<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
/X/ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
---------- ----------
Commission File Number: 0-25930
FLORIDA FIRST BANCORP, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3310686
- ----------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
144 Harrison Avenue
Panama City, Florida 32401
- -------------------- -----------------------
(Address of Principal (Zip Code)
Executive Office)
Registrant's telephone number, including area code: (904) 872-7000
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
The number of shares outstanding of the Registrant's common stock, as of the
latest practicable date is:
Class: Common Stock, par value $.01 per share
Outstanding at October 31, 1996: 3,396,015
Transitional Small Business Disclosure Format: YES NO X
----- -----
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements and Notes (Unaudited)
Condensed Consolidated Statements of Financial
Condition as of September 30, 1996 and
December 31, 1995 1
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
1996 and 1995 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996
and 1995 3-4
Notes to Condensed Consolidated Financial
Statements 5-11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-26
PART II OTHER INFORMATION 27
Item 1 Legal Proceedings 27
Item 2 Changes in Securities 27
Item 3 Defaults upon Senior Securities 27
Item 4 Submission of Matters to a Vote of Security Holders 27
Item 5 Other Information 27
Item 6 Exhibits and Reports on Form 8-K 27
Signature Page 28
</TABLE>
<PAGE> 3
FLORIDA FIRST BANCORP, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(in thousands)
<S> <C> <C>
ASSETS
Cash $ 5,197 $ 5,686
Interest-bearing deposits 29,755 8,751
-------- --------
Cash and cash equivalents 34,952 14,437
Loans held for sale 2,336 3,304
Securities available for sale - net 79,857 32,543
Securities held to maturity - net
(approximate market value at December 31, 1995
was $68,640) 68,848
Loans receivable - net 167,157 171,379
Accrued interest receivable:
Loans 1,430 1,499
Securities 415 552
Real estate owned 240 317
Premises and equipment - net 4,381 4,401
Federal Home Loan Bank ("FHLB") stock - at cost 2,766 2,766
Deferred income taxes 2,069 1,852
Other assets 1,641 1,431
-------- --------
TOTAL $297,244 $303,329
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $243,695 $250,041
FHLB advances 27,521 30,721
Advances by borrowers for taxes and insurance 1,998 701
Income tax payable 45
Other liabilities 3,233 1,247
-------- --------
Total liabilities 276,447 282,755
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized;
none issued and outstanding
Common stock, 6,500,000 shares, $.01 par value
per share authorized; 3,395,815 and
3,358,245 shares issued and outstanding,
respectively 34 34
Additional paid-in capital 16,222 16,096
Unrealized gains (losses) on securities
available for sale - net of taxes (249) 112
Retained income, partially restricted 4,790 4,332
-------- --------
Total stockholders' equity 20,797 20,574
-------- --------
TOTAL $297,244 $303,329
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
FLORIDA FIRST BANCORP, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ------------------------------
1996 1995 1996 1995
--------- ---------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $3,744 $3,737 $11,438 $11,090
Securities 1,313 1,442 4,418 4,010
Other interest income 385 332 851 859
------ ------ ------- -------
Total interest income 5,442 5,511 16,707 $15,959
------ ------ ------- -------
INTEREST EXPENSE:
Deposits 2,718 2,919 8,258 8,213
Short-term borrowings 10 10 32 57
Long-term borrowings 371 433 1,238 1,292
------ ------ ------- -------
Total interest expense 3,099 3,362 9,528 9,562
------ ------ ------- -------
NET INTEREST INCOME 2,343 2,149 7,179 6,397
Provision for losses on loans 10
------ ------ ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON LOANS 2,343 2,149 7,179 6,387
------ ------ ------- -------
OTHER INCOME:
Loan correspondent and servicing fees 160 166 461 414
Service charges 222 203 629 566
Gains (losses) on sales of:
Loans 82 78 159 172
Securities available for sale (66) (14) (36) (79)
Pair-off transactions and equity
securities 3 7
Real estate owned (2) 83 107 297
Other operating income 89 76 334 271
------ ------ ------- -------
Total other income 485 595 1,654 1,648
------ ------ ------- -------
OPERATING EXPENSES:
Employee compensation and benefits 817 847 2,497 2,446
Occupancy and equipment 362 355 1,104 1,038
Advertising, promotion and training 142 65 364 217
Expenses related to reorganization
and name change 41 194
Federal deposit and other insurance
premiums 178 192 534 561
SAIF special assessment 1,534 1,534
Professional fees 66 51 222 209
Other operating expenses 276 248 866 694
------ ------ ------- -------
Total operating expenses 3,375 1,799 7,121 5,359
------ ------ ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (547) 945 1,712 2,676
Income tax provision (benefit) (206) 358 646 975
------ ------ ------- -------
NET INCOME (LOSS) $ (341) $ 587 $ 1,066 $ 1,701
====== ====== ======= =======
EARNINGS (LOSS) PER SHARE:
PRIMARY AND FULLY DILUTED
INCOME (LOSS) PER SHARE:
NET INCOME (LOSS) $ (.10) $ .17 $ .31 $ .50
====== ====== ======= =======
DIVIDENDS PER SHARE $ .06 $ .06 $ .18 $ .06
====== ====== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 5
FLORIDA FIRST BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received from loans $11,508 $10,985
Interest received from securities
and other interest-earning assets 5,406 4,877
Interest paid on deposits and borrowings (9,582) (9,570)
Loan fees received 689 620
Service charges received 629 566
Loans originated for sale (26,515) (21,405)
Proceeds from sales of loans held for sale 27,914 21,055
Cash paid to employees and vendors (5,402) (5,463)
Other, net (592) (235)
------- -------
Net cash provided by operating activities 4,055 1,430
------- -------
Cash flows from investing activities:
Net loan activity other than purchases and sales 4,015 (4,557)
Principal collected on securities 16,340 15,217
Purchases of:
Loans and participations (2,024)
Securities held to maturity (6,733) (33,052)
Securities available for sale (9,100) (6,814)
Trading securities (116)
Premises and equipment (118) (671)
Proceeds from sales of:
Loans and participations 880 1,044
Securities available for sale 21,196 9,348
Trading securities 122
Real estate owned 306 512
Other, net 431 1,020
------- -------
Net cash (used in) provided by investing
activities 25,193 (17,947)
------- -------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (6,346) 24,460
FHLB advances (3,200) (736)
Advances by borrowers for taxes and insurance 1,297 1,410
Net proceeds from exercise of stock options 124 78
Dividends paid (608)
------- -------
Net cash provided by (used in) financing
activities (8,733) 25,212
------- -------
Net increase in cash and cash equivalents 20,515 8,695
Cash and cash equivalents at beginning of period 14,437 12,766
------- -------
Cash and cash equivalents at end of period $34,952 $21,461
======= =======
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $1,066 $ 1,701
------ -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on loans 10
Increase in deferred income taxes (218) (71)
Increase (decrease) in income tax payable (394) 96
Accretion of discounts/amortization of
premiums on mortgage loans and deferred
loan fees - net (160) (125)
Accretion of discounts/amortization of
premiums on securities - net 186 16
(Increase)decrease in interest receivable
on interest-earning assets 207 (97)
Decrease in accrued interest payable (54) (8)
Depreciation and amortization 363 262
Net (gains)losses on sales of:
Loans (159) (172)
Securities available for sale 36 79
Pair-off transactions (1)
Trading securities (6)
Real estate owned (107) (297)
Write-off obsolete premises and equipment 34
(Increase)decrease in loans held for sale 969 (402)
Increase in accrued expenses and
other liabilities 1,987 608
(Increase)decrease in other assets 333 (197)
------ -------
Total adjustments 2,989 (271)
------ -------
Net cash provided by operating activities $4,055 $ 1,430
====== =======
Income taxes paid $1,040 $ 822
====== =======
Supplemental schedule of noncash investing and
financing activities:
Loans settled by acquisition of
real estate $ 420 $ 911
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
FLORIDA FIRST BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions for Form 10-QSB and Article
10 of Regulation S-X and, therefore, do not include all the information or
footnotes necessary for a complete presentation of financial condition, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, all adjustments which, in the opinion of management, are
necessary for a fair presentation have been included. Such adjustments
consisted of only normally recurring items. The results of operations for the
nine-month period ended September 30, 1996 are not necessarily indicative of
the results which may be expected for the entire fiscal year ending December
31, 1996. The financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Annual Report to Stockholders for the year ended December 31, 1995 ("Annual
Report").
