SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number 0-22608
FFLC BANCORP, INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 59-3204891
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
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
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $41,922,223 and is based upon the last sales price as quoted on
the NASDAQ Stock Market for March 8, 2000.
The Registrant had 3,593,498 shares outstanding as of March 8, 2000.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
December 31, 1999. (Part II and IV)
2. Portions of Proxy Statement for the 2000 Annual Meeting of
Stockholders. (Part III)
<PAGE>
INDEX
PART I
Page
Item I. Description of Business
Business 3
Market Area and Competition 3
Market Risk 4
Lending Activities 4-9
Asset Quality 9-14
Investment Activities 15
Mortgage-Backed Securities 15-16
Investment Securities 16-17
Sources of Funds 18-20
Borrowings 21
Subsidiary Activities 21
Personnel 22
Regulation and Supervision 22-28
Year 2000 28
Federal and State Taxation 29-30
Item 2. Properties 31
Item 3. Legal Proceedings 32
Item 4. Submission of Matters to a Vote of Security Holders 32
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 32
Item 6. Selected Financial Data 32
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 32
Item 8. Financial Statements and Supplementary Data 32
Item 9. Change In and Disagreements with Accountants on
Accounting and Financial Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
SIGNATURES 35
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business
FFLC Bancorp, Inc., ("FFLC" or the "Company") was incorporated in Delaware on
September 16, 1993, and acquired First Federal Savings Bank of Lake County (the
"Bank") in connection with the Bank's conversion to stock form on January 4,
1994. The Company is a savings and loan holding company subject to regulation by
the Office of Thrift Supervision ("OTS") which transacts its business through
its subsidiary, the Bank. At December 31, 1999, the Company had total assets of
$590.4 million and stockholders' equity of $55.6 million.
The Bank was established in 1934 as a federally-chartered mutual savings and
loan association. The Bank is a member of the Federal Home Loan Bank ("FHLB")
System and its deposit accounts are insured to the maximum allowable amount by
the Federal Deposit Insurance Corporation ("FDIC"). At December 31, 1999, the
Bank had total assets of $590.4 million and stockholders' equity of $52.4
million.
The principal business of the Bank is attracting retail deposits from the
general public and investing those deposits, together with payments and
repayments on loans and investments and funds generated from operations,
primarily in mortgage loans secured by one-to-four-family owner-occupied homes,
commercial real estate loans and securities, and, to a lesser extent,
construction, consumer, commercial and other loans, and multi-family residential
mortgage loans. In addition, the Bank holds investments permitted by federal
laws and regulations including securities issued by the U.S. Government and
agencies thereof. The Bank's revenues are derived principally from interest on
its mortgage loan and mortgage-backed securities portfolios and interest and
dividends on its investment securities.
Market Area and Competition
The Bank is a community-oriented savings institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank's
deposit gathering and lending markets are primarily concentrated in the
communities surrounding its full service offices located in Lake, Sumter and
Citrus counties in central Florida. The Bank's competition for loans comes
principally from commercial banks, savings institutions, and mortgage banking
companies. The Bank's most direct competition for savings has historically come
from commercial banks, savings institutions and credit unions. The Bank faces
additional competition for savings from money-market mutual funds and other
corporate and government securities funds. The Bank also faces increased
competition for deposits from other financial intermediaries such as securities
brokerage firms and insurance companies.
3
<PAGE>
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. To that end, management actively
monitors and manages its interest-rate risk exposure. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 9 of Notes to Consolidated Financial Statements.
The Company"s primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank"s net interest
income and capital, and to adjust the Company"s asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability management to control interest-rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company"s earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
Lending Activities
Loan Portfolio. The Bank's loan portfolio consists primarily of conventional
first mortgage loans secured by one-to-four-family residences. At December 31,
1999, the Bank's total gross loans outstanding were $519.0 million, of which
$354.3 million or 68.28% of the Bank's total loan portfolio were
one-to-four-family residential first mortgage loans. Of the one-to-four-family
residential mortgage loans outstanding at that date, 37.44% were fixed rate
loans and 62.56% were adjustable-rate ("ARM") loans. At the same date,
commercial real estate loans and other loans on improved real estate totaled
$61.1 million, or 11.76% of the Bank's total loan portfolio; construction
(excluding construction/permanent loans) and land loans totaled $11.9 million or
2.29% of the Bank's total loan portfolio; and multi-family mortgage loans
totaled $13.4 million or 2.58% of the Bank's total loan portfolio. Consumer,
commercial and other loans held by the Bank, which principally consist of home
equity loans, deposit, consumer, commercial and other loans, totaled $78.3
million or 15.09% of the Bank's total loan portfolio at December 31, 1999.
4
<PAGE>
The following table sets forth the composition of the Bank's loan portfolio in
dollar amounts and percentages at the dates indicated:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- ------------------- --------------------
% of % of % of
Amount Total Amount Total Amount Total
------- -------- ------- ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four-family $ 159,170 84.32% $ 191,788 80.95% $ 245,524 74.64%
Construction and land 5,343 2.83% 5,489 2.32% 3,528 1.07%
Multi-family 3,098 1.64% 4,180 1.76% 4,464 1.36%
Commercial real estate
and other 6,654 3.53% 13,565 5.73% 37,975 11.54%
------- -------- ------- ------- ------- ------
Total mortgage
loans 174,265 92.32% 215,022 90.76% 291,491 88.61%
Consumer loans 14,493 7.68% 21,899 9.24% 32,834 9.98%
Commercial loans - - - - 4,632 1.41%
---------- --------- ----------- --------- --------- -------
Total loans
receivable 188,758 100.00% 236,921 100.0% 328,957 100.0%
====== ===== =====
Less:
Loans in process (4,267) (8,007) (12,253)
Unearned discounts,
premiums and
deferred loan fees,
net (66) 97 333
Allowance for loan losses (977) (1,063) (1,684)
------- ------- --------
Loans receivable,
net $ 183,448 $ 227,948 $ 315,353
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
% of % of
Amount Total Amount Total
------- ----- ------- ------
<S> <C> <C> <C> <C>
Mortgage loans:
One-to-four-family $ 283,372 70.59% $ 354,317 68.28%
Construction and land 11,683 2.91 11,861 2.29%
Multi-family 8,165 2.04 13,394 2.58%
Commercial real estate
and other 44,211 11.01 61,052 11.76%
------- ----- ------- ------
Total mortgage
loans 347,431 86.55% 440,624 84.91%
Consumer loans 43,490 10.83% 64,042 12.34%
Commercial loans 10,532 2.62% 14,285 2.75%
------- ------ ------- ------
Total loans
receivable 401,453 100.0% 518,951 100.0%
===== =====
Less:
Loans in process (10,637) (15,907)
Unearned discounts,
premiums and
deferred loan fees,
net 526 898
Allowance for loan losses (2,283) (2,811)
--------- -------
Loans receivable,
net $ 389,059 $ 501,131
========= =========
</TABLE>
5
<PAGE>
Purchase of Mortgage Loans. From time to time, the Bank purchases mortgage loans
originated by other lenders. At December 31, 1999, $2.0 million, or .38% of the
Bank's total loan portfolio consisted of purchased mortgage loans or loan
participations. Purchased mortgage loans consist primarily of one-to-four-family
residential mortgage loans.
Secondary Market Activities. The Bank participates in the secondary market
through a correspondent relationship, originating loans (primarily 30-year
fixed-rate loans) which are funded by the investor correspondent. Funding by the
correspondent eliminates the Bank's interest-rate risk on such loans. Such loans
are closed on the Bank's documents with funds provided by the investor
correspondent at closing with all credit conditions established by the investor
correspondent being satisfied prior to the issuance of a loan commitment. The
Bank receives a fee for originating, processing and closing the loans and
reports the loans to the OTS as loans originated and sold. In the year ended
December 31, 1999, such loans amounted to $7.0 million or 4.5% of total mortgage
loans originated.
Loan Originations, Purchases, Sales and Principal Repayments. The following
table sets forth the Bank's loan originations, purchases, sales and principal
repayments for the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1998 1999
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Mortgage loans (gross):
At beginning of year $ 215,022 291,491 347,431
Mortgage loans originated:
One-to-four-family (1) 86,976 107,418 136,456
Construction and land 2,502 1,193 2,387
Multi-family 2,759 634 1,037
Commercial real estate 25,142 10,230 14,345
--------- --------- ---------
Total mortgage loans originated (1) 117,379 119,475 154,225
Mortgage loans purchased - - -
--------- --------- ---------
Total mortgage loans originated and
purchased 117,379 119,475 154,225
Transfer of loans to real estate owned (444) (193) (425)
Principal repayments (37,997) (54,959) (53,619)
Sales of loans (1) (2,469) (8,383) (6,988)
--------- --------- ---------
At end of year $ 291,491 347,431 440,624
========= ========= =========
Consumer loans (gross):
At beginning of year 21,899 32,834 43,490
Loans originated 18,356 27,264 40,873
Principal repayments (7,421) (16,608) (20,321)
--------- --------- ---------
At end of year $ 32,834 43,490 64,042
========= ========= =========
Commercial loans (gross):
At beginning of year - 4,632 10,532
Loans originated 9,022 13,055 6,924
Principal repayments (4,390) (7,155) (3,171)
--------- --------- ---------
At end of year $ 4,632 10,532 14,285
========= ========= =========
</TABLE>
(1) Represents loans originated for and funded by correspondents of $2.5
million, $8.4 million and $7.0 million for 1997, 1998 and 1999,
respectively.
6
<PAGE>
Maturities of Loans. The following table shows the contractual maturities of the
Bank's loan portfolio at December 31, 1999. Loans that have adjustable rates are
shown as amortizing to final maturity rather than when the interest rates are
next subject to change. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on the
Bank's loans totaled $49.8 million, $77.8 million and $77.1 million for the
years ended December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
Mortgage Loans
--------------------
One-to- Total
Four- Commercial Consumer Loans
Family Other Loans Loans Receivable
--------- ------ ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year $ 1,737 4,866 3,181 3,637 13,421
--------- ------ ------ ------ -------
1 to 3 years 3,177 25,252 7,731 20,254 56,414
3 to 5 years 2,947 7,651 3,118 14,332 28,048
5 to 10 years 11,595 8,146 255 11,491 31,487
10 to 20 years 55,722 29,941 - 14,328 99,991
Over 20 years 279,139 10,451 - - 289,590
--------- ------ ------ ------ -------
Total due after 1 year 352,580 81,441 11,104 60,405 505,530
--------- ------ ------ ------ -------
Total amounts due 354,317 86,307 14,285 64,042 518,951
Loans in process (15,744) - - (163) (15,907)
Net deferred loan fees and costs 668 - 230 - 898
Allowance for loan losses (528) (1,459) (377) (447) (2,811)
--------- ------ ------ ------ -------
Loans receivable, net $ 338,713 84,848 14,138 63,432 501,131
========= ====== ====== ====== =======
</TABLE>
Loans Due After December 31, 2000. The following table sets forth at December
31, 1999, the dollar amount of all loans due or scheduled to reprice after
December 31, 2000, classified according to whether such loans have fixed or
adjustable interest rates.
<PAGE>
<TABLE>
<CAPTION>
Due after December 31, 2000
-------------------------------------
Fixed Adjustable Total
----- ---------- -----
(In thousands)
<S> <C> <C> <C>
Mortgage loans:
One-to-four-family $132,004 220,576 352,580
Construction and land 3,174 6,113 9,287
Multi-family 2,452 10,333 12,785
Commercial real estate 20,721 38,648 59,369
Consumer loans 53,670 6,735 60,405
Commercial loans 5,083 6,021 11,104
-------- -------- --------
Total $ 217,104 288,426 505,530
======== ======== ========
</TABLE>
7
<PAGE>
One-to-Four-Family Mortgage Lending. The Bank's primary lending emphasis is on
the origination of first mortgage loans secured by one-to-four-family residences
within its primary lending area. Such residences are primarily single family
homes, including condominium and townhouses, that serve as the primary residence
of the owner. To a lesser degree, the Bank makes loans on residences used as
second homes or as investments. The Bank also offers second mortgage loans which
are underwritten applying the same standards as for first mortgage loans.
In the years ended December 31, 1997, 1998 and 1999, the Bank's total mortgage
loan originations amounted to $117.4 million, $119.5 million and $154.2 million,
respectively, of which $87.0 million, $107.4 million and $136.5 million,
respectively, were secured by one-to-four-family properties.
At December 31, 1999, 68.28% of total loans receivable consisted of
one-to-four-family residential loans, of which 62.56% were ARM loans. The Bank's
ARM loans may carry an initial interest rate which is less than the fully
indexed rate for the loan. The initial discounted rate is determined by the Bank
in accordance with market and competitive factors. The Bank offers one-, three-
and five-year ARM loans which adjust by a maximum of 2% per adjustment period,
with lifetime caps on increases of 5% to 6%, depending upon the program chosen.
The Bank's policy on one-to-four-family residential mortgage loans generally is
to lend up to 80% of the appraised value of property securing the loan, or up to
95% if private mortgage insurance is obtained on the amount of the loan which
exceeds 80%.
Commercial and Multi-Family Real Estate Lending. As of December 31, 1999, $61.1
million, or 11.76% of the Bank's total loan portfolio consisted of commercial
real estate loans and $13.4 million, or 2.58% of the Bank's total loan
portfolio, consisted of multi-family residential loans.
The commercial real estate loans in the Bank's portfolio consist of fixed-rate
and ARM loans which were originated at prevailing market rates. The Bank's
policy has been to originate commercial or multi-family loans only in its
primary market area. Commercial and multi-family residential loans are generally
made in amounts up to 80% of the appraised value of the property. In making such
loans, the Bank primarily considers the net operating income generated by the
real estate to support the debt service, the financial resources and income
level and managerial expertise of the borrower, the marketability of the
property and the Bank's lending experience with the borrower.
Commercial Loans. As of December 31, 1999, $14.3 million or 2.75% of the Bank"s
total loan portfolio, consisted of commercial loans.
Construction and Land Loans. The Bank originates loans to finance the
construction of one-to-four-family homes and, to a much lesser extent,
originates loans for the acquisition and development of land (either unimproved
land or improved lots) on which the purchaser can then build. At December 31,
1999, construction (excluding construction/permanent loans) and land loans
totaled $11.9 million or 2.29% of the Bank's total loan portfolio.
At December 31, 1999, the Bank had loans in process (undisbursed loan proceeds
of construction loans) of $15.9 million which was mainly secured by residential
mortgages. The Bank makes residential construction loans to homeowners on a
long-term basis with amortization beginning at the conclusion of construction,
usually a period of about six months. Such loans are carried in the
one-to-four-family category and are not separately classified as construction
loans. Residential construction loans to builders are carried in the
construction and land category.
<PAGE>
Construction and land loans also include construction loans for
one-to-four-family residential property for which the borrower will obtain
permanent financing from another lender. Such loans bear a fixed rate of
interest that equals prime plus 1.0% during the construction period. The Bank
obtains a commitment for the permanent financing from the other lender prior to
originating the construction loan.
8
<PAGE>
Consumer Lending. At December 31, 1999, $64.0 million or 12.34% of the Bank's
total loan portfolio consisted of consumer loans, including home equity loans,
lines of credit and direct and indirect auto and truck loans for consumer
purposes and, to a lesser extent, home improvement loans and secured and
unsecured personal loans.
The Bank's home equity loans are originated on one-to-four-family residences,
either on a fixed-rate basis with terms of up to 15 years or as balloon loans
with terms up to five years with fifteen year amortization periods. Those loans
are generally limited to aggregate outstanding indebtedness on the property
securing the loan of 90% of the loan to value ratio. The Bank also offers home
equity lines of credit, which bear prime-based adjustable interest rates with
terms up to fifteen years. Such loans generally require monthly payments of
interest plus 1.5% of the balance outstanding.
Consumer loans are offered primarily on a fixed-rate, short-term basis. Except
for second mortgage loans which are underwritten pursuant to the standards
applicable to one-to-four-family residential loans, the underwriting standards
employed by the Bank for consumer loans include a determination of the
applicant's payment history on other debts and an assessment of the borrower's
ability to make payments on the proposed loan and other indebtedness.
Loan Approval and Authority. Mortgage loan approval authority for loans
exceeding $1,000,000 is vested in the Executive Committee of the Board which
meets weekly to consider loan recommendations of the Loan Committee. The Loan
Committee is comprised of three outside directors, the President and the Senior
Lending Officers of the Bank and has been delegated authority to approve
mortgage loans, home equity loans, home equity lines of credit and secured
consumer loans up to $1,000,000.
The Bank's policy is to require title and hazard insurance on all real estate
loans, except home equity loans for which a title search is conducted in lieu of
obtaining title insurance. Borrowers may be permitted to pay real estate taxes
and hazard insurance premiums applicable to the secured property for a mortgage
loan. In some instances, borrowers may be required to advance funds together
with each payment of principal and interest to a mortgage escrow account from
which the Bank makes disbursements for items such as real estate taxes, hazard
insurance premiums and private mortgage insurance premiums.
Asset Quality
Delinquent Loans and Nonperforming Assets. Loans are generally placed on
nonaccrual status when the collection of principal or interest is 90 days or
more past due, or earlier if collection is deemed uncertain. The Bank provides
an allowance for accrued interest deemed uncollectible. Accrued interest
receivable is reported net of the allowance for uncollected interest. Loans may
be reinstated to accrual status when all payments are brought current and, in
the opinion of management, collection of the remaining balance can be reasonably
expected.
9
<PAGE>
At December 31, 1997, 1998 and 1999, delinquencies in the Bank's loan portfolio
were as follows:
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1998
---------------------------------------------- --------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ----------------- -------------------- -------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
----- -------- ----- -------- ----- -------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One-to-four-family 7 341 8 240 - - 3 87
Construction and land - - 1 2 - - 6 343
Multi-family - - - - - - - -
Commercial real estate - - - - - - - -
----- ----- ----- ----- ----- ----- ----- -----
Total mortgage loans 7 341 9 242 - - 9 430
Consumer loans 4 24 - - 4 40 3 14
----- ----- ----- ----- ----- ----- ----- -----
Total loans 11 365 9 242 4 40 12 444
===== ===== ===== ===== ===== ===== ===== =====
Delinquent loans to total loans .11% .07% .01% .11%
===== ===== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999
----------------------------------------------
60-89 Days 90 Days or More
-------------------- -------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
----- -------- ----- --------
<S> <C> <C> <C> <C>
One-to-four-family 3 107 5 561
Construction and land 1 36 1 172
Multi-family - - 1 119
Commercial real estate - - 1 1,348
----- ----- ----- -----
Total mortgage loans 4 143 8 2,200
Consumer loans 7 75 13 162
----- ----- ----- -----
Total loans 11 218 21 2,362
===== ===== ===== =====
Delinquent loans to total loans .04% .46%
===== =====
</TABLE>
10
<PAGE>
Nonperforming Assets. The following table sets forth information with respect to
the Bank's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual mortgage loans 70 613 242 434 853
Nonaccrual commercial and consumer loans 104 53 - 10 1,509
----- ----- --- --- -----
Total nonperforming loans 174 666 242 444 2,362
Real estate owned 165 361 507 366 400
----- ----- --- --- -----
Total nonperforming assets $ 339 1,027 749 810 2,762
===== ===== === === =====
Nonperforming loans to total loans .09% .28% .07% .11% .46%
===== ===== === === =====
Total nonperforming assets to total assets .10% .30% .19% .17% .47%
===== ===== === === =====
</TABLE>
At December 31, 1999, the Bank had no accruing loans which were contractually
past due 90 days or more as to principal and interest and no troubled debt
restructurings as defined by Statement of Financial Accounting Standards No. 15.
Nonaccrual loans for which interest has been reduced totaled approximately $2.4
million, $444,000 and $242,000 at December 31, 1999, 1998 and 1997,
respectively. For the year ended December 31, 1999, interest income that would
have been recorded under the original terms of nonaccrual loans at December 31,
1999 and interest income actually recognized is summarized below:
Interest income that would have been recorded $ 214
Interest income recognized (115)
---
Interest income foregone $ 99
=====
Classified Assets. Federal regulations and the Bank's policy require the
classification of loans and other assets, such as debt and equity securities,
considered to be of lesser quality as "substandard", "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
<PAGE>
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full", on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. In
addition, the Bank's policies require that assets which do not currently expose
the insured institution to sufficient risk to warrant classification as
substandard but possess other weaknesses are designated "special mention" by
management.
11
<PAGE>
If an asset is classified, the estimated fair value of the asset is determined
and if that value is less than the then carrying value of the asset, the
difference is established as a specific reserve. If an asset is classified as
loss, the amount of the asset classified as loss is reserved. General reserves
or general valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities
but, unlike specific reserves, are not allocated to particular assets.
The following table sets forth information concerning the number and dollar
amount of loans and real estate owned classified as "special mention" or
"substandard" at the dates indicated. No loans or real estate owned were
classified "doubtful" or "loss" at those dates.
<TABLE>
<CAPTION>
Special Mention Substandard
------------------ ----------------
Number Amount Number Amount
------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
At December 31, 1999:
Loans 10 $1,090 25 $ 3,014
Real estate owned:
One-to-four-family properties - - 8 389
Other - - 1 11
------ ------ ------ ------
Total 10 $1,090 34 $3,414
====== ====== ====== ======
At December 31, 1998:
Loans 14 $2,718 7 $ 275
Real estate owned:
One-to-four-family properties - - 2 92
Other - - 5 274
------ ------ ------ ------
Total 14 $2,718 14 $ 641
====== ====== ====== ======
</TABLE>
Allowance for Loan Losses. The Bank's allowance for loan losses is established
and maintained through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and the condition of the
local economy in the Bank's market area. Such evaluation, which includes a
review of all loans on which full collectibility may not be reasonably assured,
considers, among other matters, the estimated fair value of the underlying
collateral, economic and regulatory conditions, and other factors that warrant
recognition in providing for an adequate loan loss allowance. Although
management believes it uses the best information available to make
determinations with respect to the Bank's allowance for loan losses, future
adjustments may be necessary if economic conditions vary substantially from the
economic conditions in the assumptions used in making the initial determinations
or if other circumstances change.
