FFLC BANCORP, INC.
2001 ANNUAL REPORT
OUR MISSION
Our mission is to operate First Federal Savings Bank as a community bank, in a
manner consistent with the high expectations of our shareholders, customers and
employees. We will achieve attractive financial results for our stockholders,
provide quality financial services and products to our customers, and offer
rewarding careers to our employees, while maintaining a high level of personal
service and integrity. The Company's primary goals are to: provide an attractive
return to its shareholders, as measured by long-term capital appreciation and
the continued payment of reasonable dividends; provide a competitive,
progressive and profitable array of financial services and products in a manner
focused on excellent customer service; attract and retain highly-motivated,
top-quality employees; and make a positive impact on the communities that we
serve.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 evidences Congress'
determination that the disclosure of forward-looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward-looking statements by corporate management. This Annual Report,
including the Letter to Stockholders and the Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements that involve risk and uncertainty. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development, growth projections and results of the
Company's business include, but are not limited to, the growth of the economy,
interest rate movements, timely development by the Company of technology
enhancements for its products and operating systems, the impact of competitive
products, services and pricing, customer business requirements, Congressional
legislation and similar matters. Readers of this report are cautioned not to
place undue reliance on forward-looking statements which are subject to
influence by the named risk factors and unanticipated future events. Actual
results, accordingly, may differ materially from management expectations.
CONTENTS
Page
Corporate Profile, Corporate Organization and General Information .............1
Office Locations and Common Stock Prices and Dividends ........................2
Consolidated Financial Highlights .............................................3
Letter to Stockholders ......................................................4-5
First Federal Website and Online Banking.....................................6-7
Selected Consolidated Financial Data and Financial Ratios....................8-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................10-20
Consolidated Financial Statements .........................................21-51
Independent Auditors' Report..................................................52
Directors and Officers of FFLC Bancorp, Inc. .................................53
Directors and Officers of First Federal Savings Bank of Lake County...........54
Employees ....................................................................55
Inside Cover
CORPORATE PROFILE
FFLC Bancorp, Inc. ("FFLC" or the "Holding Company") was incorporated in
Delaware on September 16, 1993, and acquired First Federal Savings Bank of Lake
County (the "Bank") (together, the "Company") in connection with the Bank's
conversion to stock form on January 4, 1994. The Holding Company is a savings
and loan holding company subject to regulation by the Office of Thrift
Supervision ("OTS") which transacts its business through its subsidiary, the
Bank. The Bank is a community-oriented savings institution which offers a
variety of financial services to individuals and businesses primarily located in
Lake County, Sumter County and Citrus County, Florida. The deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") through the
Savings Association Insurance Fund ("SAIF"). During 2001, First Alliance Title,
LLC, a 90% owned subsidiary of the Holding Company, was formed to operate as a
title agency.
CORPORATE ORGANIZATION
Holding Company
FFLC Bancorp, Inc.
Subsidiaries
First Federal Savings Bank of Lake County
First Alliance Title, LLC
Affiliate of Thrift Subsidiary
Lake County Service Corporation
GENERAL INFORMATION
Corporate Headquarters
800 North Boulevard West, Post Office Box 490420, Leesburg, Florida
34749-0420
Telephone: Local (352) 787-3311
Toll Free (877) 955-2265
Annual Meeting
The Annual Meeting of the Stockholders will be held at the Leesburg
Community Building located at 109 East Dixie Avenue in Leesburg at 2:00
p.m. on May 9, 2002.
Form 10-K
A copy of the Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained by stockholders without charge upon written
request to Sandra L. Rutschow, Vice President - Secretary, FFLC Bancorp,
Inc., Post Office Box 490420, Leesburg, Florida 34749-0420. The Company's
SEC filings are also available at our web site, http://www.1stfederal.com.
Stockholder Assistance
Stockholders requiring a change of address, records or information about
lost certificates, dividend checks or dividend reinvestment should contact:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
800-368-5948
Website: rtco.com
Corporate Counsel
George W. Murphy, Jr.
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue
Washington, D.C. 20016
Independent Auditors
Hacker, Johnson & Smith PA
Certified Public Accountants
930 Woodcock Road, Suite 211
Orlando, Florida 32803
1
[ GRAPHIC - FIRST FEDERAL LOGO ]
OFFICE LOCATIONS
[ GRAPHIC-MAP-HALF PAGE ]
COMMON STOCK PRICES AND DIVIDENDS
FFLC's common stock is listed on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") under the symbol FFLC. The following table sets
forth market price information, based on closing prices, as reported by the
NASDAQ for the common stock high and low closing sales prices and the amount of
dividends paid on the common stock for the periods indicated. See Note 20 of the
Consolidated Financial Statements for a summary of quarterly financial data.
Cash
Dividends
Paid
High Low Per Share
Quarter Ended:
March 31, 2000............ 15.250 11.250 .12
June 30, 2000............. 13.250 11.375 .12
September 30, 2000........ 14.250 12.625 .12
December 31, 2000......... 15.250 13.500 .12
March 31, 2001............ 19.250 14.875 .13
June 30, 2001............. 19.950 18.500 .13
September 30, 2001........ 21.300 18.500 .13
December 31, 2001......... 23.250 18.700 .13
As of January 28, 2002, the Company had 1,594 holders of record of common stock
(includes shares held by brokers).
2
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
AT YEAR END: 2001 2000 1999
---- ---- ----
Total assets....................................................... $ 823,151 711,493 590,432
Loans, net......................................................... $ 685,935 615,484 500,901
Securities ........................................................ $ 59,503 42,717 36,909
Deposits........................................................... $ 585,128 518,885 429,274
Equity............................................................. $ 64,068 59,283 55,637
Book value per share............................................... $ 17.98 16.78 15.52
Shares outstanding ................................................ 3,563,932 3,532,561 3,583,938
Equity-to-assets ratio............................................. 7.78% 8.33% 9.42%
Nonperforming assets to total assets............................... .28% .39% .47%
FOR THE YEAR:
Interest income.................................................... $ 57,041 49,350 38,612
Net interest income after provision for loan losses................ $ 20,610 18,405 16,679
Net income (1)..................................................... $ 6,289 5,309 4,850
Basic income per share (1)......................................... $ 1.77 1.50 1.37
Diluted income per share (1)....................................... $ 1.73 1.46 1.32
Loan originations funded........................................... $ 198,941 188,141 195,034
Return on average assets (1)....................................... .82% .82% .93%
Return on average equity (1)....................................... 10.20% 9.24% 8.88%
Average equity to average assets ratio............................. 8.05% 8.88% 10.45%
Noninterest expense to average assets.............................. 1.68% 1.76% 1.97%
YIELDS AND RATES:
Weighted Average
Rate or Yield Average Rate or Yield During
at December 31, Year Ended December 31,
-------------------------- ------------------------------
2001 2000 2001 2000 1999
---- ---- ---- ---- ----
Loans ..................................................... 7.61% 8.17% 8.08% 8.12% 7.99%
Securities................................................. 5.16% 6.50% 5.84% 6.47% 5.83%
All interest-earning assets ............................... 7.17% 8.02% 7.78% 7.98% 7.73%
Deposits................................................... 3.85% 5.29% 4.95% 5.07% 4.56%
All interest-bearing liabilities .......................... 4.22% 5.51% 5.15% 5.28% 4.70%
Interest-rate spread (2)................................... 2.95% 2.51% 2.63% 2.70% 3.03%
Net yield on average interest-earning assets (3)........... N/A N/A 2.96% 3.12% 3.48%
(1) Excludes gain in 1999 on sale of real estate held for development of $886
($552 net of tax).
(2) Average yield on all interest-earning assets less average rate paid on all
interest-bearing liabilities.
(3) Net interest income divided by average interest-earning assets.
3
[ GRAPHIC - FIRST FEDERAL LOGO ]
Dear Stockholders:
I am pleased to report that the year 2001 was a solid year for your Company. We
enjoyed a successful year, both in terms of the growth of the Bank and in
operating earnings. During 2001, we again experienced record net income from
operations, and increased quarterly cash dividends on our common stock. First
Federal Savings Bank, the Company's subsidiary, set a new record for total
assets, ending the year with total assets in excess of $823 million. Our success
results from a team effort, and I want to take this opportunity to thank all of
you - our employees, our stockholders, our customers, and our communities - for
your efforts and support as we moved through 2001 and into 2002.
The Company's net income from operations increased 18%, from $5.3 million in
2000 to $6.3 million in 2001. On a per share basis, basic income increased 18%
from $1.50 per share for 2000 to $1.77 for 2001. On a diluted basis, net income
per share increased 18% from $1.46 for 2000 to $1.73 for 2001.
In January 2002, our Board of Directors approved an 8% increase in the quarterly
cash dividend, to $.14 per common share from the $.13 per common share paid for
the prior four quarters. That increase continues the practice of annual
increases in effect since 1994, when the quarterly cash dividend was $.036 per
common share (adjusted for the five-for-three stock split in November 1997).
In July 2000, we introduced our Internet banking solution, First Federal Online
Banking. I am very pleased to report that First Federal Online Banking has
continued to enjoy support from both our retail and commercial customers, and
enrollments have exceeded our expectations. We currently have over 1,800
registered users of our online banking service. If you haven't had a chance to
check out First Federal Online Banking, I encourage you to visit our website,
1stfederal.com, and click the "Test Drive" button. I believe you will be
pleasantly surprised at how easily and completely you can check account
balances, transfer funds, pay bills, and access cash management services (for
commercial customers) on a 24-hour-a-day, 7-days-a-week basis. While you are at
our website, I also encourage you to note all the other useful information,
including our loan and deposit products, links to our press releases and
financial reports, local weather, and links to some other "local-interest"
websites.
During 2001, First Federal also began offering mutual funds, annuities, discount
brokerage and financial planning services. These investment, retirement and
financial planning services are being offered through a joint venture program
with T.H.E. Financial Group, Ltd., an independent securities broker-dealer firm,
and member of the NASD and SIPC.
With regard to our plans for continued growth, I am pleased to report that the
Bank has begun construction on a new branch building at the Lake Harris Square
shopping center, at the intersection of U.S. 27 and State Road 48 in Leesburg.
That branch facility will replace a leased storefront branch opened in 1997,
which has outgrown its current space. We also have purchased an outparcel in the
new Kings Ridge Shopping Center in Clermont, for construction of a full-service
branch. And, we are exploring opportunities for other branch locations that may
become available due to recent bank mergers.
4
Asset growth continues to be an important focal point for the Company. The
Company's total assets grew 16%, from $711 million at December 31, 2000 to $823
million at December 31, 2001. During 2001, total loans receivable grew 12%, from
$630 million to $704 million. During 2001, the Bank's loan originations totaled
$257.9 million, compared to $220.1 million in 2000. Originations of residential
loans were $102.4 million, commercial loans were $80.2 million, and consumer
loans were $75.3 million for 2001. Those volume levels compare to $106.4
million, $47.9 million, and $65.8 million, respectively, for 2000.
The Company's asset growth was funded by a $66 million increase in the Bank's
deposits, a $31 million increase in Federal Home Loan Bank advances, and $10.1
million provided from operations. During 2001, the Bank's deposits grew from
$519 million to $585 million, an increase of 13%. Of the total increase in
deposits, checking and other non-certificate accounts grew $30 million (or 26%),
while certificates of deposit grew $35 million (or 9%).
I am also pleased to report that the FFLC Bancorp Dividend Reinvestment Plan
(the "Plan") established in January 2000, has been a success, with over 280
shareholders participating. The Plan allows registered stockholders of at least
50 shares of common stock to reinvest regular dividends on all or a portion of
their common stock into additional shares. The Plan also allows participants to
make optional cash purchases of common stock. The Company pays the
administrative costs of the Plan, including brokerage commissions for
reinvestment and optional cash purchases. If you would like more information
about the Plan, please contact us.
It is gratifying to note that our stock price rose over 39% during 2001, from
$14.81 to $20.75. Since our initial public offering in 1994, our stock has
yielded an average annual return, including dividends, of 19.23%. We remain
convinced that our best strategy for creating long-term value to our
stockholders is to focus on profitability and excellence in customer service.
We truly appreciate the loyalty and support of our stockholders, our customers,
and our employees. We remain committed to increasing the long-term value of our
Company. That commitment includes meeting the investment needs of our
stockholders, the financial needs of our customers, and the needs of the
communities in which we have the privilege to serve. We believe FFLC Bancorp,
Inc., is well positioned to meet those needs, and we look forward to the
opportunities before us.
Cordially yours,
Stephen T. Kurtz
President and Chief Executive Officer
5
[ GRAPHIC - FIRST FEDERAL LOGO ]
[ GRAPHIC FIRST FEDERAL WEBSITE. ]
Visit First Federal's website at http://www.1stfederal.com. This site serves as
a portal for First Federal banking services, local news, and information
regarding our communities. From this site, customers can gain access to First
Federal Online Banking, our fully interactive banking system, that allows bill
payments, account inquiries, transfer of funds and more. In addition, commercial
customers can access cash management tools, make tax payments and perform
payroll processing through First Federal Online Banking. Also available at
1stfederal.com is current information about the Bank's locations, products and
services. Investors can also get the latest information regarding FFLC Bancorp,
including stock quotes, press releases, and financial data.
