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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2002

Commission File Number 000-26562

VALRICO BANCORP, INC.

Florida

65-0553757

1815 East State Road 60, Valrico, Florida 33594

(813) 689-1231

Securities registered under Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act:

Common Stock, no par value

Indicate by checkmark 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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

As of December 31, 2002, there were 308,737 shares of common stock outstanding. As of June 28, 2002 (the last business day of the registrant’s most recently completed second fiscal quarter) the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $4,794,350.

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Item 1.   Business

General

The Company derives substantially all of its income from dividends and a lease from the bank. The Bank and Company share the same board of directors, which is comprised of ten individuals. Those individuals are LeVaughn Amerson, Jerry L. Ball, C. Dennis Carlton, H. Leroy English, David A. Gee, Gregory L. Henderson, Douglas A. Holmberg, Charles E. Jennings, Jr., J.E. McLean, III, Justo Noriega, Jr..

Subsidiary Bank

Description of Business

The principal business of the Bank is to attract deposits from the general public, and to invest those funds in various types of loans and other interest-earning assets. Funds provide for the operations of the Bank through proceeds from the sale of investments and loans, from amortization and repayment of outstanding loans, from borrowings, and from working capital. Earnings of the Bank depend primarily upon the difference between (1) the interest and fees received by the Bank from loans, the securities held in its investment portfolio, and other investments, and (2) expenses incurred by the Bank in connection with obtaining funds for lending (including interest paid on deposits and other borrowings) and expenses relating to day-to-day operations.

As of December 31, 2002, the Bank has been in operation for twelve and one-half years. Management believes that there is some seasonality in its deposit base due primarily to its agricultural relationships. The seasonality in these deposits, however, has not been substantial to impact the core base of deposits, therefore, management does not believe its deposit relationship is affected. In its lending portfolio, the Bank sees a greater affect on this seasonal business during the period from September to May reflecting larger outstandings in the agricultural portfolio.

Branch Banking and Locations of Offices

The Bank’s second branch was opened in 1995 in the Plant City market and the Bank expanded in this market area with an in-store branch which opened on June 23, 1997 within a Wal-Mart Supercenter on Jim Redman Parkway. This location is in a growing area and a very active shopping center with an estimated 50,000 plus customers per week. This Wal-Mart is one of their largest supercenters in Florida. The bank expanded its market area with the opening of its fourth branch on January 22, 2000 in Riverview area.

Brandon Office

Plant City Office

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Jim Redman Office

North Riverview Office

Services

The Bank offers a complete brokerage service through a third party which permits its customers to buy and sell stocks and bonds and otherwise trade in securities at a discount with full accountability of their transactions. The Bank offers, through third parties, standard and self-directed IRA, the new Roth and Educational IRA, qualified pension plans, SEPs, Keogh and profit-sharing plans, including 401(k) plans, etc.

Hours

Operations

Philosophy

Loans

Deposits

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growing areas in terms of the number of new residents. The exposure provided by the site and the population growth of the area are expected to contribute to the growth of the Company.

As of December 31, 2002, total deposits of the Bank were distributed among demand deposits (18.1%), savings and time deposits (51.5%) and NOW and money market deposits (30.4%). The Bank’s deposits are attracted primarily from individuals, professionals, small and medium size businesses and citrus and agricultural enterprises located predominantly in eastern Hillsborough County, Florida. As of December 31, 2002, approximately 26.6% of the Bank’s total deposits were from businesses and 73.4% were from individuals. Management of the Bank has no reason to believe that the loss of any one or a few of its deposit accounts would have a material adverse effect upon the operations of the Bank or erode its deposit base.

New Business Development

Competition

As of December 31, 2002, there were 13 commercial banks (including the Company’s subsidiary bank) with 33 offices and 1 savings and loan association with 3 offices; at least 10 credit unions; and various other financial entities as competitors in the Bank’s Assessment Area. The Company expects to receive substantial competition from most of these financial institutions.

The Bank is one of only four financial institutions, which have their headquarters in eastern Hillsborough County. The other financial institutions, being Sunshine State Savings and Loan, Hillsboro Bank in Plant City, and Platinum Bank in Brandon. All others are branches of institutions, which have their headquarters in other parts of Hillsborough County or elsewhere in Florida. Several of the institutions are actually owned by banks with headquarters in Georgia, Alabama, North Carolina, Ohio, and New Jersey.

In order to compete with major financial institutions and others in the Bank’s Assessment Area, the Bank will continue to emphasize specialized services, local promotional activity and personal contacts by the Bank’s officers, directors and employees. The Bank believes that its local ownership and community-oriented operating philosophy and personalized banking services are competitive factors in which it has strength.

Regulation

Patents, Trademarks and other Intangible Assets

Business Development

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Employees

ITEM 2.   Properties

The Company, through its subsidiary, has a principal office located at 1815 East State Road 60 in Valrico, Florida, in a traditional, southern, Greek neo-classical two-story building with 9,860 square feet. The Brandon office, located at 102 West Robertson Street in Brandon, Florida, is in a leased 3,000 square foot end unit in a retail plaza at a major intersection in the center of Brandon. The Plant City office is located at 305 South Wheeler Street in facilities purchased in July 1995. The North Riverview Office, located at the intersection of US 301 and Bloomingdale Avenue in Riverview was purchased in October of 1998. Management believes that these properties are suitable for the Company’s current use of them.

