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 September 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 3,557,288 shares outstanding at
$.01 per share October 26, 1999
- ----------------------- -------------------------------
(CONFORMED COPY)
FFLC BANCORP, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets -
at September 30, 1999 (unaudited) and at December 31, 1998..............2
Condensed Consolidated Statements of Income -
Three and Nine months ended September 30, 1999 and 1998 (unaudited).....3
Condensed Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 1999 (unaudited)........................4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998 (unaudited).............5-6
Notes to Condensed Consolidated Financial Statements (unaudited)........7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................9-17
Item 3. Quantative and Qualitative Disclosures About Market Risk..........18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................18
Item 2. Changes in Securities.............................................18
Item 3. Default upon Senior Securities....................................18
Item 5. Other Information.................................................18
Item 6. Exhibits and Reports on Form 8-K..................................18
SIGNATURES....................................................................19
1
FFLC BANCORP, INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands)
At At
September 30, December 31,
1999 1998
--------- --------
Assets (unaudited)
Cash and due from banks $ 9,723 9,515
Interest-bearing deposits 9,404 13,413
--------- --------
Cash and cash equivalents 19,127 22,928
--------- --------
Securities available for sale 40,307 22,165
Securities held to maturity (market value of $18,425 in 1998) - 18,227
Loans receivable, net of allowance for loan losses of $2,644 in 1999
and $2,283 in 1998 474,132 389,059
Accrued interest receivable 2,780 2,242
Premises and equipment, net 8,924 5,597
Foreclosed real estate 332 366
Real estate held for development - 122
Restricted security - Federal Home Loan Bank stock, at cost 4,450 2,800
Other assets 564 314
--------- --------
Total $ 550,616 463,820
''''''''' ''''''''
Liabilities and Stockholders' Equity
Liabilities:
NOW and money-market accounts 81,385 68,816
Savings accounts 21,614 23,038
Certificates 297,416 259,176
--------- --------
Total deposits 400,415 351,030
--------- --------
Advances from Federal Home Loan Bank 89,000 56,000
Other borrowed funds 2,582 789
Deferred income taxes 191 284
Accrued expenses and other liabilities 3,573 2,494
--------- --------
Total liabilities 495,761 410,597
(continued) ------- -------
At At
September 30, December 31,
1999 1998
--------- --------
Assets (unaudited)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding - -
Common stock, $.01 par value, 9,000,000 shares authorized,
4,420,561 in 1999 and 4,372,041 in 1998 shares issued 44 44
Additional paid-in-capital 29,981 29,286
Retained income 42,713 39,714
Accumulated other comprehensive income - unrealized loss on securities
available for sale, net of tax of $58 in 1999 and $39 in 1998 (96) (65)
Treasury stock, at cost (845,030 shares in 1999 and
716,421 shares in 1998) (17,393) (15,125)
Stock held by Incentive Plan Trusts (394) (631)
--------- --------
Total stockholders' equity 54,855 53,223
--------- --------
Total $ 550,616 463,820
''''''''' ''''''''
See accompanying Notes to Condensed Consolidated Financial Statements.
2
FFLC BANCORP, INC.
