FFLC BANCORP, INC.
2002 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 .........................................21-53
Independent Auditors' Report..................................................54
Directors and Officers of FFLC Bancorp, Inc. .................................55
Directors and Officers of First Federal Savings Bank of Lake County...........56
Employees ....................................................................57
Inside Cover
3
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, chartered in 1934,
which offers a variety of financial services to individuals and businesses
primarily located in Lake County, Sumter County, Citrus County and Marion
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. During 2002, the
Holding Company formed FFLC Statutory Trust I, a wholly-owned subsidiary for the
sole purpose of issuing $5,000,000 of trust preferred securities.
CORPORATE ORGANIZATION
Holding Company
FFLC Bancorp, Inc.
Subsidiaries
First Federal Savings Bank of Lake County
First Alliance Title, LLC
FFLC Statutory Trust I
Bank's 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 8, 2003.
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, annual and quarterly reports and press releases are also
available at our Website, http://www.1stfederal.com/fflc.htm., in the "FFLC
Bancorp" section.
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: http://www.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
FIRST FEDERAL LOGO HERE
OFFICE LOCATIONS
MAP INSERT 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 21 of the
Consolidated Financial Statements for a summary of quarterly financial data.
Cash
Dividends
Paid
High Low Per Share
---- --- ---------
Quarter Ended:
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
March 31, 2002........................... 25.350 20.300 .14
June 30, 2002............................ 28.350 24.800 .14
September 30, 2002....................... 29.650 26.750 .14
December 31, 2002........................ 29.570 26.750 .14
As of January 31, 2003, the Company had 1,665 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: 2002 2001 2000
---- ---- ----
Total assets ...................................... $ 915,821 823,151 711,493
Loans, net ........................................ $ 735,338 685,935 615,484
Securities ........................................ $ 77,324 59,503 42,717
Deposits .......................................... $ 668,058 585,128 518,885
Equity ............................................ $ 71,062 64,068 59,283
Book value per share .............................. $ 19.83 17.98 16.78
Shares outstanding ................................ 3,583,275 3,563,932 3,532,561
Equity-to-assets ratio ............................ 7.76% 7.78% 8.33%
Nonperforming assets to total assets .............. .35% .28% .39%
FOR THE YEAR:
Interest income ................................... $ 56,533 56,485 49,128
Net interest income after provision for loan losses $ 25,205 20,054 18,183
Net income ........................................ $ 8,836 6,289 5,309
Basic income per share ............................ $ 2.47 1.77 1.50
Diluted income per share .......................... $ 2.42 1.73 1.46
Loan originations ................................. $ 323,728 257,862 188,141
Return on average assets .......................... 1.00% .82% .82%
Return on average equity .......................... 13.05% 10.20% 9.24%
Average equity to average assets ratio ............ 7.67% 8.05% 8.88%
Noninterest expense to average assets ............. 1.68% 1.68% 1.76%
YIELDS AND RATES:
Weighted Average
Rate or Yield Average Rate or Yield During
at December 31, Year Ended December 31,
------------------------------ ------------------------------
2002 2001 2002 2001 2000
---- ---- ---- ---- ----
Loans ............................................. 7.10% 7.61% 7.28% 7.99% 8.08%
Securities.............................................. 4.45% 5.16% 3.76% 5.84% 6.47%
All interest-earning assets ............................ 6.52% 7.17% 6.73% 7.71% 7.94%
Deposits................................................ 2.84% 3.85% 3.27% 4.95% 5.07%
All interest-bearing liabilities ....................... 3.29% 4.22% 3.72% 5.15% 5.28%
Interest-rate spread (1)................................ 3.23% 2.95% 3.01% 2.56% 2.66%
Net yield on average interest-earning assets (2)........ N/A N/A 3.22% 2.89% 3.08%
(1) Average yield on all interest-earning assets less average rate paid on all
interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
3
LOGO HERE
Dear Stockholders:
I am pleased to report that 2002 was a solid year for your Company. In spite of
an uncertain economy, we enjoyed a successful year, both in terms of the growth
of the Bank and in operating earnings. During 2002, 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 $915 million.
Our success results from a team effort, and I want to take this opportunity to
thank all of you - our stockholders, our employees, our customers, and our
communities - for your efforts and support as we moved through 2002 and into
2003.
The Company's net income from operations increased 40%, from $6.3 million in
2001 to $8.8 million in 2002. On a diluted basis, net income per share increased
39% from $1.73 for 2001 to $2.42 for 2002. The increase in net income from
operations was primarily due to the significant decrease in the cost of funds
that the Bank experienced, as a result of the continued reductions in market
interest rates that began in 2001.
In January 2003, your Board of Directors approved a 7% increase in the quarterly
cash dividend, to $.15 per common share, from the $.14 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
February, 2003, the Board approved a 3-for-2 split of our common stock, in the
nature of a stock dividend. Stockholders will receive one additional share of
common stock for every two shares held as of the close of business on February
28, 2003, which is the record date of the split. The payable date for the stock
split dividend is March 14, 2003.
It is gratifying to note that our stock price rose over 42% during 2002, from
$20.75 to $29.57. Since our initial public offering in 1994, our stock has
yielded an average annual return, including dividends, of 20.85%. 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.
Asset growth continues to be an important focal point for the Company. The
Company's total assets grew 11%, from $823 million at December 31, 2001 to $916
million at December 31, 2002. During 2002, loans receivable grew 7%, from $686
million to $735 million. During 2002, the Bank's loan originations totaled
$323.7 million, compared to $257.9 million in 2001. The Bank originated $148.3
million in residential loans, $95.1 million in commercial loans and $80.3
million in consumer loans in 2002. As reflected in our financial statements,
those volume levels, as well as the increases in our cash and investment
securities reflect significant increases over our results from fiscal 2001. In
reviewing our financial statements, you will see that the Company's asset growth
was funded primarily by an increase in the Bank's deposits. We are particularly
pleased that, during 2002, the Bank's deposits grew 14% with a substantial
portion of that growth in checking and other non-certificate of deposit
accounts.
The Company's continued success and growth is the result of team effort by our
employees to keep pace with the growth of our communities and the increasing
competition in the financial services sector. In order to ensure that our
customers have sufficient physical locations at which to conduct banking
transactions, we have continued to expand our branch structure. During 2002, we
opened branches at two new locations, relocated two branches to larger sites,
and added one remote ATM location. We have plans to open two new branch
locations in 2003.
4
Our customers continue to indicate a desire to conduct banking transactions
electronically, and I am very pleased to report that First Federal Online
Banking, our Internet banking solution, has continued to enjoy support from both
our retail and commercial customers. We currently have over 2,900 registered
users of our online banking service, which represents an increase over last year
of approximately 61%.
If you have not had a chance to check out First Federal Online Banking, I
encourage you to visit our website, www.1stfederal.com, and click the "Test
Drive" button. I believe you will be pleased 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.
Our customers have also welcomed our efforts to provide other financial
services. We have been pleased with the positive feedback and customer
acceptance of 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. We
began offering these services in 2001, and have been pleased with the growth in
this area of the Bank's operations. We also continue to offer trust services to
our customers, provided by the Trust Department of the First National Bank of
Mount Dora under a referral agreement. In addition to these services, First
Alliance Title, LLC, a 90% owned subsidiary of FFLC Bancorp, Inc., was formed to
operate as a title agency, and we have begun to offer title agency services on a
limited basis, primarily for construction loans.
I also want to take this opportunity to renew our commitment to honesty and
integrity - in light of the disturbing examples of poor corporate governance so
widely reported in the national press over recent months, I want you to know of
our unrelenting commitment to the highest standards of ethics, fair and honest
reporting, and sound corporate oversight on which this Company was founded and
on which we continue to operate. We have carefully reviewed the unfolding of
these stories, and the resulting laws and regulations that have been issued, and
believe we are in compliance with all of those guidelines. We appreciate the
trust that you have placed in us over the past years, and will strive in every
way to continue to be worthy of that trust.
Community banking very much remains a "people" business. We are blessed to have
a number of Directors and staff members who have been associated with the Bank
for many years. Also, many new employees have joined the Bank with extensive
banking experience in our market area. It is my belief that our team is second
to none in terms of providing our customers with quality 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, the personal growth needs of
our employees 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
First Federal Logo Here
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 make payroll
direct deposit payments 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
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,
---------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total assets.......................................... $ 915,821 823,151 711,493 590,432 463,820
Loans, net ........................................... 735,338 685,935 615,484 500,901 389,059
Cash and cash equivalents............................. 69,394 49,792 30,481 34,339 22,928
Securities ........................................... 77,324 59,503 42,717 36,909 40,392
Deposits ........................................... 668,058 585,128 518,885 429,274 351,030
Borrowed funds........................................ 168,303 167,327 129,376 102,914 56,789
Stockholders' equity.................................. 71,062 64,068 59,283 55,637 53,223
For the Year Ended December 31,
--------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Interest income....................................... $ 56,533 56,485 49,128 38,383 31,870
Interest expense...................................... 29,483 35,316 30,065 21,214 17,271
Net interest income................................... 27,050 21,169 19,063 17,169 14,599
Provision for loan losses............................. 1,845 1,115 880 719 682
Net interest income after provision for loan losses... 25,205 20,054 18,183 16,450 13,917
Noninterest income (1)................................ 3,776 2,773 1,904 1,675 1,567
Noninterest expense................................... 14,868 12,841 11,414 10,313 8,446
Income before income taxes (1)........................ 14,113 9,986 8,673 7,812 7,038
Income taxes (1)...................................... 5,277 3,697 3,364 2,962 2,641
Net income (1)........................................ 8,836 6,289 5,309 4,850 4,397
Basic income per share (1)............................ $ 2.47 1.77 1.50 1.37 1.22
Weighted average number of common
shares outstanding for basic.................... 3,573,665 3,547,764 3,541,400 3,548,568 3,592,253
Diluted income per share (1).......................... $ 2.42 1.73 1.46 1.32 1.16
Weighted average number of common shares
outstanding for diluted......................... 3,644,586 3,629,432 3,615,740 3,677,038 3,777,085
- --------------------------
(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,
-----------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Return on average assets (5)................................. 1.00% 0.82% 0.82% 0.93% 1.05%
Return on average equity (5)................................. 13.05% 10.20% 9.24% 8.88% 8.37%
Dividend payout ratio ....................................... 22.66% 29.35% 32.32% 28.95% 29.51%
Average equity to average assets............................. 7.67% 8.05% 8.88% 10.45% 12.52%
Total equity to total assets................................. 7.76% 7.78% 8.33% 9.42% 11.47%
Interest rate spread during year(1).......................... 3.01% 2.56% 2.66% 2.98% 3.01%
Net interest margin (2)...................................... 3.22% 2.89% 3.08% 3.44% 3.61%
Nonperforming assets to total assets (3)..................... 0.35% 0.28% 0.39% 0.47% 0.17%
Nonperforming loans to total loans (4)....................... 0.34% 0.27% 0.40% 0.46% 0.11%
Allowance for loan losses to non-performing loans............ 199.88% 224.20% 141.51% 119.01% 514.19%
Allowance for loan and REO
losses to nonperforming assets......................... 161.00% 187.62% 127.49% 101.77% 281.85%
Allowance for loan losses to gross loans..................... 0.68% 0.61% 0.56% 0.54% 0.57%
Noninterest expenses to average assets....................... 1.68% 1.68% 1.76% 1.97% 2.01%
Operating efficiency ratio (5)............................... 48.23% 53.63% 54.44% 54.73% 52.25%
Average interest-earning assets to
average interest-bearing liabilities................... 1.06 1.07 1.09 1.11 1.14
Net interest income to noninterest expenses.................. 1.82 1.69 1.69 1.69 1.76
Total shares outstanding..................................... 3,583,275 3,563,932 3,532,561 3,583,938 3,655,620
Book value per common share outstanding...................... $ 19.83 17.98 16.78 15.52 14.56
Number of banking offices (all full-service)................. 14 12 12 12 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).
