activities.
The Bank's mortgage-backed securities comprised participation
certificates issued and guaranteed by the Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), and
Federal Home Loan Mortgage Corporation ("FHLMC"). The Bank is also invested in
collateralized mortgage obligations issued or sponsored by FNMA and FHLMC. Other
investment instruments used by the Bank, but not necessarily included in the
investment portfolio, consist of equity securities, interest-bearing deposits,
and federal funds sold. The equity securities owned by the Bank consist of a
$2.9 million common stock investment in the FHLB of Atlanta.
Liability Composition
- ---------------------
Deposits are the major source of the Bank's funds for lending
and other investment purposes. The Bank's deposits at September 30, 1998 totaled
$352.2 million, measuring 84.0% of total assets and 92.0% of total liabilities.
The Bank's deposit accounts consist of transaction accounts (checking, savings,
and money market accounts) and certificate of deposit accounts. Exhibit II-5
presents a summary of the Bank's deposit balances as of September 30, 1996
through 1998. Total deposits declined by $77.5 million from September 30, 1997
to September 30, 1998 as a result of the branch sale and a planned reduction in
higher-cost accounts. The branch sale effected a deposit transfer of $55.3
million and the Bank experienced other net deposit outflows of $35.2 million,
which were offset by interest credited of $12.9 million.
-15-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Transaction accounts amounted to $90.8 million or 25.8% of the
Bank's total deposits at September 30, 1998. Certificate of deposit accounts
amounted to $261.4 million or 74.2% of deposits at that date. The balance of
certificate accounts declined by $71.6 million or 21.5% from $333.0 million at
September 30, 1997. After reviewing its funding alternatives and related costs
in 1998, the Bank decided to reduce its premium pricing on certain certificate
accounts and began pricing other deposit accounts more competitively to reduce
the Bank's overall cost of funds. Accordingly, the Bank experienced a reduction
in deposit balances during 1998, primarily in certificate accounts.
The Bank attracts deposits primarily from residents of Polk
and Manatee Counties by offering quality service, competitive interest rates,
and convenient locations and service hours. The Bank uses traditional methods of
advertising to attract new customers and deposits, including radio, cable
television, direct mail, and print media advertising. The Bank does not utilize
the services of deposit brokers. Jumbo certificates (accounts with $100,000 or
more) amounted to $45.7 million or 13.0% of total deposits.
The Bank utilizes borrowed funds from the FHLB to supplement
its supply of lendable funds and to assist with the interest rate risk
management of its assets and liabilities. The Bank had not borrowed funds in its
recent history, but initiated FHLB borrowings during fiscal 1998 to replace the
run-off of higher costing deposits. FHLB advances are typically secured by the
Bank's stock in the FHLB and a portion of the Bank's residential mortgage loans,
and may also be secured by other investments. FHLB advances outstanding amounted
to $21.0 million as of September 30, 1998. The weighted average interest rate of
the FHLB borrowings was 5.10% during fiscal 1998 and 5.12% based on outstanding
advances at September 30, 1998.
-16-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Equity Capital
- --------------
The Bank's equity capital amounted to $36.1 million or 8.62%
of total assets at September 30, 1998. The Bank's equity ratio in relation to
total assets increased from 7.20% at fiscal year-end 1997 to 8.62% at fiscal
year-end 1998, mainly as a result of the balance sheet contraction following the
branch sale and also due to profitable operating results adding to retained
earnings. The Bank's equity capital at September 30, 1998 was composed of $35.9
million in retained earnings and a $220,000 unrealized gain on investments
available for sale.
For regulatory purposes at September 30, 1998, the Bank's Tier
I leverage capital ratio measured 8.6%, its Tier I risk-based capital ratio was
14.5%, and its total risk-based capital ratio was 15.5%. The Bank not only met
the respective minimum capital requirements, but also qualified for the
designation as "well capitalized" under the regulatory framework guidelines.
-17-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Income and Expense Trends
Table 3 displays the main components of the Bank's earnings performance
for the fiscal years ended September 30, 1996 to 1998. Table 4 displays the
components of income and expense as a percent of average assets for the
corresponding fiscal years.
Table 5 displays weighted average yields and costs for the recent periods.
The Bank's return on average assets measured 0.06%, 0.56%,
and 0.54%, for fiscal 1996, 1997, and 1998, respectively. The Bank's return on
average equity measured 0.79%, 7.71%, and 6.56% for fiscal 1996, 1997, and 1998,
respectively. The Bank's earnings performance in recent years has been
characterized by below-average net interest margins and increasing expense
ratios.
Earnings Results for Fiscal 1998 versus Fiscal 1997
- ---------------------------------------------------
The Bank's earnings decreased by 5.6% from $2.5 million in
fiscal 1997 to $2.4 million for fiscal 1998. Net income was affected by certain
nonrecurring transactions, along with a reduction in net interest margin in the
aftermath of the branch sale. The Bank reported a $3.0 million gain from the
branch sale, which was offset by $2.2 million in charges resulting from changes
in the Bank's employee benefit plans. Excluding non-recurring income and
expense, the Bank's core earnings declined from $2.5 million or 0.54% relative
to average assets in fiscal 1997 to $1.8 million or 0.41% in fiscal 1998. While
the Bank's branch sale resulted in lower net interest income, the reduction in
branch related operating expenses was neutralized by additional expenses
associated with the Bank's diversification initiatives.
-18-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 3
Income Statement Summary
For the Years Ended September 30, 1996 to 1998
(Dollars in Thousands)
================================================================================
Year Ended September 30,
------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Total interest income $31,892 $33,790 $31,694
Total interest expense 18,966 19,702 18,961
------- ------- -------
Net interest income 12,926 14,088 12,733
Provision for loan losses 405 317 600
------- ------- -------
Net interest income after provision 12,521 13,771 12,133
Non-interest operating income 1,828 1,461 1,376
Gain on sale of loans and securities 117 114 170
Gain on sale of branches 3,016 -- --
------- ------- -------
Total non-interest income 4,961 1,575 1,546
Compensation and benefits 6,323 5,863 5,288
Other compensation and benefits 2,085 -- --
Occupancy and equipment costs 1,818 1,646 1,453
Marketing 495 488 471
Data processing costs 558 479 443
Deposit insurance premiums 338 456 1,003
Special SAIF assessment -- -- 2,513
Real estate operations, net 180 22 39
Other expense 2,149 2,566 2,172
------- ------- -------
Total non-interest expense 13,946 11,520 13,382
Income before taxes 3,536 3,826 297
Provision for income taxes 1,151 1,299 44
------- ------- -------
Net income $ 2,385 2,527 $ 253
======= ======= =======
================================================================================
Source: First Federal Florida, prospectus.
-19-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 4
Income Statement Ratios
For the Years Ended September 30, 1996 to 1998
(Percent of Average Assets)
================================================================================
Year Ended September 30,
-------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Total interest income 7.29 7.46 7.34
Total interest expense 4.34 4.35 4.39
---- ---- ----
Net interest income 2.95 3.11 2.95
Provision for loan losses 0.09 0.07 0.14
---- ---- ----
Net interest income after provision 2.86 3.04 2.81
Non-interest operating income 0.42 0.32 0.32
Gain on sale of loans and securities 0.03 0.03 0.04
Gain on sale of branches 0.69 0.00 0.00
---- ---- ----
Total non-interest income 1.13 0.35 0.36
Compensation and benefits 1.44 1.30 1.23
Other compensation and benefits 0.48 0.00 0.00
Occupancy and equipment costs 0.42 0.36 0.34
Marketing 0.11 0.11 0.11
Data processing costs 0.13 0.11 0.10
Deposit insurance premiums 0.08 0.10 0.23
Special SAIF assessment 0.00 0.00 0.58
Real estate operations, net 0.04 0.00 0.01
Other expense 0.49 0.57 0.50
---- ---- ----
Total non-interest expense 3.19 2.55 3.10
Income before taxes 0.80 0.85 0.07
Provision for income taxes 0.26 0.29 0.01
---- ---- ----
Net income 0.54 0.56 0.06
==== ==== ====
================================================================================
Source: First Federal Florida, prospectus; Feldman Financial calculations.
-20-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Bank's net interest income declined by 8.2% from $14.1 million in
fiscal 1997 to $12.9 million in fiscal 1998, primarily as a result of the
reduction in average interest-earning assets related to the branch sale. The
Bank's net interest spread also declined by 23 basis points from 2.96% to 2.73%.
The earning asset yield declined by 19 basis points from 7.70% to 7.51%, while
the cost of funds increased 4 basis points from 4.74% to 4.78%. The branch sale
also affected the net interest spread as the deposit transfer was funded by
loans, which were then supplemented in portfolio by newly originated loans in
the current low interest rate environment. The Bank's loan yields have been
restrained historically by conservative loan pricing practices.
The Bank increased its provision for loan losses from $317,000
to $405,000 in fiscal 1998. The higher provision reflected an increased level of
net loan charge-offs totaling $474,000 in fiscal 1998 as compared to $68,000 for
fiscal 1997. The allowance for loan losses was relatively unchanged from $2.63
million or 0.74% of total loans at September 30, 1997 to $2.56 million or 0.76%
of total loans at September 30, 1998.
The Bank's non-interest income increased from $1.6 million in
fiscal 1997 to $5.0 million for fiscal 1998, principally as a result of the $3.0
million branch sale gain. Excluding the branch sale and other modest gains on
sales of loans and investments, non-interest operating income increased by 25.1%
from $1.5 million to $1.8 million. Relative to average assets, non-interest
operating income increased from 0.32% to 0.42%. While the Bank's production of
fee income has continued an upward trend, the level of non-interest income
remains moderately below industry norms.
-21-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The Bank's operating expenses increased by 21.1% from $11.5
million in fiscal 1997 to $13.9 million in fiscal 1998. The operating expense
ratio increased from 2.55% relative to average assets to 3.19%. Although the
Bank's office network shrank by four offices (five were sold and a new one was
opened), operating expenses increased substantially due to certain nonrecurring
items related to changes in the Bank's employee benefit plans. The Bank
recognized $2.2 million in such charges, including $1.5 million for the freezing
of benefits under the existing defined benefit pension plans and $400,000 for
the adoption of a directors' retirement plan. Largely as a result of these
charges, compensation and employee benefits increased by $2.5 million. Occupancy
and equipment costs increased due to expenses related to a data processing
conversion in 1998 as well as a full year's cost associated with a new customer
service platform system installed in 1997.
Earnings Results for Fiscal 1997 versus Fiscal 1996
- ---------------------------------------------------
The Bank's net income increased from $253,000 in fiscal 1996
to $2.5 million in fiscal 1997. The Bank's earnings results in fiscal 1996 were
adversely affected by the one-time special SAIF assessment. Excluding this
nonrecurring item, the Bank's earnings would have totaled $1.8 million in fiscal
1996. Additionally, the improved profitability in fiscal 1997 resulted from an
increase in net interest income and a higher net interest margin.
Net interest income increased by $1.4 million from $12.7
million to $14.1 million, bolstered by loan portfolio expansion and an increase
in the net interest spread from 2.76% to 2.96%. The Bank achieved strong loan
growth in its residential mortgage and consumer loan categories. The yield on
earning assets increased by 15 basis points from 7.55% to 7.70%,
-22-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
strengthened by a larger concentration of higher-yielding loans as opposed to
investments. Meanwhile, the Bank's cost of funds declined by 5 basis points from
4.79% to 4.74%.
Operating expenses decreased by $13.4 million in fiscal 1996
to $11.5 million in fiscal 1997. The decrease was primarily due to the $2.5
million special assessment in fiscal 1996 to recapitalize the SAIF and a
$547,000 reduction in deposit insurance premiums due to lower assessment rates
following the recapitalization of the SAIF. Accordingly, the operating expense
ratio fell from 3.10% in fiscal 1996 to 2.55% in fiscal 1997. Compensation and
benefits increased by $575,000 due to additional staff to support the growth in
loans and deposits.
-23-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 5
Yield and Cost Summary
For the Years Ended September 30, 1996 to 1998
================================================================================
Year Ended September 30,
----------------------------------
1998 1997 1996
---- ---- ----
Average Yields
- --------------
Investment securities (1) 5.68% 6.21% 6.37%
Loans receivable (2) 7.97 8.13 8.08
Total interest-earning assets 7.51 7.70 7.55
Average Costs
- -------------
Checking accounts 1.86 2.49 2.53
Savings accounts 2.07 2.50 2.50
Money market accounts 3.79 2.98 2.72
Certificates of deposit 5.62 5.45 5.50
Borrowed funds 5.10 -- --
Total interest-bearing liabilities 4.78 4.74 4.79
Net interest spread (3) 2.73 2.96 2.76
Net interest margin (4) 3.02 3.21 3.03
================================================================================
(1) Includes interest-bearing deposits in other financial institutions.
(2) Includes impact of non-accrual loans.
(3) Average yield on interest-earning assets less average cost of
interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
Source: First Federal Florida, prospectus.
-24-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Asset and Liability Management
The Bank's principal financial objective is to sustain long-term
profitability while reducing its exposure to fluctuating interest rates. The
Bank has sought to reduce exposure of its earnings to market interest rates by
managing the mismatch between asset and liability rates, maturities and
repricings. The focus of the Bank's asset/liability management is to evaluate
the overall interest rate risk included in certain balance sheet accounts,
determine the level of appropriate risk given the Bank's business strategies,
operating environment, liquidity requirements, capitalization, and performance
objectives, and manage the risk consistent with the approved guidelines of the
Board of Directors.
The lending activities of the Bank have historically emphasized
the origination of long-term, fixed-rate mortgages funded by deposit liabilities
with substantially shorter maturities. While having interest-bearing liabilities
that reprice more frequently than interest-earning assets is generally
beneficial to net interest income during a period of declining interest rates,
such an asset/liability mismatch is generally detrimental during periods of
rising interest rates.
In order to reduce the effect of interest rate changes on net
interest income , the Bank has adopted various strategies to enable it to
improve matching of asset and liability maturities. The key elements of these
strategies include: (i) originating commercial and consumer loans with
adjustable-rate terms or fixed-rate loans with short maturities; (ii)
lengthening the maturities of liabilities when deemed cost-effective through the
pricing and promotion of certificates of deposit and utilization of FHLB
advances; (iii) attracting low-cost checking and transaction accounts which tend
to be less interest rate sensitive when interest rates rise; and (iv)
originating and holding, when market conditions permit, adjustable-rate mortgage
loans
-25-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
that have annual interest rate adjustments. The Bank also maintains an
investment portfolio that provides a stable cash flow, thereby providing
investable funds in varying interest rate cycles.
The Board of Directors has established an asset/liability
committee to monitor the Bank's interest rate risk exposure. The Bank's
objective is to maintain a consistent level of profitability within acceptable
risk tolerances across a broad range of potential interest rate scenarios. The
Bank uses the OTS Net Portfolio Value ("NPV") model to evaluate its exposure to
interest rate risk and measure the potential decline in the Bank's NPV based
upon the effects of a series of increases or decrease in interest rates. The NPV
represents the present value of the expected cash flows from the Bank's assets
and liabilities.
Table 6 presents the Bank's NPV at September 30, 1998 as affected
by a 100 to 400 basis points upward and downward parallel shift in interest
rates. As displayed in the table, a 200 basis point upward shift in rates
results in a 12.2% decline in the Bank's NPV. Conversely, a 200 basis point
downward shift produces a 3.7% increase in the Bank' s NPV. Both of these
simulated changes in NPV are well within the OTS exposure guidelines.
The Bank's sensitivity measure, representing the pre-shock NPV
ratio minus the 200 basis point exposure ratio, has improved in recent years due
to the continued implementation of asset/liability management initiatives
previously mentioned. While the Bank's residential mortgage portfolio consists
predominantly of fixed-rate loans, the Bank's interest rate sensitivity has
benefited from the expansion of other types of lending and the shortening of
investment maturities. Overall, the Bank exhibits a moderate level of interest
rate risk as compared to industry norms.
-26-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 6
Net Portfolio Value
As of September 30, 1998
(Dollars in Thousands)
================================================================================
NPV as %
Net Portfolio Value of PV of Assets
----------------------------------------- ---------------------
Change $ $ $ NPV B.P.
in Rates Amount Change Change Ratio Change
- -------- ------ ------ ------ ----- ------
+400 b.p. $29,878 $-14,699 -33.0% 7.56% -291 b.p.
+300 b.p. 34,781 -9,797 -22.0% 8.61% -186 b.p.
+200 b.p. 39,155 -5,423 -12.2% 9.50% -97 b.p.
+100 b.p. 42,431 -2,146 -4.8% 10.12% -35 b.p.
0 b.p. 44,578 -- -- 10.47% --
- -100 b.p. 45,285 +708 +1.6% 10.51% +4 b.p.
- -200 b.p. 46,215 +1,637 +3.7% 10.58% +11 b.p.
- -300 b.p. 48,047 +3,470 +7.8% 10.83% +36 b.p.
- -400 b.p. 49,875 +5,297 +11.9% 11.07% +60 b.p.
================================================================================
Source: First Federal Florida, prospectus.
-27-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Asset Quality
The Bank continues to maintain satisfactory asset quality with
non-performing assets measuring 0.32% of total assets as of September 30, 1998.
Management believes the Bank's improved asset quality is primarily attributable
to the development and utilization of comprehensive loan policies and
documentation, active monitoring, conservative collateralizaton practices,
limited borrower concentrations, and consistent and forceful collection and
workout efforts. The allowance for loan losses at September 30, 1998 equaled
0.76% of total loans and 192.8% of non-performing assets. The Bank periodically
reviews its reserve position at least quarterly and makes adjustments as needed
or required.
During fiscal 1998, the Bank's charge-offs increased to $474,000
from $68,000 in fiscal 1997. The increase was attributable primarily to loans to
two borrowers that were charged off during 1998. One charge-off involved a loan
on a small shopping center that the Bank had been litigating for several years.
Final resolution and repayment of the loan occurred in 1998 with the Bank
incurring a loss approximating $140,000. Another large charge-off involved loans
made to a local builder for the construction of single-family houses. The Bank
foreclosed on the properties and recognized a charge-off of $110,000 in 1998.
Table 7 summarizes the Bank's non-performing asset totals as of
September 30, 1996 to 1998. The Bank had $836,000 of non-accrual loans as of
September 30, 1998, and held five residential properties as real estate owned
with an aggregate book value of $403,000. Other repossessed assets amounting to
$91,000 as of September 30, 1998 consisted primarily of vehicles.
-28-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The increase in non-accrual loans during fiscal 1997 was
attributable primarily to $698,000 in residential construction loans wherein the
borrower declared bankruptcy. During fiscal 1998, the Bank foreclosed and sold
the six residential properties securing the loans. During fiscal 1998, the Bank
also resolved foreclosure and counterclaim litigation relating to a $491,000
loan secured by a retail strip shopping center. In connection with the
settlement of this litigation, the Bank received payments totaling $348,000 from
the borrower and charged off the remainder of its investment. As a result of
these events, total non-performing assets declined to $1.3 million at September
30, 1998 from $2.5 million at September 30, 1997.
Table 7
Non-performing Asset Summary
As of September 30, 1996 to 1998
(Dollars in Thousands)
================================================================================
September 30,
----------------------------------
1998 1997 1996
---- ---- ----
Non-accrual loans:
Residential mortgage loans $ 445 $1,624 $ 654
Other mortgage loans -- 491 491
Consumer loans 391 199 39
Total non-performing loans 836 2,314 1,184
Real estate owned 403 67 8
Other repossessed assets 91 104 42
Total non-performing assets $1,330 $2,485 $1,234
Non-performing loans as a % of net loans 0.25% 0.65% 0.37%
Non-performing loans as a % of total assets 0.20% 0.49% 0.27%
Non-performing assets as a % of total assets 0.32% 0.53% 0.28%
================================================================================
Source: First Federal Florida, prospectus
-29-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 8
Allowance for Loan Losses Summary
As of September 30, 1996 to 1998
(Dollars in Thousands)
================================================================================
September 30,
-----------------------------------
1998 1997 1996
---- ---- ----
Allowance balance (at beginning of period) $ 2,633 $ 2,385 $ 1,902
Provision for loan losses 405 317 600
Charge-offs:
Residential (218) (19) (70)
Commercial real estate (146) (12) --
Consumer (110) (37) (49)
Total charge-offs (474) (68) (119)
------- ------- -------
Recoveries -- -- 2
Net charge-offs (474) (68) (117)
------- ------- -------
Allowance balance (at end of period) $ 2,564 $ 2,633 $ 2,385
======= ======= =======
Allowance as a % of total loans 0.76% 0.74% 0.74%
Net charge-offs as % of average loans 0.14% 0.02% 0.04%
================================================================================
Source: First Federal Florida, prospectus.
-30-
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FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Properties and Equipment
The Bank's executive offices are located in Lakeland, Florida. The
Bank conducts its business through nine offices, which are located in Polk and
Manatee Counties. All of the offices, except for one branch, are owned by the
Bank as indicated in Exhibit II-6. The Bank has recently added five ATMs and
plans to purchase additional ATMs for its remaining branches over the next year.
As of September 30, 1998, the net book value of the Bank's premises and
equipment totaled $6.8 million.
The Bank expects to continue its ongoing analysis to determine the
efficiency and effectiveness of its branch facilities in delivering services and
products to the local community. In addition to installing ATMs at all branch
sites, the Bank plans to redesign one branch office and enhance the customer
service area at another. The Bank has not identified specific office facilities
or sites for new branch locations, but intends to continue to explore feasible
branch expansion opportunities.
The Bank conducts the majority of its data processing operations
through a third-party service bureau. As a result, the Bank does not have a
major investment in mainframe or mid-frame computer hardware nor any internally
developed software that requires significant programming staff to maintain. The
system is accessed by Bank personnel through personal computer workstations
configured into a wide area network. The Bank believes that its data processing
operations are capable of meeting its current and anticipated needs. The service
bureau has advised the Bank that it expects to resolve any Year 2000 computer
program problems. Also, the Bank has been evaluating and testing its technology
systems to resolve any Year 2000 compliance issues. An OTS on-site examination
conducted in April 1998
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FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
indicated that the Bank was progressing satisfactorily towards implementing its
Year 2000 compliance plan.
As of September 30, 1998, the Bank also held two additional
properties which formerly housed branches that were sold. The properties were
under contract for sale to another financial institution, which was leasing the
sites from the Bank pending closing. In connection with the sale of these
properties, the Bank has agreed to indemnify the purchaser for the costs of
obtaining closure with state environmental authorities regarding the necessity
of further remediation of environmental contamination on the sites. The sale of
one property was completed in December 1998 after the Bank received a notice of
no further action required from the State of Florida. Closing on the other
property is scheduled to take place on or before April 15, 1999. The Bank does
not currently anticipate that it will incur additional material expense
associated with the sale of this property.
-32-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Market Area
The Bank operates seven offices (including the main office) in
Polk County and two offices in Manatee County. Polk County is situated in
central Florida and Manatee County is located in west central Florida. There are
approximately 680,000 residents and 268,000 households within the Bank's primary
market area. Polk County had an estimated 1997 population of 445,000 and
includes Lakeland, Winter Haven, and Bartow among its most populous cities. Polk
County is positioned for continued growth as it is situated between the rapidly
developing counties of Orange (Orlando) and Hillsborough (Tampa). Manatee County
had an estimated 1997 population of 235,000 and includes Bradenton and Palmetto
as its most populous cities. The Bank operates five offices in Lakeland, two in
Winter Haven, and two in Bradenton.
