SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------.
Commission file number 0-22608
FFLC BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 59-3204891
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
800 North Boulevard West, Post Office Box 490420, Leesburg, Florida 34749-0420
- ------------------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (352) 787-3311
--------------
- -------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, par value $.01 per share
- --------------------------------------
3,614,009 shares outstanding at July 28, 1999
---------------------------------------------
CONFORMED COPY
FFLC BANCORP, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
at June 30, 1999 (unaudited) and at December 31, 1998
Condensed Consolidated Statements of Income -
Three and Six Months ended June 30, 1999 and 1998 (unaudited)
Condensed Consolidated Statement of Stockholders' Equity -
Six Months ended June 30, 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
FFLC BANCORP, INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands)
At At
June 30, December 31,
1999 1998
--------- ---------
(unaudited)
Assets
Cash and due from banks $ 10,275 9,515
Interest-bearing deposits 9,180 13,413
--------- ---------
Cash and cash equivalents 19,455 22,928
--------- ---------
Securities available for sale 22,504 22,165
Securities held to maturity (market value of $14,969 in 1999
and $18,425 in 1998) 14,784 18,227
Loans receivable, net of allowance for loan losses of $2,545 in 1999
and $2,283 in 1998 441,955 389,059
Accrued interest receivable 2,546 2,242
Premises and equipment, net 8,396 5,597
Foreclosed real estate 360 366
Real estate held for development -- 122
Restricted security - Federal Home Loan Bank stock, at cost 3,400 2,800
Other assets 550 314
--------- ---------
Total $ 513,950 463,820
========= =========
FFLC BANCORP, INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands)
At At
June 30, December 31,
1999 1998
--------- ---------
(unaudited)
Liabilities and Stockholders' Equity
Liabilities:
NOW and money-market accounts 79,460 68,816
Savings accounts 22,234 23,038
Certificates 285,333 259,176
--------- ---------
Total deposits 387,027 351,030
--------- ---------
Advances from Federal Home Loan Bank 68,000 56,000
Other borrowed funds 1,401 789
Deferred income taxes 275 284
Accrued expenses and other liabilities 2,398 2,494
--------- ---------
Total liabilities 459,101 410,597
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 9,000,000 shares authorized,
4,416,955 in 1999 and 4,372,041 in 1998 shares issued 44 44
Additional paid-in-capital 29,825 29,286
Retained income 41,882 39,714
Accumulated other comprehensive income - unrealized loss on securities
available for sale, net of tax of $97 in 1999 and $39 in 1998 (161) (65)
Treasury stock, at cost (781,546 shares in 1999 and
716,421 shares in 1998) (16,267) (15,125)
Stock held by Incentive Plan Trusts (474) (631)
--------- ---------
Total stockholders' equity 54,849 53,223
--------- ---------
Total $ 513,950 463,820
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
FFLC BANCORP, INC.
Condensed Consolidated Statements of Income
($ in thousands, except share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Interest income:
Loans receivable $ 8,519 6,901 16,605 13,521
Securities available for sale 356 247 701 613
Securities held to maturity 195 475 415 1,017
Other interest-earning assets 247 266 447 491
---------- ---------- ---------- ----------
Total interest income 9,317 7,889 18,168 15,642
---------- ---------- ---------- ----------
Interest expense:
Deposits 4,156 3,739 8,096 7,433
Borrowed funds 849 456 1,657 906
---------- ---------- ---------- ----------
Total interest expense 5,005 4,195 9,753 8,339
---------- ---------- ---------- ----------
Net interest income 4,312 3,694 8,415 7,303
Provision for loan losses 150 225 350 373
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 4,162 3,469 8,065 6,930
---------- ---------- ---------- ----------
Noninterest income:
Deposit account fees 151 137 297 266
Other service charges and fees 187 150 431 237
Gain on sale of real estate held for development -- -- 886 --
Other 32 39 45 51
---------- ---------- ---------- ----------
Total noninterest income 370 326 1,659 554
---------- ---------- ---------- ----------
FFLC BANCORP, INC.