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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, Citrus
and Marion 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 40.5% to $8.8 million for the
year ended December 31, 2002 from $6.3 million for the year 2001. The Bank's
total assets increased 11.3% to $915.8 million at December 31, 2002 from $823.2
million at December 31, 2001. That increase resulted primarily from a 7.2%
increase in net loans to $735.3 million at December 31, 2002 from $685.9 million
at December 31, 2001, reflecting increased local loan demand. Securities
increased 29.9% or $17.8 million during 2002. Deposits increased 14.2% to $668.1
million at December 31, 2002 from $585.1 million at December 31, 2001. Advances
from the Federal Home Loan Bank decreased $5.0 million, to $149.0 million at
December 31, 2002 from $154.0 million at December 31, 2001. The Company also
raised $5.0 million through the issuance of trust preferred securities through
its newly formed subsidiary FFLC Statutory Trust I.
CRITICAL ACCOUNTING POLICIES
Our financial condition and results of operations are sensitive to accounting
measurements and estimates of matters that are inherently uncertain. When
applying accounting policies in areas that are subjective in nature, we use our
best judgment to arrive at the carrying value of certain assets. The most
critical accounting policy we applied is related to the valuation of the loan
portfolio.
A variety of factors impact carrying value of the loan portfolio including the
calculation of the allowance for loan losses, valuation of underlying
collateral, the timing of loan charge-offs and the amount and amortization of
loan fees and deferred origination costs.
10
The allowance for loan losses is the most difficult and subjective judgment. The
allowance is established and maintained at a level that we believe is adequate
to cover losses resulting from the inability of borrowers to make required
payments on loans. Estimates for loan losses are arrived at by analyzing risks
associated with specific loans and the loan portfolio, current trends in
delinquencies and charge-offs, the views of our regulators, changes in the size
and composition of the loan portfolio and peer comparisons. The analysis also
requires consideration of the economic climate and direction, change in the
interest rate environment, which may impact a borrower's ability to pay,
legislation impacting the banking industry and economic conditions specific to
our service area. Because the calculation of the allowance for loan losses
relies on estimates and judgments relating to inherently uncertain events,
results may differ from our estimates.
The allowance for loan losses is also discussed as part of "Results of
Operations" and in Note 3 to the consolidated financial statements. The
significant accounting policies are discussed in Note 1 to the consolidated
financial statements.
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, 2002, 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.
11
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.
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, 2002. 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,
------------------------------------------------------------------------------------
2002 2001
------------------------------------------------------------------------------------
Yield At Interest Average Interest
December 31, Average and Yield/ Average and
2002 Balance Dividends Cost Balance Dividends
Interest-earning assets:
Loans......................... 7.10% $721,521 52,496 7.28% $655,306 52,384
Securities......................... 4.45 79,757 3,002 3.76 49,709 2,901
Other interest-earning assets (1).. 1.77 38,186 1,035 2.71 27,837 1,200
------- ------- ------- ------
Total interest-earning assets. 6.52 839,464 56,533 6.73 732,852 56,485
------ ------
Noninterest-earning assets............. 43,409 32,885
-------- --------
Total assets.................. $882,873 $765,737
======= =======
Interest-bearing liabilities:
NOW and money market
accounts........................ .85 131,538 1,449 1.10 97,574 2,278
Passbook and statement savings
accounts........................ .82 23,501 216 .92 20,121 359
Certificates....................... 3.54 460,206 18,461 4.01 419,923 23,959
FHLB advances...................... 5.40 160,235 8,999 5.62 136,041 8,257
Other borrowings................... 5.08 16,915 358 2.12 11,842 463
------- ------ ------- ------
Total interest-bearing
liabilities................. 3.29 792,395 29,483 3.72 685,501 35,316
------ ------
Noninterest-bearing deposits........... 13,655 13,683
Noninterest-bearing liabilities........ 9,122 4,911
Stockholders' equity................... 67,701 61,642
------- -------
Total liabilities and equity.. 882,873 $765,737
======= =======
Net interest-earning assets and
interest-rate spread (2)........... 3.23% $ 47,069 3.01% $ 47,351
==== ======= ==== =======
Net interest income and net
margin (3)......................... $ 27,050 3.22% $21,169
====== ==== ======
======
Ratio of interest-earning assets
to interest-bearing liabilities.... 1.06 1.07
==== ====
Year Ended December 31,
---------------------------------------------------
2001 2000
---------------------------------------------------
Average Interest Average
Yield/ Average and Yield/
Cost Balance Dividends Cost
Interest-earning assets:
Loans......................... 7.99% $562,392 45,434 8.08
Securities........................ 5.84 37,382 2,417 6.47
Other interest-earning assets (1). 4.31 19,026 1,277 6.71
------- ------
Total interest-earning assets 7.71 618,800 49,128 7.94
------
Noninterest-earning assets............ 28,090
------
Total assets................. $646,890
========
Interest-bearing liabilities:
NOW and money market
accounts....................... 2.33 82,710 2,182 2.64
Passbook and statement savings
accounts....................... 1.78 20,179 421 2.09
Certificates...................... 5.71 356,219 20,672 5.80
FHLB advances..................... 6.07 104,647 6,497 6.21
Other borrowings.................. 3.91 5,729 293 5.11
------- ------
Total interest-bearing
liabilities................ 5.15 569,484 30,065 5.28
------
Noninterest-bearing deposits.......... 13,221
Noninterest-bearing liabilities....... 6,756
Stockholders' equity.................. 57,429
-------
Total liabilities and equity. $646,890
=======
Net interest-earning assets and
interest-rate spread (2).......... 2.56% $ 49,316 2.66
==== ======= ====
Net interest income and net
margin (3)........................ 2.89% $ 19,063 3.08
==== ====== ====
Ratio of interest-earning assets
to interest-bearing liabilities... 1.09
====
(1) Includes interest-bearing deposits 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,
2002 vs. 2001 2001 vs. 2000
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------------------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
($ in thousands)
Interest-earning assets:
Loans, net........................... $(4,706) 5,293 (475) 112 (506) 7,507 (51) 6,950
Securities........................... (1,030) 1,754 (623) 101 (235) 797 (78) 484
Other interest-earning (1)........... (445) 446 (166) (165) (457) 591 (211) (77)
------ ------ ------ ------ ------ ------ --- ------
Total......................... (6,181) 7,493 (1,264) 48 (1,198) 8,895 (340) 7,357
----- ----- ----- ------- ----- ----- --- -----
Interest-bearing liabilities:
NOW and money market accounts........ (1,203) 793 (419) (829) (251) 392 (45) 96
Passbook and statement savings
accounts......................... (174) 60 (29) (143) (61) (1) - (62)
Certificates......................... (7,114) 2,298 (682) (5,498) (348) 3,697 (62) 3,287
FHLB advances........................ (617) 1,469 (110) 742 (145) 1,949 (44) 1,760
Other borrowings..................... (212) 198 (91) (105) (69) 313 (74) 170
------- ------ ------ ------ ------- ------ ---- ------
Total......................... (9,320) 4,818 (1,331) (5,833) (874) 6,350 (225) 5,251
----- ----- ----- ----- ------ ----- --- -----
Net change in net interest
income ....................... $ 3,139 2,675 67 5,881 (324) 2,545 (115) 2,106
===== ===== ==== ===== ====== ===== === =====
- --------------------------------------
(1) Includes interest-bearing deposits 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, 2002, the Bank had outstanding commitments to originate $25.8
million of loans, to fund unused lines of credit of $51.8 million, to fund the
undisbursed portion of loans in process of $16.8 million and $1.5 million in
outstanding standby letters of credit. The Bank believes that it will have
sufficient funds available to meet its commitments. At December 31, 2002,
certificates of deposit which were scheduled to mature in one year or less
totaled $251.6 million. Management believes, based on past experience, that a
significant portion of those funds will remain with the Bank.
REGULATORY CAPITAL REQUIREMENTS
As a federally-chartered financial institution, the Bank is required to maintain
certain minimum amounts of regulatory capital. Regulatory capital is not a
valuation allowance and has not been created by charges against earnings. The
following table provides a summary of the capital requirements, the Bank's
regulatory capital and the amounts in excess at December 31, 2002:
Tangible Core Risk-Based
-------------------------------------------------------------------------
% of % of % of Risk-
Adjusted Adjusted Weighted
Amount Assets Amount Assets Amount Assets
($ in thousands)
Regulatory capital.......................... $ 71,139 7.78% $ 71,139 7.78% $ 75,645 12.66%
Requirement................................. 13,719 1.50 27,439 3.00 47,794 8.00
------ ---- ------ ---- ------ -------
Excess...................................... $ 57,420 6.28% $ 43,700 4.78% $ 27,851 4.66%
====== ==== ====== ==== ====== =====
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest-rate risk inherent in
its lending and deposit taking activities. The Company has little or no risk
related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages its interest rate risk exposure. The
primary objective in managing interest-rate risk is to limit, within established
guidelines, the adverse impact of changes in interest rates on the Company's net
interest income and capital, while adjusting the Company's asset-liability
structure to obtain the maximum yield-cost spread on that structure. Management
relies primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates could adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis.
Disclosure about the fair value of financial instruments, which reflect changes
in market prices and rates, can be found in Note 9 of the notes to the
consolidated financial statements.