Polk County presently exhibits a diversifying economy that had
long been dependent on the citrus and phosphate mining industries. These
industries remain strong and are continuing to grow through capital investment.
The citrus industry, however, remains vulnerable to severe weather conditions
and increased competition, both domestic and international. In addition, the
local economy had diversified and strengthened the area's business development.
Polk County is home to the largest privately owned employer in the state,
Publix, which is a grocery chain that operates over 575 stores in four states.
Because of Polk County's location in central Florida between Orlando and Tampa
and its accessibility to major interstate highways, Polk County is considered a
major distribution hub and has become a home for large transportation and
distribution companies and related warehousing and supplies operations. The
climate, affordable labor pool, and lifestyle amenities have attracted other
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
major employers in the insurance servicing area (including GEICO) and a variety
of other industries.
Manatee County is situated southwest of Polk County and just south
of Tampa and St. Petersburg, Florida Manatee County and neighboring Sarasota
County have experienced growth among the highest in the nation over the past
several years. Local economies have been supported primarily by the services
industry (including tourism). In addition, recent efforts have resulted in
diversification into light manufacturing operations.
Table 9 displays selected demographic data for the United States,
the State of Florida, Polk County, and Manatee County. Total population growth
in both Polk and Manatee Counties is expected to outpace the national average
over the next five years, but slightly lag the overall statewide trend. The 1997
median household income of $30,087 in Polk County was 19% below the national
median of $37,079 and 9% below the state median of $33,067. The median household
income at $33,640 in Manatee County was comparable to the state median. The age
distribution in Polk County was similar to that of statewide demographics,
evidencing a higher concentration in the 55-plus age group as compared to the
national data. The age distribution in Manatee was skewed even more toward the
upper age group, reflecting the augmented presence of retired residents.
Table 10 shows deposit concentrations in 1997 for Polk County and
Manatee County. The Bank ranked 5th in Polk County among 12 FDIC-insured
financial institutions. The Bank is the only remaining thrift institution based
in Polk County and had a deposit market share of 7.9%. The Bank ranked 12th in
Manatee County among 16 FDIC-insured financial institutions and had a deposit
market share of 2.3%. The deposit markets in both of these counties are
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
dominated by large regional banks (such as NationsBank, First Union, SunTrust,
Huntington, and SouthTrust) that are headquartered outside of Florida.
The Bank faces strong competition in its primary market area for
the attraction of retail deposits and in the origination of loans. The Bank's
most direct competition for deposits has historically come from commercial
banks, thrift institutions, and credit unions operating in its primary market
area. The Bank's competition for loans also comes from banks, thrifts, and
credit unions, in addition to mortgage bankers and brokers. The Bank's market
area can be characterized as a market with moderate incomes, increasing wealth,
and strong population growth, representing an attractive market that can be
served by a community financial institution such as the Bank. The Bank seeks to
enhance its competitive presence by continuing to deliver high-quality,
personalized service and by expanding its product line and integrating upgraded
technology.
-35-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 9
Selected Demographic Data
United States, Florida, Polk County, and Manatee County
<TABLE>
<CAPTION>
=====================================================================================================
United Polk Manatee
Demographic Data States Florida County County
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Population
Total Population - 1997 267,240,272 14,564,508 445,042 234,543
5-year projection percent change 4.52% 7.42% 5.70% 6.04%
1990-1997 percent change 7.45% 12.57% 9.78% 10.79%
Households
Total Households - 1997
98,741,200 5,704,295 169,705 98,641
5-year projection percent change 4.86% 7.26% 5.69% 5.62%
1990-1997 percent change 7.39% 11.09% 8.81% 8.33%
Per Capita Income
Per Capita Income - 1997 $18,885 $18,529 $15,365 $19,300
5-year projection percent change 20.73% 17.94% 16.34% 22.96%
1990-1997 percent change 31.28% 26.28% 24.07% 34.05%
Average Household Income
Average Household Income - 1997 $50,540 $46,782 $39,832 $45,379
5-year projection percent change 20.73% 17.43% 15.41% 22.70%
1990-1997 percent change 31.28% 27.99% 25.11% 36.68%
Median Household Income
Median Household Income - 1997 $37,079 $33,067 $30,087 $33,640
5-year projection percent change 13.09% 10.72% 8.22% 16.76%
1990-1997 percent change 23.20% 20.18% 19.27% 29.43%
Household Income Distribution
$0 - 24,999 33.51% 36.78% 40.93% 34.98%
$25,000 - 49,999 30.85% 33.40% 35.95% 32.75%
$50,000+ 35.63% 29.82% 23.12% 29.28%
Age Group Distribution
0 - 14 years 21.56% 19.01% 20.52% 16.97%
15 - 34 years 28.24% 25.48% 25.51% 21.25%
35 - 54 years 28.57% 27.16% 25.26% 23.60%
55+ years 21.63% 28.36% 28.71% 38.19%
=====================================================================================================
</TABLE>
Source: SNL Securities; Claritas.
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FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 10
Deposit Market Share Analysis by County
Deposit Data at June 30, 1997 and Adjusted for Merger Activity
<TABLE>
<CAPTION>
=========================================================================================================================
Polk County
=========================================================================================================================
No. Total Market
Inst. of Deposits Share
Rank Institution Lead Company (1) Offs. ($000s) (%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 NationsBank, NA BankAmerica Corp. (NC) B 27 1,112,877 29.94
2 First Union Nat'l Bank First Union Corp. (NC) B 20 671,009 18.05
3 SunTrust Bank Mid-Fla. SunTrust Banks Inc. (GA) B 18 611,094 16.44
4 Huntington Nat'l Bank Huntington Bancshares (OH) B 10 375,622 10.11
- -------------------------------------------------------------------------------------------------------------------------
5 First Federal Florida First Federal Florida (FL) T 7 294,289 7.92
- -------------------------------------------------------------------------------------------------------------------------
6 Citrus & Chemical Bank Citrus & Chemical Bncp.(FL) B 7 255,036 6.86
7 Colonial Bank Colonial BancGroup (AL) B 5 88,302 2.38
8 Hamilton Bank, NA Hamilton Bancorp (FL) B 1 86,792 2.34
9 American Bank & Trust American Banking Corp.(FL) B 6 73,440 1.98
10 Community Nat'l Bank Community Nat'l Bank (FL) B 2 53,740 1.45
11 First NB of Polk County First NB of Polk County (FL) B 3 53,231 1.43
12 Citizens Bank-Frostproof Citizens Bank-Frostproof (FL) B 3 41,080 1.11
--- ------ ----
Total 109 3,716,512 100.00
=== ========= ======
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================================
Manatee County
=========================================================================================================================
No. Total Market
Inst. of Deposits Share
Institution Lead Company
Rank (1) Offs. ($000s) (%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 NationsBank, NA BankAmerica Corp. (NC) B 27 1,138,406 38.81
2 SouthTrust Bank, NA SouthTrust Corp. (AL) B 15 339,984 11.59
3 American Bank American Bancshares (FL) B 5 216,698 7.39
4 First Union National Bank First Union Corp. (NC) B 9 195,718 6.67
5 Republic Bank Republic Bancshares (FL) B 7 162,943 5.55
6 Liberty National Bank Regions Financial (AL) B 5 153,367 5.23
7 Capital Bank Union Planters Corp. (TN) B 2 124,512 4.24
8 First NB of Manatee First NB of Manatee (FL) B 4 110,978 3.78
9 Huntington Nat'l Bank Huntington Bancshares (OH) B 3 108,562 3.70
10 World Savings Bank, FSB Golden West Financial (CA) T 2 103,051 3.51
11 Century Bank, FSB (FL) Century Financial Group T 2 69,090 2.36
- -------------------------------------------------------------------------------------------------------------------------
12 First Federal Florida First Federal Florida (FL) T 2 66,038 2.25
- -------------------------------------------------------------------------------------------------------------------------
13 SunTrust Bank Gulf Coast SunTrust Banks Inc. (GA) B 3 58,087 1.98
14 Northern Trust Bank Northern Trust Corp. (IL) B 2 57,757 1.97
15 Community Bank Community Bank (FL) B 1 14,215 0.48
16 BankAtlantic, FSB BankAtlantic Bancorp (FL) T 1 13,907 0.47
-- --------- ------
Total 90 2,933,313 100.00
== ========= ======
=========================================================================================================================
</TABLE>
(1) B=bank; T=thrift.
Source: SNL Securities.
-37-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Summary
First Federal Florida is pursuing a deliberate path of transforming
itself into a community financial institution providing a broader range of
products and services. The impact of these initiatives is reflected by the
balance sheet trends toward increased loans, reduced investments, expanded
consumer and commercial related loan activity, and greater concentrations of
transaction deposit accounts. The evolution to a diversified banking
organization has also required additional operating expenses and technological
investments. As a result, the balance sheet restructurings and strategic
operating initiatives have not translated to immediate improvement in
profitability.
The Bank's earnings amounted to $2.4 million for a 0.54%
return on average assets in fiscal 1998. Core earnings, which exclude $3.1
million in gains on sale and $2.2 million of non-recurring expenses, were lower
at $1.8 million or a 0.41% return on average assets. The Bank's profitability
levels remain below industry norms, as reflected importantly by its lower net
interest margins and higher operating expense ratios. As a result of the branch
sale, the Bank's net interest income and net interest margin declined. However,
the Bank believes that by focusing more strategically and effectively on its
primary market area, its opportunities for achieving growth are enhanced. While
Lakeland does not enjoy the high-growth profile of other notable Florida market
areas, management believes that the Bank's improved competitive positioning can
reap significant benefits in a market frequented by customer displacement from
bank mergers and acquisitions. The addition of capital proceeds from the Stock
Offering will help the Bank further deploy financial resources to grow, increase
earnings, and continue its strategic course.
-38
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
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II. COMPARISONS WITH PUBLICLY TRADED THRIFTS
General
The comparative market approach provides a sound basis for determining
estimates of going-concern valuations where a regular and active market exists
for the stocks of peer institutions. The comparative market approach was
utilized in determining the estimated aggregate pro forma market value of the
Bank because: (i) reliable market and financial data are readily available for
comparable institutions; (ii) the comparative market method is required by the
applicable regulatory guidelines; and (iii) other alternative valuation methods
are unlikely to produce a valuation relevant to the future trading patterns of
the related stock investment. The generally employed valuation method in initial
public offerings, where possible, is the comparative market approach, which also
can be relied upon to determine pro forma market value in a thrift stock
conversion.
The comparative market approach derives valuation benchmarks
from the trading patterns of selected peer institutions which due to certain
factors, such as financial performance and operating strategies, enable the
appraiser to estimate the potential value of the subject institution in a stock
conversion offering. The pricing and trading history of recent thrift conversion
offerings are also examined to provide evidence of the "new issue discount"
which must be considered. In Chapter II, our valuation analysis focuses on the
selection and comparison of the Bank with a comparable group of publicly traded
thrift institutions (the "Comparative Group"). Chapter III will detail any
additional discounts or premiums that we believe are appropriate to the Bank's
pro forma conversion valuation.
-39-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Selection Criteria
Selected market price and financial performance data for thrifts listed
on the New York and American Stock Exchanges and those thrifts traded on the
over-the-counter markets listed on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") are shown in Exhibit III. Several
criteria, discussed below, were used to select the individual members of the
Comparative Group from the overall universe of publicly held thrifts.
o Operating characteristics - An institution's operating characteristics
are the most important factors because they affect investors' expected
rates of return on a company's stock under various business/economic
scenarios, and they influence the market's general perception of the
quality and attractiveness of a given company. Operating
characteristics, which may vary in importance during the business
cycle, include financial variables such as profitability, balance
sheet growth, capitalization, asset quality, and other factors such as
lines of business and management strategies.
o Degree of marketability and liquidity - Marketability of a stock
reflects the relative ease and promptness with which a security may be
sold when desired, at a representative current price, without material
concession in price merely because of the necessity of sale.
Marketability also connotes the existence of buying interest as well
as selling interest and is usually indicated by trading volumes and
the spread between the bid and asked price for a security. Liquidity
of the stock issue refers to the organized market exchange process
whereby the security can be converted into cash. We attempted to limit
our selection to companies that have access to a regular trading
market. We eliminated from the comparative group companies with market
prices that were materially influenced by publicly announced or widely
rumored acquisitions. However, the expectation of continued industry
consolidation is currently embedded in thrift equity valuations.
o Geographic Location - The region of the country where a company
operates is also of importance in selecting the comparative group. The
operating environment for thrifts varies from region to region with
respect to business and economic environments, real estate market
conditions, speculative takeover activity, and investment climates.
Economic and investor climates can also vary greatly within a region,
particularly due to takeover activity.
-40-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The operations of First Federal Florida generally fit the profile
of a conventional thrift institution evolving toward a more diverse financial
institution. The Bank's balance sheet remains concentrated predominantly in
single-family residential mortgages with a growing mix of commercial real estate
and consumer loans. In determining the Comparative Group composition, we focused
on the Bank's profitability and size along with its relative levels of capital
and asset quality. As with any composition of a group of comparable companies,
the identification process was broadened sufficiently to assemble a meaningful
number of candidates. Specifically, we initiated a search for companies by
applying the following selection criteria:
o Asset size - total assets between $200 million and $800 million.
o Capital level - tangible equity ratio between 6.0% and 14.0% in
relation to tangible assets.
o Profitability - earnings reflecting a return on average assets
("ROAA") less than 1.00% or a return on average equity ("ROAE") less
than 8.50% for the last twelve months.
o Loan composition - high concentration of residential mortgages
composing a minimum of 60% of total loans.
o Liability funding - reliance on deposits as chief funding source with
borrowed funds amounting to less than 20% of total assets.
o Geographic location - additional consideration given to thrifts in the
same or adjacent regions that meet most, if not all, of the above
criteria.
As a result of applying the above criteria, the screening process
produced a reliable representation of publicly traded thrifts with operations
comparable to those of First Federal Florida. A general overview of the 15
companies selected for the Comparative Group is presented in Table 11. The
Comparative Group institutions were drawn primarily from the Southeast
(numbering seven) and Midwest (totaling six). One each is based in Florida,
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FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Georgia, Arkansas, North Carolina, and Maryland, while two are located in
Louisiana. From the Midwest, one company was selected from Indiana, two from
Ohio, and three from Illinois. The remaining two companies were drawn from
Massachusetts and California. The vast majority of the Comparative Group
companies are not situated in major metropolitan areas, but instead are located
in moderate-size cities near major population centers.
The Florida thrift included among the Comparative Group is FFLC Bancorp
(the holding company for First Federal Savings Bank of Lake County), which is
based in Leesburg and situated in north central Florida. FFLC Bancorp operates
the same number of offices (nine) as First Federal Florida and, with total
assets of $422 million, is comparable in size to First Federal Florida. FFLC
Bancorp's loan origination activity has increased significantly in recent years
as it leveraged its capital base to support asset growth following its stock
conversion in 1994.
The asset size of the Comparative Group companies ranges from $232
million to $600 million with an overall average size of $383 million. In
comparison to recent performance trends of the aggregate public thrift industry,
the Comparative Group companies generally exhibited below-average capital
ratios, below-average profitability, slightly lower net interest margins, and
moderately higher operating expense ratios. While some differences inevitably
exist between the Bank and the individual companies, we believe that the chosen
Comparative Group on the whole provides a meaningful basis of comparison for
valuation purposes.
-42-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
TABLE 11
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Recent Financial Comparisons
Table 12 summarizes certain key financial comparisons between First
Federal Florida and the Comparative Group. Tables 13 through 17 contain the
detailed financial comparisons of the Bank with the individual Comparative Group
companies based on measures of profitability, income and expense components,
yield-cost structure, capital levels, credit risk, balance sheet composition,
and growth rates. Comparative financial data for the Bank and the Comparative
Group companies were utilized as of or for the latest twelve months ("LTM")
available ending September 30, 1998. Average and median performance ratios are
also presented for the aggregate of all public thrift institutions.
First Federal Florida's ROAA was 0.54% as compared to the Comparative
Group's average ROAA of 0.73% and the all public thrift average ROAA of 0.90%.
The Bank's core earnings, which excludes the impact of gains on sale and
non-recurring expense, measured 0.41% of average assets as compared to the
Comparative Group's average of 0.72%. In contrast to the Comparative Group, the
Bank's lower profitability was restrained by a lower net interest margin and a
higher operating expense ratio. Three of the Comparative Group companies (First
Mutual Bancorp, Monterey Bay Bancorp, and Western Ohio Financial Corp.)
exhibited lower profitability than the Bank.
The Bank's net interest income of 2.96% relative to average assets was
positioned below the Comparative Group's average of 3.17% and the all public
thrift average of 3.29%. The Bank's net interest margin of 3.02% was also lower
than the Comparative Group's average of 3.30%. First Federal Florida's net
interest spread of 273 basis points trailed the
-44-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Comparative Group's average of 280 basis points. Although the Bank's asset base
evidenced a higher concentration of loans versus investments than the
Comparative Group on average, the Bank still exhibited a lower earning asset
yield. As discussed in Chapter I, the Bank has historically employed
conservative loan pricing policies. The Bank's 4.78% cost of funds was lower
than the Comparative Group's average of 4.93% and reflected First Federal
Florida's heavy reliance on retail deposits for deposit funding. As a result of
its lower net interest spread and a lower capital level, the Bank's net interest
earning power has continued to linger behind industry norms.
First Federal Florida's non-interest operating income measured 0.42% in
relation to average assets, slightly above the Comparative Group's average of
0.41% and moderately below the all public thrift average of 0.45%. In recent
years, the Bank has adopted explicit fee pricing schedules in an effort to
generate additional non-interest income. The Bank's production of non-recurring
income was significant during this recent period due to the gain on branch sale,
and totaled 0.72% of average assets in contrast to the Comparative Group's
average ratio of 0.11%. Other than modest contributions from securities gains,
the Bank has not historically relied on non-recurring income to generate
earnings.
The Bank's provision for loan losses measured 0.09% relative to average
assets and was in range of the Comparative Group's average of 0.11% and the all
public thrift average of 0.13%. The Bank and the Comparative Group experienced
low levels of non-performing loans, with the Bank at 0.25% of total loans and
the Comparative Group averaging a higher ratio at 0.46% as compared to the all
public thrift average of 0.83%. Both the Bank and the Comparative Group are
predominantly residential mortgage loan lenders. The Bank's ratio of
-45-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 12
Key Financial Comparisons
First Federal Florida and the Comparative Group
As of the Latest Twelve Months Ended September 30, 1998
First Comparative All Public
Federal Group Thrift
Florida Average Average
------- ------- -------
Profitability
LTM Return on Average Assets 0.54 % 0.73 % 0.90 %
Core Return on Average Assets 0.41 0.72 0.93
LTM Return on Average Equity 6.56 6.23 6.18
Core Return on Average Equity 4.93 7.90 8.20
Income and Expense (% of avg. assets)
Total Interest Income 7.29 7.44 7.39
Total Interest Expense 4.34 4.26 4.10
Net Interest Income 2.95 3.17 3.29
Provision for Loan Losses 0.09 0.11 0.13
Other Operating Income 0.42 0.41 0.45
Net Gains and Non-recurring Income 0.72 0.11 0.11
General and Administrative Expense 2.64 2.46 2.31
Real Estate Expense (Income) 0.04 (0.01) (0.01)
Non-recurring Expense 0.51 0.03 0.09
Pre-tax Core Earnings 0.60 1.03 1.31
Yield-Cost Data
Yield on Earning Assets 7.51 7.73 7.69
Cost of Funds 4.78 4.93 4.86
Net Interest Spread 2.73 2.80 2.83
Asset Utilization (% of avg. assets)
Avg. Interest-earning Assets 97.13 96.20 96.17
Avg. Interest-bearing Liabilities 88.40 86.43 84.25
Net Interest-earning Assets 8.73 9.77 11.92
-46-
<PAGE>
Table 12 (continued)
Key Financial Comparisons
First Federal Florida and the Comparative Group
As of the Latest Twelve Months Ended September 30, 1998
First Comparative All Public
Federal Group Thrift
Florida Average Average
------- ------- -------
Balance Sheet Composition (% of assets)
Cash and Securities 16.48 % 23.88 % 29.52 %
Loans Receivable, net 80.80 72.67 67.13
Real Estate 0.12 0.17 0.22
Intangible Assets 0.00 0.51 0.34
Other Assets 2.60 2.77 2.79
Total Deposits 84.04 76.30 69.04
Borrowed Funds 5.01 11.03 16.16
Other Liabilities 2.33 1.01 1.63
Total Equity 8.62 11.66 13.17
Loan Portfolio (% of total loans)
Residential Mortgage Loans 68.28 69.92 NA
Other Real Estate Mortgage Loans 15.26 18.85 NA
Non-mortgage Loans 16.46 11.23 NA
Growth Rates
Total Assets (10.22) 11.42 9.39
Total Loans (4.76) 8.44 8.88
Total Deposits (18.04) 12.00 5.65
Regulatory Capital Ratios
Tier I Leverage Capital 8.56 9.39 10.57
Tier I Risk-based Capital 14.50 16.86 20.77
Total Risk-based Capital 15.54 17.66 21.78
Credit Risk Ratios
Non-performing Loans / Total Loans 0.25 0.46 0.83
Non-performing Assets / Total Assets 0.32 0.60 0.64
Reserves / Non-performing Assets 192.78 144.94 148.74
Reserves / Total Loans 0.76 0.70 0.96
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<PAGE>
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
loan loss reserves measured 0.76% of total loans, which was moderately above the
Comparative Group's average of 0.70% but below the all public thrift average of
0.96%.
The Bank's operating expense ratio continued to compare unfavorably
with peer trends. The Bank's general and administrative expense ratio of 2.64%
(excluding non-recurring items) relative to average assets was higher than the
Comparative Group's average of 2.46% and the all public thrift average of 2.31%.
Only three members of the Comparative Group (First Mutual Bancorp, FLAG
Financial Corporation, and Teche Holding Company) reported a higher operating
expense ratio than the Bank. The Bank's non-recurring expenses, primarily
comprising personnel benefit adjustments, amounted to 0.51% of average assets
during the recent LTM period.
The Bank's balance sheet composition reflected its traditional thrift
orientation. Total net loans amounted to 80.8% of assets at First Federal
Florida as compared to the all public thrift average of 67.1% and the
Comparative Group's average of 72.7%. The Comparative Group included several
thrifts (Citizens First Financial, Cooperative Bankshares, FFLC Bancorp, and
Teche Holding Company) with loan-to-asset concentrations exceeding 80%. The
Bank's holdings of cash and securities amounted to 16.5% of total assets, below
the Comparative Group's average of 23.9% and the all public thrift average of
29.5%. Many recently converted thrifts have experienced an increase in cash and
securities following the infusion of significant capital proceeds and the
gradual process involved with re-deploying those funds into loans.
First Federal Florida's relatively high deposit concentration at 84.0%
of assets reflected a lower level of borrowing activity. The Bank's borrowed
funds amounted to 5.0% of assets
-48-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
versus the Comparative Group's average of 11.0% and the all public thrift
average of 16.2%. The Bank's equity ratio of 8.6% was positioned below the
Comparative Group's average of 11.7% and the all public thrift average of 13.2%.
First Federal Florida's growth rates reflect the impact of the branch
sale as the Bank experienced net decreases in assets, loans, and deposits. In
contrast, the Comparative Group reported solid increases averaging 11.4% for
asset growth and 12.0% for deposit growth. Several of the Comparative Group
companies such as FLAG Financial Corporation and Kanakee Bancorp were involved
in mergers which substantially augmented their growth.
