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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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 0-22608
FFLC BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 59-3204891
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
800 North Boulevard West, Post Office Box 490420, Leesburg, Florida 34749-0420
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (352) 787-3311
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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common stock, par value $.01 per share 5,398,054 shares outstanding at
April 19, 2004
CONFORMED COPY
FFLC BANCORP, INC.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
at March 31, 2004 (Unaudited) and at December 31, 2003............................ 2
Condensed Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 2004 and 2003........................................ 3
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) -
Three months ended March 31, 2004 and 2003........................................ 4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 2004 and 2003........................................ 6-7
Notes to Condensed Consolidated Financial Statements (Unaudited).................... 8-13
Review by Independent Accountants................................................... 14
Report on Review by Independent Accountants......................................... 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 16-21
Item 3. Quantative and Qualitative Disclosures About Market Risk..................... 22
Item 4. Controls and Procedures...................................................... 22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 22
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities................................................................... 23
Item 3. Default upon Senior Securities............................................... 23
Item 4. Submission of Matters to a Vote of Security Holders.......................... 23
Item 5. Other Information............................................................ 23
Item 6. Exhibits and Reports on Form 8-K............................................. 24
SIGNATURES............................................................................... 25
FFLC BANCORP, INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands, except per share amounts)
At At
March 31, December 31,
--------- ------------
2004 2003
---- ----
(unaudited)
Assets
Cash and due from banks $ 42,676 35,072
Interest-earning deposits 28,913 27,088
--------- ---------
Cash and cash equivalents 71,589 62,160
Securities available for sale 75,165 82,137
Loans, net of allowance for loan losses of $5,646 in 2004
and $5,490 in 2003 795,433 767,987
Accrued interest receivable 3,598 3,849
Premises and equipment, net 21,933 21,448
Foreclosed assets 1,048 881
Federal Home Loan Bank stock, at cost 6,650 6,900
Deferred income taxes 1,008 1,134
Other assets 5,614 1,418
--------- ---------
Total $ 982,038 947,914
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits 36,412 31,481
NOW and money-market accounts 178,164 161,527
Savings accounts 27,215 26,636
Certificates 494,743 485,945
--------- ---------
Total deposits 736,534 705,589
Advances from Federal Home Loan Bank 133,000 133,000
Other borrowed funds 17,978 17,786
Junior subordinated debentures 5,155 5,155
Accrued expenses and other liabilities 10,437 9,028
--------- ---------
Total liabilities 903,104 870,558
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 15,000,000 shares authorized,
6,397,702 in 2004 and 6,397,202 in 2003 shares issued 64 64
Additional paid-in-capital 31,841 31,837
Retained income 66,634 65,071
Accumulated other comprehensive income 311 297
Treasury stock, at cost (1,000,148 shares in 2004 and
1,000,048 shares in 2003) (19,916) (19,913)
--------- ---------
Total stockholders' equity 78,934 77,356
--------- ---------
Total $ 982,038 947,914
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
2
FFLC BANCORP, INC.
Condensed Consolidated Statements of Income (Unaudited)
($ in thousands, except per share amounts)
Three Months Ended
March 31,
2004 2003
---- ----
Interest income:
Loans $ 12,492 12,722
Securities 603 588
Other 125 267
---------- ----------
Total interest income 13,220 13,577
---------- ----------
Interest expense:
Deposits 3,736 4,415
Borrowed funds 1,934 2,127
---------- ----------
Total interest expense 5,670 6,542
---------- ----------
Net interest income 7,550 7,035
Provision for loan losses 339 406
---------- ----------
Net interest income after provision for loan losses 7,211 6,629
---------- ----------
Noninterest income:
Deposit account fees 259 231
Other service charges and fees 450 584
Net gain on sales of loans held for sale 150 271
Other 119 197
---------- ----------
Total noninterest income 978 1,283
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,660 2,446
Occupancy and equipment 702 648
Data processing 391 273
Advertising and promotion 164 137
Professional services 132 103
Other 518 515
---------- ----------
Total noninterest expense 4,567 4,122
---------- ----------
Income before income taxes 3,622 3,790
Income taxes 1,358 1,436
---------- ----------
Net income $ 2,264 2,354
========== ==========
Basic income per share $ .42 .44
========== ==========
Weighted-average number of shares outstanding for basic 5,394,301 5,373,607
========== ==========
Diluted income per share $ .41 .43
========== ==========
Weighted-average number of shares outstanding for diluted 5,488,954 5,479,331
========== ==========
Dividends per share $ .13 .10
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
3
FFLC BANCORP, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended March 31, 2004 and 2003
($ in thousands)
Common Stock Accumulated
------------------ Additional Other Total
Number of Paid-In Treasury Retained Comprehensive Stockholders'
Shares Amount Capital Stock Income Income Equity
------ ------ ------- ----- ------ ------ ------
Balance at December 31, 2002 4,574,944 $ 46 31,638 (19,667) 58,409 636 71,062
-------
Comprehensive income:
Net income (unaudited) -- -- -- -- 2,354 -- 2,354
Change in unrealized gains on securities
available for sale, net of income tax
benefit of $52 (unaudited) -- -- -- -- -- (86) (86)
Change in unrealized loss on derivative
instrument, net of income tax
benefit of $6 (unaudited) -- -- -- -- -- (10) (10)
-------
Comprehensive income (unaudited) 2,258
-------
Net proceeds from the issuance of common
stock, stock options exercised
(unaudited) 4,227 -- 40 -- -- -- 40
Dividends paid (unaudited) -- -- -- -- (544) -- (544)
Purchase of treasury stock, 2,605 shares
(unaudited) -- -- -- (89) -- -- (89)
Three-for-two stock split (unaudited) 1,792,269 18 (18) -- -- -- --
--------- ---- ------- ------- ------- ---- -------
Balance at March 31, 2003 (unaudited) 6,371,440 $ 64 31,660 (19,756) 60,219 540 72,727
========= ==== ======= ======= ======= ==== =======
(continued)
4
FFLC BANCORP, INC.