Condensed Consolidated Statements of Income
($ in thousands, except share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Interest income:
Loans receivable $ 9,030 7,264 25,635 20,785
Securities available for sale 544 207 1,245 820
Securities held to maturity - 385 415 1,402
Other interest-earning assets 227 254 674 745
------------- ----------- ----------- -----------
Total interest income 9,801 8,110 27,969 23,752
------------- ----------- ----------- -----------
Interest expense:
Deposits 4,323 3,907 12,419 11,340
Borrowed funds 1,042 460 2,699 1,366
------------- ----------- ----------- -----------
Total interest expense 5,365 4,367 15,118 12,706
------------- ----------- ----------- -----------
Net interest income 4,436 3,743 12,851 11,046
Provision for loan losses 150 154 500 527
------------- ----------- ----------- -----------
Net interest income after provision
for loan losses 4,286 3,589 12,351 10,519
------------- ----------- ----------- -----------
Noninterest income:
Deposit account fees 154 131 451 397
Other service charges and fees 165 181 596 418
Gain on sale of real estate held for development - - 886 -
Other - 6 45 57
------------- ----------- ----------- -----------
Total noninterest income 319 318 1,978 872
------------- ----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits 1,581 1,296 4,558 3,852
Occupancy expense 417 283 1,112 770
Deposit insurance premiums 54 50 157 147
Data processing expense 153 117 438 347
Professional services 71 84 219 208
Advertising and promotion 87 70 260 212
Other 279 239 834 669
------------- ----------- ----------- -----------
Total noninterest expense 2,642 2,139 7,578 6,205
------------- ----------- ----------- -----------
(continued)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Income before income taxes 1,963 1,768 6,751 5,186
Income taxes 739 636 2,562 1,967
------------- ----------- ----------- -----------
Net income $ 1,224 1,132 4,189 3,219
''''''''''''' ''''''''''' ''''''''''' '''''''''''
Basic income per share of common stock $ . 35 .31 1.18 .89
''''''''''''' ''''''''''' ''''''''''' '''''''''''
Weighted-average number of shares outstanding
for basic 3,537,825 3,591,672 3,560,634 3,600,679
''''''''''''' ''''''''''' ''''''''''' '''''''''''
Diluted income per share of common stock $ .33 .30 1.13 .85
''''''''''''' ''''''''''' ''''''''''' '''''''''''
Weighted-average number of shares outstanding
for diluted 3,670,492 3,770,271 3,695,240 3,790,632
''''''''''''' ''''''''''' ''''''''''' '''''''''''
Dividends per share of common stock $ .11 .09 .33 .27
''''''''''''' ''''''''''' ''''''''''' '''''''''''
See accompanying Notes to Condensed Consolidated Financial Statements
3
FFLC BANCORP, INC.
Condensed Consolidated Statement of Stockholders' Equity
Nine Months Ended September 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) - - - - 4,189 - 4,189
Net change in unrealized loss
on securities available for
sale, net of tax of $19
(unaudited) - - - - - (31) (31)
-------
Comprehensive income (unaudited) 4,158
-------
Net proceeds from the exercise
of stock options (48,520 shares)
(unaudited) - 291 - - - - 291
Dividends paid, net of $17 of
dividends on ESOP shares
recorded as compensation
expense (unaudited) - - - - (1,190) - (1,190)
Purchase of treasury stock,
128,609 shares (unaudited) - - (2,268) - - - (2,268)
Shares committed to participants
in incentive plans (unaudited) - 404 - 237 - - 641
--- ------- --------- --- -------- ----- -------
Balance at September 30, 1999
(unaudited) $ 44 29,981 (17,393) (394) 42,713 (96) 54,855
'' '''''' '''''' ''' '''''' '' ''''''
See accompanying Notes to Condensed Consolidated Financial Statements.
4
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
Nine Months Ended
September 30,
---------------------
1999 1998
---- ----
(unaudited)
Cash flows from operating activities:
Net income $ 4,189 3,219
Adjustments to reconcile net income
to net cash provided by operations:
Provision for loan losses 500 527
Depreciation 401 305
Credit for deferred income taxes (74) (395)
Shares committed and dividends to incentive plan participants 658 792
Net amortization of premiums or discounts on securities 57 (28)
Accretion of deferred loan fees and unearned income 44 66
Deferral of net loan fees collected, net of costs deferred 209 246
Gain on sale of foreclosed real estate (27) (36)
Gain on sale of real estate held for development (886) -
Increase in accrued interest receivable (538) (117)
Increase in other assets (250) (230)
Increase in accrued expenses and other liabilities 1,079 96
-------- ---------
Net cash provided by operating activities 5,362 4,445
-------- -------
Cash flows from investing activities:
Proceeds from maturities and principal repayments on securities held to maturity 3,428 11,108
Proceeds from maturities and principal repayments on securities available for sale 3,923 13,424
Purchase of securities available for sale (7,373) (405)
Loan disbursements (145,812) (109,702)
Principal repayments on loans 59,843 59,898
Purchase of premises and equipment, net (3,728) (216)
Purchase of Federal Home Loan Bank stock (1,650) (433)
Proceeds from sales of foreclosed real estate 204 30
Proceeds from sale of real estate held for development 1,008 -
-------- -------