Condensed Consolidated Statements of Income
($ in thousands, except share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Noninterest expense:
Salaries and employee benefits 1,533 1,295 2,977 2,556
Occupancy expense 359 254 695 487
Deposit insurance premiums 52 49 103 97
Data processing expense 145 115 285 230
Professional services 92 74 148 124
Advertising and promotion 95 65 173 142
Other 286 197 555 430
---------- ---------- ---------- ----------
Total noninterest expense 2,562 2,049 4,936 4,066
---------- ---------- ---------- ----------
Income before income taxes 1,970 1,746 4,788 3,418
Income taxes 739 650 1,823 1,331
---------- ---------- ---------- ----------
Net income $ 1,231 1,096 2,965 2,087
========== ========== ========== ==========
Basic income per share of common stock $ .34 .30 .83 .58
========== ========== ========== ==========
Weighted-average number of shares outstanding
for basic 3,574,634 3,611,634 3,572,874 3,606,678
========== ========== ========== ==========
Diluted income per share of common stock $ .33 .29 .80 .55
========== ========== ========== ==========
Weighted-average number of shares outstanding
for diluted 3,715,189 3,803,297 3,717,142 3,803,281
========== ========== ========== ==========
Dividends per share of common stock $ .11 .09 .22 .18
========== ========== ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
FFLC BANCORP, INC.
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1999
($ in thousands)
Stock Accumulated
Held by Other
Additional Incentive Compre- Total
Common Paid-In Treasury Plan Retained hensive Stockholders'
Stock Capital Stock Trusts Income Income Equity
------- --------- --------- ---------- ------ -------- ---------
Balance at December 31,
1998 $ 44 29,286 (15,125) (631) 39,714 (65) 53,223
------ --- ------
Comprehensive income:
Net income (unaudited) -- -- -- -- 2,965 -- 2,965
Net change in unrealized loss
on securities available for
sale, net of tax of $58
(unaudited) -- -- -- -- -- (96) (96)
------ --- ------
Comprehensive income (unaudited) -- -- -- -- 2,965 (96) 2,869
------ --- ------
Net proceeds from the issuance
of 44,914 shares of common
stock (unaudited) -- 269 -- -- -- -- 269
Dividends paid, net of $12 of
dividends on ESOP shares
recorded as compensation
expense (unaudited) -- -- -- -- (797) -- (797)
Purchase of treasury stock,
65,125 shares (unaudited) -- -- (1,142) -- -- -- (1,142)
Shares committed to participants
in incentive plans (unaudited) -- 270 -- 157 -- -- 427
---- ------ ------ --- ------ ---- ------
Balance at June 30, 1999
(unaudited) $ 44 29,825 (16,267) (474) 41,882 (161) 54,849
===== ====== ====== === ====== === ======
See accompanying Notes to Condensed Consolidated Financial Statements.
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
Six Months Ended
June 30,
----------------------
1999 1998
-------- --------
(unaudited)
Cash flows from operating activities:
Net income $ 2,965 2,087
Adjustments to reconcile net income
to net cash provided by operations:
Provision for loan losses 350 373
Depreciation 244 201
Provision (credit) for deferred income taxes 49 (302)
Shares committed and dividends to incentive plan participants 439 542
Net amortization of premiums or discounts
on securities 43 (23)
Accretion of deferred loan fees and unearned income 30 35
Deferral of net loan fees collected, net of costs deferred 122 122
Gain on sale of foreclosed real estate (22) (36)
Gain on sale of real estate held for development (886) --
Increase in accrued interest receivable (304) (26)
Increase in other assets (236) (167)
(Decrease) increase in accrued expenses and other liabilities (96) 560
-------- --------
Net cash provided by operating activities 2,698 3,366
-------- --------
Cash flows from investing activities:
Proceeds from maturities and principal repayments on securities held to maturity 3,428 6,716
Proceeds from maturities and principal repayments on securities available for sale 1,725 11,511
Purchase of securities available for sale (2,246) (276)
Loan disbursements (95,679) (67,084)
Principal repayments on loans 42,207 39,680
Purchase of premises and equipment, net (3,043) (74)
Purchase of Federal Home Loan Bank stock (600) (433)
Proceeds from sales of foreclosed real estate 102 28
Proceeds from sale of real estate held for development 1,008 --
-------- --------
Net cash used in investing activities (53,098) (9,932)
-------- --------
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
Six Months Ended
June 30,
----------------------
1999 1998
-------- --------
(unaudited)
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money-market accounts 9,840 5,146
Net increase in certificate accounts 26,157 5,431
Net increase in advances from Federal Home Loan Bank 12,000 --
Net increase in other borrowed funds 612 --
Stock options exercised 269 257
Purchase of treasury stock (1,142) (867)
Cash dividends paid (809) (675)
-------- --------
Net cash provided by financing activities 46,927 9,292
-------- --------
Net (decrease) increase in cash and cash equivalents (3,473) 2,726
Cash and cash equivalents at beginning of period 22,928 15,684