6
First Federal Online
[ GRAPHIC ONLINE BANKING PAGE. ]
First Federal introduced First Federal Online Banking in July 2000 through the
Bank's website at http://www.1stfederal.com. First Federal customers can now
access practically their entire First Federal relationship through the website,
24 hours a day, 7 days a week. From the First Federal website, customers can
view our online banking product and may enroll online. After receiving their
user ID and password, customers may log-on to check balances, pay their bills
online, reconcile their account statements, transfer funds from one account to
another, review account histories, reorder checks and more. First Federal Online
Banking is just one more added convenience to banking with First Federal.
7
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
At December 31,
---------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total assets ............................................ $ 823,151 711,493 590,432 463,820 400,237
Loans, net ............................................ 685,935 615,484 500,901 389,059 315,353
Cash and cash equivalents................................ 49,792 30,481 34,339 22,928 15,684
Securities ............................................ 59,503 42,717 36,909 40,392 58,598
Deposits ............................................ 585,128 518,885 429,274 351,030 315,390
Borrowed funds........................................... 167,327 129,376 102,914 56,789 30,000
Stockholders' equity..................................... 64,068 59,283 55,637 53,223 51,429
For the Year Ended December 31,
-------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Interest income.......................................... $ 57,041 49,350 38,612 32,173 28,156
Interest expense......................................... 35,316 30,065 21,214 17,271 15,416
Net interest income...................................... 21,725 19,285 17,398 14,902 12,740
Provision for loan losses................................ 1,115 880 719 682 649
Net interest income after provision for loan losses...... 20,610 18,405 16,679 14,220 12,091
Noninterest income (1)................................... 2,217 1,682 1,446 1,264 1,219
Noninterest expense...................................... 12,841 11,414 10,313 8,446 7,473
Income before provision for income taxes (1)............. 9,986 8,673 7,812 7,038 5,837
Provision for income taxes (1)........................... 3,697 3,364 2,962 2,641 2,083
Net income (1)........................................... 6,289 5,309 4,850 4,397 3,754
Basic income per share (1)............................... 1.77 1.50 1.37 1.22 1.01
Weighted average number of common
shares outstanding for basic....................... 3,547,764 3,541,400 3,548,568 3,592,253 3,700,220
Diluted income per share (1)............................. $ 1.73 1.46 1.32 1.16 .96
Weighted average number of common shares
outstanding for diluted............................ 3,629,432 3,615,740 3,677,038 3,777,085 3,911,256
________________________________________
(1) Excludes gain on sale of real estate held for development in 1999 of
$886 ($552 net of tax).
8
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA:
At or For the Year Ended December 31,
-------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Return on average assets (5)................................. 0.82% 0.82% 0.93% 1.05% 1.00%
Return on average equity (5)................................. 10.20% 9.24% 8.88% 8.37% 7.18%
Dividend payout ratio ....................................... 29.35% 32.32% 28.95% 29.51% 28.51%
Average equity to average assets............................. 8.05% 8.88% 10.45% 12.52% 13.93%
Total equity to total assets................................. 7.78% 8.33% 9.42% 11.47% 12.85%
Interest rate spread during year(1).......................... 2.63% 2.70% 3.03% 3.08% 2.86%
Net interest margin (2)...................................... 2.96% 3.12% 3.48% 3.69% 3.53%
Nonperforming assets to total assets (3)..................... 0.28% 0.39% 0.47% 0.17% 0.19%
Nonperforming loans to total loans (4)....................... 0.27% 0.40% 0.46% 0.11% 0.07%
Allowance for loan losses to non-performing loans............ 224.20% 141.51% 119.01% 514.19% 695.87%
Allowance for loan and REO
losses to nonperforming assets......................... 187.62% 127.49% 101.77% 281.85% 224.83%
Allowance for loan losses to gross loans..................... 0.61% 0.56% 0.54% 0.57% 0.51%
Noninterest expenses to average assets....................... 1.68% 1.76% 1.97% 2.01% 1.99%
Operating efficiency ratio (5)............................... 53.63% 54.44% 54.73% 52.25% 53.54%
Average interest-earning assets to
average interest-bearing liabilities................... 1.07 1.09 1.11 1.14 1.16
Net interest income to noninterest expenses.................. 1.69 1.69 1.69 1.76 1.70
Total shares outstanding..................................... 3,563,932 3,532,561 3,583,938 3,655,620 3,743,988
Book value per common share outstanding...................... $ 17.98 16.78 15.52 14.56 13.74
Number of banking offices (all full-service)................. 12 12 12 9 9
(1) Difference between weighted average yield on all interest-earning assets and
weighted average rate on all interest-bearing liabilities.
(2) Based upon net interest income before provision for loan losses divided by
average interest-earning assets.
(3) Nonperforming assets consist of nonperforming loans and foreclosed assets.
(4) Nonperforming loans consist of loans 90 days or more delinquent.
(5) Excludes gain on sale of real estate held for development in 1999 of
$886,000 ($552,000 net of tax).
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Federal Savings Bank of Lake County, the subsidiary of FFLC, was organized
in 1934 as a federally chartered savings and loan association and converted to a
federally chartered stock savings bank on January 4, 1994. The Bank's principal
business continues to be attracting retail deposits from the general public and
investing those deposits, together with principal repayments on loans and
investments and funds generated from operations, primarily in mortgage loans
secured by one-to-four-family, owner-occupied homes, commercial loans, consumer
loans and, to a lesser extent, construction loans and other loans, and
multi-family residential mortgage loans. In addition, the Bank holds investments
permitted by federal laws and regulations including securities issued by the
U.S. Government and agencies thereof. The Bank's revenues are derived
principally from interest on its loan and mortgage-backed securities portfolios
and interest and dividends on its investment securities.
The Bank is a community-oriented savings institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank's
deposit gathering and lending markets are primarily concentrated in the
communities surrounding its full service offices located in Lake, Sumter and
Citrus counties in central Florida. Management believes that its offices are
located in communities that generally can be characterized as rural service and
retirement communities with residential neighborhoods comprised predominately of
one-to-four-family residences. The Bank is the largest (by asset size)
locally-based financial institution in Lake County, and serves its market area
with a wide selection of residential mortgage loans and other retail financial
services. Management considers the Bank's reputation for financial strength and
customer service as a major advantage in attracting and retaining customers in
its market area and believes it benefits from its community orientation as well
as its established deposit base and level of core deposits.
The Company's net income from operations increased 18.5% to $6.3 million for the
year ended December 31, 2001 from $5.3 million for the year 2000. The Bank's
total assets increased 15.7% to $823.2 million at December 31, 2001 from $711.5
million at December 31, 2000. That increase resulted primarily from a 11.4%
increase in net loans to $685.9 million at December 31, 2001 from $615.5 million
at December 31, 2000, reflecting increased local loan demand. Securities
increased 39.3% or $16.8 million during 2001. Deposits increased 12.8% to $585.1
million at December 31, 2001 from $518.9 million at December 31, 2000. Advances
from the Federal Home Loan Bank increased $31.0 million, to $154.0 million at
December 31, 2001 from $123.0 million at December 31, 2000.
10
REGULATION AND LEGISLATION
General
The operating results of the Bank are affected by Federal laws and regulations
and the Bank is subject to extensive regulation, examination and supervision by
the Office of Thrift Supervision ("OTS"), as its chartering agency, and the
Federal Deposit Insurance Corporation ("FDIC"), as the deposit insurer. The Bank
is a member of the Federal Home Loan Bank ("FHLB") System and its deposit
accounts are insured up to applicable limits by the FDIC under the SAIF
("Savings Association Insurance Fund"). The Bank must file reports with the OTS
and the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other financial institutions. The OTS and
the FDIC conduct periodic examinations to test the Bank's compliance with
various regulatory requirements. The activities of the Company and the Bank are
governed by the Home Owner's Loan Act, as amended (the "HOLA"), and, in certain
respects, the Federal Deposit Insurance Act (the "FDIA"). A more complete
description of the HOLA and FDIA is included in the Form 10-K.
Capital Requirements
The OTS capital regulations require savings institutions to meet three capital
standards: a 1.5% tangible capital standard; a 3% leverage (core capital) ratio;
and an 8% risk-based capital standard. Under the OTS final rule implementing
FDICIA, generally, a well-capitalized institution is defined as one that meets
the following capital standards: a 5% tangible capital standard; a 6% leverage
(core capital) ratio; and a 10% risk-based capital standard, and has not been
notified by its Federal banking agency that it is in a "troubled condition." At
December 31, 2001, the Bank met each of its capital requirements and met the
criteria of a "well-capitalized" institution as defined above.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based deposit insurance system that assesses deposit
insurance premiums according to the level of risk involved in an institution's
activities. An institution's risk category is based upon whether the institution
is classified as "well capitalized," "adequately capitalized" or "less than
adequately capitalized" and one of three supervisory subcategories within each
capital group. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation and information which the FDIC determines to
be relevant to the institution's financial condition and the risk posed to the
deposit insurance fund. Effective January 1, 1997, the FDIC lowered the annual
assessment rates for SAIF members to 0 to 27 basis points. The FDIC has
authority to raise premiums if deemed necessary. If such action is taken, it
could have an adverse effect on the earnings of the institution.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
CREDIT RISK
The Bank's primary business is lending on residential real estate, commercial
real estate and consumer financing, activities with the inherent risk of
generating potential loan losses the magnitude of which depend on a variety of
factors affecting borrowers which are beyond the control of the Bank. The Bank
has underwriting guidelines and credit review procedures designed to minimize
such credit losses.
11
RESULTS OF OPERATIONS
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its
interest-earning assets, primarily its loans, mortgage-backed securities and
investment securities, and its interest-bearing liabilities, consisting of
deposits and borrowings. The operating expenses of the Company principally
consist of employee compensation, 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.
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.
12
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;
(v) net interest margin; and (vi) weighted average yields and rates at December
31, 2001. Yields and costs were derived by dividing 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 fees which are
considered to constitute adjustments to yields.
Year Ended December 31,
-----------------------
2001 2000
---------------------------- -----------------------------
Yield At Interest Average Intererst Average
December 31, Average and Yield/ Average and Yield/
2001 Balance Dividends Cost Balance Dividends Cost
---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
Interest-earning assets:
Loans ................................... 7.61% $ 655,306 52,940 8.08% $ 562,392 45,656 8.12%
Securities................................ 5.16 49,709 2,901 5.84 37,382 2,417 6.47
Other interest-earning assets (1)......... 2.48 27,837 1,200 4.31 19,026 1,277 6.71
------- ------- ------ ------- ------
Total interest-earning assets...... 7.17 732,852 57,041 7.78 618,800 49,350 7.98
Noninterest-earning assets.................... 32,885 28,090
------ ------
Total assets....................... $ 765,737 $ 646,890
========= =========
Interest-bearing liabilities:
NOW and money market
accounts.............................. 1.41 97,574 2,278 2.33 82,710 2,182 2.64
Passbook and statement savings
accounts.............................. 1.09 20,121 359 1.78 20,179 421 2.09
Certificates.............................. 4.64 419,923 23,959 5.71 356,219 20,672 5.80
FHLB advances............................. 5.73 136,041 8,257 6.07 104,647 6,497 6.21
Other borrowings.......................... 2.15 11,842 463 3.91 5,729 293 5.11
------- ------- ------ ------- ------
Total interest-bearing
liabilities...................... 4.22 685,501 35,316 5.15 569,484 30,065 5.28
------ --------
Noninterest-bearing deposits.................. 13,683 13,221
Noninterest-bearing liabilities............... 4,911 6,756
Stockholders' equity.......................... 61,642 57,429
-------- --------
Total liabilities and equity....... $ 765,737 $ 646,890
========= =========
Net interest-earning assets and
interest-rate spread (2).................. 2.95% $ 47,351 2.63% $ 49,316 2.70%
== ==== ========= ==== ========= ====
Net interest income and net
margin (3)................................ $ 21,725 2.96% $ 19,285 3.12%
== ======== ==== ======== ====
Ratio of interest-earning assets
to interest-bearing liabilities........... 1.07 1.09
==== ====
1999
-------------------------------
Interest Average
Average and Yield/
Balance Dividends Cost
------- --------- ----
Interest-earning assets:
Loans ................................... $ 442,213 35,315 7.99%
Securities................................ 37,951 2,213 5.83
Other interest-earning assets (1)......... 19,404 1,084 5.59
Total interest-earning assets...... 499,568 38,612 7.73
Noninterest-earning assets.................... 23,062
------
Total assets....................... $ 522,630
=========
Interest-bearing liabilities:
NOW and money market
accounts.............................. 66,892 1,631 2.44
Passbook and statement savings
accounts.............................. 22,170 485 2.19
Certificates.............................. 285,898 14,967 5.24
FHLB advances............................. 74,515 4,038 5.42
Other borrowings.......................... 1,916 93 4.85
-------- ------- ------
Total interest-bearing
liabilities...................... 451,391 21,214 4.70\
--------
Noninterest-bearing deposits.................. 10,411
Noninterest-bearing liabilities............... 6,202
Stockholders' equity.......................... 54,626
---------
Total liabilities and equity....... $ 522,630
=========
Net interest-earning assets and
interest-rate spread (2).................. $ 48,177 3.03%
== ========= ====
Net interest income and net
margin (3)................................ $ 17,398 3.48%
== ======== ====
Ratio of interest-earning assets
to interest-bearing liabilities........... 1.11
====
(1) Includes interest-bearing deposits, federal funds sold and FHLB Stock.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest bearing liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
13
The following table discloses the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume) and (iii) changes attributable to changes in
rate/volume (changes in rate multiplied by changes in volume).