Net cash used in investing activities (90,157) (26,296)
------- -------
(continued)
5
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows, Continued
($ in thousands)
Nine Months Ended
September 30,
-------------------
1999 1998
---- ----
(unaudited)
Cash flows from financing activities:
Net increase in demand, savings, NOW and money-market accounts $ 11,145 6,388
Net increase in certificate accounts 38,240 14,471
Net increase in advances from Federal Home Loan Bank 33,000 -
Net increase in other borrowed funds 1,793 -
Stock options exercised 291 342
Purchase of treasury stock (2,268) (1,993)
Cash dividends paid (1,207) (1,010)
-------- --------
Net cash provided by financing activities 80,994 18,198
-------- --------
Net decrease in cash and cash equivalents (3,801) (3,653)
Cash and cash equivalents at beginning of period 22,928 15,684
-------- --------
Cash and cash equivalents at end of period $ 19,127 12,031
'''''''' ''''''''
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 14,816 12,877
'''''''' ''''''''
Income taxes $ 2,573 2,342
'''''''' ''''''''
Noncash investing and financing activities:
(Decrease) increase in accumulated other comprehensive income, net of tax $ (31) 50
'''''''' ''''''''
Transfers from loans to foreclosed real estate $ 340 64
'''''''' ''''''''
Loans originated on sales of foreclosed real estate $ 197 313
'''''''' ''''''''
Loans funded by and sold to correspondent $ 6,882 5,562
'''''''' ''''''''
Transfer securities from held to maturity to available for sale
upon adoption of FAS 133 $ 14,784 -
'''''''' ''''''''
See accompanying Notes to Condensed Consolidated Financial Statements.
6
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 September 30, 1999
and the results of operations for the three- and nine-month periods
ended September 30, 1999 and 1998 and cash flows for the nine month
periods ended September 30, 1999 and 1998. The results of operations for
the three-and nine-month periods ended September 30, 1999 and other data
for the three- and nine-month periods ended September 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 No. 114 and 118. No impaired loans were
identified by the Company during the nine months ended September 30,
1999 or 1998.
An analysis of the change in the allowance for loan losses was as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- -------
Beginning balance $ 2,545 2,034 2,283 1,684
Provision for loan losses 150 154 500 527
Loans charged-off (51) (4) (158) (29)
Recoveries - - 19 2
------- ------- ------- -------
Ending balance $ 2,644 2,184 2,644 2,184
''''''' ''''''' ''''''' '''''''
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 with a book value of $14,784,000 and a market value of
$14,969,000 to available for sale on July 1, 1999.
(continued)
7
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
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 Nine Months Ended
September 30, September 30,
------------------------- ----------------------
1999 1998 1999 1998
---------- --------- ---------- ----------
Weighted average shares of common stock issued
and outstanding before adjustments for ESOP,
RRP and common stock options 3,614,739 3,721,193 3,650,701 3,743,352
Adjustment to reflect the effect of unallocated
ESOP and RRP shares (76,914) (129,521) (90,067) (142,673)
---------- --------- ---------- ----------
Weighted average common shares, for basic
income per share 3,537,825 3,591,672 3,560,634 3,600,679
''''''''' ''''''''' ''''''''' '''''''''
Basic income per share $ .35 .31 1.18 .89
''''''''' '''''''''''' ''''''''''' '''''''''
Total weighted average common shares and
equivalents outstanding for basic income
per share computation 3,537,825 3,591,672 3,560,634 3,600,679
Additional dilutive shares using the average market
value for the period utilizing the treasury stock
method regarding stock options 132,667 178,599 134,606 189,953
---------- ---------- --------- ----------
Weighted average common shares and equivalents
outstanding for diluted income per share 3,670,492 3,770,271 3,695,240 3,790,632
''''''''' ''''''''' ''''''''' '''''''''
Diluted income per share $ .33 .30 1.13 .85
''''''''' '''''''''''' '''''''''''' '''''''''
8
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.
9
FFLC BANCORP, INC.
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 September 30, 1999, cash, amounts
due from depository institutions and interest-bearing deposits, totaled
$19.1 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
September 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 September 30, 1999, the Savings Bank had outstanding commitments to
originate $7.6 million of loans and to fund the undisbursed portion of
loans in process of approximately $14.4 million and undisbursed commercial
lines of credit of approximately $28.9 million. The Savings Bank believes
that it will have sufficient funds available to meet its commitments. At
September 30, 1999, certificates of deposit which were scheduled to mature
in one year or less totaled $193.1 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 requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the 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 September
30, 1999, that the Savings Bank meets all capital adequacy requirements to
which it is subject.