In summary, the Bank's earnings performance was below that of the
Comparative Group, which itself exhibited below-average performance ratios on
the whole in comparison to the all public thrift aggregate. The Bank's asset
quality and non-interest income production compared favorably to the Comparative
Group's performance. However, the Bank's lower net interest margin and higher
operating expense levels disadvantaged the Bank's earnings performance relative
to the Comparative Group's results.
-49-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
<TABLE>
<CAPTION>
=======================================================================================================================
Table 13
General Financial Performance Ratios
As of or for the Latest Twelve Months Ended September 30, 1998
=======================================================================================================================
Total Tang. Total Net
Total Total Equity/ Equity/ NPAs/ Interest LTM LTM Core Core
Assets Deposits Assets Assets Assets Margin ROAA ROAE ROAA ROAE
($000s) ($000s) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
First Federal Florida 419,041 352,182 8.62 8.62 0.32 3.02 0.54 6.56 0.41 4.93
- -----------------------------------------------------------------------------------------------------------------------
Comparative Group Average 382,532 293,239 11.66 11.20 0.63 3.30 0.73 6.23 0.72 6.18
Comparative Group Median 392,061 301,038 12.51 12.01 0.61 3.27 0.79 6.97 0.79 6.89
- -----------------------------------------------------------------------------------------------------------------------
All Public Thrift Average 1,614,898 957,835 13.17 12.86 0.65 3.43 0.90 7.90 0.93 8.20
All Public Thrift Median 338,152 233,544 10.81 10.61 0.49 3.41 0.90 7.41 0.89 7.40
- -----------------------------------------------------------------------------------------------------------------------
Acadiana Bancshares, Inc. 289,187 205,652 13.65 13.65 0.24 3.40 0.97 6.28 0.98 6.39
Ameriana Bancorp 398,667 331,228 11.35 10.89 0.55 3.29 0.97 8.33 0.97 8.38
Central Co-operative Bank 377,775 277,025 9.94 9.16 0.40 3.29 0.79 8.00 0.63 6.42
Citizens First Financial Corp. 285,449 203,958 13.23 13.23 0.61 3.45 0.75 5.45 0.63 4.55
Cooperative Bankshares, Inc. 389,409 301,038 8.00 8.00 0.86 3.03 0.63 8.07 0.63 8.07
FFLC Bancorp, Inc. 422,228 336,249 12.51 12.51 0.19 3.66 1.03 7.99 1.03 7.99
First Federal Bancshares 599,945 466,218 13.69 13.69 0.90 3.19 1.03 6.97 1.03 6.97
First Mutual Bancorp, Inc. 371,357 309,410 15.10 12.24 0.34 3.27 0.42 2.94 0.36 2.54
FLAG Financial Corporation 453,648 351,273 8.75 8.75 1.61 4.57 0.68 7.72 0.88 10.02
Harbor Federal Bancorp, Inc. 231,693 176,243 12.78 12.78 0.69 2.98 0.79 6.24 0.79 6.24
Kankakee Bancorp, Inc. 405,163 340,777 9.84 8.56 0.97 3.14 0.70 6.95 0.69 6.89
Monterey Bay Bancorp, Inc. 460,183 371,166 9.70 8.95 0.68 2.95 0.30 2.71 0.32 2.96
OHSL Financial Corp. 252,396 186,532 10.77 10.77 0.11 3.04 0.86 7.92 0.86 7.92
Teche Holding Co. 408,823 279,265 12.85 12.85 0.18 3.41 0.94 7.13 0.92 6.97
Western Ohio Financial Corp. 392,061 262,553 12.74 12.01 1.13 2.83 0.10 0.74 0.05 0.37
</TABLE>
Source: First Federal Florida; SNL Securities; Feldman Financial
-50-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
<TABLE>
<CAPTION>
=======================================================================================================================
Table 14
Income and Expense Analysis
For the Latest Twelve Months Ended September 30, 1998
=======================================================================================================================
As a Percent of Average Assets
----------------------------------------------------------------------------------------
Net Other Gains & Loan Real Pre-tax
Interest Interest Interest Oper. Non-rec. Loss Operating Estate Non-rec. Core
Income Expense Income Income Income Prov. Expense Expense Expense Earnings
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
First Federal Florida 7.29 4.34 2.95 0.42 0.72 0.09 2.64 0.04 0.51 0.60
- -----------------------------------------------------------------------------------------------------------------------
Comparative Group Average 7.44 4.26 3.17 0.41 0.11 0.11 2.46 (0.01) 0.03 1.03
Comparative Group Median 7.45 4.24 3.12 0.29 0.06 0.05 2.44 0.00 0.00 1.07
- -----------------------------------------------------------------------------------------------------------------------
All Public Thrift Average 7.39 4.10 3.29 0.45 0.11 0.13 2.31 (0.01) 0.09 1.31
All Public Thrift Median 7.31 4.11 3.28 0.32 0.03 0.07 2.25 0.00 0.00 1.29
- -----------------------------------------------------------------------------------------------------------------------
Acadiana Bancshares, Inc. 7.47 4.14 3.34 0.37 0.06 0.05 2.30 (0.14) 0.00 1.50
Ameriana Bancorp 7.35 4.21 3.14 0.62 0.23 0.05 2.44 (0.01) 0.01 1.28
Central Co-operative Bank 7.08 3.89 3.19 0.19 0.00 0.00 2.31 0.00 0.00 1.07
Citizens First Financial Corp. 7.55 4.24 3.31 0.13 0.49 0.23 2.64 0.03 0.00 0.54
Cooperative Bankshares, Inc. 7.45 4.52 2.93 0.18 0.08 0.08 2.07 0.02 0.00 0.93
FFLC Bancorp, Inc. 7.69 4.15 3.54 0.28 0.00 0.17 2.03 0.00 0.00 1.63
First Federal Bancshares 7.57 4.45 3.12 0.29 0.03 0.00 1.83 0.01 0.00 1.57
First Mutual Bancorp, Inc. 7.12 4.10 3.02 0.38 0.21 0.15 2.86 0.00 0.00 0.38
FLAG Financial Corporation 8.57 4.26 4.31 1.26 0.25 0.20 4.35 0.02 0.37 1.01
Harbor Federal Bancorp, Inc. 7.39 4.47 2.91 0.24 0.04 0.05 1.80 0.00 0.00 1.30
Kankakee Bancorp, Inc. 7.00 4.07 2.93 0.55 0.04 0.00 2.54 (0.01) 0.00 0.95
Monterey Bay Bancorp, Inc. 7.14 4.32 2.82 0.43 (0.00) 0.18 2.48 0.00 0.05 0.59
OHSL Financial Corp. 7.54 4.56 2.98 0.18 0.13 0.01 1.94 (0.01) 0.00 1.22
Teche Holding Co. 7.47 4.11 3.36 0.86 (0.00) 0.04 2.76 (0.00) 0.00 1.42
Western Ohio Financial Corp. 7.14 4.43 2.71 0.25 0.10 0.45 2.51 0.00 0.00 0.01
</TABLE>
Source: First Federal Florida; SNL Securities; Feldman Financial
-51-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
<TABLE>
<CAPTION>
=======================================================================================================================
Table 15
Yield-Cost Structure and Growth Rates
For the Latest Twelve Months Ended September 30, 1998
=======================================================================================================================
Avg. Int. Avg. Int Net Yield on Cost of
Earning Bearing EarningInterest Interest Net Asset Loan Deposit
Assets/ Liabs./ Assets/Earning Bearing Interest Growth Growth Growth
Assets/ Assets Assets/Assets Liabs. Spread Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
First Federal Florida 97.13 88.40 8.73 7.51 4.78 2.73 (10.22) (4.76) (18.04)
- -----------------------------------------------------------------------------------------------------------------------
Comparative Group Average 96.20 86.43 9.77 7.73 4.93 2.80 11.42 8.44 12.00
Comparative Group Median 96.54 85.86 11.04 7.69 5.01 2.68 6.67 3.08 4.14
- -----------------------------------------------------------------------------------------------------------------------
All Public Thrift Average 96.17 84.25 11.92 7.69 4.86 2.83 13.86 13.80 11.02
All Public Thrift Median 96.54 85.60 10.56 7.60 4.85 2.80 9.39 8.88 5.65
- -----------------------------------------------------------------------------------------------------------------------
Acadiana Bancshares, Inc. 98.07 81.58 16.49 7.62 5.07 2.55 5.54 7.40 8.82
Ameriana Bancorp 95.50 83.76 11.74 7.70 5.02 2.68 1.43 13.34 2.98
Central Co-operative Bank 96.96 89.57 7.39 7.30 4.34 2.96 5.40 (5.41) (0.76)
Citizens First Financial Corp. 95.79 84.75 11.04 7.88 5.01 2.87 2.69 2.23 4.48
Cooperative Bankshares, Inc. 96.70 89.79 6.90 7.70 5.03 2.67 8.31 8.40 4.14
FFLC Bancorp, Inc. 96.54 84.98 11.57 7.96 4.88 3.08 10.13 24.03 9.40
First Federal Bancshares 97.82 85.53 12.28 7.74 5.21 2.53 9.66 4.54 3.37
First Mutual Bancorp, Inc. 92.15 84.48 7.67 7.72 4.85 2.87 (7.71) (4.04) (4.17)
FLAG Financial Corporation 94.29 89.86 4.42 9.09 4.74 4.35 90.24 92.64 97.75
Harbor Federal Bancorp, Inc. 97.90 85.86 12.04 7.55 5.21 2.34 6.67 5.73 2.63
Kankakee Bancorp, Inc. 93.47 89.22 4.25 7.49 4.56 2.93 19.19 3.08 23.37
Monterey Bay Bancorp, Inc. 95.69 88.41 7.28 7.46 4.89 2.57 12.33 (5.74) 17.12
OHSL Financial Corp. 98.05 86.83 11.23 7.69 5.25 2.44 7.59 (0.39) 2.88
Teche Holding Co. 98.31 86.77 11.54 7.60 4.74 2.86 1.17 (0.44) (0.37)
Western Ohio Financial Corp. 95.75 85.12 10.63 7.46 5.20 2.26 (1.35) (18.78) 8.37
</TABLE>
Source: First Federal Florida; SNL Securities; Feldman Financial
-52-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
<TABLE>
<CAPTION>
=======================================================================================================================
Table 16
Balance Sheet Composition
As of the Latest Quarter Ended September 30, 1998
=======================================================================================================================
As a Percent of Total Assets
----------------------------------------------------------------------------------------
Cash & Net Real Intang. Other Total Borrowed Other Total Total
Securities Loans Estate Assets Assets Deposits Funds Liabs. Liabs. Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
First Federal Florida 16.48 80.80 0.12 0.00 2.60 84.04 5.01 2.33 91.38 8.62
- -----------------------------------------------------------------------------------------------------------------------
Comparative Group Average 23.88 72.67 0.17 0.51 2.77 76.30 11.03 1.01 88.34 11.66
Comparative Group Median 23.32 74.41 0.05 0.00 2.45 77.31 11.93 0.81 87.49 12.51
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
All Public Thrift Average 29.52 67.13 0.22 0.34 2.79 69.04 16.16 1.63 86.83 13.17
All Public Thrift Median 27.72 68.85 0.07 0.00 2.48 69.58 15.49 1.30 89.19 10.81
- -----------------------------------------------------------------------------------------------------------------------
Acadiana Bancshares, Inc. 21.33 76.41 0.01 0.00 2.25 71.11 14.43 0.81 86.35 13.65
Ameriana Bancorp 25.89 70.48 0.04 0.51 3.08 83.08 3.14 2.43 88.65 11.35
Central Co-operative Bank 19.91 77.45 0.00 0.86 1.79 73.33 15.88 0.85 90.06 9.94
Citizens First Financial Corp. 13.77 81.64 0.26 0.00 4.33 71.45 13.49 1.83 86.77 13.23
Cooperative Bankshares, Inc. 17.53 80.06 0.00 0.00 2.41 77.31 14.15 0.55 92.00 8.00
FFLC Bancorp, Inc. 11.69 86.34 0.09 0.00 1.88 79.64 7.11 0.75 87.49 12.51
First Federal Bancshares 23.32 74.41 0.73 0.00 1.55 77.84 7.93 0.51 86.29 13.71
First Mutual Bancorp, Inc. 13.40 79.59 0.02 3.26 3.73 83.32 0.54 1.04 84.90 15.10
FLAG Financial Corporation 24.20 69.67 0.85 0.00 5.28 77.43 11.93 1.88 91.25 8.75
Harbor Federal Bancorp, Inc. 31.12 66.39 0.04 0.00 2.45 76.07 10.06 1.09 87.22 12.78
Kankakee Bancorp, Inc. 34.88 60.19 0.36 1.40 3.17 84.11 5.65 0.40 90.16 9.84
Monterey Bay Bancorp, Inc. 42.39 53.70 0.05 0.83 3.04 80.66 8.92 0.73 90.30 9.70
OHSL Financial Corp. 31.32 66.89 0.00 0.00 1.79 73.90 14.54 0.79 89.23 10.77
Teche Holding Co. 12.72 84.43 0.08 0.00 2.77 68.31 17.83 1.01 87.15 12.85
Western Ohio Financial Corp. 34.70 62.40 0.08 0.83 1.99 66.97 19.83 0.46 87.26 12.74
</TABLE>
Source: First Federal Florida; SNL Securities; Feldman Financial
-53-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
<TABLE>
<CAPTION>
=======================================================================================================================
Table 17
Capital Ratios, Asset Quality, and Loan Composition
As of the Latest Quarter Ended September 30, 1998
=======================================================================================================================
Tier I Tier I Total Resid. Other Non-
Capital/ Capital/ Capital/ Total Total Perm. Real Est. Mortg.
Total RiskAdj. RiskAdj. NPLs/ NPAs/ Resrvs./ Resrvs./ Mortgs./Mortgs./ Loans/
Assets Assets Assets Loans Assets Loans NPAs Loans Loans Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
First Federal Florida 8.56 14.50 15.54 0.25 0.32 0.76 192.78 68.28 15.26 16.46
- -----------------------------------------------------------------------------------------------------------------------
Comparative Group Average 9.39 16.86 17.66 0.46 0.60 0.70 144.94 69.92 18.85 11.23
Comparative Group Median 9.29 16.41 17.05 0.26 0.58 0.55 75.23 70.93 17.94 8.03
- -----------------------------------------------------------------------------------------------------------------------
All Public Thrift Average 10.57 20.77 21.78 0.83 0.64 0.96 148.74 NA NA NA
All Public Thrift Median 9.12 16.66 17.51 0.51 0.49 0.83 100.97 NA NA NA
- -----------------------------------------------------------------------------------------------------------------------
Acadiana Bancshares, Inc. 8.05 15.07 16.33 0.29 0.24 1.20 389.42 75.91 9.78 14.30
Ameriana Bancorp 10.20 19.15 19.49 0.64 0.55 0.45 57.32 69.28 7.60 23.12
Central Co-operative Bank 8.84 14.24 15.47 0.51 0.40 0.99 195.20 72.59 22.94 4.48
Citizens First Financial Corp. 9.74 15.49 16.10 0.22 0.61 0.46 61.34 63.52 20.95 15.54
Cooperative Bankshares, Inc. 7.92 14.04 14.55 0.00 0.86 0.35 32.97 81.04 12.26 6.71
FFLC Bancorp, Inc. 10.60 18.15 19.00 0.14 0.19 0.60 266.67 74.94 18.37 6.69
First Federal Bancshares 11.69 22.12 22.33 0.23 0.90 0.17 14.02 84.50 7.32 8.18
First Mutual Bancorp, Inc. 11.83 19.96 20.63 0.12 0.34 0.50 115.35 60.76 19.59 19.65
FLAG Financial Corporation 7.94 11.07 12.32 1.51 1.61 1.23 53.23 40.34 42.13 17.53
Harbor Federal Bancorp, Inc. 10.01 20.96 21.59 1.00 0.69 0.35 33.35 78.84 17.51 3.64
Kankakee Bancorp, Inc. 6.80 12.52 13.55 0.33 0.97 0.99 61.91 63.74 14.90 21.37
Monterey Bay Bancorp, Inc. 6.61 12.37 13.21 1.17 0.68 1.11 88.55 62.88 34.97 2.15
OHSL Financial Corp. 8.44 17.33 17.77 0.06 0.11 0.33 198.92 63.33 30.71 5.96
Teche Holding Co. 12.76 23.63 24.88 0.20 0.18 1.01 460.90 87.27 4.86 7.88
Western Ohio Financial Corp. 11.10 21.51 22.50 1.67 1.13 1.34 75.02 79.00 13.37 7.63
</TABLE>
Source: First Federal Florida; SNL Securities; Feldman Financial
-54-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
III. MARKET VALUE ADJUSTMENTS
This concluding chapter of the appraisal identifies certain additional
adjustments to the Bank's estimated pro forma market value relative to the
Comparative Group of publicly traded thrift institutions selected in Chapter II.
Adjustments are also necessary to reflect the equity market's likely reception
of a new thrift stock offering under current market conditions. The adjustments
discussed in this chapter are made from the viewpoints of potential investors,
which include eligible deposit account holders with subscription rights and
unrelated parties who may purchase stock in a community offering. It is assumed
that these potential investors are aware of all relevant and necessary facts as
they would pertain to the value of First Federal Florida relative to other
publicly traded thrift institutions and relative to alternative investments.
In determining the aggregate pro forma market value of First Federal
Florida pursuant to its Reorganization, we have concluded that the Bank would be
valued based on a fully converted basis. Our appraised value is predicated on a
continuation of the current operating environment for the Bank and thrift
institutions in general. Changes in First Federal Florida's operating
performance along with changes in the local and national economy, the stock
market, the interest rate outlook, the regulatory environment, and other
external factors may occur from time to time, often with great unpredictability,
which could impact materially the pro forma value of the Bank or thrift stocks
in general. Therefore, the pro forma valuation range provided herein is subject
to a more current re-evaluation prior to the actual completion of the
Reorganization.
-55-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
In addition to the comparative operating fundamentals discussed in
Chapter II, it is important to address additional market value adjustments based
on certain financial and other criteria, which include, among other factors:
(1) Earnings Prospects
(2) Market Area
(3) Management
(4) Dividend Policy
(5) Liquidity of the Issue
(6) Subscription Interest
(7) Stock Market Conditions
(8) Recent Acquisition Activity
(9) New Issue Discount
(10) MHC Structure
Earnings Prospects
- ------------------
Earnings prospects are dependent upon the sensitivity of asset yields
and liability costs to changes in market interest rates, the credit quality of
assets, the stability of non-interest components of income and expense, and the
ability to leverage the balance sheet. Each of the foregoing is an important
factor to investors in assessing earnings prospects. The Bank's core earnings
profitability in recent years has been restrained by a comparatively low net
interest margin and above-average operating expense ratio. The Bank's net
interest margin continues to be impacted by a lower yielding asset portfolio in
contrast to the Comparative Group. Historically, prior management of the Bank
employed a very conservative portfolio strategy that emphasized conventional,
fixed-rate residential mortgages and a high volume of investment securities. The
Bank has pursued balance sheet strategies in recent years to increase and
diversify the loan concentration to include higher yielding loans. In addition,
the Bank has attempted to generate increased revenue through more refined,
cost-reflective pricing of products and services.
-56-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
As the Bank seeks to generate growth to spur earnings momentum,
operating expenses and funding requirements become pivotal factors.
Notwithstanding the recent sale of branches, the Bank's operating expenses
remain above industry norms as the Bank's diversification efforts have given
cause for additional personnel, technological, and service capability costs.
While the Bank is laying the groundwork to enhance its future competitive
position, its profitability is not likely to show marked improvement in the
current interest rate environment because of increased pressure on operating
margins. Also, the changeover to a stock company will add various other
operating expenses. In addition, the Bank's funding requirements face pressure
in the form of continued intense competition for retail deposits from other
financial institutions in its market area and alternative investments. Based on
the Bank's recent earnings trends relative to the Comparative Group's results,
we believe that a slight downward valuation adjustment is warranted for this
factor.
Market Area
- -----------
The members of the Comparative Group were primarily selected from the
Southeast and Midwest regions of the country. Most of the Comparative Group
companies are based in moderate-sized cities in or around major metropolitan
areas. The Bank's primary market area is situated between the Tampa and Orlando
markets and has begun to experience solid economic growth as a distribution hub
with an affordable labor pool. While the local market area has exhibited strong
population growth, its growth prospects and income levels generally remain below
statewide levels. We do not believe that, on the whole, the market area
conditions of the Comparative Group are conspicuously different from those
facing the Bank. Accordingly, we believe that no adjustment is warranted for
market area considerations.
-57-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Management
- ----------
Management's principal challenge is to generate profitable results,
monitor credit risks, and control operating costs while the Bank competes in an
increasingly competitive financial services environment. The Bank has assembled
a management team aimed at effectively implementing diversification and
expansion operating strategies to improve historically moderate earnings levels,
and appears to be making sound progress toward achieving these objectives.
Policies and procedures have been developed to guide the Bank's broadened
lending endeavors. Accordingly, we have assumed that the Bank has sufficient
managerial resources in place to continue implementation of its goals and
objectives. Therefore, we believe that no additional adjustment is warranted for
this factor.
Dividend Policy
- ---------------
The Stock Company intends to establish a policy to pay cash dividends
after the Reorganization. The initial annual amount of the dividends is as yet
undetermined. The Stock Company's dividend distribution will take into account
its financial condition, operating results, tax considerations, industry
standards, economic conditions, regulatory restrictions, and other factors. All
but two members of the fifteen companies in the Comparative Group currently pay
regular dividends. Furthermore, payment of cash dividends has become commonplace
among publicly owned thrifts with relatively high capital levels. It is
reasonable to believe that investors will anticipate dividend payments following
the Reorganization given the expected profitability and capitalization of the
consolidated Stock Company. As result, we do not believe that an adjustment is
warranted for this factor.
-58-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Liquidity of the Issue
- ----------------------
Following the completion of the Reorganization, the Stock Company
anticipates that its common stock will be traded on the National Market of
Nasdaq. While an active and liquid market for the common stock may not develop
or be maintained, the pro forma market capitalization and its adequate financial
condition provide convincing evidence that the Stock Company will receive
approval for listing on Nasdaq. The liquidity of thrift common stocks, as with
all securities, has a significant impact on their relative market valuations. Of
the fifteen members of the Comparative Group, twelve are listed on Nasdaq and
three are traded on the American Stock Exchange. The MHC structure will result
in a reduced amount of stock available for trading, but the pro forma market
capitalization indicates the existence of a significant base of publicly held
shares. Given the regular trading activity exhibited by the Comparative Group
and operating similarities of the Comparative Group members with respect to the
Bank, we believe that no adjustment should be accorded for possible lack of
liquidity.
Subscription Interest
- ---------------------
In recent years, initial public offerings of thrift stocks have
attracted a great deal of investor interest and this speculative fervor
continued through the first half of 1998. Contributing to this huge demand is
the growing scarcity factor of mutual candidates for thrift stock conversions
and the favorable after-market performance experienced by many of these issues.
Conversion activity continued at a brisk pace through the first half of 1998 on
the heels of a record-setting stock market. However, the recent market
correction in the late summer of 1998 noticeably affected the after-market
performance of thrift conversions and subscription totals have not
overwhelmingly exceeded offering valuation ranges as was once commonplace.
-59-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Notwithstanding the demand for thrift stocks in initial offerings, a
strong subscription does not always indicate that the valuation range should be
increased or the offering should be priced in the upper end of the valuation
range. Many conversion investors routinely do not purchase stock in the
after-market, particularly at higher trading prices or involving stock issues
with limited liquidity. As such, absent actual results of the Bank's
Subscription Offering, we do not believe any adjustment is warranted at this
time.
