10-Q 1 f10q_063003-0248.txt 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act -- of 1934 For the quarterly period ended June 30, 2003 OR Transition report under Section 13 or 15(d) of the Securities Exchange Act -- of 1934 For the transition period from to --------- --------- Commission file number 0-32139 -------- FLORIDAFIRST BANCORP, INC. -------------------------- (Exact Name of Registrant as Specified in Its Charter) Florida 59-3662010 --------------------------- -------------------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 205 East Orange Street Lakeland, Florida 33801-4611 -------------------------------------- (Address of Principal Executive Offices) (863) 688-6811 -------------------------------------------------- (Registrant's Telephone Number, Including Area Code) N/A ------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): YES X NO --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common stock, par value $.10 per share 5,378,524 shares -------------------------------------- ----------------------------- (class) Outstanding at August 4, 2003 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page ---- Condensed Consolidated Balance Sheets - At June 30, 2003 (unaudited) and At September 30, 2002.................2 Condensed Consolidated Statements of Earnings - Three and Nine Months ended June 30, 2003 and 2002 (unaudited).........3 Condensed Consolidated Statements of Stockholders' Equity - Nine Months Ended June 30, 2003 and 2002 (unaudited).................4-5 Condensed Consolidated Statements of Cash Flows - Nine Months Ended June 30, 2003 and 2002 (unaudited).................6-7 Notes to Condensed Consolidated Financial Statements (unaudited)......8-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................13-26 Item 3. Quantitative and Qualitative Disclosure about Market Risk........27 Item 4. Controls and Procedures..........................................27 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................28 Item 2. Changes in Securities and Use of Proceeds........................28 Item 3. Defaults Upon Senior Securities..................................28 Item 4. Submission of Matters to a Vote of Security Holders..............28 Item 5. Other Information................................................29 Item 6. Exhibits and Reports on Form 8-K.................................29 SIGNATURES...................................................................30 1 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets ($ in thousands, except per share amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements. 2 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Condensed Consolidated Statements of Earnings (Unaudited) (In thousands, except per share amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements. 3 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Condensed Consolidated Statements of Stockholders' Equity (Unaudited) For the Nine Months Ended June 30, 2003 and 2002 ($ in thousands, except per share amounts)

4 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Condensed Consolidated Statements of Stockholders' Equity (Unaudited), Continued

See Accompanying Notes to Condensed Consolidated Financial Statements. 5 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)

(continued) 6 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (Unaudited), Continued (In thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements. 7 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (unaudited) (1) Basis of Presentation General. FloridaFirst Bancorp, Inc. (the "Company") is the parent of and conducts its business principally through FloridaFirst Bank (the "Bank"). The Bank, a federally-chartered savings bank headquartered in Lakeland, Florida, is a community-oriented savings institution that delivers retail and commercial banking services through nineteen full-service locations. The Company purchased seven branches during February 2002 (see Note 3). Principal sources of income are derived through interest earned on loans and securities. The primary sources of funds are customer deposits and Federal Home Loan Bank advances. The Bank is subject to various regulations governing savings institutions and is subject to periodic examination by its primary regulator, the Office of Thrift Supervision ("OTS"). The accompanying condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the interim condensed consolidated financial statements have been included. The results of operations for the three- and nine-month periods ended June 30, 2003 and 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period. These statements should be read in conjunction with the consolidated financial statements and related notes, which are included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002. (2) Loans Loans consist of the following (in thousands):

(1) Includes loans held for sale of $1,737 and $3,036 at June 30, 2003 and September 30, 2002, respectively. 8 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY (2) Loans, Continued The activity in the allowance for loan losses is as follows (in thousands):

No loans were identified as impaired at or during the three months or nine months ended June 30, 2003 or 2002. Nonaccrual and past due loans were as follows (in thousands):