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
15
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. 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, 2002, 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 13.04%. 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 is within a range established by the Board of Directors
and 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, 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
21.1% at December 31, 2002. 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, 2002 that are expected
to reprice, based upon certain assumptions and contractual maturities, 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
------- ------ ------ ----- ----- ----- ----- -----
($ in thousands)
Rate-sensitive assets:
Mortgage loans, net of LIP.. $ 174,913 90,200 130,061 142,840 27,343 6,982 364 572,203
Commercial and consumer
loans, net of LIP.......... 56,872 11,957 20,743 45,204 19,705 10,552 2,049 167,082
Mortgage-backed
securities................. 5,682 3,985 5,490 5,643 1,300 196 - 22,296
Interest-earning deposits... 49,237 - - - - - - 49,237
Investment securities....... 3,015 - 10,729 24,910 - - 7,000 45,654
Mutual funds................ 9,374 - - - - - - 9,374
FHLB stock ......... 7,700 - - - - - - 7,700
------- ------- ------- ------- ------- ------- ------- --------
Total interest-earning
assets................ 306,793 106,142 167,023 218,597 48,348 17,730 9,413 874,046
------- ------- ------- ------- ------- ------- ------- --------
Rate-sensitive liabilities:
Deposits:
Savings accounts........... 25,403 - - - - - - 25,403
NOW and money
market accounts......... 137,858 - - - - - - 137,858
Certificates............... 73,335 57,683 110,921 181,064 62,927 - - 485,930
Borrowed funds.............. 29,303 11,000 15,000 94,000 - 19,000 - 168,303
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities........... 265,899 68,683 125,921 275,064 62,927 19,000 - 817,494
------- ------- ------- ------- ------- ------- ------- -------
Interest-sensitivity gap....... $ 40,894 37,459 41,102 (56,467) (14,579) (1,270) 9,413 56,552
======= ======= ======= ======= ======= ======= ======= =======
Cumulative interest-
sensitivity gap............ $ 40,894 78,353 119,455 62,988 48,409 47,139 56,552
======= ======= ======= ======= ======= ======= =======
Cumulative interest-earning
assets..................... $ 306,793 412,935 579,958 798,555 846,903 864,633 874,046
======= ======= ======= ======= ======= ======= =======
Cumulative interest-bearing
liabilities................ $ 265,899 334,582 460,503 735,567 798,494 817,494 817,494
======= ======= ======= ======= ======= ======= =======
Cumulative interest-sensitivity
gap as a percentage of
total assets............... 4.47% 8.56% 13.04% 6.88% 5.29% 5.15% 6.18%
======= ======= ======= ======= ======= ======= =======
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities................ 115.38% 123.42% 125.94% 108.56% 106.06% 105.77% 106.92%
====== ====== ====== ====== ====== ======= =======
17
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER
31, 2001
General Operating Results. Net income for the year ended December 31, 2002
was $8.8 million, or $2.47 per basic share and $2.42 per diluted share,
compared to $6.3 million, or $1.77 per basic share and $1.73 per
diluted share, for the year ended December 31, 2001. That increase was
primarily due to an increase in net interest income of $5.9 million,
partially offset by a $2.0 million increase in noninterest expense.
Interest Income. Interest income increased $48,000 to $56.5 million for the
year ended December 31, 2002. The increase resulted from a $106.6
million or 14.5% increase in average interest-earning assets
outstanding for the year ended December 31, 2002 compared to 2001,
offset by a decrease in the average yield earned on interest-earning
assets from 7.71% for the year ended December 31, 2001 to 6.73% for the
year ended December 31, 2002.
Interest Expense. Interest expense decreased $5.8 million or 16.5%, from
$35.3 million for the year ended December 31, 2001 to $29.5 million for
the year ended December 31, 2002. The decrease was due primarily to a
decrease in the average cost of interest-bearing liabilities from 5.15%
for the year ended December 31, 2001 to 3.72% for 2002, partially
offset by increases of $77.6 million and $29.3 million in average
interest-bearing deposits and borrowings outstanding, respectively.
Average interest-bearing deposits increased from $537.6 million
outstanding during the year ended December 31, 2001 to $615.2 million
outstanding during 2002. Average borrowings increased from $147.9
million outstanding during the year ended December 31, 2001 to $177.2
million in 2002.
Provision for Loan Losses. The provision for loan losses is charged to
income to increase the allowance for loan losses to the level deemed
appropriate by management. The provision is based upon the volume and
type of lending conducted by the Company, charge-off experience,
industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to the Company's market area,
and other factors related to the collectibility of the Company's loan
portfolio. The Company recorded provisions for loan losses for the
years ended December 31, 2002 and 2001 of $1.8 million and $1.1
million, respectively. Net loans charged off for the years ended
December 31, 2002 and 2001 were $953,000 and $378,000, respectively.
Management believes that the allowance for loan losses, which was $5.2
million or .68% of gross loans at December 31, 2002 is adequate.
Noninterest Income. Noninterest income increased $1.0 million, or 36.2%
from $2.8 million for the year ended December 31, 2001 to $3.8 million
for 2002. That increase was primarily due to increases of $321,000 in
other service charges and fees and $360,000 in net gain on sales of
loans held for sale. The increase in gain on sales of loans held for
sale was due to an increase in the amount of residential mortgage loans
originated to be sold in the secondary market.
Noninterest Expense. Noninterest expense increased by $2.0 million or
15.8%, from $12.8 million for the year ended December 31, 2001 to $14.9
million for the year ended December 31, 2002. The increase was
primarily due to increases in salaries and employee benefits of $1.3
million and occupancy expense of $404,000 related to the overall growth
of the Company.
Income Tax Provision. The income tax provision was $5.3 million for the
year ended December 31, 2002 (an effective tax rate of 37.4%) compared
to $3.7 million (an effective tax rate of 37.0%) for the year ended
December 31, 2001.
18
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 $7.4 million,
partially offset by increases in interest expense of $5.3 million and
noninterest expense of $1.4 million.
Interest Income. Interest income increased $7.4 million or 15.0%, from
$49.1 million for the year ended December 31, 2000 to $56.5 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 7.94% for the
year ended December 31, 2000 to 7.71% 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 $869,000, or 45.6% for the
year ended December 31, 2001 compared to the year ended December 31,
2000 primarily due to an increase of $685,000 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 $3.7 million (an effective tax rate
of 37.0%) for the corresponding period for 2001.
19
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Bank's operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
20
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands, except per share amounts)
At December 31,
---------------
2002 2001
---- ----
Assets
Cash and due from banks......................................................... $ 20,157 19,609
Interest-bearing deposits....................................................... 49,237 30,183
-------- -------
Cash and cash equivalents........................................... 69,394 49,792
Securities available for sale................................................... 77,324 59,503
Loans, net of allowance for loan losses of $ 5,181 in 2002
and $4,289 in 2001.......................................................... 735,338 685,935
Accrued interest receivable:
Securities.................................................................. 811 718
Loans....................................................................... 3,370 3,475
Premises and equipment, net..................................................... 19,369 14,338
Foreclosed assets............................................................... 626 373
Federal Home Loan Bank stock, at cost........................................... 7,700 7,700
Deferred income taxes........................................................... 487 274
Other assets.................................................................... 1,402 1,043
------- -------
Total............................................................... $ 915,821 823,151
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits......................................... 18,867 14,334
NOW and money market accounts............................................... 137,858 111,961
Savings accounts............................................................ 25,403 24,093
Certificates................................................................ 485,930 434,740
-------
Total deposits...................................................... 668,058 585,128
Advances from Federal Home Loan Bank............................................ 149,000 154,000
Other borrowed funds............................................................ 14,303 13,327
Guaranteed preferred beneficial interest in junior subordinated debentures...... 5,000 -
Accrued expenses and other liabilities.......................................... 8,398 6,628
--------- -------
Total liabilities................................................... 844,759 759,083
------- -------
Commitments and contingencies (Notes 4, 9 and 12)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding........................................................ - -
Common stock, $.01 par value, 9,000,000 shares authorized,
4,574,944 in 2002 and 4,542,953 in 2001 shares issued................... 46 45
Additional paid-in-capital.................................................. 31,638 31,355
Retained income............................................................. 58,409 51,575
Accumulated other comprehensive income...................................... 636 440
Treasury stock, at cost (991,669 shares in 2002 and
979,021 shares in 2001)................................................. (19,667) (19,347)
------- -------
Total stockholders' equity.......................................... 71,062 64,068
------- -------
Total............................................................... $ 915,821 823,151
======= =======
See accompanying Notes to Consolidated Financial Statements.
21
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
($ in thousands, except per share amounts)
Year Ended December 31,
2002 2001 2000
---- ---- ----
Interest income:
Loans ................................................... $ 52,496 52,384 45,434
Securities available for sale ........................... 3,002 2,901 2,417
Other interest-earning assets ........................... 1,035 1,200 1,277
---------- ---------- ----------
Total interest income ............................... 56,533 56,485 49,128
---------- ---------- ----------
Interest expense:
Deposits ................................................ 20,126 26,596 23,275
Borrowed funds .......................................... 9,357 8,720 6,790
---------- ---------- ----------
Total interest expense .............................. 29,483 35,316 30,065
---------- ---------- ----------
Net interest income ................................. 27,050 21,169 19,063
Provision for loan losses ................................... 1,845 1,115 880
---------- ---------- ----------
Net interest income after provision for loan losses.. 25,205 20,054 18,183
---------- ---------- ----------
Noninterest income:
Deposit account fees .................................... 953 835 825
Other service charges and fees .......................... 1,900 1,579 894
Net gain on sales of loans held for sale ................ 403 43 7
Other ................................................... 520 316 178
---------- ---------- ----------
Total noninterest income ............................ 3,776 2,773 1,904
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits .......................... 8,814 7,554 6,681
Occupancy expense ....................................... 2,420 2,016 1,889
Deposit insurance premium ............................... 104 99 90
Advertising and promotion ............................... 492 410 328
Data processing expense ................................. 991 990 900
Professional services ................................... 432 386 297
Other ................................................... 1,615 1,386 1,229
---------- ---------- ----------
Total noninterest expense ........................... 14,868 12,841 11,414
---------- ---------- ----------
Income before income taxes .................................. 14,113 9,986 8,673
Income taxes ........................................ 5,277 3,697 3,364
---------- ---------- ----------
Net income .................................................. .$8,836 6,289 5,309
========== ========== ==========
Basic income per share of common stock ...................... $ 2.47 1.77 1.50
========== ========== ==========
Weighted-average number of shares outstanding for basic ..... 3,573,665 3,547,764 3,541,400
========== ========== ==========
Diluted income per share of common stock .................... $ 2.42 1.73 1.46
========== ========== ==========
Weighted-average number of shares outstanding for diluted . . 3,644,586 3,629,432 3,615,740
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
22
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 2002, 2001 and 2000
($ in thousands, except per share amounts)
Stock
Held
Common Stock By
---------------------------- Additional Incentive
Number of Paid-In Treasury Plan
Shares Amount Capital Stock Trusts
Balance at December 31, 1999 ........ 4,447,461 $ 44 30,273 (17,721) (316)
Comprehensive income:
Net income ..................... -- -- -- -- --
Change in unrealized losses
on securities available for
sale, net of income taxes
of $158 ...................... -- -- -- -- --
Comprehensive income ................