Year Ended December 31, Year Ended December 31,
2001 vs. 2000 2000 vs. 1999
Increase (Decrease) Increase (Decrease)
------------------- -------------------
Due to Due to
------ ------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
(Dollars in thousands)
Interest-earning assets:
Loans, net........................... $(222) 7,543 (37) 7,284 585 9,597 159 10,341
Securities........................... (235) 797 (78) 484 241 (33) (4) 204
Other interest-earning (1)........... (457) 591 (211) (77) 218 (21) (4) 193
-------- -------- -------- -------- -------- -------- -------- --------
Total........................ (914) 8,931 (326) 7,691 1,044 9,543 151 10,738
Interest-bearing liabilities:
NOW and money market accounts........ (251) 392 (45) 96 134 385 32 551
Passbook and statement savings
accounts......................... (61) (1) -- (62) (22) (44) 2 (64)
Certificates......................... (348) 3,697 (62) 3,287 1,624 3,682 399 5,705
FHLB advances........................ (145) 1,949 (44) 1,760 588 1,633 238 2,459
Other borrowings..................... (69) 313 (74) 170 5 185 10 200
-------- -------- -------- -------- -------- -------- -------- --------
Total........................ (874) 6,350 (225) 5,251 2,329 5,841 681 8,851
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net interest
income ............................ .$ (40) 2,581 (101) 2,440 (1,285) 3,702 (530) 1,887
======== ======== ======== ======== ======== ======== ======== =========
(1) Includes interest-bearing deposits, federal funds sold and FHLB Stock.
14
CAPITAL RESOURCES
The Bank's sources of funds include proceeds from payments and prepayments on
mortgage loans and mortgage-backed securities, proceeds from the maturities of
investment securities and deposits. 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.
At December 31, 2001, the Bank had outstanding commitments to originate $21.1
million of loans, to fund unused lines of credit of $45.8 million, to fund the
undisbursed portion of loans in process of $14.3 million and $1.7 million in
outstanding standby letters of credit. The Bank believes that it will have
sufficient funds available to meet its commitments. At December 31, 2001,
certificates of deposit which were scheduled to mature in one year or less
totaled $314.7 million. Management believes, based on past experience, that a
significant portion of these funds will remain with the Bank.
REGULATORY CAPITAL REQUIREMENTS
As a federally-chartered financial institution, the Bank is required to maintain
certain minimum amounts of regulatory capital. Regulatory capital is not a
valuation allowance and has not been created by charges against earnings. The
following table provides a summary of the capital requirements, the Bank's
regulatory capital and the amounts in excess at December 31, 2001:
Tangible Core Risk-Based
--------------------------------------------------------------------------
% of % of % of Risk-
Adjusted Adjusted Weighted
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
(Dollars in thousands)
Regulatory capital..........................$ 59,141 7.19% $ 59,141 7.19% $ 62,520 11.40%
Requirement................................. 12,344 1.50 24,688 3.00 43,867 8.00
-------- ------ --------- ------ ------------ --------
Excess .....................................$ 46,797 5.69% $ 34,453 4.19% $ 18,653 3.40%
======== ==== ======== ==== ========= ====
MARKET RISK
Market risk is the risk of loss from changes in market prices and rates. The
Company's market risk arises primarily from interest-rate risk inherent in its
lending and deposit taking activities. To that end, management actively monitors
and manages its interest-rate risk exposure. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 8 of Notes to Consolidated Financial Statements.
The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank's net interest
income and capital, while adjusting the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability management to control interest-rate risk.
However, a sudden and substantial increase in interest rates may 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. The Company does not engage in trading activities.
15
ASSET /LIABILITY MANAGEMENT
The Bank's primary mission is to provide financing by offering permanent and
construction residential mortgage loans, commercial real estate loans and
consumer and commercial loans and by providing conveniently located depository
facilities with transaction, savings and certificate accounts. The Bank's goal
is to continue to be a well-capitalized and profitable operation that provides
service that is professional, efficient and courteous. The Bank seeks to fulfill
its mission and accomplish its goals by pursuing the following strategies: (i)
emphasizing lending in the one-to-four-family residential mortgage, commercial
real estate and consumer lending markets; (ii) controlling interest-rate risk;
(iii) managing deposit pricing and asset growth; (iv) emphasizing cost control;
and (v) maintaining asset quality by investing in U.S. government and agency
securities which, in management's judgment, provide a balance between yield and
safety in a home mortgage related investment. It is management's intention to
continue to employ these strategies over the foreseeable future.
The Bank's profitability, like that of most financial institutions, is dependent
to a large extent upon its net interest income, which is the difference between
its interest income on interest-earning assets, such as loans, mortgage-backed
securities and investment securities, and its interest expense on
interest-bearing liabilities, such as deposits and other borrowings. Financial
institutions continue to be affected by general changes in levels of interest
rates and other economic factors beyond their control. At December 31, 2001, the
Bank's one-year interest sensitivity gap (the difference between the amount of
interest-earning assets anticipated by the Bank to mature or reprice within one
year and the amount of interest-bearing liabilities anticipated by the Bank to
mature or reprice within one year) as a percentage of total assets was a
positive 13.86%. Generally, an institution with a positive gap would experience
an increase in net interest income in a period of rising interest rates or a
decrease in net interest income in a period of declining interest rates.
However, certain shortcomings are inherent in the sensitivity analysis presented
above. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different manners to
changes in market interest rates. Therefore, no assurance can be given that the
Bank will be able to maintain its net interest-rate spread as market interest
rates fluctuate.
The Bank monitors its interest-rate risk through the Asset/Liability Committee
which meets monthly and reports the results of such monitoring quarterly to the
Board of Directors. The Bank's policy is to seek to maintain a balance between
interest-earning assets and interest-bearing liabilities so that the Bank's
cumulative one-year gap ratio is within a range which management believes is
conducive to maintaining profitability without incurring undue risk. The Bank
has increased its investment in adjustable-rate and shorter average life,
fixed-rate mortgage-related securities in order to position itself against the
consequences of rising interest rates. The Bank also maintains liquid assets in
an amount which allows for the possibility of disintermediation when interest
rates fluctuate. The Bank's liquidity ratio was 14.2% at December 31, 2001. In
addition, the Bank's large stable core deposit base resulting from its
continuing commitment to quality customer service has historically provided it
with a steady source of funds.
16
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2001 that are expected
to reprice, based upon certain assumptions, in each of the future periods shown.
More More More More More
than than than than than
Three Six One Three Five More
Three Months Months Year Years Years than
Months to Six to 12 to 3 to 5 to 10 Ten
or Less Months Months Years Years Years Years Total
------- ------ ------ ----- ----- ----- ----- -----
Rate-sensitive assets:
Mortgage loans, net of LIP $144,312 101,947 139,082 101,578 26,907 26,380 11,285 551,491
Commercial and consumer
loans, net of LIP 39,612 10,895 18,799 44,838 15,159 7,276 1,562 138,141
Mortgage-backed
securities 3,166 2,261 1,769 1,582 1,100 1,065 -- 10,943
Interest-earning deposits 30,183 -- -- -- -- -- -- 30,183
Investment securities 1,277 1,013 8,228 21,991 2,008 -- 5,000 39,517
Mutual funds 9,043 -- -- -- -- -- -- 9,043
FHLB stock 7,700 -- -- -- -- -- -- 7,700
-------- ------- ------- ------- ------ ------ ------ -------
Total interest-earning
assets 235,293 116,116 167,878 169,989 45,174 34,721 17,847 787,018
Rate-sensitive liabilities:
Deposits:
Savings accounts 1,502 1,398 2,511 9,552 3,994 3,917 1,219 24,093
NOW and money
market accounts 7,969 7,416 13,325 34,804 21,196 20,784 6,467 111,961
Certificates 134,286 51,910 146,543 97,585 4,416 -- -- 434,740
Borrowed funds 13,327 -- 25,000 36,000 74,000 19,000 -- 167,327
-------- ------- ------- ------- ------ ------ ------ -------
Total interest-bearing
liabilities 157,084 60,724 187,379 177,941 103,606 43,701 7,686 738,121
-------- ------- ------- ------- ------ ------ ------ -------
Interest-sensitivity gap $ 78,209 55,392 (19,501) (7,952) (58,432) (8,980) 10,161 48,897
======== ====== ======= ====== ======= ====== ====== ======
Cumulative interest-
sensitivity gap $ 78,209 133,601 114,100 106,148 47,716 38,736 48,897
======== ======= ======= ======= ====== ====== ======
Cumulative interest-earning
assets $235,293 351,409 519,287 689,276 734,450 769,171 787,018
======== ======= ======= ======= ======= ======= =======
Cumulative interest-bearing
liabilities $157,084 217,808 405,187 583,128 686,734 730,435 738,121
======== ======= ======= ======= ======= ======= =======
Cumulative interest-sensitivity
gap as a percentage of
total assets 9.50% 16.23% 13.86% 12.90% 5.80% 4.71% 5.94%
==== ===== ===== ===== ==== ==== ====
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities 149.79% 161.34% 128.16% 118.20% 106.95% 105.30% 106.62%
====== ====== ====== ====== ====== ====== ======
17
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001
TO THE YEAR ENDED DECEMBER 31, 2000
General Operating Results. Net income for the year ended December 31, 2001
was $6.3 million, or $1.77 and $1.73 per basic and diluted share,
respectively, compared to $5.3 million, or $1.50 and $1.46 per basic
and diluted share, respectively, for the year 2000. The increase was
primarily due to an increase in interest income of $7.7 million,
partially offset by increases in interest expense of $5.3 million and
noninterest expense of $1.4 million.
Interest Income. Interest income increased $7.7 million or 15.6%, from
$49.4 million for the year ended December 31, 2000 to $57.0 million
for 2001. The increase was due to a $114.1 million or 18.4% increase
in average interest-earning assets outstanding for the year ended
December 31, 2001 compared to the 2000 period, partially offset by a
decrease in the average yield earned on interest-earning assets from
7.98% for the year ended December 31, 2000 to 7.78% for the year ended
December 31, 2001.
Interest Expense. Interest expense increased $5.3 million or 17.5%, from
$30.1 million for the year ended December 31, 2000 to $35.3 million
for the year ended December 31, 2001. The increase was due to an
increase of $116.0 million in average interest-bearing liabilities.
Average interest-bearing liabilities increased from $569.5 million
outstanding during the year ended December 31, 2000 to $685.5 million
outstanding during the comparable period for 2001. The average rate
paid on interest-bearing liabilities decreased from 5.28% for the year
ended December 31, 2000 to 5.15% for the comparable 2001 period.
Noninterest Income. Noninterest income increased $535,000, or 31.8% for the
year ended December 31, 2001 compared to the year ended December 31,
2000 primarily due to an increase of $387,000 in other service charges
and fees during the 2001 period.
Noninterest Expense. Noninterest expense increased by $1.4 million or
12.5%, from $11.4 million for the year ended December 31, 2000 to
$12.8 million for the year ended December 31, 2001. The increase was
primarily due to increases in salaries and employee benefits of
$873,000, occupancy expense of $127,000 and data processing expense of
$90,000, all of which related to the overall growth of the Company.
Provision for Income Taxes. The provision for federal and state income
taxes increased from $3.4 million for the year ended December 31, 2000
(an effective tax rate of 38.8%) to $3.7 million (an effective tax
rate of 37.0%) for the corresponding period for 2001.
18
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000
TO THE YEAR ENDED DECEMBER 31, 1999
General Operating Results. Net income for the year ended December 31, 2000
was $5.3 million, or $1.50 and $1.46 per basic and diluted share,
respectively, compared to $5.4 million, or $1.52 and $1.47 per basic
and diluted share, respectively, for the comparable period in 1999.
Net income for the 1999 period included a gain on sale of real estate
held for development of $886,000 ($552,000, net of tax). Without the
1999 gain on sale, net income for 2000 exceeded net income for the
1999 period by $459,000 or 9.5%. An increase in interest income of
$10.7 million, partially offset by increases in interest expense of
$8.9 million and noninterest expense of $1.1 million contributed to
the increase in net income during the current year.