Certain amounts in the prior year's condensed consolidated financial statements
have been reclassified for comparative purposes.
Cash and cash equivalents include cash on hand, interest-bearing deposits and
federal funds sold which are generally purchased and sold for one-day periods.
Primary earnings per share for the 1996 and 1995 periods were computed by
dividing applicable income amounts by the weighted average number of shares of
common stock outstanding during each period, including the effect of
unexercised (but exercisable) stock options using the treasury stock method.
The treasury stock method assumes that funds from the exercise of options would
be used to repurchase common stock at the average market price. This method
also assumes that such common stock would be purchased at the end-of-period
price for fully diluted earnings per share calculations (unless the average
price during the period exceeded the end-of-period price, in which case the
average price would be used). Fully diluted earnings per share for the 1996
and 1995 periods were computed using the assumption that all outstanding and
exercisable stock options had been converted at the beginning of each period.
During the three and nine months ended September 30, 1996 and 1995, outstanding
options totalling 73,755 and 138,025, respectively, were used in
5
<PAGE> 8
the calculation of primary and fully diluted earnings per share which were
derived using the following information:
<TABLE>
<CAPTION>
Weighted
Avg. Number Average
of Shares stock
Outstanding Price
----------- -----
<S> <C> <C>
Primary Earnings Per Share:
For the quarter ended September 30, 1996 3,442,598 $11.12
For the quarter ended September 30, 1995 3,399,442 6.79
For the nine months ended September 30, 1996 3,422,754 9.55
For the nine months ended September 30, 1995 3,370,292 5.89
</TABLE>
<TABLE>
<CAPTION>
Weighted Period
Avg. Number End
of Shares Stock
Outstanding Price
----------- -----
<S> <C> <C>
Fully Diluted Earnings Per Share:
For the quarter ended September 30, 1996 3,442,611 $11.13
For the quarter ended September 30, 1995 3,408,115 7.78
For the nine months ended September 30, 1996 3,426,883 11.13
For the nine months ended September 30, 1995 3,389,405 7.78
</TABLE>
Note 2 - Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Florida First Bancorp, Inc., ("FFB"), its wholly owned subsidiary,
Florida FirstBank (the "Bank") and, during the 1995 periods, the Bank's wholly
owned subsidiary, Service First, Inc. ("Service First"), (such entities
collectively referred to as the "Company"). The Company's consolidated
results of operation are primarily those of the Bank. Sales of the Bank's real
estate owned ("REO") was the principal activity of Service First. On January
18, 1996, the Board of Directors of the Bank, being the sole stockholder of
Service First, elected to liquidate Service First and distribute its assets to
the Bank. In consolidation, all significant intercompany balances and
transactions have been eliminated.
Note 3 - The Reorganization
On May 1, 1995, FFB became a unitary savings and loan holding company in
accordance with the terms of an Agreement and Plan of Reorganization, dated
February 16, 1995 (the "Reorganization Agreement"), by and among the Bank,
FFFSB Interim Federal Savings Association ("Interim") and FFB. Pursuant to the
Reorganization Agreement: (1) FFB was organized as a wholly owned subsidiary of
the Bank; (2) Interim was organized as a wholly owned subsidiary of FFB (3)
Interim merged with and into the Bank, with the Bank as the surviving
institution, and (4) upon such merger, (i) the outstanding shares of common
stock, par value $1.00 per share, of
6
<PAGE> 9
the Bank became, by operation of law, on a one-for-one basis, common stock, par
value $.01 per share, of FFB, (ii) the common stock of Interim held by FFB was
converted into common stock of the Bank, and (iii) the common stock of FFB held
by the Bank was cancelled (the "Reorganization"). Accordingly, the Bank became
a wholly owned subsidiary of FFB and the stockholders of the Bank became
stockholders of FFB.
The common stock of FFB was registered with the Securities and Exchange
Commission ("SEC") under Section 12(g) of the Securities Exchange Act of 1934,
as amended, and was substituted for the common stock of the Bank on the Nasdaq
National Market System under the symbol "FFPC." In addition, in connection
with the Reorganization, the Bank made a capital distribution to FFB in the
amount of $500,000. During the second quarter of 1996, the Bank made an
additional capital distribution to FFB totalling $500,000. The Reorganization
was accounted for in a manner similar to a pooling of interests method of
accounting which treats the historical balance sheet and income statement
accounts of the combining companies as though the combination had occurred at
the beginning of the earliest period shown.
Note 4 - Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market or for
sale to correspondents are carried at the lower of cost or estimated market
value in the aggregate. Net unrealized losses are recognized in a valuation
allowance by charges to income. At September 30, 1996, loans held for sale
amounted to $2.3 million which included a negative market adjustment of $2,500.
At December 31, 1995, a market adjustment was not required on the $3.3 million
of loans held for sale at such date since there would have been a gain in the
aggregate. Mortgages with established interest rates generally will decrease
in value during periods of increasing interest rates and increase in value
during periods of decreasing interest rates. Accordingly, fluctuations in
prevailing interest rates may result in a gain or loss to the Bank as a result
of adjustments to the carrying value of loans held for sale or upon the sale of
loans to the extent that the Bank has not obtained prior commitments by
investors to purchase such loans at agreed upon terms or otherwise hedged the
value of the loans against changes in interest rates. (The cost of forward
commitments (see below) used by the Bank is deducted from the net gain or loss
on the sale of mortgage loans.)