(3) Branch Acquisition On February 15, 2002, the Company finalized the purchase of seven Florida retail sales offices ("Branch Acquisition") from SunTrust Bank coincident with SunTrust Bank's acquisition of such offices from Huntington National Bank ("Huntington"). Four of these Huntington offices are located in Lakeland, Florida, and one each in Avon Park, Sebring and Wildwood, Florida. The transaction resulted in the Company receiving approximately $120.9 million in cash, $162.1 million in deposits, $26.1 million in loans and $2.4 million in premises and equipment related to these seven offices. The Company paid a premium of approximately 7.6%. This premium, along with additional acquisition costs, resulted in a core deposit intangible asset of $12.7 million being recorded. This intangible asset is being amortized using an accelerated method over twelve years. (4) Other Events On October 2, 2002, the Company entered into a definitive agreement with BB&T Corporation ("BB&T") whereby BB&T would acquire 100% of the outstanding common stock of the Company. However, pursuant to discussions with regulatory officials, BB&T and the Company terminated the agreement on October 31, 2002 so that BB&T could submit the proper application to acquire control of the Company within three years of its second-step conversion pursuant to regulatory guidelines. This application was filed on November 4, 2002. The Company had capitalized approximately $725,000 in costs related to the acquisition through December 31, 2002. 9 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY (4) Other Events, Continued On March 17, 2003, BB&T withdrew its application to acquire control of the Company within the three year period, citing rigorous regulatory standards that are being applied to recently converted thrifts. BB&T and the Company both expressed an intention to resume discussions at the end of the three year period that expires on December 21, 2003. As a result of application being withdrawn, the Company wrote-off capitalized merger costs of $504,000 ($312,000 after tax) which are not recoverable or refundable. (5) Earnings Per Share of Common Stock The Company follows the provisions of SFAS No. 128, "Earnings Per Share." SFAS No. 128 provides accounting and reporting standards for calculating earnings per share. Basic earnings per share of common stock has been computed by dividing the net income for the period by the weighted-average number of shares outstanding. Shares of common stock purchased by the Employee Stock Ownership Plan ("ESOP") are only considered outstanding when the shares are released or committed to be released for allocation to participants. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares outstanding including the dilutive effect of stock options and shares needed to satisfy the requirements of the Restricted Stock Plan, if any, computed using the treasury stock method prescribed by SFAS No. 128. The following table presents the calculation of basic and diluted earnings per share of common stock (in thousands, except per share amounts):

10 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY (6) Stock Compensation Plans SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (collectively, "SFAS No. 123") encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock. Stock options issued under the Company's stock option plans (the "Option Plans") have no intrinsic value at the grant date as the stock options had an exercise price equal to the then current market value of the underlying common stock, and under APB No. 25 no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in APB No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied. Stock awards granted under the Company's Restricted Stock Plan ("RSP Plan") are expensed into current earnings over the vesting period based on the market value of the common stock on the award date. Under the Option Plans, the Company is authorized to issue up to 593,848 shares in connection with stock options granted to directors, officers and employees of the Company. At June 30, 2003, 13,958 options were available for future grants under the Option Plans. A summary of stock option transactions for the nine months ended June 30, 2003 and 2002 follows:

11 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY (6) Stock Compensation Plans, Continued SFAS No. 123 requires pro forma fair value disclosures if the intrinsic value method is being utilized. For purposes of pro forma disclosures, the estimated fair value was included in expense over the period vesting occurs. The pro forma information has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No. 123. The Company accounts for their Option Plans and RSP Plan under the recognition and measurement principles of APB No. 25. The proforma information and assumptions used in calculating the fair values of stock options granted and the related effects on net income and basic and diluted earnings per share as if the Company had applied the fair value recognition provision of SFAS No. 123 is as follows ($ in thousands, except per share amounts):