-------- --------
Cash and cash equivalents at end of period $ 19,455 18,410
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Interest $ 9,707 8,482
======== ========
Income taxes $ 1,760 1,608
======== ========
Noncash investing and financing activities:
(Decrease) increase in accumulated other comprehensive income $ (96) 17
======== ========
Transfer from loans to foreclosed real estate $ 271 3
======== ========
Loans originated on sales of foreclosed real estate $ 197 315
======== ========
Loans funded by and sold to correspondent $ 6,442 3,716
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation. In the opinion of the management of FFLC Bancorp,
Inc., the accompanying condensed consolidated financial statements
contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position at June 30, 1999 and
the results of operations for the three- and six-month periods ended
June 30, 1999 and 1998 and cash flows for the six-month periods ended
June 30, 1999 and 1998. The results of operations for the three-and
six-month periods ended June 30, 1999, are not necessarily indicative of
results that may be expected for the year ending December 31, 1999.
The condensed consolidated financial statements include the accounts of
FFLC Bancorp, Inc. (the "Holding Company"), its wholly-owned subsidiary,
First Federal Savings Bank of Lake County (the "Savings Bank") and the
Savings Bank's wholly-owned subsidiary, Lake County Service Corporation
(together, the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. Loan Impairment and Loan Losses. The Company prepares a quarterly review
of the adequacy of the allowance for loan losses to also identify and
value impaired loans in accordance with guidance in the Statements of
Financial Accounting Standards Nos. 114 and 118. No impaired loans were
identified by the Company at or during the six months ended June 30,
1999 or 1998.
An analysis of the change in the allowance for loan losses was as
follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
Beginning balance $ 2,399 1,834 2,283 1,684
Provision for loan losses 150 225 350 373
Loans charged-off (6) (25) (107) (25)
Recoveries 2 -- 19 2
------- ------- ------- -------
Ending balance $ 2,545 2,034 2,545 2,034
======= ======= ======= =======
3. New Accounting Requirements. The FASB has recently issued the following
Statement of Financial Accounting Standards which is relevant to the
Company:
Financial Accounting Standards 133 - Accounting for Derivative
Investments and Hedging Activities requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivatives and whether they qualify for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows. The Company adopted this Statement effective July 1, 1999. As
allowed by this standard, the Company reclassified all securities held
to maturity to available for sale on July 1, 1999.
4. Per Share Amounts. Income per share of common stock has been determined
by dividing net income for the period by the weighted-average number of
shares outstanding. Shares of common stock purchased by the ESOP and RRP
incentive plans are only considered outstanding when the shares are
released for allocation to participants. Stock options are regarded as
common stock equivalents and are therefore considered in diluted income
per share calculations. Common stock equivalents are computed using the
treasury stock method. The following table presents the calculation of
basic and diluted income per share:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Weighted-average shares of common stock issued and
outstanding before adjustments for ESOP, RRP
and common stock options 3,664,701 3,754,307 3,669,516 3,755,926
Adjustment to reflect the effect of unallocated ESOP
and RRP shares (90,067) (142,673) (96,642) (149,248)
---------- ---------- ---------- ----------
Weighted-average shares for basic net income per share 3,574,634 3,611,634 3,572,874 3,606,678
========== ========== ========== ==========
Basic net income per share $ .34 .30 .83 .58
========== ========== ========== ==========
Total weighted-average common shares and
equivalents outstanding for basic net income per
share computation 3,574,634 3,611,634 3,572,874 3,606,678
Additional dilutive shares using the average market
value for the period utilizing the treasury stock
method regarding stock options 140,555 191,663 144,268 196,603
---------- ---------- ---------- ----------
Weighted-average common shares and equivalents
outstanding for diluted net income per share 3,715,189 3,803,297 3,717,142 3,803,281
========== ========== ========== ==========
Diluted net income per share $ .33 .29 .80 .55
========== ========== ========== ==========
FFLC BANCORP, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
FFLC Bancorp, Inc. (the "Holding Company") is the holding company for
First Federal Savings Bank of Lake County (the "Savings Bank") and its
wholly-owned subsidiary, Lake County Service Corporation (together, the
"Company"). The Company's consolidated results of operations are primarily
those of the Savings Bank.