The Bank currently employs forward commitments of 90 days or less as a hedging
technique to protect the value of its mortgage production from "pipeline risk"
(the risk created by offering and committing to agreed-upon interest rates for
a future closing, generally within 60 days). Forward commitments are legal
agreements between two parties to purchase and sell a specific quantity of a
financial instrument, at a specified price, with
7
<PAGE> 10
delivery and settlement at a specified future date. The Bank adjusts the
amount of its unhedged loans in process based on market conditions and loan
closing rates. On September 30, 1996, the Bank had no outstanding hedge
contracts. At September 30, 1996, the Bank had a total pipeline of loans in
process pending closing of $1.8 million, of which $1.5 million had locked-in
rates with commitments to fund, as well as loans of $2.3 million which had
closed and were available for sale. The Bank has not used any other hedging
techniques.
Note 5 - Securities
Securities are classified into three categories as required by Statement of
Financial Accounting Standard ("SFAS") No. 115: (i) securities held to
maturity, (ii) trading securities, and (iii) securities available for sale.
Debt instruments that the Company has the positive intent and ability to hold
to maturity are accounted for at amortized historical cost while trading
securities are reported at fair value with unrealized gains or losses included
in earnings. Securities available for sale are reported at fair value but
unrealized gains or losses are excluded from earnings and reported as a
separate component of stockholders' equity. Fair value is defined as the
amount which would be realized in a current transaction other than in a forced
or liquidation sale. The quoted market price is used when available to
determine the fair value. Anything not classified as held to maturity or a
trading security is to be treated as available for sale. Securities held to
maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts using a method that approximates level yield, and are
classified as such based on management's intent and the Company's ability to
hold such securities to maturity.
On November 15, 1995, the Financial Accounting Standards Board ("FASB") issued
a Special Report, "A Guide to Implementation of SFAS No. 115 on Accounting for
Certain Investments in Debt and Equity Securities" which permitted a one-time
opportunity for institutions to reassess the appropriateness of the
designations of all securities held upon the initial application of the Special
Report. Any resulting redesignations were to be made in conjunction with the
implementation of the FASB's supplemental guidance and had to occur no later
than December 31, 1995. Furthermore, redesignations had to be accounted for at
fair value in accordance with paragraph 15 of SFAS No. 115. This transition
guidance meant that institutions were permitted to transfer debt securities
from the held to maturity portfolio before calendar year-end 1995, without
calling into question their intent to hold other debt securities to maturity.
The Company reassessed the designations of its securities portfolio and
subsequently transferred $13.2 million of securities from the held to maturity
portfolio to the available for sale portfolio and also
8
<PAGE> 11
transferred $2.0 million of securities from available for sale to held to
maturity.
On May 29, 1996, the Company entered into an Agreement and Plan of
Reorganization ("Agreement") with Regions Financial Corporation ("Regions")
pursuant to which Regions will acquire all of the issued and outstanding common
stock of the Company. In accordance with the terms of the Agreement and as a
condition to Regions obligation to perform, the Company is required to dispose
of certain specified mortgage-related securities. As a consequence of the
Agreement, effective as of June 30, 1996, the Company transferred all of its
securities, totalling $67.4 million, from the held to maturity portfolio to the
available for sale portfolio in order to comply with the provisions of SFAS No.
115. At September 30, 1996, securities available for sale totalled $79.9
million while unrealized losses amounted to $249,000, net of deferred taxes.
As of November 1, 1996 the Company had disposed of all $21.0 million of the
sepcified securities. As a result, based upon the formula contained in the
Agreement, it appears that no adjustment to the purchase price per share will
be required; however, the analysis of such matter has not been finalized. See
Note 10 hereto.
Note 6 - Mortgage Servicing Rights
On May 12, 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." SFAS No. 122 amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities" to eliminate the accounting distinction between
rights to service mortgage loans that are acquired through loan origination
activities and those acquired through purchase transactions. When an
enterprise purchases or originates mortgage loans, the cost of acquiring those
loans includes the cost of the related mortgage servicing rights. If the
enterprise sells or securitizes the loans and retains the servicing rights, the
enterprise should allocate the total cost of the loans to the servicing rights
and the loans (without the servicing rights) based on their relative fair
values, if practicable. If it is not practicable to estimate fair values, the
entire cost of acquiring the loans should be allocated to the mortgage loans.
Any cost allocated to servicing rights should be recognized as a separate
asset. The Bank adopted SFAS No. 122 during the second quarter of 1995.
Servicing rights recorded under SFAS No. 122 amounted to $319,000 and $153,000
at September 30, 1996 and December 31, 1995, respectively. This amount will be
amortized over the average expected life of the related loans and will
effectively reduce servicing fee income in the future. Such income was reduced
by $27,000 for the nine months ended September 30, 1996 due to the amortization
of the servicing rights.
9
<PAGE> 12
Note 7 - Regulatory Capital Requirements
At September 30, 1996, the Bank was in compliance with all existing applicable
regulatory capital standards and had the following regulatory capital and
capital ratios (dollars in thousands):
<TABLE>
<CAPTION>
Actual Actual
Capital Required Excess Capital Required
Amount Amount Amount Ratio Ratio
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Adjusted tangible capital
to adjusted total assets $20,660 $ 4,463 $16,197 6.94% 1.5%
Adjusted core capital to
adjusted total assets 20,660 8,926 11,734 6.94 3.0
Total risk-based capital to
total risk-weighted assets 22,468 11,762 10,706 15.28 8.0
</TABLE>
See Note 15 in the Annual Report for further discussion of the regulatory
capital requirements applicable to the Bank.
Note 8 - Stock Compensation Program
The Bank adopted a stock compensation program ("Program") for key officers and
employees in connection with its stock conversion in 1986, which Program became
the Program of the Company pursuant to the terms of the Reorganization
Agreement. Under the Program, the option exercise price of FFB stock shall
equal at least the fair market value of the shares covered by such option on
the date the option is granted. In accordance with the Bank's plan of
conversion, 186,875 shares of common stock were reserved for issuance under the
Program. At September 30, 1996, options covering 300 shares remained
unallocated. Options granted under the Program are exercisable as determined
by the Option Committee of the Board of Directors and may have a term of up to
ten years.
The schedule below summarizes the activity of officer and employee stock options
for the periods shown:
<TABLE>
<CAPTION>
September 30,
----------------------------
1996 1995
--------- ----------
<S> <C> <C>
Balance, January 1 111,525 143,175
Granted 1,200 44,500
Exercised (37,570) (38,775)
Terminated (1,400) (10,875)
------ -------
Balance, end of period 73,755 138,025
====== =======
Weighted average price
at end of period $3.77 $3.35
===== =====
Options exercisable at
September 30 73,755 110,225
====== =======
</TABLE>
10
<PAGE> 13
Note 9 - Income Taxes
The Company follows the guidelines set forth in SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the Company to recognize the tax
consequences of an event under the asset and liability method at the same time
such event is recognized in the financial statements. As specifically related
to financial institutions, the statement also provides that a deferred tax
liability generally will not be recognized for "bad debt reserves" that arose
in tax years beginning before December 31, 1987. However, a deferred tax
liability shall be recognized for such reserves arising in tax years beginning
after December 31, 1987. The Company follows the practice of filing
consolidated federal and state income tax returns. Under SFAS No. 109, the
Company had net deferred tax assets of approximately $2.1 million as of
September 30, 1996 which were primarily related to tax bad debt reserves and
excess taxable expense over book expense related to investments.