Net proceeds from the issuance of
common stock, stock options
exercised ...................... 34,217 1 210 -- --
Net proceeds from the issuance of
common stock under the
Dividend Reinvestment Plan ..... 9,968 -- 132 -- --
Shares committed to participants
in incentive plans (2,735 shares
remain uncommitted at
December 31, 2000) ............. -- -- 395 -- 316
Dividends paid ($.48 per share) ..... -- -- -- -- --
Purchase of treasury stock,
95,562 shares .................. -- -- -- (1,264) --
--------- --------- --------- --------- ---------
Balance at December 31, 2000 ........ 4,491,646 $ 45 31,010 (18,985) --
========= ========= ========= ========= =========
(continued)
Accumulated
Other Total
Retained Comprehensive Stockholder's
Income Income (Loss) Equity
Balance at December 31, 1999 ........ 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 $158 ...................... -- 263 263
------
Comprehensive income ................ 5,572
------
Net proceeds from the issuance of
common stock, stock options
exercised ...................... -- -- 211
Net proceeds from the issuance of
common stock under the
Dividend Reinvestment Plan ..... -- -- 132
Shares committed to participants
in incentive plans (2,735 shares
remain uncommitted at
December 31, 2000) ............. -- -- 711
Dividends paid ($.48 per share) ..... (1,716) -- (1,716)
Purchase of treasury stock,
95,562 shares .................. -- -- (1,264)
-----
Balance at December 31, 2000 ........ 47,132 81 59,283
====== ======== ======
(continued)
23
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity, Continued
Years Ended December 31, 2002, 2001 and 2000
($ in thousands, except per share amounts)
Accumulated
Common Stock Additional Other Total
Number of Paid-In Treasury Retained Comprehensive Stockholders
Shares Amount Capital Stock Income Income Equity
------ ------ ------- ----- ------ ------ ------
Balance at December 31, 2000 ............ 4,491,646 $ 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 $217 .......... -- -- -- -- -- 359 359
------
Comprehensive income .................... 6,648
------
Net proceeds from the issuance of
common stock, stock options
exercised .......................... 51,307 -- 345 -- -- -- 345
Dividends paid ($.52 per share) ......... -- -- -- -- (1,846) -- (1,846)
Purchase of treasury stock, 19,936
shares ............................. -- -- -- (362) -- -- (362)
- ----------------------------------------- --------- --------- ------ ------ ------ --------- ------
Balance at December 31, 2001 ............ 4,542,953 $ 45 31,355 (19,347) 51,575 440 64,068
========= ========= ====== ====== ====== ========= ======
(continued)
24
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity, Continued
Years Ended December 31, 2002, 2001 and 2000
($ in thousands, except per share amounts)
Accumulated
Common Stock Additional Other Total
Number of Paid-In Treasury Retained Comprehensive Stockholders
Shares Amount Capital Stock Income Income Equity
------ ------ ------------ --------- -------- ------------- ------------
Balance at December 31, 2001 ............ 4,542,953 $ 45 31,355 (19,347) 51,575 440 64,068
------
Comprehensive income:
Net income ......................... -- -- -- -- 8,836 -- 8,836
Change in unrealized gains on
securities available for sale, net
of income taxes of $163 .......... -- -- -- -- -- 271 271
------
Change in unrealized loss on
derivative instrument, net of
income tax benefit of $45 ........ -- -- -- -- -- (75) (75)
------
Comprehensive income .................... 9,032
------
Net proceeds from the issuance of
common stock, stock options
exercised .......................... 31,991 1 283 -- -- -- 284
Dividends paid ($.56 per share) ......... -- -- -- -- (2,002) -- (2,002)
Purchase of treasury stock, 12,648
shares ............................. -- -- -- (320) -- -- (320)
- ----------------------------------------- --------- --------- --------- --------- ------- --------- ------
Balance at December 31, 2002 ............ 4,574,944 $ 46 31,638 (19,667) 58,409 636 71,062
========= ========= ========= ========= ======= ========= ======
See accompanying Notes to Consolidated Financial Statements.
25
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
Year Ended December 31,
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income ............................................................. $ 8,836 6,289 5,309
Adjustments to reconcile net income
to net cash provided by operations:
Provision for loan losses........................................ 1,845 1,115 880
Depreciation and amortization.................................... 1,062 852 760
Credit for deferred income taxes................................. (331) (251) (500)
Shares committed and dividends to incentive
plan participants............................................ - - 711
Net amortization of premiums and discounts on securities......... 297 (52) 5
Net deferral of loan fees and costs.............................. (142) 134 (58)
Net gain on sales of loans held for sale......................... (403) (43) (7)
Loan originated for sale......................................... (44,207) (10,323) (1,487)
Proceeds from sales of loans held for sale....................... 37,289 5,191 1,457
(Gain) loss on sale of foreclosed assets......................... (51) (28) 4
Decrease (increase) in accrued interest receivable............... 12 (443) (935)
Increase in other assets......................................... (359) (138) (173)
Increase in accrued expenses and other liabilities............... 1,650 2,679 1,444
-------- -------- ----------
Net cash provided by operating activities................ 5,498 4,982 7,410
------- ------- ---------
Cash flows from investing activities:
Purchase of securities available for sale................................ (41,433) (30,751) (13,411)
Proceeds from principal repayments and maturities of securities
available for sale................................................... 23,749 14,593 8,019
Loan disbursements....................................................... (209,046) (188,618) (186,654)
Principal repayments on loans............................................ 163,820 121,526 70,824
Purchase of premises and equipment, net.................................. (6,093) (3,700) (2,864)
Purchase of Federal Home Loan Bank stock................................. - (1,550) (1,200)
Proceeds from sales of foreclosed assets................................. 1,239 498 582
-------- -------- ----------
Net cash used in investing activities.................... (67,764) (88,002) (124,704)
------- ------- -------
(continued)
26
FFLC BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
($ in thousands)
Year Ended December 31,
2002 2001 2000
---- ---- ----
Cash flows from financing activities:
Net increase in deposits................................................ $ 82,930 66,243 89,611
Net (decrease) increase in Federal Home Loan Bank advances.............. (5,000) 31,000 24,000
Net increase in other borrowed funds.................................... 976 6,951 2,462
Increase in guaranteed preferred beneficial interest in junior
subordinated debentures............................................. 5,000 - -
Issuance of common stock................................................ 284 345 343
Purchase of treasury stock.............................................. (320) (362) (1,264)
Cash dividends paid..................................................... (2,002) (1,846) (1,716)
------ ------- --------
Net cash provided by financing activities................... 81,868 102,331 113,436
------ ------- -------
Net increase (decrease) in cash and cash equivalents........................ 19,602 19,311 (3,858)
Cash and cash equivalents at beginning of year.............................. 49,792 30,481 34,339
------ ------- -------
Cash and cash equivalents at end of year.................................... $ 69,394 49,792 30,481
====== ======= =======
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest............................................................ $ 29,690 35,217 29,829
====== ======= ========
Income taxes........................................................ $ 5,458 3,821 3,700
======= ======= ========
Noncash investing and financing activities: Accumulated other comprehensive
income:
Net change in unrealized gain on securities available for
sale, net of tax............................................ $ 271 359 263
======== ======= ========
Net change in unrealized loss on derivative investment,
net of tax.................................................. $ (75) - -
========= ======= ========
Transfers from loans to foreclosed assets........................... $ 1,679 656 826
======= ======= ========
Loans originated on sales of foreclosed assets...................... $ 238 89 364
======== ======= ========
Loans funded by and sold to correspondent........................... $ 20,541 14,926 1,121
====== ======= ========
See accompanying Notes to Consolidated Financial Statements.
27
FFLC BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and For Each of the Years in the
Three-Year Period Ended December 31, 2002
(1) Summary of Significant Accounting Policies
FFLCBancorp, 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, chartered in 1934, which offers a variety of financial
services to individuals and businesses primarily located in Lake
County, Sumter County, Citrus County and Marion County, Florida. The
Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") through the Savings Association Insurance Fund
("SAIF").
During 2001, First Alliance Title, LLC ("First Alliance"), a 90% owned
subsidiary of the Holding Company was formed to operate as a title
agency. In addition, during 2002, FFLC Statutory Trust I (the "Trust")
was formed for the sole purpose of issuing $5,000,000 of trust
preferred securities as more fully described in Note 7.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Holding Company and its three subsidiaries, the
Bank, First Alliance and FFLC Trust and the Bank's wholly-owned
subsidiary, Lake County Service Corporation (the "Service Corporation")
(all together, the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
General. The accounting and reporting policies of 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.
Cashand Cash Equivalents. For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and balances due
from banks and interest-bearing deposits.
The Bank is required to maintain certain cash 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
other banks. The reserve balances at December 31, 2002 and 2001 were
approximately $8.7 million and $5.7 million, respectively.
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 Held For Sale. Loans originated and held for sale by the Company are
carried at the lower of cost or fair value using the specific
identification method. At December 31, 2002 and 2001, the aggregate
fair value of loans held for sale exceeded the carrying value. Gains
and losses on the sales of such loans are recognized using the specific
identification method. The Company held $14.4 million and $7.1 million
of loans held for sale at December 31, 2002 and 2001, respectively,
which are included in loans on the accompanying consolidated balance
sheets.
Loans. Loans that management has the intent and the Company has the 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 ninety 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.
29
Foreclosed Assets. Assets acquired through, or in lieu of, loan foreclosure
are held for sale and are initially recorded at the lower of fair value
or the loan balance at the date of foreclosure, establishing a new cost
basis. Subsequent to 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.
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 income tax assets and liabilities are recorded to
reflect the tax consequences on future years of temporary differences
between revenues and expenses reported for financial statement and
those reported for income tax purposes. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be realized or settled. Valuation allowances are provided
against assets which are not likely to be realized.