The Savings 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 securities and funds generated from
operations, primarily in mortgage loans secured by one-to-four-family
owner-occupied homes, commercial loans, securities and, to a lesser
extent, construction loans, consumer and other loans, and multi-family
residential mortgage loans. In addition, the Savings Bank holds securities
permitted by federal laws and regulations including securities issued by
the U.S. Government and agencies thereof. The Savings Bank's revenues are
derived principally from interest on its mortgage loan and mortgage-backed
securities portfolios and interest and dividends on its investment
securities. The Savings Bank is a member of the Federal Home Loan Bank
("FHLB") system and its deposits are insured to the applicable limits by
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC"). The Savings Bank is subject to
regulation by the Office of Thrift Supervision (the "OTS") as its
chartering agency, and the FDIC as its deposit insurer.
The Savings Bank has 12 full-service locations in Lake, Sumter and Citrus
Counties, Florida.
The Savings Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest income
earned primarily on its loans and securities portfolios, and its cost of
funds, consisting of the interest paid on its deposits and borrowings. The
Savings Bank's operating results are also affected, to a lesser extent, by
fee income and by gains or losses on the sale of loans, securities
available for sale and foreclosed real estate. The Savings Bank's
operating expenses consist primarily of salaries and employee benefits,
occupancy expenses, deposit insurance premiums and other general and
administrative expenses. The Savings Bank'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.
Liquidity and Capital Resources
The Company's most liquid assets are cash, amounts due from depository
institutions and interest-bearing deposits. The levels of these assets are
dependent on the Company's lending, investing, operating, and deposit
activities during any given period. At June 30, 1999, cash, amounts due
from depository institutions and interest-bearing deposits, totaled $19.5
million.
The Savings Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus
short-term borrowings. This liquidity requirement is currently 4% but may
be changed from time to time by the OTS to any amount within the range of
4% to 10% depending upon economic conditions and the savings flows of
member institutions. Monetary penalties may be imposed for failure to meet
this liquidity requirement. The Savings Bank's liquidity ratio at June 30,
1999 exceeded the requirement.
The Savings Bank's primary sources of funds include proceeds from payments
and prepayments on loans and mortgage-backed securities, proceeds from
maturities of investment securities, and increases in deposits. While
maturities and scheduled amortization of loans, mortgage-backed and
investment securities are predictable sources of funds, deposit inflows
and mortgage and mortgage-backed securities prepayments are greatly
influenced by local conditions, general interest rates, and regulatory
changes.
At June 30, 1999, the Savings Bank had outstanding commitments to
originate $8.5 million of loans and to fund the undisbursed portion of
loans in process of approximately $13.9 million and undisbursed commercial
lines of credit of approximately $27.8 million. The Savings Bank believes
that it will have sufficient funds available to meet its commitments. At
June 30, 1999, certificates of deposit which were scheduled to mature in
one year or less totaled $182.2 million. Management believes, based on
past experience, that a significant portion of those funds will remain
with the Savings Bank.
The Savings Bank is subject to various regulatory capital requirement
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Savings Bank must meet specific capital guidelines
that involve quantitative measures of the Savings Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Savings 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 Savings 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 June 30,
1999, that the Savings Bank meets all capital adequacy requirements to
which it is subject.
As of June 30, 1999, the most recent notification from the OTS categorized
the Savings Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the
Savings 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.
The Savings Bank's actual capital amounts and ratios at June 30, 1999 are
also presented in the table.