12
<PAGE>
The following table sets forth the Bank's allowance for loan losses at the dates
indicated, the provisions made and the charge-offs and recoveries effected
during the years indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
--------------------------------------------
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 869 977 1,063 1,684 2,283
Provision for loan losses 124 107 649 682 719
Charge-offs:
One-to-four-family - (9) (12) (80) -
Construction and land (16) - - - (44)
Multi-family - - - - -
Commercial real estate - - - - -
Commercial and consumer loans - (12) (16) (6) (166)
----- ----- ----- ----- -----
Total charge-offs by category (16) (21) (28) (86) (210)
Recoveries - - - 3 19
----- ----- ----- ----- -----
Balance at end of year $ 977 1,063 1,684 2,283 2,811
===== ===== ===== ===== =====
</TABLE>
The following table sets forth the ratios of the Bank's charge-offs and
allowances for losses for the years indicated.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net charge-offs during the year
as a percentage of average loans
outstanding during the year .01% .01% .01% .03% .04%
Allowance for loan losses as a
percentage of gross loans receivable
at end of year .52% .45% .51% .57% .54%
Allowance for loan losses as a
percentage of total nonperforming
assets at end of year 288.48% 103.51% 224.83% 281.85% 101.77%
Allowance for loan losses as a
percentage of nonperforming loans
at end of year 561.49% 159.61% 695.87% 514.19% 119.01%
</TABLE>
13
<PAGE>
The following table sets forth the Bank's specific and general allowance for
possible loan losses by type of loan for the years indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------ ----------------- ----------------- ------------------ ---------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of year allocated to:
One-to-four-family $ 275 84.32% $ 302 80.95% $ 507 74.64% $ 575 70.59% $ 528 68.28%
Construction and land 146 2.83 152 2.32 240 1.07 338 2.91 408 2.29
Multi-family 183 1.64 169 1.76 268 1.36 295 2.04 301 2.58
Commercial real estate 150 3.53 165 5.73 383 11.54 565 11.01 750 11.76
Consumer loans 223 7.68 275 9.24 229 9.98 304 10.83 447 12.34
Commercial loans - - - - 57 1.41 206 2.62 377 2.75
----- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $ 977 100.00% $ 1,063 100.00% $ 1,684 100.00% $ 2,283 100.00% $ 2,811 100.00%
===== ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
14
<PAGE>
Investment Activities
The investment policy of the Bank, which is established by the Board of
Directors and implemented by the Chief Executive Officer who is designated as
the Investment Officer, is designed primarily to provide and maintain liquidity,
to generate a favorable return on investments without incurring undue interest
rate and credit risk, and to complement the Bank's lending activities. In
establishing its investment strategies, the Bank considers its business and
growth plans, the economic environment, the types of securities to be held and
other factors. Federally chartered savings institutions have the authority to
invest in various types of assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers acceptances, repurchase
agreements, loans on federal funds, and, subject to certain limits, commercial
paper and mutual funds.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115. That statement requires investment and mortgage-backed
securities that the Company has the positive intent and ability to hold to
maturity to be classified as held-to-maturity securities and reported at
amortized cost. Securities that are held principally for selling in the near
term are to be classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. Securities not classified as
either held-to-maturity securities or trading securities are to be classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported in a separate component of
stockholders' equity.
The Company adopted FAS 133 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.
Mortgage-Backed Securities
The Bank invests in collateralized mortgage obligations ("CMOs") and
mortgage-backed securities such as government pass-through certificates. At
December 31, 1999, the Bank's mortgage-backed securities portfolio totaled $17.4
million, or 2.96% of total assets. The mortgage-backed securities are not due at
a single maturity date, and accordingly, contractual maturity information is not
presented herein. CMOs, net of related premiums and discounts, totaled $2.3
million or 13.10% of total mortgage-backed securities.
CMOs are typically issued by a special purpose entity, which may be organized in
any of a variety of legal forms, such as a trust, a corporation or a
partnership. The entity combines pools of pass-through securities, which are
used to collateralize the mortgage related securities. Once combined, the cash
flows can be divided into different "tranches" or "classes" of securities,
thereby creating more predictable average lives for each tranch or class than is
provided by the underlying pass-through pools. Under this structure, all
principal repayments from the various mortgage pools can be allocated to a
mortgage-related securities class or classes structured to have priority until
it has been paid off. Thus, these securities are designed to address the
reinvestment concerns associated with mortgage-backed security pass-throughs,
namely that they tend to pay off more rapidly when interest rates fall. The
Bank's CMOs have coupon rates ranging from 6.09% to 7.00% and had a weighted
average yield of 6.54% at December 31, 1999.
<PAGE>
The Bank's policy is to purchase CMOs rated AA or better by nationally
recognized rating services. The majority of the CMOs owned by the Bank are
insured or guaranteed either directly or indirectly, through mortgage-backed
securities underlying the obligations issued by FNMA, FHLMC or GNMA.
At December 31, 1999, the Bank had $2.3 million in CMOs representing .39% of
total assets. Of that amount, $2.2 million or 96.12% had floating rates which
adjust on a monthly basis.
15
<PAGE>
The Company's mortgage-backed securities consist of securities issued by the
Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA").
These mortgage-backed securities totaled $15.2 million or 86.90% of total
mortgage-backed securities. Other mortgage-backed securities consist of
pass-through certificates issued by the FNMA, FHLMC or GNMA.
The following table sets forth mortgage-backed security purchases, sales,
amortization and repayments during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
-------- ------ ------
(In thousands)
<S> <C> <C> <C>
At beginning of year $ 65,736 38,291 24,784
Purchases - 6,025 -
Amortization and repayments (27,566) (19,553) (7,334)
Change in unrealized loss on securities
available for sale 121 21 40
-------- ------ ------
At end of year $ 38,291 24,784 17,490
======== ====== ======
</TABLE>
Investment Securities
At December 31, 1999, the Bank held $19.4 million in investment securities, all
of which were classified available for sale, consisting of $8.9 million in U.S.
Government and agency securities, $8.8 million in mutual funds and $1.7 million
in other investment securities. In addition, the Bank holds $17.0 million in
interest-earning deposits and $5.0 million of FHLB of Atlanta stock.
The following table sets forth certain information regarding the amortized cost
and market values of the Bank's interest-earning deposits, FHLB stock and
investment securities at the dates indicated:
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1997 1998 1999
-------------------- --------------------- ---------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits $ 8,562 8,562 13,413 13,413 17,026 17,026
======== ====== ====== ====== ====== ======
FHLB stock $ 2,304 2,304 2,800 2,800 4,950 4,950
======== ====== ====== ====== ====== ======
Investment securities:
Held-to-maturity:
SBA-related investment securities $ 3,031 3,077 2,320 2,366 - -
======== ====== ====== ====== ====== ======
Available-for-sale:
U.S. Government and
agency securities 7,965 7,937 4,036 4,058 8,998 8,919
Other investment securities 151 156 97 99 1,666 1,671
Investment in mutual funds 9,258 9,183 9,238 9,131 9,065 8,829
------ ------ ------ ------ ------ -------
Total available-for-sale $ 17,374 17,276 13,371 13,288 19,729 19,419
======== ====== ====== ====== ====== ======
</TABLE>
16
<PAGE>
The following table sets forth information concerning the amortized cost and
weighted average yields by maturity on investment securities and FHLB stock at
December 31, 1999.
<TABLE>
<CAPTION>
Due After Due After
One Through Five Through Due After
Due Within One Year Five Years 10 Years 10 Years
----------------------- ----------------------- ----------------------- ---------------------
Annualized Annualized Annualized Annualized
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FHLB stock (no
defined maturity) $ 4,950 7.75%
======= ====
Investment securities:
U.S. Government
and agency
obligations $ 3,022 5.95% $ 5,976 5.80% $ - - % $ - - %
Other investment
securities - - - - 63 7.88 1,603 6.59
Mutual funds (no
defined maturity) 9,065 5.61% - - - - - -
------- ---- ------ ---- ------ ---- ------- ----
Total investment
securities $12,087 5.70% $5,976 5.80% $ 63 7.88% $ 1,603 6.59%
======= ==== ====== ==== ====== ==== ======= ====
<CAPTION>
Total
------------------------
Approximate
Amortized Market
Cost Value
---- -----
<S> <C> <C>
FHLB stock (no
defined maturity)
Investment securities: $ 4,950 $4,950
U.S. Government ======= ======
and agency
obligations
Other investment
securities $ 8,998 8,919
Mutual funds (no
defined maturity) 1,666 1,671
Total investment 9,065 8,829
securities -------- --------
$ 19,729 $ 19,419
======== ========
</TABLE>
17
<PAGE>
Sources of Funds
General. Repayments and maturities of mortgage-backed and investment securities,
loan repayments, deposits and cash flows generated from operations are the
primary sources of the Bank's funds for use in lending, investing and for other
general purposes.
Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of regular savings,
non-interest-bearing checking, NOW checking, money market and certificate
accounts. Of the deposit accounts at December 31, 1999, $35.2 million or 8.12%
consist of individual retirement accounts ("IRAs").
The Bank seeks to retain core deposits consisting of passbook and statement
savings, money market, noninterest-bearing checking, and NOW accounts, which
contribute to a low cost of funds. Such core deposits represented 23.8%, 26.2%
and 25.5% of total deposits at December 31, 1997, 1998 and 1999, respectively.
The following table shows the distribution of the Bank's deposits by type at the
dates indicated and the weighted-average nominal interest rates on each category
of deposits presented at December 31, 1999 (dollars in thousands).
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------
1997 1998 1999
----------------- ------------------- -----------------------------------
Percent Percent Percent Weighted-
of Total of Total of Total Average
Amount Deposits Amount Deposits Amount Deposits Rate
------ -------- ------ -------- ------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Noninterest-bearing
checking $ 6,968 2.20% $ 8,379 2.39% $ 11,100 2.58% --%
NOW and money-
market accounts 43,629 13.84 60,437 17.21 77,293 18.01 2.67
Passbook and
statement savings 24,503 7.77 23,038 6.56 21,110 4.92 2.00
------- ----- ------- ------- ------- ------ ----
Total 75,100 23.81 91,854 26.16 109,503 25.51 2.27
------- ----- ------- ------ ------- ------ ----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
1-3 months 9,834 3.12 9,549 2.72 8,552 1.99 4.19
91 day 538 .17 379 .11 358 .08 3.90
182 day 12,171 3.86 11,391 3.25 9,741 2.27 4.31
7 months - - - - 5,748 1.34 4.73
9 months 16,554 5.25 12,411 3.53 5,975 1.39 4.43
10 months 18,791 5.95 654 .19 20,729 4.83 5.70
12 months 39,975 12.67 31,697 9.03 31,298 7.29 4.64
12 month IRA 14,431 4.58 12,527 3.57 10,211 2.38 4.54
13 months - - 24,835 7.07 10,486 2.44 4.82
18 months 2,824 .90 2,485 .71 6,637 1.55 4.52
20 months 23,152 7.34 93,181 26.55 63,454 14.79 5.57
22 months - - - - 108,261 25.22 5.55
24 months 60,477 19.18 29,429 8.38 16,031 3.73 5.39
30 months 8,841 2.80 6,482 1.85 4,970 1.16 5.03
60 months 32,702 10.37 24,156 6.88 17,320 4.03 6.21
------- ------ ------- ------- ------- ------- ----
Total 240,290 76.19 259,176 73.84 319,771 74.49 5.30
------- ------ ------- ------ ------- ------ ----
Total deposits $ 315,390 100.00% 351,030 100.00% 429,274 100.00% 4.53%
======= ====== ======= ====== ======= ====== ====
</TABLE>
18
<PAGE>
The following table presents the deposit activity of the Bank for the years
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1998 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deposits $ 744,064 1,003,698 1,414,959
Withdrawals (721,501) 979,194 (1,349,451)
------- --------- ---------
Deposits in excess of withdrawals 22,563 24,504 65,508
Interest credited on deposits 10,163 11,136 12,736
------- ---------- ----------
Total increase in deposits $ 32,726 35,640 78,244
======= ========== ==========
</TABLE>
The following table presents the amount of time deposit accounts in amounts of
$100,000 or more at December 31, 1999 maturing as follows (in thousands):
Maturity Period
One month through three months $ 3,205
Over three through six months 4,601
Over six through 12 months 10,938
Over 12 months 18,527
--------
Total $ 37,271
========
19
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 1997, 1998 and 1999 and the
periods to maturity of the certificate accounts outstanding at December 31,
1999.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1999
At December 31, --------------------------------------------------------------------
--------------------------------- Within 1 to 2 to 3 to 4 to
1997 1998 1999 1 Year 2 Years 3 Years 4 Years 5 Years Total
--------- ------- ------- ------- ------- ----- ----- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
3.01% to 4.00% $ - 374 358 358 - - - - 358
4.01% to 5.00% 23,215 56,059 106,202 88,811 15,858 604 282 647 106,202
5.01% to 6.00% 187,028 176,729 181,001 106,986 69,184 2,028 2,803 - 181,001
6.01% to 8.00% 30,047 26,014 32,210 9,435 22,671 76 28 - 32,210
$ 240,290 259,176 319,771 205,590 107,713 2,708 3,113 647 319,771
========= ======= ======== ======= ======= ===== ===== === =======
</TABLE>
20
<PAGE>
Borrowings
The Bank is authorized to obtain advances from the Federal Home Loan Bank
("FHLB") of Atlanta which are generally collateralized by a blanket lien against
the Bank's mortgage portfolio. Such advances may be made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. The maximum amount that the FHLB of Atlanta will advance to member
institutions, including the Bank, for purposes other than meeting withdrawals,
fluctuates from time to time in accordance with the policies of the Federal
Housing Finance Board and the FHLB of Atlanta. At December 31, 1999, the Bank
had $99.0 million in FHLB advances outstanding.
During 1997, the Bank entered into agreements with nationally recognized primary
securities dealers under which the Bank sells securities subject to repurchase
agreements. Such agreements are accounted for as borrowings by the Bank and are
secured by the securities sold. At December 31, 1999 and 1998, the Bank did not
have any such borrowings outstanding. During 1998, the Bank began borrowing
under retail repurchase agreements with customers of the Bank. These agreements
are also accounted for as borrowings and are secured by securities owned by the
Bank.
The following table sets forth certain information relating to the Bank's
borrowings at the dates indicated:
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended
Ended December 31,
1997 1998 1999
--------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding $ 13,226 $ 33,718 $ 74,515
========= =========== ===========
Maximum amount outstanding at any month end during the year $ 30,000 $ 56,000 $ 99,000
========= =========== ===========
Balance outstanding at end of year $ 30,000 $ 56,000 $ 99,000
========= =========== ===========
Weighted average interest rate during the year 6.15% 5.91% 5.42%
========= =========== ===========
Weighted average interest rate at end of year 6.01% 5.28% 5.64%
========= =========== ===========
Other borrowed funds:
Average balance outstanding $ 5,629 $ 14 $ 1,916
========= =========== ===========
Maximum amount outstanding at any month end during the year $ 11,952 $ 789 $ 3,914
========= =========== ===========
Balance outstanding at end of year $ -- $ 789 $ 3,914
========= =========== ===========
Weighted average interest rate during the year 5.74% 4.65% 4.85%
========= =========== ===========
Weighted average interest rate at end of year -- % 4.65% 4.75%
========= =========== ===========
Total borrowings:
Average balance outstanding $ 18,855 $ 33,732 $ 76,431
====== ====== =======
Maximum amount outstanding at any month end during the year $ 41,952 $ 56,789 $ 102,914
====== ====== =======
Balance outstanding at end of year $ 30,000 $ 56,789 $ 102,914
====== ====== =======
Weighted average interest rate during the year 6.03% 5.89% 5.40%
======= ======= ========
Weighted average interest rate at end of year 6.01% 5.27% 5.61%
======= ======= ========
</TABLE>
Subsidiary Activities
The Bank has one wholly-owned subsidiary; Lake County Service Corporation
("LCSC") formed to develop a 100-lot subdivision, which is substantially sold
out. During 1999, LCSC sold an 8.4 acre commercial parcel and a one-acre lot
that adjoins the Bank's main office. The gain on the sale of the commercial
property was $553,000 after tax and $886,000 before tax. During 1999, LCSC
purchased two commercial building sites for possible future bank branches and
purchased an existing branch building in Inverness, which is rented to the Bank.
21
<PAGE>
Personnel
As of February 14, 2000, the Bank had 166 full-time employees and 15 part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank considers its relationship with its employees to be good.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Company is required by federal law to
file reports with, and otherwise comply with, the rules and regulations of the
OTS. The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Bank is a member of the Federal Home Loan Bank System and, with respect to
deposit insurance, of the Savings Association Insurance Fund ("SAIF") managed by
the FDIC. The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Bank's safety and soundness and compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and their operations. Certain of the
regulatory requirements applicable to the Bank and to the Company are referred
to below or elsewhere herein. The description of statutory provisions and
regulations applicable to savings institutions and their holding companies set
forth in this Form 10-K does not purport to be a complete description of such
statutes and regulations and their effects on the Bank and the Company.
Holding Company Regulation
The Company is a nondiversified unitary savings and loan holding company within
the meaning of federal law. Under prior law, a unitary savings and loan holding
company, such as the Company was not generally restricted as to the types of
business activities in which it may engage, provided that the Bank continued to
be a qualified thrift lender. See "Federal Savings Institution Regulation - QTL
Test." The Gramm-Leach-Bliley Act of 1999 provides that no company may acquire
control of a savings association after May 4, 1999 unless it engages only in the
financial activities permitted for financial holding companies under the law or
for multiple savings and loan holding companies as described below. Further, the
Gramm-Leach-Bliley Act specifies that existing savings and loan holding
companies may only engage in such activities. The Gramm-Leach-Bliley Act,
however, grandfathered the unrestricted authority for activities with respect to
unitary savings and loan holding companies existing prior to May 4, 1999, such
as the Company, so long as the Bank continues to comply with the QTL Test. Upon
any non-supervisory acquisition by the Company of another savings institution or
Bank that meets the qualified thrift lender test and is deemed to be a savings
institution by the OTS, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would generally be limited to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the
prior approval of the OTS, and certain activities authorized by OTS regulation.
22
<PAGE>
A savings and loan holding company is prohibited from, directly or indirectly,
acquiring more than 5% of the voting stock of another savings institution or
savings and loan holding company, without prior written approval of the OTS and
from acquiring or retaining control of a depository institution that is not
insured by the FDIC. In evaluating applications by holding companies to acquire
savings institutions, the OTS considers the financial and managerial resources
and future prospects of the company and institution involved, the effect of the
acquisition on the risk to the deposit insurance funds, the convenience and
needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple savings
and loan holding company controlling savings institutions in more than one
state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Although savings and loan holding companies are not subject to specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, federal regulations do prescribe such restrictions on
subsidiary savings institutions as described below. The Bank must notify the OTS
30 days before declaring any dividend to the Company. In addition, the financial
impact of a holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are governed
by federal law and regulations. These laws and regulations delineate the nature
and extent of the activities in which federal associations may engage. In
particular, many types of lending authority for federal association, e.g.,
commercial, non-residential real property loans and consumer loans, are limited
to a specified percentage of the institution's capital or assets.
Capital Requirements. The OTS capital regulations require savings institutions
to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4%
leverage ratio (3% for institutions receiving the highest rating on the CAMELS
rating system) and an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in effect, a minimum
2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving
the highest rating on the CAMEL financial institution rating system), and,
together with the risk-based capital standard itself, a 4% Tier 1 risk-based
capital standard. The OTS regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
<PAGE>
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred
23
<PAGE>
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk capital charge. At December 31, 1999, the Bank met
each of its capital requirements.
The following table presents the Bank's capital position at December 31, 1999.
<TABLE>
<CAPTION>
Capital Ratios
Actual Required Excess Actual Required
Capital Capital Amount Percent Percent
------- ------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible $ 51,177 8,841 42,336 8.68% 1.50%
Core (Leverage) $ 51,177 17,681 33,496 8.68 3.00
Risk-based $ 53,894 28,893 25,001 14.92 8.00
</TABLE>
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
<PAGE>
Insurance of Deposit Accounts. The Bank is a member of the SAIF. The FDIC
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for SAIF member institutions are determined
semiannually by the FDIC and currently range from zero basis points for the
healthiest institutions to 27 basis points for the riskiest.
24
<PAGE>
In addition to the assessment for deposit insurance, institutions are required
to make payments on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF. During 1999, FICO payments
for SAIF members approximated 6.1 basis points, while Bank Insurance Fund
("BIF") members paid 1.2 basis points. By law, there is equal sharing of FICO
payments between SAIF and BIF members beginning on January 1, 2000.
The Bank paid no assessment for 1999, however its payments toward the FICO bonds
amounted to $213,749. The FDIC has authority to increase insurance assessments.
A significant increase in SAIF insurance premiums would likely have an adverse
effect on the operating expenses and results of operations of the Bank.