Condensed Consolidated Statements of Changes in
Stockholders' Equity (Unaudited), Continued
Three Months Ended March 31, 2004 and 2003
($ in thousands)
Common Stock Accumulated
------------------ Additional Other Total
Number of Paid-In Treasury Retained Comprehensive Stockholders'
Shares Amount Capital Stock Income Income Equity
------ ------ ------- ----- ------ ------ ------
Balance at December 31, 2003 6,397,202 $ 64 31,837 (19,913) 65,071 297 77,356
-------
Comprehensive income:
Net income (unaudited) -- -- -- -- 2,264 -- 2,264
Change in unrealized gains on securities
available for sale, net of income tax
of $37 (unaudited) -- -- -- -- -- 62 62
Change in unrealized loss on derivative
instrument, net of income tax
benefit of $29 (unaudited) -- -- -- -- -- (48) (48)
-------
Comprehensive income (unaudited) 2,278
-------
Net proceeds from the issuance of common
stock, stock options exercised
(unaudited) 500 -- 4 -- -- -- 4
Dividends paid (unaudited) -- -- -- -- (701) -- (701)
Purchase of treasury stock, 100 shares
(unaudited) -- -- -- (3) -- -- (3)
--------- ---- ------ ------- ------- ---- -------
Balance at March 31, 2004 (unaudited) 6,397,702 $ 64 31,841 (19,916) 66,634 311 78,934
========= ==== ======= ======= ======= ==== =======
See accompanying Notes to Condensed Consolidated Financial Statements.
5
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 2,264 2,354
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 339 406
Depreciation and amortization 327 301
Deferred income taxes 118 (164)
Net amortization of premiums and discounts on securities 111 235
Net amortization of deferred loan fees and costs 31 (134)
Net gain on sales of loans held for sale (150) (271)
Loans originated for sale (7,162) (16,339)
Proceeds from sales of loans held for sale 8,541 16,556
Decrease in accrued interest receivable 251 461
Increase in other assets (4,196) (65)
Increase in accrued expenses and other liabilities 1,332 4,216
-------- --------
Net cash provided by operating activities 1,806 7,556
-------- --------
Cash flows from investing activities:
Purchase of securities available for sale (52) (19,596)
Proceeds from principal repayments and maturities on securities
available for sale 7,012 7,827
Loan disbursements (61,792) (65,800)
Principal repayments on loans 32,172 66,532
Purchase of premises and equipment, net (812) (549)
Net proceeds from sales of foreclosed assets 408 541
Redemption of Federal Home Loan Bank stock 250 --
-------- --------
Net cash used in investing activities (22,814) (11,045)
-------- --------
Cash flows from financing activities:
Net increase in deposits 30,945 26,160
Net increase in other borrowed funds 192 2,778
Issuance of common stock 4 40
Purchase of treasury stock (3) (89)
Cash dividends paid (701) (544)
-------- --------
Net cash provided by financing activities 30,437 28,345
-------- --------
Net increase in cash and cash equivalents 9,429 24,856
Cash and cash equivalents at beginning of period 62,160 69,394
-------- --------
Cash and cash equivalents at end of period $ 71,589 94,250
======== ========
(continued)
6
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Three Months Ended
March 31,
2004 2003
---- ----
Supplemental disclosures of cash flow information-
Cash paid during the period for:
Interest $ 5,649 6,583
======= =======
Income taxes $ 28 398
======= =======
Noncash investing and financing activities:
Accumulated other comprehensive income:
Net change in unrealized gain on securities available for sale, net of tax $ 62 (86)
======= =======
Net change in unrealized loss on derivative instrument, net of tax $ (48) (10)
======= =======
Transfers from loans to foreclosed assets $ 575 821
======= =======
Loans funded by and sold to correspondent $ 2,089 3,592
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
7
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation. In the opinion of the management of FFLC Bancorp,
Inc. (the "Holding Company"), the accompanying condensed consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position at
March 31, 2004 and the results of operations and cash flows for the
three-month periods ended March 31, 2004 and 2003. The results of
operations for the three-month period ended March 31, 2004, are not
necessarily indicative of results that may be expected for the year ending
December 31, 2004.