Stock Compensation Plans. Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure, (collectively, "SFAS No. 123") encourages all entities to
adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant
date based on the value of the award and is recognized over the service
period, which is usually the vesting period. However, it also allows an
entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 (APB 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 APB No. 25 no
compensation cost is recognized for them. The Company has elected to
continue with the accounting methodology in APB No. 25 and, as a
result, has provided 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 17).
Derivative Financial Instruments. The Company has one derivative instrument
which is used to hedge its interest rate exposure by modifying the
characteristics of the related balance sheet instrument. This
derivative instrument qualifies as a cash flow hedge under the
provisions of Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). Changes in the fair value of a derivative that is highly
effective, and that is designated and qualifies as a cash flow hedge,
are recorded in other comprehensive income, net of tax.
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.
30
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 or may not
necessarily represent the underlying fair value of the instrument to
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 cash
equivalents 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.
Federal Home Loan Bank Stock. Fair value of the Company's investment in
Federal Home Loan Bank stock is based on its redemption value, which is
its cost of $100 per share.
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 and guaranteed preferred beneficial interest in
junior subordinated debentures are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
Derivative Instruments. Fair value for the derivative instrument
(interest-rate swap) is based on current settlement value.
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") (see Note 17) 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 181,387 were allocated to participants and are
considered outstanding for each of the years ended December 31, 2000,
2001 and 2002. As of December 31, 2002, 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 17) computed using the treasury stock method. The
following table presents the calculation of net income per share of
common stock:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Weighted-average shares of common stock issued
and outstanding before adjustments for ESOP,
RRP and common stock options............................. 3,576,400 3,550,499 3,571,858
Adjustment to reflect the effect of unallocated
ESOP and RRP average shares.............................. (2,735) (2,735) (30,458)
------------ --------- ---------
Weighted-average shares for basic income per share........... 3,573,665 3,547,764 3,541,400
============ ========= =========
Basic income per share....................................... $ 2.47 1.77 1.50
============= ========= =========
Total weighted-average common shares and equivalents
outstanding for basic income per share
computation.............................................. 3,573,665 3,547,764 3,541,400
Additional dilutive shares using the average market value for the
period utilizing the treasury stock method
regarding stock options.................................. 70,921 81,668 74,340
------------ --------- ---------
Weighted-average common shares and equivalents
outstanding for diluted income per share................. 3,644,586 3,629,432 3,615,740
============ ========= =========
Diluted income per share..................................... $ 2.42 1.73 1.46
============= ========= =========
Comprehensive Income. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net
income. 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 income, are components of
comprehensive income. The components of other comprehensive income were
unrealized holding gains and losses on securities available for sale
and an unrealized loss on a derivative instrument.
32
Recent Pronouncements. In November 2002, the FASB issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others" ("FIN 45"), which expands previously issued
accounting guidance and disclosure requirements for certain guarantees.
FIN 45 requires the Company to recognize an initial liability for the
fair value of an obligation assumed by issuing a guarantee. The
provision for initial recognition and measurement of the liability will
be applied on a prospective basis to guarantees issued or modified
after December 31, 2002. The adoption of FIN 45 is not expected to
materially affect the consolidated financial statements.
Reclassifications. Certain amounts in the 2000 and 2001 consolidated
financial statements have been reclassified to conform to the
presentation for 2002.
(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, 2002:
Mutual funds...................................... $ 9,433 - (59) 9,374
U.S. Government and agency securities............. 36,801 853 (5) 37,649
Mortgage-backed securities........................ 21,961 335 - 22,296
Other investment securities....................... 7,990 22 (7) 8,005
------ ------- ---- --------
Total......................................... $ 76,185 1,210 (71) 77,324
====== ===== === =======
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
====== ====== === =======
The scheduled maturities of securities available for sale at December 31, 2002
were as follows:
Amortized Fair
Cost Value
---- -----
(In thousands)
Due in less than one year..................................................... $ 12,531 12,738
Due from one year to five years............................................... 24,270 24,911
Due after ten years........................................................... 7,990 8,005
Mortgage-backed securities.................................................... 21,961 22,296
Mutual funds.................................................................. 9,433 9,374
------- --------
Total..................................................................... $ 76,185 77,324
====== =======
Securities with a carrying value of approximately $16.4 million and $8.8
million at December 31, 2002 and 2001, respectively, were pledged to
secure public funds and tax deposits. The Company has also pledged
securities with a carrying value of $18.7 million for borrowings under
retail repurchase agreements with customers at both December 31, 2002
and 2001, respectively (See Note 6).
33
There were no sales of securities during the years ended December 31, 2002,
2001 or 2000.
(3) Loans
The components of loans were as follows:
At December 31,
---------------
2002 2001
---- ----
(In thousands)
First mortgage loans secured by:
One-to-four-family residential............................................. $ 395,116 413,712
Construction and land...................................................... 30,792 22,951
Multi-family units......................................................... 22,796 20,304
Commercial real estate, churches and other................................. 140,770 108,804
Consumer loans................................................................. 138,202 119,357
Commercial loans............................................................... 28,879 18,814
--------- -------
Subtotal (1)........................................................... 756,555 703,942
Undisbursed portion of loans in process........................................ (16,770) (14,310)
Net deferred loan costs........................................................ 734 592
Allowance for loan losses (2).................................................. (5,181) (4,289)
-------- -------
Loans, net............................................................. $ 735,338 685,935
======= =======
(1) Total loans outstanding by department consists of the following (in
thousands):
At December 31,
---------------
2002 2001
----------------------------------------------------------------
% of % of
Amount Total Amount Total
Residential......................................... $ 385,711 50.98% $ 403,897 57.37%
Commercial.......................................... 229,930 30.39 180,688 25.67
Consumer............................................ 140,914 18.63 119,357 16.96
------- ------- ------- ------
$ 756,555 100.00% $ 703,942 100.00%
======= ====== ======= ======
34
(2) Total allowance for loan losses by department consists of the following
(in thousands):
At December 31,
---------------
2002 2001
----------------------------------------------------------------
% to % to
Gross Gross
Amount Loans Amount Loans
Residential......................................... $ 1,175 .30% $ 1,229 .30%
Commercial.......................................... 2,949 1.28 2,039 1.13
Consumer............................................ 1,057 .75 1,021 .86
----- ----- -----
$ 5,181 .68% $ 4,289 .61%
===== ===== ===== ====
Total gross loans originated by department, including unfunded construction
and line of credit loans, consist of the following (in thousands):
Year Ended
December 31,
------------
2002 2001
---- ----
Residential...................................................................... $ 148,271 102,396
Commercial....................................................................... 95,160 80,153
Consumer......................................................................... 80,297 75,313
------- -------
$ 323,728 257,862
======= =======
An analysis of the change in the allowance for loan losses follows:
Year Ended December 31,
----------------------------------------
2002 2001 2000
---- ---- ----
(In thousands)
Balance at January 1.............................................. $ 4,289 3,552 2,811
Provision for loan losses......................................... 1,845 1,115 880
Net loans charged-off............................................. (953) (378) (139)
------ ------ -----
Balance at December 31............................................ $ 5,181 4,289 3,552
===== ===== =====
The following summarizes the amount of impaired loans at December 31, 2002
and 2001, all of which are collateral dependent:
At December 31,
---------------
2002 2001
---- ----
(In thousands)
Loans identified as impaired:
Gross loans with no related allowance for losses......................... $ - -
Gross loans with related allowance for losses recorded........................... 400 306
Less: Allowances on these loans......................................... (50) (150)
---- ---
Net investment in impaired loans............................................. $ 350 156
=== ===
35
The average net investment in impaired loans and interest income recognized
and received on impaired loans during the years ended December 31, 2002,
2001 and 2000 was as follows:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(In thousands)
Average net investment in impaired loans.................... $ 184 581 1,117
=== === =====
Interest income recognized on impaired loans................ $ 35 81 46
==== === =====
Interest income received on impaired loans.................. $ 35 81 46
==== === =====
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,
Citrus and Marion Counties, Florida.
Nonaccrual loans at December 31, 2002 and 2001 totaled $2.6 million and
$1.9 million, respectively. There were no loans past due ninety days or
more and still accruing interest income at December 31, 2002 or 2001.
For the years ended December 31, 2002, 2001 and 2000, interest income
on loans would have been increased approximately $106,000, $116,000 and
$230,000, 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 at both December 31, 2002 and 2001.
(4) Premises and Equipment
Components of premises and equipment were as follows:
At December 31,
---------------
2002 2001
---- ----
(In thousands)
Cost:
Land....................................................................... $ 4,924 4,115
Building and leasehold improvements........................................ 15,553 11,672
Furniture and equipment.................................................... 3,539 2,882
Construction in progress................................................... 816 158
------- --------
Total cost............................................................. 24,832 18,827
Less accumulated depreciation.................................................. (5,463) (4,489)
------ ------
Net book value............................................................. $ 19,369 14,338
====== ======
36
Certain Company facilities are leased under operating leases. Rental
expense was approximately $70,000, $118,000 and $180,000 in 2002, 2001
and 2000, respectively. At December 31, 2002, future minimum rental
commitments under noncancellable leases were as follows (in thousands):
Year Ending
December 31, Amount
------------ ------
2003....................................................................................... $ 64
2004....................................................................................... 66
2005....................................................................................... 69
2006....................................................................................... 72
2007....................................................................................... 75
Thereafter................................................................................. 78
-----
$ 424
(5) Deposits
The aggregate amount of short-term jumbo time deposits, each with a minimum
denomination of $100,000, was approximately $140.6 million and $107.2
million at December 31, 2002 and 2001, respectively.
At December 31, 2002, the scheduled maturities of time deposits were as follows
(in thousands):
Year Ending
-----------
2003...................................................................................... $ 251,557
2004...................................................................................... 127,809
2005...................................................................................... 44,343
2006...................................................................................... 20,872
2007...................................................................................... 41,349
--------
$ 485,930
=========
37
(6) Advances from Federal Home Loan Bank and Other Borrowings
As of December 31, 2002, the Bank had $149.0 million in Federal Home Loan
Bank of Atlanta ("FHLB") advances outstanding. These advances had a
weighted-average interest rate of 5.40% and interest rates and
maturities as follows (dollars in thousands):
At December 31,
Interest ----------------
Year Ending December 31, Rate 2002 2001
------------------------ -------- ---- ----
2002.......................................................... 6.10% $ - 5,000
2002.......................................................... 5.96% - 15,000
2002.......................................................... 4.03% - 5,000
2003.......................................................... 4.90% 10,000 10,000
2003.......................................................... 4.91% 6,000 6,000
2003.......................................................... 4.53% 5,000 5,000
2003.......................................................... 3.77% 5,000 5,000
2003.......................................................... 1.86%(A) 5,000 -
2004.......................................................... 6.05% 10,000 10,000
2004.......................................................... 3.76% 10,000 -
2004.......................................................... 3.39% 5,000 -
2005.......................................................... 6.39% 20,000 20,000
2005.......................................................... 6.60% 13,500 13,500
2005.......................................................... 6.68% 12,500 12,500
2005.......................................................... 6.31% 7,000 7,000
2005.......................................................... 6.04% 10,000 10,000
2005.......................................................... 6.00% 6,000 6,000
2006.......................................................... 1.47%(A) 5,000 5,000
2009.......................................................... 6.39%(B) 14,000 14,000
2011.......................................................... 4.44%(B) 5,000 5,000
-------- ---------
Total.................................................................. $ 149,000 154,000
======= =======
(A) Adjustable Rate
(B) The FHLB has the option to convert to an adjustable rate in future
years, at which time the Company has the option to prepay the advance
without penalty.