Note 10 - Recent Developments
On May 29, 1996, the Company and Regions, a bank holding company headquartered
in Birmingham, Alabama, entered into the Agreement under which Regions would
acquire the Company. Under the terms of the Agreement, the Company's
stockholders will receive $11.65 per share in cash for each share of common
stock held at the effective time of the acquisition subject to certain
adjustments which may increase or decrease the acquisition consideration by up
to $.29 per share. Such adjustments relate to the net gain or loss that may be
experienced or incurred on the sale of the mortgage-related securities
previously discussed in Note 5 hereto. The acquisition of the Company will be
accounted for as a purchase and currently is not expected to be completed until
January 1997. Regions' acquisition of the Company is subject to customary
closing conditions, including the approval of the Company's stockholders and
all applicable regulatory authorities.
11
<PAGE> 14
FLORIDA FIRST BANCORP, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
GENERAL
The Company recorded a net loss for the quarter ended September 30, 1996, of
$342,000 or $.10 per share compared to net income of $587,000 or $.17 per share
for the same quarter in 1995. The third quarter loss is a direct result of a
pre-tax charge totalling $1.5 million to record the Bank's liability for the
FDIC one-time special assessment to recapitalize the Savings Association
Insurance Fund (SAIF) pursuant to the Economic Growth and Paperwork Reduction
Act of 1996 enacted on September 30, 1996. This amount represents 65.7 basis
points of the Company's SAIF-assessable deposits as of March 31, 1995 and is
tax deductible, resulting in a net after tax charge of $960,000. The
assessment is required to be paid by all banking institutions with SAIF insured
deposits. For the nine-month periods ended September 30, 1996 and 1995, the
Company recorded net income of $1.1 million or $.31 per share compared to net
income of $1.7 million or $.50 per share, respectively.
Excluding the special assessment, the Company would have earned $615,000 for
the third quarter of 1996 and $2.0 million for the nine months ended September
30, 1996. Using these amounts, there would have been an improvement when
comparing the three and nine-month periods ended September 30, 1996 and 1995,
caused by increased net interest income, service charge income and other
income. These increases would have been partially offset by reduced gains on
sales of REO combined with higher operating expenses and an increased provision
for income taxes. In addition, earnings per share for the three and nine
months ended September 30, 1996, would have been $.18 and $.59, respectively,
without the special assessment. All earnings per share amounts disclosed
herein represent both primary and fully diluted calculations.
FINANCIAL CONDITION
At September 30, 1996, total assets of the Company amounted to $297.2 million,
a decrease of $6.1 million from the December 31, 1995 balance of $303.3
million, primarily due to an aggregate decrease of $21.5 million in securities
and a decrease of $5.2 million in net loans receivable (including loans held
for sale). The decrease in securities and net loans receivable was partially
offset by a $20.5 million increase in cash and cash equivalents.
12
<PAGE> 15
Cash increased due to sales of loans and securities partially offset by deposit
reductions and repayment of borrowings. Net deposits decreased by $6.3 million
primarily due to disintermediation into other investments and other financial
institutions offering higher yields.
Stockholders' equity at September 30, 1996 was $20.8 million or $6.12 per share
($6.07 on a fully diluted basis) compared to $20.6 million or $6.13 per share
($6.05 on a fully diluted basis) at December 31, 1995. The increase in
stockholders' equity reflected net income and to a lesser extent, the issuance
of common stock pursuant to options exercised during the nine months ended
September 30, 1996. Partially offsetting the increase in stockholder's equity
were unrealized losses, net of deferred taxes, on securities available for sale
which totalled $249,000 at September 30, 1996 compared to gains of $112,000 at
December 31, 1995.
ASSET QUALITY. At September 30, 1996, the Bank had loans aggregating $1.5
million on which the accrual of interest had been discontinued. As a general
policy, all loans delinquent 90 days or more are placed on non-accrual status.
In addition, management reviews other loans which exhibit indications of
potential difficulty to determine which, if any, are impaired as to
collectibility and, therefore, should be placed on non-accrual status prior to
becoming 90 days delinquent. During the three and nine months ended September
30, 1996, the difference between the amount of interest income which would have
been recorded had all delinquent loans been accruing throughout the period and
the amount of interest income actually recorded was approximately $29,000 and
$83,000, respectively, compared to $44,000 and $131,000, respectively, for the
same periods in 1995. These amounts also include any interest accrued through
the date immediately preceding the reclassification of any such loans as REO.
The Bank did not have any loans at September 30, 1996 which were contractually
past due 90 days or more and which were still accruing interest.
Total net non-performing assets (including non-accrual loans, troubled debt
restructurings ("TDRs") and REO) decreased from $2.8 million at December 31,
1995 to $1.7 million at September 30, 1996. This decrease primarily reflects
the reclassification of one loan totalling $750,000 from a TDR to a performing
loan. Certain concessions were made for the borrower at the time the loan was
classified as a TDR; however, the loan is now subject to its original terms and
has performed in accordance with such terms for a significant period of time.
13
<PAGE> 16
The following table shows comparative data on non-performing assets at the
dates indicated:
<TABLE>
<CAPTION>
Total Non-Performing Assets at
------------------------------------------------------------------
September 30, 1996 December 31, 1995 September 30, 1995
------------------ ----------------- ------------------
(dollars in thousands)
<S> <C> <C> <C>
Nature of Collateral:
Residential real estate $ 327 $ 190 $ 158
Commercial real estate 1,012 1,371 2,420
Land 172 264 186
Consumer and other 220 137 133
------ ------ ------
1,731 1,962 2,897
Specific valuation
allowances (585) (596) (596)
------ ------ ------
1,146 1,366 2,301
Loans considered
troubled debt
restructurings 592 1,371 1,383
Loans on properties
under contract to sell 41 42
------ ------ ------
Total - net $1,738 $2,778 $3,726
====== ====== ======
Percentage of total assets 0.58% 0.90% 1.22%
====== ====== ======
</TABLE>
The Bank classifies certain loans as TDRs because such loans bear terms which
do not comply with the Bank's standard underwriting criteria and relate to
loans which were troubled or non-performing. Modifications to these loans have
primarily consisted of temporary payment deferrals and extensions of generally
two years or less of the maturity date. Interest earned on all restructured
loans for the three and nine months ended September 30, 1996 was not materially
different from the interest that would have been earned if the modifications
had not been made. The Bank's restructured loans are performing loans but are
included in the calculation of non-performing assets because the terms have
been modified due to specific or anticipated difficulties on the part of the
borrower.