The condensed consolidated financial statements include the accounts of
the Holding Company and its two subsidiaries, First Federal Savings Bank
of Lake County (the "Bank") and First Alliance Title, LLC and the Bank's
wholly-owned subsidiary, Lake County Service Corporation (together, the
"Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation. First Alliance Title, LLC ceased
operations in November 2003.
2. Loans. The following table sets forth the composition of the Company's
loan portfolio in dollar amounts and percentages at the dates indicated ($
in thousands):
At March 31, 2004 At December 31, 2003
--------------------- --------------------
% of % of
Amount Total Amount Total
First mortgage loans secured by:
One-to-four-family residential * $ 394,010 47.80% $ 384,514 48.22%
Construction and land 50,815 6.17 43,575 5.47
Multi-family units 13,421 1.63 12,453 1.56
Commercial real estate, churches and other 172,918 20.98 167,381 20.99
--------- ------- --------- -------
Total first mortgage loans 631,164 76.58 607,923 76.24
Consumer loans 160,533 19.48 155,438 19.50
Commercial loans 32,509 3.94 33,990 4.26
--------- ------- --------- -------
Total loans (1) 824,206 100.00% 797,351 100.00%
======= =======
Undisbursed portion of loans in process (23,891) (24,573)
Net deferred loan costs 764 699
Allowance for loan losses (2) (5,646) (5,490)
--------- ---------
Loans, net $ 795,433 $ 767,987
========= =========
* Includes $14.4 million and $15.6 million of loans held for sale at March
31, 2004 and December 31, 2003, respectively.
(1) Total loans outstanding by department consists of the following ($ in
thousands):
At
--
March 31, 2004 December 31, 2003
-------------- -----------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
Residential $ 381,300 46.26% $ 372,551 46.72%
Commercial 279,590 33.92 265,655 33.32
Consumer 163,316 19.82 159,145 19.96
--------- ------- --------- -------
$ 824,206 100.00% $ 797,351 100.00%
========= ======= ========= =======
(continued)
8
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
2. Loans, Continued.
(2) Total allowance for loan losses by department consist of the following ($
in thousands):
At
--
March 31, 2004 December 31, 2003
-------------- -----------------
% to % to
Gross Gross
Amount Loans Amount Loans
------ ----- ------ -----
Residential $ 840 .22% $ 911 .24%
Commercial 3,545 1.27 3,371 1.27
Consumer 1,261 .77 1,208 .76
------- -------
$ 5,646 .69% $ 5,490 .69%
======= ===== ======= =====
Total gross loans originated by department, including unfunded construction
and line of credit loans, consist of the following (in thousands):
Three Months Ended
March 31,
---------
2004 2003
---- ----
Residential $ 37,413 45,013
Commercial 37,966 25,898
Consumer 26,631 20,973
--------- ---------
$ 102,010 91,884
========= =========
3. Loan Impairment and Loan Losses. The Company prepares a quarterly review
of the adequacy of the allowance for loan losses to identify and value
impaired loans in accordance with guidance in the Statements of Financial
Accounting Standards No. 114 and 118.
