U.S. 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 March 31, 2003
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
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act): Yes [ ] No [X]
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 5,391,749 shares outstanding at
$.01 per share April 23, 2003
------------------------ ---------------------------------
FFLC BANCORP, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets -
at March 31, 2003 (Unaudited) and at December 31, 2002........................................2
Condensed Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 2003 and 2002....................................................3
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) -
Three months ended March 31, 2003 and 2002..................................................4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 2003 and 2002..................................................6-7
Notes to Condensed Consolidated Financial Statements (Unaudited).............................8-13
Review by Independent Certified Public Accountants.............................................14
Report on Review by Independent Certified Public Accountants...................................15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................16-21
Item 3. Quantative and Qualitative Disclosures About Market Risk................................22
Item 4. Controls and Procedures.................................................................22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................22
Item 2. Changes in Securities...................................................................22
Item 3. Default upon Senior Securities..........................................................22
Item 4. Submission of Matters to a Vote of Security Holders.....................................23
Item 5. Other Information.......................................................................23
Item 6. Exhibits and Reports on Form 8-K........................................................23
SIGNATURES..........................................................................................24
CERTIFICATIONS...................................................................................24-26
FFLC BANCORP, INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands, except per share amounts)
At At
March 31, December 31,
--------- ------------
2003 2002
---- ----
Assets (unaudited)
Cash and due from banks $ 36,223 20,157
Interest-earning deposits 58,027 49,237
-------- --------
Cash and cash equivalents 94,250 69,394
Securities available for sale 88,720 77,324
Loans, net of allowance for loan losses of $5,311 in 2003
and $5,181 in 2002 733,567 735,338
Accrued interest receivable 3,720 4,181
Premises and equipment, net 19,617 19,369
Foreclosed assets 906 626
Federal Home Loan Bank stock, at cost 7,700 7,700
Deferred income taxes 709 487
Other assets 1,467 1,402
--------- ---------
Total $ 950,656 915,821
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits 24,854 18,867
NOW and money-market accounts 149,750 137,858
Savings accounts 25,951 25,403
Certificates 493,663 485,930
------- -------
Total deposits 694,218 668,058
Advances from Federal Home Loan Bank 149,000 149,000
Other borrowed funds 17,081 14,303
Guaranteed preferred beneficial interest in junior subordinated debentures 5,000 5,000
Accrued expenses and other liabilities 12,630 8,398
------- ---------
Total liabilities 877,929 844,759
------- -------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding - -
Common stock, $.01 par value, 9,000,000 shares authorized,
6,371,440 in 2003 and 4,574,944 in 2002 shares issued 64 46
Additional paid-in-capital 31,660 31,638
Retained income 60,219 58,409
Accumulated other comprehensive income 540 636
Treasury stock, at cost (994,274 shares in 2003 and
991,669 shares in 2002) (19,756) (19,667)
------- -------
Total stockholders' equity 72,727 71,062
-------- -------
Total $ 950,656 915,821
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
2
FFLC BANCORP, INC.
Condensed Consolidated Statements of Income (Unaudited)
($ in thousands, except per share amounts)
Three Months Ended
March 31,
--------------------
2003 2002
---- ----
Interest income:
Loans $ 12,722 12,842
Securities 588 761
Other interest-earning assets 267 240
--------- ----------
Total interest income 13,577 13,843
--------- ----------
Interest expense:
Deposits 4,415 5,218
Borrowed funds 2,127 2,273
---------- ----------
Total interest expense 6,542 7,491
--------- ---------
Net interest income 7,035 6,352
Provision for loan losses 406 258
--------- ----------
Net interest income after provision for loan losses 6,629 6,094
--------- ---------
Noninterest income:
Deposit account fees 231 218
Other service charges and fees 584 461
Net gain on sales of loans held for sale 271 46
Other 197 168
--------- ----------
Total noninterest income 1,283 893
--------- ----------
Noninterest expense:
Salaries and employee benefits 2,446 2,016
Occupancy expense 648 573
Data processing expense 273 252
Professional services 103 102
Advertising and promotion 137 111
Other 515 390
--------- ----------
Total noninterest expense 4,122 3,444
--------- ---------
Income before income taxes 3,790 3,543
Income taxes 1,436 1,335
--------- ---------
Net income $ 2,354 2,208
========= =========
Basic income per share $ .44 .41
=========== =========
Weighted-average number of shares outstanding for basic 5,373,607 5,351,664