Both net income, as reported and proforma was reduced by approximately $143,000 and $136,000 for the three months and $428,000 and $405,000 for the nine months ended June 30, 2003 and 2002, respectively, relating to the vesting of shares awarded under the RSP Plan using the grant-date market value of the common stock. (8) Reclassifications Certain amounts in the 2002 condensed consolidated financial statements have been reclassified to conform to the presentation for 2003. 12 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General FloridaFirst Bancorp, Inc. (the "Company") is the parent of, and conducts its business principally through, FloridaFirst Bank (the "Bank"). The Bank, a federally-chartered savings bank headquartered in Lakeland, Florida, is a community-oriented savings institution that delivers retail and commercial banking services through nineteen full-service locations. The Company purchased seven retail sales offices during February 2002, see "Overview" below. Principal sources of income are derived through interest earned on loans and securities. The primary sources of funds are customer deposits and Federal Home Loan Bank ("FHLB") advances. The Bank is subject to various regulations governing savings institutions and is subject to periodic examination by its primary regulator, the Office of Thrift Supervision ("OTS"). Forward-Looking Statements The Company may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission (the "Commission") and its reports to stockholders. Statements made in such documents, other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties. Such forward-looking statements are made based upon management's belief as well as assumptions made by, and information currently available to management, pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio values, and interest rate risk management; the effects of competition in the banking business from other commercial banks, savings and loan associations, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Company's market area and elsewhere, including institutions operating through the Internet; changes in governmental regulation relating to the banking industry, including regulations relating to branching and acquisitions; failure of assumptions underlying the establishment of reserves for losses, including the value of collateral underlying delinquent loans, and other factors. The Company cautions that such factors are not exclusive. Recent Legislation to Curtail Corporate Accounting Irregularities On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Act"). The Securities and Exchange Commission (the "SEC") has promulgated certain regulations pursuant to the Act and will continue to propose additional implementing or clarifying regulations as necessary in furtherance of the Act. The passage of the Act and the regulations implemented by the SEC subject publicly-traded companies to additional and more cumbersome reporting regulations and disclosure. Compliance with the Act and corresponding regulations may increase the Company's expenses. 13 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Overview On February 15, 2002, the Company finalized the purchase of seven Florida retail sales offices ("Branch Acquisition") from SunTrust Bank coincident with SunTrust Bank's acquisition of such offices from Huntington National Bank ("Huntington"). The transaction resulted in the Company receiving $120.9 million in cash, and included $162.1 million in deposits and $26.1 million in loans related to those seven offices. The Company paid a premium of approximately 7.6%. This premium, along with additional acquisition costs, resulted in a core deposit intangible asset of $12.7 million being recorded which is subject to periodic amortization over a period of twelve years. The cash received from the purchase was primarily used to reduce $30.0 million in short-term fixed-rate and adjustable-rate FHLB advances and fund the purchase of approximately $85.0 million in securities. The securities were primarily mortgage-backed securities with average lives less than five years and which provide cash flow from the time of purchase. This strategy allows the Company to immediately earn an acceptable yield on the invested funds and utilize the cash flow from the securities to fund new loan originations. 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 borrowing. 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. Cash and cash equivalents decreased $4.8 million for the nine months ended June 30, 2003 to $25.8 million. Significant cash flows or uses (amounts shown in parentheses) were as follows:

See "Comparison of Financial Condition at June 30, 2003 and September 30, 2002" for discussion of significant cash flows. 14 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY On June 30, 2003, the Bank was in compliance with its three minimum regulatory capital requirements as follows: Amount Percent ------ ------- (In thousands) Tangible capital..................... $ 68,464 8.42% Tangible capital requirement......... 12,199 1.50 Excess over requirement.............. 56,265 6.92 Core capital......................... 68,464 8.42 Core capital requirement............. 32,530 4.00 Excess over requirement.............. 35,934 4.42 Risk based capital................... 73,050 14.04 Risk based capital requirement....... 41,610 8.00 Excess over requirement.............. 31,440 6.04 Management believes that under current regulations, the Bank will continue to exceed its minimum capital requirements for the foreseeable future. Events beyond the control of the Bank, such as increased interest rates or a downturn in the economy in areas in which the Bank operates could adversely affect future earnings and as a result, the ability of the Bank to meet its future minimum capital requirements. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit and construction loans and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of the Company's involvement in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, unused lines of credit and construction loans and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments 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. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counter party. Standby letters of credit are conditional commitments issued by the Company 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 loans to customers. 15 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY A summary of the amounts of the Company's financial instruments, with off-balance sheet risk at June 30, 2003, follows (in thousands): Contractual Amount ------ Loan commitments and letters of credit................ $ 10,927 ======== Undisbursed construction and line of credit loans..... $ 50,265 ======== Loans sold with recourse obligations ................ $ 27,503 ======== Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded in 2003. 16 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Comparison of Financial Condition at June 30, 2003 and September 30, 2002 Assets. Total assets decreased $27.3 million, or 3.2%, to $832.2 million at June 30, 2003 from $859.4 million at September 30, 2002. The decrease in total assets resulted primarily from: >> a $16.2 million decrease in securities available for sale. Strong mortgage refinancing activities, resulting from the continued decline in longer-term interest rates, has accelerated the repayments on many mortgage-related securities. The Company elected not to reinvest most of the funds to provide the liquidity to repay certain FHLB advances in early January, >> a $4.3 million net decrease in the loan portfolio. The decrease in loans resulted from increased refinance activity (increased loan repayments) in the residential mortgage loan portfolio throughout the period as longer-term interest rates continued to decline. In addition, during the first three months of the period, the Company's residential mortgage strategy was to originate and sell longer-term fixed-rate loans in order to minimize future interest rate risk. The reduction in the residential mortgage loan portfolio was offset partially by continued growth in the consumer and commercial loans outstanding. Management continues to focus on commercial and consumer loan originations, which totaled $83.3 million for the nine months ended June 30, 2003, and >> a $4.8 million decrease in cash and cash equivalents. The decision to retain the majority of mortgage originations during the recent quarter, together with the increased consumer and commercial loan originations, has caused the decline in the balance of cash and cash equivalents. Liabilities. Total liabilities decreased $30.7 million, or 4.0%, to $729.8 million at June 30, 2003 from $760.5 million at September 30, 2002. The decrease in total liabilities resulted from: >> a $10.9 million decrease in deposits. The decrease in deposits was primarily attributable to a $39.2 million decrease in certificate accounts, partially offset by a $28.3 million increase in transaction accounts. We believe that the decrease in certificate accounts in recent months has been caused by certain retail customers moving maturing certificates into the more liquid checking and money-market accounts due to the low interest-rate environment, or seeking higher yielding alternative investments. In addition, $15.5 million from the State of Florida certificate program matured during the period. >> a $19.3 million decrease in FHLB advances and other borrowings, primarily due to the maturity and repayment of $15.0 million of FHLB term advances and maturity of $5.5 million of reverse repurchase agreements. In addition, an $8.8 million decrease of funds borrowed by the Company under the Treasury Investment Program was replaced with $10.0 million of FHLB overnight borrowings. Stockholders' Equity. The increase of $3.4 million in the Company's stockholders' equity reflects: >> net income for the nine months ended June 30, 2003 of $4.4 million >> repurchase shares of Company stock held in treasury at a cost of $126,000 >> repayment of $541,000 on the Employee Stock Ownership Plan ("ESOP") loan and allocation of the released shares >> decrease in accumulated other comprehensive income of $592,000 >> dividends paid that totaled $1.1 million. The decreased value in accumulated other comprehensive income resulted from the fluctuation in market value of the Company's securities available for sale. Because of continued interest-rate volatility, accumulated other comprehensive income and stockholders' equity could materially fluctuate for each interim and year-end period. 17 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Results of Operations The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields based on various interest methods; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; and (v) net interest margin.

------------------------------------ (1) Includes nonaccrual loans. (2) Interest income and net interest income do not agree to the condensed consolidated statements of earnings because the tax equivalent income (based on an effective tax rate of 34%) on municipal bonds is included in this schedule. (3) Includes securities available for sale, interest-earning deposits and FHLB stock. (4) Includes noninterest-bearing checking accounts. 18 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY

--------------------------------- (1) Includes nonaccrual loans. (2) Interest income and net interest income do not agree to the condensed consolidated statements of earnings because the tax equivalent income (based on an effective tax rate of 34%) on municipal bonds is included in this schedule. (3) Includes securities available for sale, interest-earning deposits and FHLB stock. (4) Includes noninterest-bearing checking accounts. 19 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Comparison of Operating Results for the Three Months Ended June 30, 2003 and 2002 Net Income. Net income for the three months ended June 30, 2003 increased 15.6% to $1.8 million or $.34 per diluted share, compared to $1.6 million or $.29 per diluted share for the same period in 2002. Net interest income decreased $295,000, or 4.5%, for the three months ended June 30, 2003 compared to the same period in 2002. This decrease resulted from a $1.8 million decrease in interest income, partially offset by a decrease in interest expense of $1.5 million. Noninterest income increased $505,000 to $2.1 million from $1.6 million, while noninterest expense decreased $237,000 to $5.5 million from $5.7 million. See the following discussions for an analysis of these items as well as discussions of noninterest income and noninterest expense. Interest Income. The following discussion highlights the major factors that impacted the changes in interest income during the quarter when compared to the prior year. Details are contained in the Average Balance Sheet table at page 18. >> While the amount of residential loans outstanding decreased, consumer and commercial loan growth remained steady. Average balances of residential mortgages declined due to the Company's decision to sell low-rate mortgages during much of the year, coupled with the significant refinancing activity. While new loan originations totaled $40.6 million during the quarter, $35.2 million in loans were paid off during the period. The Company continues to emphasize commercial and consumer loan growth in an effort to restructure its loan portfolio to shorten the loan maturities. Commercial and consumer loans represent approximately 40.3% of the average balance of the loan portfolio, compared to 35.3% last year. >> The average yield on loans decreased 76 basis points to 6.76%, for the three months ended June 30, 2003 compared to the same period in 2002. The decrease in loan yields is directly attributable to the continued decline in market rates of interest for loans that we retain in our portfolio. The high level of refinance activity not only impacts the residential mortgage loan yields, it also creates pricing pressure on new and existing loans in the commercial area. Consumer loans have relatively short average lives historically, therefore, the lower interest rate environment has caused the yield on the consumer loan portfolio to decline from last year as new loans are generated in this lower interest environment to replace the loans being paid off. >> The average balances in the securities and other portfolio grew 4% as the Company reinvested accelerated loan repayments. >> The lower yield in the securities portfolio resulted from a shift to shorter duration and adjustable rate investments in fiscal year 2003 to manage the interest rate risk profile of the Company, as well as the overall reduction in interest rates as previously discussed. Interest Expense. The following discussion highlights the major factors that impacted the changes in Interest Expense during the quarter when compared to the prior year. Detailed changes are contained in the Average Balance Sheet table at page 18. 20 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY >> The growth in average balances in interest checking and money-market accounts, together with certificate accounts renewing at lower rates in the current interest rate environment, helped to reduce the overall cost of interest-bearing deposits by 110 basis points. >> Average FHLB advances and other borrowings outstanding increased $7.8 million this quarter compared to the same quarter last year. Certain FHLB fixed-rate and adjustable-rate advances were either prepaid or repaid at maturity, causing the advance balances to decline. However, a leveraging transaction involving U.S. agency securities was funded with $14.3 million in borrowings utilizing lower-cost reverse repurchase agreements. >> Actions by the Federal Reserve to decrease short-term interest rates over the past two years has provided a reduction in the cost of deposits, as well as advances and other borrowings. Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance for loan losses to an amount that represents management's best estimate of the losses inherent in the loan portfolio, based on historical experience, volume and type of lending conducted by the Company, industry standards, the level and status of past due and nonperforming loans, the general economic conditions in the Company's lending area and other factors affecting the ability to collect on the loans in its portfolio. The allowance for loan losses is maintained at a level that represents management's best estimates of losses in the loan portfolio at the balance sheet date. However, there can be no assurance that the allowance for losses will be adequate to cover losses, which may be realized in the future, and that additional provisions for losses will not be required. The provision for loan losses was $180,000 for both three-month periods ended June 30, 2003 and June 30, 2002, respectively. The allowance for loan losses decreased to $4.6 million at June 30, 2003 from $4.7 million at June 30, 2002, due to higher charge-offs throughout the period. An additional $1.0 million was added to the allowance for loan losses during 2002 related to loans acquired in the Branch Acquisition due to the loans being underwritten on a different basis than the Company's guidelines. Higher charge-offs were anticipated on the loans acquired. The current allowance represents .92% of loans outstanding at June 30, 2003. The Company had net charge-offs of $38,000 for the three months ended June 30, 2003 compared to net charge-offs of $267,000 for the same period in 2002. The Company intends to maintain its allowance for loan losses commensurate with its loan portfolio, especially its commercial real estate and consumer loan portfolios. Noninterest Income. Noninterest income increased $505,000 to $2.1 million for the three months ended June 30, 2003 from $1.6 million for the three months ended June 30, 2002. The major changes were: >> An increase of $23,000 in net gain on sale of loans held for sale, as sales of residential mortgage loans in the secondary market increased slightly, while the average combination of servicing release premiums and sales premiums increased 26% compared to the same period last year. >> Net gains on the sale of securities available for sale were $579,000 more than the gains in the comparable 2002 period; and, >> A decrease of $91,000 in other income, primarily due to the recognition of a $201,000 gain related to the sale of a former Bank property in 2002, partially offset by $164,000 of commission income received from the Company's annuity sales program that began in September 2002. 