Main Office

Brandon Office

Plant City Office

North Riverview Office

Other Properties

During 2000, the Bank purchased three parcels of land adjacent to the main office facility.

Lease Expense

ITEM 3.   Legal Proceedings

As of the date of this Annual Report, the management of the Company has no knowledge of any material pending legal proceedings, including proceedings contemplated by governmental authorities, to which the Company and its subsidiary or any of its property is subject, other than ordinary routine litigation incidental to its business.

ITEM 4.   Submission Of Matters To A Vote Of Security Holders

There were no matters submitted to votes of the stockholders of the Company during the last quarter of 2002

ITEM 5.   Market For The Company’s Common Stock And Related Security Holder Matters

There is no trading market at the current time for the Common Stock of the Company, and it is not expected that a trading market will develop for shares of the Company’s Common Stock in the near future. The Company is aware of 11 sale transactions that occurred during fiscal year 2002 at prices ranging from $23.00 to $25.00 per share, exclusive of commissions. The Bank is also aware of 7 sale transactions that occurred during fiscal year 2001 at prices ranging from $20.00 to $25.00 per share, exclusive of commissions. As of December 31, 2002, there were 481 holders of record of the Common Stock of the Company.

Holders of Common Stock are entitled to share pro rata in the distribution of dividends when and as declared by the Board of Directors from funds legally available for such purpose. The Bank cannot pay dividends in any one year in which its net income from the current year, combined with its

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retained net income for the preceding two years, is a loss or which would cause the capital accounts of the Bank to fall below the minimum amount required by law. Additionally, under certain circumstances, approval of the FDIC and the Florida Department may be required prior to the payment of a dividend.

At the discretion of the Board of Directors of the Company and after careful review of certain factors, such as results of operations, capital requirements, regulatory restrictions, tax considerations and general economic conditions, the Board declared its first dividend in September 1993 at ten cents per share and paid said dividend on October 5, 1993. It likewise paid a similar dividend in 1994, 1995, 1996 and 1997. In 1998 and 1999, the dividend paid increased to twelve cents per share. In 2000, 2001 and 2002, the Company increased the dividend to fourteen cents a share. The dividends were based on respective year earnings and paid on October 1 of each year.

ITEM 6.   Selected Financial Data

(1)

Net loans means total loans net of allowance for possible future loan losses.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

     The purpose of this discussion is to focus on significant changes in the financial condition and results of the operations of the Company and it’s subsidiary during the past three years. This discussion and analysis is intended to supplement and highlight information contained in the accompanying financial statements and the selected financial data presented elsewhere in this report, and is based on the fiscal years of 2002, 2001, and 2000. The company’s fiscal year runs from January 1st through December 31st of each respective year.

Results of Operations

Net Interest Income

Net interest income is also affected by changes in interest rates earned and interest rates paid and by changes in the volume of interest earning assets and interest bearing liabilities. This relationship is expressed in Table I of this report. In 2002, the net interest income was $4,504,000, which is an increase of $509,000 from the previous year end of $3,995,000. The net interest income increase $129,000 over the 2000 year end amount of $4,375,000.

Interest Income

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Interest Income Break Down
For Year Ending 2002
(All Dollars in Thousands)

Interest Income Break Down
For Year Ending 2001
(All Dollars in Thousands)

As can be seen by the Tables, there was a marked change in both rate and volume of Earning Assets between the years 2001 and 2002.

Loan Interest decreased from $5,473,000 in 2002, down $459,000 or 7.74% from the $5,932,000 in 2001. That was a decrease of $274,000 or 4.42% from the $6,206,000 at year end 2000. Income from Federal Funds Sold decreased $322,000 or 73,02% from the year end amount of $441,000 in 2001, the year ending 2001 saw a decreased $73,000 or 14.20% from the $514,000 at year end 2000. Income from Investment securities realized an increase of $239,000 with earnings of $1,069,000 at year end 2002. This increase was 28.80% higher than the $830,000 earned at year end 2001. The $830,000 at year end 2001 was $295,000 or 55.14% higher than the $535,000 earned for year end 2000.

Interest Expense

Interest Expense Break Down
For Year Ending 2002
(All Dollars in Thousands)

Interest Expense Break Down
For Year Ending 2001
(All Dollars in Thousands)

Non Interest Expense

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expense, taxes (intangible and sales), insurance (FDIC, blanket bond and property), state assessments, professional fees (accounting, audit and legal), office supplies, postage and delivery, service fees and amortization of capitalized expenses.