========= =========
Diluted income per share $ .43 .41
=========== =========
Weighted-average number of shares outstanding for diluted 5,479,331 5,459,600
=========== ==========
Dividends per share $ .10 .09
=========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
3
FFLC BANCORP, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended March 31, 2003 and 2002
($ in thousands)
Accumulated
Common Stock Additional Other Total
---------------
Number of Paid-In Treasury Retained Comprehensive Stockholders'
Shares Amount Capital Stock Income Income Equity
---------- ------ ----------- ----------- ------ ------ -----------
Balance at December 31, 2001 4,542,953 $ 45 31,355 (19,347) 51,575 440 64,068
------
Comprehensive income:
Net income (unaudited) - - - - 2,208 - 2,208
Change in unrealized gains on securities
available for sale, net of income tax
benefit of $135 (unaudited) - - - - - (223) (223)
--------
Comprehensive income (unaudited) 1,985
-------
Net proceeds from the issuance of common
stock, stock options exercised
(unaudited) 15,427 1 114 - - - 115
Dividends paid (unaudited) - - - - (499) - (499)
Purchase of treasury stock, 6,944 shares
(unaudited) - - - (160) - - (160)
---------- ----- ---------- --------- ----------- ----- -------
Balance at March 31, 2002 (unaudited) 4,558,380 $ 46 31,469 (19,507) 53,284 217 65,509
========= == ====== ====== ====== ===== =======
(continued)
4
FFLC BANCORP, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited), Continued
Three Months Ended March 31, 2003 and 2002
($ in thousands)
Accumulated
Common Stock Additional Other Total
Number of Paid-In Treasury Retained Comprehensive Stockholders'
Shares Amount Capital Stock Income Income Equity
---------- ------ ----------- ----------- ------ ------ -----------
Balance at December 31, 2002 4,574,944 $ 46 31,638 (19,667) 58,409 636 71,062
-------
Comprehensive income:
Net income (unaudited) - - - - 2,354 - 2,354
Change in unrealized gains on securities
available for sale, net of income tax
benefit of $52 (unaudited) - - - - - (86) (86)
Change in unrealized loss on derivative
instrument, net of income tax
benefit of $6 (unaudited) - - - - - (10) (10)
--------
Comprehensive income (unaudited) 2,258
-------
Net proceeds from the issuance of common
stock, stock options exercised
(unaudited) 4,227 - 40 - - - 40
Dividends paid (unaudited) - - - - (544) - (544)
Purchase of treasury stock, 2,605 shares
(unaudited) - - - (89) - - (89)
Three-for-two stock split (unaudited) 1,792,269 18 (18) - - - -
--------- -- -------- ----------- --------- ----- ----------
Balance at March 31, 2003 (unaudited) 6,371,440 $ 64 31,660 (19,756) 60,219 540 72,727
========= == ====== ====== ====== ===== =======
See accompanying Notes to Condensed Consolidated Financial Statements.
5
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 2,354 2,208
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Provision for loan losses 406 258
Depreciation and amortization 301 259
Credit for deferred income taxes (164) (44)
Gain on sale of foreclosed assets - (30)
Net amortization of premiums and discounts on securities 235 22
Net deferral of loan fees and costs (134) (82)
Net gain on sales of loans held for sale (271) (46)
Loans originated for sale (16,339) (1,623)
Proceeds from sales of loans held for sale 16,556 3,576
Decrease in accrued interest receivable 461 2
Increase in other assets (65) (266)
Increase in accrued expenses and other liabilities 4,216 4,436
------- -------
Net cash provided by operating activities 7,556 8,670
------ -------
Cash flows from investing activities:
Proceeds from principal repayments and maturities on securities
available for sale 7,827 4,567
Purchase of securities available for sale (19,596) (15,223)
Loan disbursements (65,800) (63,687)
Principal repayments on loans 66,532 46,229
Purchase of premises and equipment, net (549) (757)
Proceeds from sales of foreclosed assets 541 354
-------- --------
Net cash used in investing activities (11,045) (28,517)
------ ------
Cash flows from financing activities:
Net increase in deposits 26,160 7,449
Net increase in other borrowed funds 2,778 4,071
Issuance of common stock 40 115
Purchase of treasury stock (89) (160)
Cash dividends paid (544) (499)
-------- -------
Net cash provided by financing activities 28,345 10,976
------ ------
Net increase (decrease) in cash and cash equivalents 24,856 (8,871)
Cash and cash equivalents at beginning of period 69,394 49,792
------ ------
Cash and cash equivalents at end of period $ 94,250 40,921
========= =======
(continued)
6
FFLC BANCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Three Months Ended
March 31,
------------------
2003 2002
---- ----
Supplemental disclosures of cash flow information- Cash paid during the period
for:
Interest $ 6,583 7,467
======== =======
Income taxes $ 398 270
======== =======
Noncash investing and financing activities:
Accumulated other comprehensive income:
Net change in unrealized gain on securities available for sale, net of tax benefit $ (86) (223)
======== =======
Net change in unrealized loss on derivative instrument, net of tax benefit $ (10) -
======== =======
Transfers from loans to foreclosed assets $ 821 407
======= =======
Loans originated on sales of foreclosed assets $ - 141
======== =======
Loans funded by and sold to correspondent $ 3,592 2,798
======== =======
See accompanying Notes to Condensed Consolidated Financial Statements.