21 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Noninterest Expense. Noninterest expense decreased by $237,000 to $5.5 million for the three months ended June 30, 2003 from $5.7 million for the three months ended June 30, 2002. >> Salaries and employee benefits decreased $228,000 primarily due to: * a reduction in staff of approximately 20 full-time employees, offset by a 4% average salary increases due to merit and cost of living adjustments, * a $25,000 increase due to the opening of one new retail sales office (4 new staff positions), * commissions increased $190,000 as residential mortgage loan origination production increased approximately 93%, a revised retail incentive plan resulted in increased sales of products and services, and annuity sales generated incentive payments during the year, * a change in the estimate of the direct cost of originating loans reduced compensation by $572,000, * a $60,000 increase in ESOP costs due to the increased price of Company stock, * an increase of $179,000 for health insurance costs due to the growth in our employee base as well as increased claims experience. >> Core deposit intangible amortization expense decreased $75,000 due to the annual adjustment of periodic amortization. >> Marketing expense increased $28,000, primarily due to increased advertising coverage for commercial and mortgage lending, as well as retail deposit services. >> Other noninterest expenses increased slightly due to the offsetting impact of the following: * a $70,000 increase in consumer loan expenses related to the special no closing cost consumer loan program during the recent quarter ended, * a $21,000 increase in insurance expense due to the higher premiums that prevail in the commercial insurance marketplace, * a $173,000 decrease in deposit charge-offs and miscellaneous deposit losses primarily attributable to the proof of deposit (POD) conversion in 2002, and * a $48,000 increase in loss on repossessed assets due to additional write-downs on several repossessed vehicles and mobile homes during the recent quarter. Other increases are attributable to increased investor relations expenses, telecommunication expenses, and debit card expenses related to the overall growth of the Company. 22 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Comparison of Operating Results for the Nine Months Ended June 30, 2003 and 2002 Net Income. Net income for the nine months ended June 30, 2003 increased 6.7% to $4.4 million or $.83 per diluted share, compared to $4.1 million or $.77 per diluted share for the same period in 2002, as a result of increases in net interest income and noninterest income, offset by an increase in noninterest expense. Net interest income increased $1.5 million, or 8.8%, for the nine months ended June 30, 2003 compared to the same period in 2002. This increase resulted from a decrease in interest expense of $2.5 million, partially offset by a decrease in interest income of $950,000. See the following discussions for an analysis of these items as well as discussions of noninterest income and noninterest expense. Interest Income. The following discussion highlights the major factors that impacted the changes in interest income during the nine months ended June 30, 2003 when compared to the prior year. Details are contained in the Average Balance Sheet table at page 19. >> While the amount of residential loans outstanding decreased, consumer and commercial loan growth remained steady. Average balances of residential mortgages declined due to the Company's decision to sell low-rate mortgages during much of the year, coupled with the significant refinancing activity. While new loan originations totaled $112.2 million during the nine months ended June 30, 2003, $99.9 million in loans were paid-off during the period. While consumer and commercial growth increased for the nine months ended June 30, 2003, compared to the same period in 2002, approximately $10.5 million, or 38% of the consumer and commercial growth was impacted by loans acquired in the Branch Acquisition being included in the average balances for the entire nine months ended June 30, 2003 compared to only four and one-half months for the same period in 2002. The Company continues to emphasize commercial and consumer loan growth in an effort to restructure its loan portfolio to shorten the loan maturities. Commercial and consumer loans represent approximately 39% of the average balance of the loan portfolio, compared to 34% last year. >> The average yield on loans decreased 60 basis points to 6.94%, for the nine months ended June 30, 2003 compared to the same period in 2002. The decrease in loan yields is directly attributable to the continued decline in market rates of interest for loans that we retain in our portfolio. The high level of refinance activity not only impacts the residential mortgage loan yields, it also creates pricing pressure on new and existing loans in the commercial area. Consumer loans have relatively short average lives historically, therefore, the lower interest rate environment has caused the yield on the consumer loan portfolio to decline from last year as new loans are generated in this lower interest environment to replace the loans being paid off. >> The average balances in the securities and other portfolio grew 32% as the Company invested approximately $85 million from the funds that were received in the Branch Acquisition, and to a lesser extent, continued to leverage the capital raised in recent years through strategic purchases of securities. >> The lower yield in the securities and other portfolio resulted from a shift to shorter duration and adjustable rate investments in fiscal year 2003 to manage the interest rate risk profile of the Company, as well as the overall reduction in interest rates as previously discussed. 23 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Interest Expense. The following discussion highlights the major factors that impacted the changes in Interest Expense during the nine months ended June 30, 2003 when compared to the prior year. Detailed changes are contained in the Average Balance Sheet table at page 19. >> The increase in average deposits is mainly attributable to $162 million in deposits assumed in the Branch Acquisition. Also, the increased sales effort to attract and retain new deposits, as well as customer concerns about equity investments, provided additional deposit growth. The growth in average balances in interest checking and money-market accounts, together with certificate accounts maturing and renewing at lower rates in the current interest rate environment, helped reduce the overall cost of interest-bearing deposits by 115 basis points. >> Average FHLB advances and other borrowings outstanding increased only slightly this period compared to the same period last year. Certain FHLB fixed-rate advances were either prepaid or repaid at maturity, causing the advance balances to decline. However, leveraging transactions involving U.S. agency securities were funded with borrowings through lower-cost reverse repurchase agreements. >> Actions by the Federal Reserve to decrease short-term interest rates over the past two years has provided an immediate reduction in the cost of deposits, as well as advances and other borrowings. Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance for loan losses to an amount that represents management's best estimate of the losses inherent in the loan portfolio, based on historical experience, volume and type of lending conducted by the Company, industry standards, the level and status of past due and nonperforming loans, the general economic conditions in the Company's lending area and other factors affecting the ability to collect on the loans in its portfolio. The allowance for loan losses is maintained at a level that represents management's best estimates of losses in the loan portfolio at the balance sheet date. However, there can be no assurance that the allowance for losses will be adequate to cover losses, which may be realized in the future, and that additional provisions for losses will not be required. The provision for loan losses was $540,000 for the nine months ended June 30, 2003 compared to $500,000 for the nine months ended June 30, 2002. The provision for loan losses increased for the current nine-month period primarily as a result of increased consumer and commercial loan growth. The allowance for loan losses decreased to $4.6 million at June 30, 2003 from $4.7 million at June 30, 2002 due to higher charge-offs throughout the period. An additional $1.0 million was added to the allowance for loan losses during the 2002 period related to loans acquired in the Branch Acquisition due to the loans being underwritten on a different basis than the Company's guidelines. Higher charge-offs were anticipated on the loans acquired. The current allowance represents .92% of loans outstanding at June 30, 2003. The Company had net charge-offs of $473,000 for the nine months ended June 30, 2003 compared to net charge-offs of $438,000 for the same period in 2002. The Company intends to maintain its allowance for loan losses commensurate with its loan portfolio, especially its commercial real estate and consumer loan portfolios. Noninterest Income. Noninterest income increased $1.6 million to $5.1 million for the nine months ended June 30, 2003 from $3.5 million for the nine months ended June 30, 2002. The major changes were: >> An increase of $427,000 in service charges on loans and deposit accounts compared to the prior period, primarily related to the overall increase in accounts from the Branch Acquisition, 24 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY >> An increase of $264,000 in net gain on sale of loans held for sale, resulting from a 54% increase in loan sales during the current period together with a 41% increase in premiums received, >> Net gains on the sale of securities available for sale were $733,000 higher than the gains for the same period in 2002, >> An increase of $134,000 in earnings on bank-owned life insurance policies, primarily due to earnings on premiums of $4.5 million for additional policies purchased in March and April 2002, and >> An increase of $31,000 in other income, primarily due to $372,000 of commission income received from the Company's annuity sales program that began in September 2002, offset by a $121,000 reclassification of loan related fees that offset loan related costs, and a $201,000 gain on the sale of a former bank property during the prior period. Noninterest Expense. Noninterest expense increased by $2.6 million to $17.0 million for the nine months ended June 30, 2003 from $14.5 million for the nine months ended June 30, 2002. >> Salaries and employee benefits increased $326,000 primarily due to: * An increase of $723,000 related to seven retail sales offices acquired in the Branch Acquisition (66 staff members), and $64,000 for one new full-service office that was opened during the period, * 4% average salary increases due to merit and cost of living adjustments, partially offset by a gradual reduction in staff over the past year, * a $58,000 decrease in overtime compensation, * commissions increased $459,000 as residential mortgage loan origination production increased over 46%, a revised retail incentive plan resulted in increased sales of products and services, and annuity sales generated incentive payments during the period. * a change in the estimate of the direct cost of originating loans reduced compensation by $1.1 million. * a $180,000 increase in ESOP costs due to the increased price of Company stock, * an increase of $371,000 for health insurance costs due to the growth in our employee base as well as increased claims experience, and >> Occupancy expense increased $412,000, primarily due to the addition of seven new offices in the Branch Acquisition and the opening of one new retail sales office in November 2002. >> Postage and office supplies increase $68,000 primarily due to the Branch Acquisition and the conversion to a proof of deposit ("POD") balancing environment. >> An increase in core deposit intangible amortization expense of $510,000 resulting from the Branch Acquisition. >> Data processing expense increased $116,000 due to the expanded branch network resulting from the Branch Acquisition and the opening of one new retail sales office in November 2002. >> Professional fees increased $240,000 primarily due to the write-off of merger-related legal expenses resulting from the cancellation of the merger agreement between the Company and BB&T. 25 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY >> Other noninterest expenses increased $825,000 due to: * the write-off of $262,000 of merger-related investment banking expenses resulting from the cancellation of the merger agreement between the Company and BB&T, * a $147,000 increase in consumer loan expenses related to the special no closing cost consumer loan program during the year, * a $119,000 increase in telecommunication expenses related to the expanded branch network and communication channel upgrades, * a $81,000 increase in insurance expense due to the higher premiums that prevail in the commercial insurance marketplace, * a $227,000 decrease in deposit charge-offs and miscellaneous deposit losses primarily attributable to the Branch Acquisition and the proof of deposit (POD) conversion in 2002, and * a $142,000 increase in security guard expense for increased protection of customers and employees deemed necessary after the Company experienced a series of robberies during fiscal 2002. The actual dollar losses from the robberies were not significant. The other increases are attributable to correspondent bank service charges, data processing expenses, item processing costs and debit card expenses related to the overall growth of the Company. 26 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY Item 3. Quantitative and Qualitative Disclosures About Market Risk Qualitative Analysis. There have been no material changes from the Qualitative Analysis information regarding market risk disclosed under the heading "Management of Interest Rate Risk and Market Risk" in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations included in the annual report on Form 10-K for the year ended September 30, 2002. Quantitative Analysis. Exposure to interest rate risk is actively monitored by management. The Company's objective is to maintain a consistent level of profitability within acceptable risk tolerances across a broad range of potential interest rate environments. The Company 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 300 basis point (1 basis point equals 1/100th of a percentage point) upward and downward parallel shift (shock) in the Treasury yield curve. Since the OTS Net Portfolio Value ("NPV") Model measures exposure to interest rate risk of the Bank to assure capital adequacy for the protection of the depositors, only the Bank's financial information is used for the model. However, the Bank is the only subsidiary and significant asset of the Company, therefore the OTS NPV model provides a reliable basis upon which to perform the quantitative analysis. The following table presents the Company's NPV as of March 31, 2003. Although the results of the NPV model are not yet available for June 30, 2003, it is anticipated that the NPV Ratio for all rate scenarios will not be materially different than those below. The NPV was calculated by the OTS, based on information provided by the Company ($ in thousands).