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
Three Months Ended
March 31,
---------
2004 2003
---- ----
Balance at January 1 $ 5,490 5,181
Provision for loan losses 339 406
Net loans charged-off (183) (276)
--------- ---------
Balance at March 31 $ 5,646 5,311
========= =========
(continued)
9
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
3. Loan Impairment and Loan Losses, Continued. The following summarizes the
amount of impaired loans, all of which were collateral dependent (in
thousands):
At
--
March 31, December 31,
--------- ------------
2004 2003
---- ----
Loans identified as impaired:
Gross loans with no related allowance for losses $ 2,979 2,971
Gross loans with related allowance for losses recorded 400 400
Less: Allowances on these loans (50) (50)
------- -----
Net investment in impaired loans $ 3,329 3,321
======= =====
The average net investment in impaired loans and interest income
recognized and received on impaired loans was as follows (in thousands):
Three Months Ended
March 31,
---------
2004 2003
---- ----
Average net investment in impaired loans $ 3,325 443
======= =======
Interest income recognized on impaired loans $ 6 2
======= =======
Interest income received on impaired loans $ 6 2
======= =======
Nonaccrual and accruing past due loans were as follows (in thousands):
At
--
March 31, December 31,
--------- ------------
2004 2003
---- ----
Nonaccrual loans $ 4,553 5,287
Accruing loans past due ninety days or more -- --
------- -------
Total $ 4,553 5,287
======= =======
(continued)
10
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Income Per Share of Common Stock. Basic income 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 Retention and Recognition Plan ("RRP") are only
considered outstanding when the shares are released or committed to be
released for allocation to participants. Diluted income per share is
computed by dividing net income by the weighted-average number of shares
outstanding including the dilutive effect of stock options computed using
the treasury stock method. All per share amounts reflect the three-for-two
stock split declared on February 14, 2003. The following table presents
the calculation of basic and diluted income per share of common stock:
Three Months Ended
March 31,
2004 2003
---- ----
Weighted-average shares of common stock issued and
outstanding before adjustments for RRP and
common stock options 5,397,321 5,377,709
Adjustment to reflect the effect of unallocated RRP average shares (3,020) (4,102)
---------- ----------
Weighted-average shares for basic income per share 5,394,301 5,373,607
========== ==========
Basic income per share $ .42 .44
========== ==========
Total weighted-average common shares and equivalents
outstanding for basic income per share computation 5,394,301 5,373,607
Additional dilutive shares using the average market value for
the period utilizing the treasury stock method regarding stock options 94,653 105,724
---------- ----------
Weighted-average common shares and equivalents outstanding for
diluted income per share 5,488,954 5,479,331
========== ==========
Diluted income per share $ .41 .43
========== ==========
5. Stock Split. On February 14, 2003, the Board of Directors declared a
three-for-two stock split on all outstanding common shares for
shareholders of record on February 28, 2003, which were distributed on
March 14, 2003. Stockholders received cash in lieu of fractional shares
resulting from the split based on the closing price on the record date.
(continued)
11
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Stock Option Plans. During 2002, the Company adopted a new stock option
plan (the "2002 Plan") which authorizes the Company to issue up to 375,000
shares (adjusted) in connection with options granted to directors,
officers or employees of the Company. The terms and vesting periods will
be determined as each option is granted, but the option price cannot be
less than the then current market value of the common stock at the grant
date. No options had been granted under the 2002 Plan through March 31,
2004.
The Company also has a 1993 stock option plan (the "1993 Plan") under
which common shares are authorized to be issued in connection with options
granted to directors, officers and employees of the Company. Options
granted under the 1993 Plan are exercisable at the market price of the
common stock at the date of grant. Incentive stock options granted to
officers and employees are exercisable in three equal annual installments,
with the first installment becoming exercisable one year from the date of
grant. Options granted to outside directors are exercisable immediately,
but any common shares obtained from exercise of the options may not be
sold prior to one year from the date of grant. All options expire at the
earlier of ten years for officers and employees or twenty years for
directors from the date of grant or one year following the date which the
outside director, officer or employee ceases to serve in such capacity.
All authorized options under the 1993 Plan have been granted.
The following is a summary of stock option transactions during the
three-month periods ended March 31, 2004 and 2003 (All options and option
price per share information has been adjusted to reflect the three-for-two
stock split in 2003):
Weighted-
Average
Number Range of Exercise
of Options Exercise Prices Price
---------- --------------- --------
Outstanding, December 31, 2002 152,327 $ 4.00-14.17 6.61
Exercised (6,340) 4.00-10.20 6.45
--------
Outstanding, March 31, 2003 145,987 $ 4.00-14.17 6.53
======== ============ ======
Outstanding, December 31, 2003 170,796 $ 4.00-26.74 12.61
Exercised (500) 8.00 8.00
--------
Outstanding, March 31, 2004 170,296 $ 4.00-26.74 12.62
======== ============ ======
(continued)
12
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Stock Option Plans, Continued. No stock options were granted under the
plans during the three-month periods ended March 31, 2004 or 2003. SFAS
No. 123 requires pro forma fair value disclosures if the intrinsic value
method is being utilized to value stock-based compensation awards. For
purposes of pro forma disclosures, the estimated fair value of stock
options granted is included in expense in the period vesting occurs. The
proforma 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 its stock option plans under the recognition and
measurement principles of APB No. 25. No stock-based employee compensation
cost is reflected in net income during the periods presented, as all stock
options granted under the plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and basic and diluted income
per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation ($ in
thousands, except per share data):
Three Months Ended
March 31,
2004 2003
---- ----
Weighted-average grant-date fair value of stock options
issued during the period $ N/A N/A
======== ========
Net income, as reported $ 2,264 2,354
Deduct: Total stock-based employee compensation
determined under the fair value based method for
all awards, net of related tax effect (39) --
-------- --------
Proforma net income $ 2,225 2,354
======== ========
Basic income per share, as reported $ .42 .44
======== ========
Proforma basic income per share $ .41 .44
======== ========
Diluted income per share, as reported $ .41 .43
======== ========
Proforma diluted income per share $ .41 .43
======== ========
7. Reclassifications. Certain amounts in the 2003 condensed consolidated
financial statements have been reclassified to conform to the 2004
presentation.