7
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 "Holding Company"), the accompanying condensed consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position at
March 31, 2003 and the results of operations and cash flows for the
three-month periods ended March 31, 2003 and 2002. The results of
operations for the three-month period ended March 31, 2003, are not
necessarily indicative of results that may be expected for the year ending
December 31, 2003.
The condensed consolidated financial statements include the accounts of the
Holding Company and its three subsidiaries, First Federal Savings Bank of
Lake County (the "Bank"), First Alliance Title, LLC and FFLC Statutory
Trust I and the Bank's wholly-owned subsidiary, Lake County Service
Corporation (together, the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
2. Loans. The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and percentages at the dates indicated (in
thousands):
At March 31, 2003 At December 31, 2002
----------------------- ---------------------
% of % of
Amount Total Amount Total
Mortgage loans:
One-to-four-family residential * $ 388,995 51.50% $ 395,116 52.23%
Construction and land 34,083 4.51 30,792 4.07
Multi-family units 21,845 2.89 22,796 3.01
Commercial real estate, churches and other 140,686 18.63 140,770 18.61
------- ------ ------- --------
Total mortgage loans 585,609 77.53 589,474 77.92
Consumer loans 141,116 18.68 138,202 18.26
Commercial loans 28,604 3.79 28,879 3.82
-------- -------- -------- ---------
Total loans (1) 755,329 100.00% 756,555 100.00%
====== ======
Undisbursed portion of loans in process (17,123) (16,770)
Net deferred loan costs 672 734
Allowance for loan losses (2) (5,311) (5,181)
--------- -------- -
Loans, net $ 733,567 $ 735,338
======= =======
* Includes $14.5 million and $14.4 million of loans held for sale at March
31, 2003 and December 31, 2002, respectively.
(1) Total loans outstanding by department consists of the following (in
thousands):
At
---------------------------
March 31, 2003 December 31, 2002
----------------------------------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
Residential $ 379,460 50.23% $ 385,711 50.98%
Commercial 231,257 30.62 229,930 30.39
Consumer 144,612 19.15 140,914 18.63
------- ------- ------- --------
$ 755,329 100.00% $ 756,555 100.00%
======= ====== ======= ======
(continued)
8
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
2. Loans, Continued.
(2) Total allowance for loan losses by department consist of the following (in
thousands):
At
--------------------------
March 31, 2003 December 31, 2002
--------------------------------------------
% to % to
Gross Gross
Amount Loans Amount Loans
------ ----- ------ -----
Residential $ 1,207 .32% $ 1,175 .30%
Commercial 2,968 1.28 2,949 1.28
Consumer 1,136 .79 1,057 .75
----- -----
$ 5,311 .70% $ 5,181 .68%
===== ==== ===== ====
Total gross loans originated by department, including unfunded construction and
line of credit loans, consist of the following (in thousands):
Three Months Ended
March 31,
-----------------------
2003 2002
---- ----
Residential $ 45,013 30,877
Commercial 25,898 24,008
Consumer 20,973 18,103
------ -------
$ 91,884 72,988
====== =======
3. Loan Impairment and Loan Losses. The Company also prepares a quarterly
review of the adequacy of the allowance for loan losses to identify and
value impaired loans in accordance with guidance in the Statements of
Financial Accounting Standards No. 114 and 118.