The following table summarizes activity related to the allowances for losses on
loans for the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
General Specific Total
------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Balance, January 1, 1996 $3,143 $596 $3,739
Charge-offs (255) (11) (266)
------ ---- ------
Balance, September 30, 1996 $2,888 $585 $3,473
====== ==== ======
</TABLE>
14
<PAGE> 17
The Bank's policy as it relates to general reserves uses the guidelines
prescribed by the "Interagency Policy Statement on the Allowance for Loan and
Lease Losses" dated December 21, 1993 ("Policy Statement") and issued by the
Federal Financial Institutions Examination Council ("FFIEC"). These
guidelines, which effectively supersede previous OTS proposed guidance,
includes guidance (i) on the responsibilities of management for the assessment
and establishment of an adequate allowance and (ii) for the agencies' examiners
to use in evaluating the adequacy of such allowance and the policies utilized
to determine such allowance. The Policy Statement also sets forth quantitative
measures for analyzing the allowance with respect to assets classified
substandard and doubtful, described below, and with respect to the remaining
portion of an institution's loan portfolio. While the Policy Statement sets
forth this quantitative measure, such guidance is not intended as a "floor" or
"ceiling." Management of the Bank has reviewed all of the factors and the
various quantitative measures to create a methodology that serves as the basis
for subjectively determining the necessary level for general reserves.
The general reserve is management's estimate of possible loss since there is no
way to measure with certainty all of the risks inherent in the Bank's loan
portfolio. In addition to the factors mentioned above, the subjective analysis
includes, among others, such factors as historical loss experience,
identification of adverse situations related to borrowers, current economic
conditions and collateral values. Using this formula and all available
information, management believes that its allowance for losses was adequate as
of September 30, 1996; however, changing economic and market factors that
affect real estate values could result in the need to provide additions to the
Bank's allowance in the future. Such additional provisions would adversely
affect net income.
RESULTS OF OPERATIONS
As stated previously, the Company's consolidated results of operations are
primarily those of the Bank. The largest components of the Bank's total income
and total expense are interest items. As a result, the Bank's earnings are
largely dependent upon its net interest income, which is determined principally
by the Bank's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets, primarily loans and investments, and the
rates paid on its interest-bearing liabilities, primarily deposits and
borrowings) and the relative amounts of interest-earning assets and
interest-bearing liabilities. The interest rate spread is affected by economic
factors that generally affect interest rates, the level of loan demand, other
investment opportunities and deposit flows. When interest-earning assets equal
or exceed interest-bearing liabilities, any positive interest rate spread will
generate net
15
<PAGE> 18
interest income. However, to the extent interest-bearing liabilities exceed
interest-earning assets, the interest rate spread must be increased in order to
offset the excess of interest-bearing liabilities in order to produce net
interest income. The measurement of net interest income divided by average
interest-earning assets, called the net interest margin, indicates the
relationship between interest-earning assets and interest-bearing liabilities.
If interest-earning assets exceed interest-bearing liabilities, as it does for
the Company, the net interest margin will be greater than the interest rate
spread. If the opposite situation exists, the net interest margin will be less
than the interest rate spread.
NET INTEREST INCOME. The Company earned net interest income (before provision
for losses on loans) of $2.3 million and $7.2 million for the three and nine
months ended September 30, 1996, respectively, compared to $2.1 million and
$6.4 million, respectively, for the same periods in 1995. General market rates
of interest increased during the first part of 1995, declined during the
remainder of 1995, increased somewhat during the first half of 1996 and have
stabilized since then. When market rates of interest declined, it had a
positive affect on the Company's net interest income since its liabilities
during those periods repriced more frequently than its assets. When rates
increased during 1996, there was limited effect on the net interest income
since the Company was able to delay increasing rates on its deposit products
and was able to restructure a portion of its debt.
The Company's interest rate spreads for the three and nine months ended
September 30, 1996 were both 3.16%, compared to 2.86% and 2.83%, respectively,
for the same periods in 1995. Average interest-earning assets exceeded average
interest-bearing liabilities by $11.5 million and $10.8 million for the three
and nine months ended September 30, 1996, respectively, compared to $11.1
million and $12.0 million during the same periods in 1995.
The following table sets forth for the periods indicated information regarding
(i) the average balances of interest-earning assets and interest-bearing
liabilities, (ii) the total dollar amount of interest income and interest
expense, and (iii) the resultant average yields and costs and the net interest
margins. Average balances are determined on a monthly basis unless otherwise
noted. The yields and costs at September 30, 1996 are also included.
16
<PAGE> 19
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------
September 30, 1996 September 30, 1995
--------------------------------- -------------------------------
At
Sept. 30, 1996 Average Average Average Average
Yield/Rate Balance Interest Yield/Rate(1) Balance Interest Yield/Rate(1)
---------- ------- -------- ---------- ------- -------- ----------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans 8.63% $172,296 $3,745 8.69% $173,946 $3,737 8.59%
Mortgage-backed
securities(3) 6.88 30,889 500 6.48 33,899 542 6.40
Other securities(3,4) 6.64 51,594 812 6.30 55,946 900 6.43
Other interest-earning
assets(3,5) 5.34 27,288 385 5.61 21,743 332 6.06
-------- ------ -------- ------
Total interest-earning
assets 7.71 282,067 5,442 7.72 285,534 5,511 7.72
---- -------- ------ ---- -------- ------ ----
Interest-bearing
liabilities:
Deposits 4.42 245,259 2,718 4.41 245,506 2,919 4.72
FHLB advances(3,6) 6.14 25,261 381 6.00 28,924 443 6.07
-------- ------ -------- ------
Total interest-bearing
liabilities 4.59 270,520 3,099 4.56 274,430 3,362 4.86
---- -------- ------ ---- -------- ------ ----
Net earnings balance and
interest rate spread 3.12% $ 11,547 3.16% 11,104 2.86%
==== ======== ==== ======== ====
Average interest-earning
assets, net interest income
and net interest margin on
average interest-earning
assets(7) $282,067 $2,343 3.30% $285,534 $2,149 2.99%
======== ====== ==== ======== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------------------------------------------
September 30, 1996 September 30, 1995
------------------------------------ --------------------------------------
Average Average Average Average
Balance Interest Yield/Rate(1) Balance Interest Yield/Rate(1)
------- -------- ---------- ------- -------- ----------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $173,753 $11,439 8.78% $174,252 $11,090 8.49%
Mortgage-backed
securities(3) 31,806 1,524 6.39 32,860 1,548 6.28
Other securities(3,4) 60,839 2,894 6.34 53,173 2,462 6.17
Other interest-earning
assets(3,5) 20,236 851 5.62 19,468 859 5.90
-------- ------- -------- -------
Total interest-earning
assets 286,634 16,708 7.77 279,753 15,959 7.61
-------- ------- ---- -------- ------- ----
Interest-bearing
liabilities:
Deposits 247,677 8,258 4.45 237,733 8,213 4.62
FHLB advances(3,6) 28,125 1,271 6.04 30,001 1,349 6.01
-------- ------- -------- -------
Total interest-bearing
liabilities 275,802 9,529 4.61 267,734 9,562 4.78
-------- ------- ---- -------- ------- ----
Net earnings balance and
interest rate spread $ 10,832 3.16% $ 12,019 2.83%
======== ==== ======== ====
Average interest-earning
assets, net interest income
and net interest margin on
average interest-earning
assets(7) $286,634 $ 7,179 3.35% $279,753 $ 6,397 3.06%
======== ======= ==== ======== ======= ====
</TABLE>
(1) Average yields and costs have been annualized using information for the
three- and nine-month periods, respectively.