Interest Income. Interest income increased $10.7 million or 27.8%, from
$38.6 million for the year ended December 31, 1999 to $49.4 million
for the comparable period in 2000. The increase was due to a $119.2
million or 23.9% increase in average interest-earning assets
outstanding for the year ended December 31, 2000 compared to the 1999
period and an increase in the average yield earned on interest-earning
assets from 7.73% for the year ended December 31, 1999 to 7.98% for
the year ended December 31, 2000.
Interest Expense. Interest expense increased $8.9 million or 41.7%, from
$21.2 million for the year ended December 31, 1999 to $30.1 million
for the year ended December 31, 2000. The increase was due to an
increase of $118.1 million in average interest-bearing liabilities.
Average interest-bearing liabilities increased from $451.4 million
outstanding during the year ended December 31, 1999 to $569.5 million
outstanding during the comparable period for 2000. The average yield
paid on interest-bearing liabilities increased from 4.70% for the year
ended December 31, 1999 to 5.28% for the comparable 2000 period.
Noninterest Income. Noninterest income for the year ended December 31, 1999
exceeded noninterest income for the year ended December 31, 2000
primarily as a result of the previously discussed pretax gain on sale
of real estate held for development recognized during 1999, partially
offset by an increase of $201,000 in deposit account fees during the
2000 period.
Noninterest Expense. Noninterest expense increased by $1.1 million or
10.7%, from $10.3 million for the year ended December 31, 1999 to
$11.4 million for the year ended December 31, 2000. The increase was
primarily due to increases in salaries and employee benefits of
$500,000, occupancy expense of $370,000 and data processing expense of
$288,000, all of which related to the overall growth of the Company.
Provision for Income Taxes. The provision for federal and state income
taxes increased from $3.3 million for the year ended December 31, 1999
(an effective tax rate of 37.9%) to $3.4 million (an effective tax
rate of 38.8%) for the corresponding period for 2000.
19
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Bank's operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
20
FFLC BANCORP, INC.
Consolidated Balance Sheets
($ in thousands, except per share amounts)
At December 31,
---------------
2001 2000
Assets
Cash and due from banks .......................................... $ 19,609 16,036
Interest-bearing deposits ........................................ 30,183 14,445
--------- -------
Cash and cash equivalents .......................... 49,792 30,481
Securities available for sale .................................... 59,503 42,717
Loans, net of allowance for loan losses of $4,289 in 2001
and $3,552 in 2000 .......................................... 685,935 615,484
Accrued interest receivable:
Securities .................................................. 718 506
Loans ....................................................... 3,475 3,244
Premises and equipment, net ...................................... 14,338 11,490
Foreclosed assets ................................................ 373 276
Federal Home Loan Bank stock, at cost ............................ 7,700 6,150
Deferred income taxes ............................................ 274 240
Other assets ..................................................... 1,043 905
--------- -------
Total .............................................. $ 823,151 711,493
========= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits ......................... 14,334 13,335
NOW and money market accounts ............................... 111,961 86,509
Savings accounts ............................................ 24,093 19,143
Certificates ................................................ 434,740 399,898
--------- -------
Total deposits ..................................... 585,128 518,885
--------- -------
Advances from Federal Home Loan Bank ............................. 154,000 123,000
Other borrowed funds ............................................. 13,327 6,376
Accrued expenses and other liabilities ........................... 6,628 3,949
--------- -------
Total liabilities .................................. 759,083 652,210
--------- -------
Commitments and contingencies (Notes 4, 8 and 11)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding ....................................... -- --
Common stock, $.01 par value, 9,000,000 shares authorized,
4,542,953 in 2001 and 4,491,646 in 2000 shares issued .. 45 45
Additional paid-in-capital .................................. 31,355 31,010
Retained income ............................................. 51,575 47,132
Accumulated other comprehensive income ...................... 440 81
Treasury stock, at cost (979,021 shares in 2001 and
959,085 shares in 2000) ................................ (19,347) (18,985)
--------- -------
Total stockholders' equity ......................... 64,068 59,283
--------- -------
Total .............................................. $ 823,151 711,493
========= =======
See accompanying Notes to Consolidated Financial Statements.
21
FFLC BANCORP, INC.
Consolidated Statements of Income
($ in thousands, except per share amounts)
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Interest income:
Loans .................................................. $ 52,940 45,656 35,315
Securities available for sale .......................... 2,901 2,417 1,798
Securities held to maturity ............................ -- -- 415
Other interest-earning assets .......................... 1,200 1,277 1,084
---------- ------ ------
Total interest income ............................. 57,041 49,350 38,612
Interest expense:
Deposits ............................................... 26,596 23,275 17,083
Borrowed funds ......................................... 8,720 6,790 4,131
---------- ------ ------
Total interest expense ............................ 35,316 30,065 21,214
---------- ------ ------
Net interest income ............................... 21,725 19,285 17,398
Provision for loan losses ................................... 1,115 880 719
---------- ------ ------
Net interest income after provision for loan losses 20,610 18,405 16,679
---------- ------ ------
Noninterest income:
Deposit account fees ................................... 835 825 624
Other service charges and fees ......................... 1,066 679 735
Gain on sale of real estate held for development ....... -- -- 886
Other .................................................. 316 178 87
---------- ------ ------
Total noninterest income .......................... 2,217 1,682 2,332
---------- ------ ------
Noninterest expense:
Salaries and employee benefits ......................... 7,554 6,681 6,181
Occupancy expense ...................................... 2,016 1,889 1,519
Deposit insurance premium .............................. 99 90 214
Advertising and promotion .............................. 410 328 333
Data processing expense ................................ 990 900 612
Professional services .................................. 386 297 282
Other .................................................. 1,386 1,229 1,172
---------- ------ ------
Total noninterest expense ......................... 12,841 11,414 10,313
Income before income taxes .................................. 9,986 8,673 8,698
Income taxes ...................................... 3,697 3,364 3,296
---------- ------ ------
Net income .................................................. $ 6,289 5,309 5,402
========= ========= =========
Basic income per share of common stock ...................... $ 1.77 1.50 1.52
========= ========= =========
Weighted-average number of shares outstanding for basic ..... 3,547,764 3,541,400 3,548,568
========= ========= =========
Diluted income per share of common stock .................... $ 1.73 1.46 1.47
========= ========= =========
Weighted-average number of shares outstanding for diluted ... 3,629,432 3,615,740 3,677,038
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
22
FFLC BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
($ in thousands, except per share amounts)
Stock
Held
By Accumulated
Additional Incentive Other Total
Common Paid-In Treasury Plan Retained Comprehensive Stockholders'
Stock Capital Stock Trusts Income Income (Loss) Equity
----- ------- ----- ------ ------ -------------- -------------
Balance at December 31, 1998 ................. $ 44 29,286 (15,125) (631) 39,714 (65) 53,223
---------
Comprehensive income:
Net income .............................. -- -- -- -- 5,402 -- 5,402
Change in unrealized losses
on securities available for
sale, net of income taxes
of $70 ............................... -- -- -- -- -- (117) (117)
---------
Comprehensive income ......................... 5,285
---------
Net proceeds from the issuance of
75,420 shares of common
stock, stock options exercised .......... -- 453 -- -- -- -- 453
Shares committed to participants
in incentive plans (57,355
shares remain uncommitted
at December 31, 1999) ................... -- 534 -- 315 -- -- 849
Dividends paid, net of $23 of
dividends on ESOP shares
recorded as compensation
expense ................................. -- -- -- -- (1,577) -- (1,577)
Purchase of treasury stock,
147,102 shares .......................... -- -- (2,596) -- -- -- (2,596)
------- ------- -------- ----- ------ ----- ------
Balance at December 31, 1999 ................. $ 44 30,273 (17,721) (316) 43,539 (182) 55,637
======= ====== ======= ==== ====== ==== ======
(continued)
23
FFLC BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity, Continued
($ in thousands, except per share amounts)
Stock
Held
By Accumulated
Additional Incentive Other Total
Common Paid-In Treasury Plan Retained Comprehensive Stockholders'
Stock Capital Stock Trusts Income Income (Loss) Equity
----- ------- ----- ------ ------ -------------- -------------
Balance at December 31, 1999 ........ $ 44 30,273 (17,721) (316) 43,539 (182) 55,637
-----------
Comprehensive income:
Net income ..................... -- -- -- -- 5,309 -- 5,309
Change in unrealized losses
on securities available for
sale, net of income taxes
of $158 ..................... -- -- -- -- -- 263 263
-----------
Comprehensive income ................ 5,572
Net proceeds from the issuance of
34,217 shares of common
stock, stock options exercised . 1 210 -- -- -- -- 211
Net proceeds from the issuance of
9,968 shares of common stock
under the Dividend Reinvestment
Plan ........................... -- 132 -- -- -- -- 132
Shares committed to participants
in incentive plans (2,735 shares
remain uncommitted at
December 31, 2000) ............. -- 395 -- 316 -- -- 711
Dividends paid ...................... -- -- -- -- (1,716) -- (1,716)
Purchase of treasury stock,
95,562 shares .................. -- -- (1,264) -- -- -- (1,264)
)
------- ------- -------- ------- ------- ------ ------------
Balance at December 31, 2000 ........ $ 45 31,010 (18,985) -- 47,132 81 59,283
======= ====== ======= ======= ====== ======= ============
(continued)
24
FFLC BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity, Continued
($ in thousands, except per share amounts)
Accumulated
Additional Other Total
Common Paid-In Treasury Retained Comprehensive Stockholders'
Stock Capital Stock Income Income Equity
----- ------- ----- ------ ------ ------
Balance at December 31, 2000 ...... $ 45 31,010 (18,985) 47,132 81 59,283
------------
Comprehensive income:
Net income ................... -- -- -- 6,289 -- 6,289
Change in unrealized gains
on securities available for
sale, net of income taxes
of $217 ................... -- -- -- -- 359 359
Comprehensive income .............. 6,648
------------
Net proceeds from the issuance of
51,307 shares of common
stock, stock options exercised -- 345 -- -- -- 345
Dividends paid .................... -- -- -- (1,846) -- (1,846)
Purchase of treasury stock,
19,936 shares ................ -- -- (362) -- -- (362)
------- ------- -------- ------- ------- ------------
Balance at December 31, 2001 ...... $ 45 31,355 (19,347) 51,575 440 64,068
======= ======= ======== ====== ======= ============
See accompanying Notes to Consolidated Financial Statements.
25
FFLC BANCORP, INC.
Consolidated Statements of Cash Flows
($ in thousands)
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income ....................................................... $ 6,289 5,309 5,402
Adjustments to reconcile net income
to net cash provided by operations:
Provision for loan losses ............................... 1,115 880 719
Depreciation ............................................ 852 760 575
(Gain) loss on sale of foreclosed assets ................ (28) 4 (34)
Gain on sale of real estate held for development ........ -- -- (886)
Credit for deferred income taxes ........................ (251) (500) (112)
Shares committed and dividends to incentive
plan participants .................................. -- 711 872
Net amortization of premiums and discounts on securities (52) 5 69
Net deferral of loan fees and costs ..................... 134 (58) (372)
Increase in accrued interest receivable ................. (443) (935) (573)
Increase in other assets ................................ (138) (173) (188)
Increase in accrued expenses and other liabilities ...... 2,679 1,444 11
----- ----- --
Net cash provided by operating activities ...... 10,157 7,447 5,483
------ ----- -----
Cash flows from investing activities:
Proceeds from principal repayments and maturities of securities
held to maturity ............................................ -- -- 3,428
Purchase of securities available for sale ........................ (30,751) (13,411) (10,483)
Proceeds from principal repayments and maturities of securities
available for sale .......................................... 14,593 8,019 10,282
Loan disbursements ............................................... (198,941) (188,141) (195,034)
Principal repayments on loans .................................... 126,674 72,274 82,465
Purchase of premises and equipment, net .......................... (3,700) (2,864) (4,364)
Purchase of Federal Home Loan Bank stock ......................... (1,550) (1,200) (2,150)
Proceeds from sales of foreclosed assets ......................... 498 582 150
Proceeds from sale of real estate held for development ........... -- -- 1,008
------ ----- -----
Net cash used in investing activities .......... (93,177) (124,741) (114,698)
------ ----- -----
(continued)
26
FFLC BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
($ in thousands)
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Cash flows from financing activities:
Net increase in deposits ................................................... $ 66,243 89,611 78,244
Net increase in Federal Home Loan Bank advances ............................ 31,000 24,000 43,000
Net increase in other borrowed funds ....................................... 6,951 2,462 3,125
Issuance of common stock ................................................... 345 343 453
Purchase of treasury stock ................................................. (362) (1,264) (2,596)
Cash dividends paid ........................................................ (1,846) (1,716) (1,600)
------- ------- -------
Net cash provided by financing activities .................... 102,331 113,436 120,626
------- ------- -------
Net increase (decrease) in cash and cash equivalents ............................ 19,311 (3,858) 11,411
Cash and cash equivalents at beginning of year .................................. 30,481 34,339 22,928
------- ------- -------
Cash and cash equivalents at end of year ........................................ $ 49,792 30,481 34,339
========= ====== ======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest .............................................................. $ 35,217 29,829 20,795
========= ====== ======
Income taxes .......................................................... $ 3,821 3,700 3,456
========= ===== =====
Noncash investing and financing activities:
Accumulated other comprehensive income, net change in
unrealized gain (loss) on securities available for sale, net of tax $ 359 263 (117)
========= ===== =====
Transfers from loans to foreclosed assets ............................. $ 656 826 425
========= ===== =====
Loans originated on sales of foreclosed assets ........................ $ 89 364 275
========= ===== =====
Loans funded by and sold to correspondent ............................. $ 14,926 1,121 6,988
========= ===== =====
Transfer securities from held to maturity to available for
sale upon adoption of FAS 133 ..................................... $ -- -- 14,784
========= ===== =====
See accompanying Notes to Consolidated Financial Statements.