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, 2002, the
Bank could borrow up to $247.3 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, 2003. As of
December 31, 2002, 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, 2002 and 2001 were $ 14.3 million and $13.3 million,
respectively. The Company pledged securities with a carrying value of
$18.7 million as collateral for these agreements at both December 31,
2002 and 2001.
38
(7) Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures
On September 26, 2002, the Trust sold adjustable-rate Trust Preferred
Securities due September 26, 2032 in the aggregate principal amount of
$5,000,000 (the "Capital Securities") in a pooled trust preferred
securities offering. The interest rate on the Capital Securities
adjusts quarterly, to a rate equal to the then current three-month
London Interchange Bank Offering Rate ("LIBOR"), plus 340 basis points.
In addition, the Holding Company contributed capital of $155,000 to the
Trust for the purchase of the common securities of the Trust. The
proceeds from these sales were paid to the Holding Company in exchange
for $5,155,000 of its adjustable-rate Junior Subordinated Debentures
(the "Debentures") due September 26, 2032. The Debentures have the same
terms as the Capital Securities. The Holding Company then invested
$3,000,000 as a capital contribution in the Bank. The sole asset of the
Trust, the obligor on the Capital Securities, is the Debentures.
The Holding Company has guaranteed the Trust's payment of distributions on,
payments on any redemptions of, and any liquidation distribution with
respect to, the Capital Securities. Cash distributions on both the
Capital Securities and the Debentures are payable quarterly in arrears
on March 26, June 26, September 26 and December 26 of each year. At
December 31, 2002, approximately $4,000 of distributions were accrued
and are included in accrued expenses and other liabilities in the
consolidated balance sheet. Issuance costs of approximately $169,000
associated with the Capital Securities have been capitalized by the
Holding Company and are being amortized over the life of the
securities.
Capital
Securities Outstanding at
December 31, Prepayment
Name 2002 2001 Option Date
---- ---- ---- -----------
(In thousands)
FFLC Statutory Trust I.................................... $ 5,000 - September 26, 2007
===== =========
The Capital Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Debentures at stated maturity
or, at the option of the Holding Company, their earlier redemption in
whole upon the occurrence of certain changes in the tax treatment or
capital treatment of the Capital Securities, or a change in the law
such that the Trust would be considered an investment company and (ii)
in whole or in part at any time on or after September 26, 2007
contemporaneously with the optional redemption by the Holding Company
of the Debentures in whole or in part. The Debentures are redeemable
prior to maturity at the option of the Holding Company (i) on or after
September 26, 2007, in whole at any time or in part from time to time,
or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and continuation of certain changes in the tax treatment
or capital treatment of the Capital Securities, or a change in law such
that the Trust would be considered an Investment Company, required to
be registered under the Investment Company Act of 1940.
The Company has entered into a five year interest rate swap agreement that
effectively converted the floating interest rate of these Capital
Securities into a fixed interest rate of 6.85%, thus reducing the
impact of interest rate changes on future interest expense for the five
year period. In accordance with SFAS 133, this interest rate swap
qualifies as a cash flow hedge. The fair value of this interest rate
swap is recorded as an asset or liability on the consolidated balance
sheet with an offsetting entry recorded in other comprehensive income,
net of the income tax effect. At December 31, 2002, the unrealized loss
on the derivative instrument was $120,000 ($75,000 net of tax).
39
(8) Income Taxes
The Holding Company files consolidated Federal and state income tax returns
with the Bank and the Service Corporation. Income taxes are allocated
proportionally to the Holding Company and each of the subsidiaries as
though separate income tax returns were filed. First Alliance and the
Trust file separate income tax returns.
Income taxes are summarized as follows:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(In thousands)
Current ................................................................. $ 5,608 3,948 3,864
Deferred................................................................. (331) (251) (500)
------ ------ ------
$ 5,277 3,697 3,364
===== ===== =====
The effective tax rate on income before income taxes differs from the U.S.
statutory rate of 35% for 2002 and 34% for 2001 and 2000. The following
summary reconciles taxes at the U.S. statutory rate with the effective
rates:
Year Ended December 31,
-----------------------
2002 2001 2000
--------------------------------------------------------------------------------------
Amount % Amount % Amount %
------ - ------ - ------ -
($ in thousands)
Taxes on income at U.S.
statutory rate........ $ 4,940 35.0% $ 3,395 34.0% $ 2,949 34.0%
State income taxes, net of
federal tax benefit... 477 3.4 341 3.4 324 3.7
Graduated tax rates....... (100) (.7) - - - -
Other, net................ (40) (.3) (39) (.4) 91 1.1
----- ----- ------- ----- ------ ----
Taxes on income at
effective rates....... $ 5,277 37.4% $ 3,697 37.0% $ 3,364 38.8%
===== ==== ===== ==== ===== ====
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,
---------------
2002 2001
---- ----
(In thousands)
Deferred tax assets:
Allowance for loan losses........................................... $ 1,825 1,263
Accrued interest.................................................... 27 9
RRP incentive plan.................................................. 68 74
Deferred loan fees.................................................. - 24
Unrealized loss on derivative instrument............................ 45 -
Other............................................................... - 24
-------- -------
Gross deferred tax assets............................................... 1,965 1,394
----- -----
Deferred tax liabilities:
FHLB stock dividends................................................ 332 349
Building and land................................................... 342 334
Accumulated depreciation............................................ 363 155
Unrealized gain on securities available for sale.................... 428 265
Deferred loan costs................................................. 13 17
------- -------
Gross deferred tax liabilities.......................................... 1,478 1,120
----- -----
Net deferred tax asset.................................................. $ 487 274
====== ======
40
Retained earnings at December 31, 2002 and 2001 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, 2002 and 2001.
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, 2002, the Bank had approximately $111,000 of deferred tax
liabilities recorded for the recapture of its excess bad debt reserves.
(9) 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.
41
The estimated fair values of the Company's financial instruments were as
follows:
At December 31, 2002 At December 31, 2001
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
Financial assets:
Cash and cash equivalents....................... $ 69,394 69,394 49,792 49,792
Securities available for sale................... 77,324 77,324 59,503 59,503
Loans........................................... 735,338 739,329 685,935 689,362
Accrued interest receivable..................... 4,181 4,181 4,193 4,193
Federal Home Loan Bank stock.................... 7,700 7,700 7,700 7,700
Financial liabilities:
Deposit liabilities............................. 668,058 674,925 585,128 587,642
Advances from FHLB.............................. 149,000 156,891 154,000 161,205
Other borrowed funds............................ 14,303 14,303 13,327 13,327
Guaranteed preferred beneficial interest in junior
subordinated debentures....................... 5,000 5,000 - -
Derivatives:
Interest rate swap (loss position)................ (120) (120) - -
Commitments to extend credit typically result in loans with a market
interest rate when funded. A summary of the Company's financial
instruments with off-balance-sheet risk at December 31, 2002, follows:
Notional Carrying Fair
Amount Amount Value
------ ------ -----
(In thousands)
Commitments to extend credit................................. $ 25,762 - -
====== =========== ===========
Unused lines of credit....................................... $ 51,792 - -
====== =========== ===========
Undisbursed portion of loans in process ..................... $ 16,770 - -
====== =========== ===========
Standby letters of credit.................................... $ 1,548 - -
======= =========== ===========
(10) 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, Citrus and Marion County area. Therefore, the
Company's exposure to credit risk is significantly affected by changes
in the economy of the Lake, Sumter, Citrus and Marion County areas. In
addition, the Company has a concentration of single-family residential
mortgage loans in a specific residential retirement community of
approximately $80.8 million at December 31, 2002.
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.
42
(11) 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,
------------
2002 2001
---- ----
(In thousands)
Beginning balance................................................................ $ 6,785 5,413
Loans originated................................................................. 5,401 4,086
Principal repayments............................................................. (3,879) (2,714)
----- -----
Ending balance............................................................... $ 8,307 6,785
===== =====
(12) 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.
(13) 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, 2002,
approximately $26.1 million of retained earnings were available for
dividend declaration without prior regulatory approval.
(14) 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 consolidated 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, 2002, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 2002, 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.
43
The Bank's actual capital amounts and percentages at December 31, 2002 and 2001
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, 2002: ($ in thousands)
Stockholders' equity, and
ratio to total assets..... 7.9% $ 72,404
Less: investment in
nonincludable
subsidiary................ (518)
Unrealized gain on
available-for-sale
securities................ (747)
--------- -
Tangible capital,
and ratio to adjusted
total assets.............. 7.8% $ 71,139 1.5% $ 13,719
======= =======
Tier 1 (core) capital, and
ratio to adjusted total
assets.................... 7.8% $ 71,139 3.0% $ 27,439 5.0% $ 45,731
======= ====== =======
Tier 1 capital, and ratio
to risk-weighted assets... 11.9% 71,139 4.0% $ 23,897 6.0% $ 35,846
====== =======
Less: nonincludable
investment in 80%
land loans................ (499)
Tier 2 capital (allowance for
loan losses).............. 5,005
---------
Total risk-based capital,
and ratio to risk-
weighted assets........... 12.7% $ 75,645 8.0% $ 47,794 10.0% $ 59,743
======== ====== =======
Total assets.................. $ 915,881
========
Adjusted total assets......... $ 914,624
========
Risk-weighted assets.......... $ 597,427
========
44
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ----------
% Amount % Amount % Amount
- ------ - ------ - ------
As of December 31, 2001: ($ 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
========
45
(15) 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.
(16) 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 17. 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 2002 and 2001, the Board approved a matching
contribution equal to 100% of employees' deferrals up to 3% of
compensation. The Company also makes quarterly profit sharing
contributions (more fully discussed in Note 17) in connection with the
KSOP. Total contribution expense recognized by the Company under the
KSOP during the years ended December 31, 2002 and 2001 were $642,000
and $513,000, respectively. 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
year ended December 31, 2000 were $65,700.