Stock Market Conditions
- -----------------------
Table 18 graphically displays the performance of the SNL All Public
Thrift Index as compared to the Standard & Poor's 500 ("S&P 500") Stock Index
and SNL All MHC Thrift Index over the past two years. Table 19 provides a
similar graph with the various indexes all benchmarked at 100 as of year-end
1996. The All Public Thrift Index substantially outperformed the S&P 500 through
April 1998, advancing by 82.4% from year-end 1996 as compared to the broader
market index appreciating 50.1%. The All MHC Thrift Index produced an
exceptionally strong performance, increasing by 133.8% from December 1996 to
April 1998. Many investors determined that the valuation discounts being
accorded to MHCs in the prevailing market cycles were excessive in comparison to
fully converted thrifts and bid up MHC prices in anticipation of favorable
exchange ratios in second-stage conversions.
Since April 1998, thrift stocks underperformed the overall market
with the All Public Thrift Index declining 26.2% through December 14, 1998,
while the All MHC Thrift Index fared much poorly, decreasing by 36.6%. In
comparison, the S&P 500 Index evidenced less volatility and was up 2.6% from
month-end April 1998. The stock market indexes collectively reached a trough in
August 1998 and regained firmer standing in the subsequent months.
-60-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 18
Comparative Stock Market Indexes
Actual Month-end Index Data Trhough December 14, 1998
[OBJECT OMITTED]
-61-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 19
Comparative Stock Market Performance
Indexed to Year-end 1996=100
[OBJECT OMITTED]
-62-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 20 graphically depicts selected interest rates over the past
three years. Interest rates turned upward through the first half of 1997,
responding to concerns about inflationary pressures. Since that point, interest
rates have trended downward with the FNMA Fixed Mortgage Rate Yield falling
below 7.00% and the one-year U.S. Treasury once again falling below 5.00% for
the first time since the first quarter of 1996. Speculation is growing that
rates will continue to drop over the near term as the Federal Reserve considers
lowering rates in response to the turmoil affecting most international markets,
including Asia, Russia, and Latin America.
The uncertainty facing most of the world's financial markets led to the
Dow Jones Industrial Index slipping since crossing the 9300 barrier in the first
half of 1998. The adjustment in stock valuations has hit all segments of the
economy, but especially bank and thrift stocks with stocks of major money-center
banks feeling the effects of the problems that continue regarding Japanese
banks. While the fundamentals of the U.S economy remain relatively strong as
evidenced by low unemployment, low interest rates and strong corporate earnings,
but are counterbalanced by problems facing economies in other parts of the world
and the quandary facing the current Presidential administration, many investors
believe the U.S. markets are headed for continued periods of uncertainty and
wide fluctuations. Concern about the direction of the economy and the level of
profit growth has kept the market's recent focus on large, mature, high-quality
growth companies. Thus, while the more conspicuous, broader market indexes have
rebounded firmly, many individual stocks and specific industry sectors have
experienced sluggish performance.
-63-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 20
Selected Interest Rate Benchmarks
Month-end Indicators
[OBJECT OMITTED]
-64-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Recent Acquisition Activity
- ---------------------------
Acquisition speculation is one factor impacting the prices of thrifts
in the current marketplace. Table 21 summarizes recent acquisition activity
involving thrifts and banks based in Florida. Overall acquisition premiums for
Florida institutions have been similar to the ratios reported nationwide. During
1998 year-to-date, there were 24 publicly announced acquisitions involving
Florida banks and thrifts. The largest acquisition announced during 1998 was the
purchase of First Palm Beach Bancorp, a $1.8 billion-asset thrift, by Republic
Security Financial Corp. Both of these institutions are based in West Palm
Beach. The most prominent acquisition over the past two years was the purchase
of Barnett Banks, a $44.0 billion-asset bank headquartered in Jacksonville, by
NationsBank.
The state's financial institution marketplace is dominated by a large
number of out-of-state banks and thrifts. In fact, among the top ten
institutions based on deposit totals, none were headquartered in Florida.
BankAmerica (successor to NationsBank), First Union, and SunTrust continue as
the largest banks in Florida and controlled over half of the statewide deposit
market. Industry consolidation has proceeded to absorb many financial
institutions within the state, but various de novo institutions have been
established in targeted growth markets. Only six publicly traded thrifts
currently exist in Florida, and five are them are over $1 billion in assets
including three over $3 billion (BankAtlantic Bancorp, BankUnited Financial
Corp., and Ocwen Financial Corp.). We believe that while acquisition premiums
are not a significant factor to consider in determining the Bank's estimated pro
forma market value, such speculative behavior may be reflected to some degree in
the general trading valuation levels of thrift stocks.
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 21
Acquisition Summary of Florida Financial Institutions
Transactions Announced During 1998 Year-to-Date
<TABLE>
<CAPTION>
Seller's Prior Financial Data Offer Value to
-------------------------------- -----------------------
Total TanEq./ YTD YTD Offer Book Tang. LTM Total
B/T B/T Assets Assets ROAA ROAE Date Status Value Value Book EPS Assets
Buyer St. (1) Seller (1) ($M) (%) (%) (%) Anncd. (2) ($M) (%) (%) (x) (%)
----- --- --- ------ --- ---- --- --- --- ------ --- ---- --- --- --- ---
<S> <C> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overall Average 206 8.86 0.86 8.85 -- -- 50.0 291.3 291.8 28.4 25.62
Bank Seller Average 144 9.48 1.07 11.28 -- -- 43.2 304.5 304.9 27.3 28.15
Thrift Seller Average 515 5.74 (0.16) (3.29) -- -- 82.8 228.4 229.7 38.3 13.61
Fifth Third Bancorp OH B South Florida BHC B 86 9.18 1.80 20.14 10/22/98 P 28.7 342.9 342.9 14.0 33.22
Alabama National AL B Comm. Bank of Naples B 77 6.22 0.75 11.32 09/21/98 P 15.0 308.5 312.2 57.9 19.42
Republic Security FL B Northside Bank Tampa B 68 12.76 1.70 12.79 09/14/98 P 19.6 226.7 226.7 16.9 28.93
Union Planters Corp. TN B Ready State Bank B 581 8.87 1.17 13.32 08/28/98 P 169.0 327.0 328.1 22.7 29.10
Republic Security FL B Newberry Bank B 37 6.15 0.75 12.16 08/24/98 C 4.8 209.3 209.3 47.5 12.86
FNB Corporation PA B Guaranty B&T B 142 6.94 0.94 12.54 08/21/98 P 34.3 346.9 346.9 35.1 24.08
SouthTrust Corp. AL B First American Bk IR B 46 10.29 0.87 8.27 07/06/98 C 11.3 238.4 238.4 30.9 24.54
Warrior Capital AL B Emerald Coast Bcshs B 66 8.23 (0.30) (3.15) 06/12/98 P NA NA NA NA NA
SunTrust Banks Inc. GA B Citizens Bancorp B 180 16.24 1.85 11.49 06/04/98 C 49.6 170.0 170.0 15.6 27.61
Republic Security FL B First Palm Beach Bcp T 1,791 6.40 0.49 7.61 05/28/98 C 299.1 237.9 243.1 30.8 16.70
Colonial BancGroup AL B Prime Bk of Cent Fla B 68 9.38 1.10 11.49 05/22/98 C 18.0 279.1 281.3 25.9 26.36
First TeleBanc Corp. FL B Boca Raton First NB B 16 9.90 (1.55) (16.04) 05/06/98 P 4.6 286.0 286.0 NA 28.31
Republic Bancshares FL B Lochaven FS&LA T 58 4.82 (1.43) (25.60) 04/22/98 C 5.8 206.8 206.8 NA 9.96
FNB Corporation PA B Citizens Hldg Corp B 117 10.26 1.03 9.73 04/06/98 C 38.8 323.4 323.4 35.1 33.20
Colonial BancGroup AL B CNB Holding Co. B 88 8.71 1.66 18.89 03/27/98 C 28.5 373.4 373.4 20.4 32.51
Republic Security FL B UniFirst FSB T 142 5.65 0.08 1.40 03/26/98 C 13.5 168.2 168.2 45.8 9.50
SouthTrust Corp. AL B Marine Bank B 58 12.53 1.76 14.13 03/25/98 C 20.9 285.1 285.1 21.3 35.73
Regions Financial AL B Village Bankshares B 191 6.78 1.10 16.41 03/24/98 C 55.4 427.8 427.8 31.5 29.03
Alabama National AL B Public Bank Corp. B 49 9.41 1.73 18.23 03/05/98 C 14.9 325.1 325.1 18.4 30.17
Union Planters Corp. TN B Transflorida Bank B 316 12.95 1.93 15.40 03/04/98 C 101.4 247.8 247.8 17.4 32.09
SouthTrust Corp. AL B American Banks of FL B 547 7.86 0.66 8.90 02/19/98 C 163.0 379.5 379.5 NA 29.81
Republic Bancshares FL B Bankers Savings Bank T 69 6.07 0.21 3.43 02/10/98 C 12.6 300.9 300.9 NA 18.26
FNB Corporation PA B Seminole Bank B 84 10.22 1.28 12.59 02/02/98 C 28.5 333.5 333.5 29.9 34.09
Florida Banks FL B First NB of Tampa B 58 6.71 1.12 17.02 01/23/98 C 13.8 354.9 354.9 22.7 23.80
</TABLE>
(1) B=bank; T=thrift.
(2) P=pending; C=completed.
Source: SNL Securities
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
New Issue Discount
- ------------------
A "new issue" discount that reflects investor concerns and investment
risks inherent in all initial stock offerings is a factor to be considered in
valuations of initial thrift stock offerings. The magnitude of the new issue
discount typically expands during periods of declining thrift stock prices as
investors require larger inducements, and narrows during strong market
conditions. The thrift conversion market continues to respond to the
after-market performance of recent offerings. Table 22 presents a summary of
publicly traded thrifts that have completed standard full conversions and MHC
stock offerings thus far in 1998. The recent after-market performance of thrift
conversions has become much more subdued, with issues moving up only modestly
from initial offering prices. As prior conversion valuations increased to
reflect the cyclical strength of thrift stock performance, it appears that the
current market may have reached its tolerance for historically high valuations
accompanied by the prospect of companies generating lackluster returns on
equity.
The average pro forma price/book ratio for the 30 standard conversions
completed thus far in 1998 was 73.8% with an average price/earnings ratio of
16.8x. However, since the recent market correction, the last seven thrift
conversions averaged a pro forma price/book ratio of 65.3% and a price/earnings
ratio of 15.1x. Additionally, these offerings experienced modest price
appreciation in after-market trading. As of December 14, 1998, four of the last
eight standard conversions remained at or below their initial offering prices.
The after-market price performance of MHC stock offerings has been even more
unfavorable. The past five MHC stock offerings all closed at prices as of
December 14, 1998 below their initial offering prices and were down on average
by 7.4%.
-67-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 22
Summary of Recent Publicly Traded Thrift Conversions
<TABLE>
<CAPTION>
After-Market
Pre-Conversion Pro Forma Ratios Price Change
---------------- --------------------- -----------------
Total Tan.Eq./ Gross Price/ Price/ Price/ IPO One Through
Assets Assets Proceeds Book EPS(1) Assets Price Week 12/14/98
Company Exchange State IPO Date ($mil.) (%) ($mil.) (%) (x) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Full Conversion Average 369 9.95 78.7 73.8 16.8 16.5 NA 36.6 21.6
- -----------------------------------------------------------------------------------------------------------------------------------
Full Conversion Offerings
- -------------------------
Seacoast Financial Services Corp. NASDAQ MA 11/20/98 1,107 8.87 140.0 52.6 NA 11.2 10.00 0.6 0.0
Northfield Bancorp, Inc. OTC MD 11/12/98 39 7.92 4.8 69.3 9.4 10.9 10.00 2.5 2.5
First Niles Financial Inc. NASDAQ OH 10/27/98 72 16.41 17.5 62.7 23.9 19.5 10.00 8.8 5.6
CNY Financial Corp. NASDAQ NY 10/06/98 234 13.15 52.5 69.9 47.2 18.3 10.00 (4.4) (5.3)
IBL Bancorp Inc. OTC LA 10/01/98 22 7.24 2.1 68.0 10.6 8.6 10.00 NA NA
Farnsworth Bancorp Inc. OTC NJ 09/30/98 39 5.75 3.8 72.5 12.9 8.9 10.00 8.7 6.2
CGB&L Financial Group, Inc. OTC IL 09/23/98 7 14.22 1.0 61.8 18.9 12.5 10.00 0.0 0.0
CFS Bancorp Inc. NASDAQ IN 07/24/98 746 8.80 178.5 71.7 18.2 19.3 10.00 10.6 (2.5)
Carnegie Financial Corporation OTC PA 07/13/98 17 6.91 2.4 79.2 NA 12.5 10.00 15.0 (10.0)
United Community Financial Corp. NASDAQ OH 07/09/98 1,045 13.53 334.7 77.8 14.1 24.3 10.00 50.0 35.0
PCB Holding Company OTC IN 07/02/98 22 9.51 4.0 71.0 17.6 15.3 10.00 21.2 3.7
Hudson River Bancorp Inc. NASDAQ NY 07/01/98 665 10.13 173.3 80.1 22.3 20.7 10.00 33.8 9.4
Anson Bancorp, Inc. OTC NC 06/22/98 20 19.04 5.9 65.3 21.9 22.4 10.00 22.5 0.0
Columbia Financial of Kentucky NASDAQ KY 04/15/98 104 12.59 26.7 74.5 19.6 20.4 10.00 57.5 23.8
Adirondack Fin'l Services Bancorp OTC NY 04/07/98 61 5.38 6.6 77.0 NA 9.8 10.00 20.0 41.2
EFC Bancorp, Inc. AMSE IL 04/07/98 316 9.92 69.4 76.6 13.5 18.0 10.00 48.8 19.4
Quitman Bancorp, Inc. OTC GA 04/07/98 39 7.55 6.6 78.7 14.6 14.4 10.00 38.7 10.0
Northeast Pennsylvania Fin'l Corp.AMSE PA 04/01/98 369 7.73 59.5 75.4 18.7 13.9 10.00 53.1 10.0
Bay State Bancorp, Inc. AMSE MA 03/30/98 233 8.19 46.9 78.6 20.9 16.8 20.00 49.4 24.4
Home Loan Financial Corp. NASDAQ OH 03/26/98 60 17.16 22.5 75.9 17.0 27.1 10.00 58.8 40.0
Cavalry Bancorp, Inc. NASDAQ TN 03/17/98 276 10.69 75.4 79.8 14.3 21.5 10.00 133.8 110.0
Independence Commty. Bank Corp. NASDAQ NY 03/17/98 3,733 6.77 704.1 77.2 17.9 15.9 10.00 76.9 51.3
SFSB Holding Company OTC PA 02/27/98 38 9.20 7.3 76.0 NA 16.1 10.00 31.2 10.0
Richmond County Financial Corp. NASDAQ NY 02/18/98 993 10.15 244.7 79.6 14.0 19.8 10.00 59.4 66.3
HopFed Bancorp, Inc. NASDAQ KY 02/09/98 202 9.02 40.3 75.4 12.4 16.6 10.00 60.0 60.0
Timberland Bancorp, Inc. NASDAQ WA 01/13/98 206 11.57 66.1 81.6 10.5 24.3 10.00 61.9 19.4
Mystic Financial, Inc. NASDAQ MA 01/09/98 150 7.98 27.1 77.8 17.5 15.3 10.00 50.6 23.8
Wyman Park Bancorporation, Inc. OTC MD 01/07/98 62 7.63 10.1 76.7 23.3 14.0 10.00 31.2 20.0
Delaware First Financial Corp. OTC DE 01/05/98 113 5.41 11.6 73.6 20.6 9.3 10.00 21.5 41.2
United Tennessee Bankshares, Inc. NASDAQ TN 01/05/98 64 10.08 14.5 78.4 16.1 18.5 10.00 40.0 10.0
</TABLE>
(1) Price/earnings ratios greater than 25 are excluded from average
computations.
-68-
<PAGE>
Table 22 (continued)
Summary of Recent Publicly Traded Thrift Conversions
<TABLE>
<CAPTION>
After-Market
Pre-Conversion Pro Forma Ratios Price Change
---------------- -------------------------- ----------------
Total Tan.Eq./ Gross Price/ Price/ Price/ IPO One Through
Assets Assets Proceeds Book EPS Assets Price Week 12/14/98
Company Exchange State IPO Date ($mil.) (%) ($mil.) (%) (x) (%) ($) (%) (%)
------- -------- ----- -------- -------- ------ ------- ------ ----- ------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MHC Offering Average 329 11.78 39.5 116.1 24.6 21.7 NA 32.8 7.7
- ------------------------------------------------------------------------------------------------------------------------------------
MHC Stock Offerings
- -------------------
Service Bancorp Inc. OTC MA 10/08/98 131 7.54 8.0 104.0 12.2 12.4 10.00 (20.0) (5.0)
Sound Federal Bancorp NASDAQ NY 10/08/98 255 12.52 23.0 100.0 15.6 18.7 10.00 (11.3) (5.0)
West Essex Bancorp Inc. NASDAQ NJ 10/05/98 299 9.79 17.7 95.4 40.2 13.4 10.00 (7.5) (0.6)
BCSB Bankcorp, Inc. NASDAQ MD 07/08/98 252 9.48 22.9 142.2 26.1 22.6 10.00 26.3 (15.0)
Liberty Bancorp, Inc. NASDAQ NJ 07/01/98 217 7.61 18.3 121.7 20.4 16.7 10.00 16.3 (11.3)
Niagara Bancorp, Inc. NASDAQ NY 04/20/98 1,176 10.77 135.0 122.1 20.7 23.0 10.00 68.1 6.3
Gaston Federal Bancorp, Inc. NASDAQ NC 04/13/98 173 12.03 21.1 116.8 24.5 23.5 10.00 70.0 48.1
Mid-Southern S.B., FSB OTC IN 04/09/98 56 12.92 4.0 135.3 19.5 24.1 10.00 72.5 33.1
Brookline Bancorp, Inc. NASDAQ MA 03/25/98 667 17.08 136.7 122.4 19.4 36.8 10.00 63.8 11.3
Marquette Savings Bank OTC WI 01/22/98 67 18.05 8.5 100.6 47.4 25.8 8.00 50.0 15.6
</TABLE>
Source: SNL Securities
-69-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
In the after-market, full conversions had been trading upward to and above 90%,
but more recently have found resistance in the 70% to 80% range. To price a new
offering at 90% of pro forma book value, because of the mathematics of the
calculation, would require very large increases in valuations and produce very
marginal returns on equity. This would likely produce price declines in the
after-market. Accordingly, thrift conversions continue to be priced at discounts
relative to more seasoned publicly traded companies. This is due to the
relatively high pro forma equity ratios, expected low returns on equity, and the
uncertainty regarding the ability of an institution to leverage the balance
sheet profitably in a flat yield curve environment.
Investors are aware that at initial pro forma price/book ratios
approaching the current trading range of a majority of public thrifts,
price/earnings ratios of converting thrifts would be excessive, returns on
equity very low, and capital levels dramatically high. Based upon the price/book
ratio measure, standard thrift conversions are being discounted by 40% to 50%
relative to the trading market.
MHC Structure
- -------------
Market evidence indicates that minority ownership interests are
discounted to majority ownership interests, which convey the ability to effect
changes, influence business policies, and transfer control. In the thrift MHC
ownership structure, public shareholders hold an aggregate minority ownership
interest that is subordinate to the MHC. However, the governing board of the MHC
is quite often similar to that managing the subsidiary bank. Furthermore, the
public shareholders in a fully converted thrift offering also assume a minority
ownership role since there are limitations on the purchase and accumulation of
stock interests.
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
The most significant impediment that the MHC poses is the ability to
avert a sale of control by acquisition. Until recent periods, the trading
activity of other publicly held MHCs indicated that this inability to be
acquired suppressed the comparative market valuation of MHCs versus fully
converted thrift stock issues. However, the anticipation of second-stage
conversion announcements, the strong advancements posted by MHCs in general, and
a growing cadre of research analysts advancing the investment attributes of MHC
from prior trading levels combined to propel MHC stock price performance in 1997
through the first half of 1998. In recent months, weakness in the financial
sector drove MHC stock prices downward as bank and thrift stock investors became
more selective.
Table 23 provides estimated fully converted valuation ratios for
current MHC thrifts, based upon a hypothetical second-stage conversion of each
company at common assumptions regarding the amount of capital raised and
re-invested. On a fully converted basis, we have determined that the MHC thrifts
are trading at comparable price/earnings ratios to the overall public thrift
stock norm, but at discounts on a price/book basis. This discount is not so much
a qualitative abstraction but rather a recognition that the resulting high pro
forma capital ratios have a restraining impact on the price/book measure.
MHCs also have been typically characterized by reduced liquidity from
the full conversion valuations and higher dividend expectations. However,
because of the increased market valuations of thrift stocks in general and the
relatively low yields being earned on the increased thrift stock prices, these
characteristics are less important today than in prior periods. Furthermore,
given the size of the Bank's expected Stock Offering and its trading market, the
issue of liquidity does not loom pivotal. Many MHCs have completed full second-
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 23
Estimated Fully Converted Valuation Ratios for MHC Thrifts
<TABLE>
<CAPTION>
Market MHC Total Adj. Adj. Price/ Price/
Price Owner- Market Book LTM Adj. Adj.
12/14/98 ship Value Value EPS Book EPS
Company State ($) (%) ($M) ($) ($) (%) (x)
------- ----- --- --- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average 85.4 16.4
Median 83.6 15.4
Alliance Bank PA 12.19 80.1 39.9 17.41 0.94 70.0 13.0
BCSB Bankcorp, Inc. MD 8.50 37.4 52.0 NA NA NA NA
Brookline Bancorp, Inc. MA 11.13 53.0 323.7 14.55 0.92 76.4 12.1
Community Savings Bankshares FL 22.25 51.3 113.6 26.67 1.32 83.4 16.8
Fidelity Bankshares Inc. FL 23.00 52.1 156.5 23.45 1.64 98.1 14.0
Finger Lakes Financial Corp. NY 11.50 66.9 41.1 12.72 0.49 90.4 23.4
First FSB of Siouxland IA 25.00 53.6 71.1 26.38 1.68 94.8 14.9
Gaston Federal Bancorp, Inc. NC 14.81 53.0 66.6 15.82 0.66 93.6 22.3
Harris Financial, Inc. PA 13.75 75.0 467.4 14.31 0.90 96.1 15.2
Jacksonville Savings Bank IL 12.75 54.4 24.3 15.21 0.75 83.8 17.1
Leeds Federal Bankshares, Inc. MD 13.88 63.5 72.1 16.92 1.02 82.0 13.6
Liberty Bancorp, Inc. NJ 8.88 53.0 34.6 12.70 0.60 69.9 14.7
Niagara Bancorp, Inc. NY 10.63 53.3 316.2 13.49 0.72 78.7 14.8
Northwest Bancorp, Inc. PA 9.88 69.1 462.8 10.44 0.69 94.6 14.4
Pathfinder Bancorp, Inc. NY 9.63 56.7 26.3 12.97 0.50 74.2 19.2
People's Bank CT 27.25 56.8 1,748.0 26.32 2.23 103.5 12.2
PHS Bancorp, Inc. PA 13.88 55.0 38.3 17.01 0.74 81.6 18.7
Pulaski Savings Bank NJ 10.38 53.0 21.9 15.29 0.66 67.9 15.6
Skibo Financial Corp. PA 8.50 55.0 29.3 11.07 0.44 76.8 19.3
Sound Federal Bancorp NY 9.50 44.1 49.5 NA NA NA NA
Wayne Savings Bancshares, Inc. OH 19.13 51.7 47.6 18.26 1.03 104.7 18.6
Webster City FSB IA 15.75 54.4 33.3 18.01 0.93 87.4 16.9
West Essex Bancorp Inc. NJ 9.94 NA 18.4 NA NA NA NA
</TABLE>
Source: SNL Securities; Feldman Financial
-72-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
stage conversions within a relatively short time frame and there are no special
regulations prohibiting the Bank from electing this course at some future time.