13
FFLC BANCORP, INC.
Review by Independent Accountants
Hacker, Johnson & Smith PA, the Company's independent accountants, have made a
limited review of the financial data as of March 31, 2004, and for the
three-month periods ended March 31, 2004 and 2003 presented in this document, in
accordance with standards established by the American Institute of Certified
Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
14
Report on Review by Independent Accountants
FFLC Bancorp, Inc.
Leesburg, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
FFLC Bancorp, Inc. and Subsidiaries (the "Company") as of March 31, 2004, and
the related condensed consolidated statements of income, changes in
stockholders' equity and cash flows for the three-month periods ended March 31,
2004 and 2003. These interim financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2003, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the year then ended
(not presented herein); and in our report dated January 16, 2004 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 2003, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Orlando, Florida
April 7, 2004
15
FFLC BANCORP, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
FFLC Bancorp, Inc., (the "Holding Company") is the holding company for
First Federal Savings Bank of Lake County (the "Bank") and the Bank's
wholly-owned subsidiary, Lake County Service Corporation ("LCSC")
(together, the "Company"). The Holding Company's other subsidiary, First
Alliance Title, LLC ceased operations in November 2003. The Company's
consolidated results of operations are primarily those of the Bank.
The Bank's principal business continues to be attracting retail deposits
from the general public and investing those deposits, together with
borrowings and principal repayments on loans and investments and funds
generated from operations in loans. Those loans are primarily loans
secured by first mortgage on one-to-four-family homes or commercial real
estate. The Bank also makes commercial and consumer loans and, to a lesser
extent, construction, land and multi-family mortgage loans. In addition,
the Bank holds investments permitted by federal laws and regulations
including securities issued by the U.S. Government and its agencies. The
Bank's revenues are derived principally from interest on its loan and
securities portfolios. The Bank is a member of the Federal Home Loan Bank
("FHLB") system and its deposits are insured up to the applicable limits
by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC"). The Bank is subject to regulation by
the Office of Thrift Supervision (the "OTS") as its chartering agency, and
the FDIC as its deposit insurer.
The Bank has fifteen full-service banking facilities in Lake, Sumter,
Citrus and Marion Counties, Florida. The Bank is in the process of
constructing its sixteenth branch in Sumter County which it expects to
open during the second quarter of 2004.
The Company's results of operations depend primarily on its net interest
income, which is the difference between the interest income earned
primarily on its loan and securities portfolios, and its cost of funds,
consisting of the interest paid on its deposits and borrowings. The
Company's operating results are also affected, to a lesser extent, by fee
income. The Company's operating expenses consist primarily of salaries and
employee benefits, occupancy expenses, and other general and
administrative expenses. The Company's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies, and
actions of regulatory authorities.
16
FFLC BANCORP, INC.
Off-Balance Sheet Arrangements
The Company's primary sources of funds include proceeds from payments and
prepayments on mortgage loans and mortgage-backed securities, proceeds
from maturities of investment securities, and increases in deposits and
advances from the Federal Home Loan Bank and other borrowed funds. While
maturities and scheduled amortization of loans and investment securities
are predictable sources of funds, deposit inflows and mortgage prepayments
are greatly influenced by local conditions, general interest rates, and
regulatory changes.
To meet the financing needs of its customers, the Company is a party to
financial instruments with off-balance sheet risk in the normal course of
business. In the event of nonperformance by the other party to the
off-balance sheet financial instrument, the Company's exposure to credit
loss is the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments. A summary of the contractual amounts of the Company's
financial instruments with off-balance sheet risk at March 31, 2004
follows (in thousands):
Commitments to extend credit $ 31,254
========
Unused lines of credit $ 87,393
========
Undisbursed portion of loans in process $ 23,891
========
Standby letters of credit $ 3,311
========
Capital Resources
The Company believes that it will have sufficient funds available to meet
its commitments. At March 31, 2004, certificates of deposit which were
scheduled to mature in one year or less totaled $284.9 million. Based on
past experience, management believes that a significant portion of those
funds will remain with the Company.
Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can result in regulators initiating certain
mandatory- and possibly additional discretionary-actions that, if
undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts (set forth in the table) of
total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined). Management believes that, as of March 31, 2004, the
Bank meets all capital adequacy requirements to which it is subject.
17
FFLC BANCORP, INC.
As of March 31, 2004, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum tangible, Tier I (core), Tier I (risk-based)
and total risk-based capital percentages as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the institution's category.
The Bank's actual capital amounts and percentages at March 31, 2004 are
also presented in the table.
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
-------------------- ------------------- -------------------
% Amount % Amount % Amount
------ --------- ------ --------- ------ ---------
($ in thousands)
Stockholders' equity,
and ratio to total
assets 8.31% $ 81,581
Less: investment in
nonincludable
subsidiary (4,452)
Less: unrealized gain on
securities available for sale (485)
---------
Tangible capital,
and ratio to adjusted
total assets 7.85% $ 76,644 1.5% $ 14,653
========= =========
Tier 1 (core) capital, and
ratio to adjusted total
assets 7.85% $ 76,644 3.0% $ 29,306 5.0% $ 48,843
========= ========= =========
Tier 1 capital, and ratio
to risk-weighted assets 11.61% 76,644 4.0% $ 26,398 6.0% $ 39,597
========= ========= =========
Tier 2 capital (allowance for
loan losses) 5,560
---------
Total risk-based capital,
and ratio to risk-
weighted assets 12.46% $ 82,204 8.0% $ 52,796 10.0% $ 65,995
========= ========= =========
Total assets $ 981,796
=========
Adjusted total assets $ 976,857
=========
Risk-weighted assets $ 659,946
=========
18
FFLC BANCORP, INC.
Selected Financial Data
The following table shows selected ratios for the periods ended or at the dates
indicated:
Three Months Three Months
Ended Year Ended Ended
March 31, December 31, March 31,
2004 2003 2003
------------ ------------ ------------
Average equity as a percentage
of average assets 8.17% 8.02% 7.77%
Total equity to total assets at end of period 8.04% 8.16% 7.65%
Return on average assets (1) .94% .98% 1.01%
Return on average equity (1) 11.53% 12.23% 13.01%
Noninterest expense to average assets (1) 1.90% 1.86% 1.77%
Nonperforming assets to total assets
at end of period .57% .65% .39%
Operating efficiency ratio (1) 53.55% 51.66% 49.56%
(1) Annualized for the three months ended March 31, 2004 and 2003.
At At At
March 31, December 31, March 31,
2004 2003 2003
--------- ------------ ---------
Weighted-average interest rates:
Interest-earning assets:
Loans 6.34% 6.45% 6.99%
Securities 3.14% 3.24% 4.37%
Other interest-earning assets 1.44% 1.45% 1.66%
Total interest-earning assets 5.89% 5.96% 6.34%
Interest-bearing liabilities:
Interest-bearing deposits 2.13% 2.22% 2.62%
Borrowed funds 4.91% 4.93% 4.98%
Total interest-bearing liabilities 2.61% 2.70% 3.09%
Interest-rate spread 3.28% 3.26% 3.25%
Changes in Financial Condition
Total assets increased $34.1 million or 3.6%, from $947.9 million at December
31, 2003 to $982.0 million at March 31, 2004, primarily as a result of a $27.4
million increase in net loans and an increase in cash and cash equivalents of
$9.4 million. Deposits increased $30.9 million from $705.6 million at December
31, 2003 to $736.5 million at March 31, 2004. The $1.6 million net increase in
stockholders' equity during the three months ended March 31, 2004 resulted
primarily from net income of $2.3 million less dividends paid of $701,000.
19
FFLC BANCORP, INC.
Results of Operations
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average costs; (iii) net interest/dividend income; (iv) interest-rate spread;
and (v) net interest margin. Yields and costs were derived by dividing
annualized income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. The average balance of loans includes loans
on which the Company has discontinued accruing interest. The yields and costs
include certain fees which are considered to constitute adjustments to yields.