27
FFLC BANCORP, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(1) Summary of Significant Accounting Policies
FFLC Bancorp, Inc. (the "Holding Company") was incorporated in Delaware on
September 16, 1993, and acquired First Federal Savings Bank of Lake County
(the "Bank") in connection with the Bank's conversion to stock form on
January 4, 1994. The Holding Company is a savings and loan holding company
subject to regulation by the Office of Thrift Supervision ("OTS") which
mainly transacts its business through its subsidiary, the Bank. The Bank is
a community-oriented savings institution which offers a variety of
financial services to individuals and businesses primarily located in Lake
County, Sumter County and Citrus County, Florida. The deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") through
the Savings Association Insurance Fund ("SAIF").
During 2001, First Alliance Title, LLC, a 90% owned subsidiary of the
Holding Company was formed to operate as a title agency. This subsidiary
had minimal activity through December 31, 2001.
Principles of Consolidation. The consolidated financial statements include the
accounts of the Holding Company and its two subsidiaries, the Bank and
First Alliance Title, LLC and the Bank's wholly-owned subsidiary, Lake
County Service Corporation (the "Service Corporation"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
General. The accounting and reporting policies of FFLC Bancorp, Inc. and its
subsidiaries (together, the "Company") conform to accounting principles
generally accepted in the United States of America and to general practices
within the banking industry. The following summarizes the significant
accounting policies of the Company:
Use of Estimates. In preparing consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan
losses and foreclosed assets.
Cash and Cash Equivalents. For purposes of the consolidated statements of cash
flows, cash and cash equivalents include cash and balances due from banks,
interest-bearing deposits and federal funds sold.
The Bank is required to maintain certain average reserve balances pursuant to
regulations of the Federal Reserve Board. These balances must be maintained
in the form of vault cash or noninterest bearing deposits at a Federal
Reserve Bank. The Bank met this requirement at December 31, 2001 and 2000.
Securities. The Company may classify its securities as either trading, held to
maturity or available for sale. Trading securities are held principally for
resale and recorded at their fair values. Unrealized gains and losses on
trading securities are included immediately in earnings. Held-to-maturity
securities are those which the Company has the positive intent and ability
to hold to maturity and are reported at amortized cost. Available-for-sale
securities consist of securities not classified as trading securities nor
as held-to-maturity securities. Unrealized holding gains and losses, net of
tax, on available-for-sale securities are excluded from income and reported
in other comprehensive income. Gains and losses on the sale of
available-for-sale securities are recorded on the trade date and determined
using the specific-identification method. Premiums and discounts on
securities available for sale are recognized in interest income using the
interest method over the period to maturity.
28
Loans. Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The accrual of interest on loans is discontinued at the time the loan is 90
days delinquent unless the loan is well collateralized and in process of
collection. In all cases, loans are placed on nonaccrual or charged-off at
an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged-off is reversed against interest income. The interest on these
loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when
all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
Allowance for Loan Losses. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial loans by either the present
value of expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment
disclosures.
Foreclosed Assets. Assets acquired through, or in lieu of, foreclosure, are
initially recorded at fair value at the date of foreclosure. After
foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less cost
to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in income.
29
Premises and Equipment. Land is carried at cost. The Company's premises,
furniture and equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization computed principally using
the straight-line method.
Transfer of Financial Assets. Transfers of financial assets are accounted for as
sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have
been isolated from the Company, (2) the transferee obtains the right (free
of conditions that constrain it from taking advantage of that right) to
pledge or exchange the transferred assets, and (3) the Company does not
maintain effective control over the transferred assets through an agreement
to repurchase them before their maturity.
Income Taxes. Deferred tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the various balance
sheet assets and liabilities and gives current recognition to changes in
tax rates and laws.
StockCompensation Plans. Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, 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, whereby
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued under the
Company's stock option plan have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them. The
Company has elected to continue with the accounting methodology in Opinion
No. 25 and, as a result, has provided proforma disclosures of net income
and income per share and other disclosures, as if the fair value based
method of accounting had been applied. (See Note 16).
Off-Balance Sheet Instruments. In the ordinary course of business, the Company
has entered into off-balance-sheet instruments consisting of commitments to
extend credit, unused lines of credit, undisbursed loans in process and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded.
Fair Values of Financial Instruments. The fair value of a financial instrument
is the current amount that would be exchanged between willing parties,
other than in a forced liquidation. Fair value is best determined based
upon quoted market prices. However, in many instances, there are no quoted
market prices for the Company's various financial instruments. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Accordingly, the fair
value estimates may not be realized in an immediate settlement of the
instrument. SFAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented may not necessarily represent the
underlying fair value of the Company. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments:
Cash and Cash Equivalents. The carrying amounts of cash and short-term
instruments approximate their fair value.
Securities. Fair values for securities available for sale are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying value of Federal Home Loan Bank stock
approximates fair value.
30
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed-rate loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality.
Deposit Liabilities. The fair values disclosed for demand, NOW, money
market and savings deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities of certificates of deposit.
Borrowed Funds. The carrying amounts of borrowings under repurchase
agreements approximate their fair values. Fair values of Federal Home
Loan Bank advances are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Accrued Interest. The carrying amounts of accrued interest approximate
their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
31
Income Per Share of Common Stock. The Company follows the provisions of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No.
128). SFAS No. 128 provides accounting and reporting standards for
calculating income per share. Basic income per share of common stock has
been computed by dividing the net income for the year by the
weighted-average number of shares outstanding. Shares of common stock
purchased by the Employee Stock Option Plan ("ESOP") and the Retention and
Recognition Plan ("RRP") incentive plans (see Note 16) are only considered
outstanding when the shares are released or committed to be released for
allocation to participants. The ESOP initially purchased 368,242 shares, of
which 4,383 shares were released for allocation to participants each month
beginning in January, 1994. As of December 31, 2000, all ESOP shares had
been allocated. The RRP initially purchased 184,122 shares, of which
179,373, 181,387 and 181,387 were allocated to participants and are
considered outstanding for the years ended December 31, 1999, 2000 and
2001, respectively. At December 31, 2001, 2,735 shares remain uncommitted
under the RRP plan and are not considered outstanding for purposes of the
computation of net income per share of common stock. 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 (see Note
16) computed using the treasury stock method. The following table presents
the calculation of net income per share of common stock:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Weighted-average shares of common stock issued
and outstanding before adjustments for ESOP,
RRP and common stock options...................................... 3,550,499 3,571,858 3,632,058
Adjustment to reflect the effect of unallocated
ESOP and RRP average shares....................................... (2,735) (30,458) (83,490)
--------- --------- ---------
Weighted-average shares for basic income per share..................... 3,547,764 3,541,400 3,548,568
========= ========= =========
Basic income per share................................................. $ 1.77 1.50 1.52
Total weighted-average common shares and equivalents
outstanding for basic income per share
computation....................................................... 3,547,764 3,541,400 3,548,568
Additional dilutive shares using the average market value
for the period utilizing the treasury stock method
regarding stock options........................................... 81,668 74,340 128,470
--------- --------- ---------
Weighted-average common shares and equivalents
outstanding for diluted income per share.......................... 3,629,432 3,615,740 3,677,038
========= ========= =========
Diluted income per share............................................... $ 1.73 1.46 1.47
========= ========= =========
Comprehensive Income. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net earnings. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along
with net earnings, are components of comprehensive income. The components
of other comprehensive income were unrealized holding gains and losses on
securities available for sale.
Reclassifications. Certain amounts in the 1999 and 2000 consolidated financial
statements have been reclassified to conform to the presentation for 2001.
32
(2) Securities
All securities have been classified as available for sale by management.
The carrying amounts of securities available for sale and their
approximate fair values were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
Securities available for sale:
At December 31, 2001:
Mutual funds ........................$ 9,125 -- (82) 9,043
U.S. Government and agency securities 32,670 625 (54) 33,241
Mortgage-backed securities .......... 10,735 279 (71) 10,943
Other investment securities ......... 6,268 8 -- 6,276
------- ------- ------- -------
Total ..........................$58,798 912 (207) 59,503
------- ------- ------- -------
At December 31, 2000:
Mutual funds ........................ 9,130 -- (151) 8,979
U.S. Government and agency securities 17,849 119 -- 17,968
Mortgage-backed securities .......... 14,244 150 -- 14,394
Other investment securities ......... 1,365 11 -- 1,376
------- ------- ------- -------
Total ..........................$42,588 280 (151) 42,717
======= === ==== ======
The scheduled maturities of securities available for sale at December 31, 2001
were as follows:
Amortized Fair
Cost Value
---- -----
(In thousands)
Due in less than one year ..... $ 8,961 9,242
Due from one year to five years 23,709 23,999
Due after ten years ........... 6,268 6,276
Mortgage-backed securities .... 10,735 10,943
Mutual funds .................. 9,125 9,043
----- -----
Total ..................... $58,798 59,503
======= ======
Securities with a carrying value of approximately $8.8 million and $6.5
million at December 31, 2001 and 2000, respectively, were pledged to
secure public funds and tax deposits. The Company has also pledged
securities with a carrying value of $18.7 million and $9.9 million for
borrowings under retail repurchase agreements with customers at
December 31, 2001 and 2000, respectively (See Note 6).
There were no sales of securities during the years ended December 31, 2001,
2000 or 1999.
33
(3) Loans
The components of loans were as follows:
At December 31,
2001 2000
(In thousands)
First mortgage loans secured by:
One-to-four-family residential ........... $ 413,712 409,600
Construction and land .................... 22,951 13,006
Multi-family units ....................... 20,304 17,602
Commercial real estate, churches and other 108,804 79,729
Consumer loans ................................ 119,357 95,824
Commercial loans .............................. 18,814 14,677
------ ------
Subtotal ............................. 703,942 630,438
Undisbursed portion of loans in process ....... (14,310) (12,128)
Net deferred loan costs ....................... 592 726
Allowance for loan losses ..................... (4,289) (3,552)
------ ------
Loans, net..................................... $ 685,935 615,484
========= =======
An analysis of the change in the allowance for loan losses follows:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Balance at January 1 .... $ 3,552 2,811 2,283
Net loans charged-off ... (378) (139) (191)
Provision for loan losses 1,115 880 719
----- --- ---
Balance at December 31 .. $ 4,289 3,552 2,811
== ======= ===== =====
The following summarizes the amount of impaired loans at December 31, 2001
and 2000, all of which are collateral dependent (in thousands):
At December 31,
2001 2000
Loans identified as impaired:
Gross loans with no related allowance for losses $ -- --
Gross loans with related allowance for losses recorded .. 306 1,280
Less: Allowances on these loans ............... (150) (192)
---- ----
Net investment in impaired loans .................... $ 156 1,088
====== =====
34
The average net investment in impaired loans and interest income
recognized and received on impaired loans during the years ended
December 31, 2001, 2000 and 1999 was as follows (in thousands):
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Average net investment in impaired loans ......... $ 581 1,117 1,152
===== ===== =====
Interest income recognized on impaired loans ..... $ 81 46 84
===== ===== =====
Interest income received on impaired loans ....... $ 81 46 84
===== ===== =====
During the second quarter of 2001, an impaired loan in the amount of $1.3
million was repaid.
The Company originates or purchases nonresidential real property loans.
These loans are considered by management to be of somewhat greater
risk of uncollectibility due to the dependency on income production or
future development of the real estate. Nearly all of the Company's
real property loans were collateralized by real property in Lake,
Sumter and Citrus Counties, Florida.
Nonaccrual loans at December 31, 2001 and 2000 totaled $1.9 million and
$2.5 million, respectively. For the years ended December 31, 2001,
2000 and 1999, interest income on loans would have been increased
approximately $116,000, $230,000 and $99,000, respectively, if the
interest on nonaccrual loans had been recorded under the original
terms of such loans.
Loans serviced for others, consisting solely of participations sold, are not
included in the accompanying consolidated balance sheets. The unpaid
principal balances of these loans were approximately $1.5 million and
$.9 million at December 31, 2001 and 2000, respectively.
(4) Premises and Equipment
Components of premises and equipment were as follows:
At December 31,
---------------
2001 2000
---- ----
(In thousands)
Cost:
Land .................... $ 4,115 3,134
Building and improvements 11,672 8,799
Furniture and equipment . 2,882 2,901
Construction in progress 158 955
------ -----
Total cost ......... 18,827 15,789
Less accumulated depreciation (4,489) (4,299)
------ -----
Net book value .......... $ 14,338 11,490
======== ======
35
Certain Company facilities are leased under various operating leases.