Based on these overall considerations, we do not believe that a specific
adjustment is warranted.
Adjustments Conclusion
- ----------------------
The Bank's pro forma valuation should be discounted relative to the
Comparative Group because of earnings prospects and the new issue discount.
Individual discounts and premiums are not necessarily additive and may, to some
extent, offset or overlay each other. Currently, conversions are often priced at
substantial discounts to peer institutions relative to price/book ratios, but at
lesser discounts to the comparable institutions' price/earnings ratios. It is
the role of the appraiser to balance the relative dynamics of price/book and
price/earnings discounts and premiums.
Valuation Approach
- ------------------
Table 24 displays the market price and valuation data of the
Comparative Group as of December 14, 1998, along with average valuation data for
the nationwide and Florida public thrift aggregates, and compares the Bank on a
pro forma fully converted basis with the various peer groups. Table 25 presents
the relative magnitudes of discount and premiums to the aggregate groups. Table
26 compares the Bank's pro forma valuation ratios, based upon an MHC stock
offering of 47% to minority shareholders, with valuation ratios for all public
MHC thrifts. Exhibit IV displays the pro forma assumptions and calculations
utilized in analyzing the Bank's valuation ratios.
-73-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Investors continue to make decisions to purchase thrift conversion
stocks and more seasoned thrift issues based upon consideration of earnings
prospects and price/book comparisons. Utilizing a discount of approximately 48%
to the corresponding Comparative Group average, the Bank's resulting pro forma
price/book ratio at the midpoint valuation of $43.5 million is 59.4%, producing
a price/book valuation ratio of 63.4% at the range maximum and 67.3% at the
adjusted maximum. The Bank's pro forma price/book ratio of 63.4% at the maximum
represents a 45% discount to the Comparative Group's average. The Florida thrift
aggregate contains six companies, which are trading below industry norms on a
price/book basis either due to excessive capital or, in the case of the larger
companies, lackluster profitability. The average price/book ratio for all
Florida thrifts was 107.6%.
The price/earnings ratio is an important valuation ratio in the current
thrift stock environment and was a central focus in deriving our estimate of the
Bank's pro forma market value. Based on the Bank's LTM earnings and the net
conversion-related returns and adjustments, the Bank is valued at a midpoint
price/earnings ratio of 13.6x and a maximum price/earnings ratio of 15.2x. These
pro forma ratios represent discounts of 19% and 9%, respectively, to the
Comparative Group average of 16.7x. Applying the Bank's lower core earnings base
of $1.8 million, the pro forma price/earnings ratio at the midpoint is 17.1x and
increases to 18.9x and 20.8x at the maximum and adjusted maximum valuations,
respectively. Because of the Bank's low core earnings profitability, its
resulting price/core earnings ratios are skewed above the Comparative Group's
average. Among the Comparative Group companies reporting correspondingly low
core earnings profitability, they similarly
-74-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
experienced higher price/core earnings ratios with Cooperative Bankshares at
21.0x and Citizens First Financial Corp. at 23.6x.
Table 26 presents the Bank's pro forma valuation ratios based upon an
MHC stock offering with 47% of the stock being sold to the public and the MHC
retaining a 53% majority interest. The corresponding valuation ratios are
displayed also for all MHC thrifts. Valuation ratios for MHC thrifts are
generally higher due to the fact that less proportionate capital has been
raised, but with the majority-owned shares still being valued in the market.
Thus, because of the differing public ownership concentrations, such valuation
ratios are not very meaningful for comparative purposes between MHC thrifts or
with other public thrifts.
Valuation Conclusion
- --------------------
It is our opinion that, as of December 14, 1998, the aggregate
estimated pro forma market value of the Bank was within the valuation range of
$36,975,000 to $50,025,000 with a midpoint of $43,500,000. The valuation range
was based upon a 15% decrease from the midpoint to determine the minimum and a
15% increase to establish the maximum. Assuming an additional 15% increase above
the maximum results in an adjusted maximum valuation of $57,528,750. The Board
of Directors of the Bank has determined to offer for sale in the Reorganization
a minority ownership interest equal to 47% of all the common stock to be issued
and outstanding. Therefore, the aggregate value of common stock to be sold in
the Reorganization will be equal to $17,378,250 at the minimum valuation,
$20,445,000 at the midpoint valuation, $23,511,750 at the maximum valuation, and
$27,038,513 at the adjusted maximum.
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<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 24
Comparative Valuation Analysis - Full Conversion Basis
First Federal Florida and the Comparative Group
Market Price Data as of December 14, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Current Total Price/ Price/ Price/ Price/ Price/ Tang. Current
Stock Market LTM Core Book Tang. Total Equity/ Dividend
Price Value EPS(1) EPS(1) Value Book Assets Assets Yield
Company ($) ($M) (x) (x) (%) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------------------
First Federal Florida - Full Conversion
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Minimum 10.00 37.0 11.9 15.1 54.8 54.8 8.21 14.99 0.00
Pro Forma Midpoint 10.00 43.5 13.6 17.1 59.4 59.4 9.54 16.05 0.00
Pro Forma Maximum 10.00 50.0 15.2 18.9 63.4 63.4 10.83 17.08 0.00
Pro Forma Adj. Maximum 10.00 57.5 16.9 20.8 67.3 67.3 12.28 18.24 0.00
Comparative Group Average -- 50.2 16.7 16.9 115.3 120.6 13.31 11.20 2.12
All Public Thrift Average -- 227.8 15.5 15.3 127.4 134.2 15.28 12.68 2.07
Florida Thrift Average -- 234.2 17.5 13.6 107.6 117.4 12.49 10.26 1.00
Comparative Group
Acadiana Bancshares, Inc. 17.13 38.9 14.5 14.3 98.9 98.9 13.49 13.65 2.57
Ameriana Bancorp 19.94 63.6 17.5 17.3 141.3 147.9 16.04 10.89 3.31
Central Co-operative Bank 17.94 35.3 12.0 15.0 93.9 102.8 9.33 9.16 1.78
Citizens First Financial Corp. 16.50 37.8 19.6 23.6 104.5 104.5 13.82 13.23 0.00
Cooperative Bankshares, Inc. 15.50 47.2 21.0 21.0 151.5 151.5 12.11 8.00 0.00
FFLC Bancorp, Inc. 16.25 59.9 14.8 14.8 113.6 113.6 14.22 12.51 2.22
First Federal Bancshares 20.13 92.1 16.0 16.0 114.2 114.2 15.64 13.69 1.39
First Mutual Bancorp, Inc. 17.88 63.1 36.5 41.6 112.6 143.6 16.99 12.24 1.79
FLAG Financial Corporation 12.13 62.8 22.5 17.3 158.5 158.5 13.85 8.75 1.98
Harbor Federal Bancorp, Inc. 20.00 37.3 19.6 19.6 125.9 125.9 16.08 12.78 2.60
Kankakee Bancorp, Inc. 26.25 35.9 14.3 14.4 90.4 105.4 8.90 8.56 1.83
Monterey Bay Bancorp, Inc. 14.44 51.0 46.6 42.5 113.4 124.0 11.74 8.95 0.83
OHSL Financial Corp. 14.00 34.9 16.5 16.5 125.9 125.9 13.84 10.77 3.57
Teche Holding Co. 15.00 46.4 12.8 13.2 88.4 88.4 11.36 12.85 3.33
Western Ohio Financial Corp. 21.75 46.8 120.8 241.7 96.5 103.2 12.29 12.01 4.60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Price/earnings ratios greater than 25.0 are excluded from average
compuations.
Source: First Federal Florida; SNL Securities; Feldman Financial
-76-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 25
Comparative Discount and Premium Analysis
Market Price Data as of December 14, 1998
<TABLE>
<CAPTION>
Relative Premiums (Discounts)
--------------------------------------------
First Comp. All All
Valuation Federal Group Public Florida
Ratio Symbol Florida Average Thrifts(1) Thrifts(2)
----- ------ ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
--------------------------------------------
Price / LTM EPS (3) P/E 16.7 15.5 17.5
--------------------------------------------
-----------
Adj. Maximum (x) 16.9 1% 9% -3%
Maximum 15.2 -9% -2% -13%
Midpoint 13.6 -19% -12% -22%
Minimum 11.9 -29% -23% -32%
-----------
--------------------------------------------
Price / Core EPS (3) P/E 16.9 15.3 13.6
--------------------------------------------
-----------
Adj. Maximum (x) 20.8 23% 36% 53%
Maximum 18.9 12% 24% 39%
Midpoint 17.1 1% 12% 26%
Minimum 15.1 -11% -1% 11%
-----------
--------------------------------------------
Price / Book Value P/B 115.3 127.4 107.6
--------------------------------------------
-----------
Adj. Maximum (%) 67.3 -42% -47% -37%
Maximum 63.4 -45% -50% -41%
Midpoint 59.4 -48% -53% -45%
Minimum 54.8 -52% -57% -49%
-----------
--------------------------------------------
Price / Tangible Book P/B 120.6 134.2 117.4
--------------------------------------------
-----------
Adj. Maximum (%) 67.3 -44% -50% -43%
Maximum 63.4 -47% -53% -46%
Midpoint 59.4 -51% -56% -49%
Minimum 54.8 -55% -59% -53%
-----------
--------------------------------------------
Price / Total Assets P/A 13.31 15.28 12.49
--------------------------------------------
-----------
Adj. Maximum (%) 12.28 -8% -20% -2%
Maximum 10.83 -19% -29% -13%
Midpoint 9.54 -28% -38% -24%
Minimum 8.21 -38% -46% -34%
-----------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Averages for 315 publicly traded, non-MHC, non-acquiree thrifts nationwide.
(2) Averages for 6 publicly traded, non-MHC, non-acquiree thrifts based in
Florida.
(3) Price/earnings ratios exclude values greater than 25.
-77-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Table 26
Comparative Valuation Analysis - MHC Offering
First Federal Florida and All Public MHC Thrifts
Market Price Data as of December 14, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Current Total Price/ Price/ Price/ Price/ Price/ Tang. Current
Stock Market LTM Core Book Tang. Total Equity/ Dividend
Price Value EPS EPS Value Book Assets Assets Yield
Company ($) ($M) (x) (x) (%) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Federal Florida - MHC Offering
Pro Forma Minimum 10.00 37.0 13.8 17.9 73.7 54.8 8.54 11.59 0.00
Pro Forma Midpoint 10.00 43.5 15.9 20.6 82.3 82.3 9.98 12.13 0.00
Pro Forma Maximum 10.00 50.0 18.0 23.2 90.1 90.1 11.41 12.67 0.00
Pro Forma Adj. Maximum 10.00 57.5 20.3 26.1 98.1 98.1 13.03 13.28 0.00
MHC Thrift Average -- 185.0 22.5 24.1 150.9 158.5 19.12 12.58 2.25
All MHC Thrifts
Alliance Bank 12.19 39.9 20.0 20.0 131.9 131.9 14.26 10.81 2.95
BCSB Bankcorp, Inc. 8.50 52.0 NA NA NA NA NA 8.00 0.00
Brookline Bancorp, Inc. 11.13 323.7 NA NA 116.3 116.3 38.60 32.89 1.80
Community Savings Bankshares 22.25 113.6 23.7 23.7 131.6 131.6 14.35 10.69 4.04
Fidelity Bankshares Inc. 23.00 156.5 19.8 22.3 171.4 176.1 10.44 5.94 4.35
Finger Lakes Financial Corp. 11.50 41.1 NA NA 183.1 183.1 14.91 8.14 2.09
First FSB of Siouxland 25.00 71.1 20.2 21.2 164.8 202.8 12.49 6.25 1.92
Gaston Federal Bancorp, Inc. 14.81 66.6 NA NA 160.1 160.1 32.02 19.99 1.35
Harris Financial, Inc. 13.75 463.4 26.4 32.0 242.9 267.5 19.31 7.26 1.60
Jacksonville Savings Bank 12.75 24.3 26.0 26.0 135.6 135.6 14.63 10.79 2.35
Leeds Federal Bankshares, Inc. 13.88 72.1 21.0 21.0 145.3 145.3 23.75 16.36 4.04
Liberty Bancorp, Inc. 8.88 34.6 NA NA 101.3 101.3 13.94 13.76 0.00
Niagara Bancorp, Inc. 10.63 316.2 NA NA 121.3 121.3 22.10 18.23 1.13
Northwest Bancorp, Inc. 9.88 467.5 21.5 22.4 208.8 234.6 17.35 7.47 1.62
Pathfinder Bancorp, Inc. 9.63 26.3 22.9 28.3 115.7 136.1 13.75 10.10 2.08
People's Bank 27.25 1,747.6 16.0 22.7 204.0 243.3 18.17 7.57 3.38
PHS Bancorp, Inc. 13.88 38.3 23.1 24.8 130.7 130.7 16.16 12.37 2.02
Pulaski Savings Bank 10.38 21.9 22.1 20.8 97.1 97.1 11.43 11.76 3.08
Skibo Financial Corp. 8.50 29.3 NA NA 118.9 118.9 20.37 17.13 3.53
Sound Federal Bancorp 9.50 49.5 NA NA NA NA NA 11.86 0.00
Wayne Savings Bancshares 19.13 47.6 27.7 27.7 191.6 191.6 18.29 9.54 3.24
Webster City FSB 15.75 33.3 24.6 24.6 145.3 145.3 36.15 24.87 5.08
West Essex Bancorp Inc. 9.94 18.4 NA NA NA NA NA 7.59 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: First Federal Florida; SNL Securities; Feldman Financial
-78-
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
I-1
Exhibit I
Background of Feldman Financial Advisors, Inc.
Overview of Firm
- ----------------
Feldman Financial Advisors provides consulting and advisory services to
financial institutions and mortgage companies in the areas of corporate
valuations, mergers and acquisitions, strategic planning, branch sales and
purchases, developing and implementing regulatory business and capital plans,
enhancing franchise value, portfolio analysis and restructuring, evaluating bank
management, regulatory analysis, and expert witness testimony and analysis. Our
principals have been involved in the stock conversion process since 1982 and
have valued more than 350 converting institutions.
Feldman Financial Advisors was incorporated in February 1996 by a group of
consultants who were previously associated with Kaplan Associates. Each of the
principals at Feldman Financial Advisors has more than 10 years experience in
consulting and all were officers of their prior firm. Our principals
collectively have worked with more than 1,000 banks, thrifts and mortgage
companies nationwide. The firm's office is located in Washington, D.C.
Background of Principals
- ------------------------
Trent Feldman is the President of the firm. Trent is a nationally recognized
expert in valuing financial institutions, providing strategic advice to
financial institutions, and advising on mergers and acquisitions for banks and
thrifts of all sizes. Trent was with Kaplan Associates for 14 years and was one
of three founding principals at that firm. Trent also has worked in the
Chairman's Office of the Federal Home Loan Bank Board, the Federal Savings and
Loan Insurance Corporation, and with the California state legislature. Trent
holds Bachelors and Masters degrees from the University of California at Los
Angeles.
Peter Williams specializes in merger and acquisition analysis, corporate
valuations, strategic business plans and retail branch analysis. Peter was with
Kaplan Associates for 13 years. Peter also served as a Corporate Planning
Analyst with the Wilmington Trust Company in Delaware. Peter holds a BA in
Economics from Yale University and an MBA in Finance from George Washington
University.
Michael Green is an expert in mergers and acquisition analysis, financial
institution valuations, and business plans. During Mike's 10 years at Kaplan
Associates, his experience also included mark-to-market analysis, goodwill
valuations and core deposit studies.
Mike holds a BS in Finance and Economics from Rutgers College.
Linda Farrell is nationally known for her expertise in branch purchases and
sales, and she specializes in small bank mergers and acquisitions, retail
banking analysis, business plans and management reviews. Linda was with Kaplan
Associates for 12 years. Linda also was a Senior Vice President of Retail
Banking at Western Savings in Salt Lake City and a consultant with both Arthur
Young & Company and Richard T. Pratt Associates. Linda holds a BA in English
from Oklahoma State University and an MBA from the University of Utah.
I-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-1
Statement of Financial Condition
As of September 30, 1997 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30,
--------------------------------
1998 1997
------ ------
<S> <C> <C>
Assets
- ------
Cash and amounts due from depository institutions $ 1,137 $ 3,272
Federal funds sold 4,080 18,570
Investments available for sale, at fair value 42,225 36,761
Investment securities held to maturity, market value 18,736 37,811
Loans receivable, net 338,610 355,551
Premises and equipment, net 6,845 7,800
Real estate owned 493 167
Federal Home Loan Bank stock, at cost 2,864 2,864
Accrued interest receivable on loans, net 1,793 1,900
Accrued interest receivable on investments 605 793
Income tax receivable 618 --
Deferred income taxes, net 484 151
Other assets 551 1,125
-------- --------
Total assets $419,041 $466,765
======= =======
Liabilities and Equity Capital
- ------------------------------
Deposits $352,180 $429,714
Federal Home Loan Bank advances 21,000 --
Advance payments by borrowers for taxes and insurance 1,971 2,004
Due to banks 4,569 483
Deferred income taxes, net -- 129
Current income tax payable -- 364
Other liabilities 3,214 612
------- -------
Total liabilities 382,934 433,306
------- -------
Retained income 35,887 34,200
Unrealized gain on investments available for sale, net 220 86
------- -------
Total equity capital 36,107 34,286
------- -------
Total liabilities and capital $419,041 $466,765
======= =======
</TABLE>
Source: First Federal Florida, financial statements.
II-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-2
Statement of Income
For the Years Ended September 30, 1996 to 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Total interest income $31,892 $33,790 $31,694
Total interest expense 18,966 19,702 18,961
-------
Net interest income 12,926 14,088 12,733
Provision for loan losses 405 317 600
------- ------- -------
Net interest income after prov 12,521 13,771 12,133
Non-interest operating income 1,828 1,461 1,376
Gain on sale of loans and securities 117 114 170
Gain on sale of branches 3,016 -- --
------- ------- -------
Total non-interest income 4,961 1,575 1,546
Compensation and benefits 6,323 5,863 5,288
Other compensation and benefits 2,085 -- --
Occupancy and equipment costs 1,818 1,646 1,453
Marketing 495 488 471
Data processing costs 558 479 443
Deposit insurance premiums 338 456 1,003
Special SAIF assessment -- -- 2,513
Real estate operations, net 180 22 39
Other expense 2,149 2,566 2,172
------- ------- -------
Total non-interest expense 13,946 11,520 13,382
Income before taxes 3,536 3,826 297
Provision for income taxes 1,151 1,299 44
------- ------- -------
Net income $ 2,385 $ 2,527 $ 253
======= ======= =======
</TABLE>
Source: First Federal Florida, financial statements.
II-2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-3
Loan Portfolio Composition
As of September 30, 1996 to 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------
1998 1997 1996
------------------------- -------------------------- --------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans
Residential:
Permanent $244,667 68.3% $256,742 69.3% $247,609 69.3%
Construction 27,311 7.6 22,350 6.0 19,778 6.0
Multi-family 4,464 1.2 4,154 1.1 4,564 1.1
Commercial and real estate(1) 17,217 4.8 12,282 3.3 8,562 3.3
Land 6,796 1.9 6,153 1.7 779 1.7
----- ----- ----- ----- ------- -----
Total mortgage loans 300,455 83.8 301,681 81.3 281,292 83.7
Consumer loans
Home equity loans (2) 13,137 3.7 18,310 4.9 18,361 4.9
Automobile loans 34,795 9.7 43,504 11.7 30,911 11.7
Other 9,959 2.8 7,415 2.0 5,311 2.0
----- ----- ------ ----- ----- -----
Total consumer loans 57,891 17.2 69,229 18.7 54,583 16.3
Gross total loans 358,346 100.0% 370,910 100.0% 335,875 100.0%
------- ===== ------- ===== ------- =====
Less:
Loans in process (3) 17,013 12,589 12,072
Deferred income 159 137 91
Allowance for loan losses 2,564 2,633 2,385
------- ------- -------
Total loans, net $338,610 $355,551 $321,327
======== ======== ========
</TABLE>
(1) Includes commercial loans of $1,085,000 in 1998 and $218,000 in 1997 which
were not secured by real estate.
(2) Includes home equity lines of credit.
(3) Related to construction loans.
Source: First Federal Florida, prospectus.
II-3
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-4
Investment Portfolio Composition
As of September 30, 1996 to 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------------
1998 1997 1996
------------------------- -------------------------- --------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity
U.S. Govt. agency securities $ 8,998 14.7% $27,993 37.5% $34,983 35.1%
Collateralized mortg. obligations 9,738 16.0 9,819 13.2 9,818 9.8
------ ---- ----- ---- ----- -----
Total securities held to maturity 18,736 30.7 37,812 50.7 44,801 44.9
Securities available for sale
U.S. Govt. agency securities 24,711 40.6 31,126 41.7 38,501 38.6
Collateralized mortg. obligations 3,228 5.3 -- 0.0 -- 0.0
Mortgage-backed securities 14,286 23.4 5,635 7.6 6,619 6.6
Mutual funds -- 0.0 -- 0.0 9,920 9.9
------- ---- ------ ----- ----- ------
Total securities avail. for sale 42,225 69.2 36,761 49.3 55,040 55.1
------- ----- ------- ----- ------- -----
Total investment securities $60,961 100.0% $74,573 100.0% $99,841 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Source: First Federal Florida, prospectus.
II-4
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-5
Deposit Account Distribution
As of September 30, 1996 to 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing checking $ 10,492 3.0% $ 10,529 2.5% $7,938 2.0%
Interest-bearing checking 24,456 7.0 24,149 5.6 22,187 5.5
Savings accounts 37,758 10.7 47,354 11.0 49,098 12.1
Money market accounts 18,091 5.1 14,686 3.4 11,119 2.8
------- ------ ------ ------ ------ ------
Total transaction deposits 90,798 25.8 96,718 22.5 90,342 22.4
------- ------ ------ ------ ------ ------
Certificate of deposit accounts
(by scheduled maturity date):
within 12 months 165,547 47.0 221,586 51.6 228,759 56.6
within 13-24 months 54,045 15.3 49,946 11.6 40,654 10.0
within 25-36 months 11,715 3.3 30,166 7.0 12,932 3.2
within 37-48 months 21,527 6.1 8,827 2.1 20,679 5.1
within 49-60 months 8,548 2.4 22,471 5.2 10,778 2.7
within 61-72 months -- -- -- -- 40 0.0
------- ------ ------- ------ ------- ------
Total certificates of deposit 261,382 74.2 332,996 77.5 313,842 77.6
------- ------ ------- ----- ------- ------
Total deposits $352,180 100.0% $429,714 100.0% $404,184 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Source: First Federal Florida, financial statements.