Non Interest Income

Income Taxes

Deposits

FHLB

Loans

Residential Real Estate

Consumer

Commercial and Industrial

Agricultural

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Allowance for Loan Losses

The Bank derives its loan loss reserve based on several methods. One is to review the Bank’s historical loss percentages calculated by dividing year-to-date charge-offs by the amount of reservable loans. Secondly, a review of classified loans based on a specific reserve allocation method, a percentage method, and a blended reserve based on specific and percentage methods. The reserve allocation is based on the overall assessment of all the methods to determine the appropriate amount to charge to the provision for loan losses.

Additionally, the Bank’s loan portfolio is periodically reviewed by Federal and State regulators as a normal part of their examination process. Governmental examination procedures require individual judgments about a borrower’s ability to repay loans, sufficiency of collateral values and the effects of changing economic circumstances. These procedures are similar to those employed by the Bank in determining the adequacy of the allowance for loan losses and in classifying loans.

As a result of their examinations, regulators may propose adjustments to the allowance for loan losses or in the loan classifications. As a practical matter, management and Board of Directors of the Bank promptly consider and implement those proposed adjustments.

The Bank charged to operations $120,000 for provision for loan losses in 2002 and $120,000 and $250,000, respectively, for 2001 and 2000. The amount of $120,000 was added to the beginning balance of $978,000 for the period ended December 31, 2001 for a total accumulated provision before net charge-offs for the period ended December 31, 2002 of $1,098,000. The Bank charged off loans during the fiscal year 2002 in the amount of $106,000 and reflected recoveries of $23,000 leaving a net balance in the allowance for loan losses for the period ended December 31, 2002 of $1,015,000, which was 1.34% of total loans outstanding of $75,555,000.

Non Accrual Loans

Impaired Loans

Investment Securities

As of December 31, 2002, the Bank’s investment portfolio, consisted of $21,133,000 in AFS and $1,208,000, in HTM. The net effect to stockholders’ equity as of December 31, 2001 was a net gain in reserve for securities of $369,000.

The market value of securities fluctuates during the investment period and is determined on the basis of market quotations. The Bank reprices its securities on a monthly basis. The Bank invests in securities for interest income and liquidity.

The Bank adopted FASB 115 and FAS 130 for accounting of Investments.

Earning Assets

Non Earning Assets

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Capital

Interest Rate Risk

The major elements used to manage interest rate risk include the mix of fixed and variable rate assets and liabilities and the maturity pattern of assets and liabilities. The Bank performs a monthly review of assets and liabilities that re-price and the time bands within which the re-pricing occurs. Through such analysis, the Bank monitors and manages its interest sensitivity gap to minimize the effects of changing interest rates.

The interest rate sensitivity structure within the Bank’s balance sheet at December 31, 2002, indicated an Asset~Liability gap ratio of 93% when projecting out one year. In the near term, defined as 90 days, the Bank had an Asset~Liability gap ratio of 180%. This information represents a general indication of re-pricing characteristics over time; however, the sensitivity of certain deposit products may vary during extreme swings in interest rates. Since all interest rates and yields do not adjust at the same velocity, the interest rate sensitivity gap is only a general indicator of the potential effects of interest rate changes on net interest income.

Liquidity

As of December 31, 2002, the Bank’s liquidity ratio was 34.51% derived by dividing net cash, short-term, and marketable assets of $35.2 million by net deposits of $102.0 million. The Bank’s dependency ratio as of December 31, 2002 was 8.15%. This ratio is determined by taking the Bank’s volatile liabilities (primarily Jumbo certificates) of $12.0 million less short-term investments of $4.2 million divided by adjusted total earning assets of $95.7 million. In 2001 and 2000, the Bank had maintained a liquidity ratio on an average of 20% to 35%. As noted in “Funding Sources” above, management of the Bank believes that the high concentration of time deposits is primarily due to customer relationships and not the attraction of the higher than market rates typically offered by certificates of deposits.

Regulatory Matters

Recently Adopted Financial Accounting Standards

Forward Looking Statements

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TABLES TO ITEM 7.

The following tables included in this Form 10-K in response to Item 7 are intended to be supplementary information to be read in conjunction with management’s discussion and analysis of financial condition and result of operations.

Table I - Distribution of Assets, Liabilities, and                      stockholder’s Equity; Interest Rates and                      Interest Differentials Table II - Investment Portfolio Table III - Loan Portfolio Table IV - Summary of Loan Loss Experience Table V - Deposits Table VI - Return on Equity and Assets Table VII - Short-Term Borrowings

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Table I

Average Balances, Interest, and Yield/Rate
(Dollars in Thousands)

The following table sets forth the extent to which changes in volume and rates of earning assets and interest-bearing liabilities affected the change in interest income or interest expense in the indicated time periods. For each major balance sheet category, information is provided relating to 1) changes in volume (changes in average balance multiplied by the prior year’s average interest rate), 2) changes in rate (changes in average interest rate multiplied by the prior year’s average balance), and 3) the total change in interest income/expenses. Changes attributable jointly to volume and rate have been allocated proportionately.

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Volume and Rate Analysis
(Dollars in Thousands)

Interest Rate Sensitivity
(Dollars in Thousands)