Rental expense was $118,000, $180,000 and $195,000 in 2001, 2000 and
1999, respectively. At December 31, 2001, future minimum rental
commitments under noncancellable leases were as follows (in
thousands):
Year Ending
December 31, Amount
2002............................ $ 68
2003............................ 60
2004............................ 62
2005............................ 65
2006............................ 68
Thereafter...................... 71
--
$ 394
=====
(5) Deposits
The aggregate amount of short-term jumbo certificates of deposit, each
with a minimum denomination of $100,000, was approximately $107.2
million and $61.9 million at December 31, 2001 and 2000, respectively.
At December 31, 2001, the scheduled maturities of certificates of deposit
were as follows (in thousands):
Year Ending
2002............................ $ 314,743
2003............................ 99,363
2004............................ 16,133
2005............................ 2,109
2006............................ 2,392
-----
$ 434,740
=========
36
(6) Advances from Federal Home Loan Bank and Other Borrowings
As of December 31, 2001, the Bank had $154.0 million in Federal Home Loan
Bank of Atlanta ("FHLB") advances outstanding. These advances had a
weighted-average interest rate of 5.73% and interest rates and
maturities as follows (dollars in thousands):
Interest At December 31,
-------- ---------------
Year Ending December 31, Rate 2001 2000
------- ---- ----
2002.................. 6.10% $ 5,000 5,000
2002.................. 5.96% 15,000 15,000
2002.................. 4.03% 5,000 -
2003.................. 4.90% 10,000 10,000
2003.................. 4.91% 6,000 -
2003.................. 4.53% 5,000 -
2003.................. 3.77% 5,000 -
2004.................. 6.05% 10,000 10,000
2005.................. 6.39%(B) 20,000 20,000
2005.................. 6.60%(B) 13,500 13,500
2005.................. 6.68%(B) 12,500 12,500
2005.................. 6.31%(B) 7,000 7,000
2005.................. 6.04%(B) 10,000 10,000
2005.................. 6.00%(B) 6,000 6,000
2006.................. 1.95%(A) 5,000 -
2009.................. 6.39%(B) 14,000 14,000
2011.................. 4.44%(B) 5,000 -
----------- ---------
Total...................... $ 154,000 123,000
============ ========
(A) Adjustable Rate
(B) The FHLB has the option to convert to an adjustable rate in future
years.
The security agreement with FHLB includes a blanket floating lien
requiring the Bank to maintain first mortgage loans as pledged
collateral in an amount equal to at least, when discounted at 75% of
the unpaid principal balances, 100% of these advances. The FHLB stock
is also pledged as collateral for these advances. At December 31,
2001, the Bank could borrow up to $216.4 million under the FHLB
security agreement.
The Bank has an $8 million line of credit facility with one of its
correspondent banks, under which the Bank may draw funds for daily
liquidity. Borrowings under this line of credit must be repaid within
seven days. The line of credit bears a floating interest rate equal to
the average federal funds rate and expires on June 30, 2002. As of
December 31, 2001, the Bank has not used this line of credit.
Other borrowed funds were composed of retail repurchase agreements with
customers. The Company enters into retail repurchase agreements with
customers in which the funds received are accounted for as borrowings
to the Company. The total amount outstanding under these agreements at
December 31, 2001 and 2000 were $13.3 million and $6.4 million,
respectively. The Company pledged securities with a carrying value of
$18.7 million and $9.9 million as collateral for these agreements at
December 31, 2001 and 2000, respectively.
(7) Income Taxes
The Holding Company and its subsidiaries file consolidated federal and
state income tax returns. Income taxes are allocated proportionally to
the Holding Company and each of the subsidiaries as though separate
income tax returns were filed.
37
The income tax provision is summarized as follows:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Current ............. $ 3,948 3,864 3,408
Deferred ............. (251) (500) (112)
---- ---- ----
$ 3,697 3,364 3,296
======= ===== =====
The effective tax rate on income before income taxes differs from the U.S.
statutory rate of 34%. The following summary reconciles taxes at the
U.S. statutory rate with the effective rates:
Year Ended December 31,
-----------------------
2001 2000 1999
--------------- ------------- ---------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
Taxes on income at U.S. ..
statutory rate ...... $ 3,395 34.0% $ 2,949 34.0% $ 2,957 34.0%
State income taxes, net of
federal tax benefit . 341 3.4 324 3.7 297 3.4
Other, net ............... (39) (.4) 91 1.1 42 .5
--- --- -- --- -- --
Taxes on income at
effective rates ..... $ 3,697 37.0% $ 3,364 38.8% $ 3,296 37.9%
======= ==== ======= ==== ======= ====
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that gave rise to significant
portions of the deferred tax asset relate to the following:
At December 31,
---------------
2001 2000
---- ----
(In thousands)
Deferred tax assets:
Allowance for loan losses ...................... $1,263 902
Accrued interest ............................... 9 64
RRP incentive plan ............................. 74 79
Deferred loan fees ............................. 24 48
Other .......................................... 24 81
-- --
Gross deferred tax assets ........................... 1,394 1,174
----- -----
Deferred tax liabilities:
FHLB stock dividends ........................... 349 347
Building and land .............................. 334 334
Accumulated depreciation ....................... 155 183
Unrealized gain on securities available for sale 265 48
Deferred loan costs ............................ 17 22
-- --
Gross deferred tax liabilities ...................... 1,120 934
----- ---
Net deferred tax asset .............................. $ 274 240
38
Retained earnings at December 31, 2001 and 2000 includes approximately $5.8
million for which no deferred federal income tax liability has been
recognized. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated
for purposes other than tax bad debt losses or adjustments arising
from carryback of net operating losses would create income for tax
purposes only, which would be subject to the then current corporate
income tax rate. The unrecorded deferred income tax liability on the
above amount was approximately $2.2 million at December 31, 2001 and
2000.
The Small Business Job Protection Act of 1996 (the "1996 Act") enacted on
August 2, 1996 requires savings institutions, such as the Bank, to
recapture certain portions of their accumulated bad debt reserves, and
eliminated the Percentage of Taxable Income Method of accounting for
bad debts for tax purposes. The Bank was required to change its method
of accounting for bad debts for tax purposes effective January 1,
1996. In addition, the Bank was required to recapture the excess of
its bad debt reserves at December 31, 1995 over its base year reserves
at December 31, 1987, ratably over a six-year period beginning in
1998. At December 31, 2001, the Bank had approximately $262,000 of
deferred tax liabilities recorded for the recapture of its excess bad
debt reserves.
39
(8) Financial Instruments
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 and to reduce its own exposure to fluctuations in
interest rates. These financial instruments are commitments to extend
credit, unused lines of credit, undisbursed loans in process and
standby letters of credit and may involve, to varying degrees,
elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated balance sheet. The contract amounts of
these instruments reflect the extent of involvement the Company has in
these 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 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 some of the
commitments are expected to expire without being drawn upon, the total
commitment 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 deemed
necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty.
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.
40
The estimated fair values of the Company's financial instruments were as
follows:
At December 31, 2001 At December 31, 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
Financial assets:
Cash and cash equivalents ... $ 49,792 49,792 30,481 30,481
Securities available for sale 59,503 59,503 42,717 42,717
Loans ....................... 685,935 689,362 615,484 616,345
Accrued interest receivable . 4,193 4,193 3,750 3,750
Federal Home Loan Bank stock 7,700 7,700 6,150 6,150
Financial liabilities:
Deposit liabilities ......... 585,128 587,642 518,885 517,672
Advances from FHLB .......... 154,000 161,205 123,000 123,201
Other borrowed funds ........ 13,327 13,327 6,376 6,376
A summary of the notional amounts of the Company's financial instruments
which approximates fair value, with off-balance-sheet risk at December 31,
2001, follows:
Notional
Amount
(In thousands)
Commitments to extend credit .......... $21,059
=======
Unused lines of credit ................ $45,763
=======
Undisbursed portion of loans in process $14,310
=======
Standby letters of credit ............. $ 1,725
=======
(9) Significant Group Concentration of Credit Risk
The Company grants real estate, commercial and consumer loans to customers
primarily in the State of Florida with the majority of such loans in the
Lake, Sumter and Citrus County area. Therefore, the Company's exposure to
credit risk is significantly affected by changes in the economy of the
Lake, Sumter and Citrus County areas. In addition, the Company has a
concentration of single-family residential mortgage loans in a specific
residential retirement community of approximately $110.0 million at
December 31, 2001.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential accounting
loss should the contract be fully drawn upon, the customer default and the
value of any existing collateral become worthless.
41
(10) Related Parties
Loans to directors and executive officers of the Company were made in the
ordinary course of business and did not involve more than normal risk of
collectibility or present other unfavorable features. Activity in loans to
directors and executive officers were as follows:
Year Ended
December 31,
------------
2001 2000
---- ----
(In thousands)
Beginning balance .. $ 5,413 4,983
Loans originated ... 4,086 1,436
Principal repayments (2,714) (1,006)
------ ------
Ending balance $ 6,785 5,413
======= =====
(11) Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the
Company is a defendant in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these
matters is not expected to have a material adverse effect on the
consolidated financial condition of the Company.
(12) Restrictions on Retained Earnings
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31,
2001, approximately $20.7 million of retained earnings were available
for dividend declaration without prior regulatory approval.
(13) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the 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
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December
31, 2001, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 2001, 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 ratios as set forth
in the table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
42
The Bank's actual capital amounts and percentages at December 31, 2001 and
2000 are also presented in the tables.
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------------- --------------- --------------------
% Amount % Amount % Amount
- ------ - ------ - ------
As of December 31, 2001: (Dollars in thousands)
Stockholders' equity, and
ratio to total assets......... 7.3% $ 60,108
Less: investment in
nonincludable
subsidiary.................... (477)
Unrealized gain on
available-for-sale
securities.................... (490)
----
Tangible capital,
and ratio to adjusted
total assets.................. 7.2% $ 59,141 1.5% $ 12,344
========= ========
Tier 1 (core) capital, and
ratio to adjusted total
assets.................... 7.2% $ 59,141 3.0% $ 24,688 5.0% $ 41,147
========= ======== ========
Tier 1 capital, and ratio
to risk-weighted assets....... 10.8% 59,141 4.0% $ 21,933 6.0% $ 32,900
Less: nonincludable
investment in 80%
land loans.................... (656)
Tier 2 capital (allowance for
loan losses).................. 4,035
-----
Total risk-based capital,
and ratio to risk-
weighted assets............... 11.4% $ 62,520 8.0% $ 43,867 10.0% $ 54,833
==========
Total assets...................... $ 823,916
=========
Adjusted total assets............. $ 822,946
=========
Risk-weighted assets.............. $ 548,332
=========
43
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
-------------- ------------------ ----------------
% Amount % Amount % Amount
- ------ - ------ - ------
As of December 31, 2000: (Dollars in thousands)
Stockholders' equity,
and ratio to total
assets .................. 7.88% $ 56,130
Less: investment in
nonincludable
subsidiary .............. (485)
Unrealized gain on
available-for-sale
securities .............. (175)
Tangible capital,
and ratio to adjusted
total assets ............ 7.80% $ 55,470 1.5% $ 10,670
========= =========
Tier 1 (core) capital, and
ratio to adjusted total
assets .................. 7.80% $ 55,470 3.0% $ 21,340 5.0% $ 35,567
========= ========= ========
Tier 1 capital, and ratio
to risk-weighted assets . 12.45% 55,470 4.0% $ 17,824 6.0% $ 26,736
Less: nonincludable
investment in 80%
land loans .............. (245)
----
Tier 2 capital (allowance for
loan losses) ............ 3,477
-----
Total risk-based capital,
and ratio to risk-
weighted assets ......... 13.17% $ 58,702 8.0% $ 35,648 10.0% $ 44,560
========= ========= ========
Total assets ................ $ 712,001
=========
Adjusted total assets ....... $ 711,341
=========
Risk-weighted assets ........ $ 445,597
=========
44
(14) Conversion to Stock Savings Bank
The Bank successfully completed a conversion from a federally chartered
mutual savings association to a federally chartered stock savings bank
on January 4, 1994 pursuant to the Plan of Conversion. The Plan of
Conversion provided for the establishment of a Liquidation Account
equal to the retained income of the Bank as of September 30, 1993 (the
date of the most recent financial statement presented in the final
conversion prospectus). The Liquidation Account is established to
provide a limited priority claim to the assets of the Bank to
qualifying depositors as of September 30, 1992 (Eligible Account
Holders) who continue to maintain deposits in the Bank after
conversion. In the unlikely event of a complete liquidation of the
Bank, and only in such event, each Eligible Account Holder would
receive from the Liquidation Account a liquidation distribution based
on their proportionate share of the then total remaining qualifying
deposits.