(2) Yield calculations at September 30, 1996 are based on note rates, and do
not consider the non-accrual of interest for loans that are
non-performing. Management's estimate of the effect of inclusion of
loans on non-accrual would indicate no material change in the yields
stated.
(3) Average balances were calculated on a daily basis. Securities totals
include those available for sale.
(4) Includes the cost of hedging activities. Without hedging activities,
the average yield on other securities would have been 6.34% and 6.37% for
the three and nine months ended September 30, 1996, respectively, and
6.47% and 6.21% for the same respective periods in 1995. The average
yield on interest-earning assets would have been 7.72% and 7.77% for the
three and nine months ended September 30, 1996, respectively, and 7.73%
and 7.61% for the same respective periods in 1995.
(5) Includes interest-bearing deposits and stock in the FHLB of Atlanta.
(6) Includes the cost of hedging activities. Without hedging
activities, the average cost of borrowings would have been 5.85% and
5.90% for the three and nine months ended September 30, 1996,
respectively, and 5.95% and 5.89% for the same respective periods in
1995. The average cost of total interest-bearing liabilities would have
been 4.54% and 4.61% for the three and nine months ended September 30,
1996, respectively, and 4.85% and 4.76% for the same respective periods
in 1995.
(7) Net interest margin is the net interest income divided by average
interest-earning assets.
17
<PAGE> 20
INTEREST INCOME
INTEREST ON LOANS. For the three and nine months ended September 30, 1996
interest on loans increased $7,000 and $348,000, respectively, compared to the
same periods in 1995 primarily due to an increase in the average portfolio
yield from 8.59% and 8.49% to 8.69% and 8.78% for the three and nine months
ended September 30, 1995 and 1996, respectively, which increase was caused by
generally rising market rates of interest as well as an increase in the
origination of commercial and consumer loans which generally carry a higher
rate of interest than residential loans. This increase was partially offset by
a decline in the average portfolio balance to $172.3 million and $173.8 million
for the three and nine months ended September 30, 1996, from $173.9 million and
$174.2 million for the same periods in 1995 due to declines in loan
originations.
INTEREST ON SECURITIES. For the three and nine months ended September 30,
1996, interest on mortgage-backed securities decreased by $42,000 and $24,000,
respectively, when compared to the same periods in 1995 primarily due to lower
average portfolio balances of $30.9 million and $31.8 million for the three and
nine months ended September 30, 1996, respectively, compared to $33.9 million
and $32.9 million for the three and nine months ended September 30, 1995,
respectively. The decrease in the average portfolio balances was primarily due
to sales of mortgage-backed securities during 1996. Partially offsetting this
decline was an increase in the average portfolio yield on mortgage-backed
securities to 6.48% from 6.40% when comparing the three months ended September
30, 1996 to the same period in 1995, and to 6.39% from 6.28% when reviewing the
nine month comparison. The increase in the average yields reflects the effects
of upward repricing of variable-rate securities.
Interest and dividends on other securities decreased from $900,000 to $812,000
when comparing the three months ended September 30, 1996 and 1995,
respectively, but increased from $2.5 million to $2.9 million for the nine
months ended September 30, 1996 when compared to the same period in 1995. The
primary cause for the nine month increase was the increase in the average
portfolio balance from $53.2 million for the nine months ended September 30,
1995 to $60.9 million for the same period in 1996, which increase resulted from
purchases of securities. Increased deposits and proceeds from loan sales
during the end of 1995 were used to purchase securities (collateralized by
mortgage loans) carrying higher yields and with increased interest-rate
sensitivity. During the second and third quarters of 1996, however, the Company
sold many of these securities as required by the Agreement with Regions (see
Note 5) which caused the average quarterly balance to decline from $55.9
million to $51.6 million. Also contributing to the nine-month increase in
interest and dividends on other securities was an increase in the average
portfolio yield from
18
<PAGE> 21
6.17% for the nine months ended September 30, 1995 to 6.34% for the same period
in 1996. However, with respect to the three months ended September 30, 1996,
the average portfolio yield declined from 6.43% to 6.30% when compared to the
quarter ended September 30, 1995 due to sales of higher hielding securities
subsequent to the 1995 period.
In 1995, the Company purchased a five-year, $5.0 million interest rate cap
providing protection if the three-year Constant Maturity Treasury index ("CMT")
exceeds 9.00%. The Company purchased the cap to hedge a specific
adjustable-rate security because it has a lifetime cap of 9.00%. The
amortization of the cap premium reduced interest earned on securities by
approximately $13,000 during both nine month periods ended September 30, 1996
and 1995. See "Interest Rate Sensitivity" included herein.
OTHER INTEREST INCOME. Other interest income, consisting of interest on
insured certificates of deposit and FHLB of Atlanta overnight deposits as well
as dividends on FHLB stock, increased from $332,000 to $385,000 when comparing
the quarter ended September 30, 1995 to 1996 but decreased from $859,000 to
$851,000 when comparing the nine month periods. The quarterly increase was
primarily due to the increase in the average balance from $21.7 million to
$27.3 million as a result of increased funds at the FHLB of Atlanta from loan
and security sales. This increase was partially offset by a decline in the
average yield from 6.06% to 5.61% for the quarters ended September 30, 1995 and
1996, respectively. The majority of the assets held during these periods were
deposits at the FHLB of Atlanta which earn interest at a rate that fluctuates
daily. This causes the yield to closely reflect general market interest rates
which decreased during much of 1995 and part of 1996. The nine month decrease
was attributable to a decrease in the average yield from 5.90% to 5.62% which
decrease was partially offset by an increase in the average balance from $19.5
million to $20.2 million when comparing the nine months ended September 30,
1995 to 1996.
INTEREST EXPENSE
INTEREST ON DEPOSITS. Deposit interest expense decreased from $2.9 million to
$2.7 million for the three months ended September 30, 1996 compared to the
third quarter of 1995. Such expense remained the same at $8.2 million when
comparing the nine months ended September 30, 1996 to the first nine months of
1995. The decrease in deposit interest expense when comparing the quarterly
results was due to decreases in both the average balance of deposits and the
average cost of deposits. The average balance of deposits decreased slightly
from $245.5 million for the three months ended September 30, 1995 to $245.3
million for the same period in 1996. Also contributing to the decrease in
interest expense on deposits was a decrease in the average cost of deposits
from 4.72% for the three months ended September 30, 1995 to 4.41%
19
<PAGE> 22
for the same period in 1996. The interest expense for the nine months ended
September 30, 1995 and 1996 was virtually the same because the effect of the
declining average cost was offset by the effect of increasing average balances.
The average cost of deposits declined from 4.62% to 4.45% while the average
deposit balance increased from $237.7 million to $247.7 million when comparing
the nine months ended September 30, 1995 to 1996. Although general market rates
of interest increased during part of the first nine months of 1996, they have
not reached the level experienced in mid-1995 after five quarters of rising
rates. The average balance of deposits increased as a result of deposits
received from the opening of a new branch in January 1995. The Bank also
received $2.0 million in public deposits from the State of Florida during the
first quarter of 1996. The Bank currently participates in the State of
Florida's public deposits program which allows the Bank to accept deposits from
municipalities, schools and other state agencies in amounts that would not be
covered by federal deposit insurance. State law requires that the Bank pledge
securities to cover the uninsured portion of the deposits of the state.