II-5
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit II-6
Office Facilities
As of September 30, 1998
(Dollars in Thousands)
Year
Facility
Leased or Opened or
Location Owned Acquired Net Book Value
- ---------------------------- ------------- ---------------- ---------------
Main Office / Headquarters Owned 1957 $2,300
Branch Offices:
Grove Park Owned 1961 255
Highlands Owned 1972 455
Interstate Owned 1985 440
Winter Haven North Owned 1978 433
Winter Haven South Owned 1995 874
West Bradenton Owned 1989 744
Cortez (Bradenton) Leased 1972 63
Scott Lake Owned 1997 700
Operations Center Owned 1964 288
Source: First Federal Florida, prospectus.
II-6
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Abington Bancorp, Inc. ABBK MA 560 5.62 0.82 12.66 14.00 46.9 11.97 15.56 136.7 149.7 8.37 1.43
Acadiana Bancshares, Inc. ANA LA 289 13.65 0.97 6.28 17.13 38.9 14.51 14.27 98.9 98.9 13.49 2.57
Access Anytime Bancorp, Inc. AABC NM 118 7.96 0.26 3.12 7.13 8.8 30.98 30.98 92.8 92.8 7.39 0.00
Advance Financial Bancorp AFBC WV 117 12.88 0.70 4.97 12.88 13.3 16.09 16.09 88.1 88.1 11.35 2.49
Albion Banc Corp. ALBC NY 73 8.73 0.52 6.12 9.38 7.1 18.38 18.38 110.7 110.7 9.66 1.28
Alliance Bancorp ABCL IL 2,100 8.78 0.71 7.74 19.50 223.4 16.12 14.13 120.4 121.3 10.64 2.26
Alliance Bancp. of New England ANE CT 252 6.76 0.99 13.69 11.50 26.4 11.98 20.54 151.5 155.0 10.46 1.74
AMB Financial Corp. AMFC IN 119 11.19 0.30 2.20 12.19 10.6 36.93 18.47 79.9 79.9 8.93 2.63
Ambanc Holding Co., Inc. AHCI NY 554 10.84 0.34 3.04 16.00 65.5 34.04 26.23 109.3 109.3 11.85 1.75
Ameriana Bancorp ASBI IN 399 10.89 0.97 8.33 19.94 63.6 17.49 17.34 141.3 147.9 16.04 3.31
American Bank of Connecticut BKC CT 648 9.26 1.62 19.13 21.25 99.9 9.79 10.95 162.5 166.9 15.42 3.76
Anchor BanCorp Wisconsin, Inc. ABCW WI 2,114 6.07 1.15 17.69 18.25 312.2 14.96 14.96 239.5 243.0 14.73 1.10
Andover Bancorp, Inc. ANDB MA 1,366 8.65 1.25 15.64 31.38 204.0 12.45 12.50 172.1 172.1 14.89 2.29
ASB Financial Corp. ASBP OH 117 12.51 0.93 6.55 11.88 19.7 17.46 17.72 134.0 134.0 16.76 3.37
Astoria Financial Corp. ASFC NY 12,713 5.72 0.83 10.02 43.75 1,163.5 13.22 14.34 127.7 175.6 9.15 1.83
Bancorp Connecticut, Inc. BKCT CT 514 9.56 1.38 13.69 15.75 80.7 13.46 15.44 164.1 164.1 15.67 3.43
Bank Plus Corp. BPLS CA 3,825 2.97 (1.27) (30.94) 4.00 77.7 NM NM 60.9 68.9 2.03 0.00
Bank United Corp. BNKU TX 13,665 4.59 0.90 17.78 40.50 1,279.1 11.44 11.64 186.9 204.8 9.36 1.58
Bank West Financial Corp. BWFC MI 188 12.37 0.14 1.05 9.75 25.6 NA NA 110.1 110.1 13.61 2.46
BankAtlantic Bancorp, Inc. BANC FL 3,683 5.27 0.30 4.81 7.28 249.0 30.34 66.19 109.2 141.4 7.33 1.37
BankUnited Financial Corp. BKUNA FL 3,738 4.51 0.24 4.53 7.13 129.3 18.27 18.27 67.9 81.6 3.46 0.00
Bay State Bancorp, Inc. BYS MA 306 20.92 (0.48) (2.80) 24.88 63.1 NA NA 91.3 91.3 20.58 0.00
Bay View Capital Corp. BVCC CA 5,522 4.55 0.34 5.09 17.25 333.8 20.78 12.50 88.7 137.8 6.12 2.32
Bedford Bancshares, Inc. BFSB VA 159 13.39 1.33 9.68 11.75 27.0 13.82 13.82 127.0 127.0 17.01 2.72
Big Foot Financial Corp. BFFC IL 220 16.86 0.55 3.16 14.38 35.3 28.75 38.85 96.5 96.5 16.28 0.00
Blue River Bancshares, Inc. BRBI IN 122 10.38 NA NA 7.50 11.2 NA NA 69.9 91.4 9.19 0.00
BostonFed Bancorp, Inc. BFD MA 1,096 7.44 0.72 8.73 18.00 93.8 13.33 13.33 109.0 112.7 8.81 2.22
Broadway Financial Corp. BYFC CA 139 9.65 0.26 2.55 8.00 7.5 22.86 53.33 57.8 57.8 5.35 2.50
Camco Financial Corp. CAFI OH 602 9.32 1.18 12.05 15.00 82.2 12.50 12.40 138.9 147.5 13.66 2.87
Cameron Financial Corp. CMRN MO 221 19.86 1.14 5.45 15.88 38.6 16.71 15.72 88.1 88.1 17.50 1.76
Carolina Fincorp, Inc. CFNC NC 111 14.08 0.86 4.48 8.38 16.0 14.96 13.29 102.1 102.1 14.38 2.87
</TABLE>
III-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carver Bancorp, Inc. CNY NY 430 8.17 0.22 2.59 8.31 19.2 19.79 19.33 53.2 54.9 4.47 0.00
Cascade Financial Corp. CASB WA 460 7.08 0.87 12.40 13.00 56.0 16.25 16.88 171.7 171.7 12.16 0.00
Catskill Financial Corp. CATB NY 315 21.55 1.30 5.60 13.63 59.4 14.65 14.97 87.6 87.6 18.87 2.72
Cavalry Bancorp, Inc. CAVB TN 354 28.83 1.63 7.06 21.00 150.4 NA NA 155.2 155.2 44.75 0.95
CBES Bancorp, Inc. CBES MO 147 11.66 0.86 5.99 16.75 16.2 15.09 15.09 91.9 91.9 10.71 2.87
CENIT Bancorp, Inc. CNIT VA 624 7.50 0.92 12.39 18.25 88.5 14.15 14.26 169.5 183.1 14.33 2.41
Central Co-operative Bank CEBK MA 378 9.16 0.79 8.00 17.94 35.3 11.96 14.95 93.9 102.8 9.33 1.78
Century Bancorp, Inc. CENB NC 92 20.53 1.06 4.52 13.63 17.1 14.65 14.81 91.3 91.3 18.76 4.99
CFS Bancorp Inc. CITZ IN 1,446 NA NA NA 9.75 223.7 NA NA 86.5 NA 15.42 3.28
CFSB Bancorp, Inc. CFSB MI 867 7.82 1.37 17.50 22.38 182.5 16.45 16.70 269.3 269.3 21.06 2.32
Charter One Financial, Inc. COFI OH 19,842 7.18 0.95 13.08 26.25 4,402.1 19.16 15.35 231.5 245.3 17.53 2.13
Chester Valley Bancorp Inc. CVAL PA 381 8.65 1.00 11.55 27.75 68.0 19.01 20.40 206.0 206.0 17.83 1.59
Citizens First Financial Corp. CBK IL 285 13.23 0.75 5.45 16.50 37.8 19.64 23.57 104.5 104.5 13.82 0.00
CKF Bancorp, Inc. CKFB KY 63 21.44 1.30 5.97 16.25 13.7 16.25 18.26 94.6 94.6 21.82 3.32
Classic Bancshares, Inc. CLAS KY 143 12.71 0.68 4.52 15.13 19.7 20.44 21.30 94.9 110.0 13.70 2.12
CNS Bancorp, Inc. CNSB MO 96 22.90 0.88 3.61 13.56 20.2 25.59 25.59 92.1 92.1 21.09 2.21
CNY Financial Corp. CNYF NY 280 11.73 NA NA 9.47 50.7 NA NA NA NA NA 0.00
Coastal Bancorp, Inc. CBSA TX 3,126 2.71 0.55 15.05 15.88 112.8 7.52 7.32 102.6 141.1 3.74 2.02
Coastal Financial Corp. CFCP SC 644 5.88 1.18 19.52 20.00 125.3 19.23 20.41 331.1 331.1 19.47 1.40
Columbia Financial of Kentucky CFKY KY 118 32.02 0.67 2.93 12.38 33.1 NA NA 87.6 87.6 28.07 2.26
Commercial Federal Corp. CFB NE 11,083 6.69 0.66 8.81 21.81 1,320.2 16.53 11.79 144.3 180.7 11.89 1.19
Commonwealth Bancorp, Inc. CMSB PA 2,278 6.70 0.52 5.77 15.13 222.6 18.91 16.26 117.0 149.2 9.80 2.12
Community Federal Bancorp CFTP MS 263 22.27 1.23 4.91 14.75 64.9 22.01 25.43 99.3 99.3 24.64 2.17
Community Financial Corp. CFFC VA 187 13.87 1.01 7.34 12.13 31.2 17.32 18.37 119.5 119.9 16.62 2.64
Community Investors Bancorp CIBI OH 114 8.93 0.87 8.12 12.13 14.9 17.57 17.57 148.1 148.1 13.22 1.98
Cooperative Bankshares, Inc. COOP NC 389 8.00 0.63 8.07 15.50 47.2 20.95 20.95 151.5 151.5 12.11 0.00
Crazy Woman Creek Bancorp CRZY WY 62 22.59 1.16 4.95 12.38 11.0 16.50 16.72 78.3 78.3 17.68 3.23
Crusader Holding Corp. CRSB PA 231 10.10 2.31 26.51 11.25 43.1 8.59 8.59 176.3 185.3 18.64 0.00
CSB Financial Group, Inc. CSBF IL 47 22.18 0.63 2.68 9.13 7.5 24.66 26.07 68.4 72.5 15.86 0.00
Delphos Citizens Bancorp, Inc. DCBI OH 116 22.47 1.48 6.03 18.00 31.6 18.95 18.95 121.4 121.4 27.27 1.33
Dime Bancorp, Inc. DME NY 21,243 5.27 0.92 15.04 23.19 2,593.8 13.72 12.74 193.9 234.7 12.23 0.86
</TABLE>
III-2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dime Community Bancshares DCOM NY 1,744 9.11 0.93 7.74 21.38 247.9 17.67 18.43 139.1 159.9 14.36 2.25
Downey Financial Corp. DSL CA 5,911 7.89 1.01 13.38 23.25 654.1 11.07 12.17 138.9 140.3 11.07 1.38
Eagle BancGroup, Inc. EGLB IL 176 11.29 0.40 3.47 18.75 20.6 29.30 29.76 103.2 103.2 11.65 2.13
Eagle Bancshares, Inc. EBSI GA 1,243 6.23 0.91 12.62 18.25 104.4 11.55 12.09 136.4 136.4 8.50 3.51
EFC Bancorp, Inc. EFC IL 417 22.89 (0.03) (0.21) 11.94 89.4 NA NA 93.7 93.7 21.44 0.00
Elmira Savings Bank, FSB ESBK NY 232 6.43 0.47 7.43 23.75 17.3 15.73 16.16 113.4 113.4 7.42 2.69
Emerald Financial Corp. EMLD OH 643 8.27 1.17 14.21 10.75 110.7 16.29 16.80 205.9 208.3 17.21 1.49
Empire Federal Bancorp, Inc. EFBC MT 105 35.59 1.20 3.28 13.00 30.4 22.81 18.31 81.3 81.3 28.92 2.62
Equality Bancorp, Inc. EBI MO 283 9.28 0.50 5.26 10.50 26.5 NA NA 101.0 101.0 9.36 2.29
Equitable Federal Savings Bank EQSB MD 360 5.40 0.95 17.97 19.75 24.3 8.16 12.91 124.8 124.8 6.74 0.00
ESB Financial Corp. ESBF PA 966 5.72 0.65 8.86 16.25 87.5 15.33 15.93 141.4 159.5 9.06 2.22
Essex Bancorp, Inc. ESX VA 213 7.08 0.07 1.00 1.75 1.9 NM NM NM NM 0.87 0.00
Falmouth Bancorp, Inc. FCB MA 113 19.72 1.13 5.10 17.13 24.0 20.39 28.07 107.9 107.9 21.28 1.64
FCB Financial Corp. FCBF WI 535 14.18 1.32 9.22 28.63 109.8 15.90 15.90 144.7 144.7 20.52 3.07
Federal Trust Corp. FDTR FL 169 7.69 NA NA 2.31 11.4 NA NA 87.6 87.6 6.75 0.00
FFD Financial Corp. FFDF OH 99 16.07 0.92 4.37 14.50 21.0 23.02 34.52 131.9 131.9 21.20 2.07
FFLC Bancorp, Inc. FFLC FL 422 12.51 1.03 7.99 16.25 59.9 14.77 14.77 113.6 113.6 14.22 2.22
FFW Corp. FFWC IN 213 8.64 0.96 10.17 15.50 22.4 11.57 12.60 113.7 123.0 10.55 2.71
FFY Financial Corp. FFYF OH 659 12.77 1.21 9.22 33.13 130.2 16.48 16.90 156.0 156.0 19.92 2.72
Fidelity Bancorp, Inc. FSBI PA 396 7.09 0.74 10.77 18.00 35.5 12.50 12.95 126.5 126.5 8.97 2.00
Fidelity Bancorp, Inc. FBCI IL 502 10.59 0.19 1.80 23.38 66.2 17.58 23.38 124.5 124.7 13.20 1.71
Fidelity Federal Bancorp FFED IN 200 3.98 (3.35) (59.17) 3.88 12.2 NM NM 153.2 153.2 6.11 0.00
First Bancshares, Inc. FBSI MO 173 13.47 1.04 7.49 12.75 27.6 15.94 15.55 114.0 118.9 15.93 0.94
First Bell Bancorp, Inc. FBBC PA 750 9.88 1.09 10.33 15.50 96.5 11.83 11.83 130.3 130.3 12.87 2.58
First Citizens Corp. FSTC GA 386 8.52 1.45 14.41 25.00 70.1 14.12 14.45 179.6 217.4 18.19 1.44
First Coastal Corp. FCME ME 178 9.12 0.96 9.91 10.00 13.6 9.17 11.90 83.7 83.7 7.64 0.00
First Defiance Financial Corp. FDEF OH 782 12.17 0.89 5.36 13.75 112.5 19.37 19.37 107.1 119.8 14.37 2.62
First Essex Bancorp, Inc. FESX MA 1,241 5.82 0.86 11.49 17.50 132.4 12.96 13.67 138.0 187.0 10.66 3.66
First Federal Bancorp, Inc. FFBZ OH 214 7.72 0.64 8.23 10.88 34.3 28.62 28.62 207.5 207.5 16.05 1.47
First Federal BanCorp. BDJI MN 125 10.44 0.69 6.51 14.50 14.4 14.80 14.80 110.1 110.1 11.50 0.00
First Federal Bancshares of Ark.FFBH AR 600 13.69 1.03 6.97 20.13 92.1 15.97 15.97 114.2 114.2 15.64 1.39
</TABLE>
III-3
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Federal Capital Corp. FTFC WI 1,737 6.76 1.21 16.78 15.50 286.5 16.15 16.32 233.8 244.9 16.49 1.81
First Federal Financial Corp. FFKY KY 467 9.64 1.47 11.30 27.25 112.5 18.54 18.66 203.1 256.1 24.08 2.20
First Federal S&L of E.Hartford FFES CT 993 7.45 0.60 8.61 27.38 75.2 12.97 12.28 101.8 101.8 7.58 2.48
First Financial Holdings Inc. FFCH SC 1,840 6.80 0.92 13.97 19.31 263.8 16.51 15.70 210.8 210.8 14.34 2.49
First Franklin Corp. FFHS OH 232 8.97 0.81 8.82 13.75 23.4 12.97 13.89 112.3 112.8 10.11 2.18
First Georgia Holding, Inc. FGHC GA 181 7.67 1.16 14.15 8.25 39.6 21.71 21.71 268.7 287.5 21.90 0.00
First Independence Corp. FFSL KS 124 9.73 0.75 7.72 11.00 10.6 11.96 11.96 87.2 87.2 8.49 2.73
First Indiana Corp. FISB IN 1,739 9.29 1.14 12.14 19.38 246.2 13.45 13.74 151.0 152.6 14.16 2.48
First Kansas Financial Corp. FKAN KS 105 19.90 0.72 5.92 10.50 16.3 NA NA 77.0 77.9 15.47 0.00
First Keystone Financial, Inc. FKFS PA 416 6.41 0.73 11.14 15.00 34.9 12.20 12.30 131.0 131.0 8.40 1.60
First Lancaster Bancshares, Inc.FLKY KY 55 24.66 1.05 3.89 13.13 12.2 21.52 21.52 89.4 89.4 22.05 4.57
First Liberty Financial Corp. FLFC GA 1,501 7.46 1.05 13.35 21.75 294.8 19.08 18.13 241.1 264.9 19.63 1.75
First Midwest Financial, Inc. CASH IA 421 9.19 0.71 6.60 14.88 38.0 14.44 15.99 90.7 101.5 9.23 3.50
First Mutual Bancorp, Inc. FMBD IL 371 12.24 0.42 2.94 17.88 63.1 36.48 41.57 112.6 143.6 16.99 1.79
First Mutual Savings Bank FMSB WA 474 7.44 1.09 15.48 14.88 63.2 12.82 16.17 179.0 179.0 13.32 1.34
First Niles Financial Inc. FNFI OH 74 18.38 NA NA 10.56 18.5 NA NA NA NA NA 0.00
First Northern Capital Corp. FNGB WI 710 10.62 0.99 9.04 12.50 109.8 16.67 16.67 145.9 145.9 15.49 2.88
First Savings Bancorp, Inc. SOPN NC 296 23.66 1.76 7.65 22.00 81.7 16.79 16.79 116.8 116.8 27.63 4.55
First SecurityFed Financial, IncFSFF IL 338 25.80 1.24 4.73 13.31 81.0 NA NA 92.7 93.0 23.97 2.10
First Source Bancorp, Inc. FSLA NJ 1,262 20.36 1.23 7.87 7.50 235.6 NA NA 90.6 93.5 18.92 2.40
First Washington Bancorp, Inc. FWWB WA 1,437 10.16 1.14 8.76 20.25 231.4 15.34 15.46 126.0 151.7 16.18 1.78
FirstBank Corp. FBNW ID 202 14.25 1.06 6.98 13.50 26.5 12.62 12.62 83.1 83.1 13.10 2.67
FirstFed America Bancorp FAB MA 1,293 8.60 0.55 5.53 12.88 101.2 14.80 14.47 81.9 81.9 7.83 1.55
FirstFed Bancorp, Inc. FFDB AL 181 9.32 0.86 8.77 10.00 24.5 15.87 15.87 134.8 145.6 13.46 2.80
FirstFed Financial Corp. FED CA 3,827 6.50 0.80 13.91 17.44 368.4 11.63 11.63 147.9 148.8 9.65 0.00
FirstSpartan Financial Corp. FSPT SC 530 22.67 1.42 5.58 30.50 115.5 17.13 17.13 106.8 106.8 24.20 2.62
FLAG Financial Corp. FLAG GA 454 8.75 0.68 7.72 12.13 62.8 22.45 17.32 158.5 158.5 13.85 1.98
Flagstar Bancorp, Inc. FLGS MI 3,093 4.81 1.37 25.26 26.88 367.4 11.01 11.01 241.5 247.2 11.88 1.19
Flushing Financial Corp. FFIC NY 1,143 11.60 0.91 7.16 15.88 178.3 17.45 16.37 131.2 136.3 15.74 1.51
FMS Financial Corp. FMCO NJ 667 6.33 0.81 13.18 9.50 68.7 13.38 13.38 161.6 162.4 10.28 1.26
Fort Thomas Financial Corp. FTSB KY 101 16.07 1.18 7.39 14.25 21.0 17.59 17.59 129.0 129.0 20.73 1.75
</TABLE>
III-4
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Frankfort First Bancorp, Inc. FKKY KY 135 16.55 1.20 6.75 15.00 23.8 15.46 15.46 106.5 106.5 17.63 5.87
FSF Financial Corp. FFHH MN 416 10.07 0.74 6.94 15.00 43.5 14.29 14.29 92.3 93.9 10.44 3.33
Fulton Bancorp, Inc. FTNB MO 118 22.50 1.09 4.64 16.50 28.1 22.92 22.92 107.2 107.2 24.13 1.82
GA Financial, Inc. GAF PA 819 13.38 1.06 7.72 15.06 107.4 12.15 13.69 97.5 98.3 13.14 3.72
GFSB Bancorp, Inc. GUPB NM 129 10.30 0.76 6.35 14.25 15.0 17.81 17.81 116.9 116.9 12.04 2.11
Golden State Bancorp GSB CA 53,018 1.39 1.41 21.78 15.50 1,992.5 NA NA 129.9 397.4 3.76 0.00
Golden West Financial Corp. GDW CA 39,383 7.58 1.05 14.83 84.44 4,806.3 11.79 11.60 161.7 161.7 12.26 0.66
Great American Bancorp, Inc. GTPS IL 149 15.60 0.71 3.82 13.50 18.4 20.45 20.45 79.6 79.6 12.41 3.26
Great Pee Dee Bancorp PEDE SC 69 45.53 1.43 3.41 13.50 29.4 NA NA 94.0 94.0 42.76 2.67
Green Street Financial Corp. GSFC NC 173 34.93 1.60 4.55 14.50 59.2 21.01 21.01 98.1 98.1 34.28 3.31
GreenPoint Financial Corp. GPT NY 13,613 6.10 1.17 11.38 33.38 3,157.8 16.52 16.12 156.0 364.0 23.32 1.92
GS Financial Corp. GSLA LA 144 33.31 1.05 2.58 12.88 38.0 26.82 29.94 78.9 78.9 26.30 2.17
GSB Financial Corp. GOSB NY 132 23.87 0.48 1.87 14.50 32.1 50.00 36.25 101.8 101.8 24.31 0.83
Guaranty Federal Bancshares GFED MO 277 23.19 1.27 5.71 11.75 69.5 NA NA 102.1 102.1 25.14 2.72
Hallmark Capital Corp. HALL WI 462 7.45 0.68 8.86 12.25 36.0 12.37 12.37 99.2 99.2 7.80 0.00
Harbor Federal Bancorp, Inc. HRBF MD 232 12.78 0.79 6.24 20.00 37.3 19.61 19.61 125.9 125.9 16.08 2.60
Harbor Florida Bancshares, Inc. HARB FL 1,351 19.37 1.40 9.34 10.88 336.1 NA NA 127.5 128.7 24.89 2.39
Hardin Bancorp, Inc. HFSA MO 133 10.29 0.72 6.67 20.00 16.3 17.86 20.83 119.3 119.3 12.28 3.00
Harleysville Savings Bank HARL PA 418 6.25 0.93 14.24 27.13 45.5 13.43 13.43 174.2 174.2 10.89 1.77
Harrington Financial Group, Inc.HFGI IN 566 3.39 (0.88) (20.62) 8.00 25.6 NM NM 133.8 133.8 4.53 1.50
Harrodsburg First Fin'l Bancorp HFFB KY 109 26.54 1.36 5.07 14.13 27.2 17.88 17.44 87.3 87.3 25.01 2.83
Harvest Home Financial Corp. HHFC OH 96 10.71 0.59 5.26 14.50 12.8 24.17 25.44 123.9 123.9 13.27 3.03
Haven Bancorp, Inc. HAVN NY 2,322 5.06 0.41 7.47 14.63 129.4 15.39 15.90 105.7 110.4 5.57 2.05
Hawthorne Financial Corp. HTHR CA 1,395 5.67 0.95 18.68 16.00 83.1 10.60 6.45 105.2 105.2 5.96 0.00
Haywood Bancshares, Inc. HBS NC 150 13.90 0.08 0.53 16.75 20.9 167.50 12.23 98.0 101.3 14.01 3.82
HCB Bancshares, Inc. HCBBE AR 222 17.08 0.33 1.86 11.06 29.3 NA NA 76.6 77.5 13.20 2.17
Hemlock Federal Fin'l Corp. HMLK IL 198 14.17 0.86 5.31 14.13 25.1 16.24 16.42 94.7 94.7 13.42 2.27
Heritage Bancorp, Inc. HBSC SC 301 31.47 NA NA 20.38 94.3 NA NA 99.6 99.6 31.35 1.47
Heritage Financial Corp. HFWA WA 418 21.19 1.25 6.20 10.06 99.7 NA NA 103.3 113.5 23.54 1.79
HF Financial Corp. HFFC SD 561 9.83 1.07 10.97 14.00 60.0 10.53 10.77 108.9 108.9 10.70 2.57
High Country Bancorp, Inc. HCBC CO 104 17.78 0.85 5.01 13.13 17.4 NA NA 93.7 93.7 16.65 3.05
</TABLE>
III-5
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Highland Bancorp, Inc. HBNK CA 595 7.00 1.46 18.86 33.25 72.5 9.93 10.97 174.0 174.0 12.19 1.50