Management cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At December
31, 1999, the Bank's limit on loans to one borrower was $8.1 million, and the
Bank's largest aggregate outstanding balance of loans to one borrower was $7.6
million.
QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender test. Under the test, a savings association is required to either qualify
as a "domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.
A savings institution that fails the qualified thrift lender test is subject to
certain operating restrictions and may be required to convert to a bank charter.
As of December 31, 1999, the Bank maintained 79.30% of its portfolio assets in
qualified thrift investments and, therefore, met the qualified thrift lender
test. Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered "qualified thrift
investments."
Limitation on Capital Distributions. OTS regulations impose limitations upon all
capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger. The rule effective in the first quarter of
1999 established three tiers of institutions based primarily on an institution's
capital level. An institution that exceeded all capital requirements before and
after a proposed capital distribution ("Tier 1 Bank") and had not been advised
by the OTS that it was in need of more than normal supervision, could, after
prior notice but without obtaining approval of the OTS, make capital
distributions during the calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would reduce
by one-half the excess capital over its capital requirements at the beginning of
the calendar year or (ii) 75% of its net income for the previous four quarters.
Any additional
23
<PAGE>
capital distributions required prior regulatory approval. Effective April 1,
1999, the OTS's capital distribution regulation changed. Under the new
regulation, an application to and the prior approval of the OTS is required
prior to any capital distribution if the institution does not meet the criteria
for "expedited treatment" of applications under OTS regulations (i.e.,
generally, examination ratings in the two top categories), the total capital
distributions for the calendar year exceed net income for that year plus the
amount of retained net income for the preceding two years, the institution would
be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with OTS. If an
application is not required, the institution must still provide prior notice to
OTS of the capital distribution if, like the Bank, it is a subsidiary of a
holding company. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. The 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%. Monetary penalties may
be imposed for failure to meet these liquidity requirements. The Bank's
liquidity ratio for December 31, 1999 was 18.7%, which exceeded the applicable
requirements. The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the OTS to
fund the agency's operations. The general assessments, paid on a semi-annual
basis, are computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The Bank was not assessed any payments for the fiscal year
ended December 31, 1999.
Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
<PAGE>
The Bank's authority to extend credit to executive officers, directors and 10%
shareholders ("insiders"), as well as entities such persons control, is also
governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the
26
<PAGE>
individual and aggregate amount of loans the Bank may make to insiders based, in
part, on the Bank's capital position and requires certain board approval
procedures to be followed.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines prescribing Standards for Safety and Soundness. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that a savings
institution fails to meet any standard prescribed by the guidelines, the OTS may
require the institution to submit an acceptable plan to achieve compliance with
the standard.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank System, which consists of 12
regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central
credit facility primarily for member institutions. The Bank, as a member of the
Federal Home Loan Bank, is required to acquire and hold shares of capital stock
in that Federal Home Loan Bank in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the Federal Home Loan Bank, whichever is greater. The Bank was in
compliance with this requirement with an investment in Federal Home Loan Bank
stock at December 31, 1999 of $4.95 million.
The Federal Home Loan Banks are required to provide funds for the resolution of
insolvent thrifts in the late 1980s and to contribute funds for affordable
housing programs. These requirements could reduce the amount of dividends that
the Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to their
members. If dividends were reduced, or interest on future Federal Home Loan Bank
advances increased, The Bank's net interest income would likely also be reduced.
Recent legislation has changed the structure of the Federal Home Loan Banks
funding obligations for insolvent thrifts, revised the capital structure of the
Federal Home Loan Banks and implemented entirely voluntary membership for
Federal Home Loan Banks. Management cannot predict the effect that these changes
may have with respect to its Federal Home Loan Bank membership.
27
<PAGE>
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The regulations generally provide that reserves
be maintained against aggregate transaction accounts as follows: for accounts
aggregating $44.3 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts aggregating greater than
$44.3 million, the reserve requirement is $1.329 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $44.3 million. The first $5.0 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank complies with the
foregoing requirements.
Year 2000
The Company's operating and financial systems have been found to be compliant;
the "Y2K Problem" has not adversely affected the Company's operations nor does
management expect that it will.
28
<PAGE>
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank report their income on a consolidated basis
using the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited by the IRS for the year ended
December 31, 1996. For its 1999 taxable year, the Bank is subject to a maximum
federal income tax rate of 34%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995, thrift
institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, requires savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves. The
1996 Act repeals the reserve method of accounting for bad debts effective for
tax years beginning after 1995. Thrift institutions that would be treated as
small banks are allowed to utilize the Experience Method applicable to such
institutions, while thrift institutions that are treated as large banks (those
generally exceeding $500 million in assets) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.
A thrift institution required to change its method of computing reserves for bad
debts will treat such change as a change in method of accounting, initiated by
the taxpayer, and having been made with the consent of the IRS. Any Section
481(a) adjustment required to be taken into income with respect to such change
generally will be taken into income ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to the
residential loan requirement.
Under the residential loan requirement provision, the recapture required by the
1996 Act is suspended for each of two successive taxable years, beginning with
1996, in which the Bank originates a minimum of certain residential loans based
upon the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding its current taxable year. Under the 1996 Act,
for its current and future taxable years, the Bank is permitted to make
additions to its tax bad debt reserves. In addition, the Bank is required to
recapture (i.e., take into income) over a six year period the excess of the
balance of its tax bad debt reserves as of December 31, 1995 over the balance of
such reserves as of December 31, 1987. At December 31, 1999, the Bank had
approximately $606,000 of deferred tax liabilities recorded for the recapture of
its bad debt reserves.
29
<PAGE>
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.
The amount of additional taxable income triggered by a non-dividend is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution. Thus, if the Bank makes a non-dividend distribution to the
Company, approximately one and one-half times the amount of such distribution
(but not in excess of the amount of such reserves) would be includable in income
for federal income tax purposes, assuming a 35% federal corporate income tax
rate. The Bank does not intend to pay dividends that would result in a recapture
of any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative minimum
taxable income ("AMTI") at a rate of 20%. For fiscal years beginning prior to
January 1, 1996, the excess of the bad debt reserve deduction using the
percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. The adjustment to AMTI based on book income is an amount equal
to 75% of the amount by which a corporation's adjusted current earnings exceeds
its AMTI (determined without regard to this adjustment and prior to reduction
for net operating losses). In addition, for taxable years through 1995, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2.0 million is imposed on corporations, including the Bank, whether or not
an Alternative Minimum Tax ("AMT") is paid. The Bank does not expect to be
subject to the AMT.
Dividends Received Deduction and Other Matters. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, 80% of any dividends received may be
deducted.
Florida Taxation. The Bank files Florida franchise tax returns. For Florida
franchise tax purposes, savings institutions are presently taxed at a rate equal
to 5.5% of taxable income. For this purpose, "taxable income" generally means
federal taxable income, subject to certain adjustments (including the addition
of interest income on State and municipal obligations). The Bank is not
currently under audit with respect to its Florida franchise tax returns.
30
<PAGE>
ITEM 2. PROPERTIES
The Bank conducts its business through its main office and 12 branch offices.
The following table sets forth certain information regarding the Bank's office
properties:
Net Book Value of Land
Date and Buildings at
Location Acquired December 31, 1999
- -------- -------- -----------------
(Dollars in thousands)
Main Office
800 North Boulevard, West
Leesburg, Florida 34748-5053 1961 $ 356
Wildwood
837 South Main Street
Wildwood, Florida 34785-5302 1967 293
Main Street
1409 West Main Street
Leesburg, Florida 34748-4854 1972 201
Clermont
481 East Highway 50
Clermont, Florida 34711-4032 1982 710
Eustis
2901 South Bay Street
Eustis, Florida 32726-6551 1979 568
Fruitland Park
410 Palm Street
Fruitland Park, Florida 34731-4013 1983 377
Lady Lake
431 US Highway 441/27
Lady Lake, Florida 32159-3046 1995 1,204
Lake Square
10105 US Highway 441
Leesburg, Florida 34788-3952 1995 503
South Leesburg (1)
27405 US Highway 27, Suite 123
Leesburg, Florida 34748-7914 1996 118
South Leesburg (2)
US Highway 27
Leesburg, Florida 34748 1996 375
Inverness (3)
2709 East Gulf to Lake Highway
Inverness, Florida 34453-3245 1998 869
Four Corners
16550 Woodcrest Way
Clermont, Florida 34711-7004 1998 1,073
<PAGE>
Bushnell (4)
1128 North Main Street
Bushnell, Florida 33513 1998 282
Administration (5)
Leesburg, Florida 1961 78
Sumter County (6) 1999 401
(1) Leased branch office opened February, 1997.
(2) Parcel of land purchased by the Bank for a future branch office location.
(3) Leased branch office opened February, 1999. Owned by Lake County Service
Corp.
(4) Leased branch office opened May, 1999.
(5) Parcel of land owned by Bank for future administration offices.
(6) Two parcels of land purchased by Lake County Service Corp. for future
branch office locations.
The Bank owns and operates personal computers, teller terminals and associated
equipment. At December 31, 1999, such equipment had a net book value of $996.
31
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which FFLC Bancorp, Inc., or
any of its subsidiaries is a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the fourth
quarter of the fiscal year ended December 31, 1999, through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The above-captioned information appears under "Common Stock Prices and
Dividends" in the Registrant's 1999 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The above-captioned information appears under "Selected Consolidated Financial
Data" on page 6 and 7 of the Registrant's 1999 Annual Report to Stockholders and
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
1999 Annual Report to Stockholders on pages 8 through 18 and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of FFLC Bancorp, Inc. and Subsidiary,
together with the report thereon by Hacker, Johnson, Cohen & Grieb PA appear in
the Registrant's 1999 Annual Report to Stockholders on pages 19 through 50 and
are incorporated herein by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with the Registrant's accountants on any
matters of accounting principles or practices or financial statement
disclosures.
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information related to Directors and Executive Officers of the Registrant is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 4, 2000 at pages 5 through 8.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 4, 2000 at pages 12 through 15.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 4, 2000 at
pages 5 through 7.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions is
incorporated herein by reference to pages 15 and 16 of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 4, 2000.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference from the following indicated pages of the 1999 Annual Report to
Stockholders.
Page
----
Independent Auditor's Report 50
Consolidated Balance Sheets as of December 31, 1999 and 1998 19
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997 20
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997 21-23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 24-25
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1999, 1998 and 1997 26-49
The remaining information appearing in the Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits
(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**
13.0 Annual Report to Stockholders (filed herewith)
99 Proxy Statement for Annual Meeting (filed herewith)
<PAGE>
* 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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
fourth quarter.
34
<PAGE>
Pursuant to the requirements of Section 13 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.
By: /s/ Stephen T. Kurtz
Stephen T. Kurtz
Chief Executive Officer
and President
Dated: March 16, 2000
--------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Name Title Date
---- ----- ----
/s/ Joseph J. Junod Chairman of the Board March 16, 2000
- -------------------
Joseph J. Junod
/s/ Claron D. Wagner Vice Chairman of the Board March 16, 2000
- --------------------
Claron D. Wagner
/s/ James P. Logan Director March 16, 2000
- ------------------
James P. Logan
/s/ Ted R. Ostrander, Jr. Director March 16, 2000
- -------------------------
Ted R. Ostrander
/s/ H.D. Robuck, Jr. Director March 16, 2000
- --------------------
H.D. Robuck, Jr.
/s/ Stephen T. Kurtz Chief Executive Officer, March 16, 2000
- -------------------- President and Director
Stephen T. Kurtz
/s/ Paul K. Mueller Executive Vice President, Chief March 16, 2000
- ------------------- Operating Officer and Treasurer
Paul K. Mueller and Director
35
Exhibit (3)ii
FFLC BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
- --------------------------
An annual meeting of the stockholders, for the election of Directors to succeed
those whose terms expire and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, on such date, and
at such time as the Board of Directors shall each year fix, which date shall be
within thirteen (13) months subsequent to the later of the date of incorporation
or the last annual meeting of stockholders.
Section 2. Special Meetings.
- ----------------------------
Subject to the rights of the holders of any class or series of preferred stock
of the Corporation, special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The term "Whole Board" shall mean the total number
of Directors which the Corporation would have if there were no vacancies on the
Board of Directors (hereinafter the "Whole Board")
Section 3. Notice of Meetings.
- ------------------------------
Written notice of the place, date, and time of all meetings of the stockholders
shall be given, not less than ten (10) nor more than sixty (60) days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law.
When a meeting is adjourned to another place, date or time, written notice need
not be given of the adjourned meeting if the place, date and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than thirty (30) days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date, and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Quorum.
- ------------------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the meeting or the
holders of a majority of the shares of stock entitled to vote who are present,
in person or by proxy, may adjourn the meeting to another place, date, or time.
Section 5. Organization.
- ------------------------
The Chairman of the Board of the Corporation or, in his or her absence, such
person as the Board of Directors may have designated or, in the absence of such
a person, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and shall chair the meeting. In the
absence of the Secretary of the Corporation, the secretary of the meeting shall
be such person as the chairman appoints.
Section 6. Conduct of Business.
- -------------------------------
(a) The chairman of any meeting of stockholders shall determine the order of
business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive office of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that if less than one hundred (100) days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must b e received not later than the close of business
on the 10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder and (iv) any material interest of such stockholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The Chairman of the Board
or other person presiding over the annual meeting shall, if the facts so
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
6(b) and, if he should so determine, he shall so declare to the meeting and any
such business so determined to be not properly brought before the meeting shall
not be transacted.
<PAGE>
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of a majority of the Whole Board of Directors.
(c) Only persons who are nominated in accordance with the procedures set forth
in these Bylaws shall be eligible for election as Directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders at which directors are to be elected only (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 6(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive office of the Corporation not less
than ninety (90) days prior to the date of the meeting; provided, however, that
in the event that less than one hundred (100) days' notice or prior disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The Chairman of the Board or other person presiding at the
meeting shall, if the facts so warrant, determine that a nomination was not made
in accordance with such provisions and, if he or she shall so determine, he or
she shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 7. Proxies and Voting.
- ------------------------------
At any meeting of the stockholders, every stockholder entitled to vote may vote
in person or by proxy authorized by an instrument in writing filed in accordance
with the procedure established for the meeting or by proxy by internet at the
discretion of the Board of Directors. Any facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
<PAGE>
A stockholder may also authorize another person or persons to act as his proxy
by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission, as authorized by the Whole Board of
Directors and permitted under Section 212 of the Delaware General Corporation
Law.
All voting, including the election of Directors but excepting where otherwise
required by law or by the governing documents of the Corporation, may be made by
a voice vote; provided, however, that upon demand therefore by a stockholder
entitled to vote or his her proxy, a stock vote shall be taken. Every stock vote
shall be taken by ballot, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedures established for the meeting. The Board of Directors shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Board of Directors may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the Chairman of the Board, or in his absence such person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his or her ability.
All elections for Directors shall be determined by a plurality of the votes
cast, and except as otherwise required by law, the Certificate of Incorporation
or these Bylaws, all other matters shall be determined by a majority of the
votes cast affirmatively or negatively.
Section 8. Stock List.
- ----------------------
A complete list of stockholders entitled to vote at any meeting of stockholders,
arranged in alphabetical order for each class of stock and showing the address
of each such stockholder and the number of shares registered in his or her name,
shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the whole
time thereof and shall be open to the examination of any such stockholder who is
present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
- ------------------------------------------------------
Subject to the rights of the holders of any class or series of preferred stock
of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
<PAGE>
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers. Number and Term of Office.
- -----------------------------------------------------
The business and affairs of the Corporation shall be under the direction of its
Board of Directors. The number of Directors who shall constitute the Whole Board
shall be seven. The Board of Directors shall annually elect a Chairman of the
Board and a Vice Chairman of the Board from among its members. When present,
either the Chairman of the Board or the Vice Chairman of the Board, in that
order of precedence, shall preside at meetings of the Board of Directors.
The Directors, other than those who may be elected by the holders of any class
or series of Preferred Stock, shall be divided, with respect to the time for
which they severally hold office, into three classes, with the term of office of
the first class to expire at the first annual meeting of stockholders, the term
of office of the second class to expire at the annual meeting of stockholders
one year thereafter and the term of office of the third class to expire at the
annual meeting of stockholders two years thereafter, with each Director to hold
office until his or her successor shall have been duly elected and qualified. At
each annual meeting of stockholders, Directors elected to succeed those
Directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each Director to hold office until his or her successor shall
have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
- -----------------------------------------------------
Subject to the rights of the holders of any class or series of Preferred Stock,
and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
- ----------------------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
- ----------------------------
Special meetings of the Board of Directors may be called by a majority of the
Directors then in office (rounded up to the nearest whole number), or by the
Chairman of the Board and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
<PAGE>
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
- ------------------
At any meeting of the Board of Directors, a majority of the Whole Board shall
constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
- ------------------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and such participation shall constitute presence
in person at such meeting.
Section 7. Conduct of Business.
- -------------------------------
At any meeting of the Board of Directors, business shall be transacted in such
order and manner as the Board or the Chairman of the Board may from time to time
determine, and all matters shall be determined by the vote of a majority of the
Directors present, except as otherwise provided herein or required by law.
Action may be taken by the Board of Directors without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
Section 8. Powers.
- ------------------
The Board of Directors may, except as otherwise required by law, exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation, including, without limiting the generality of the foregoing, the
unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary
in connection therewith;
(4) To remove any Officer of the Corporation with or without cause, and
from time to time to dissolve the powers and duties of any Officer
upon any other person for the time being;
<PAGE>
(5) To confer upon any Officer of the Corporation the power to appoint,
remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock option; stock purchase, bonus or
other compensation plans for Directors, Officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
- -------------------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Age Limitations (Amended 8/22/96). No person 72 years of age or
above shall be eligible for election, reelection, appointment or reappointment
to the board of FFLC Bancorp, Inc. A director who reaches the age of 72 during
his term of service on the board may complete the term as director. This age
limitation does not apply to an advisory director.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
- ------------------------------------------------
The Board of Directors, by a vote of a majority of the Whole Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of a
majority of the Whole Board and shall, for these committees and any others
provided for herein, elect a Director or Directors to serve as the member or
members, designating, if it desires, other Directors as alternate members who
may replace any absent or disqualified member at any meeting of the committee.
The Board of Directors, by a resolution adopted by a majority of the Whole Board
may terminate any committee previously established. Any committee so designated
by resolution adopted by a majority of the Whole Board may exercise the power
and authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his or her place, the member or members of
the committee present at the meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may by unanimous vote appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member.
Section 2. Conduct of Business.
- -------------------------------
Each committee may determine the procedural rules for meeting and conducting its
business and shall act in accordance therewith, except as otherwise provided
herein or required by law or the Board of Directors. Adequate provision shall be
made for notice to members of all meetings; a majority of the members shall
<PAGE>
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
- --------------------------------
The Board of Directors, by resolution adopted by a majority of the Whole Board,
shall appoint a Nominating Committee of the Board, consisting of not less than
three (3) members of the Board of Directors, one of whom shall be the Chairman
of the Board. The Nominating Committee shall have authority (a) to review any
nominations for election to the Board of Directors made by a stockholder of the
Corporation pursuant to Section 6(c)(ii) of Article 1 of these Bylaws in order
to determine compliance with such Bylaw and (b) to recommend to the Whole Board
nominees for election to the Board of Directors (i) to replace those Directors
whose terms expire at the annual meeting of stockholders next ensuing and (ii)
to fill vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, or resulting from an
increase in the authorized number of Directors.
ARTICLE IV - OFFICERS
Section 1. Generally
- --------------------
(a) The Board of Directors as soon as may be practicable after the annual
meeting of stockholders shall choose a Chairman of the Board, Vice-Chairman of
the Board, President, one or more Vice Presidents, and a Secretary and from time
to time may choose such other officers as it may deem proper. The Chairman of
the Board shall be an outside member of the Board of Directors. Any number of
offices may be held by the same person. The Chairman of the Board shall not
serve for more than three consecutive annual one year terms.
(b) The term of office of all Officers shall be until the next annual election
of Officers and until their respective successors are chosen but any Officer may
be removed from office at any time by the affirmative vote of a majority of the
authorized number of Directors then constituting the Board of Directors, or by
the Chairman of the Board.
(c) All Officers chosen by the Board of Directors or the Chairman of the Board
shall each have such powers and duties as generally pertain to their respective
Offices, subject to the specific provisions of this ARTICLE IV. Such officers
shall also have such powers and duties as from time to time may be conferred by
the Board of Directors.
Section 2. Chief Executive Officer and President.
- -------------------------------------------------
The Chief Executive Officer and President, subject to the provisions of these
Bylaws and to the direction of the Board of Directors, shall serve in a general
executive capacity. He shall perform all duties and have all powers which are
commonly incident to the office of President & CEO or which are delegated to him
by the Board of Directors. He shall have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized.
<PAGE>
He shall also have general responsibility for the management and control of the
business and affairs of the Corporation and shall perform all duties and have
all powers which are commonly incident to the offices of President and Chief
Executive Officer or which are delegated to him by the Board of Directors.
Subject to the direction of the Board of Directors, he shall have general
supervision of all of the other Officers, employees and agents of the
Corporation.
Section 3. Vice President.
- --------------------------
The Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices an-or such other duties and powers as may
be properly assigned to them by the Board of Directors or the Chairman of the
Board. A Vice President or Vice Presidents may be designated as Executive Vice
President or Senior Vice President.
Section 4. Secretary.