Three Months Ended March 31,
----------------------------
2004 2003
------------------------------- -------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ----
($ in thousands)
Interest-earning assets:
Loans $ 784,943 12,492 6.37% $ 733,343 12,722 6.94%
Securities 86,045 603 2.80 88,324 588 2.66
Other interest-earning assets (1) 27,111 125 1.84 58,805 267 1.82
--------- ------ --------- --------
Total interest-earning assets 898,099 13,220 5.89 880,472 13,577 6.17
------ --------
Noninterest-earning assets 63,347 50,727
--------- ---------
Total assets $ 961,446 $ 931,199
========= =========
Interest-bearing liabilities:
NOW and money-market accounts 169,469 165 .39 142,689 236 .66
Savings accounts 26,724 36 .54 25,727 41 .64
Certificates 488,287 3,535 2.90 489,321 4,138 3.38
Federal Home Loan Bank advances 133,000 1,814 5.46 149,000 2,002 5.37
Other borrowings (2) 22,307 120 2.15 20,161 125 2.48
--------- ------ --------- --------
Total interest-bearing liabilities 839,787 5,670 2.70 826,898 6,542 3.16
------ --------
Noninterest-bearing deposits 33,954 21,720
Noninterest-bearing liabilities 9,131 10,218
Stockholders' equity 78,574 72,363
--------- ---------
Total liabilities and stockholders' equity $ 961,446 $ 931,199
========= =========
Net interest income $ 7,550 $ 7,035
====== ========
Interest-rate spread (3) 3.19% 3.01%
===== =====
Net interest-earning assets, net margin (4) $ 58,312 3.36% $ 53,574 3.20%
========= ===== ========= =====
Ratio of interest-earning assets to
interest-bearing liabilities 1.07 1.06
========= =========
(1) Includes interest-earning deposits and Federal Home Loan Bank stock.
(2) Includes other borrowed funds and junior subordinated debentures.
(3) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is annualized net interest income divided by average
interest-earning assets.
20
FFLC BANCORP, INC.
Comparison of the Three-Month Periods Ended March 31, 2004 and 2003
General Operating Results. Net income for the three-month period ended March 31,
2004 was $2.3 million, or $.42 per basic share and $.41 per diluted share,
compared to $2.4 million, or $.44 per basic share and $.43 per diluted share,
for the comparable period in 2003. All per share information has been presented
to reflect the three-for-two stock split in 2003. The $90,000 decrease in net
income resulted primarily from an increase in noninterest expense of $445,000
and a decrease in noninterest income of $305,000, not withstanding a $515,000
increase in net interest income.
Interest Income. Interest income decreased $357,000 to $13.2 million for the
three-month period ended March 31, 2004, when compared to the three-month period
ended March 31, 2003. The decrease was due to a decrease in the average yield
earned on interest-earning assets from 6.17% for the three months ended March
31, 2003 to 5.89% for the three months ended March 31, 2004. The decrease in
yield was partially offset by a $17.6 million or 2.0% increase in average
interest-earning assets outstanding for the three months ended March 31, 2004.
Interest Expense. Interest expense decreased $872,000 or 13.3%, from $6.5
million for the three-month period ended March 31, 2003 to $5.7 million for the
three-month period ended March 31, 2004. The decrease was primarily due to a
decrease in the average cost of interest-bearing liabilities from 3.16% for the
three months ended March 31, 2003 to 2.70% for the comparable 2004 period,
partially offset by an increase of $12.9 million or 1.6% in average
interest-bearing liabilities outstanding. Average interest-bearing deposits
increased from $657.7 million outstanding during the three months ended March
31, 2003 to $684.5 million outstanding during the comparable period for 2004.
Average borrowings decreased from $169.2 million during the three months ended
March 31, 2003 to $155.3 million for the comparable 2004 period.
Provision for Loan Losses. The provision for loan losses is charged to income to
increase the total loan loss allowance to a level deemed appropriate by
management. The provision is based upon the volume and type of lending conducted
by the Company, the Company's charge-off experience, industry standards, the
amount of nonperforming loans, general economic conditions, particularly as they
relate to the Company's market area, and other factors related to the
collectibility of the Company's loan portfolio. The Company recorded provisions
for loan losses for the three-month periods ended March 31, 2004 and 2003 of
$339,000 and $406,000, respectively. Net loans charged off for the three-month
periods ended March 31, 2004 and 2003 were $183,000 and $276,000, respectively.
Management believes that the allowance for loan losses, which was $5.6 million
or .69% of gross loans at March 31, 2004 is adequate.
Noninterest Income. Noninterest income decreased $305,000 or 23.8% from $1.3
million during the 2003 period to $1.0 million during the 2004 period. The
decrease was primarily due to a $121,000 decrease in gain on sales of loans held
for sale and a $212,000 decrease in other service charges and fees and other
noninterest income. These decreases resulted from a slowdown in the Company's
mortgage refinancing activities as interest rates began to steady during the
period. During the three months ended March 31, 2004, the Company originated
$7.2 million of loans intended to be sold in the secondary market compared to
the $16.3 million originated in the first three months in 2003.