Current regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced
below the amount then required for the aforementioned Liquidation
Account. Also, capital distribution regulations limit the Bank's
ability to make capital distributions which include dividends, stock
redemptions and repurchases, cash-out mergers, interest payments on
certain convertible debt and other transactions charged to the capital
account based on their capital level and supervisory condition.
(15) 401(k) Plan
Effective January 1, 2001, the Board of Directors approved the transfer
from the multi-employer 401(k) plan the Company had participated in,
to a single employer 401(k) plan ("KSOP"), and the simultaneous
combination of that plan with the Employee Stock Ownership Plan
discussed in Note 16. Under the new KSOP, participation is open to all
employees the month after hire date (for purposes of employer
contributions, one year of service is required), and participants have
the twelve investment options offered by the previous plan, plus a
Company stock fund. The Company makes a contribution of at least 3% of
compensation (for all participants who have met the one-year of
service requirement), which vests immediately. In addition, the
Company will make a discretionary matching contribution (for all
participants who have met the one-year of service requirement), which
will vest after five years of service. For 2001, the Board approved a
matching contribution equal to 100% of employees' deferrals up to 3%
of compensation, which totaled $282,000. The amounts of employee and
employer contributions under the KSOP, 401(k) and the ESOP are subject
to IRS limitations.
Prior to January 1, 2001, the Company had a defined contribution profit
sharing 401(k) plan (the "401(k) Plan"). All employees who met a
minimum service requirement (1,000 hours of service in a twelve-month
period) participated in the Plan. Under the 401(k) Plan, a participant
could elect to contribute up to 15% of their annual compensation,
subject to IRS limitations on total annual contributions. The Company
made contributions to the 401(k) Plan on a monthly basis at two
percent of participants' compensation. Contributions to the 401(k)
Plan for the years ended December 31, 2000 and 1999 were $65,700 and
$54,000, respectively.
45
(16) Stock Benefit Plans
The Company follows the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). SFAS No. 123 applies to stock-based compensation under the
Company's incentive stock option plan (the "Option Plan") and under
the Company's Recognition and Retention Plan discussed below. As
allowed by SFAS No. 123, the Company elected to continue to measure
compensation cost for the options or shares granted under either plan
using the intrinsic value method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No.
123 does not apply to the Employee Stock Ownership Plan discussed
below.
StockOption Plan. The Company has a Stock Option Plan under which 460,303
common shares are authorized to be granted to directors, officers and
employees of the Bank. Shares granted under the Option Plan are
exercisable at the market price at the date of grant. Such 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. At
December 31, 2001, 33,714 shares remain available for grant to future
directors, officers and employees.
The following is a summary of option transactions:
Weighted-
Range of Average
Number Per Share Per Share
of Shares Option Price Price
--------- ------------ -----
Outstanding, December 31, 1998 273,200 $6.00-21.2 $ 6.83
Granted ...................... 16,250 16.75-17.63 17.56
Exercised .................... (75,420) 6.00 6.00
-------
Outstanding, December 31, 1999 214,030 6.00-21.25 7.93
Granted ...................... 5,035 12.56 12.56
Exercised .................... (34,217) 6.00-12.00 6.16
-------
Outstanding, December 31, 2000 184,848 6.00-21.25 8.49
Exercised .................... (51,307) 6.00-12.56 6.76
-------
Outstanding, December 31, 2001 133,541 $ 6.00-21.25 $ 9.02
======= ====== ===== ========
46
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 2001, 2000 and 1999 was 7.7, 7.9 and 8.6 years,
respectively.
The outstanding options at December 31, 2001 were exercisable as follows:
Number Weighted-Average
of Weighted-Average Remaining
Year Ending December 31, Shares Exercise Price Contractual Life
------ -------------- -----------------
(In years)
Currently exercisable 128,125 $ 8.66 7.7
2002 ................ 5,416 17.56 8.0
----- ----- ---
133,541 $ 9.02 7.7
======= ========= ===
During the years ended December 31, 2000 and 1999, 5,035 and 16,250 options
were granted under the Option Plan. No options were granted under
either plan during 2001. SFAS No. 123 requires pro forma fair value
disclosures if the intrinsic value method is being utilized. In order
to calculate the fair value of the options granted, it was assumed
that the risk-free interest rate was 7.0% for each period, an
annualized dividend yield of approximately 2.0% would apply over the
exercise period, the expected life of the options would be the entire
exercise period and the expected stock volatility was 37% and 36%,
respectively, for 2000 and 1999. For purposes of pro forma
disclosures, the estimated fair value was included in expense in the
period vesting occurs. The proforma information has been determined as
if the Company had accounted for its stock options and share awards
under the fair value method of SFAS No. 123 and is as follows (in
thousands, except per share amounts):
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Weighted-average grant-date fair value
of options issued during the year .... $ -- 28 133
Proforma net income ....................... $ 6,250 5,182 5,288
======= ===== =====
Proforma basic income per share ........... $ 1.76 1.46 1.49
======= ==== ====
Proforma diluted income per share.......... $ 1.72 1.43 1.44
======= ==== ====
47
Employee Stock Ownership Plan. Through December 31, 2000, the Company
sponsored a leveraged ESOP that covered eligible employees who
completed a year of service. The Bank made quarterly contributions to
the ESOP equal to the ESOP's debt service. The ESOP Trust purchased
368,242 shares of common stock in the Company's initial public
offering with the proceeds from a loan from the Company. That loan
bore interest at a fixed-rate of six percent with principal and
interest payable in equal quarterly installments over seven years and
the loan was paid-off in December 2000. The ESOP shares initially were
pledged as collateral for its debt. As the debt was repaid, shares
were released from collateral and allocated to active employees based
on the proportion of debt service paid during the year. The Company
accounted for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the debt of the ESOP was recorded as debt and the cost of
the shares pledged as collateral were reported as a contra equity
account. As shares were released from collateral, the Company recorded
compensation expense, and an offsetting credit to capital, equal to
the current market price of the shares, and the shares became
outstanding for income per share computations. Dividends on all ESOP
shares were recorded as compensation expense as it was management's
intention to allocate the dividends along with the shares when
allocated. Compensation expense for the years ended December 31, 2000
and 1999 included the following ESOP related costs:
Year Ended December 31,
-----------------------
2000 1999
---- ----
(In thousands)
Amortization of the original cost, $6 per share $316 315
Market appreciation of the FFLC shares ........ 395 534
Dividends on ESOP shares ...................... -- 23
--- ---
Total .................................... $711 872
==== ===
Effective January 1, 2001, the Board of Directors approved the combining of
the ESOP with the Company's 401(k) Plan to form a new Plan, the KSOP.
(See Note 15). In connection therewith, the Company makes quarterly
profit-sharing contributions in amounts approved by the Board, and
those contributions are allocated to the accounts of participating
employees on a quarterly basis. Company contributions under the KSOP
vest after five years of service. For 2001, the Board approved
profit-sharing contributions equal to four percent (4%) of the Bank's
operating net income, which were made after each quarter based on the
actual results of the preceding quarter. During the year ended
December 31, 2001, the Company made profit sharing contributions
totaling $231,000 to the KSOP. The Plan allows the Company to fund
such KSOP contributions by either issuing shares, or purchasing the
required number of shares on the open market. As these shares are
allocated on a quarterly basis, the Company records compensation
expense, and either an offsetting credit to capital (in the event that
new shares are issued) or to cash (in the event that shares are
purchased on the open market), equal to the current market price of
the shares. The shares become outstanding for income per share
computations when allocated.
Recognition and Retention Plan. The Company adopted, and the shareholders
approved, an RRP for directors, officers and employees to enable the
Bank to attract and retain experienced and capable personnel. On
January 4, 1994, the conversion date, 184,122 shares of common stock
were purchased for the RRP which included 8,067 shares reserved for
future directors, officers and employees. The shares were granted in
the form of restricted stock to be earned in three equal annual
installments beginning April 4, 1995. The RRP shares purchased in the
conversion initially were excluded from stockholders' equity. The
Company recognized compensation expense in the amount of the fair
market value of the common stock at the grant date of $6 per share,
pro rata over the years (1996, 1995 and 1994) during which the shares
were earned and payable and recorded a credit to stockholders' equity.
The shares are entitled to all voting and other shareholder rights,
except that the shares, while restricted, cannot be sold, pledged or
otherwise disposed of, and are required to be held in escrow.
48
If a holder of restricted stock under the RRP terminated employment for
reasons other than death, disability, retirement or change of control
in the Company, such employee forfeited all rights to any allocated
shares which are still restricted. If termination is caused by death,
disability, retirement or change in control of the Company, all
allocated shares become unrestricted. Forfeitures are reallocated to
eligible participants annually. At December 31, 2001, 2,735 shares
remain reserved for future directors, officers and employees.
(17) Stock Repurchase Program
In September 1998, the Company's Board of Directors approved a program
which allowed the Company to acquire 369,285 shares of common stock in
the open market. During 2001, 2000, 1999 and 1998, the Company
repurchased 19,936, 95,562, 147,102 and 32,025 shares, respectively or
5.4%, 25.9%, 39.8% and 8.7%, respectively under this program. At
December 31, 2001, the Company can still repurchase an additional
74,660 shares under this program.
(18) Dividend Reinvestment Plan
On January 7, 2000, the Company established a Dividend Reinvestment Plan
(the "DRP"). The DRP was approved by the Board of Directors on
December 30, 1999 and is intended to provide stockholders of record of
at least 50 shares with a convenient and economical way to
automatically reinvest all or a portion of their cash dividends and to
invest optional cash payments, subject to minimum and maximum purchase
limitations, in additional shares of common stock. Stockholders pay no
service charges or brokerage commissions for common stock purchased
under the DRP. During the years ended December 31, 2001 and 2000,
19,341 and 19,969 shares of common stock, respectively, were purchased
under the DRP of which 0 and 9,968 were new shares issued by the
Company and 19,341 and 10,001 shares were purchased in the open
market, respectively in these periods.
(19) Parent Company Only Financial Statements
Condensed financial statements of the Holding Company as of December 31,
2001 and 2000 and for each of the years in the three-year period ended
December 31, 2001 are presented below. Amounts shown as cash,
investment in subsidiaries, loans to subsidiaries and equity in
earnings of subsidiaries are eliminated in consolidation.
Condensed Balance Sheets
At December 31,
---------------
2001 2000
---- ----
(In thousands)
Assets
Cash, deposited with subsidiary ................... $ 1,474 668
Investment in subsidiaries ........................ 60,113 56,130
Loans to subsidiaries ............................. 2,500 2,500
----- -----
Total assets ............................. $64,087 59,298
======= ======
Liabilities and Stockholders' Equity
Accrued expense and other liabilities ............. 19 15
Stockholders' equity .............................. 64,068 59,283
------ ------
Total liabilities and stockholders' equity $64,087 59,298
======= ======
49
Condensed Statements of Income
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Revenues ....................................... $ 130 179 261
Expenses ....................................... (160) (170) (190)
(Loss) income before earnings of subsidiaries (30) 9 71
Earnings of subsidiaries .................... 6,319 5,300 5,331
----- ----- -----
Net income .................................. $ 6,289 5,309 5,402
======= ===== =====
Condensed Statements of Cash Flows
Year Ended December 31,
2001 2000 1999
---- ---- ----
(In thousands)
Cash flows from operating activities:
Net income ...................................................... $ 6,289 5,309 5,402
Adjustments to reconcile net income to net cash (used in)
provided by operations:
Equity in earnings of subsidiaries .......................... (6,319) (5,300) (5,331)
Increase (decrease) in accrued expenses and other liabilities 4 (1) 13
------ ------ ------
Net cash (used in) provided by operating activities .... (26) 8 84
------ ------ ------
Cash flows from investing activities:
Investment in subsidiaries .................................. (5) -- --
Cash dividends received from subsidiaries ................... 2,700 2,500 --
Repayment of loans to subsidiaries .......................... -- 316 3,315
------ ------ ------
Net cash provided by investing activities .............. 2,695 2,816 3,315
------ ------ ------
Cash flows from financing activities:
Purchase of treasury stock .................................. (362) (1,264) (2,596)
Proceeds from issuance of stock ............................. 345 343 453
Cash dividends paid ......................................... (1,846) (1,716) (1,600)
------ ------ ------
Net cash used in financing activities .................. (1,863) (2,637) (3,743)
------ ------ ------
Net increase (decrease) in cash ...................................... 806 187 (344)
Cash at beginning of year ............................................ 668 481 825
------ ------ ------
Cash at end of year .................................................. $ 1,474 668 481
======= === ===
50
(20) Quarterly Financial Data (Unaudited) The following tables present
summarized quarterly data (in thousands, except per share amounts):
Year Ended December 31, 2001
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Interest income ................... $13,979 14,344 14,429 14,289 57,041
Interest expense .................. 8,921 9,149 9,062 8,184 35,316
----- ----- ----- ----- ------
Net interest income ............... 5,058 5,195 5,367 6,105 21,725
Provision for loan losses ......... 275 325 225 290 1,115
--- --- --- --- -----
Net interest income after provision
for loan losses .............. 4,783 4,870 5,142 5,815 20,610
Noninterest income ................ 471 537 560 649 2,217
Noninterest expense ............... 2,963 3,052 3,201 3,625 12,841
----- ----- ----- ----- ------
Income before income taxes ........ 2,291 2,355 2,501 2,839 9,986
Income taxes ...................... 859 882 936 1,020 3,697
--- --- --- ----- -----
Net income ........................ $ 1,432 1,473 1,565 1,819 6,289
======= ===== ===== ===== =====
Basic income per common share ..... $ .41 .41 .44 .51 1.77
======= ===== ===== ===== =====
Diluted income per common share ... $ .40 .40 .43 .50 1.73
======= ===== ===== ===== =====
Year Ended December 31, 2000
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Interest income ................... $11,120 11,862 12,833 13,535 49,350
Interest expense .................. 6,395 7,016 8,013 8,641 30,065
----- ----- ----- ----- ------
Net interest income ............... 4,725 4,846 4,820 4,894 19,285
Provision for loan losses ......... 200 260 210 210 880
--- --- --- --- ---
Net interest income after provision
for loan losses .............. 4,525 4,586 4,610 4,684 18,405
Noninterest income ................ 403 443 413 423 1,682
Noninterest expense ............... 2,756 2,791 2,888 2,979 11,414
----- ----- ----- ----- ------
Income before income taxes ........ 2,172 2,238 2,135 2,128 8,673
Income taxes ...................... 855 861 828 820 3,364
--- --- --- --- -----
Net income ........................ $ 1,317 1,377 1,307 1,308 5,309
======= ===== ===== ===== =====
Basic income per common share ..... $ .37 .39 .37 .37 1.50
======= ===== ===== ===== =====
Diluted income per common share ... $ .36 .38 .36 .36 1.46
======= ===== ===== ===== =====
51
FFLC BANCORP, INC.