Hingham Institution for Savings HIFS MA 247 9.48 1.25 12.89 17.00 33.4 11.97 12.06 142.7 142.7 13.53 2.35
HMN Financial, Inc. HMNF MN 706 8.90 0.48 4.12 13.25 71.4 24.54 17.91 104.6 114.1 10.09 1.81
Home Bancorp HBFW IN 360 11.92 0.85 6.84 28.75 67.6 22.46 23.00 157.4 157.4 18.76 1.11
Home City Financial Corp. HCFC OH 81 13.65 1.26 7.41 14.50 13.1 14.50 14.50 119.0 119.0 16.24 2.76
Home Federal Bancorp HOMF IN 723 9.40 1.48 16.29 22.38 115.2 11.65 11.65 165.6 169.8 15.92 1.97
Home Financial Bancorp HWEN IN 42 17.06 0.83 4.77 7.13 6.4 16.57 20.36 88.8 88.8 15.16 1.68
Home Loan Financial Corp. HLFC OH 85 37.71 1.49 4.64 14.00 30.6 NA NA 98.6 98.6 37.17 1.43
Home Port Bancorp, Inc. HPBC MA 264 8.87 1.43 15.25 23.00 42.4 12.57 11.27 181.0 181.0 16.06 3.48
Homestead Bancorp, Inc. HSTD LA 88 18.21 0.52 5.03 8.25 12.2 NA NA 76.5 76.5 13.93 2.42
HopFed Bancorp, Inc. HFBC KY 217 27.38 1.26 7.45 16.00 64.5 NA NA 108.8 108.8 29.80 1.88
Horizon Financial Corp. HRZB WA 569 15.30 1.56 9.99 13.25 99.2 11.83 12.16 113.9 113.9 17.43 3.32
Horizon Financial Services Corp.HZFS IA 87 9.86 (0.33) (3.45) 12.88 11.3 NM 15.15 132.7 132.7 13.09 1.40
Hudson River Bancorp Inc. HRBT NY 831 27.17 NA NA 10.94 195.3 NA NA 79.5 79.6 23.50 0.00
Independence Comm. Bank Corp. ICBC NY 5,157 17.38 (0.05) (0.29) 15.13 1,150.2 NA NA 122.5 129.6 22.30 0.79
Independence FSB IFSB DC 249 8.17 1.43 18.88 12.75 16.3 4.29 12.14 74.3 80.8 6.55 1.96
Industrial Bancorp, Inc. INBI OH 389 16.00 1.50 9.18 19.19 93.9 16.54 16.54 154.2 154.2 24.68 3.13
InterWest Bancorp, Inc. IWBK WA 2,448 6.48 0.95 13.58 20.84 326.2 14.89 13.11 189.5 207.0 13.32 2.69
Ipswich Savings Bank IPSW MA 249 5.51 1.14 21.28 11.31 27.1 10.67 10.77 197.1 197.1 10.85 1.41
ITLA Capital Corp. ITLA CA 1,007 10.76 1.45 13.90 16.00 118.1 8.94 8.94 112.1 112.4 12.09 0.00
Jacksonville Bancorp, Inc. JXVL TX 243 14.46 1.33 9.13 15.94 38.6 12.65 12.65 110.1 110.1 15.91 3.14
Jefferson Savings Bancorp, Inc. JSBA MO 1,317 7.81 0.65 6.85 14.00 140.5 17.07 17.72 107.0 130.8 10.72 2.00
JSB Financial, Inc. JSB NY 1,552 24.56 3.17 13.32 50.75 486.0 10.51 11.97 129.9 129.9 31.90 3.15
Kankakee Bancorp, Inc. KNK IL 405 8.56 0.70 6.95 26.25 35.9 14.34 14.42 90.4 105.4 8.90 1.83
Kentucky First Bancorp, Inc. KYF KY 79 17.67 1.05 6.10 13.00 15.6 18.31 18.31 112.2 112.2 19.83 3.85
Klamath First Bancorp, Inc. KFBI OR 1,031 13.10 0.96 6.52 18.38 182.2 18.38 18.94 112.7 122.3 17.67 1.96
KSB Bancorp, Inc. KSBK ME 163 7.19 1.15 14.83 14.63 18.5 10.37 10.37 141.0 158.8 11.33 1.64
Lakeview Financial Corp. LVSB NJ 594 6.60 1.74 17.17 21.50 103.6 7.93 21.72 185.3 276.4 17.67 1.16
Landmark Bancshares, Inc. LARK KS 225 11.04 1.03 7.67 23.81 31.4 16.77 17.77 127.1 127.1 14.03 2.52
Laurel Capital Group, Inc. LARL PA 221 11.10 1.42 13.50 19.50 42.7 14.66 14.23 175.2 175.2 19.44 3.08
Lawrence Savings Bank LSBX MA 340 13.09 2.91 26.36 12.75 55.2 5.64 5.64 124.2 124.2 16.25 0.00
</TABLE>
III-6
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lexington B&L Financial Corp. LXMO MO 95 15.14 0.78 3.83 12.00 12.1 18.18 19.35 79.1 84.8 12.70 2.50
Life Financial Corp. LFCO CA 380 16.18 2.66 20.44 5.50 36.1 3.22 3.07 58.6 58.6 9.49 0.00
Little Falls Bancorp, Inc. LFBI NJ 341 10.23 0.56 5.12 18.00 44.6 21.95 22.22 120.0 128.9 13.09 1.33
Local Financial Corp. LO OK 2,106 4.52 NA NA 9.31 191.3 NA NA 169.3 202.5 9.08 0.00
Logansport Financial Corp. LOGN IN 92 17.52 1.46 7.80 15.00 18.0 14.85 14.71 111.0 111.0 19.44 2.93
LSB Financial Corp. LSBI IN 227 8.01 0.83 9.83 28.50 26.6 14.92 14.92 137.4 137.4 11.71 1.40
MAF Bancorp, Inc. MAFB IL 3,606 7.04 1.09 13.99 24.88 548.3 15.35 15.55 198.1 221.3 15.45 1.13
Marion Capital Holdings, Inc. MARN IN 197 17.79 1.14 5.64 22.00 34.3 17.74 17.74 100.0 102.2 18.11 4.00
Market Financial Corp. MRKF OH 55 27.61 1.00 3.16 11.75 15.7 26.11 26.11 104.1 104.1 28.74 2.38
MASSBANK Corp. MASB MA 934 11.68 1.17 10.22 38.50 136.1 13.05 15.16 124.0 125.6 14.64 2.81
Mayflower Co-operative Bank MFLR MA 143 9.12 1.13 11.78 23.44 21.1 14.03 16.28 159.8 162.1 14.75 3.41
MBLA Financial Corp. MBLF MO 209 13.60 0.88 6.65 17.63 22.0 12.16 12.41 77.4 77.4 10.53 3.40
MECH Financial, Inc. MECH CT 960 9.76 1.02 10.32 28.50 150.9 16.19 16.29 159.8 161.2 15.72 2.11
Medford Bancorp, Inc. MDBK MA 1,134 8.68 1.08 11.88 18.00 156.9 14.06 14.52 152.2 160.0 13.84 2.22
MegaBank Financial Corp. MBFC CO 217 6.61 NA NA 10.88 85.5 NA NA 485.5 485.5 32.07 0.00
Metropolitan Financial Corp. METF OH 1,171 3.26 0.68 17.65 11.25 87.3 13.08 12.10 213.5 229.1 7.45 0.00
MetroWest Bank MWBX MA 669 7.43 1.25 16.85 6.63 94.5 12.05 12.05 189.8 189.8 14.12 3.02
MFB Corp. MFBC IN 310 9.96 0.79 6.94 22.00 32.4 15.83 16.92 105.0 105.0 10.46 1.55
Mid-Coast Bancorp, Inc. MCBN ME 71 7.49 0.55 6.73 8.75 6.3 17.50 17.50 117.8 117.8 8.81 2.29
Midwest Bancshares, Inc. MWBI IA 161 7.36 0.87 12.35 13.00 13.9 10.57 12.15 117.9 117.9 8.67 2.77
Milton Federal Financial Corp. MFFC OH 235 11.17 0.67 5.82 14.25 31.9 20.07 22.62 112.8 112.8 13.55 4.21
Monterey Bay Bancorp, Inc. MBBC CA 460 8.95 0.30 2.71 14.44 51.0 46.57 42.46 113.4 124.0 11.74 0.83
Montgomery Financial Corp. MONT IN 119 16.88 0.92 5.09 10.13 16.4 15.34 15.34 82.6 82.6 13.93 2.17
MSB Financial, Inc. MSBF MI 82 16.51 1.53 9.21 13.50 18.0 13.37 13.37 133.3 133.3 22.00 2.22
Mutual Savings Bank, FSB MSBK MI 586 6.06 (1.21) (22.22) 9.13 39.2 NM NM 110.3 110.3 6.68 0.00
Mystic Financial, Inc. MYST MA 193 17.73 0.89 5.69 12.38 31.9 NA NA 92.8 92.8 16.46 1.62
Net.B@nk, Inc. NTBK GA 283 NA 1.69 8.15 23.50 144.5 52.22 52.22 380.3 NA 50.97 0.00
New Hampshire Thrift Bancshs. NHTB NH 330 7.36 0.92 11.48 15.38 32.3 11.06 10.53 118.1 134.2 9.78 3.90
NewMil Bancorp, Inc. NMSB CT 370 9.35 0.87 9.23 11.50 44.1 15.13 14.38 127.6 127.6 11.93 3.13
North Bancshares, Inc. NBSI IL 125 10.61 0.37 3.12 12.38 15.8 36.40 41.25 118.7 118.7 12.59 3.23
North Central Bancshares, Inc. FFFD IA 335 13.17 1.44 8.73 16.75 52.0 12.14 12.69 104.6 120.3 15.53 1.91
</TABLE>
III-7
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northeast Bancorp NBN ME 329 7.30 0.82 10.39 9.63 25.2 10.69 9.92 102.0 110.3 7.67 2.20
Northeast Indiana Bancorp, Inc. NEIB IN 209 11.77 1.15 8.67 17.38 29.1 12.68 12.68 119.0 119.0 14.01 2.28
Northeast Pennsylvania Fin'l NEP PA 478 17.78 (0.36) (2.92) 11.00 70.7 NM NA 76.6 76.6 14.80 0.00
Northwest Equity Corp. NWEQ WI 99 12.11 1.27 10.79 22.50 18.6 15.00 15.00 154.8 154.8 18.74 3.02
NS&L Bancorp, Inc. NSLB MO 63 18.37 0.69 3.58 13.00 8.4 19.40 20.00 77.0 77.6 14.23 3.85
Nutmeg FS&LA NTMG CT 106 9.02 1.07 12.81 9.75 12.9 20.31 21.20 184.0 184.0 12.25 2.05
Ocean Financial Corp. OCFC NJ 1,544 12.67 0.89 6.44 14.75 217.7 15.21 15.05 110.7 111.3 14.09 3.25
Ocwen Financial Corp. OCN FL 3,391 12.21 0.93 7.61 10.19 619.4 19.59 7.66 139.6 151.4 18.27 0.00
OHSL Financial Corp. OHSL OH 252 10.77 0.86 7.92 14.00 34.9 16.47 16.47 125.9 125.9 13.84 3.57
Oregon Trail Financial Corp. OTFC OR 275 22.76 1.20 4.92 13.63 58.2 NA NA 86.1 86.1 21.20 1.76
Ottawa Financial Corp. OFCP MI 930 6.55 0.92 11.06 20.75 114.9 15.26 15.26 156.6 191.4 12.35 2.12
Pamrapo Bancorp, Inc. PBCI NJ 397 12.41 1.19 9.28 23.50 66.8 14.69 15.26 135.1 135.6 16.82 4.77
Park Bancorp, Inc. PFED IL 198 18.79 0.95 4.59 13.63 29.8 16.62 16.22 80.0 80.0 15.02 0.00
Parkvale Financial Corp. PVSA PA 1,123 7.45 1.08 14.61 21.00 133.2 12.21 12.43 159.6 160.3 11.93 2.86
PBOC Holdings, Inc. PBOC CA 3,211 5.46 NA NA 9.50 205.0 21.59 12.34 117.0 117.0 6.39 0.00
Peekskill Financial Corp. PEEK NY 200 21.51 0.94 4.03 13.50 38.4 20.15 19.57 89.8 89.8 19.32 2.67
PennFed Financial Services, Inc.PFSB NJ 1,566 5.89 0.76 10.97 13.25 122.1 11.13 11.13 109.3 124.8 7.81 1.21
Peoples Bancorp PFDC IN 305 14.65 1.41 9.46 20.00 65.6 16.00 16.00 146.8 146.8 21.52 2.40
People's Bancshares, Inc. PBKB MA 892 3.61 0.79 19.94 20.50 68.0 10.90 10.46 207.7 211.1 7.63 3.71
Peoples Financial Corp. PFFC OH 86 17.42 1.10 6.00 11.50 15.5 16.91 32.86 103.4 103.4 18.01 5.22
Peoples Heritage Fin'l Group PHBK ME 9,883 6.47 0.99 13.32 18.25 1,602.1 16.29 13.62 213.5 253.8 16.21 2.41
Peoples-Sidney Fin'l Corp. PSFC OH 107 17.87 0.95 4.25 16.50 28.7 27.05 27.05 138.9 138.9 27.05 1.70
Permanent Bancorp, Inc. PERM IN 503 6.14 0.60 6.33 13.81 55.0 22.28 23.41 133.0 176.0 10.93 1.74
Perry County Financial Corp. PCBC MO 97 17.44 0.89 4.90 20.00 16.6 19.42 19.42 98.1 98.1 17.10 2.50
PFF Bancorp, Inc. PFFB CA 3,045 7.51 0.60 6.84 14.56 224.9 13.48 13.36 97.4 98.4 7.39 0.00
Piedmont Bancorp, Inc. PDB NC 128 16.65 1.26 7.67 9.25 24.9 15.68 15.68 117.1 117.1 19.48 5.19
Pittsburgh Home Fin'l Corp. PHFC PA 375 6.55 0.57 7.33 14.63 27.4 13.93 13.80 110.4 111.6 7.30 1.64
Pocahontas Bancorp, Inc. PFSL AR 407 14.34 0.73 6.81 8.13 54.3 NA NA 89.7 93.7 13.34 2.95
Potters Financial Corp. PTRS OH 132 8.45 0.78 8.76 15.75 14.8 15.75 16.58 132.4 132.4 11.18 1.78
Prestige Bancorp, Inc. PRBC PA 170 8.98 0.45 4.45 12.75 12.1 17.47 18.21 83.6 83.6 7.50 1.57
Progress Financial Corp. PFNC PA 618 6.10 0.86 13.98 14.00 73.7 16.09 18.67 172.8 193.1 11.76 1.14
</TABLE>
III-8
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Provident Financial Holdings PROV CA 841 9.96 0.68 6.10 16.25 75.2 14.01 14.01 89.7 89.7 8.94 0.00
PS Financial, Inc. PSFI IL 100 22.33 0.91 3.28 10.50 19.4 22.34 15.22 91.5 91.5 20.42 4.95
PSB Bancorp Inc. PSBI PA 153 19.74 0.63 5.10 7.63 23.7 NA NA 78.4 78.4 15.48 0.00
Pulaski Financial Corp. PULBD MO 193 13.05 1.00 7.49 9.50 37.7 NA NA NA NA NA 11.58
PVF Capital Corp. PVFC OH 428 7.59 1.19 16.40 12.50 49.9 10.59 10.59 153.6 153.6 11.67 0.00
QCF Bancorp, Inc. QCFB MN 149 14.72 1.70 9.93 25.50 29.4 10.85 11.18 134.0 134.0 19.73 0.00
Quaker City Bancorp, Inc. QCBC CA 894 8.87 0.87 9.94 17.06 98.6 13.13 14.10 124.9 124.9 11.07 0.00
Queens County Bancorp, Inc. QCSB NY 1,707 8.67 1.56 15.63 28.88 614.3 23.48 23.48 361.4 361.4 36.24 2.77
Reliance Bancorp, Inc. RELY NY 2,493 5.25 0.82 9.81 28.94 251.4 14.92 14.99 140.1 203.5 10.43 2.49
Richmond County Fin'l Corp. RCBK NY 1,693 19.43 0.50 2.88 16.63 439.3 NA NA 133.2 133.6 25.95 1.44
River Valley Bancorp RIVR IN 136 13.34 0.96 7.15 16.00 19.1 13.79 14.16 103.8 105.1 13.98 1.38
Riverview Bancorp, Inc. RVSB WA 305 19.88 1.79 7.93 12.00 73.8 14.63 15.00 112.3 115.7 24.21 2.00
Roslyn Bancorp, Inc. RSLN NY 3,719 15.86 1.31 7.99 18.06 747.8 14.45 15.18 126.3 126.9 20.11 2.44
Seacoast Fin'l Services Corp. SCFS MA 1,107 8.73 1.11 12.73 10.00 140.0 NA NA NA NA NA 0.00
SFS Bancorp, Inc. SFED NY 176 12.56 0.63 5.17 20.38 24.6 21.01 21.68 111.2 111.2 13.97 1.57
SGV Bancorp, Inc. SGVB CA 453 6.75 0.42 5.49 12.63 28.0 18.04 18.04 90.6 91.7 6.18 0.00
Skaneateles Bancorp Inc. SKAN NY 272 6.77 0.60 8.74 13.00 18.8 12.38 12.38 100.3 102.5 6.93 2.15
Sobieski Bancorp, Inc. SOBI IN 102 12.71 0.63 4.50 14.00 10.7 17.72 18.18 77.2 77.2 10.50 2.29
South Carolina Comm. Bancshs. SCCB SC 46 21.05 0.89 4.20 13.88 8.0 19.27 19.27 83.8 83.8 17.64 4.90
South Street Financial Corp. SSFC NC 204 16.93 0.55 2.71 7.69 32.4 NA NA 90.5 90.5 17.65 5.20
SouthBanc Shares, Inc. SBAN SC 368 20.75 0.86 7.37 19.38 83.4 NM NA 109.3 109.3 22.69 2.48
Southern Banc Company, Inc. SRN AL 106 17.67 0.53 3.02 12.50 15.4 25.00 25.00 81.6 82.1 14.50 2.80
Southern Comm. Bancshares, Inc. SCBS AL 68 17.34 1.22 6.45 14.00 15.9 15.56 15.38 135.1 135.1 23.44 2.14
Southern Missouri Bancorp, Inc. SMBC MO 156 14.61 0.67 4.17 16.00 21.5 23.19 21.92 99.0 99.0 14.46 3.13
SouthFirst Bancshares, Inc. SZB AL 159 9.66 0.50 4.34 16.13 14.8 24.07 25.60 94.1 96.6 9.30 3.72
Sovereign Bancorp, Inc. SVRN PA 21,497 3.34 0.69 12.20 12.50 1,992.5 15.43 13.16 173.4 282.8 9.52 0.64
St. Francis Capital Corp. STFR WI 1,864 5.84 0.87 11.29 40.50 193.9 14.21 15.28 158.7 178.6 10.40 1.58
St. Paul Bancorp, Inc. SPBC IL 5,948 NA 0.53 5.71 22.63 941.1 29.01 17.01 183.2 NA 15.44 2.65
StateFed Financial Corp. SFFC IA 89 18.00 1.14 6.43 10.00 15.4 15.15 15.15 96.3 96.3 17.34 2.00
Staten Island Bancorp, Inc. SIB NY 3,351 20.23 1.07 5.22 19.75 879.7 NA NA 128.8 132.1 26.60 1.62
Statewide Financial Corp. SFIN NJ 653 9.37 0.54 5.65 18.50 78.4 21.76 23.42 129.6 129.7 12.15 2.81
</TABLE>
III-9
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sterling Financial Corp. STSA WA 2,082 2.44 0.36 6.75 16.38 124.5 17.99 12.41 111.2 252.3 5.98 0.00
Stone Street Bancorp, Inc. SSM NC 124 23.09 1.39 5.02 14.56 25.0 17.34 17.34 87.3 87.3 20.16 3.16
Teche Holding Co. TSH LA 409 12.85 0.94 6.79 15.00 46.4 12.82 13.16 88.4 88.4 11.36 3.33
Telebanc Financial Corp. TBFC VA 1,968 5.09 0.17 3.78 24.00 296.8 NA NA 244.9 300.0 15.08 0.00
Texarkana First Financial Corp. FTF AR 189 14.47 1.78 11.85 23.63 39.6 12.05 12.05 144.4 144.4 20.90 2.71
TF Financial Corp. THRD PA 696 6.52 0.61 7.70 18.63 59.4 15.78 16.93 102.9 120.3 8.54 2.58
Thistle Group Holdings, Co. THTL PA 460 21.92 NA NA 9.63 86.6 NA NA 85.8 85.8 18.81 2.08
Three Rivers Financial Corp. THR MI 100 12.70 0.76 5.72 13.63 9.8 14.97 14.97 84.0 84.3 10.70 3.38
Timberland Bancorp, Inc. TSBK WA 266 30.78 2.14 9.58 11.94 71.2 NA NA 91.7 91.7 28.22 2.01
Tri-County Bancorp, Inc. TRIC WY 87 16.74 1.06 6.63 12.81 15.0 17.31 17.55 103.1 103.1 17.25 3.43
Twin City Bancorp, Inc. TWIN TN 111 12.68 1.10 8.60 14.31 17.5 14.46 14.91 123.4 123.4 15.66 2.79
Union Community Bancorp UCBC IN 108 38.83 NA NA 11.25 34.2 NA NA 81.3 81.3 31.56 3.56
Union Financial Bancshares, Inc.UFBS SC 183 7.08 0.88 11.07 13.94 17.8 11.91 12.02 120.6 138.7 9.71 2.67
United Community Fin'l Corp. UCFC OH 1,249 37.02 NA NA 13.50 433.1 NA NA 93.6 93.6 34.67 2.22
United Financial Corp. UBMT MT 222 13.42 NA NA 22.00 37.4 NA NA 122.5 125.9 16.82 4.55
United PanAm Financial Corp. UPFC CA 437 19.77 NA NA 4.75 82.1 5.46 5.46 94.6 95.0 18.77 0.00
United Tennessee Bankshares UTBI TN 75 26.52 1.43 7.27 11.00 15.5 NA NA 77.6 77.6 20.57 0.00
USABancshares, Inc. USAB PA 151 8.80 0.61 6.53 8.50 17.0 77.27 38.64 134.1 134.7 11.24 0.00
Warren Bancorp, Inc. WRNB MA 384 10.60 1.61 15.00 9.00 71.2 12.16 12.50 175.1 175.1 18.55 4.00
Warwick Community Bancorp WSBI NY 423 19.59 NA NA 15.38 101.6 NA NA 112.0 112.0 24.01 1.11
Washington Federal, Inc. WFSL WA 5,637 12.78 2.00 14.91 24.00 1,234.7 11.32 11.71 161.0 173.0 21.90 3.83
Washington Mutual Inc. WM WA 108,359 5.08 1.03 18.79 32.88 19,503.2 12.04 11.66 212.9 225.2 11.76 2.68
Washington Savings Bank, FSB WSB MD 274 8.76 0.67 7.81 4.44 19.6 14.32 15.85 81.7 81.7 7.16 2.25
Webster Financial Corp. WBST CT 9,164 5.34 0.73 13.06 26.31 996.6 14.30 13.92 176.5 206.1 10.90 1.67
Wells Financial Corp. WEFC MN 186 13.55 1.22 8.37 15.50 25.6 12.02 12.02 101.6 101.6 13.78 3.87
Westcorp WES CA 4,100 8.10 (0.14) (1.59) 7.94 210.1 NM 198.45 62.9 63.1 5.11 2.52
WesterFed Financial Corp. WSTR MT 1,000 9.34 0.71 6.60 19.25 107.6 15.16 14.15 96.5 117.5 10.76 2.81
Western Ohio Financial Corp. WOFC OH 392 12.01 0.10 0.74 21.75 46.8 120.83 241.67 96.5 103.2 12.29 4.60
Westwood Homestead Fin'l Corp. WEHO OH 127 19.51 0.76 3.30 10.13 24.7 NA NA 99.3 99.3 19.35 3.95
WHG Bancshares Corp. WHGB MD 132 15.29 0.58 3.16 11.63 16.2 22.79 23.72 80.1 80.1 12.24 3.10
Winton Financial Corp. WFI OH 354 7.49 1.20 16.17 13.63 54.7 14.19 14.19 203.4 206.4 15.44 1.83
</TABLE>
III-10
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wood Bancorp, Inc. FFWD OH 167 13.87 1.44 10.90 14.00 37.7 16.09 16.09 162.8 162.8 22.58 2.57
WSFS Financial Corp. WSFS DE 1,596 5.93 1.14 18.88 17.31 205.2 12.55 12.64 222.8 223.7 13.27 0.69
WVS Financial Corp. WVFC PA 312 10.59 1.19 10.56 14.75 52.5 15.05 13.79 161.6 161.6 17.12 4.07
Yonkers Financial Corp. YFCB NY 383 10.91 0.82 6.72 13.75 37.5 12.73 13.10 89.7 89.7 9.79 2.33
York Financial Corp. YFED PA 1,235 9.11 0.84 9.50 15.75 150.7 15.14 17.90 133.9 133.9 12.20 3.30
Mean 1,734 12.68 0.91 7.98 NA 234.9 15.46 15.35 127.4 134.2 15.28 2.07
Median 340 10.61 0.92 7.47 NA 46.4 15.16 15.15 113.8 119.3 14.03 2.15
</TABLE>
III-11
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thrifts Being Acquired
- ----------------------
1ST Bancorp FBCV IN 268 8.96 0.73 8.10 40.50 44.4 23.55 23.82 182.0 185.3 16.57 0.66
1st Bergen Bancorp FBER NJ 306 11.88 0.72 5.66 22.63 58.5 25.71 25.71 160.8 160.8 19.10 1.24
Avondale Financial Corp. AVND IL 509 7.49 0.16 1.92 14.63 42.5 104.46 NM 111.3 111.3 8.34 0.00