- ---------------------
The Secretary or Assistant Secretary shall issue notices of meetings, shall keep
their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office an-or such other duties and powers as are properly assigned
thereto by the Board of Directors or the Chairman of the Board. Subject to the
direction of the Board of Directors, the Secretary shall have the power to sign
all stock certificates.
Section 5. Assistant Secretaries and Other Officers.
- ----------------------------------------------------
The Board of Directors or the Chairman of the Board may appoint one or more
Assistant Secretaries and such other Officers who shall have such powers and
shall perform such duties as are provided in these Bylaws or as may be assigned
to them by the Board of Directors or the Chairman of the Board.
Section 6. Action with Respect to Securities of Other Corporations.
- -------------------------------------------------------------------
Unless otherwise directed by the Board of Directors, the Chairman of the Board
or any Officer of the Corporation authorized by the Chairman of the Board shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
- ---------------------------------
Each stockholder shall be entitled to a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board or the President, and by the
Secretary or an Assistant Secretary, certifying the number of shares owned by
him or her. Any or all of the signatures on the certificate may be a facsimile.
<PAGE>
Section 2. Transfers of Stock.
- ------------------------------
Transfers of stock shall be made only upon the transfer books of the Corporation
kept at an office of the Corporation or by transfer agents designated to
transfer shares of the stock of the Corporation. Except where a certificate is
issued in accordance with Section 4 of Article V of these Bylaws, an outstanding
certificate for the number of shares involved shall be surrendered for
cancellation before a new certificate is issued therefor.
Section 3. Record Date.
- -----------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders, or to receive payment of any
dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) days nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 4. Lost. Stolen or Destroyed Certificates.
- --------------------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
- -----------------------
The issue, transfer, conversion and registration of certificates of stock shall
be governed by such other regulations as the Board of Directors may establish.
<PAGE>
ARTICLE VI - NOTICES
--------------------
Section 1. Notices.
- -------------------
Except as otherwise specifically provided herein or required by law, all notices
required to be given to any stockholder, Director, Officer, employee or agent
shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
- -------------------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
---------------------------
Section 1. Facsimile Signatures.
- --------------------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any Officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof designated by the Board.
Section 2. Corporate Seal.
- --------------------------
The Board of Directors may provide a suitable seal, containing the name of the
Corporation, which seal shall be in the charge of the Secretary. If and when so
directed by the Board of Directors or a designated committee thereof, duplicates
of the seal may be kept and used by the Chief Financial Officer or by an
Assistant Secretary or an assistant to the Chief Financial Officer.
Section 3. Reliance Upon Books, Reports and Records.
- ----------------------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by lawyers,
accountants, agents or any other person as to matters which such Director or
committee member or officer reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
<PAGE>
Section 4. Fiscal Year.
- -----------------------
The fiscal year of the Corporation shall be as fixed by the Board of Directors.
Section 5. Time Periods.
- ------------------------
In applying any provision of these Bylaws which requires that an act be done or
not be done a specified number of days prior to an event or that an act be done
during a period of a specified number of days prior to an event, calendar days
shall be used, the day of the doing of the act shall be excluded, and the day of
the event shall be included.
ARTICLE VIII - AMENDMENTS
-------------------------
The Board of Directors by a resolution adopted by a majority of the Whole Board,
may amend, alter or repeal these Bylaws at any meeting of the Board, provided
notice of the proposed change was given not less than two days prior to the
meeting. The stockholders shall also have power to amend, alter or repeal these
Bylaws at any meeting of stockholders provided notice of the proposed change was
given in the notice of the meeting; provided, however, that, notwithstanding any
other provisions of the Bylaws or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the voting stock required by law,
the Certificate of Incorporation, any Preferred Stock Designation or these
Bylaws, the affirmative votes of the holders of at least 80% of the voting power
(taking into account the provisions of Article FOURTH of the Certificate of
Incorporation) of all the then-outstanding shares of the Voting Stock voting
together as a single class, shall be required to alter, amend or repeal any
provisions of these Bylaws.
The above Bylaws are effective as of September 16, 1993, the date of their
adoption by the incorporator of FFLC Bancorp, Inc.
<PAGE>
EXCERPTS FROM THE MINUTES OF THE FFLC BANCORP, INC.
BOARD OF DIRECTORS
MEETING HELD ON AUGUST 22, 1996
The following new Section 10 replaces the existing
section 10 (Retirement of Directors) of Article II of the
Bylaws of FFLC Bancorp, Inc.
Section 10. Age Limitations.
- --------------------------------
No person 72 years of age or above shall be eligible for election, reelection,
appointment or reappointment to the board of FFLC Bancorp, Inc. A director who
reaches the age of 72 during his term of service on the board may complete the
term as director. This age limitation does not apply to an advisory director.
I hereby certify that the forgoing is a true copy of the action taken
by the Board of Directors of the FFLC Bancorp, Inc., Leesburg, Florida, and that
it remains in full force and effect.
Sandra L. Rutschow, Secretary
FFLC BANCORP, INC.
1999 ANNUAL REPORT
MISSION STATEMENT
Our mission is to operate in a manner consistent with the high expectations of
our stockholders, customers and employees. We will achieve attractive financial
results for our stockholders, provide quality financial services and products to
our customers, and offer rewarding careers to our employees by increasing the
use of technology while maintaining a high level of personal service and
integrity. We exist in order to:
o provide an attractive return to our stockholders,
o provide a competitive, progressive and profitable array of financial
services and products,
o attract and retain highly-motivated, top-quality employees, and
o make a positive impact on the communities that we serve.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 evidences Congress"
determination that the disclosure of forward-looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward-looking statements by corporate management. This Annual Report,
including the Letter to Stockholders and the Management"s Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements that involve risk and uncertainty. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company"s actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company"s
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development, growth projections and results of the
Company"s business include, but are not limited to, the growth of the economy,
interest rate movements, timely development by the Company of technology
enhancements for its products and operating systems, the impact of competitive
products, services and pricing, customer business requirements, Congressional
legislation and similar matters. Readers of this report are cautioned not to
place undue reliance on forward-looking statements which are subject to
influence by the named risk factors and unanticipated future events. Actual
results, accordingly, may differ materially from management expectations.
<PAGE>
CONTENTS
Page
----
Corporate Profile, Corporate Organization and General Information ........ 1
Office Locations and Common Stock Prices and Dividends ................... 2
Consolidated Financial Highlights ........................................ 3
Letter to Stockholders ................................................... 4-5
Selected Consolidated Financial Data and Financial Ratios................. 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................. 8-18
Consolidated Financial Statements ........................................ 19-49
Independent Auditors' Report.............................................. 50
Directors and Officers of FFLC Bancorp, Inc. ............................. 51
Directors and Officers of First Federal Savings Bank of Lake County....... 52
Employees ................................................................ 53
Inside Cover
<PAGE>
CORPORATE PROFILE
FFLC Bancorp, Inc. ("FFLC" or the "Holding Company") was incorporated in
Delaware on September 16, 1993, and acquired First Federal Savings Bank of Lake
County (the "Bank") (together, the "Company") in connection with the Bank's
conversion to stock form on January 4, 1994. The Holding Company is a savings
and loan holding company subject to regulation by the Office of Thrift
Supervision ("OTS") which transacts its business through its subsidiary, the
Bank. The Bank is a community-oriented savings institution which offers a
variety of financial services to individuals and businesses primarily located in
Lake County, Sumter County and Citrus County, Florida. The deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") through the
Savings Association Insurance Fund ("SAIF").
CORPORATE ORGANIZATION
Holding Company
FFLC Bancorp, Inc.
Thrift Subsidiary
First Federal Savings Bank of Lake County
Affiliate of Thrift Subsidiary
Lake County Service Corporation
GENERAL INFORMATION
Corporate Headquarters
800 North Boulevard West, Post Office Box 490420, Leesburg, Florida 34749
-0420
Annual Meeting
The Annual Meeting of the Stockholders will be held at the Leesburg
Community Building located at 109 East Dixie Avenue in Leesburg at 2:00 p.m.
on May 4, 2000.
Form 10-K
A copy of the Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained by stockholders without charge upon written
request to Sandra L. Rutschow, Vice President - Secretary, FFLC Bancorp,
Inc., Post Office Box 490420, Leesburg, Florida 34749-0420. The Company's
SEC filings are also available at our web site, http://www.1stfederal.com.
Stockholder Assistance
Stockholders requiring a change of address, records or information about
lost certificates, dividend checks or dividend reinvestment should contact:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
800-368-5948
Corporate Counsel
George W. Murphy, Jr.
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue
Washington, D.C. 20016
<PAGE>
Independent Auditors
Hacker, Johnson, Cohen & Grieb PA
Certified Public Accountants
930 Woodcock Road, Suite 211
Orlando, Florida 32803
Visit FFLC's Internet Site at http://www.1stfederal.com. This site provides
up-to-date rates for certificates of deposit and mortgage loans, as well as
access to FFLC's current stock quotes and SEC filings.
1
<PAGE>
FIRST FEDERAL LOGO HERE
OFFICE LOCATIONS
MAP INSERT MAP - HALF PAGE
COMMON STOCK PRICES AND DIVIDENDS
FFLC's common stock is traded in the over-the-counter market and is quoted on
the National Association of Securities Dealers Automated Quotation - National
Market System ("NASDAQ - National Market System") under the symbol FFLC. The
following table sets forth market price information, based on closing prices, as
reported by the NASDAQ -National Market System for the common stock high and low
closing sales prices and the amount of dividends paid on the common stock for
the periods indicated. See Note 19 of the Consolidated Financial Statements for
a summary of quarterly financial data.
Cash
Dividends
Paid
High Low Per Share
Quarter Ended:
March 31, 1998..................... 21 3/4 18 3/4 .09
June 30, 1998...................... 21 3/4 19 .09
September 30, 1998................. 20 16 1/2 .09
December 31, 1998.................. 17 3/8 14 3/4 .09
March 31, 1999..................... 18 1/2 15 1/2 .11
June 30, 1999...................... 19 16 .11
September 30, 1999................. 18 1/8 17 1/2 .11
December 31, 1999.................. 17 7/8 13 1/4 .11
As of February 1, 2000, the Company had 810 holders of record of common stock.
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
AT YEAR END: 1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Total assets.................................................................. $ 590,432 463,820 400,237
Loans receivable, net......................................................... $ 501,131 389,059 315,353
Securities ................................................................... $ 36,909 40,392 58,598
Deposits...................................................................... $ 429,274 351,030 315,390
Equity........................................................................ $ 55,637 53,223 51,429
Book value per share.......................................................... $ 15.52 14.56 13.74
Shares outstanding ........................................................... 3,583,938 3,655,620 3,743,988
Equity-to-assets ratio........................................................ 9.42% 11.47% 12.85%
Nonperforming assets to total assets.......................................... .47% .17% .19%
FOR THE YEAR:
Interest income............................................................... $ 38,612 32,173 28,156
Net interest income after provision for loan losses........................... $ 16,679 14,220 12,091
Net income.................................................................... $ 5,402 4,397 3,754
Basic income per share........................................................ $ 1.52 1.22 1.01
Diluted income per share...................................................... $ 1.47 1.16 .96
Loan originations funded...................................................... $ 195,034 151,411 143,538
Return on average assets...................................................... 1.03% 1.05% 1.00%
Return on average equity...................................................... 9.89% 8.37% 7.18%
Average equity to average assets ratio........................................ 10.45% 12.52% 13.93%
Noninterest expense to average assets......................................... 1.97% 2.01% 1.99%
<CAPTION>
YIELDS AND RATES:
Weighted Average
Rate or Yield Average Rate or Yield During
at December 31, Year Ended December 31,
---------------------- ----------------------------
1999 1998 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans .................................................. 7.88% 7.96% 7.99% 8.27% 8.31%
Securities.............................................. 6.22% 6.37% 5.83% 6.32% 6.35%
All interest-earning assets ............................ 7.66% 7.72% 7.73% 7.96% 7.80%
Deposits................................................ 4.53% 4.58% 4.56% 4.78% 4.87%
All interest-bearing liabilities ....................... 4.84% 4.67% 4.70% 4.88% 4.94%
Interest-rate spread (1)................................ 2.82% 3.05% 3.03% 3.08% 2.86%
Net yield on average interest-earning assets (2)........ N/A N/A 3.48% 3.69% 3.53%
</TABLE>
<PAGE>
(1) Average yield on all interest-earning assets less average rate paid on all
interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
3
<PAGE>
LOGO HERE
Dear Stockholders:
Once again, I am pleased to have the opportunity to present to our stockholders,
customers and friends, information about the Company's operations for the past
year. We have again enjoyed a successful year, and I would like to take this
opportunity to thank all of you - our stockholders, our customers, our
communities, and our employees - for your efforts and support as we moved
through 1999 and into the year 2000.
We all had high expectations for the transition to the new millennium, and the
Company did indeed experience a most eventful year. We enjoyed record earnings
for the year, opened three new branches, and approved the establishment of a
dividend reinvestment plan for stockholders. First Federal Savings Bank, the
Company's subsidiary, again set records for total assets, total loan volume, and
total deposits. And, of course, we successfully navigated the Y2K transition!
For 1999, the Company earned $5.4 million, a 23% increase over 1998. On a per
share basis, basic net income per share for 1999 was $1.52, compared to $1.22
for 1998. As we previously reported to you, the 1999 consolidated earnings were
positively impacted in the first quarter of 1999 by a $553,000 after-tax gain on
the sale of commercial land owned by Lake County Service Corporation, a
subsidiary of the Bank. Excluding that gain, the Company's consolidated net
income would have been $4.8 million for the year ended December 31, 1999, a 10%
increase when compared to 1998. Basic income per share for 1999 excluding the
gain would have been $1.36, an increase of 11% over 1998.
Asset growth continues to be an important focal point for the Company. The
Company's total assets grew from $463.8 million at December 31, 1998 to $590.4
million at December 31, 1999. During 1999, the Bank's loan originations totaled
$238.2 million, a 20% increase over the $198.7 million of originations in 1998.
Originations of residential loans were $133.3 million, commercial loans were
$59.2 million, and consumer loans were $45.7 million for 1999. Those volume
levels compare to $109.2 million, $58.9 million, and $31.0 million,
respectively, for 1998.
The Company's growth was funded by increases in the Bank's deposits and Federal
Home Loan Bank advances. During 1999, the Bank's deposits grew from $351.0
million to $429.3 million, an increase of 22%. Of the total increase in
deposits, checking and other transaction accounts grew $17.6 million (or 19%),
while certificates of deposit grew $60.6 million (or 23%). During 1999, advances
from the Federal Home Loan Bank grew $43 million (77%), from $56 million to $99
million.
4
<PAGE>
As we look forward to 2000, we are excited about the opportunity we have to add
interactive Internet banking to our list of banking products. We have been
working on the development of our interactive Internet banking product, and
expect to be able to launch this project in the second quarter of 2000. We are
also excited about the opening in mid 2000 of our new Loan Administration
building, located immediately behind our Main Office, which will allow us to
continue to grow our Lending activities. When that building is finished, we plan
to begin remodeling our Main Office in order to continue to serve our customers
in the most efficient and convenient manner.
We are also very pleased to offer our stockholders the opportunity to reinvest
dividends automatically on the Company's common stock, through the FFLC Bancorp,
Inc. Dividend Reinvestment Plan (the "Plan"). That Plan, which was established
in January 2000, allows registered stockholders of at least 50 shares of common
stock to reinvest regular dividends on all or a portion of their common stock
into additional shares. The Plan also allows participants to make optional cash
purchases of common stock, and all costs, including brokerage commissions, are
paid by the Company. A booklet describing the Plan in detail was mailed to
stockholders in January. If you would like a copy of that booklet, there is a
reply card included in this Annual Report that you can complete and return.
In spite of the success we enjoyed this year, the performance of the Company's
stock did not reflect our profitability and growth. Perhaps because of all of
the attention directed toward the Y2K transition, or toward "technology" stocks,
or the uncertainty the market has felt toward future interest rates, financial
stocks - including the Company's - were at best neglected by the market. While
we wish the market would fully credit us with the success we are experiencing,
we remain convinced that our best strategy for creating long-term value to our
stockholders is to focus on profitability and excellence in customer service. We
truly appreciate the loyalty and support of our stockholders, our customers, and
our employees. We remain committed to doing what we can to increase the
long-term value of our Company. That commitment includes meeting our customers
needs, the investment needs of our stockholders, and the needs of the
communities in which we have the privilege to serve. We believe FFLC Bancorp,
Inc. is well positioned to meet those needs, and we look forward to the
opportunities before us.
Cordially yours,
Stephen T. Kurtz
President and Chief Executive Officer
5
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
At December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets................................................. $ 590,432 463,820 400,237 346,442 325,832
Loans receivable, net........................................ 501,131 389,059 315,353 227,948 183,448
Cash and cash equivalents.................................... 34,339 22,928 15,684 10,157 13,929
Securities .................................................. 36,909 40,392 58,598 98,568 119,148
Deposits .................................................. 429,274 351,030 315,390 282,664 267,703
Borrowed funds............................................... 102,914 56,789 30,000 8,198 150
Stockholders' equity......................................... 55,637 53,223 51,429 53,626 55,360
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income........................................... $ 38,612 32,173 28,156 24,218 22,493
Interest expense.......................................... 21,214 17,271 15,416 12,959 12,183
Net interest income....................................... 17,398 14,902 12,740 11,259 10,310
Provision for loan losses................................. 719 682 649 107 124
Net interest income after provision for loan losses....... 16,679 14,220 12,091 11,152 10,186
Noninterest income........................................ 2,332 1,264 1,219 809 709
Noninterest expense....................................... 10,313 8,446 7,473 8,299 5,874
Income before provision for income taxes.................. 8,698 7,038 5,837 3,662 5,021
Provision for income taxes................................ 3,296 2,641 2,083 1,478 1,928
Net income ............................................... 5,402 4,397 3,754 2,184 3,093
Basic income per share (1)................................ 1.52 1.22 1.01 .54 .73
Weighted average number of common
shares outstanding for basic (1).................... 3,548,568 3,592,253 3,700,220 4,069,825 4,232,498
Diluted income per share (1).............................. $ 1.47 1.16 .96 .51 .70
Weighted average number of common shares
outstanding for diluted (1)......................... 3,677,038 3,777,085 3,911,256 4,267,992 4,427,098
</TABLE>
- -----------
(1) All per share amounts have been restated to reflect the five-for-three
stock split in November, 1997.
6
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA:
At or For the Year Ended December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets..................................... 1.03% 1.05% 1.00% 0.65% 0.98%
Return on average equity..................................... 9.89% 8.37% 7.18% 3.94% 5.59%
Dividend payout ratio ....................................... 28.95% 29.51% 28.51% 44.71% 25.86%
Average equity to average assets............................. 10.45% 12.52% 13.93% 16.62% 17.46%
Total equity to total assets................................. 9.42% 11.47% 12.85% 15.48% 16.99%
Interest rate spread during year(1).......................... 3.03% 3.08% 2.86% 2.73% 2.54%
Net interest margin (2)...................................... 3.48% 3.69% 3.53% 3.50% 3.35%
Nonperforming assets to total assets (3)..................... 0.47% 0.17% 0.19% 0.30% 0.10%
Nonperforming loans to total loans (4)....................... 0.46% 0.11% 0.07% 0.28% 0.09%
Allowance for loan losses to non-performing loans............ 119.01% 514.19% 695.87% 159.61% 561.49%
Allowance for loan and REO
losses to nonperforming assets......................... 101.77% 281.85% 224.83% 103.51% 288.48%
Allowance for loan losses to gross loans..................... 0.54% 0.57% 0.51% 0.45% 0.52%
Operating expenses to average assets......................... 1.97% 2.01% 1.99% 2.49% 1.85%
Average interest-earning assets to
average interest-bearing liabilities................... 1.11 1.14 1.16 1.18 1.20
Net interest income to noninterest expenses.................. 1.69 1.76 1.70 1.36 1.76
Total shares outstanding (5)................................. 3,583,938 3,655,620 3,743,988 4,062,895 4,395,593
Book value per common share outstanding (5).................. $ 15.52 14.56 13.74 13.20 12.59
Number of banking offices (all full-service)................. 12 9 9 9 8
</TABLE>
- -----------
(1) Difference between weighted average yield on all interest-earning assets
and weighted average rate on all interest-bearing liabilities.
(2) Based upon net interest income before provision for loan losses divided by
average interest-earning assets.
(3) Nonperforming assets consist of nonperforming loans and foreclosed real
estate.
(4) Nonperforming loans consist of loans 90 days or more delinquent.
(5) All per share amounts have been restated to reflect the five-for-three
stock split in November, 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Federal Savings Bank of Lake County, the subsidiary of FFLC, was organized
in 1934 as a federally chartered savings and loan association and converted to a
federally chartered stock savings bank on January 4, 1994. The Bank's principal
business continues to be attracting retail deposits from the general public and
investing those deposits, together with principal repayments on loans and
investments and funds generated from operations, primarily in mortgage loans
secured by one-to-four-family, owner-occupied homes, commercial loans,
securities and, to a lesser extent, construction loans, consumer and other
loans, and multi-family residential mortgage loans. In addition, the Bank holds
investments permitted by federal laws and regulations including securities
issued by the U.S. Government and agencies thereof. The Bank's revenues are
derived principally from interest on its loan and mortgage-backed securities
portfolios and interest and dividends on its investment securities.