(Parent Company of First Federal Savings Bank of Lake County and Subsidiary and
First Alliance Title, LLC)
Leesburg, Florida
Audited Consolidated Financial Statements
At December 31, 2001 and 2000
and for each of the Years in the
Three-Year Period Ended December 31, 2001
(Together with Independent Auditors' Report)
Independent Auditors' Report
The Board of Directors
FFLC Bancorp, Inc.
Leesburg, Florida:
We have audited the accompanying consolidated balance sheets of FFLC
Bancorp, Inc. and Subsidiaries (the "Company") as of December 31, 2001 and 2000
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2001 and 2000 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
HACKER, JOHNSON & SMITH PA
Orlando, Florida
January 11, 2002
52
AUDITED FINANCIAL STATEMENTS
FFLC BANCORP, INC.
DIRECTORS AND OFFICERS
Directors: Occupation
- ---------- ----------
Claron D. Wagner
Chairman of the Board President, Woody Wagner, Inc.
James P. Logan
Vice Chairman President/Owner, Logan Sitework Contractors, Inc.
Joseph J. Junod
Ted R. Ostrander, Jr. Retired, General Manager, Avesta Sheffield Pipe
H.D. Robuck, Jr. President, Lassiter-Ware, Inc.
Howart H. Hewitt Attorney; CEO, Ro-Mac Lumber & Supply, Inc.
Stephen T. Kurtz President/Owner, Hewitt Construction Company
Paul K. Mueller President, FFLC Bancorp, Inc. & Subsidiaries
Executive Vice President, FFLC Bancorp, Inc. &
Subsidiaries
Advisory Directors:
- -------------------
James R. Gregg President, Jarol Company
James H. Herlong General Partner, A.S. Herlong, Ltd.
Horace D. Robuck President, Ro-Mac Lumber & Supply, Inc.
Officers:
- ---------
Stephen T. Kurtz
President and Chief Executive Officer
Paul K. Mueller
Executive Vice President and Treasurer
Sandra L. Rutschow
Vice President and Secretary
53
FIRST FEDERAL SAVINGS BANK
OF LAKE COUNTY
DIRECTORS, OFFICERS AND MANAGERS
DIRECTORS
- ---------
Claron D. Wagner Donna Boyett
Chairman of the Board Assistant Vice President and Branch
Operations Coordinator
James P. Logan
Vice Chairman Norma Caron
Assistant Vice President and Checking Department Manager
Joseph J. Junod
Ted R. Ostrander, Jr. James M. Combs
H.D. Robuck, Jr. Assistant Vice President and Indirect Loan Manager
Howard H. Hewitt
Stephen T. Kurtz Lori Farfaglia
Paul K. Mueller Assistant Vice President and Fruitland Park Branch Manager
Advisory Directors Janet B. Farrar
Assistant Vice President and Branch
James R. Gregg Operations Coordinator
James H. Herlong
Horace D. Robuck Penny Hollis
Assistant Vice President and Compliance Officer
OFFICERS
Cindy Lay
Stephen T. Kurtz Assistant Vice President and Data Manager &
President MIS Coordinator
Chief Executive Officer
Charles L. Lee
Paul K. Mueller Assistant Vice President and Security Officer
Executive Vice President
and Treasurer Marilyn Leugers
Assistant Vice President and Main Office Branch Manager
Dwight L. Hart
Senior Vice President and Mortgage Loan Manager Sandra A. Rowe
Assistant Vice President and Loan Servicing Manager
Joseph D. Cioppa
Senior Vice President and Commercial Loan Manager Leigh S. Skehan
Assistant Vice President and Marketing Officer
Paul S. Allen
Senior Vice President, Audit, Planning and Budget John Beaulieu
Investment Officer
Jay Bartholomew
Senior Vice President and Retail Banking Manager Craig S. Cannon
Bushnell Branch Manager
Brenda M. Grubb
Senior Vice President and Human Resources Manager James R. Cummings
Collections Manager
Susan L. Berkebile
Vice President and Area Loan Manager Cindy Deeb
Citrus Ridge Office Manager
Michael J. Cox
Vice President and Area Loan Manager Karen A. Dixon
Inverness Loan Officer
Jankie Dhanpat
Vice President, SEC Reporting & Controller Dee Dee Dye
Lady Lake Office Manager
James D. Haug
Vice President and Lady Lake Branch Manager Craig Dykstra
Investment Officer
Lawrence E. Hoag
Vice President and Operations Manager Amy L. Eckert
Business Development Officer
Stephanie Hodges
Vice President and Secondary Market Manager Cinda Franklin
Citrus Ridge Branch Manager
Brian R. Hofer
Vice President and Commercial Loan Officer Gregory F. Heckler
Main Street Office Manager
Karen Hollister
Vice President and Loan Operations Manager Doris E. Hyatt
Loan Closing Manager & Assistant Secretary
Tara Keane
Vice President and Eustis Branch Manager Mark Lachowicz
Inverness Office Manager
B. Stan McCullars, Jr.
Vice President Finance Hilda Lozano
Eustis Office Manager
Dennis R. Rogers
Vice President, Wildwood Branch Manager and Michael J. Price
Area Loan Manager Eustis Loan Officer
Sandra L. Rutschow Leslie Rocha
Vice President and Corporate Secretary Clermont Office Manager
Sandra L. Seaton Pamela Self
Vice President and South Leesburg Branch Manager Fruitland Park Office Manager
Raynard S. (Ray) Taylor Carol A. Sieder
Vice President and Commercial Loan Officer South Leesburg Office Manager
Phil Tompetrini Catherine M. Wallin
Vice President and Inverness Branch Manager Lake Square Office Manager
Tara Wainwright Bob Wedlock
Vice President and Clermont Branch Manager Information Technology Manager
Lynda F. Wemple Betty Wolcott
Vice President and Accounting Manager Facilities & Purchasing Manager
Vickie S. Baxter Sylvie Zimmerman
Assistant Vice President and Loan Officer Wildwood Office Manager
Victoria M. Boren
Assistant Vice President and Deposit Administrator
54
FIRST FEDERAL SAVINGS BANK OF LAKE COUNTY
is Proud of the Outstanding Service its
Employees Provide to the Community and the People it Serves
MAIN OFFICE & ADMINISTRATION:
Paul S. Allen Jennette L. Roode Misty A. Greene
Emily C. Ashline Landa A. Rossman Brian R. Hofer
Talera Baker Sandra A. Rowe Janna R. Mitchell
Patricia A. Baldwin Sandra L. Rutschow Fay E. Phillips
Jay R. Bartholomew James Schaeffer Leslie A. Rocha
Vickie S. Baxter Dorene K. Shahan Sharon M. Slack
Victoria M. Boren Brandi L. Shaw Tara H. Wainwright
Barbara Boscana Margaret M. Siegel Darla Jean Williams
Donna L. Boyett Claire M. Smith
Deena M. Bryant Jill S. Spires EUSTIS OFFICE:
Norma J. Caron Lynn P. Stoffel
Maryann D. Chantos Raynard S. Taylor Amanda L. Collier
Shu Een Chen-Noble Michelle M. Thompson Michael Cox
Constance P. Christian Virginia D. Vann Vivian R. Curry
Joseph D. Cioppa Mary T. Walsh Tara A. Keane
Tina R. Clancy Robert R. Wedlock Hilda Lozano
Sheila C. Coffey Lynda F. Wemple Natasha L. Pender
Carlos E. Colon Margaret R. White Michael J. Price
James M. Combs Rhonda L. Wilkerson Natalie L. Rice
Diane S. Cook Joyce L. Williams Carolyn A. Rodgers
Judith A. Cook Betty L. Wolcott Tamika J. Rolle
Barbara A. Cordes Lisa K. Woolwine Juanita L. Taylor
Jewel M. Correll Jeffrey W. Wright Sharlene M. Willis
Robert Cumm Catherine J. Wrobleski Karen E. Wright
Jason A. Davis
Cheryl A. Davis FRUITLAND PARK OFFICE: WILDWOOD OFFICE:
Dawn Rene Davison
Ginger L. Devine Lori M. Farfaglia Dana L. Fields
Jankie Dhanpat Charlana M. Fenwick Linda Gallop
Alma H. Dunbar Kimberly L. Jones Latahna J. Green
Mary A. Durre Cynthia M. Page Sophia A. Hamilton
Martha M. Duty Pamela Self Crystal L. House
Craig A. Dykstra Jennifer A. Strow Jennifer L. McDowell
Amy L. Eckert Delphine C. Williams Dennis R. Rogers
Janet B. Farrar Crystal L. Thompson
Linda S. Finn LADY LAKE OFFICE: Cathy H. Watson
Ruth E. Franzoni Sylvie M. Zimmerman
Terry J. French Jamie L. Abbott
Joan P. Gibson John A. Beaulieu SOUTH LEESBURG OFFICE:
Linda J. Giggey Karen L. Bednarik
Zoann Goodman Sonja K. Craig Janis L. Brown
Jennifer Grovesteen Estelle E. Crawley Sandra L. Seaton
Brenda M. Grubb Deedee A. Dye Carol A. Sieder
Dwight L. Hart James D. Haug Brandi M. Simko
Lawrence E. Hoag Constance L. Merrell-Kasch Eva J. Snead
Stephanie Hodges Brenda A. Simmons Catherine N. Williams
Carol B. Holley Patricia L. Sizemore Paula D. Williams
Penny M. Hollis Heather L. Varner
Karen L. Hollister Vanessa D. Wall INVERNESS:
Rebecca B. Huffman Betty T. Woods
Mary C. Hurst Karen A. Dixon
Doris E. Hyatt MAIN STREET OFFICE: Jamie R. Hemmendinger
Patricia B Inman Teresa A. Kuechle
Bobby H. Inscoe Kari K. Caulk Mark Lachowicz
Juanita F. Jackson Brandy A. Dawkins Judith Lamontagne
Jennifer D. Jennings Debra L. Eastwood Jean Reese
Sondra Jones Gregory F. Heckler Lillian G. Russo
Kenneth G. Kramer Cynthia A. Lord Phil P. Tompetrini
Stephen T. Kurtz Angela N. Phillips
Linda N. Landers Kristin E. Young CITRUS RIDGE:
Nancy J. Lane
Linda B. Law LAKE SQUARE Stephany M. Barr
Cynthia M. Lay MALL OFFICE: Cynthia M. Deeb
Leslie A. Leach Cinda K. Franklin
Charles L. Lee Melissa R. Adams Christine M. Martinez
Betty J. Leech Christin M. King Erma R. Moore
Marilyn A. Leugers Shannon J. Peters Sarah L. Williams
Angie R. Liston Regina D. Shiver
Margaret H. Locke Catherine M. Wallin
B. Stan McCullars Jr. BUSHNELL:
Annette McCullough CLERMONT OFFICE:
Tammy Mizell Elaine Buzzerd
Erika R. Morgan Susan Lynn Berkebile Craig S. Cannon
Keri L. Morris Dena M. Castro Betty J. Hewett
Paul K. Mueller Paula N. Coffman Natalie D. Langford
John R. Nelson Lynda S. Cole Megan L. Marsh
Marquisa L. Parham Zaida I. Colon Inge Pelfrey
Tricka M. Parker Birgit M. Fox
Connie J. Rhodes Donna L. Franklin
Natalie J. Rojas Judy L. Garafola
55