An analysis of the change in the allowance for loan losses was as follows
(in thousands):
Three Months Ended
March 31,
----------------------
2003 2002
---- ----
Balance at January 1 $ 5,181 4,289
Provision for loan losses 406 258
Net loans charged-off (276) (274)
------ ------
Balance at March 31 $ 5,311 4,273
===== =====
(continued)
9
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
3. Loan Impairment and Loan Losses, Continued. The following summarizes the
amount of impaired loans, all of which were collateral dependent (in
thousands):
At
-------------------------
March 31, December 31,
2003 2002
---- ----
Loans identified as impaired:
Gross loans with no related allowance for losses $ - -
Gross loans with related allowance for losses recorded 631 400
Less: Allowances on these loans (85) (50)
---- ----
Net investment in impaired loans $ 546 350
====== =====
The average net investment in impaired loans and interest income recognized
and received on impaired loans was as follows (in thousands):
Three Months Ended
March 31,
------------
2003 2002
Average net investment in impaired loans $ 443 38
======== =======
Interest income recognized on impaired loans $ 2 -
======== =======
Interest income received on impaired loans $ 2 -
======== =======
Nonaccrual and past due loans were as follows (in thousands):
At
------------------------
March 31, December 31,
--------- ------------
2003 2002
---- ----
Nonaccrual loans $ 2,741 2,592
Accruing loans past due ninety days or more 46 -
------ ---------
Total $ 2,787 2,592
========= ==========
(continued)
10
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Income Per Share of Common Stock. Basic income per share of common stock
has been computed by dividing the net income for the period by the
weighted-average number of shares outstanding. Shares of common stock
purchased by the RRP incentive plans are only considered outstanding when
the shares are released or committed to be released for allocation to
participants. Diluted income per share is computed by dividing net income
by the weighted-average number of shares outstanding including the dilutive
effect of stock options computed using the treasury stock method. All per
share amounts reflect the three-for-two stock split declared on February
14, 2003. The following table presents the calculation of basic and diluted
income per share of common stock:
Three Months Ended
March 31,
2003 2002
---- ----
Weighted-average shares of common stock issued and
outstanding before adjustments for RRP and
common stock options 5,377,710 5,355,767
Adjustment to reflect the effect of unallocated RRP shares (4,103) (4,103)
----------- ------------
Weighted-average shares for basic income per share 5,373,607 5,351,664
========= =========
Basic income per share $ .44 .41
============== ==============
Total weighted-average common shares and equivalents
outstanding for basic income per share computation 5,373,607 5,351,664
Additional dilutive shares using the average market value for
the period utilizing the treasury stock method regarding stock options 105,724 107,936
----------- -----------
Weighted-average common shares and equivalents outstanding for
diluted income per share 5,479,331 5,459,600
========= =========
Diluted income per share $ .43 .41
============== ==============
5. Stock Split. On February 14, 2003, the Board of Directors declared a
three-for-two stock split on all outstanding common shares for
shareholders of record on February 28, 2003, which were distributed on
March 14, 2003. Any fractional shares resulting from the split were paid
in cash based on the closing price on the record date.
(continued)
11
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Stock Option Plans. During 2002,the Company adopted a new stock option plan
(the "2002 Plan") which authorizes the Company to issue up to 375,000
shares (adjusted) in connection with options granted to directors, officers
or employees of the Company. The terms and vesting periods will be
determined as each option is granted, but the option price cannot be less
than the then current market value of the common stock at the grant date.
No options have been granted under the 2002 Plan through March 31, 2003.
The Company also has a 1993 stock option plan (the "Plan") under which common
shares are authorized to be issued in connection with options granted to
directors, officers and employees of the Company. Options granted under the
Plan are exercisable at the market price of the common stock at the date of
grant. Such incentive stock options granted to officers and employees are
exercisable in three equal annual installments, with the first installment
becoming exercisable one year from the date of grant. Options granted to
outside directors are exercisable immediately, but any common shares
obtained from exercise of the options may not be sold prior to one year
from the date of grant. All options expire at the earlier of ten years for
officers and employees or twenty years for directors from the date of grant
or one year following the date which the outside director, officer or
employee ceases to serve in such capacity. At March 31, 2003, 50,570
options (adjusted) remain available under the Plan for grant to future
directors, officers and employees.