The Bank is a community-oriented savings institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank's
deposit gathering and lending markets are primarily concentrated in the
communities surrounding its full service offices located in Lake, Sumter and
Citrus counties in central Florida. Management believes that its offices are
located in communities that generally can be characterized as rural service and
retirement communities with residential neighborhoods comprised predominately of
one-to-four-family residences. The Bank is the largest (by asset size)
locally-based financial institution in Lake County, and serves its market area
with a wide selection of residential mortgage loans and other retail financial
services. Management considers the Bank's reputation for financial strength and
customer service as a major advantage in attracting and retaining customers in
its market area and believes it benefits from its community orientation as well
as its established deposit base and level of core deposits.
The Company had net income of $5.4 million for the year ended December 31, 1999,
compared to net income of $4.4 million for the year ended December 31, 1998. At
December 31, 1999, the Bank had total assets of $590.4 million, an increase of
27.3% over total assets of $463.8 million at December 31, 1998. That increase
resulted primarily from an $112.0 million, or 28.8%, increase in net loans
receivable from $389.1 million at December 31, 1998 to $501.1 million at
December 31, 1999, reflecting increased local loan demand. Cash and cash
equivalents increased $11.4 million or 49.8% from $22.9 million to $34.3
million. Securities decreased $3.5 million or 8.7% during 1999. Deposits
increased $78.2 million, or 22.3%, from $351.1 million at December 31, 1998 to
$429.3 million at December 31, 1999. Advances from the Federal Home Loan Bank
increased $43.0 million, while other borrowed funds increased $3.1 million for a
net increase of $46.1 million or 81.2% in borrowings. Stockholders' equity
increased $2.4 million.
8
<PAGE>
REGULATION AND LEGISLATION
General
The operating results of the Bank are affected by Federal laws and regulations
and the Bank is subject to extensive regulation, examination and supervision by
the Office of Thrift Supervision ("OTS"), as its chartering agency, and the
Federal Deposit Insurance Corporation ("FDIC"), as the deposit insurer. The Bank
is a member of the Federal Home Loan Bank ("FHLB") System and its deposit
accounts are insured up to applicable limits by the FDIC under the SAIF
("Savings Association Insurance Fund"). The Bank must file reports with the OTS
and the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other financial institutions. The OTS and
the FDIC conduct periodic examinations to test the Bank's compliance with
various regulatory requirements. The activities of the Company and the Bank are
governed by the Home Owner's Loan Act, as amended (the "HOLA"), and, in certain
respects, the Federal Deposit Insurance Act (the "FDIA"). A more complete
description of the HOLA and FDIA is included in the Form 10-K.
Capital Requirements
The OTS capital regulations require savings institutions to meet three capital
standards: a 1.5% tangible capital standard; a 3% leverage (core capital) ratio;
and an 8% risk-based capital standard. Under the OTS final rule implementing
FDICIA, generally, a well-capitalized institution is defined as one that meets
the following capital standards: a 5% tangible capital standard; a 6% leverage
(core capital) ratio; and a 10% risk-based capital standard, and has not been
notified by its federal banking agency that it is in a "troubled condition." At
December 31, 1999, the Bank met each of its capital requirements and met the
criteria of a "well-capitalized" institution as defined above.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based deposit insurance system that assesses deposit
insurance premiums according to the level of risk involved in an institution's
activities. An institution's risk category is based upon whether the institution
is classified as "well capitalized," "adequately capitalized" or "less than
adequately capitalized" and one of three supervisory subcategories within each
capital group. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation and information which the FDIC determines to
be relevant to the institution's financial condition and the risk posed to the
deposit insurance fund. Effective January 1, 1997, the FDIC lowered the annual
assessment rates for SAIF members to 0 to 27 basis points. The FDIC has
authority to raise premiums if deemed necessary. If such action is taken, it
could have an adverse effect on the earnings of the institution.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
<PAGE>
CREDIT RISK
The Bank's primary business is lending on residential real estate, an activity
with the inherent risk of generating potential loan losses the magnitude of
which depend on a variety of factors affecting borrowers which are beyond the
control of the Bank. The Bank has underwriting guidelines and credit review
procedures designed to minimize such credit losses.
9
<PAGE>
RESULTS OF OPERATIONS
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its
interest-earning assets, primarily its loans, mortgage-backed securities and
investment securities, and its interest-bearing liabilities, consisting of
deposits and borrowings. The operating expenses of the Company principally
consist of employee compensation, occupancy expenses, federal deposit insurance
premiums and other general and administrative expenses. The Company's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.
10
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average costs; (iii) net interest/dividend income; (iv) interest-rate spread;
(v) net interest margin; and (vi) weighted average yields and rates at December
31, 1999. 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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
Yield At Average Average
December 31, Average Yield/ Average Yield/
1999 Balance Interest Cost Balance Interest Cost
---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans receivable................... 7.88% $ 442,213 35,315 7.99% $ 343,967 28,450 8.27%
Securities......................... 6.22 37,951 2,213 5.83 44,533 2,814 6.32
Other interest-earning assets (1).. 5.03 19,404 1,084 5.59 15,606 909 5.82
--------- ------ --------- ------
Total interest-earning assets. 7.66 499,568 38,612 7.73 404,106 32,173 7.96
------ ------
Noninterest-earning assets............. 23,062 15,130
--------- ---------
Total assets.................. $ 522,630 $ 419,236
========= =========
Interest-bearing liabilities:
NOW and money market
accounts........................ 2.67 66,892 1,631 2.44 49,862 1,088 2.18
Passbook and statement savings
accounts........................ 2.00 22,170 485 2.19 23,683 517 2.18
Certificates....................... 5.30 285,898 14,967 5.24 246,375 13,674 5.55
FHLB advances...................... 5.64 74,515 4,038 5.42 33,718 1,991 5.90
Other borrowings................... 4.75 1,916 93 4.85 14 1 7.14
Total interest-bearing
liabilities................. 4.84 451,391 21,214 4.70 353,652 17,271 4.88
------ ------
Noninterest-bearing deposits........... 10,411 7,602
Noninterest-bearing liabilities........ 6,202 5,473
Stockholders' equity................... 54,626 52,509
--------- ---------
Total liabilities and equity.. $ 522,630 $ 419,236
========= =========
Net interest-earning assets and
interest-rate spread (2)........... 2.82% $ 48,177 3.03% $ 50,454 3.08%
==== ========= ==== ========= ====
Net interest income and net
margin (3)......................... $ 17,398 3.48% $ 14,902 3.69%
Ratio of interest-earning assets
to interest-bearing liabilities.... 1.11 1.14
==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
---------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable................... $ 268,425 22,318 8.31%
Securities......................... 82,720 5,250 6.35
Other interest-earning assets (1).. 10,000 588 5.88
--------- ------
Total interest-earning assets. 361,145 28,156 7.80
------
Noninterest-earning assets............. 14,160
---------
Total assets.................. $ 375,305
=========
Interest-bearing liabilities:
NOW and money market
accounts........................ 40,819 991 2.43
Passbook and statement savings
accounts........................ 24,963 687 2.75
Certificates....................... 227,271 12,601 5.54
FHLB advances...................... 13,226 814 6.15
Other borrowings................... 5,629 323 5.74
--------- ------
Total interest-bearing
liabilities................. 311,908 15,416 4.94
------
Noninterest-bearing deposits........... 5,838
Noninterest-bearing liabilities........ 5,285
Stockholders' equity................... 52,274
---------
Total liabilities and equity.. $ 375,305
=========
Net interest-earning assets and
interest-rate spread (2)........... $ 49,237 2.86%
========= ====
Net interest income and net
margin (3)......................... $ 12,740 3.53%
======== ====
Ratio of interest-earning assets
to interest-bearing liabilities.... 1.16
====
</TABLE>
- -----------
(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.
11
<PAGE>
The following table discloses the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume) and (iii) changes attributable to changes in
rate/volume (changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1999 vs. 1998 1998 vs. 1997
Increase (Decrease) Increase (Decrease)
---------------------------------- ---------------------------------
Due to Due to
---------------------------------- ---------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan receivable, net................. $ (981) 8,126 (280) 6,865 (116) 6,281 (33) 6,132
Securities........................... (217) (416) 32 (601) (23) (2,424) 11 (2,436)
Other interest-earning (1)........... (37) 221 (9) 175 (6) 330 (3) 321
------ ------ ---- ------ ---- ------ -- ------
Total......................... (1,235) 7,931 (257) 6,439 (145) 4,187 (25) 4,017
----- ----- --- ----- --- ----- -- -----
Interest-bearing liabilities:
NOW and money market accounts........ 128 371 44 543 (100) 219 (22) 97
Passbook and
statement savings accounts....... 1 (33) - (32) (142) (35) 7 (170)
Certificates......................... (776) 2,193 (124) 1,293 13 1,059 1 1,073
FHLB advances........................ (164) 2,409 (198) 2,047 (24) 1,219 (18) 1,177
Other borrowings..................... - 136 (44) 92 - (322) - (322)
----- ------ ---- ------- ---- ------ ---- ------
Total......................... (811) 5,076 (322) 3,943 (253) 2,140 (32) 1,855
------ ----- --- ----- --- ----- -- -----
Net change in net interest
income ............................... $ (424) 2,855 65 2,496 108 2,047 7 2,162
====== ===== == ===== === ===== = =====
</TABLE>
- -----------
(1) Includes interest-bearing deposits, federal funds sold and FHLB Stock.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. That requirement, which varies periodically depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The current required ratio is 4%. The Bank
historically has maintained a level of liquid assets in excess of the regulatory
requirement. Liquid assets consist of cash, cash equivalents and short- and
intermediate-term U.S. Government and government agency securities. The
maintenance of liquid assets allows for the possibility of disintermediation
when interest rates fluctuate. The Bank's liquidity ratios were 18.7% and 8.8%
at December 31, 1999 and December 31, 1998, respectively.
The Bank's sources of funds include proceeds from payments and prepayments on
mortgage loans and mortgage-backed securities, proceeds from the maturities of
investment securities and deposits. While maturities and scheduled amortization
of loans and investment securities are predictable sources of funds, deposit
inflows and mortgage prepayments are greatly influenced by local conditions,
general interest rates, and regulatory changes.
At December 31, 1999, the Bank had outstanding commitments to originate $7.8
million of loans, to fund unused lines of credit of $33.6 million, to fund the
undisbursed portion of loans in process of $15.9 million and $.7 million in
outstanding standby letters of credit. The Bank believes that it will have
sufficient funds available to meet its commitments. At December 31, 1999,
certificates of deposit which were scheduled to mature in one year or less
totaled $205.6 million. Management believes, based on past experience, that a
significant portion of these funds will remain with the Bank.
REGULATORY CAPITAL REQUIREMENTS
As a federally-chartered financial institution, the Bank is required to maintain
certain minimum amounts of regulatory capital. Regulatory capital is not a
valuation allowance and has not been created by charges against earnings. The
following table provides a summary of the capital requirements, the Bank's
regulatory capital and the amounts in excess at December 31, 1999:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
---------------- ------------------ ----------------
% of % of % of Risk-
Adjusted Adjusted Weighted
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital.......................... $ 51,177 8.68% $ 51,177 8.68% $ 53,894 14.92%
Requirement................................. 8,841 1.50 17,681 3.00 28,893 8.00
------- ---- ------ ---- ------ -----
Excess...................................... $ 42,336 7.18% $ 33,496 5.68% $ 25,001 6.92%
====== ==== ====== ==== ====== =====
</TABLE>
<PAGE>
MARKET RISK
Market risk is the risk of loss from changes in market prices and rates. The
Company"s market risk arises primarily from interest-rate risk inherent in its
lending and deposit taking activities. To that end, management actively monitors
and manages its interest-rate risk exposure. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 9 of Notes to Consolidated Financial Statements.
The Company"s primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank"s net interest
income and capital, while adjusting the Company"s asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability management to control interest-rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company"s earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
13
<PAGE>
ASSET /LIABILITY MANAGEMENT
The Bank's primary mission is to provide home ownership by offering permanent
and construction residential mortgage loans and consumer financing and by
providing conveniently located depository facilities with transaction, savings
and certificate accounts. The Bank's goal is to continue to be a
well-capitalized and profitable operation that provides service that is
professional, efficient and courteous. The Bank seeks to fulfill its mission and
accomplish its goals by pursuing the following strategies: (i) emphasizing
lending in the one-to-four-family residential mortgage market; (ii) controlling
interest-rate risk; (iii) managing deposit pricing and asset growth; (iv)
emphasizing cost control; and (v) maintaining asset quality by investing in
mortgage-backed securities which, in management's judgment, provide a balance
between yield and safety in a home mortgage related investment. It is
management's intention to continue to employ these strategies over the
foreseeable future.
The Bank's profitability, like that of most financial institutions, is dependent
to a large extent upon its net interest income, which is the difference between
its interest income on interest-earning assets, such as loans, mortgage-backed
securities and investment securities, and its interest expense on
interest-bearing liabilities, such as deposits and other borrowings. Financial
institutions continue to be affected by general changes in levels of interest
rates and other economic factors beyond their control. At December 31, 1999, the
Bank's one-year interest sensitivity gap (the difference between the amount of
interest-earning assets anticipated by the Bank, to mature or reprice within one
year and the amount of interest-bearing liabilities anticipated by the Bank, to
mature or reprice within one year) as a percentage of total assets was a
negative 2.98%. Generally, an institution with a negative gap would experience a
decrease in net interest income in a period of rising interest rates or an
increase in net interest income in a period of declining interest rates.
However, certain shortcomings are inherent in the sensitivity analysis presented
above. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different manners to
changes in market interest rates. Therefore, no assurance can be given that the
Bank will be able to maintain its net interest-rate spread as market interest
rates fluctuate.
The Bank monitors its interest-rate risk through the Asset/Liability Committee
which meets weekly and reports the results of such monitoring quarterly to the
Board of Directors. The Bank's policy is to seek to maintain a balance between
interest-earning assets and interest-bearing liabilities so that the Bank's
cumulative one-year gap ratio is within a range which management believes is
conducive to maintaining profitability without incurring undue risk. The Bank
has increased its investment in adjustable-rate and shorter average life,
fixed-rate mortgage-related securities in order to position itself against the
consequences of rising interest rates. The Bank also maintains liquid assets in
excess of the regulatory requirement, allowing for the possibility of
disintermediation when interest rates fluctuate. The Bank's liquidity ratio of
18.7% at December 31, 1999 is significantly higher than the regulatory
requirement of 4% due in part to the preparation of the Company for Y2K. In
addition, the Bank's large stable core deposit base resulting from its
continuing commitment to quality customer service has historically provided it
with a steady source of funds.
14
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999 that are expected
to reprice, based upon certain assumptions, in each of the future periods shown.
<TABLE>
<CAPTION>
More More More More More
than than than than than
Three Six One Three Five More
Three Months Months Year Years Years than
Months to Six to 12 to 3 to 5 to 10 Ten
or Less Months Months Years Years Years Years Total
------- ------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Mortgage loans, net of LIP.. $ 85,967 44,682 60,024 124,728 46,628 34,261 27,271 423,561
Commercial and consumer
loans...................... 21,137 6,029 10,142 25,906 12,008 1,998 350 77,570
Mortgage-backed
securities................. 6,885 4,316 2,226 2,463 1,200 400 - 17,490
Interest-earning deposits... 17,026 - - - - - - 17,026
Investment securities....... 1,608 - 2,991 4,946 982 63 - 10,590
Mutual funds................ 8,829 - - - - - - 8,829
FHLB stock ................. 4,950 - - - - - - 4,950
-------- ------ ------ ------- ------ ------ ------ -------
Total interest-earning
assets................ 146,402 55,027 75,383 158,043 60,818 36,722 27,621 560,016
-------- ------ ------ ------- ------ ------ ------ -------
Rate-sensitive liabilities:
Deposits:
Savings accounts........ 1,465 1,363 2,449 6,926 3,897 3,821 1,189 21,110
NOW and money
market accounts............ 5,363 4,992 8,968 25,361 14,265 13,989 4,355 77,293
Certificates................ 62,644 76,012 67,208 110,148 3,759 - - 319,771
Borrowed funds.............. 42,914 15,000 6,000 25,000 14,000 - - 102,914
-------- ------ ------ ------- ------ ------ ------ -------
Total interest-bearing
liabilities........... 112,386 97,367 84,625 167,435 35,921 17,810 5,544 521,088
-------- ------ ------ ------- ------ ------ ------ -------
Interest-sensitivity gap....... $ 34,016 (42,340) (9,242) (9,392) 24,897 18,912 22,077 38,928
========= ======= ====== ====== ====== ====== ====== ======
Cumulative interest-
sensitivity gap............ $ 34,016 (8,324) (17,566) (26,958) (2,061) 16,851 38,928
========= ======= ====== ====== ====== ====== ======
Cumulative interest-earning
assets..................... $ 146,402 201,429 276,812 434,855 495,673 532,395 560,016
========= ======= ====== ====== ====== ====== ======
Cumulative interest-bearing
liabilities................ $ 112,386 209,753 294,378 461,813 497,734 515,544 521,088
========= ======= ====== ====== ====== ====== ======
Cumulative interest-sensitivity
gap as a percentage of
total assets............... 5.76% (1.41)% (2.98)% (4.57)% (0.35)% 2.85% 6.59%
==== ==== ==== ==== ===== ==== ====
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities................ 130.27% 96.03% 94.03% 94.16% 99.59% 103.27% 107.47%
====== ===== ===== ===== ===== ====== ======
</TABLE>
15
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998
General Operating Results. Net income for the year ended December 31,
1999, was $5.4 million or $1.52 per basic income per share, compared
to net income for the year ended December 31, 1998 of $4.4 million
or $1.22 per basic income per share. The increase in net income was
primarily the result of an increase of $2.5 million in net interest
income before provision for loan losses for 1999, partially offset
by an increase of $1.9 million in noninterest expenses in 1999.
Interest Income. Interest income increased $6.4 million, or 20.0%, from
$32.2 million for the year ended December 31, 1998 to $38.6 million
for the year ended December 31, 1999. The increase was due to an
increase in the average balance of total interest-earning assets,
primarily loans, from $404.1 million for the year ended December 31,
1998 to $499.6 million for the year ended December 31, 1999, an
increase of $95.5 million, or 23.6%, partially offset by a decrease
in the average yield on interest-earning assets from 7.96% for the
year ended December 31, 1998 to 7.73% for the year ended December
31, 1999. The average yield on loans decreased from 8.27% for the
year ended December 31, 1998 to 7.99% for the year ended December
31, 1999. The average yield on securities decreased from 6.32% for
the year ended December 31, 1998 to 5.83% for the year ended
December 31, 1999. The average yield on other interest earning
assets decreased from 5.82% for the year ended December 31, 1998 to
5.59% for the year ended December 31, 1999.
Interest Expense. Interest expense increased $3.9 million from $17.3
million at December 31, 1998 to $21.2 million at December 31, 1999.
The increase was due to a $97.7 million or 27.6% increase in the
average balance of total interest-bearing liabilities from $353.7
million for the year ended December 31, 1998 to $451.4 million for
the year ended December 31, 1999 offset in part by a decrease in the
weighted-average rate paid on interest-bearing liabilities from
4.88% during 1998 to 4.70% in 1999.
Provision for Loan Losses. The Bank's provision for loan losses
increased from $682,000 for the year ended December 31, 1998 to
$719,000 for the year ended December 31, 1999. The increase of
$37,000 reflects the Bank'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 Bank's loan portfolio.
Noninterest Income. Noninterest income increased from $1.3 million for
the year ended December 31, 1998 to $2.3 million for the year ended
December 31, 1999. The increase was primarily due to a $886,000 gain
recognized in 1999 from the sale of real estate held for development
and a $117,000 increase in other service charges and fees.
Noninterest Expense. Noninterest expense consists primarily of salaries
and employee benefits and occupancy expense. Noninterest expense
increased $1.9 million for the year ended December 31, 1999 compared
to 1998. The increase was primarily due to a $998,000 increase in
salaries and employee benefits and a $459,000 increase in occupancy
expense resulting from the growth of the Company.
<PAGE>
Provision for Income Taxes. The provision for federal and state income
taxes increased from $2.6 million for the year ended December 31,
1998 to $3.3 million for the year ended December 31, 1999. The
effective tax rate increased from 37.5% for the year ended December
31, 1998 to 37.9% for the year ended December 31, 1999.
16
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
General Operating Results. Net income for the year ended December 31,
1998, was $4.4 million or $1.22 per basic income per share, compared
to net income for the year ended December 31, 1997 of $3.8 million
or $1.01 per basic income per share. The increase in net income was
primarily the result of an increase of $2.2 million in net interest
income before provision for loan losses for 1998.
Interest Income. Interest income increased $4.0 million, or 14%, from
$28.2 million for the year ended December 31, 1997 to $32.2 million
for the year ended December 31, 1998. The increase was due to an
increase in the average balance of total interest-earning assets,
primarily loans, from $361.1 million for the year ended December 31,
1997 to $404.1 million for the year ended December 31, 1998, an
increase of $43 million, or 12% and an increase in the average yield
on interest-earning assets from 7.80% for the year ended December
31, 1997 to 7.96% for the year ended December 31, 1998. The average
yield on loans decreased from 8.31% for the year ended December 31,
1997 to 8.27% for the year ended December 31, 1998. The average
yield on securities decreased from 6.35% for the year ended December
31, 1997 to 6.32% for the year ended December 31, 1998. The average
yield on other interest earning assets decreased from 5.88% for the
year ended December 31, 1997 to 5.82% for the year ended December
31, 1998.
Interest Expense. Interest expense increased $1.9 million from $15.4
million at December 31, 1997 to $17.3 million at December 31, 1998.