Noninterest Expense. Noninterest expense increased by $445,000 or 10.8% from
$4.1 million for the three-month period ended March 31, 2003 to $4.6 million for
the three-month period ended March 31, 2004. The increase was primarily due to
increases of $214,000 in salaries and employee benefits, $118,000 in data
processing expense and $54,000 in occupancy expense all related to the overall
growth of the Company.
Income Taxes. The Company made a provision for $1.4 million for income taxes for
the three-month period ended March 31, 2003 (an effective tax rate of 37.9%) and
$1.4 million (an effective tax rate of 37.5%) for the corresponding period in
2004.
21
FFLC BANCORP, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from the interest-rate
risk inherent in its lending and deposit taking activities. The Company
has little or no risk related to trading accounts, commodities or foreign
exchange.
Management actively monitors and manages its interest rate risk exposure.
The primary objective in managing interest-rate risk is to limit, within
established guidelines, the adverse impact of changes in interest rates on
the Company's net interest income and capital, and is effected by
adjusting the Company's asset-liability structure to obtain the maximum
yield-cost spread on that structure. Management relies primarily on its
asset-liability structure to control interest rate risk. However, a sudden
and substantial increase in interest rates could adversely impact the
Company's earnings, to the extent that the interest rates borne by assets
and liabilities do not change at the same speed, to the same extent, or on
the same basis. There has been no significant change in the Company's
market risk exposure since December 31, 2003. The Company does not believe
that the interest rate swap entered into in September 2002 exposes the
Company to significant interest rate risk.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. The Company
maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and
procedures performed within 90 days of the filing date of this
report, the Chief Executive and Chief Financial officers of the
Company concluded that the Company's disclosure controls and
procedures were adequate.
b. Changes in internal controls. The Company made no significant
changes in its internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation of those controls by the Chief Executive and Chief
Financial officers.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceeding to which FFLC Bancorp, Inc.
or any of its subsidiaries is a party or to which any of their property is
subject.
22
FFLC BANCORP, INC.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
Common Stock. The following table shows information relating to the
repurchase of shares of its common stock by the Holding Company during the
three months ended March 31, 2004:
Total Number Maximum
of Shares Number
Purchased as of Shares
Part of Publicly that May Yet Be
Total Number Average Announced Purchased Under
of Shares Price Paid Plans or the Plans or
Purchased Per Share Programs Programs
--------- --------- -------- --------
January 100 $ 29.34 100 232,573
February -- -- -- 232,573
March -- -- -- 232,573
---- ---- --------
Total 100 $ 29.34 100 232,573
==== ======= ==== ========
Junior Subordinated Debentures. The Holding Company has the right at one
or more times, unless an event of default exists under the floating rate
junior subordinated deferrable interest debentures due September 26, 2032
(the "Debentures"), to defer interest payments on the Debentures for up to
twenty consecutive quarterly periods. During that time, the Holding
Company will be prohibited from declaring or paying cash dividends on its
common stock.
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
23
FFLC BANCORP, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of FFLC Bancorp, Inc.*
3.2 Bylaws of FFLC Bancorp, Inc. ***
4.0 Stock Certificate of FFLC Bancorp, Inc.*
10.1 First Federal Savings Bank of Lake County Recognition and
Retention Plan**
10.2 First Federal Savings Bank of Lake County Recognition and
Retention Plan for Outside Directors**
10.3 FFLC Bancorp, Inc. Incentive Stock Option Plans for Officers
and Employees**
10.4 FFLC Bancorp, Inc. Stock Option Plan for Outside Directors**
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
* Incorporated herein by reference into this document from the
Exhibits to Form S-1, Registration Statement, initially filed on
September 27, 1993, Registration No. 33-69466.
** Incorporated herein by reference into this document from the Proxy
Statement for the Annual Meeting of Stockholders held on May 12,
1994.
*** Incorporated herein by reference into this document from the
September 30, 1999 FFLC Bancorp, Inc. Form 10-Q filed November 3,
1999.
(b) The following Form 8-K was filed during the three-month period ended
March 31, 2004:
On January 16, 2004, the Registrant filed a Form 8-K as notification that
the Registrant issued a press release on January 16, 2004 announcing the
Registrant's earnings for the fourth quarter and fiscal year ending
December 31, 2003 and the declaration of a dividend.
24
FFLC BANCORP, INC.
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 hereunto duly authorized.
Date: April 23, 2004
FFLC Bancorp, Inc.
By: /s/ Stephen T. Kurtz
-----------------------------------
Name: Stephen T. Kurtz, President and
Chief Executive Officer
By: /s/ Paul K. Mueller
-----------------------------------
Name: Paul K. Mueller, Executive Vice
President and Treasurer
25