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------------ ---------------- ------------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
(Dollars in thousands)
Stockholders' equity,
and ratio to total
assets 9.6% $ 49,527
Less: investment in
nonincludable
subsidiary (1,082)
Add back: unrealized loss on
securities available for sale 51
Tangible capital,
and ratio to adjusted
total assets 9.5% $ 48,496 1.5% $ 7,697
======== =======
Tier 1 (core) capital, and
ratio to adjusted total
assets 9.5% $ 48,496 3.0% $15,394 5.0% $25,657
======== ======= =======
Tier 1 capital, and ratio
to risk-weighted assets 15.5% 48,496 4.0% $12,505 6.0% $18,758
======= =======
Tier 2 capital (allowance for
loan losses and deductible
assets) 2,439
Total risk-based capital,
and ratio to risk-
weighted assets 16.3% $ 50,935 8.0% $25,011 10.0% $31,264
======== ======= =======
Total assets $514,170
========
Adjusted total assets $513,139
========
Risk-weighted assets $312,635
========
The following table shows selected ratios for the periods ended or at the
dates indicated:
Six Months Six Months
Ended Year Ended Ended
June 30, December 31, June 30,
1999 1998 1998
----- ----- -----
Average equity as a percentage
of average assets 11.09% 12.52% 12.85%
Total equity to total assets at end of period 10.67% 11.47% 12.80%
Return on average assets (1) 1.21% 1.05% 1.03%
Return on average equity (1) 10.92% 8.37% 8.00%
Noninterest expense to average assets (1) 2.02% 2.01% 2.00%
Nonperforming assets to total assets
at end of period .10% .17% .26%
Operating efficiency ratio 53.72%(2) 52.25% 51.75%
(1) Annualized for the six months ended June 30, 1999 and 1998. (2) Excludes
gain on sale of real estate held for development.
At At At
June 30, December 31, June 30,
1999 1998 1998
---- ---- ----
Weighted-average interest rates:
Interest-earning assets:
Loans receivable 7.84% 7.96% 8.13%
Securities 6.09% 6.37% 6.58%
Other interest-earning assets 6.06% 5.32% 6.34%
Total interest-earning assets 7.66% 7.72% 7.90%
Interest-bearing liabilities:
Deposits 4.38% 4.58% 4.82%
Borrowed funds 5.21% 5.27% 6.01%
Total interest-bearing liabilities 4.51% 4.67% 4.92%
Interest-rate spread 3.15% 3.05% 2.98%
Change in Financial Condition
Total assets increased $50.1 million or 10.8%, from $463.8 million at December
31, 1998 to $514.0 million at June 30, 1999, primarily as a result of an
increase in loans receivable of $52.9 million. Deposits increased $36.0 million
from $351.0 million at December 31, 1998 to $387.0 million at June 30, 1999. The
$1.6 million net increase in stockholders equity during the six months ended
June 30, 1999 resulted from net income of $3.0 million, credits to equity
totaling $427,000 related to the stock incentive plans and proceeds of $269,000
from stock options exercised, offset by repurchases of the Company's stock of
$1.1 million, dividends paid of $797,000 and a $96,000 decrease in accumulated
other comprehensive income.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest-rate spread; and (v) net
interest margin. Yields and costs were derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
shown. The average balance of loans receivable includes loans on which the
Company has discontinued accruing interest. The yields and costs include fees
which are considered to constitute adjustments to yields.
Three Months Ended June 30,
----------------------------------------------------------------
1999 1998
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
($ in Thousands)
Interest-earning assets:
Loans receivable $ 425,619 8,519 8.01% $ 332,806 6,901 8.29%
Securities 38,479 551 5.73 45,091 722 6.40
Other interest-earning assets (1) 18,825 247 5.25 18,093 266 5.88
--------- ----- --------- -----
Total interest-earning assets 482,923 9,317 7.72 395,990 7,889 7.97
----- -----
Noninterest-earning assets 21,492 12,795
--------- ---------
Total assets $ 504,415 $ 408,785
========= =========
Interest-bearing liabilities:
NOW and money-market accounts 65,603 390 2.38 48,721 265 2.18
Passbook and statement savings accounts 22,483 119 2.12 24,021 123 2.05
Certificates 280,530 3,647 5.20 241,809 3,351 5.54
FHLB advances 63,440 830 5.23 30,000 456 6.08
Other borrowings 1,672 19 4.55 - - -
--------- ----- --------- -----
Total interest-bearing liabilities 433,728 5,005 4.62 344,551 4,195 4.87
----- -----
Noninterest-bearing deposits 10,707 7,442
Noninterest-bearing liabilities 5,211 4,344
Stockholders' equity 54,769 52,448
--------- ---------
Total liabilities and
stockholders' equity $ 504,415 $ 408,785
========= =========
Net interest income $4,312 $3,694
====== ======
Interest-rate spread (2) 3.10% 3.10%
==== ====
Net average interest-earning assets,
net interest margin (3) $ 49,195 3.57% $ 51,439 3.73%
========= ==== ========= ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.11 1.15
==== ====
(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.