The increase was due to a $41.7 million or 13% increase in the
average balance of total interest-bearing liabilities from $311.9
million for the year ended December 31, 1997 to $353.6 million for
the year ended December 31, 1998 offset in part by a decrease in the
weighted-average rate paid on interest-bearing liabilities from
4.94% during 1997 to 4.88% in 1998.
Provision for Loan Losses. The Bank's provision for loan losses
increased from $649,000 for the year ended December 31, 1997 to
$682,000 for the year ended December 31, 1998. The increase of
$33,000 reflects the Bank'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 Bank's loan portfolio.
Noninterest Income. Noninterest income increased from $1.2 million for
the year ended December 31, 1997 to $1.3 million for the year ended
December 31, 1998. The increase was due to a $258,000 increase in
other service charges and fees and a $73,000 increase in deposit
account fees, which was partially offset by a $302,000 decrease in
gain on sale of other assets.
Noninterest Expense. Noninterest expense consists primarily of salaries
and employee benefits and occupancy expense. Noninterest expense
increased $973,000 for the year ended December 31, 1998 compared to
1997. This increase was primarily due to a $544,000 increase in
salaries and employee benefits and a $130,000 increase in occupancy
expense, caused by growth of the Company.
<PAGE>
Provision for Income Taxes. The provision for federal and state income
taxes increased from $2.1 million for the year ended December 31,
1997 to $2.6 million for the year ended December 31, 1998. The
effective tax rate increased from 35.7% for the year ended December
31, 1997 to 37.5% for the year ended December 31, 1998.
17
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Bank's operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
18
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Balance Sheets
($ in thousands, except per share amounts)
December 31,
1999 1998
-------- --------
Assets
<S> <C> <C>
Cash and due from banks........................................................... $ 17,313 9,515
Interest-bearing deposits......................................................... 17,026 13,413
-------- --------
Cash and cash equivalents............................................. 34,339 22,928
Securities available for sale..................................................... 36,909 22,165
Securities held to maturity (market value of $18,425 in 1998)..................... - 18,227
Loans receivable, net of allowance for loan losses of $2,811 in 1999
and $2,283 in 1998............................................................ 501,131 389,059
Accrued interest receivable:
Securities .................................................................. 407 352
Loans receivable.............................................................. 2,408 1,890
Premises and equipment, net....................................................... 9,386 5,597
Foreclosed real estate............................................................ 400 366
Real estate held for development.................................................. - 122
Federal Home Loan Bank stock, at cost............................................. 4,950 2,800
Other assets .................................................................. 502 314
--------- ---------
Total................................................................. $ 590,432 463,820
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits........................................... 11,100 8,379
NOW and money market accounts................................................. 77,293 60,437
Savings accounts.............................................................. 21,110 23,038
Certificates.................................................................. 319,771 259,176
------- -------
Total deposits........................................................ 429,274 351,030
------- -------
Advances from Federal Home Loan Bank.............................................. 99,000 56,000
Other borrowed funds.............................................................. 3,914 789
Deferred income taxes............................................................. 102 284
Accrued expenses and other liabilities............................................ 2,505 2,494
-------- --------
Total liabilities..................................................... 534,795 410,597
------- -------
Commitments and contingencies (Notes 4, 9, 12 and 20)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding.......................................................... - -
Common stock, $.01 par value, 9,000,000 shares authorized,
4,447,461 in 1999 and 4,372,041 in 1998 shares issued..................... 44 44
Additional paid-in-capital.................................................... 30,273 29,286
Retained income............................................................... 43,539 39,714
Accumulated other comprehensive income (loss)................................. (182) (65)
Treasury stock, at cost (863,523 shares in 1999 and
716,421 shares in 1998)................................................... (17,721) (15,125)
Stock held by Incentive Plan Trusts........................................... (316) (631)
--------- --------
Total stockholders' equity............................................ 55,637 53,223
------- -------
Total................................................................. $ 590,432 463,820
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Statements of Income
($ in thousands, except per share amounts)
Year Ended December 31,
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Interest income:
Loans receivable................................................... $ 35,315 28,450 22,318
Securities available for sale...................................... 1,798 1,169 2,440
Securities held to maturity........................................ 415 1,645 2,810
Other interest-earning assets...................................... 1,084 909 588
----------- ------------ -----------
Total interest income.......................................... 38,612 32,173 28,156
----------- ----------- ----------
Interest expense:
Deposits........................................................... 17,083 15,279 14,279
Borrowed funds..................................................... 4,131 1,992 1,137
----------- ----------- -----------
Total interest expense......................................... 21,214 17,271 15,416
---------- ---------- ----------
Net interest income............................................ 17,398 14,902 12,740
Provision for loan losses.............................................. 719 682 649
----------- ----------- -----------
Net interest income after provision for loan losses............ 16,679 14,220 12,091
---------- --------- ----------
Noninterest income:
Deposit account fees............................................... 624 558 485
Other service charges and fees..................................... 735 618 360
Gain on sale of real estate held for development................... 886 - -
Gain on sale of securities available for sale...................... - - 11
Gain on sale of other assets....................................... - - 302
Other.............................................................. 87 88 61
------------ ----------- ------------
Total noninterest income....................................... 2,332 1,264 1,219
----------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits..................................... 6,216 5,218 4,674
Occupancy expense.................................................. 1,519 1,060 930
Deposit insurance premium.......................................... 214 195 147
Advertising and promotion.......................................... 333 278 224
Data processing expense............................................ 612 477 429
Professional services.............................................. 282 303 229
Other.............................................................. 1,137 915 840
------------ ----------- -----------
Total noninterest expense...................................... 10,313 8,446 7,473
----------- ---------- -----------
Income before income taxes............................................. 8,698 7,038 5,837
Income taxes................................................... 3,296 2,641 2,083
----------- ---------- -----------
Net income............................................................. $ 5,402 4,397 3,754
========== ========== ===========
Basic income per share of common stock................................. $ 1.52 1.22 1.01
=========== =========== ===========
Weighted-average number of shares outstanding for basic................ 3,548,568 3,592,253 3,700,220
========= ========= =========
Diluted income per share of common stock............................... $ 1.47 1.16 .96
=========== =========== ============
Weighted-average number of shares outstanding for diluted.............. 3,677,038 3,777,085 3,911,256
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
($ in thousands, except per share amounts)
Stock
Held
By Accumulated
Additional Incentive Other Total
Common Paid-In Treasury Plan Retained Comprehensive Stockholders'
Stock Capital Stock Trusts Income Income (Loss) Equity
----- ------- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........... $ 28 27,386 (6,295) (1,262) 33,962 (193) 53,626
------
Comprehensive income:
Net income........................ - - - - 3,754 - 3,754
Change in unrealized gains
(losses) on securities available
for sale, net of income taxes
of $63.......................... - - - - - 105 105
------
Comprehensive income................... 3,859
------
Net proceeds from the issuance of
34,825 shares of common
stock............................. - 283 - - - - 283
Shares committed to participants
in incentive plans (162,399
shares remain uncommitted
at December 31, 1997)............. - 596 - 315 - - 911
Dividends paid, net of $61 of
dividends on ESOP shares
recorded as compensation
expense........................... - - - - (1,079) - (1,079)
Purchase of treasury stock,
228,502 shares.................... - - (6,171) - - - (6,171)
Five-for-three stock split in
November, 1997.................... 15 - - - (15) - -
-- --------- --------- ------ -------- ---- ------
Balance at December 31, 1997........... 43 28,265 (12,466) (947) 36,622 (88) 51,429
== ====== ====== === ====== === ======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity, Continued
($ in thousands, except per share amounts)
Stock
Held
By Accumulated
Additional Incentive Other Total
Common Paid-In Treasury Plan Retained Comprehensive Stockholders'
Stock Capital Stock Trusts Income Income (Loss) Equity
----- ------- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997........... $ 43 28,265 (12,466) (947) 36,622 (88) 51,429
------
Comprehensive income:
Net income........................ - - - - 4,397 - 4,397
Change in unrealized gains
(losses) on securities available
for sale, net of income taxes
of $14.......................... - - - - - 23 23
--------
Comprehensive income................... 4,420
------
Net proceeds from the issuance of
58,895 shares of common
stock............................. 1 359 - - - - 360
Shares committed to participants
in incentive plans (109,794
shares remain uncommitted
at December 31, 1998)............. - 662 - 316 - - 978
Dividends paid, net of $38 of
dividends on ESOP shares
recorded as compensation
expense........................... - - - - (1,305) - (1,305)
Purchase of treasury stock,
148,263 shares.................... - - (2,659) - - - (2,659)
---- --------- ------ ----- -------- --- ------
Balance at December 31, 1998........... $ 44 29,286 (15,125) (631) 39,714 (65) 53,223
==== ====== ======= ==== ====== === ======
</TABLE>
(continued)
22
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity, Continued
($ in thousands, except per share amounts)
Stock
Held
By Accumulated
Additional Incentive Other Total
Common Paid-In Treasury Plan Retained Comprehensive Stockholders'
Stock Capital Stock Trusts Income Income (Loss) Equity
----- ------- ----- ------ ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998........... $ 44 29,286 (15,125) (631) 39,714 (65) 53,223
------
Comprehensive income:
Net income........................ - - - - 5,402 - 5,402
Change in unrealized gains
(losses) on securities available
for sale, net of income taxes
of $70.......................... - - - - - (117) (117)
-------
Comprehensive income................... 5,285
------
Net proceeds from the issuance of
75,420 shares of common
stock............................. - 453 - - - - 453
Shares committed to participants
in incentive plans (57,355
shares remain uncommitted
at December 31, 1999)............. - 534 - 315 - - 849
Dividends paid, net of $23 of
dividends on ESOP shares
recorded as compensation
expense........................... - - - - (1,577) - (1,577)
Purchase of treasury stock,
147,102 shares.................... - - (2,596) - - - (2,596)
--- --------- ------ ----- --------- ----- ------
Balance at December 31, 1999........... $ 44 30,273 (17,721) (316) 43,539 (182) 55,637
==== ====== ======= ==== ====== ==== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Statements of Cash Flows
($ in thousands)
Year Ended December 31,
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................. $ 5,402 4,397 3,754
Adjustments to reconcile net income
to net cash provided by operations:
Provision for loan losses........................................ 719 682 649
Depreciation..................................................... 575 406 395
Gain on sale of securities available for sale.................... - - (11)
Gain on sale of foreclosed real estate........................... (34) (36) (11)
Gain on sale of real estate held for development................. (886) - -
Credit for deferred income taxes................................. (112) (467) (256)
Shares committed and dividends to incentive
plan participants............................................ 872 1,016 972
Net amortization of premiums and discounts on securities......... 69 (10) (44)
Net deferral of loan fees and costs.............................. (372) (193) (236)
Increase in accrued interest receivable.......................... (573) (108) (115)
Increase in other assets......................................... (188) (92) (38)
Increase (decrease) in accrued expenses and other liabilities.... 11 (187) 1,657
---------- --------- -------
Net cash provided by operating activities................ 5,483 5,408 6,716
-------- -------- -------
Cash flows from investing activities:
Proceeds from principal repayments and maturities of securities
held to maturity..................................................... 3,428 13,788 18,135
Purchase of securities available for sale................................ (10,483) (9,555) (7,490)
Proceeds from principal repayments and maturities of securities
available for sale................................................... 10,282 14,020 28,590
Proceeds from sales of securities available for sale..................... - - 958
Loan disbursements....................................................... (195,034) (151,411) (143,538)
Principal repayments on loans............................................ 82,465 77,353 55,330
Purchase of premises and equipment, net.................................. (4,364) (690) (564)
Purchase of Federal Home Loan Bank stock................................. (2,150) (496) (365)
Proceeds from sales of foreclosed real estate............................ 150 40 255
Proceeds from sale of real estate held for development................... 1,008 - -
--------- ---------- --------
Net cash used in investing activities.................... (114,698) (56,951) (48,689)
------- ------- -------
</TABLE>
24
(continued)
<PAGE>
<TABLE>
<CAPTION>
FFLC BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
($ in thousands)
Year Ended December 31,
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits................................................ 78,244 35,640 32,726
Net increase in Federal Home Loan Bank advances......................... 43,000 26,000 29,850
Net increase (decrease) in other borrowed funds......................... 3,125 789 (8,048)
Stock options exercised................................................. 453 360 283
Purchase of treasury stock.............................................. (2,596) (2,659) (6,171)
Cash dividends paid..................................................... (1,600) (1,343) (1,140)
-------- ------ ------
Net cash provided by financing activities................... 120,626 58,787 47,500
------- ------ ------
Net increase in cash and cash equivalents................................... 11,411 7,244 5,527
Cash and cash equivalents at beginning of year.............................. 22,928 15,684 10,157
------- ------ ------
Cash and cash equivalents at end of year.................................... $34,339 22,928 15,684
======= ====== ======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest............................................................ $20,795 17,564 15,125
======= ======
Income taxes........................................................ $ 3,456 3,076 2,212
======= ======= ======
Noncash investing and financing activities:
Accumulated other comprehensive income (loss), net change in
unrealized loss on securities available for sale, net of tax.... $ (117) 23 105
======= ======= ======
Transfers from loans to foreclosed real estate...................... $ 425 193 444
======= ======= ======
Loans originated on sales of foreclosed real estate................. $ 275 297 54
======= ======= ======
Loans funded by and sold to correspondent........................... $ 6,988 8,383 2,469
======= ======= ======
Transfer securities from held to maturity to available for
sale upon adoption of FAS 133................................... $ 14,784 - -
======= ======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
FFLC BANCORP, INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
FFLCBancorp, Inc. (the "Holding Company") was incorporated in Delaware on
September 16, 1993, and acquired First Federal Savings Bank of Lake
County (the "Bank") in connection with the Bank's conversion to stock
form on January 4, 1994. The Holding Company is a savings and loan
holding company subject to regulation by the Office of Thrift
Supervision ("OTS") which transacts its business through its subsidiary,
the Bank. The Bank is a community-oriented savings institution which
offers a variety of financial services to individuals and businesses
primarily located in Lake County, Sumter County and Citrus County,
Florida. The deposits of the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") through the Savings Association Insurance
Fund ("SAIF").
Principles of Consolidation. The consolidated financial statements include
the accounts of the Holding Company, the Bank, and the Bank's
wholly-owned subsidiary, Lake County Service Corporation (the "Service
Corporation"). All significant intercompany transactions and balances
have been eliminated in consolidation.
General. The accounting and reporting policies of FFLC Bancorp, Inc. and its
subsidiaries (together, the "Company") conform to generally accepted
accounting principles and to general practices within the thrift
industry. All per share amounts presented reflect the effect of the
five-for-three stock split in November, 1997. The following summarizes
the significant accounting policies of the Company:
Use of Estimates. In preparing consolidated financial statements in
conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet
and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the
near term relate to the determination of the allowance for loan losses
and foreclosed real estate.
Cash and Cash Equivalents. For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and balances due from
banks and interest-bearing deposits.
The Bank is required to maintain certain average reserve balances
pursuant to regulations of the Federal Reserve Board. These balances
must be maintained in the form of vault cash or noninterest bearing
deposits at a Federal Reserve Bank. The Bank exceeded this requirement,
which was $2.9 million and $1.1 million at December 31, 1999 and 1998,
respectively.
<PAGE>
Securities. The Company may classify its securities as either trading, held
to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized
gains and losses on trading securities are included immediately in
earnings. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity and are reported at
amortized cost. Available-for-sale securities consist of securities not
classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are excluded from income and reported in other comprehensive
income. Gains and losses on the sale of available-for-sale securities
are recorded on the trade date and determined using the
specific-identification method. Premiums and discounts on securities
available for sale and held to maturity are recognized in interest
income using the interest method over the period to maturity.
26
<PAGE>
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on loans is discontinued at the time the loan is
90 days delinquent unless the credit is well-secured and in process of
collection. In all cases, loans are placed on nonaccrual or charged-off
at an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
Allowance for Loan Losses. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan
losses charged to earnings. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surroundings the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
<PAGE>
principal and interest owed. Impairment is measured on a loan by loan
basis for commercial loans by either the present value of expected
future cash flows discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment
disclosures.
Foreclosed Real Estate. Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of carrying amount or fair value
less cost to sell. Revenue and expenses from operations and changes in
the valuation allowance are included in the consolidated statements of
income.
27
<PAGE>
Premises and Equipment. Land is carried at cost. The Company's premises,
furniture and equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization computed principally
using the straight-line method.
Transfer of Financial Assets. Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the
right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
Income Taxes. Deferred tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws.
Stock Compensation Plans. Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee
stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, whereby compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date (or other measurement
date) over the amount an employee must pay to acquire the stock. Stock
options issued under the Company's stock option plan have no intrinsic
value at the grant date, and under Opinion No. 25 no compensation cost
is recognized for them. The Company has elected to continue with the
accounting methodology in Opinion No. 25 and, as a result, has provided
proforma disclosures of net income and income per share and other
disclosures, as if the fair value based method of accounting had been
applied. (See Note 16).
Off-Balance Sheet Instruments. In the ordinary course of business, the
Company has entered into off-balance-sheet instruments consisting of
commitments to extend credit, unused lines of credit, undisbursed loans
in process and standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded.
Fair Values of Financial Instruments. The fair value of a financial
instrument is the current amount that would be exchanged between willing
parties, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future
<PAGE>
cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the
Company. The following methods and assumptions were used by the Company
in estimating fair values of financial instruments:
Cash and Cash Equivalents. The carrying amounts of cash and short-term
instruments approximate their fair value.
Securities. Fair values for securities held to maturity and available
for sale are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments. The carrying value of Federal Home
Loan Bank stock approximates fair value.
28
<PAGE>
Loans Receivable. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain fixed-rate mortgage (e.g.
one-to-four family residential), commercial real estate and commercial
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
Deposit Liabilities. The fair values disclosed for demand, NOW, money
market and savings deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities of time deposits.
Borrowed Funds. The carrying amounts of borrowings under repurchase
agreements approximate their fair values. Fair values of Federal Home
Loan Bank advances are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Accrued Interest. The carrying amounts of accrued interest approximate
their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing.
29
<PAGE>
Income Per Share of Common Stock. During 1997, the Company adopted the
provisions of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). SFAS No. 128 provides accounting and reporting
standards for calculating earnings per share. Basic income per share of
common stock has been computed by dividing the net income for the year
by the weighted-average number of shares outstanding. Shares of common
stock purchased by the Employee Stock Option Plan ("ESOP") and the
Retention and Recognition Plan ("RRP") incentive plans (see Note 16) are
only considered outstanding when the shares are released or committed to
be released for allocation to participants. The ESOP initially purchased
368,242 shares, of which 4,383 shares were released for allocation to
participants each month beginning in January, 1994. The RRP initially
purchased 184,122 shares, of which 179,541, 179,541 and 179,373 were
allocated to participants and are considered outstanding for the years
ended December 31, 1997, 1998 and 1999, respectively. At December 31,
1999, 57,355 shares remain uncommitted under both plans and are not
considered outstanding for purposes of the computation of net income per
share of common stock. Diluted income per share is computed by dividing
net income by the weighted average number of shares outstanding
including the dilutive effect of stock options (see Note 16) computed
using the treasury stock method prescribed by SFAS No. 128. The
following table presents the calculation of net income per share of
common stock:
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average shares of common stock issued
and outstanding before adjustments for ESOP,
RRP and common stock options................................ 3,632,058 3,728,350 3,890,019
Adjustment to reflect the effect of unallocated
ESOP and RRP shares......................................... (83,490) (136,097) (189,799)
---------- --------- ---------
Weighted average shares for basic income per share.............. 3,548,568 3,592,253 3,700,220
========= ========= =========
Basic income per share.......................................... $ 1.52 1.22 1.01
========== =========== ===========
Total weighted-average common shares and equivalents
outstanding for basic income per share
computation................................................. 3,548,568 3,592,253 3,700,220
Additional dilutive shares using the average market value
for the period utilizing the treasury stock
method regarding stock options............................. 128,470 184,832 211,036
--------- ---------- ----------
Weighted-average common shares and equivalents
outstanding for diluted income per share.................... 3,677,038 3,777,085 3,911,256
========= ========= =========
Diluted income per share........................................ $ 1.47 1.16 .96
========= ========== ==========
</TABLE>
Reclassifications. Certain amounts in the 1997 and 1998 consolidated
financial statements have been reclassified to conform to the
presentation for 1999.
30
<PAGE>
(2) Securities
Securities have been classified according to management's intent. The
carrying amounts of securities and their approximate fair values were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C>
Securities available for sale:
At December 31, 1999:
Mutual funds...................................... $ 9,065 - (236) 8,829
U.S. Government and agency securities............. 8,998 - (79) 8,919
Mortgage-backed securities........................ 17,471 155 (136) 17,490
Other investment securities....................... 1,666 5 - 1,671
------- ----- ------- -------
Total......................................... $ 37,200 160 (451) 36,909
====== === === ======
At December 31, 1998:
Mutual funds...................................... 9,238 - (107) 9,131
U.S. Government and agency securities............. 4,036 22 - 4,058
Mortgage-backed securities........................ 8,898 - (21) 8,877
Other investment securities....................... 97 2 - 99
------- ---- ------ --------
Total......................................... $ 22,269 24 (128) 22,165
====== === === ======
Securities held to maturity-
At December 31, 1998:
Mortgage-backed securities........................ 15,907 152 - 16,059
Other investment securities....................... 2,320 46 - 2,366
------ --- ----- ------
Total......................................... $ 18,227 198 - 18,425
====== === ===== ======
</TABLE>
The scheduled maturities of securities available for sale at December 31,
1999 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
(In thousands)
<S> <C> <C>
Due in less than one year............... $ 3,021 2,991
Due from one year to five years......... 5,977 5,928
Due from five years to ten years........ 63 63
Due after ten years..................... 1,603 1,608
Mortgage-backed securities.............. 17,471 17,490
Mutual funds............................ 9,065 8,829
------- -------
Total ............................ $ 37,200 36,909
====== ======
</TABLE>
31
<PAGE>
Securities with a carrying value of approximately $4.0 million and $2.9
million at December 31, 1999 and 1998, respectively, were pledged to
secure public funds and tax deposits. The Company has also pledged
securities with a carrying value of $7.9 million for borrowings under
retail repurchase agreements with customers at December 31, 1999 (See
Note 6).