INTEREST EXPENSE ON BORROWINGS. For the three and nine months ended September
30, 1996, interest expense on borrowings decreased by $62,000 and $78,000 to
$381,000 and $1.3 million, respectively, compared to the same periods in 1995
due to a decline in both the weighted average cost and the average balance
outstanding. The weighted average interest rate on borrowings decreased from
6.07% for the three months ended September 30, 1995 to 6.00% for the three
months ended September 30, 1996, and increased from 6.01% for the nine months
ended September 30, 1995 to 6.04% for the same period in 1996. The primary
reason for the decline in interest expense was the decrease in average
borrowings from $28.9 million and $30.0 million for the three and nine months
ended September 30, 1995, respectively, to $25.3 million and $28.1 million for
the three and nine months ended September 30, 1996, respectively. The average
balance outstanding decreased primarily due to repayments as the Bank used
available funds from the sale of loans and securities to fund its obligations.
In 1994, the Bank purchased a five-year, $5.0 million interest rate cap
providing protection if the three-month London Interbank Offering Rate
("LIBOR") exceeds 8.00%. This cap was purchased to lengthen the Bank's
liabilities and hedge its then current interest margin. The cap added
approximately $9,000 and $27,000 to the Bank's cost of funds for the three and
nine months ended September 30, 1996 and 1995. See "Interest Rate Sensitivity"
included herein.
PROVISION FOR LOSSES ON LOANS. For the nine months ended September 30, 1995,
$10,000 was provided for estimated losses on one residential loan involving
flood damage. For the same period in 1996, no loan loss provisions were
established due to the low
20
<PAGE> 23
level of the Company's non-performing assets. See "Asset Quality" included
herein for further details and a discussion of loss reserves.
OTHER INCOME. Other income decreased from $595,000 to $485,000 for the three
months ended September 30, 1996 when compared to the same period in 1995 and
showed no change at $1.6 million for the nine months ended September 30, 1995
when compared to the nine months ended September 30, 1996. The decrease in
other income resulted from decreases in loan correspondent and servicing fees,
and gains on sales of securities and REO. Partially offsetting these decreases
were increases in service charges and gains on sales of loans.
Loan correspondent and servicing fees decreased from $166,000 to $160,000 and
increased from $414,000 to $461,000 for the three and nine months ended
September 30, 1995 and 1996, respectively. The year-to-date increase resulted
from an improvement in the market value of loans sold to correspondents (on a
servicing released basis). For the three and nine months ended September 30,
1995, loans sold to correspondents amounted to $5.2 million and $10.9 million
compared to $3.5 million and $10.3 million for the same periods in 1996.
Service charges (deposit account fees and certain loan fees) increased by
$19,000 from $203,000 for the three months ended September 30, 1995 to $222,000
for the same period in 1996 and increased by $63,000 from $566,000 for the nine
months ended September 30, 1995 to $629,000 for the same period in 1996. This
increase resulted from an increased fee structure and increased activity
related to various service charges.
Gains on sales of loans amounted to $82,000 and $159,000 for the three and nine
months ended September 30, 1996, compared to gains of $78,000 and $172,000 for
the same periods in 1995. Gains on sales of loans consist of several
components which include the actual gain/loss on sale of loans to the FHLMC and
the Student Loan Marketing Association ("SLMA"), the gains recorded under the
provisions of SFAS No. 122 (See Note 6 included herein), the market value
adjustment for the loans held for sale and any hedging contract gain/loss (See
Note 4 included herein). The table below details the components discussed
above:
21
<PAGE> 24
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Gain (loss) on sales
to FHLMC and SLMA $ 14 $17 $(37) $107
Gain under SFAS No. 122 72 69 181 103
Market value adjustment on
loans held for sale - net 7 (3)
Hedging transactions (11) (8) 18 (38)
---- --- ---- ----
Net gain on sale of loans $ 82 $78 $159 $172
==== === ==== ====
</TABLE>
During the three and nine months ended September 30, 1996, $6.8 million and
$17.7 million in loans were sold to FHLMC and $59,000 and $707,000 of loans
were sold to the SLMA. The Company sold $4.8 million and $10.5 million of
loans to FHLMC as well as $140,000 and $670,000 to SLMA during the three and
nine months ended September 30, 1995. The gains during the 1995 periods
resulted from the increased value of loans in the secondary market reflecting
the higher interest rates being borne on newly originated fixed-rate mortgages.
Losses on sales of securities amounted to $66,000 and $36,000, respectively,
for the three and nine months ended September 30, 1996. During the first nine
months of 1996, the Company sold $5.7 million of mortgage-backed securities and
reinvested the funds in similar securities with higher yields. In addition,
the Company sold $16.2 million of private issue mortgage-backed securities in
order to comply with the terms of the Agreement with Regions. (See Notes 5 and
10 included herein.) Losses on sales of securities for the nine months ended
September 30, 1995 resulted from sales recorded during the first quarter of
1995. The Company sold $6.3 million of U.S. Treasury securities at a loss of
$72,000. These securities were sold to obtain funds for reinvestment in assets
with higher yields.
Gains on trading securities amounted to $3,000 and $7,000 for the three and
nine months ended September 30, 1995 due to the sale of stock held by the
Company during the second and third quarters of 1995. No such gains occurred
for either the three or nine months ended September 30, 1996.
Losses on sales of REO amounted to $2,000 and gains were $107,000 for the three
and nine months ended September 30, 1996, respectively, compared to gains of
$83,000 and $297,000 for the same periods in 1995. During the second quarter
of 1996, the Company recognized the deferred gain on the sale of one REO
property sold in 1995 since the loan made to facilitate the sale now has an
appropriate loan-to-value ratio. The gains during the first nine months of
1995 primarily resulted from the sale of one REO property consisting of vacant
gulf-front land.
22
<PAGE> 25
OPERATING EXPENSES. For the three and nine months ended September 30, 1996,
total operating expenses were $3.4 million and $7.1 million, respectively,
compared to $1.8 million and $5.4 million for similar periods in 1995. When
reviewing the nine month comparison, compensation and benefits increased by
$51,000, occupancy and equipment increased by $66,000, advertising, promotion
and training increased by $147,000 and other operating expenses reflected an
increase of $172,000. In addition, the special one-time SAIF assessment of
$1.5 million was recorded on September 30, 1996 (see "General" included
herein). These increases were partially offset by a $27,000 decrease in
federal deposit and other insurance premiums as well as by a decrease in
one-time expenses related to the Reorganization and the Bank's name change
totalling $194,000.