FFLC BANCORP, INC.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of FFLC Bancorp 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 cost; (iii) net interest and dividend income; (iv) interest-rate spread;
and (v) net interest margin. 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 receivable includes loans on which
the Company has discontinued accruing interest. The yields and costs include
fees which are considered to constitute adjustments to yields.
Six Months Ended June 30,
----------------------------------------------------------------
1999 1998
------------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
($ in Thousands)
Interest-earning assets:
Loans receivable $ 413,691 16,605 8.03% $ 325,223 13,521 8.32%
Securities 39,028 1,116 5.72 50,819 1,630 6.42
Other interest-earning assets (1) 17,019 447 5.25 16,813 491 5.84
--------- ------ --------- ------
Total interest-earning assets 469,738 18,168 7.74 392,855 15,642 7.96
------ ------
Noninterest-earning assets 20,110 13,320
--------- ---------
Total assets $ 489,848 $ 406,175
========= =========
Interest-bearing liabilities:
NOW and money-market accounts 61,967 721 2.33 47,653 511 2.14
Passbook and statement savings accounts 22,587 235 2.08 24,313 270 2.22
Certificates 272,392 7,140 5.24 241,102 6,652 5.52
FHLB advances 62,448 1,628 5.21 30,000 906 6.04
Other borrowings 1,272 29 4.56 - - -
--------- ------ --------- ------
Total interest-bearing liabilities 420,666 9,753 4.64 343,068 8,339 4.86
------ ------
Noninterest-bearing deposits 9,914 7,154
Noninterest-bearing liabilities 4,962 3,771
Stockholders' equity 54,306 52,182
--------- ---------
Total liabilities and stockholders' equity $ 489,848 $ 406,175
========= =========
Net interest income $8,415 $7,303
====== ======
Interest-rate spread (2) 3.10% 3.10%
==== ====
Net average interest-earning assets,
net interest margin (3) $ 49,072 3.58% $ 49,787 3.72%
========= ==== ========= ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.12 1.15
==== ====
(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.
FFLC BANCORP, INC.
Comparison of the Three-Month Periods Ended June 30, 1999 and 1998
Results of Operations
General Operating Results. Net income for the three-month period ended June 30,
1999 was $1.2 million, or $.34 and $.33 per basic and diluted share,
respectively, compared to $1.1 million, or $.30 and $.29 per basic and
diluted share, respectively, for the comparable period in 1998. The increase
in net income was primarily a result of an increase of $1.4 million in
interest income, partially offset by increases of $810,000 in interest
expense and $513,000 in noninterest expense.
Interest Income. Interest income increased $1.4 million or 18.1%, from $7.9
million for the three-month period ended June 30, 1998 to $9.3 million for
the three-month period ended June 30, 1999. The increase was due to a 22.0%
increase in average interest-earning assets outstanding for the three months
ended June 30, 1999 compared to the 1998 period, partially offset by a
decrease in the average yield on interest-earning assets from 7.97% for the
three months ended June 30, 1998, to 7.72% for the three months ended June
30, 1999.
Interest Expense. Interest expense increased $810,000, from $4.2 million for the
three-month period ended June 30, 1998 to $5.0 million for the three-month
period ended June 30, 1999. The increase was due to a 25.9% increase in
average interest-bearing liabilities outstanding during the three months
ended June 30, 1999 compared to the 1998 period, partially offset by a
decrease in the weighted average rate paid on interest-bearing liabilities
from 4.87% during the 1998 period to 4.62% during the 1999 period.
Noninterest Income. Noninterest income increased $44,000 or 13.5% from $326,000
during the 1998 period to $370,000 during the 1999 period. The increase was
primarily due to a $37,000 increase in other service charges and fees.