There were no sales of securities during the years ended December 31, 1999
or 1998. In 1997, the Company realized gross gains on the sale of
securities available for sale of $11,000.
The Company's portfolio of mortgage-backed securities include collateralized
mortgage obligations (CMOs). CMOs are generally divided into tranches
whereby principal repayments from the underlying mortgages are used
sequentially to retire the securities according to the priority of the
tranches. The Company invests in the following collateralized mortgage
obligation tranches: sequential, planned amortization class, targeted
amortization class or support or companion floating-rate tranches. Such
tranches have stated maturities ranging from 1-22 years; however,
because of prepayments, the expected weighted-average life of these
securities at December 31, 1999 is approximately 2.8 years. The majority
of the CMOs owned by the Company are insured or guaranteed, either
directly or indirectly, through mortgage-backed securities underlying
the obligations by either the FNMA, FHLMC or GNMA. Depending on the
amount of the Company's available-for-sale mortgage-backed securities,
fluctuations in the interest rate environment and other factors, the
Company may experience material effects on its capital resources due to
categorizing these securities as available for sale. The Company's CMOs
may be subject to price movements which typically result from prepayment
on the underlying obligations. The Company's CMOs of $2.3 million have
coupon rates ranging from 6.09% to 7.00% and had a weighted-average rate
of 6.54% at December 31, 1999. The Company purchases only CMOs rated AA
or better by nationally recognized rating services.
The Company adopted FAS 133 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.
<PAGE>
(3) Loans Receivable
The components of loans were as follows:
<TABLE>
<CAPTION>
At December 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
First mortgage loans secured by:
One-to-four-family residential........................ $ 354,317 283,372
Construction and land................................. 11,861 11,683
Multi-family units.................................... 13,394 8,165
Commercial real estate, churches and other............ 61,052 44,211
Consumer loans............................................ 64,042 43,490
Commercial loans.......................................... 14,285 10,532
-------- --------
Subtotal.......................................... 518,951 401,453
Undisbursed portion of loans in process............... (15,907) (10,637)
Net deferred loan costs............................... 898 526
Allowance for loan losses............................. (2,811) (2,283)
-------- --------
Loans receivable, net............................. $ 501,131 389,059
======= ========
</TABLE>
32
<PAGE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at January 1................ $ 2,283 1,684 1,063
Net loans charged-off............... (191) (83) (28)
Provision for loan losses........... 719 682 649
------- ------ ------
Balance at December 31.............. $ 2,811 2,283 1,684
======= ====== ======
</TABLE>
There were no impaired loans recognized under SFAS 114 and 118 during the
years ended December 31, 1998 or 1997. The following summarizes the
amount of impaired loans at December 31, 1999, all of which are
collateral dependent (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Loans identified as impaired:
Gross loans with no related allowance for losses..................... $ -
Gross loans with related allowance for losses recorded............... 1,348
Less: Allowances on these loans..................................... (202)
-------
Net investment in impaired loans......................................... $ 1,146
=======
The average net investment in impaired loans and interest income recognized
and received on impaired loans during the year ended December 31, 1999
was as follows (in thousands):
Average net investment in impaired loans................................. $ 1,152
=======
Interest income recognized on impaired loans............................. $ 84
=======
Interest income received on impaired loans............................... $ 84
=======
</TABLE>
The Company originates or purchases nonresidential real property loans.
These loans are considered by management to be of somewhat greater risk
of uncollectibility due to the dependency on income production or future
development of the real estate. Nearly all of the Company's real
property loans were collateralized by real property in Lake, Sumter and
Citrus Counties, Florida.
<PAGE>
Nonaccrual loans at December 31, 1999 and 1998 totaled $2,362,000 and
$444,000, respectively. For the year ended December 31, 1999, interest
income on loans would have been increased approximately $99,000 if the
interest on nonaccrual loans at December 31, 1999 had been recorded
under the original terms of such loans.
Loans serviced for others, consisting solely of participations sold, are not
included in the accompanying consolidated balance sheets. The unpaid
principal balances of these loans were approximately $1,040,000 and
$930,000 at December 31, 1999 and 1998, respectively.
33
<PAGE>
(4) Premises and Equipment
Components of premises and equipment were as follows:
<TABLE>
<CAPTION>
At December 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Cost:
Land..................................... $ 2,937 1,754
Building and improvements................ 6,475 4,357
Furniture and equipment.................. 2,731 2,193
Construction in progress................. 931 424
=------- ------
Total cost........................... 13,074 8,728
Less accumulated depreciation................ (3,688) (3,131)
==------ -----
Net book value........................... $ 9,386 5,597
======== =====
</TABLE>
Certain Company facilities are leased under various operating leases. Rental
expense was $195,000, $101,000 and $51,000 in 1999, 1998 and 1997,
respectively. At December 31, 1999, future minimum rental commitments
under noncancellable leases were as follows (in thousands):
Year Ending
December 31, Amount
2000............................ $ 141
2001............................ 145
2002............................ 149
2003............................ 154
2004............................ 159
-----
$ 748
=====
(5) Deposits
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, was approximately $37.3 million and
$18.2 million in 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit
were as follows (in thousands):
<PAGE>
Year Ending
2000............................. $ 205,590
2001............................. 107,713
2002............................. 2,708
2003............................. 3,113
2004............................. 647
---------
$ 319,771
=========
34
<PAGE>
(6) Advances from Federal Home Loan Bank and Other Borrowings
As of December 31, 1999, the Bank had $99.0 million in Federal Home Loan
Bank of Atlanta ("FHLB") advances outstanding. These advances had a
weighted-average interest rate of 5.64% and interest rates and
maturities as follows (dollars in thousands):
<TABLE>
<CAPTION>
Interest At December 31,
Year Ending December 31, Rate 1999 1998
------------------------ -------- ---- ----
<S> <C> <C> <C> <C>
2000............................. 4.30% $ - 6,000
2000............................. 5.95% 12,000 -
2000............................. 5.98% 15,000 -
2002............................. 6.10% 5,000 5,000
2002............................. 6.26% 5,000 5,000
2002............................. 6.09% 10,000 10,000
2002............................. 5.75% - 10,000
2003............................. 3.90% - 5,000
2003............................. 4.90% 10,000 10,000
2003............................. 4.30% 6,000 -
2004............................. 6.05% 10,000 -
2008............................. 4.19% - 5,000
2009............................. 4.17% 12,000 -
2009............................. 6.39% 14,000 -
-------- ------
Total............................ $ 99,000 56,000
======== ======
</TABLE>
The security agreement with FHLB includes a blanket floating lien requiring
the Bank to maintain first mortgage loans as pledged collateral in an
amount equal to at least, when discounted at 75% of the unpaid principal
balances, 100% of these advances. The FHLB stock is also pledged as
collateral for these advances. At December 31, 1999, the Bank could
borrow up to $148.7 million under the FHLB security agreement.
Other borrowed funds were composed of retail repurchase agreements with
customers. The Company enters into retail repurchase agreements with
customers in which the funds received are accounted for as borrowings to
the Company. The total amount outstanding under these agreements at
December 31, 1999 and 1998 were $3.9 million and $789,000, respectively.
The Company has pledged securities with a carrying value of $7.9 million
and $3.1 million as collateral for these agreements at December 31, 1999
and 1998, respectively.
35
<PAGE>
(7) Income Taxes
The Holding Company and its subsidiaries file consolidated federal and state
income tax returns. Income taxes are allocated proportionally to the
Holding Company and each of the subsidiaries as though separate income
tax returns were filed.
The income tax provision is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current ....................... $ 3,408 3,108 2,339
Deferred....................... (112) (467) (256)
------- ------ ------
$ 3,296 2,641 2,083
======= ===== =====
</TABLE>
The effective tax rate on income before income taxes differs from the U.S.
statutory rate of 34%. The following summary reconciles taxes at the
U.S. statutory rate with the effective rates:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- -------------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxes on income at U.S.
statutory rate........ $ 2,957 34.0% $ 2,393 34.0% $ 1,985 34.0%
State income taxes, net of
federal tax benefit... 297 3.4 240 3.4 192 3.3
Other, net................ 42 .5 8 .1 (94) (1.6)
------- ---- ------- ------ ------- -----
Taxes on income at
effective rates....... $ 3,296 37.9% $ 2,641 37.5% $ 2,083 35.7%
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that gave rise to significant
portions of the deferred tax liability relate to the following:
<TABLE>
<CAPTION>
At December 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Building and land........................................ $ 334 -
FHLB stock dividends..................................... 340 304
Accumulated depreciation................................. 188 181
Deferred loan costs...................................... 23 25
Other.................................................... 4 83
---- ----
Gross deferred tax liabilities............................... 889 593
--- ---
Deferred tax assets:
Allowance for loan losses................................ 490 140
Unrealized loss on securities available for sale......... 109 39
Deferred loan fees....................................... 71 33
RRP incentive plan....................................... 90 97
Accrued interest......................................... 27 -
---- ---
Gross deferred tax assets.................................... 787 309
--- ---
Net deferred tax liabilities................................. $ 102 284
===== ===
</TABLE>
36
<PAGE>
Retained earnings at December 31, 1999 and 1998 includes approximately
$5,810,000 for which no deferred federal income tax liability has been
recognized. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated for
purposes other than tax bad debt losses or adjustments arising from
carryback of net operating losses would create income for tax purposes
only, which would be subject to the then current corporate income tax
rate. The unrecorded deferred income tax liability on the above amount
was approximately $2,186,000 at December 31, 1999 and 1998.
The Small Business Job Protection Act of 1996 (the "1996 Act") enacted on
August 2, 1996 requires savings institutions, such as the Bank, to
recapture certain portions of their accumulated bad debt reserves, and
eliminated the Percentage of Taxable Income Method of accounting for bad
debts for tax purposes. The Bank was required to change its method of
accounting for bad debts for tax purposes effective January 1, 1996. In
addition, the Bank was required to recapture the excess of its bad debt
reserves at December 31, 1995 over its base year reserves at December
31, 1987, ratably over a six-year period beginning in 1998. At December
31, 1999, the Bank had approximately $606,000 of deferred tax
liabilities recorded for the recapture of its excess bad debt reserves.
(8) Pension Plan
The Company has a defined contribution profit sharing 401(k) plan (the
"401(k) Plan"). All employees who have met a minimum service requirement
(1,000 hours of service in a twelve-month period) may participate in the
Plan. Under the 401(k) Plan, a participant may elect to contribute up to
15% of their annual compensation, subject to IRS limitations on total
annual contributions. The Company will make contributions to the 401(k)
Plan on a monthly basis at two percent of participants' compensation.
Contributions to the 401(k) Plan for the years ended December 31, 1999,
1998 and 1997 were $54,000, $46,000 and $37,000, respectively.
(9) Financial Instruments
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments are commitments to extend credit,
unused lines of credit, undisbursed loans in process and standby letters
of credit and may involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract amounts of these instruments
reflect the extent of involvement the Company has in these financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments as it does
for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
<PAGE>
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
37
<PAGE>
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
---------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.........................$ 34,339 34,339 22,928 22,928
Securities held to maturity....................... - - 18,227 18,425
Securities available for sale..................... 36,909 36,909 22,165 22,165
Loans receivable.................................. 501,131 499,874 389,059 391,616
Accrued interest receivable....................... 2,815 2,815 2,242 2,242
Federal Home Loan Bank stock...................... 4,950 4,950 2,800 2,800
Financial liabilities:
Deposit liabilities............................... 429,274 426,909 351,030 350,801
Advances from FHLB................................ 99,000 99,314 56,000 56,000
Other borrowed funds.............................. 3,914 3,914 789 789
</TABLE>
A summary of the notional amounts of the Company's financial instruments
which approximates fair value, with off-balance-sheet risk at December
31, 1999, follows:
Notional
Amount
(In thousands)
Commitments to extend credit...................... $ 7,753
========
Unused lines of credit............................ $ 33,579
=======
Undisbursed portion of loans in process .......... $ 15,907
======
Standby letters of credit......................... $ 698
========
(10) Significant Group Concentration of Credit Risk
The Company grants real estate, commercial and consumer loans to customers
primarily in the State of Florida with the majority of such loans in
the Lake, Sumter and Citrus County area. Therefore, the Company's
exposure to credit risk is significantly affected by changes in the
economy of the Lake, Sumter and Citrus County area. In addition, the
Company has a concentration of single-family residential mortgage loans
in a specific residential retirement community of approximately $107.4
million.
The contractual amounts of credit related financial instruments such as
commitments to extend credit represent the amounts of potential
accounting loss should the contract be fully drawn upon, the customer
default and the value of any existing collateral become worthless.
38
<PAGE>
(11) Related Parties
Loans to directors and executive officers of the Company were made in the
ordinary course of business and did not involve more than normal risk
of collectibility or present other unfavorable features. Activity in
loans to directors and executive officers were as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Beginning balance................................ $ 3,406 1,728
Loans originated................................. 1,675 2,043
Principal repayments............................. (98) (365)
------- -------
Ending balance............................... $ 4,983 3,406
======= =======
</TABLE>
(12) Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company
is a defendant in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these
matters is not expected to have a material adverse effect on the
consolidated financial condition of the Company.
(13) Restrictions on Retained Earnings
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1999,
approximately $21.4 million of retained earnings were available for
dividend declaration without prior regulatory approval.
(14) Regulatory Matters
The Bank is subject to various regulatory capital requirement administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possibly additional
discretionary-actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December
31, 1999, that the Bank meets all capital adequacy requirements to which
it is subject.
<PAGE>
As of December 31, 1999, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum tangible, tier I (core), tier I (risk-based)
and total risk-based capital ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the institution's category.
39
<PAGE>
The Bank's actual capital amounts and percentages at December 31, 1999 and
1998 are also presented in the tables.
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------------- -------------------- ------------------
% Amount % Amount % Amount
------ --------- ------ --------- ----- ---------
As of December 31, 1999: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
and ratio to total
assets.................... 8.87% $ 52,356
Less: investment in
nonincludable
subsidiary................ (1,214)
Add back: unrealized loss on
available-for-sale
securities................ 35
--------
Tangible capital,
and ratio to adjusted
total assets.............. 8.68% $ 51,177 1.5% $ 8,841
========== ========
Tier 1 (core) capital, and
ratio to adjusted total
assets.................... 8.68% $ 51,177 3.0% $ 17,681 5.0% $ 29,469
========== ======== ========
Tier 1 capital, and ratio
to risk-weighted assets... 14.17% 51,177 4.0% $ 14,447 6.0% $ 21,670
======== ========
Less: nonincludable
investment in 80%
land loans................ (93)
Tier 2 capital (allowance for
loan losses).............. 2,810
---------
Total risk-based capital,
and ratio to risk-
weighted assets........... 14.92% $ 53,894 8.0% $ 28,893 10.0% $ 36,117
========= ========
Total assets.................. $ 590,562
=========
Adjusted total assets......... $ 589,383
=========
Risk-weighted assets.......... $ 361,168
=========
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------------- -------------------- ------------------
% Amount % Amount % Amount
------ --------- ------ --------- ----- ---------
As of December 31, 1998: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
and ratio to total
assets.................... 9.97% $ 46,270
Less: investment in
nonincludable
subsidiary................ (187)
Add back: unrealized loss on
available-for-sale
securities................ (1)
----------
Tangible capital,
and ratio to adjusted
total assets.............. 9.94% $ 46,082 1.5% $ 6,957
========== ========
Tier 1 (core) capital, and
ratio to adjusted total
assets.................... 9.94% $ 46,082 3.0% $ 13,913 5.0% $ 23,189
========== ======== ========
Tier 1 capital, and ratio
to risk-weighted assets... 17.21% 46,082 4.0% $ 10,711 6.0% $ 16,067
======== ========
Less: nonincludable
investment in 80%
land loans................ (122)
Tier 2 capital (allowance for
loan losses).............. 2,283
---------
Total risk-based capital,
and ratio to risk-
weighted assets........... 18.02% $ 48,243 8.0% $ 21,422 10.0% $ 26,778
======== ====== ======
Total assets.................. $ 463,962
=======
Adjusted total assets......... $ 463,774
=======
Risk-weighted assets.......... $ 267,778
=======
</TABLE>
41
<PAGE>
(15) Conversion to Stock Savings Bank
The Bank successfully completed a conversion from a federally chartered
mutual savings association to a federally chartered stock savings bank
on January 4, 1994 pursuant to the Plan of Conversion. The Plan of
Conversion provided for the establishment of a Liquidation Account
equal to the retained income of the Bank as of September 30, 1993 (the
date of the most recent financial statement presented in the final
conversion prospectus). The Liquidation Account is established to
provide a limited priority claim to the assets of the Bank to
qualifying depositors as of September 30, 1992 (Eligible Account
Holders) who continue to maintain deposits in the Bank after
conversion. In the unlikely event of a complete liquidation of the
Bank, and only in such event, each Eligible Account Holder would
receive from the Liquidation Account a liquidation distribution based
on their proportionate share of the then total remaining qualifying
deposits.
Current regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below
the amount then required for the aforementioned Liquidation Account.
Also, capital distribution regulations limit the Bank's ability to make
capital distributions which include dividends, stock redemptions and
repurchases, cash-out mergers, interest payments on certain convertible
debt and other transactions charged to the capital account based on
their capital level and supervisory condition. Federal regulations also
preclude any repurchase of the stock by the Bank or its holding company
for three years after conversion except for purchases of qualifying
shares of a director and repurchases pursuant to an offer made on a pro
rata basis to all stockholders and with prior approval of the Office of
Thrift Supervision or pursuant to an open-market stock repurchase
program that complies with certain regulatory criteria. See also Note
18 for information regarding the Bank's Stock Repurchase Program.
42
<PAGE>
(16) Stock Benefit Plans
The Company follows the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 123 applies to stock-based compensation under the
Company's incentive stock option plan (the "Option Plan") and under the
Company's Recognition and Retention Plan discussed below. As allowed by
SFAS No. 123, the Company elected to continue to measure compensation
cost for the options or shares granted under either plan using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS No. 123 does not apply
to the Employee Stock Ownership Plan discussed below.
During the years ended December 31, 1999, 1998 and 1997, 16,250, 18,000 and
10,867 options were granted under the Option Plan, and in 1997, 2,014
shares were awarded under the Recognition and Retention Plan. SFAS No.
123 requires pro forma fair value disclosures if the intrinsic value
method is being utilized. In order to calculate the fair value of the
options, it was assumed that the risk-free interest rate was 7.0% for
each period, an annualized dividend yield of approximately 2.0% would
apply over the exercise period, the expected life of the options would
be the entire exercise period and the expected stock volatility was
36%, 42% and 23%, respectively, for 1999, 1998 and 1997. For purposes
of pro forma disclosures, the estimated fair value was included in
expense in the period vesting occurs. The proforma information has been
determined as if the Company had accounted for its stock options and
share awards under the fair value method of SFAS No. 123 and is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average grant-date fair value of options
issued during the year..................................... $ 133 166 84
======== ====== ==
Proforma net earnings........................................... $ 5,288 4,303 3,663
======== ====== ==
Proforma basic earnings per share............................... $ 1.49 1.20 .99
</TABLE>
Stock Option Plan. The Company has a Stock Option Plan under which 460,303
common shares are authorized to be granted to directors, officers and
employees of the Bank. Shares granted under the Option Plan are
exercisable at the market price at the date of grant. Such incentive
stock options granted to officers and employees are exercisable in
three equal annual installments, with the first installment becoming
exercisable one year from the date of grant. Options granted to outside
directors are exercisable immediately, but any common shares obtained
from exercise of the options may not be sold prior to one year from the
date of grant. All options expire at the earlier of ten years for
officers and employees or twenty years for directors from the date of
grant or one year following the date which the outside director,
officer or employee ceases to serve in such capacity. At December 31,
1999, 38,749 shares remain available for grant to future directors,
officers and employees.
43
<PAGE>
The following is a summary of option transactions:
<TABLE>
<CAPTION>
Weighted-
Range of Average
Number Per Share Per Share
of Shares Option Price Price
--------- ------------ -----
<S> <C> <C> <C>
Outstanding, December 31, 1996...................... 365,813 $ 6.00-12.00 $ 6.19
Granted ............................................ 10,867 15.30-21.25 18.06
Exercised........................................... (46,252) 6.00-9.52 6.13
-------
Outstanding, December 31, 1997...................... 330,428 6.00-21.25 6.58
Granted ............................................ 18,000 16.25-19.25 18.08
Exercised........................................... (59,895) 6.00 6.00
Forfeited........................................... (15,333) 12.00-19.25 17.84
-------
Outstanding, December 31, 1998...................... 273,200 6.00-21.25 6.83
Granted ............................................ 16,250 16.75-17.63 17.56
Exercised........................................... (75,420) 6.00 6.00
-------
Outstanding, December 31, 1999...................... 214,030 $ 6.00-21.25 $ 7.93
======= ============= =======
</TABLE>
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 1999, 1998 and 1997 was 8.6, 5.3 and 6.2 years,
respectively. The increase in 1999 was due to the Company approving an
amendment to the Plan to extend the life of options issued to directors
to twenty years from ten years.