The following is a summary of stock option transactions during the three-month
periods ended March 31, 2003 and 2002 (All options and option price per
share information has been adjusted to reflect the three-for-two stock
split in 2003):
Weighted-
Range of Average
Number of Per Share Per Share
Options Option Price Price
Outstanding, December 31, 2001 200,312 $ 4.00-14.17 6.01
=
Exercised (23,140) 4.00-10.83 4.55
-------
Outstanding, March 31, 2002 177,172 $ 4.00-14.17 6.27
======= ========== ====
Outstanding, December 31, 2002 152,327 4.00-14.17 6.61
Exercised (6,340) 4.00-10.20 6.45
-------
Outstanding, March 31, 2003 145,987 $ 4.00-14.17 6.53
======= ========== ====
(continued)
12
FFLC BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Stock Option Plans, Continued
No stock options were granted under the Plans during the three-month periods
ended March 31, 2003 or 2002. SFAS No. 123 requires pro forma fair value
disclosures if the intrinsic value method is being utilized to value
stock-based compensation awards. For purposes of pro forma disclosures, the
estimated fair value of stock options granted is included in expense in the
period vesting occurs. The proforma information has been determined as if
the Company had accounted for its stock options under the fair value method
of SFAS No. 123. The Company accounts for their stock option plans under
the recognition and measurement principles of APB No. 25. No stock-based
employee compensation cost is reflected in net income during the periods
presented, as all stock options granted under the plans had an exercise
price equal to the market value of the underlying common stock on the date
of grant. The following table illustrates the effect on net income and
basic and diluted income per share as if the Company had applied the fair
value recognition provisions of SFAS No. 123 to stock-based employee
compensation (in thousands, except per share amounts):
Three Months Ended
March 31,
2003 2002
---- ----
Weighted-average grant-date fair value of stock options
issued during the period $ N/A N/A
========= =========
Net income, as reported $ 2,354 2,208
Deduct: Total stock-based employee compensation
determined under the fair value based method for
all awards, net of related tax benefit - (3)
--------- --------
Proforma net income $ 2,354 2,205
========= =========
Basic income per share:
As reported $ .44 .41
========= =========
Proforma $ .44 .41
========= =========
Diluted income per share:
As reported $ .43 .41
========= =========
Proforma $ .43 .41
========= =========
7. Reclassifications. Certain amounts in the 2002 condensed consolidated
financial statements have been reclassified to conform to the 2003
presentation.
13
FFLC BANCORP, INC.
Review by Independent Certified Public Accountants
Hacker, Johnson & Smith PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of March 31,
2003, and for the three-month periods ended March 31, 2003 and 2002 presented in
this document, in accordance with standards established by the American
Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
14
Report on Review by Independent Certified Public Accountants
The Board of Directors
FFLC Bancorp, Inc.
Leesburg, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
FFLC Bancorp, Inc. and Subsidiaries (the "Company") as of March 31, 2003, and
the related condensed consolidated statements of income, changes in
stockholders' equity and cash flows for the three-month periods ended March 31,
2003 and 2002. These interim financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated interim financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2002, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated January 15, 2003 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2002, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
HACKER, JOHNSON & SMITH PA
Orlando, Florida
April 8, 2003
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 its
three subsidiaries, First Federal Savings Bank of Lake County (the "Bank"),
First Alliance Title, LLC and FFLC Statutory Trust I and the Bank's
wholly-owned subsidiary, Lake County Service Corporation (together, the
"Company"). The Company's consolidated results of operations are primarily
those of the Bank.
The Bank's principal business continues to be attracting retail deposits
from the general public and investing those deposits, together with
principal repayments on loans and investments and funds generated from
operations, primarily in mortgage loans secured by one-to-four-family,
owner-occupied homes, commercial loans, consumer loans and, to a lesser
extent, construction loans, other loans, and multi-family residential
mortgage loans. In addition, the Bank holds investments permitted by
federal laws and regulations including securities issued by the U.S.
Government and agencies thereof. The Bank's revenues are derived
principally from interest on its loan and mortgage-backed securities
portfolios and interest and dividends on its investment securities. The
Bank is a member of the Federal Home Loan Bank ("FHLB") system and its
deposits are insured up to the applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC"). The 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 Bank has 14 full-service banking facilities in Lake, Sumter, Citrus and
Marion Counties, Florida. The Bank has plans to begin construction on two
new branches during 2003, one in Citrus County and the other in Sumter
County.
The Company's results of operations depend primarily on net interest
income, which is the difference between the interest income earned
primarily on its loan and securities portfolios, and its cost of funds,
consisting of the interest paid on its deposits and borrowings. The
Company's operating results are also affected, to a lesser extent, by fee
income. The Company's operating expenses consist primarily of salaries and
employee benefits, occupancy expenses, and other general and administrative
expenses. The Company's results of operations are also significantly
affected by general economic and competitive conditions, particularly
changes in market interest rates, government policies, and actions of
regulatory authorities.
16
FFLC BANCORP, INC.