Noninterest Expense. Noninterest expense increased by $513,000, or 25.0% from
$2.1 million for the three-month period ended June 30, 1998 to $2.6 million
for the three-month period ended June 30, 1999. The increase was primarily
due to increases in salaries and employee benefits of $238,000 and occupancy
expense of $105,000 related to the overall growth of the Company.
Income Tax Provision. The income tax provision increased from $650,000 for the
three-month period ended June 30, 1998 (an effective tax rate of 37.2%) to
$739,000 (an effective tax rate of 37.5%) for the corresponding period in
1999.
FFLC BANCORP, INC.
Comparison of the Six-Month Periods Ended June 30, 1999 and 1998
Results of Operations
General Operating Results. Net income for the six-month period ended June 30,
1999 was $3.0 million, or $.83 and $.80 per basic and diluted share,
respectively, compared to $2.1 million, or $.58 and $.55 per basic and
diluted share, respectively, for the comparable period in 1998. Net income
for the 1999 period included a gain on sale of real estate held for
development of $886,000 ($553,000, net of tax). An increase in interest
income of $2.5 million, partially offset by increases in interest expense of
$1.4 million and noninterest expense of $870,000 also contributed to the
increase in net income.
Interest Income. Interest income increased $2.5 million, or 16.1% from $15.7
million for the six-month period ended June 30, 1998 to $18.2 million for the
comparable period in 1999. The increase was due to a 19.6% increase in
average interest-earning assets outstanding for the six months ended June 30,
1999 compared to the 1998 period, partially offset by a decrease in the
average yield earned on interest-earning assets from 7.96% for the six months
ended June 30, 1998, to 7.74% for the six months ended June 30, 1999.
Interest Expense. Interest expense increased $1.4 million, or 17.0% from $8.4
million for the six-month period ended June 30, 1998 to $9.8 million for the
six-month period ended June 30, 1999. The increase was due to a 22.6%
increase in average interest-bearing liabilities outstanding during the six
months ended June 30, 1999 compared to the 1998 period, partially offset by a
decrease in the weighted-average rate paid on interest-bearing liabilities
from 4.86% during the 1998 period to 4.64% during the 1999 period.
Noninterest Income. Noninterest income increased $1.1 million from the six-month
period ended June 30, 1998 to the six-month period ended June 30, 1999. This
was primarily due to a pretax gain on sale of real estate held for
development of $886,000 recognized during 1999.
Noninterest Expense. Noninterest expense increased by $870,000, or 21.4%, from
$4.1 million for the six-month period ended June 30, 1998 to $4.9 million for
the six-month period ended June 30, 1999. The increase was primarily due to
increases in salaries and employee benefits of $421,000 and occupancy expense
of $208,000 related to the overall growth of the Company.
Income Tax Provision. The income tax provision increased from $1.3 million for
the six-month period ended June 30, 1998 (an effective tax rate of 38.9%) to
$1.8 million (an effective tax rate of 38.1%) for the corresponding period
for 1999.
FFLC BANCORP, INC.
Year 2000 Readiness Disclosure
The Company is acutely aware of the many areas affected by the Year 2000
computer issue, as addressed by the Federal Financial Institutions Examination
Council ("FFIEC") in its interagency statement which provided an outline for
institutions to manage the Year 2000 challenges effectively. A Year 2000 plan
has been approved by the Board of Directors which includes multiple phases,
tasks to be completed, and target dates for completion. Issues addressed in the
plan include awareness, assessment, renovation, validation, implementation, and
contingency planning.
The Company has formed a Year 2000 committee that is charged with the oversight
of completing the Year 2000 project on a timely basis. The Company has completed
its awareness, assessment, renovation, validation and implementation phases of
its plan and is substantially Year 2000 ready. Since it routinely upgrades and
purchases technologically advanced software and hardware on a continual basis,
the Company has determined that the cost of making modifications to correct any
Year 2000 issues will not materially affect reported operating results.
Management does not believe that the Company has incurred or will incur material
costs associated with the Year 2000 issue.