10
FFLC BANCORP, INC.
As of September 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 September 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 9.3% $ 51,021
Less: investment in
nonincludable
subsidiary (1,216)
Add back: unrealized loss on
available-for-sale
securities 34
Tangible capital,
and ratio to adjusted
total assets 9.1% $ 49,839 1.5% $ 8,242
''''''' '''''''
Tier 1 (core) capital, and
ratio to adjusted total
assets 9.1% $ 49,839 3.0% $ 16,485 5.0% $ 27,475
''''''' '''''' ''''''
Tier 1 capital, and ratio
to risk-weighted assets 14.8% 49,839 4.0% $ 13,505 6.0% $ 20,257
'''''' ''''''
Tier 2 capital (allowance for
loan losses and deductible
assets) 2,548
Total risk-based capital,
and ratio to risk-
weighted assets 15.6% $ 52,387 8.0% $ 27,010 10.0% $ 33,762
'''''''' '''''' ''''''
Total assets $ 550,672
''''''''
Adjusted total assets $ 549,490
''''''''
Risk-weighted assets $ 337,622
''''''''
11
FFLC BANCORP, INC.
The following table shows selected ratios for the periods ended or at the
dates indicated:
Nine Months Nine Months
Ended Year Ended Ended
September 30, December 31, September 30,
1999 1998 1998
Average equity as a percentage
of average assets 10.83% 12.52% 12.75%
Total equity to total assets at end of period 9.96% 11.47% 12.51%
Return on average assets (1) 1.11% 1.05% 1.05%
Return on average equity (1) 10.25% 8.37% 8.20%
Noninterest expense to average assets (1) 2.01% 2.01% 2.02%
Nonperforming assets to total assets
at end of period .23% .17% .19%
Operating efficiency ratio (2) 54.35% 52.25% 52.06%
(1) Annualized for the nine months ended September 30, 1999 and 1998.
(2) Excludes gain on sale of real estate held for development.
At At At
September 30, December 31, September 30,
1999 1998 1998
------------------------------ --------
Weighted-average interest rates:
Interest-earning assets:
Loans receivable 7.85% 7.96% 8.08%
Securities 6.23% 6.37% 6.54%
Other interest-earning assets 6.11% 5.32% 6.25%
Total interest-earning assets 7.68% 7.72% 7.91%
Interest-bearing liabilities:
Deposits 4.45% 4.58% 4.73%
Borrowed funds 5.45% 5.27% 6.01%
Total interest-bearing liabilities 4.64% 4.67% 4.84%
Interest-rate spread 3.04% 3.05% 3.07%
Change in Financial Condition
Total assets increased $86.8 million or 18.7%, from $463.8 million at December
31, 1998 to $550.6 million at September 30, 1999, primarily as a result of an
increase in loans receivable of $85.1 million. Deposits increased $49.4 million
from $351.0 million at December 31, 1998 to $400.4 million at September 30,
1999. Also advances from the Federal Home Loan Bank increased $33.0 million from
$56.0 million at December 31, 1998 to $89.0 million at September 30, 1999. The
$1.6 million net increase in stockholders equity during the nine months ended
September 30, 1999 resulted primarily from net income of $4.2 million, credits
to equity totaling $641,000 related to the stock incentive plans and proceeds of
$291,000 from stock options exercised, partially offset by repurchases of the
Company's stock of $2.3 million and dividends paid of $1.2 million.
12
FFLC BANCORP, INC.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest-rate spread; and (v) net
interest margin. Yields and costs were derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
shown. The average balance of loans receivable includes loans on which the
Company has discontinued accruing interest. The yields and costs include fees
which are considered to constitute adjustments to yields.