46
(17) 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.
Stock Option Plan. During 2002, the Company adopted a new stock option plan
(the "2002 Plan") which authorizes the Company to issue up to 250,000
shares in connection with options granted to directors, officers or
employees of the Company. The terms and vesting periods will be
determined as each option is granted, but the option price can not be
less than the then current market value of the common stock at the
grant date. No options have been granted under the 2002 Plan.
The Company also has a 1993 stock option plan (the "Plan") under which
460,303 common shares are authorized to be issued in connection with
options granted to directors, officers and employees of the Company.
Options granted under the Plan are exercisable at the market price of
the common stock 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, 2002, 33,713 shares
remain available under the Plan 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, 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
=
Exercised........................................... (31,990) 6.00-16.25 7.04
-------
Outstanding, December 31, 2002...................... 101,551 $ 6.00-21.25 $ 9.92
======= ========== =====
47
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 2002, 2001 and 2000 was 8.3, 7.7 and 7.9 years,
respectively. All outstanding stock options are currently exercisable
at December 31, 2002.
During the year ended December 31, 2000, 5,035 options were granted. No
options were granted under the Plan during 2002 or 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 in 2000, it was assumed that the risk-free interest rate was
7.0%, 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%. For
purposes of pro forma disclosures, the estimated fair value is included
in expense in the period vesting occurs. The proforma information has
been determined as if the Company had accounted for its stock options
and share awards under the fair value method of SFAS No. 123. The
Company accounts for their stock option plans under the recognition and
measurement principles of APB No. 25. No stock-based employee
compensation cost is reflected in net income, as all stock options
granted under the Plan had an exercise price equal to the market value
of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and basic and diluted income
per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation (in
thousands, except per share amounts):
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Weighted-average grant-date fair value of options
issued during the year..................................... $ - - 28
========= ========= =======
Net income, as reported......................................... $ 8,836 6,289 5,309
Deduct: Total stock-based employee compensation
determined under the fair value based method for
all awards, net of related tax benefit..................... (7) (39) (127)
--------- ------- ------
Proforma net income............................................. $ 8,829 6,250 5,182
===== ===== =====
Basic income per share, as reported............................. $ 2.47 1.77 1.50
====== ===== =====
Proforma basic income per share................................. $ 2.47 1.76 1.46
====== ====== ======
Diluted income per share, as reported........................... $ 2.42 1.73 1.46
====== ====== ======
Proforma diluted income per share............................... $ 2.42 1.72 1.43
====== ====== ======
48
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 which 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 year ended December 31, 2000 included the following ESOP
related costs:
Amount
------
(In thousands)
Amortization of the original cost, $6 per share.......................................... $ 316
Market appreciation of the FFLC shares................................................... 395
---
Total................................................................................ $ 711
===
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 16). 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 2002 and 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 years ended
December 31, 2002 and 2001, the Company made profit sharing
contributions totaling $312,000 and $231,000, respectively, 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.
49
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, 2002, 2,735 shares
remain reserved for future directors, officers and employees.
(18) 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 2002, 2001, 2000, 1999 and 1998, the Company
repurchased 12,648, 19,936, 95,562, 147,102 and 32,025 shares,
respectively or 3.4%, 5.4%, 25.9%, 39.8% and 8.7%, respectively under
this program. In October 2002, the Company's Board of Directors
authorized the repurchase of up to an additional 179,040 shares of the
Company's common stock in open-market transactions. At December 31,
2002, the Company can still repurchase an additional 241,052 shares
under both programs.
(19) 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 provides 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, 2002, 2001 and 2000, 8,772, 19,341 and
19,969 shares of common stock, respectively, were purchased under the
DRP of which 0, 0 and 9,968 were new shares issued by the Company and
8,772, 19,341 and 10,001 shares were purchased in the open market,
respectively in these periods.
50
(20) Parent Company Only Financial Statements
Condensed financial statements of the Holding Company as of December 31,
2002 and 2001 and for each of the years in the three-year period ended
December 31, 2002 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,
---------------
2002 2001
---- ----
(In thousands)
Assets
Cash, deposited with subsidiary............................................ $ 1,720 1,474
Investment in subsidiaries................................................. 72,576 60,113
Loans to subsidiaries...................................................... 1,850 2,500
Other assets............................................................... 217 -
-------- ------------
Total assets....................................................... $ 76,363 64,087
====== ======
Liabilities and Stockholders' Equity
Subordinated debt.......................................................... 5,155 -
Other liabilities.......................................................... 146 19
Stockholders' equity....................................................... 71,062 64,068
------ ------
Total liabilities and stockholders' equity......................... $ 76,363 64,087
====== ======
51
Condensed Statements of Income
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(In thousands)
Revenues..................................................................... $ 60 130 179
Expenses..................................................................... (205) (160) (170)
------- ------- ------
(Loss) income before earnings of subsidiaries........................ (145) (30) 9
Earnings of subsidiaries............................................. 8,981 6,319 5,300
----- ----- -----
Net income........................................................... $ 8,836 6,289 5,309
===== ===== =====
Condensed Statements of Cash Flows
Year Ended December 31,
2002 2001 2000
---- ---- ----
(In thousands)
Cash flows from operating activities:
Net income.................................................................... $ 8,836 6,289 5,309
Adjustments to reconcile net income to net cash (used in)
provided by operations:
Equity in earnings of subsidiaries........................................ (8,981) (6,319) (5,300)
Net (increase) decrease in other, net..................................... (221) 4 (1)
------ --------- -------
Net cash (used in) provided by operating activities................... (366) (26) 8
------ -------- --------
Cash flows from investing activities:
Investment in subsidiaries................................................ (3,155) (5) -
Cash dividends received from subsidiaries................................. - 2,700 2,500
Repayment of loans to subsidiaries........................................ 650 - 316
------- ---------- ------
Net cash (used in) provided by investing activities................... (2,505) 2,695 2,816
----- ----- -----
Cash flows from financing activities:
Proceeds from issuance of subordinated debt............................... 5,155 - -
Purchase of treasury stock................................................ (320) (362) (1,264)
Proceeds from issuance of stock........................................... 284 345 343
Cash dividends paid....................................................... (2,002) (1,846) (1,716)
----- ----- -----
Net cash provided by (used in) financing activities................... 3,117 (1,863) (2,637)
----- ----- -----
Net increase in cash.............................................................. 246 806 187
Cash at beginning of year......................................................... 1,474 668 481
----- ------ ------
Cash at end of year............................................................... $ 1,720 1,474 668
===== ===== ======
Noncash investing and financing activities: Accumulated other comprehensive
income:
Net change in investment in subsidiaries due to net change in unrealized
gain on securities available for sale, net of tax..................... $ 271 359 263
====== ====== ======
Net change in unrealized loss on derivative investment, net of tax........ $ (75) - -
====== ========= =========
52
(21) Quarterly Financial Data (Unaudited)
The following tables present summarized quarterly data (in thousands,
except per share amounts):
Year Ended December 31, 2002
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Interest income............................... $ 13,868 14,143 14,434 14,088 56,533
Interest expense.............................. 7,491 7,284 7,577 7,131 29,483
------ ------- ------- ------- --------
Net interest income........................... 6,377 6,859 6,857 6,957 27,050
Provision for loan losses..................... 258 613 399 575 1,845
-------- -------- -------- -------- -------
Net interest income after provision
for loan losses........................... 6,119 6,246 6,458 6,382 25,205
Noninterest income............................ 868 846 808 1,254 3,776
Noninterest expense........................... (3,444) (3,597) (3,774) (4,053) (14,868)
------ ------ ------ ------ ------
Income before income taxes.................... 3,543 3,495 3,492 3,583 14,113
Income taxes.................................. 1,335 1,282 1,315 1,345 5,277
------- ------- ------- ------- --------
Net income.................................... $ 2,208 2,213 2,177 2,238 8,836
====== ====== ======= ======= =======
Basic income per common share.................$ .62 .62 .61 .62 2.47
======== ======== ========= ======== ========
Diluted income per common share...............$ .61 .60 .60 .61 2.42
======== ======== ========= ======== ========
Year Ended December 31, 2001
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Interest income............................... $ 13,849 14,209 14,284 14,143 56,485
Interest expense.............................. 8,921 9,149 9,062 8,184 35,316
------ ------- ------- ------ -------
Net interest income........................... 4,928 5,060 5,222 5,959 21,169
Provision for loan losses..................... 275 325 225 290 1,115
------- -------- ------- ------- --------
Net interest income after provision
for loan losses........................... 4,653 4,735 4,997 5,669 20,054
-
Noninterest income............................ 601 672 705 795 2,773
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
======== ======== ======== ======== ========
53
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, 2002 and 2001 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,
2002. 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, 2002 and 2001 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
HACKER, JOHNSON & SMITH PA
Orlando, Florida
January 15, 2003
54
FFLC BANCORP, INC.
DIRECTORS AND OFFICERS
Directors:
- ----------
Claron D. Wagner
Chairman of the Board
James P. Logan
Vice Chairman
Joseph J. Junod
Ted R. Ostrander, Jr.
H.D. Robuck, Jr.
Howard H. Hewitt
Stephen T. Kurtz
Paul K. Mueller
Advisory Directors:
- -------------------
James R. Gregg
James H. Herlong
Horace D. Robuck
Officers:
Stephen T. Kurtz
President and Chief Executive Officer
Paul K. Mueller
Executive Vice President and Treasurer
Sandra L. Rutschow
Vice President and Secretary
Occupation
- ----------
President, Woody Wagner, Inc.
President/Owner, Logan Sitework Contractors, Inc.
Retired, General Manager, Avesta Sheffield Pipe
President, Lassiter-Ware, Inc.
Attorney; CEO, Ro-Mac Lumber & Supply, Inc.
President/Owner, Hewitt Construction Company
President, FFLC Bancorp, Inc. & Subsidiaries
Executive Vice President, FFLC Bancorp, Inc.& Subsidiaries
President, Jarol Company
Retired
President, Ro-Mac Lumber & Supply, Inc.
55
FIRST FEDERAL SAVINGS BANK
OF LAKE COUNTY
DIRECTORS, OFFICERS AND MANAGERS
DIRECTORS
Claron D. Wagner
Chairman of the Board
James P. Logan
Vice Chairman
Joseph J. Junod
Ted R. Ostrander, Jr.
H.D. Robuck, Jr.