Bayonne Bancshares, Inc. FSNJ NJ 673 14.15 0.77 5.18 16.50 150.8 29.46 30.00 158.2 158.2 22.37 1.52
Calumet Bancorp, Inc. CBCI IL 486 17.87 1.46 8.56 27.25 85.7 13.16 12.85 98.8 98.8 17.66 0.00
D & N Financial Corp. DNFC MI 1,998 5.23 0.85 15.35 23.56 215.9 14.19 15.40 192.8 207.2 10.81 0.85
Enterprise Federal Bancorp, Inc.EFBI OH 397 NA 0.72 6.99 45.25 100.0 41.14 45.25 267.0 NA 25.23 2.21
Fidelity Financial of Ohio, Inc.FFOH OH 528 11.46 0.88 7.10 13.00 72.8 15.12 15.66 109.0 122.0 13.79 2.46
Financial Bancorp, Inc. FIBC NY 319 9.13 0.97 10.69 37.50 64.1 21.19 21.80 219.6 220.3 20.11 1.33
First Coastal Bankshares, Inc. FCBK VA 578 7.98 0.71 9.85 22.00 109.7 25.58 25.88 237.8 237.8 18.97 1.09
Fort Bend Holding Corp. FBHC TX 327 6.86 0.66 9.72 25.00 46.7 26.88 26.88 197.8 208.5 14.25 1.60
Glenway Financial Corp. GFCO OH 300 9.90 0.93 9.73 19.00 43.6 15.97 15.83 146.0 147.1 14.54 2.32
HF Bancorp, Inc. HEMT CA 1,060 6.91 (0.02) (0.25) 16.88 107.9 NM 241.07 128.5 148.9 10.18 0.00
Home Bancorp of Elgin, Inc. HBEI IL 386 24.17 0.70 2.72 14.00 92.9 34.15 34.15 99.9 99.9 24.14 2.86
Mid-Iowa Financial Corp. MIFC IA 148 9.32 0.97 10.32 13.50 23.5 18.49 18.49 170.9 171.1 15.93 0.59
Mitchell Bancorp, Inc. MBSP NC 37 39.08 0.87 2.20 15.63 14.6 42.23 37.20 100.1 100.1 39.11 5.12
Peoples Bancorp, Inc. TSBS NJ 872 38.51 1.31 5.08 9.81 356.9 NA NA 104.3 107.4 40.91 1.02
Pulse Bancorp, Inc. PULS NJ 534 8.96 1.07 12.43 28.50 90.9 16.29 16.29 189.8 189.8 17.01 2.81
Raritan Bancorp, Inc. RARB NJ 434 7.67 1.00 13.29 34.38 84.6 20.71 21.35 251.5 254.1 19.47 1.75
Reliance Bancshares, Inc. RELI WI 40 55.71 1.17 2.30 9.81 23.5 46.73 49.07 104.3 104.3 58.11 0.00
Scotland Bancorp, Inc. SSB NC 61 25.25 0.86 3.54 11.25 21.5 35.16 35.16 140.5 140.5 35.45 1.78
SIS Bancorp, Inc. SISB MA 1,900 7.32 0.76 10.59 40.00 287.6 21.05 16.39 207.4 207.4 15.09 1.60
TR Financial Corp. ROSE NY 4,183 6.36 1.04 16.85 36.19 638.0 15.27 18.00 228.0 228.0 15.25 2.43
Westco Bancorp, Inc. WCBI IL 319 15.07 1.41 9.13 34.13 81.1 20.19 20.19 171.1 171.1 25.77 1.99
Mean 694 15.45 0.86 7.79 NA 119.1 17.93 18.01 165.7 164.3 21.59 1.55
Median 415 9.32 0.87 8.33 NA 82.9 17.39 17.20 165.8 160.8 18.32 1.56
</TABLE>
III-12
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit III
Financial Performance and Market Data for All Public Thrifts
<TABLE>
<CAPTION>
====================================================================================================================================
Tang. Stock Total Price/ Price/ Price/ Price/ Price/
Total Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
Assets Assets ROA ROE 12/14/98 Value EPS EPS Value Book Assets Yield
Company Ticker St. ($M) (%) (%) (%) ($) ($M) (x) (x) (%) (%) (%) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MHC Thrifts
- -----------
Alliance Bank ALLB PA 280 10.81 0.73 6.72 12.19 39.9 19.98 19.98 131.9 131.9 14.26 2.95
BCSB Bankcorp, Inc. BCSB MD 321 8.00 0.76 8.14 8.50 52.0 NA NA NA NA NA 0.00
Brookline Bancorp, Inc. BRKL MA 839 32.89 2.25 7.95 11.13 323.7 NA NA 116.3 116.3 38.60 1.80
Community Savings Bankshares CMSV FL 791 10.69 0.64 5.86 22.25 113.6 23.67 23.67 131.6 131.6 14.35 4.04
Fidelity Bankshares Inc. FFFL FL 1,498 5.94 0.60 8.93 23.00 156.5 19.83 22.33 171.4 176.1 10.44 4.35
Finger Lakes Financial Corp. SBFL NY 275 8.14 NA NA 11.50 41.1 NA NA 183.1 183.1 14.91 2.09
First FSB of Siouxland FFSX IA 570 6.25 0.71 8.66 25.00 71.1 20.16 21.19 164.8 202.8 12.49 1.92
Gaston Federal Bancorp, Inc. GBNK NC 208 19.99 0.98 7.36 14.81 66.6 NA NA 160.1 160.1 32.02 1.35
Harris Financial, Inc. HARS PA 2,420 7.26 NA NA 13.75 463.4 26.44 31.98 242.9 267.5 19.31 1.60
Jacksonville Savings Bank JXSB IL 166 10.79 0.56 5.35 12.75 24.3 26.02 26.02 135.6 135.6 14.63 2.35
Leeds Federal Bankshares, Inc. LFED MD 303 16.36 1.14 6.89 13.88 72.1 21.02 21.02 145.3 145.3 23.75 4.04
Liberty Bancorp, Inc. LIBB NJ 248 13.76 0.57 6.05 8.88 34.6 NA NA 101.3 101.3 13.94 0.00
Niagara Bancorp, Inc. NBCP NY 1,431 18.23 0.70 4.72 10.63 316.2 NA NA 121.3 121.3 22.10 1.13
Northwest Bancorp, Inc. NWSB PA 2,667 7.47 0.90 10.13 9.88 467.5 21.47 22.44 208.8 234.6 17.35 1.62
Pathfinder Bancorp, Inc. PBHC NY 192 10.10 0.62 5.45 9.63 26.3 22.92 28.31 115.7 136.1 13.75 2.08
People's Bank PBCT CT 9,620 7.57 1.24 13.54 27.25 1,747.6 16.03 22.71 204.0 243.3 18.17 3.38
PHS Bancorp, Inc. PHSED PA 237 12.37 0.72 5.61 13.88 38.3 23.13 24.78 130.7 130.7 16.16 2.02
Pulaski Savings Bank PLSK NJ 191 11.76 0.51 4.31 10.38 21.9 22.07 20.75 97.1 97.1 11.43 3.08
Skibo Financial Corp. SKBO PA 144 17.13 0.52 3.08 8.50 29.3 36.96 42.50 118.9 118.9 20.37 3.53
Sound Federal Bancorp SFFS NY 281 11.86 NA NA 9.50 49.5 NA NA NA NA NA 0.00
Wayne Savings Bancshares WAYN OH 260 9.54 0.69 7.21 19.13 47.6 27.72 27.72 191.6 191.6 18.29 3.24
Webster City FSB WCFB IA 92 24.87 1.41 5.95 15.75 33.3 24.61 24.61 145.3 145.3 36.15 5.08
West Essex Bancorp Inc. WEBK NJ 343 7.59 NA NA 9.94 18.4 NA NA NA NA NA 0.00
Mean 1,016 12.58 0.86 6.94 NA 185.0 21.35 22.35 150.9 158.5 19.12 2.25
Median 281 10.79 0.71 6.72 NA 49.5 21.47 22.39 140.5 140.7 16.76 2.08
</TABLE>
Note: mean and median price/earnings ratios exclude values greater than 25.
Source: SNL Securities; Feldman Financial
III-13
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-1
Pro Forma Assumptions
1. The total amount of the net conversion proceeds was fully invested at the
beginning of the applicable period.
2. The net conversion proceeds are invested to yield a return of 4.40%, which
represented the one-year U.S. Treasury bill yield as of September 30, 1998.
The effective income tax rate was assumed to be 37.5%, resulting in an
after-tax yield of 2.75%.
3. It is assumed that 8.0% of the shares offered for sale will be purchased by
an employee stock ownership plan ("ESOP") established by the Bank. Pro
forma adjustments have been made to earnings and equity to reflect the
impact of the ESOP. The annual ESOP expense is estimated based on a
ten-year debt amortization period. No reinvestment is assumed on proceeds
used to fund the ESOP.
4. It is assumed that 4.0% of the shares offered for sale will be acquired by
the Bank's stock programs. Pro forma adjustments have been made to earnings
and equity to reflect the impact of the stock programs. The annual expense
is estimated based on a five-year amortization period. No reinvestment is
assumed on proceeds used to fund the stock programs.
5. Conversion expenses are estimated at fixed costs of $893,000 plus a
marketing fee equal to 0.75% of the aggregate purchase price of stock sold
in the public offerings exclusive of shares sold to insiders and employee
benefit plans.
6. The number of shares outstanding for purposes of calculating earnings per
share is adjusted to reflect the shares assumed to be held by the ESOP and
not committed to be released within the first year following the
conversion.
7. No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the conversion.
IV-1
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-2
Pro Forma Valuation Range: Full Conversion Basis
As of September 30, 1998
(In $000s, except share data)
<TABLE>
<CAPTION>
Pro Forma Market Capitalization $36,975 $43,500 $50,025 $57,529
Amount Sold to Public 100.0% 100.0% 100.0% 100.0%
--------------------------------------------------------------------
Minimum Midpoint Maximum Adj. Max.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued 3,697,500 4,350,000 5,002,500 5,752,875
Shares sold 3,697,500 4,350,000 5,002,500 5,752,875
Offering price $10.00 $10.00 $10.00 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Gross proceeds 36,975 43,500 50,025 57,529
Less: estimated expenses (1,139) (1,184) (1,229) (1,280)
Less: capital to MHC 0 0 0 0
Net proceeds 35,836 42,316 48,796 56,248
Less: ESOP purchase (2,958) (3,480) (4,002) (4,602)
Less: Stock Programs purchase (1,479) (1,740) (2,001) (2,301)
------ ------ ------ ------
Net investable proceeds 31,399 37,096 42,793 49,345
- -------------------------------------------------------------------------------------------------------------------------
Net income:
LTM ended September 30, 1998 2,385 2,385 2,385 2,385
Pro forma income on net proceeds 863 1,020 1,177 1,357
Pro forma ESOP adjustment (185) (218) (250) (288)
Pro forma Stock Programs adjustment (185) (218) (250) (288)
------ ------ ------ ------
Pro forma net income 2,878 2,969 3,062 3,166
------ ------ ------ ------
Pro forma net income per share $0.84 $0.74 $0.66 $0.59
- -------------------------------------------------------------------------------------------------------------------------
Core net income:
LTM ended September 30, 1998 1,781 1,781 1,781 1,781
Pro forma income on net proceeds 863 1,020 1,177 1,357
Pro forma ESOP adjustment (185) (218) (250) (288)
Pro forma Stock Programs adjustment (185) (218) (250) (288)
------ ------ ------ ------
Pro forma core net income 2,274 2,365 2,458 2,562
------ ------ ------ ------
Pro forma core income per share $0.66 $0.59 $0.53 $0.48
- -------------------------------------------------------------------------------------------------------------------------
Total equity:
Total equity at September 30, 1998 36,107 36,107 36,107 36,107
Net proceeds 35,836 42,316 48,796 56,248
Less: ESOP purchase (2,958) (3,480) (4,002) (4,602)
Less: Stock Programs purchase (1,479) (1,740) (2,001) (2,301)
------ ------ ------ ------
Pro forma total equity 67,506 73,203 78,900 85,452
------ ------ ------ ------
Pro forma book value per share $18.26 $16.83 $15.77 $14.85
- -------------------------------------------------------------------------------------------------------------------------
Total assets:
Total assets at September 30, 1998 419,041 419,041 419,041 419,041
Net proceeds 35,836 42,316 48,796 56,248
Less: ESOP purchase (2,958) (3,480) (4,002) (4,602)
Less: Stock Programs purchase (1,479) (1,740) (2,001) (2,301)
------ ------ ------ ------
Pro forma total assets 450,440 456,137 461,834 468,386
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-2
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-3
Pro Forma Valuation Range: MHC Offering
As of September 30, 1998
(In $000s, except share data)
<TABLE>
<CAPTION>
Pro Forma Market Capitalization $36,975 $43,500 $50,025 $57,529
Amount Sold to Public 47.0% 47.0% 47.0% 47.0%
--------------------------------------------------------------------
Minimum Midpoint Maximum Adj. Max.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued 3,697,500 4,350,000 5,002,500 5,752,875
Shares sold 1,737,825 2,044,500 2,351,175 2,703,851
Offering price $10.00 $10.00 $10.00 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Gross proceeds 17,378 20,445 23,512 27,039
Less: estimated expenses (1,003) (1,025) (1,046) (1,070)
Less: capital to MHC (200) (200) (200) (200)
Net proceeds 16,175 19,220 22,266 25,769
Less: ESOP purchase (1,390) (1,636) (1,881) (2,163)
Less: Stock Programs purchase (695) (818) (940) (1,082)
------ ------ ------ ------
Net investable proceeds 14,090 16,766 19,445 22,524
- -------------------------------------------------------------------------------------------------------------------------
Net income:
LTM ended September 30, 1998 2,385 2,385 2,385 2,385
Pro forma income on net proceeds 387 461 535 619
Pro forma ESOP adjustment (87) (102) (118) (135)
Pro forma Stock Programs adjustment (87) (102) (118) (135)
------ ------ ------ ------
Pro forma net income 2,598 2,642 2,684 2,734
------ ------ ------ ------
Pro forma net income $0.73 $0.63 $0.56 $0.49
- -------------------------------------------------------------------------------------------------------------------------
Core net income:
LTM ended September 30, 1998 1,781 1,781 1,781 1,781
Pro forma income on net proceeds 387 461 535 619
Pro forma ESOP adjustment (87) (102) (118) (135)
Pro forma Stock Programs adjustment (87) (102) (118) (135)
------ ------ ------ ------
Pro forma core net income 1,994 2,038 2,080 2,130
------ ------ ------ ------
Pro forma core income per share $0.56 $0.48 $0.43 $0.38
- -------------------------------------------------------------------------------------------------------------------------
Total equity:
Total equity at September 30, 1998 36,107 36,107 36,107 36,107
Net proceeds 16,175 19,220 22,266 25,769
Less: ESOP purchase (1,390) (1,636) (1,881) (2,163)
Less: Stock Programs purchase (695) (818) (940) (1,082)
------ ------ ------ ------
Pro forma total equity 50,197 52,873 55,552 58,631
------ ------ ------ ------
Pro forma book value per share $13.58 $12.15 $11.10 $10.19
- -------------------------------------------------------------------------------------------------------------------------
Total assets:
Total assets at September 30, 1998 419,041 419,041 419,041 419,041
Net proceeds 16,175 19,220 22,266 25,769
Less: ESOP purchase (1,390) (1,636) (1,881) (2,163)
Less: Stock Programs purchase (695) (818) (940) (1,082)
------ ------ ------ ------
Pro forma total assets 433,131 435,807 438,486 441,565
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-3
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-4
Comparative Valuation Ratios - Full Conversion Valuation
Market Price Data as of December 14, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Nationwide Florida
Comparative Public Thrift Public Thrift
Valuation First Group Aggregate(1) Aggregate(2)
Federal -------------------- ------------------- ------------------
Ratio Symbol Florida Mean Median Mean Median Mean Median
----- ------ ------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price/LTM EPS (3) P/E
-----------
Adj. Maximum (x) 16.9 16.7 16.2 15.5 15.2 17.5 18.3
Maximum 15.2
Midpoint 13.6
Minimum 11.9
-----------
Price/Core EPS (3) P/E
-----------
Adj. Maximum (x) 20.8 16.9 16.2 15.3 15.2 13.6 14.8
Maximum 18.9
Midpoint 17.1
Minimum 15.1
-----------
Price/Book Value P/B
-----------
Adj. Maximum (%) 67.3 115.3 113.4 127.4 113.8 107.6 111.4
Maximum 63.4
Midpoint 59.4
Minimum 54.8
-----------
Price/Tangible Book P/B
-----------
Adj. Maximum (%) 67.3 120.6 114.2 134.2 119.3 117.4 121.2
Maximum 63.4
Midpoint 59.4
Minimum 54.8
-----------
Price/Total Assets P/A
-----------
Adj. Maximum (%) 12.28 13.31 13.82 15.28 14.03 12.49 10.78
Maximum 10.83
Midpoint 9.54
Minimum 8.21
-----------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 315 publicly traded, non-MHC, non-acquiree thrifts nationwide.
(2) Includes 6 publicly traded, non-MHC, non-acquiree thrifts based in Florida.
(3) Price/earnings ratios exclude values greater than 25.
IV-4
<PAGE>
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------
Exhibit IV-5
Pro Forma Full Conversion Analysis at Midpoint Value
First Federal Florida
Financial Data as of September 30, 1998
<TABLE>
<CAPTION>
Valuation Parameters Symbol Data
- -------------------- ------ ----
<S> <C> <C> <C>
Net income -- LTM Y $ 2,385,000
Core income -- LTM Y 1,781,000
Net worth B 36,107,000
Tangible net worth B 36,107,000
Total assets A 419,041,000
Expenses in conversion X 1,184,000
Other proceeds not reinvested O 5,220,000
ESOP purchase E 8.0% 3,480,000
ESOP expense (pre-tax) F 10.0% 348,000
MRP purchase M 4.0% 1,740,000
MRP expense (pre-tax) N 20.0% 348,000
Re-investment rate (after-tax) R 2.75%
Tax rate T 37.50%
Shares for EPS S 92.80%
Pro Forma Valuation Ratios at Maximum Value
Price / LTM earnings P/E 13.60 x
Price / core earnings P/E 17.07 x
Price / book value P/B 59.42%
Price / tangible book P/B 59.42%
Price / assets P/A 9.54%
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Calculation at Maximum Value Based on
- -------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $43,546,758 [LTM earnings]
1 - (P/E / S) * R
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $43,547,996 [Core earnings]
1 - (P/E / S) * R
V = P/B * (B - X - E - M) = $43,493,156 [Book value]
1 - P/B
V = P/B * (B - X - E - M) = $43,493,156 [Tangible book]
1 - P/B
V = P/A * (B - X - E - M) = $43,517,101 [Total assets]
1 - P/A
Pro Forma Valuation Range
Minimum = $43,500,000 x 0.85 = $36,975,000
Midpoint = $43,500,000 x 1.00 = $43,500,000
Maximum = $43,500,000 x 1.15 = $50,025,000
Adj. Max. = $50,025,000 x 1.15 = $57,528,750
</TABLE>
IV-5