The outstanding options at December 31, 1999 were exercisable as follows:
<TABLE>
<CAPTION>
Number Weighted-Average
of Weighted-Average Remaining
Year Ending Shares Exercise Price Contractual Life
----------- ------ -------------- ----------------
(In years)
<S> <C> <C> <C>
Currently exercisable................... 189,558 $ 6.76 8.5
2000.................................... 8,528 16.44 9.1
2001.................................... 8,528 16.44 9.4
2002.................................... 7,416 16.62 9.7
-------
214,030 $ 7.93 8.6
======= ======== ===
</TABLE>
44
<PAGE>
Employee Stock Ownership Plan. The Company sponsors a leveraged ESOP that
covers eligible employees who have a twelve-month period of employment
with the Bank during which they worked at least 1,000 hours and who have
attained age 21. The Bank makes quarterly contributions to the ESOP
equal to the ESOP's debt service. The ESOP Trust purchased 368,242
shares of common stock in the Company's initial public offering with the
proceeds from a loan from the Company. This loan bears interest at a
fixed-rate of six percent with principal and interest payable in equal
quarterly installments over seven years. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from collateral and allocated to active employees based on the
proportion of debt service paid during the year. The Company accounts
for its ESOP in accordance with Statement of Position 93-6. Accordingly,
the debt of the ESOP is recorded as debt and the cost of the shares
pledged as collateral are reported as a contra equity account. As shares
are released from collateral, the Company records compensation expense,
and an offsetting credit to capital, equal to the current market price
of the shares, and the shares become outstanding for earnings per share
computations. Dividends on all ESOP shares are recorded as compensation
expense as it is management's intention to allocate the dividends along
with the shares when allocated. Compensation expense for the years ended
December 31, 1999, 1998 and 1997 included the following ESOP related
costs:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Amortization of the original cost, $6 per share............. $ 315 316 315
Market appreciation of the FFLC shares...................... 534 662 596
Dividends on ESOP shares.................................... 23 38 61
----- ----- ----
Total................................................... $ 872 1,016 972
===== ===== ===
</TABLE>
The ESOP shares were as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------------
1999 1998
---- ----
($ in thousands)
<S> <C> <C>
Allocated shares and shares released for allocation...... 282,781 238,413
Unreleased shares........................................ 52,606 105,212
-------- -------
Total ESOP shares........................................ 335,387 343,625
======== =======
Fair value of unreleased shares.......................... $ 802 1,710
======== ========
</TABLE>
<PAGE>
Recognition and Retention Plan. The Company adopted, and the shareholders
approved, an RRP for directors, officers and employees to enable the
Bank to attract and retain experienced and capable personnel. On January
4, 1994, the conversion date, 184,122 shares of common stock were
purchased for the RRP which included 8,067 shares reserved for future
directors, officers and employees. The shares are granted in the form of
restricted stock to be earned in three equal annual installments
beginning April 4, 1995. The RRP shares purchased in the conversion
initially were excluded from stockholders' equity. The Company
recognized compensation expense in the amount of the fair market value
of the common stock at the grant date of $6 per share, pro rata over the
years (1996, 1995 and 1994) during which the shares were earned and
payable and recorded a credit to shareholders' equity. The shares are
entitled to all voting and other shareholder rights, except that the
shares, while restricted, cannot be sold, pledged or otherwise disposed
of, and are required to be held in escrow.
45
<PAGE>
If a holder of restricted stock under the RRP terminated employment for
reasons other than death, disability, retirement or change of control in
the Company, such employee forfeits all rights to any allocated shares
which are still restricted. If termination is caused by death,
disability, retirement or change in control of the Company, all
allocated shares become unrestricted. Forfeitures are reallocated to
eligible participants annually. At December 31, 1999, 4,749 shares
remain reserved for future directors, officers and employees.
(17) Parent Company Only Financial Statements
Condensed financial statements of the Holding Company as of December 31,
1999 and 1998 and for each of the years in the three-year period ended
December 31, 1999 are presented below. Amounts shown as cash, investment
in subsidiary, loans to subsidiary and equity in earnings of subsidiary
are eliminated in consolidation.
<TABLE>
<CAPTION>
Condensed Balance Sheets
At December 31,
--------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Assets
Cash, deposited with subsidiary $ 481 825
Investment in subsidiary 52,356 46,270
Loans to subsidiary 2,816 6,131
------- -------
Total assets $55,653 53,226
======= =======
Liabilities and Stockholders' Equity
Accrued expense and other liabilities 16 3
Stockholders' equity 55,637 53,223
------- -------
Total liabilities and stockholders' equity $55,653 53,226
======= =======
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Year Ended December 31,
-----------------------------
1999 1998 1997
------- ----- -----
(In thousands)
<S> <C> <C> <C>
Revenues $ 261 410 532
Expenses 190 243 280
------- ----- -----
Income before earnings of subsidiary 71 167 252
Earnings of subsidiary 5,331 4,230 3,502
------- ----- -----
Net income $ 5,402 4,397 3,754
======= ===== =====
<CAPTION>
Condensed Statements of Cash Flows
Year Ended December 31,
-----------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 5,402 4,397 3,754
Adjustments to reconcile net income to net cash
provided by operations:
Equity in earnings of subsidiary.......................................... (5,331) (4,230) (3,502)
Decrease (increase) in other assets....................................... - 2 (2)
Increase (decrease) in accrued expenses and other liabilities............. 13 4 (12)
------- -------- -------
Net cash provided by operating activities............................. 84 173 238
------- ------- -------
Cash flows from investing activities-
Repayment of loan to subsidiary........................................... 3,315 316 4,815
----- ------- -----
Cash flows from financing activities:
Purchase of treasury stock................................................ (2,596) (2,659) (6,171)
Stock options exercised................................................... 453 360 283
Cash dividends paid....................................................... (1,600) (1,344) (1,141)
Cash dividends received................................................... - 3,502 1,808
------- ----- -----
Net cash used in financing activities................................. (3,743) (141) (5,221)
----- ------ -----
Net (decrease) increase in cash................................................... (344) 348 (168)
Cash at beginning of year......................................................... 825 477 645
------ ------ ------
Cash at end of year............................................................... $ 481 825 477
===== ====== ======
</TABLE>
47
<PAGE>
(18) Stock Repurchase Program
In January and August 1996, the Company's Board of Directors approved stock
repurchase programs which allowed the Company to acquire common stock in
the open market. The Company received OTS approval for the programs and
began repurchasing shares within one month of approval. During the year
ended December 31, 1996, all 132,000 shares approved under the January
1996 program were repurchased. During the years ended December 31, 1996
and 1997, all 126,000 shares approved under the August 1996 program were
repurchased.
In January 1997, the Company"s Board of Directors approved a program which
allowed the Company to acquire additional common stock in the open
market. During the year ended December 31, 1997, 178,690 shares or 60.6%
of the 294,928 shares approved under that program were repurchased.
In September 1998, the Company"s Board of Directors approved a program
which allowed the Company to acquire 369,285 additional common stock in
the open market. During the year ended December 31, 1998, the remaining
shares approved under the January 1997 program were repurchased. During
the year ended December 31, 1998 32,025 shares or 8.7% of the September
1998 program were repurchased.
During 1999, the Company repurchased 147,102 shares or 43.6% under the
September 1998 program. At December 31, 1999, the Company can still
repurchase up to an additional 190,158 shares under the September 1998
program.
(19) Quarterly Financial Data (unaudited)
The following tables present summarized quarterly data (in thousands, except
per share amounts):
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest income............................... $ 8,851 9,317 9,801 10,643 38,612
Interest expense.............................. 4,748 5,005 5,365 6,096 21,214
----- ----- ----- ------ ------
Net interest income........................... 4,103 4,312 4,436 4,547 17,398
Provision for loan losses..................... 200 150 150 219 719
------ ------ ------ ------ -------
Net interest income after provision
for loan losses........................... 3,903 4,162 4,286 4,328 16,679
------ ----- ----- ------ ------
Noninterest income............................ 1,289 370 319 354 2,332
Noninterest expense........................... 2,374 2,562 2,642 2,735 10,313
----- ----- ----- ------ ------
Income before income taxes.................... 2,818 1,970 1,963 1,947 8,698
Income taxes.................................. 1,084 739 739 734 3,296
----- ----- ------ ------ ------
Net income.................................... $ 1,734 1,231 1,224 1,213 5,402
===== ===== ===== ====== ======
Basic income per common share.................$ .49 .34 .35 .34 1.52
======= ======= ======= ======= =======
Diluted income per common share...............$ .47 .33 .33 .34 1.47
======= ======= ======= ======= =======
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest income............................... $ 7,753 7,889 8,110 8,421 32,173
Interest expense.............................. 4,144 4,195 4,367 4,565 17,271
----- ----- ----- ----- ------
Net interest income........................... 3,609 3,694 3,743 3,856 14,902
Provision for loan losses..................... 148 225 154 155 682
------ ------ ------ ------ -------
Net interest income after provision
for loan losses........................... 3,461 3,469 3,589 3,701 14,220
----- ----- ----- ----- ------
Noninterest income............................ 228 326 318 392 1,264
Noninterest expense........................... 2,017 2,049 2,139 2,241 8,446
----- ----- ----- ----- ------
Income before income taxes.................... 1,672 1,746 1,768 1,852 7,038
Income taxes.................................. 681 650 636 674 2,641
------ ------ ------- ------ ------
Net income.................................... $ 991 1,096 1,132 1,178 4,397
====== ===== ===== ===== ======
Basic income per common share................. $ .28 .30 .31 .33 1.22
====== ======= ======= ======= =======
Diluted income per common share............... $ .26 .29 .30 .31 1.16
====== ======= ====== ======= =======
</TABLE>
(20) Year 2000 Issues
The Company's operating and financial systems have been found to be
compliant; the "Y2K Problem" has not adversely affected the Company's
operations nor does management expect that it will.
(21) Dividend Reinvestment Plan
On January 7, 2000, the Company established a Dividend Reinvestment Plan
(the "Plan"). The Plan was approved by the Board of Directors on
December 30, 1999 and is intended to provide stockholders of record of
at least 50 shares with a convenient and economical way to
automatically reinvest all or a portion of their cash dividends and to
invest optional cash payments, subject to minimum and maximum purchase
limitations, in additional shares of common stock. Stockholders pay no
service charges or brokerage commissions for common stock purchased
under the Plan.
49
<PAGE>
Independent Auditors' Report
The Board of Directors
FFLC Bancorp, Inc.
Leesburg, Florida:
We have audited the accompanying consolidated balance sheets of FFLC Bancorp,
Inc. and Subsidiary (the "Company") (the parent company of First Federal Savings
Bank of Lake County) as of December 31, 1999 and 1998 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/HACKER, JOHNSON, COHEN & GRIEB PA
- ------------------------------------
HACKER, JOHNSON, COHEN & GRIEB PA
Orlando, Florida
January 14, 2000
<PAGE>
FFLC BANCORP, INC.
DIRECTORS AND OFFICERS
Directors: Occupation
- ---------- ----------
Joseph J. Junod Retired, General Manager, Avesta Sheffield Pipe
Chairman of the Board
Claron D. Wagner President, Woody Wagner, Inc.
Vice Chairman
James P. Logan President/Owner, Logan Sitework Contractors, Inc.
Ted R. Ostrander, Jr. President, Lassiter-Ware, Inc.
H.D. Robuck, Jr. Attorney; CEO, Ro-Mac Lumber & Supply, Inc.
Stephen T. Kurtz President, FFLC Bancorp, Inc. & Subsidiary
Paul K. Mueller Executive Vice President, FFLC Bancorp, Inc.
& Subsidiary
Advisory Directors:
- -------------------
James R. Gregg President, Jarol Company
James H. Herlong General Partner, A.S. Herlong, Ltd.
Horace D. Robuck President, Ro-Mac Lumber & Supply, Inc.
Officers:
- ---------
Stephen T. Kurtz
President and Chief Executive Officer
Paul K. Mueller
Executive Vice President and Treasurer
Sandra L. Rutschow
Vice President and Secretary
51
<PAGE>
FIRST FEDERAL SAVINGS BANK
OF LAKE COUNTY
DIRECTORS, OFFICERS AND MANAGERS
DIRECTORS
Joseph J. Junod
Chairman of the Board
Claron D. Wagner
Vice Chairman
James P. Logan
Ted R. Ostrander, Jr.
H.D. Robuck, Jr.
Stephen T. Kurtz
Paul K. Mueller
Advisory Directors
James R. Gregg
James H. Herlong
Horace D. Robuck
OFFICERS
Stephen T. Kurtz
President
Chief Executive Officer
Paul K. Mueller
Executive Vice President
and Treasurer
Dwight L. Hart
Senior Vice President and Mortgage Loan Manager
Joseph D. Cioppa
Senior Vice President and Commercial Loan Manager
Paul S. Allen
Senior Vice President, Audit and Planning
Jay Bartholomew
Vice President and Retail Banking Manager
Susan L. Berkebile
Vice President and Area Loan Manager
Michael J. Cox
Vice President and Area Loan Manager
Jankie Dhanpat
Vice President, SEC Reporting & Controller
<PAGE>
Brenda M. Grubb
Vice President and Human Resources Manager
James D. Haug
Vice President and Lady Lake Branch Manager
Lawrence E. Hoag
Vice President and Operations Manager
Brian R. Hofer
Vice President and Commercial Loan Officer
Karen Hollister
Vice President and Loan Operations Manager
Dennis R. Rogers
Vice President and Wildwood Branch Manager
Sandra L. Rutschow
Vice President and Corporate Secretary
Sandra L. Seaton
Vice President and South Leesburg Branch Manager
Raynard S. (Ray) Taylor
Vice President and Commercial Loan Officer
Phil Tompetrini
Vice President and Inverness Branch Manager
Lynda F. Wemple
Vice President and Accounting Manager
Vickie S. Baxter
Assistant Vice President and Loan Officer
Donna Boyett
Assistant Vice President and Branch
Operations Coordinator
Stephanie Hodges
Assistant Vice President and Secondary Market Manager
Penny Hollis
Assistant Vice President and Compliance Officer
Cindy Lay
Assistant Vice President and Data Manager &
MIS Coordinator
Charles L. Lee
Assistant Vice President and Security Officer
Debra L. McFarlane
Assistant Vice President and Deposit Administrator
Carmen C. Passwaters
Assistant Vice President and Benefits Administrator
<PAGE>
Sandra A. Rowe
Assistant Vice President and Loan Servicing Manager
Victoria Boren
Eustis Branch Manager
James M. Combs
Indirect Loan Manager
James R. Cummings
Collections Manager
Barbara A. Cordes
Information Systems Manager
Karen A. Dixon
Inverness Loan Officer
Lori Farfaglia
Four Corners Branch Manager
Linda C. Gallop
Clermont Branch Manager
Greg Heckler
Main Street Office Manager
Doris E. Hyatt
Loan Closing Manager
Jennifer Kitchens
Bushnell Branch Manager
Marilyn Leugers
Main Office Branch Manager
Catherine M. Wallin
Lake Square Office Manager
Michael J. Price
Eustis Loan Officer
Leigh S. Skehan
Marketing Coordinator
Craig Smith
Fruitland Park Branch Manager
Betty Wolcott
Facilities & Purchasing Manager
52
<PAGE>
FIRST FEDERAL SAVINGS BANK OF LAKE COUNTY
is Proud of the Outstanding Service its
Employees Provide to the Community and the People it Serves
MAIN OFFICE:
Annette McCullough
Barbara A. Cordes
Barbara Boscana
Betty J. Leech
Betty L. Wolcott
Bobby H. Inscoe
Brenda M. Grubb
Carlos E. Colon
Carmen C. Passwaters
Carol A. Dewey
Carol B. Holley
Charles L. Lee
Cheryl A. Davis
Cleire M. Geidel
Craig S. Cannon
Cynthia A. Lord
Cynthia M. Lay
Dawn Rene Davison
Debra L. McFarlane
Deena M. Bryant
Diane S. Cook
Dorene K. Shahan
Doris E. Hyatt
Dwight L. Hart
Erika R. Morgan
Ginger L. Devine
Jacqueline E. Widows
James M. Combs
James R. Cummings
James Schaeffer
Jankie Dhanpat
Jay R. Bartholomew
Jeffrey W. Wright
Jennette L. Roode
Jennifer Grovesteen
Jewel M. Correll
Jill S. Spires
Joan P. Gibson
John LaVallie
Joseph D. Cioppa
Juanita F. Jackson
Judith A. Cook
Karen L. Hollister
Kathy E. Bauer
Kathy Mantlo
Keri L. Morris
Lacey A. Lee
<PAGE>
Landa A. Russell
Lawrence E. Hoag
Leigh S. Skehan
Leslie A. Leach
Linda B. Law
Linda J. Giggey
Linda N. Landers
Lisa K. Woolwine
Lynda F. Wemple
Lynn P. Stoffel
Margaret H. Locke
Margaret M. Siegel
Margaret R. White
Marilyn A. Leugers
Mary A. Durre
Maryann D. Chantos
Michelle M. Thompson
Michelle Williams
Nancy J. Lane
Natalie L. Rojas
Norma J. Caron
Orpha M. Vogt
Pamela A. O"Neal
Pamela J. Linville
Patricia B. Inman
Patti L. Martel-Spencer
Paul K. Mueller
Paul S. Allen
Peggy L. Harris
Penny M. Hollis
Raynard S. Taylor
Ruth E. Fielding
Sandra A. Rowe
Sandra L. Rutschow
Sheila C. Coffey
Shu Een Chen
Sondra Jones
Stephanie Hodges
Stephen T. Kurtz
Terry J. French
Tina R. Clancy
Tricka M. Parker
Vickie S. Baxter
Victoria J. Langford
Virgina D. Vann
Virginia I. Grantham
Yvonne K. Ross
Zoann Goodman
<PAGE>
FRUITLAND PARK OFFICE:
Brandi L. Shaw
Craig R. Smith
Delphine C. Williams
Michelle E. Odell
LADY LAKE OFFICE:
Betty T. Woods
Constance Merrell-Kasch
Deedee A. Dye
Estelle E. Crawley
Heather L. Varner
James D. Haug
Julie A. Hankins
Karen Bednarik
Mindy L. Tritt
Patricia L. Sizemore
Shanda R. Gamble
MAIN STREET OFFICE:
Angela Nicole Phillips
Celeste A. James
Cynthia M. Page
Donna L. Boyett
Gregory F. Heckler
Kari K. Caulk
Rhonda L. Wilkerson
LAKE SQUARE
MALL OFFICE:
Catherine M. Wallin
Melissa J. Asbury
Regina D. Shiver
Shannon J. Peters
CLERMONT OFFICE:
Arthur E. Middleton
Brian R. Hofer
Donna L. Franklin
Holly Ogg
Janna R. Michell
Judy L. Garafola
Karen M. Seddon
Kris R. Helms
Linda Gallop
Lynda S. Cole
Rebecca A. Gibson
Sharon M. Slack
Susan Lynn Berkebile
<PAGE>
EUSTIS OFFICE:
Amanda L. Leap
Erin M. Moore
Hilda Lozano
Michael Cox
Michael J. Price
Natasha L. Pender
Stephanie L. Freer
Tamika J. Rolle
Victoria M. Boren
Vivian R. Curry
WILDWOOD OFFICE:
Carla A. McAllister
Cheryl P. Yates
Crystal L. Schmidt
Dana L. Fields
Dennis R. Rogers
Elaine C. Buzzard
Latahna J. Green
Mona M. Riggs
Paula D. Williams
Shirley A. Davis
Sophia A. Hamilton
SOUTH LEESBURG OFFICE:
Brandi M. Simko
Carol A. Sieder
Cynthia M. Deeb
Eva J. Snead
Sandra L. Seaton
INVERNESS:
Jamie R. Daniels
Jean Reese
Judith Latmontagne
Karen A. Dixon
Lillian G. Russo
Phil P. Tompetrini
Suzanne Mission
Teresa A. Kuechle
FOUR CORNERS
Janis K. Spencer
Lori M. Farfaglia
Sarah L. Williams
Stephany M. Barr
Trinia C. McClendon
Whitney L. White
<PAGE>
BUSHNELL:
Betty J. Hewett
Inge Pelfrey
Jennifer Kitchens
Natalie D. Langford
Sylvie M. Zimmerman
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,313
<INT-BEARING-DEPOSITS> 17,026
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,909
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 503,942
<ALLOWANCE> 2,811
<TOTAL-ASSETS> 590,432
<DEPOSITS> 429,274
<SHORT-TERM> 30,914
<LIABILITIES-OTHER> 2,607
<LONG-TERM> 72,000
0
0
<COMMON> 44
<OTHER-SE> 55,593
<TOTAL-LIABILITIES-AND-EQUITY> 590,432
<INTEREST-LOAN> 35,315
<INTEREST-INVEST> 2,213
<INTEREST-OTHER> 1,084
<INTEREST-TOTAL> 38,612
<INTEREST-DEPOSIT> 17,083
<INTEREST-EXPENSE> 21,214
<INTEREST-INCOME-NET> 17,398
<LOAN-LOSSES> 719
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,313
<INCOME-PRETAX> 8,698
<INCOME-PRE-EXTRAORDINARY> 8,698
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,402
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 3.48
<LOANS-NON> 2,362
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,283
<CHARGE-OFFS> 210
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 2,811
<ALLOWANCE-DOMESTIC> 2,811
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