Capital Resources
The Bank's primary sources of funds include proceeds from payments and
prepayments on mortgage loans and mortgage-backed securities, proceeds from
maturities of investment securities, increases in deposits and advances
from the Federal Home Loan Bank. While maturities and scheduled
amortization of loans and investment securities are predictable sources of
funds, deposit inflows and mortgage prepayments are greatly influenced by
local conditions, general interest rates, and regulatory changes.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the off-balance-sheet financial instrument is represented by
the contractual amount of those instruments. The Company uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments. A summary of the contractual amounts of the Bank's financial
instruments with off-balance-sheet risk at March 31, 2003 follows (in
thousands):
Commitments to extend credit $ 32,582
======
Unused lines of credit $ 54,432
======
Undisbursed portion of loans in process $ 17,123
======
Standby letters of credit $ 2,499
=======
The Bank believes that it will have sufficient funds available to meet its
commitments. At March 31, 2003, certificates of deposit which were
scheduled to mature in one year or less totaled $253.5 million. Based on
past experience, management believes, that a significant portion of those
funds will remain with the Bank.
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital
requirements can require regulators to initiate certain mandatory- and
possibly additional discretionary-actions that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts (set forth in the table) of
total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined). Management believes that, as of March 31, 2003, the
Bank meets all capital adequacy requirements to which it is subject.
17
FFLC BANCORP, INC.
As of March 31, 2003, the most recent notification from the OTS categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum tangible, Tier I (core), Tier I (risk-based) and total
risk-based capital percentages 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 Bank's actual capital amounts and percentages at March 31, 2003 are
also presented in the table.
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------ ----------- -----------------
% Amount % Amount % Amount
---- --------- --- ----------- --- -------
($ in thousands)
Stockholders' equity,
and ratio to total
assets 7.9% $ 74,747
Less: investment in
nonincludable
subsidiary (559)
Less: unrealized gain on
securities available for sale (663)
-------
Tangible capital,
and ratio to adjusted
total assets 7.7% $ 73,525 1.5% $ 14,239
========= ===========
Tier 1 (core) capital, and
ratio to adjusted total
assets 7.7% $ 73,525 3.0% $ 28,479 5.0% $ 47,465
========= ========== =========
Tier 1 capital, and ratio
to risk-weighted assets 12.2% 73,525 4.0% $ 24,180 6.0% $ 36,270
========= ==========
Less: Nonincludable investment
in 80% land loans
Tier 2 capital (allowance for
loan losses) 5,185
---------
Total risk-based capital,
and ratio to risk-
weighted assets 13.0% $ 78,710 8.0% $ 48,360 10.0% $ 60,450
========= =========== =========
Total assets $ 950,536
=========
Adjusted total assets $ 949,297
=========
Risk-weighted assets $ 604,500
=========
18
FFLC BANCORP, INC.
The following table shows selected ratios for the periods ended or at the dates
indicated:
Three Months Three Months
Ended Year Ended Ended
March 31, December 31, March 31,
2003 2002 2002
----------------- ----------------- --------------
Average equity as a percentage
of average assets 7.77% 7.67% 7.83%
Total equity to total assets at end of period 7.65% 7.76% 7.79%
Return on average assets (1) 1.01% 1.00% 1.06%
Return on average equity (1) 13.01% 13.05% 13.54%
Noninterest expense to average assets (1) 1.77% 1.68% 1.65%
Nonperforming assets to total assets
at end of period .39% .35% .30%
Operating efficiency ratio (1) 49.56% 48.23% 47.54%
(1) Annualized for the three months ended March 31, 2003 and 2002.
At At At
March 31, December 31, March 31,
2003 2002 2002
--------------- --------------- -------------
Weighted-average interest rates:
Interest-earning assets:
Loans 6.99% 7.10% 7.46%
Securities 4.37% 4.45% 4.76%
Other interest-earning assets 1.66% 1.77% 2.78%
Total interest-earning assets 6.34% 6.52% 7.06%
Interest-bearing liabilities:
Interest-bearing deposits 2.62% 2.78% 3.47%
Borrowed funds 4.98% 5.38% 5.36%
Total interest-bearing liabilities 3.09% 3.29% 3.89%
Interest-rate spread 3.25% 3.23% 3.17%
Changes in Financial Condition
Total assets increased $34.9 million or 3.8%, from $915.8 million at December
31, 2002 to $950.7 million at March 31, 2003 primarily as a result of a $24.9
million increase in cash and cash equivalents and an increase in securities
available for sale of $11.4 million. Deposits increased $26.2 million from
$668.0 million at December 31, 2002 to $694.2 million at March 31, 2003. The
$1.7 million net increase in stockholders' equity during the three months ended
March 31, 2003 resulted from net income of $2.4 million and proceeds of $40,000
from stock options exercised, partially offset by repurchases of the Company's
stock of $89,000, dividends paid of $544,000 and a $96,000, net of tax benefit
decrease in accumulated other comprehensive income.