Compensation and benefits reflected cost increases relating to general
increases in salaries for merit and promotion. In addition, medical insurance
costs for 1996 have increased 20% over the 1995 levels. Occupancy and
equipment expense increased due to expected increases related to computer
services as well as increased depreciation expense on branch renovations made
in 1995. During the first nine months of 1996, advertising, promotion and
training expense was higher than the same period in 1995 due to promotional and
marketing costs related to efforts to increase the Company's market share in
Bay County. Other operating expenses increased primarily as a reflection of
costs associated with the Company's credit card program as well as various
other consumer and commercial loan products. The remaining increase in other
operating expenses was due to normal increases in the cost of doing business;
however, none of the amounts related to these individual expenses was
considered material.
During 1995, the costs related to the Reorganization and name change were
one-time expenses. As a consequence, the Company experienced a decrease in
this expense category when compared to 1996. Decreased deposit insurance
premiums from .26% to .23% of average deposit balances caused the decrease in
federal deposit and other insurance expense which was partially offset by
increased average deposit balances.
INCOME TAXES. For the three and nine month periods ended September 30, 1996 a
tax benefit of $206,000 and tax expense of $646,000, respectively, were
recorded compared to tax expenses of $358,000 and $975,000, for the same
periods in 1995. The provision for income tax expense was calculated through
the use of the estimated annual income tax rates based on the prior year's
annual taxable income. See Note 9 included herein for a discussion of SFAS No.
109 and its effect on the Company's tax provisions for the periods.
23
<PAGE> 26
INTEREST RATE SENSITIVITY
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that same time period. A gap is considered positive when the amount of
interest rate sensitive assets maturing within a specific time frame exceeds
the amount of interest rate sensitive liabilities maturing within that same
time frame. A gap is considered negative when the amount of interest rate
sensitive liabilities maturing within a specific time frame exceeds the amount
of interest rate sensitive assets. During a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income while
a positive gap would tend to adversely affect net income. In a rising interest
rate environment, an institution with a positive gap would generally be
expected, absent the effects of other factors, to experience a greater increase
in the yield of its assets relative to the costs of its liabilities and thus an
increase in the institution's net interest income, whereas an institution with
a negative gap would be expected to experience the opposite results. At
September 30, 1996, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing
within the same time period by $19.0 million, representing a negative
cumulative one-year gap of 6.41% of total assets compared to $4.9 million or a
negative 1.76% of assets at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the Company's ability to generate sufficient cash to meet
the funding needs of current loan demand, savings deposit withdrawals, and to
pay operating expenses. The Company is required under applicable federal
regulations to maintain specified levels of "liquid" investments in qualifying
types of United States Treasury, federal agency and other investments having
maturities of five years or less. Regulations currently in effect require the
Company to maintain liquid assets of not less than 5% of its net withdrawable
accounts plus short-term borrowings, of which short-term liquid assets must
consist of not less than 1%. These levels may be changed from time to time by
the OTS to reflect economic conditions. The Company's average regulatory
liquidity ratios for the nine months ended September
24
<PAGE> 27
30, 1996 and 1995 were approximately 14.0% and 16.0%, respectively.
The Company's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowings from the FHLB of
Atlanta and other sources, including reverse repurchase agreements, and sales
of loans originated for sale. At September 30, 1996, the total of approved
loan commitments amounted to $5.1 million, and the Company had $5.6 million of
undisbursed loan funds. Scheduled repayments of FHLB advances for the
remainder of 1996 totalled $7.0 million at September 30, 1996 while the amount
of savings certificates which mature during the remainder of 1996 totalled
$35.5 million, a substantial portion of which management believes, on the
basis of prior experience, will remain in the Company.
The Company's consolidated stockholders' equity totalled $20.8 million or 7.0%
of total consolidated assets at September 30, 1996 based upon generally
accepted accounting principles ("GAAP"). Under OTS regulations, capital
requirements of the Bank are (i) tangible capital equal to 1.5% of adjusted
total assets, (ii) core capital equal to 3.0% of adjusted total assets, and
(iii) total risk-based capital equal to 8.0% of risk-weighted assets. The
Bank's actual capital ratios were 6.9% for tangible and core capital and 15.3%
for risk-based capital at September 30, 1996. The Bank is currently in
compliance with all existing applicable capital standards. See Note 7 included
herein and Note 16 in the Annual Report for further information related to the
Bank's capital compliance.
IMPACT OF REGULATORY DEVELOPMENTS
The deposits of the Company are insured by the Savings Association Insurance
Fund ("SAIF") administered by the Federal Deposit Insurance Corporation
("FDIC"), which, due to the large number of failed savings institutions in
recent years, has been unable to attain a statutorily-required reserve ratio of
1.25% of insured deposits. Legislation was inacted on September 30, 1996
pursuant to which SAIF members will be required to pay a special one-time
assessment in an amount which in the aggregate would be sufficient to bring the
reserve ratio in the SAIF Fund to the required level. Based on the level of
reserves maintained by the SAIF Fund, it was determined that the amount of the
special assessment required to recapitalize the SAIF would be 65.7 basis points
of SAIF-assessable deposits as of March 31, 1995. The one-time special
assessment resulted in the Company incurring a pre-tax charge of approximately
$1.5 million for the quarter ended September 30, 1996, which charge does not
affect the Bank's status as a "well-capitalized" institution under applicable
laws and regulations. The special assessment was due on October 1, 1996 and
will be payable on November 27, 1996. The FDIC will adjust the SAIF premiums
for the first half of 1997 to take into account its new
25
<PAGE> 28
premium schedule as of October 1, 1996 and the resulting overpayment already
made for the last quarter of 1996. The Bank's assessment rate will decline to
approximately 6.44 basis points per $100 of deposits from 23 basis points. As
noted, the assessment was expensed in the third quarter of 1996 and is tax
deductible, resulting in a net charge of $960,000. Deposits of commercial
banks are insured by the Bank Insurance Fund ("BIF") also administered by the
FDIC. The SAIF-BIF provisions of the legislation provide for (1) an immediate
recapitalization of SAIF; (2) FICO debt sharing by banks and thrifts; and (3) a
proposed merger of BIF and SAIF possibly as early as January 1, 1999, depending
on the occurrence of certain events.
26
<PAGE> 29
II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than the proceedings set forth above the
Company is only involved in routine legal
proceedings occurring in the ordinary course of
business. The lender liability suit referenced in
previous filings was resolved in the Bank's favor
and all pledged funds released to the Bank.
Item 2. Changes in Securities - not applicable.
Item 3. Defaults upon Senior Securities - not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- not applicable.
Item 5. Other Information - not applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits: not applicable
B. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
27
<PAGE> 30
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
FLORIDA FIRST BANCORP, INC.
Date: November 8, 1996 By: /s/ Andrew W. Stein
------------------------------
ANDREW W. STEIN
President and
Chief Executive Officer
Date: November 8, 1996 By: /s/ Barbara Larrabee Haag
------------------------------
BARBARA LARRABEE HAAG
Senior Vice President and
Chief Financial Officer
</TABLE>
28
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,197
<INT-BEARING-DEPOSITS> 29,755
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<DEPOSITS> 243,695
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 5,231
<LONG-TERM> 22,521
0
0
<COMMON> 34
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<NET-INCOME> 1,066
<EPS-PRIMARY> 0.31
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