Howard H. Hewitt
Stephen T. Kurtz
Paul K. Mueller
Advisory Directors
James R. Gregg
James H. Herlong
Horace D. Robuck
OFFICERS
Stephen T. Kurtz
President
Chief Executive Officer
Paul K. Mueller
Executive Vice President and Chief Operations Officer
and Treasurer
Dwight L. Hart
Senior Vice President and Mortgage Loan Manager
Joseph D. Cioppa
Senior Vice President and Commercial Loan Manager
Paul S. Allen
Senior Vice President, Audit, Planning and Budget
Jay Bartholomew
Senior Vice President and Retail Banking Manager
Brenda M. Grubb
Senior Vice President and Human Resources Manager
Susan L. Berkebile
Vice President and Area Loan Manager
Michael J. Cox
Vice President and Area Loan Manager
Jankie Dhanpat
Vice President, SEC Reporting & Controller & Compliance
James D. Haug
Vice President and Lady Lake Branch Manager
Lawrence E. Hoag
Vice President and Operations Manager
Stephanie Hodges
Vice President and Secondary Market Manager
Brian R. Hofer
Vice President and Commercial Loan Officer
Karen L. Hollister
Vice President and Loan Operations Manager
Tara A. Keane
Vice President and Lake Square Branch Manager
B. Stan McCullars, Jr.
Vice President Finance
Dennis R. Rogers
Vice President, Wildwood Branch Manager and
Area Loan Manager
Sandra L. Rutschow
Vice President and Corporate Secretary
Sandra L. Seaton
Vice President and South Leesburg Branch Manager
Raynard S. (Ray) Taylor
Vice President and Commercial Loan Officer
Phillip P. Tompetrini
Vice President and Inverness Branch Manager
Tara H. Wainwright
Vice President and Kings Ridge Branch Manager
Lynda F. Wemple
Vice President and Accounting Manager
Robert R. Wedlock
Vice President and Chief Information Officer
Donald E. Turner
Vice President and Commercial Loan Officer
Kimberly R. Bailey
Vice President and Spruce Creek Branch Manager
Natalie L. Rojas
Vice President and Commercial Loans Portfolio Manager
Stephen G. Knowles
Vice President and Main Office Branch Manager and Loan Officer
Vickie S. Baxter
Assistant Vice President and Loan Officer
Victoria M. Boren
Assistant Vice President and Deposit and Branch Operations Administrator
Donna L. Boyett
Assistant Vice President and Branch
Operations Coordinator
Norma J. Caron
Assistant Vice President and Checking Department Manager
James M. Combs
Assistant Vice President and Indirect Loan Manager
Carrie C. Cribb
Assistant Vice President and Mortgage Loan Originator
Lori M. Farfaglia
Assistant Vice President and Fruitland Park Branch Manager
Janet B. Farrar
Assistant Vice President and Branch
Operations Coordinator
Penny M. Hollis
Assistant Vice President and Security Officer
Cynthia M. Lay
Assistant Vice President and MIS Coordinator and
Data Department Manager
Marilyn A. Leugers
Assistant Vice President and IRA Coordinator
Sandra A. Rowe
Assistant Vice President and Loan Servicing Manager
Leigh S. Skehan
Assistant Vice President and Marketing Officer
Mary R. Asher
Inverness Office Manager
John A. Beaulieu
Assistant Vice President and Investment Officer
Craig S. Cannon
Bushnell Branch Manager
Amy S. Conner
Main Street Branch Manager
James R. Cummings
Collections Manager
Dawn R. Davison
Escrow Manager
Karen A. Dixon
Inverness Loan Officer
Deedee A. Dye
Lady Lake Office Manager
Jeffrey R. Dwiggins
Sales Training and Manager
Craig A. Dykstra
Assistant Vice President and Investment Officer
Amy L. Eckert
Business Development Officer
Cinda K. Franklin
Citrus Ridge Branch Manager
Doris E. Hyatt
Loan Closing Manager & Assistant Secretary
Jennifer J. Long
Spruce Creek Office Manager
Fay E. Phillips
Clermont Branch Manager
Michael J. Price
Assistant Vice President and Eustis Loan Officer
Leslie A. Rocha
Kings Ridge Office Manager
Pamela Self
Fruitland Park Office Manager
Carol A. Sieder
South Leesburg Office Manager
Juanita L. Taylor
Eustis Office Manager
Margaret R. White
Main Office Branch Office Manager
Betty L. Wolcott
Facilities Management Officer and Purchasing Manager
Sylvie M. Zimmerman
Wildwood Office Manager
56
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:
Jamie L. Abbott
Paul S. Allen
Dianne A. Allen
Emily C. Ashline
Jay R. Bartholomew
Kathy E. Bauer
Vickie S. Baxter
Charlotte Bennett
Beth A. Bennett
Victoria M. Boren
Barbara Boscana
Donna L. Boyett
Deena M. Bryant
Norma J. Caron
Shu Een Chen-Noble
Dianna L. Christensen
Constance P. Christian
Joseph D. Cioppa
Sheila C. Coffey
Ursula T. Colla
James M. Combs
Betty Jo Conklin
Judith A. Cook
Diane S. Cook
Carrie C. Cribb
Robert Cumm
James R. Cummings
Tammy L. Dahl
Jason A. Davis
Cheryl A. Davis
Dawn R. Davison
Ginger L. Devine
Carol A. Dewey
Jankie Dhanpat
Alma H. Dunbar
Mary A. Durre
Martha M. Duty
Jeffrey R. Dwiggins
Craig A. Dykstra
Amy L. Eckert
Janet B. Farrar
Charlana M. Fenwick
Ruth E. Franzoni
Terry J. French
June E. Gasbarra
Joan P. Gibson
Zoann Goodman
Dexter L. Graham
Jennifer Grovesteen
Brenda M. Grubb
Allison M. Hamrick
Carol M. Harrison
Dwight L. Hart
Lynette N. Hipp
Lawrence E. Hoag
Stephanie Hodges
Carol B. Holley
Penny M. Hollis
Karen L. Hollister
Jamie G. Humphrey
Mary C. Hurst
Doris E. Hyatt
Patricia B Inman
Bobby H. Inscoe
Jennifer D. Jennings
Sondra Jones
Stephen G. Knowles
John S. Kolody
Kenneth G. Kramer
Stephen T. Kurtz
Cheryl R. Lamb
Linda N. Landers
Nancy J. Lane
Linda B. Law
Cynthia M. Lay
Leslie A. Leach
Betty J. Leech
Marilyn A. Leugers
Angie R. Liston
Margaret H. Locke
Sharon R. Luke
Susan Lutz
Connie K. Maynard
B. Stan McCullars, Jr.
Annette McCullough
Tammy Mizell
Keri L. Morris
Paul K. Mueller
John R. Nelson
Pamela A. O'Neal
Marquisa L. Parham
Tricka M. Parker
Shirley R. Randolph
Connie J. Rhodes
Susan J. Riggin
Natalie J. Rojas
Jennette L. Roode
Landa A. Rossman
Sandra A. Rowe
Sandra L. Rutschow
James Schaeffer
Dorene K. Shahan
Brandi L. Shaw
Traci A. Simanoski
Leigh S. Skehan
Claire M. Smith
Jill S. Spires
Lynn P. Stoffel
Raynard S. Taylor
Virginia D. Vann
Orpha M. Vogt
Catherine M. Wallin
Mary T. Walsh
Robert R. Wedlock
Jennifer D. Welch
Lynda F. Wemple
Margaret R. White
Jacqueline E. Widows
Rhonda L. Wilkerson
Joyce L. Williams
Betty L. Wolcott
Kristin L. Woods
Lisa K. Woolwine
Jeffrey W. Wright
Cathy Wrobleski
FRUITLAND PARK OFFICE:
Lori M. Farfaglia
Cynthia M. Page
Holly D. Sanders
Pamela Self
Jennifer A. Strow
Delphine C. Williams
LADY LAKE OFFICE:
John A. Beaulieu
Karen L. Bednarik
Sonja K. Craig
Estelle E. Crawley
DeeDee A. Dye
James D. Haug
Constance L. Merrell-Kasch
Mindy L. Mueller
Heather F. Ponsell
Brenda A. Simmons
Patricia L. Sizemore
Vanessa D. Wall
Betty T. Woods
MAIN STREET OFFICE:
Janis L. Brown
Amy S. Conner
Brandy A. Dawkins
Alesia Foster
Ernestine Thomas
LAKE SQUARE
MALL OFFICE:
Linda J. Giggey
Tara A. Keane
Christin M. King
Amber M. Moore
Shannon J. Peters
Regina D. Shiver
CLERMONT OFFICE:
Susan Lynn Berkebile
Zaida I. Colon
Birgit M. Fox
Donna L. Franklin
Linda Gallop
Judy L. Garafola
Brian R. Hofer
Sarah L. Liston
Tami Mosier
Fay E. Phillips
Anita Rodriguez
Melissa D. Schumm
Sharon M. Slack
Darla Jean Williams
EUSTIS OFFICE:
Amanda L. Collier
Michael Cox
Vivian R. Curry
Kristi E. Higgins
Natasha L. Pender
Michael J. Price
Carolyn A. Rodgers
Tamika J. Rolle
Katie Lynn Gamber
Juanita L. Taylor
Leandra Williams
Karen E. Wright
WILDWOOD OFFICE:
Carla A. Benavidez
Susan C. Berry
Karen A. Dalrymple
Dana L. Fields
Linda S. Finn
Latahna J. Green
Dennis R. Rogers
Crystal L. Thompson
Cathy H. Watson
Sylvie M. Zimmerman
SOUTH LEESBURG OFFICE:
Kari K. Caulk
Lynda S. Smith
Debra L. Eastwood
Geraldine L. Burgio-Pilch
Sandra L. Seaton
Carol A. Sieder
Cristina P. Simmons
Eva J. Snead
Catherine N. Williams
INVERNESS OFFICE:
Mary R. Asher
Karen A. Dixon
Jamie R. Hemmendinger
Teresa A. Kuechle
Judith Lamontagne
Lillian G. Russo
Phil P. Tompetrini
Donald E. Turner
CITRUS RIDGE OFFICE:
Stephany M. Barr
Cinda K. Franklin
Christine M. Martinez
Barbara J. Reutter
Amanda N. Slone
Sarah L. Williams
BUSHNELL OFFICE:
Craig S. Cannon
Betty J. Hewett
Toni J. Jacobs
Megan L. Marsh
Inge Pelfrey
SPRUCE CREEK OFFICE:
Kimberly R. Bailey
Nicholas C. Cabral
Lawashica M. Dawson
Danielle L. Dilts
Sophia A. Hamilton
Crystal L. House
Jennifer J. Long
KINGS RIDGE OFFICE:
Dena M. Castro
Erma R. Moore
Detra M. Nichols
Leslie A. Rocha
Isabel Saldate
Michele J. Silvers
Tara H. Wainwright
57