19
FFLC BANCORP, INC.
Results of Operations
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average costs; (iii) net interest/dividend income; (iv) interest-rate spread;
and (v) net interest margin. Yields and costs were derived by dividing
annualized income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. The average balance of loans includes loans
on which the Company has discontinued accruing interest. The yields and costs
include certain fees which are considered to constitute adjustments to yields.
Three Months Ended March 31,
-------------------------------------------
2003 2002
---------------------------------------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ----
($ in Thousands)
Interest-earning assets:
Loans $ 733,343 12,722 6.94% $ 690,435 12,842 7.44%
Securities 88,324 588 2.66 73,222 761 4.16
Other interest-earning assets (1) 58,805 267 1.82 31,619 240 3.04
--------- ---------- --------- -------
Total interest-earning assets 880,472 13,577 6.17 795,276 13,843 6.96
---------- -------
Noninterest-earning assets 50,727 38,494
--------- ---------
Total assets $ 931,199 $ 833,770
========= =========
Interest-bearing liabilities:
NOW and money-market accounts 142,689 236 .66 120,017 400 1.33
Savings accounts 25,727 41 .64 22,375 56 1.00
Certificates 489,321 4,138 3.38 435,369 4,762 4.38
Federal Home Loan Bank advances 149,000 2,002 5.37 154,000 2,202 5.72
Other borrowed funds 20,161 125 2.48 14,014 71 2.03
--------- ---------- -------- -------
Total interest-bearing liabilities 826,898 6,542 3.16 745,775 7,491 4.02
---------- ------
Noninterest-bearing deposits 21,720 15,033
Noninterest-bearing liabilities 10,218 7,714
Stockholders' equity 72,363 65,248
--------- ---------
Total liabilities and stockholders' equity $ 931,199 $ 833,770
========= =========
Net interest income $ 7,035 $ 6,352
========== =======
Interest-rate spread (2) 3.01% 2.94%
======= =======
Net interest-earning assets, net margin (3) $ 53,574 3.20% $ 49,501 3.19%
========= ======= ======= =======
Ratio of interest-earning assets to
interest-bearing liabilities 1.06 1.07
========= =========
(1) Includes interest-earning deposits and Federal Home Loan Bank 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 annualized net interest income divided by average
interest-earning assets.
20
FFLC BANCORP, INC.
Comparison of the Three-Month Periods Ended March 31, 2003 and 2002
General Operating Results. Net income for the three-month period ended March 31,
2003 was $2.4 million, or $.44 per basic share and $.43 per diluted share,
compared to $2.2 million, or $.41 per basic share and $.41 per diluted
share, for the comparable period in 2002. All per share information has
been adjusted to reflect the three-for-two stock split in 2003. The
increase in net income was primarily a result of an increase of $683,000 in
net interest income and an increase of $390,000 in noninterest income,
partially offset by an increase of $678,000 in noninterest expense.
Interest Income. Interest income decreased $266,000 to $13.6 million for the
three-month period ended March 31, 2003. The decrease was due to a decrease
in the average yield earned on interest-earning assets from 6.96% for the
three months ended March 31, 2002 to 6.17% for the three months ended March
31, 2003, partially offset by a $85.2 million or 10.7% increase in average
interest-earning assets outstanding for the three months ended March 31,
2003 compared to the 2002 period.
Interest Expense. Interest expense decreased $949,000 or 12.7%, from $7.5
million for the three-month period ended March 31, 2002 to $6.5 million for
the three-month period ended March 31, 2003. The decrease was primarily due
to a decrease in the average cost of interest-bearing liabilities from
4.02% for the three months ended March 31, 2002 to 3.16% for the comparable
2003 period, partially offset by increases of $79.9 million and $1.2
million in average interest-bearing deposits and borrowings outstanding,
respectively. Average interest-bearing deposits increased from $577.8
million outstanding during the three months ended March 31, 2002 to $657.7
million outstanding during the comparable period for 2003. Average
borrowings increased from $168.0 million during the three months ended
March 31, 2002 to $169.2 million for the comparable 2003 period.
Provision for Loan Losses. The provision for loan losses is charged to income to
increase the total allowance to a level deemed appropriate by management.