Three Months Ended September 30,
1999 1998
----------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
($ in Thousands)
Interest-earning assets:
Loans receivable $ 453,385 9,030 7.97% $ 350,274 7,264 8.30%
Securities 37,207 544 5.85 37,526 592 6.31
Other interest-earning assets (1) 15,507 227 5.86 17,027 254 5.97
-------- ------ ------- ------
Total interest-earning assets 506,099 9,801 7.75 404,827 8,110 8.01
----- -----
Noninterest-earning assets 23,759 15,816
-------- -------
Total assets $ 529,858 $ 420,643
''''''' '''''''
Interest-bearing liabilities:
NOW and money-market accounts 69,077 424 2.46 50,882 280 2.20
Passbook and statement savings accounts 22,005 127 2.31 23,389 124 2.12
Certificates 289,801 3,772 5.21 249,173 3,503 5.62
FHLB advances 74,750 1,017 5.44 30,000 460 6.13
Other borrowings 1,982 25 5.05 - - -
--------- ------ --------- --------
Total interest-bearing liabilities 457,615 5,365 4.69 353,444 4,367 4.94
----- -----
Noninterest-bearing deposits 10,893 8,050
Noninterest-bearing liabilities 6,468 6,159
Stockholders' equity 54,882 52,990
------- -------
Total liabilities and stockholders' equity $ 529,858 $ 420,643
''''''' '''''''
Net interest income $ 4,436 $ 3,743
''''' '''''
Interest-rate spread (2) 3.06% 3.07%
'''' ''''
Net average interest-earning assets,
net interest margin (3) $ 48,484 3.51% $ 51,383 3.70%
'''''''' '''' ''''''' ''''
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.11 1.15
'''' ''''
(1) Includes interest-bearing deposits, federal funds sold and FHLB stock.
(2) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets. FFLC BANCORP, INC.
13
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.
Nine Months Ended September 30,
1999 1998
--------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ---------------- -------
($ in Thousands)
Interest-earning assets:
Loans receivable $ 427,068 25,635 8.00% $ 333,770 20,785 8.30%
Securities 38,414 1,660 5.76 46,339 2,222 6.39
Other interest-earning assets (1) 16,509 674 5.44 16,885 745 5.88
-------- ------- ------- -------
Total interest-earning assets 481,991 27,969 7.74 396,994 23,752 7.98
------ ------
Noninterest-earning assets 21,451 13,521
-------- -------
Total assets $ 503,442 $ 410,515
''''''' '''''''
Interest-bearing liabilities:
NOW and money-market accounts 64,541 1,145 2.37 48,773 791 2.16
Passbook and statement savings accounts 22,391 362 2.16 24,002 394 2.19
Certificates 278,259 10,912 5.23 243,822 10,155 5.55
FHLB advances 66,594 2,645 5.30 30,000 1,366 6.07
Other borrowings 1,478 54 4.87 - - -
-------- -------- ------- -------
Total interest-bearing liabilities 433,263 15,118 4.65 346,597 12,706 4.89
------ ------
Noninterest-bearing deposits 10,131 7,473
Noninterest-bearing liabilities 5,550 4,093
Stockholders' equity 54,498 52,352
------- -------
Total liabilities and stockholders' equity $ 503,442 $ 410,515
''''''' '''''''
Net interest income $ 12,851 $ 11,046
'''''' ''''''
Interest-rate spread (2) 3.09% 3.09%
'''' ''''
Net average interest-earning assets,
net interest margin (3) $ 48,728 3.55% $ 50,397 3.71%
''''''' '''' ''''''' ''''
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.11 1.15
'''' ''''
(1) Includes interest-bearing deposits, federal funds sold and FHLB stock.
(2) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
14
FFLC BANCORP, INC.
Comparison of the Three Months Ended September 30, 1999 and 1998
Results of Operations
General Operating Results. Net income for the three months ended September 30,
1999 was $1.2 million or $.35 and $.33 per basic and diluted income per
share, respectively, compared to $1.1 million or $.31 and $.30 per basic and
diluted income per share, respectively, for the three months ended September
30, 1998. The increase in net income for the 1999 period was primarily due to
an increase in net interest income of $693,000, offset by a $503,000 increase
in noninterest expense during the 1999 period.
Interest Income. Interest income increased $1.7 million, or 20.9% from $8.1
million for the three months ended September 30, 1998 to $9.8 million for the
three months ended September 30, 1999. The increase was due to a $101.3
million increase in average interest-earning assets outstanding, partially
offset by a decrease in the average yield on interest-earning assets from
8.01% for the three months ended September 30, 1998 to 7.75% for the
comparable period in 1999.
Interest Expense. Interest expense increased $1.0 million or 22.9% from $4.4
million for the three months ended September 30, 1998 to $5.4 million for the
1999 period. The increase was the result of a $104.2 million increase in
average interest-bearing liabilities outstanding during the 1999 period,
compared to the 1998 period, partially offset by a decrease in the weighted
average rate paid on interest-bearing liabilities from 4.94% for the three
months ended September 30, 1998 to 4.69% for the comparable period in 1999.