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures. The Company's management evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Changes in Internal Controls. There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 27 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders (the "Annual Meeting") of FloridaFirst Bancorp, Inc. was held on June 27, 2003, to consider: (i) the election of two directors each for a term of three years and (ii) the ratification of the appointment of the Company's independent auditors for the year ending September 30, 2003. At the Annual Meeting, incumbent Directors Arthur J. Rowbotham and J. Larry Durrence were reelected. The terms of Directors Llewellyn N. Belcourt, Gregory C. Wilkes, G.F. Zimmermann, III, Stephen A. Moore, Jr. and Nis H. Nissen, III continued after the Annual Meeting. At the Annual Meeting, 4,763,814 shares were present in person or by proxy. The following is a summary and tabulation of the matters that were voted upon at the Annual Meeting: Proposal I. The election of two directors, each for a term of three years:

Proposal II: To ratify the appointment of Hacker, Johnson & Smith PA as the Company's independent auditors for the year ending September 30, 2003:

28 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY PART II. OTHER INFORMATION, CONTINUED ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:

-------------------------------------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1 initially filed with the Commission on September 5, 2000 (File No. 333-45150). ** Incorporated by reference to the identically numbered exhibits to the Form 10-K filed by FloridaFirst Bancorp on December 29, 1999 (File No. 0-25693). *** Incorporated by reference to the Proxy Statement filed by the Registrant on December 21, 2001. (b) Reports on Form 8-K: A Form 8-K was filed on May 8, 2003 as notification under Item 9 that the Company issued a press release announcing the Company's second quarter earnings. 29 FLORIDAFIRST BANCORP, INC. AND SUBSIDIARY SIGNATURES 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. FLORIDAFIRST BANCORP, INC. (Registrant)

FLORIDAFIRST BANCORP INC 10-Q