The Company's vendors and suppliers have been contacted for written confirmation
of their product readiness for Year 2000 compliance. Negative or deficient
responses are analyzed and periodically reviewed to prescribe timely actions
within the Company's contingency planning. The Company's main service provider
has completed testing of its mission critical application software and item
processing software; the test results, which have been documented and validated,
are deemed to be Year 2000 compliant. FFIEC guidance on testing Year 2000
compliance of service providers states that proxy tests are acceptable
compliance tests. In proxy testing, the service provider tests with a
representative sample of financial institutions that use a particular service,
with the results of such testing shared with all similarly situated clients of
the service provider. The Company has authorized the acceptance of proxy testing
since the proxy tests have been conducted with financial institutions that are
similar in type and complexity to its own using the same version of the Year
2000 ready software and the same hardware and operating systems.
The Company also recognizes the importance of determining that its borrowers are
facing the Year 2000 problem in a timely manner to avoid deterioration of the
loan portfolio solely due to this issue. By December 31, 1998 all material
relationships were identified through completed questionnaires or direct contact
with the customer to determine Year 2000 readiness. On an ongoing basis, new
commercial loan borrowers are asked to certify that their systems are Year 2000
compliant. Deposit customers have received statement stuffers and informational
material in this regard.
Notwithstanding our actions, there can be no assurances that all hardware and
software that the Company will use will be Year 2000 compliant. Management
cannot predict the amount of financial difficulties it may incur due to
customers and vendors inability to perform according to their agreements with
the Company or the effects that other third parties may cause as a result of
this issue. Therefore, there can be no assurance that the failure or delay of
others to address the issue or that the costs involved in such process will not
have a material adverse effect on the Company's business, financial condition,
and results of operations.
FFLC BANCORP, INC.
Based on testing results to date (as noted above), the Company's mission
critical systems have been deemed to be Year 2000 ready. However, a written
contingency plan has been developed to address problems that might be caused
from Year 2000 system failures. Testing of the contingency plan was completed
during July 1999. With regard to non-mission critical internal systems, the
Company's contingency plans are to replace those systems that test as being
noncompliant. Alternatively, some systems could be handled manually on an
interim basis. Should outside service providers not be able to provide compliant
systems, the Company will terminate those relationships and transfer to other
vendors. It is anticipated that the Company's deposit customers will have
increased demands for cash in the latter part of 1999 and, correspondingly, the
Company will maintain higher liquidity levels.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from 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. There have been no significant changes in the Company's
market risk exposure since December 31, 1998.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceeding to which FFLC Bancorp, Inc. or
any of its subsidiaries is a party or to which any of their property is
subject.
Item 2. Changes in Securities
Not applicable
Item 3. Default upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Annual Meeting") of FFLC Bancorp,
Inc. was held on May 6, 1999, to consider the election of two directors each
for a term of three years and the ratification of the appointment of the
Company's independent auditors for the year ending December 31, 1999. At the
Annual Meeting, incumbent directors James P. Logan and Ted R. Ostrander, Jr.
were reelected. The terms of Directors Joseph J. Junod, Claron D. Wagner,
H.D. Robuck, Jr., Stephen T. Kurtz and Paul K. Mueller continued after the
Annual Meeting.
At the Annual Meeting, 2,661,110 shares were present in person or by proxy.
The following is a summary and tabulation of the matters that were voted upon
at the Annual Meeting:
FFLC BANCORP, INC.
Item 4. Submission of Matters to a Vote of Security Holders, Continued
Proposal I.
The election of two directors, each for a term of three years:
Abstentions
and Broker
For Withheld Against Nonvotes
--- -------- ------- --------
James P. Logan 2,645,644 15,466 -- --
========= ========= ======== =========
Ted R. Ostrander, Jr 2,645,311 15,799 -- --
========= ========= ======== =========
Proposal II:
To ratify the appointment of the Company's independent auditors for the year
ending December 31, 1999
Abstentions
and Broker
For Withheld Against Nonvotes
--- -------- ------- --------
2,639,896 - 5,792 15,422
========= ========= ======== ===========
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 Financial Data Schedule (for SEC use only):
b. There were no reports on Form 8-K filed during the three months ended June
30, 1999.
FFLC BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FFLC BANCORP, INC.
------------------
(Registrant)
Date: August 3, 1999 By: /s/ Stephen T. Kurtz
--------------------------- ---------------------
Stephen T. Kurtz,
President and
Chief Executive
Officer
Date: August 3, 1999 By: /s/ Paul K. Mueller
--------------------------- --------------------
Paul K. Mueller,
Executive Vice President and
Treasurer