Provision for Loan Losses. The Company's provision for loan losses was $150,000
for the three months ended September 30, 1999 and the allowance for loan
losses at September 30, 1999 was $2.6 million. The provision reflects
Company's continuing policy of evaluating the adequacy of its allowance for
loan losses with the prevailing standards within the thrift industry.
Generally, such evaluation includes consideration of the level of
nonperforming loans and the level and composition of the Company's loan
portfolio.
Noninterest Expense. Noninterest expense consists primarily of salaries and
employee benefits, occupancy expense and data processing expense. Noninterest
expenses increased by $503,000, or 23.5% from $2.1 million for the three
months ended September 30, 1998 to $2.6 million for the 1999 period. The
increase was primarily due to increases in salaries and employee benefits of
$285,000 and occupancy expense of $134,000 resulting from the overall growth
of the Company.
Income Tax Provision. The income tax provision increased from $636,000 for the
three months ended September 30, 1998 (an effective tax rate of 36.0%) to
$739,000 (an effective tax rate of 37.6%) for the corresponding period in
1999.
15
FFLC BANCORP, INC.
Comparison of the Nine Months Ended September 30, 1999 and 1998
General Operating Results. Net income for the nine months ended September 30,
1999, was $4.2 million, or $1.18 and $1.13 per basic and diluted share,
respectively, compared to $3.2 million or $.89 and $.85 per basic and diluted
share, respectively, for the nine months ended September 30, 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 $4.2 million, partially offset by increases in interest expense of
$2.4 million and noninterest expense of $1.4 million also contributed to the
increase in net income.
Interest Income. Interest income increased $4.2 million, or 17.8% from $23.8
million for the nine months ended September 30, 1998 to $28.0 million for the
nine months ended September 30, 1999. The increase in interest income
resulted from an $85.0 million increase in average interest-earning assets
outstanding, partially offset by a decrease in the average yield on
interest-earning assets from 7.98% for the nine months ended September 30,
1998 to 7.74% for nine months ended September 30, 1999.
Interest Expense. Interest expense increased $2.4 million, or 19.0% from $12.7
million for the nine months ended September 30, 1998 to $15.1 million for the
1999 period. The increase was due to an increase of $86.7 million in average
interest-bearing liabilities outstanding, partially offset by a decrease in
the weighted average rate paid on interest-bearing liabilities from 4.89% for
the nine months ended September 30, 1998 to 4.65% for the 1999 period.
Provision for Loan Losses. The Company's provision for loan losses was $500,000
for the nine months ended September 30, 1999 and the allowance for loan
losses was $2.6 million at September 30, 1999. The provision reflects the
Company's continuing policy of evaluating the adequacy of its allowance for
loan losses and prevailing standards within the thrift industry. Generally,
such evaluation includes consideration of the level of nonperforming loans
and the level and composition of the Company's loan portfolio.
Noninterest Income. Noninterest income increased $1.1 million from the nine
months ended September 30, 1998 to the nine months ended September 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 consists primarily of salaries and
employee benefits, occupancy expense and data processing expense. Noninterest
expense increased by $1.4, or 22.1%, from $6.2 million for the nine months
ended September 30, 1998 to $7.6 million for the 1999 period. This increase
was primarily due to increases in salaries and employee benefits of $706,000
and occupancy expense of $342,000 resulted from the overall growth of the
Company.
Income Tax Provision. The income tax provision increased from $2.0 million for
the nine months ended September 30, 1998 (an effective tax rate of 37.9%) to
$2.6 million (an effective tax rate of 37.9%) for the corresponding period in
1999.
16
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 statements which provide 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 continuing 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 the Company 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.
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.
17
FFLC BANCORP, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from 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 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibits are filed as part of this report:
(3)ii Amended Bylaws of FFLC Bancorp, Inc.
(27) Financial Data Schedule (for SEC use only):
b. There were no reports on Form 8-K filed during the three months ended
September 30, 1999.
18
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: November 3, 1999 By:/s/ Stephen T. Kurtz
----------------- -----------------------------------------------
Stephen T. Kurtz, President and Chief Executive
Officer
Date: November 3, 1999 By:/s/ Paul K. Mueller
----------------- -----------------------------------------------
Paul K. Mueller, Executive Vice President and
Treasurer
19