It is based upon the volume and type of lending conducted by the Company,
the Company's charge-off experience, industry standards, the amount of
nonperforming loans, general economic conditions, particularly as they
relate to the Company's market area, and other factors related to the
collectibility of the Company's loan portfolio. The Company recorded
provisions for loan losses for the three-month periods ended March 31, 2003
and 2002 of $406,000 and $258,000, respectively. Net loans charged off for
the three-month periods ended March 31, 2003 and 2002 were $276,000 and
$274,000, respectively. Management believes that the allowance for loan
losses, which was $5.3 million or .70% of gross loans at March 31, 2003 is
adequate.
Noninterest Income. Noninterest income increased $390,000 or 43.7% from $893,000
during the 2002 period to $1.3 million during the 2003 period. The increase
was mainly due to a $225,000 increase in gain on sales of loans held for
sale. The Company has decided to sell an increased number of fixed-rate
residential mortgage loans it originates in the secondary market due to the
low interest-rate environment.
Noninterest Expense. Noninterest expense increased by $678,000 or 19.7% from
$3.4 million for the three-month period ended March 31, 2002 to $4.1
million for the three-month period ended March 31, 2003. The increase was
primarily due to increases of $430,000 in salaries and employee benefits
and $75,000 in occupancy expense related to the overall growth of the
Company.
Income Taxes. The income tax provision increased from $1.3 million for the
three-month period ended March 31, 2002 (an effective tax rate of 37.7%) to
$1.4 million (an effective tax rate of 37.9%) for the corresponding period
in 2003.
22
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, 2002. The Company does not believe that the
interest rate swap entered into in September 2002 exposes the Company to
significant interest rate risk.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. The Company
-------------------------------------------------------
maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of those controls and procedures performed
within 90 days of the filing date of this report, the Chief Executive
and Chief Financial officers of the Company concluded that the
Company's disclosure controls and procedures were adequate.
b. Changes in internal controls. The Company made no significant changes
----------------------------
in its internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation of
those controls by the Chief Executive and Chief Financial officers.
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
The Holding Company has the right at one or more times, unless an event of
default exists under the floating rate junior subordinated deferrable
interest debentures due September 26, 2032 (the "Debentures"), to defer
interest payments on the Debentures for up to twenty consecutive quarterly
periods. During that time, the Holding Company will be prohibited from
declaring or paying cash dividends on its common stock.
Item 3. Defaults upon Senior Securities
Not applicable
23
FFLC BANCORP, INC.
Item 4. Submission of Matters to a Vote of Security Holders
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.
3.1 Certificate of Incorporation of FFLC Bancorp, Inc.*
3.2 Bylaws of FFLC Bancorp, Inc. ***
4.0 Stock Certificate of FFLC Bancorp, Inc.*
10.1 First Federal Savings Bank of Lake County Recognition and
Retention Plan**
10.2 First Federal Savings Bank of Lake County Recognition and
Retention Plan for Outside Directors**
10.3 FFLC Bancorp, Inc. Incentive Stock Option Plans for Officers and
Employees**
10.4 FFLC Bancorp, Inc. Stock Option Plan for Outside Directors**
99.1 CEO Certification required under Section 906 of Sarbanes-Oxley
Act of 2002
99.2 CFO Certification required under Section 906 of Sarbanes-Oxley
Act of 2002
* Incorporated herein by reference into this document from the Exhibits
to Form S-1, Registration Statement, initially filed on September 27,
1993, Registration No. 33-69466.
** Incorporated herein by reference into this document from the Proxy
Statement for the Annual Meeting of Stockholders held on May 12, 1994.
*** Incorporated herein by reference into this document from the September
30, 1999 FFLC Bancorp, Inc. Form 10-Q filed November 3, 1999.
(b) There was one Form 8-K filed during the three months ended March 31,
2003. On February 14, 2003, the Company filed a Form 8-K to announce
the three-for-two common stock split effective February 28, 2003.
24
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: April 23, 2003 By: /s/ Stephen T. Kurtz
---------------- ----------------------------------
Stephen T. Kurtz, President and
Chief Executive Officer
Date: April 23, 2003 By: /s/ Paul K. Mueller
---------------- ----------------------------------
Paul K. Mueller,
Executive Vice President
and Treasurer
CERTIFICATIONS
--------------
I, Stephen T. Kurtz, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of FFLC Bancorp, Inc.;
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
25
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 23, 2003 By: /s/ Stephen T. Kurtz
--------------- ----------------------------------
Stephen T. Kurtz, President and
Chief Executive Officer
I, Paul K. Mueller, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of FFLC Bancorp, Inc.;
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
26
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 23, 2003 By: /s/ Paul K. Mueller
---------------- ----------------------------------
Paul K. Mueller,
Executive Vice President
and Treasurer
27