U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
(Mark One)
   
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended September 30, 2004
   
OR
   
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to
 

Commission file number 0-22608

FFLC BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)
     
           Delaware   59-3204891
(State or Other Jurisdiction   (I.R.S. Employer
of Incorporation or Organization)   Identification No.)
     
800 North Boulevard West, Post Office Box 490420, Leesburg, Florida   34749-0420
(Address of Principal Executive Offices)    (Zip Code)
       
Registrant’s Telephone Number, Including Area Code  (352) 787-3311
 
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.
 
        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes |X| No |_|
 
        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act): Yes |X| No |_|
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
        Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
   
Common stock, par value $.01 per share 5,405,429 shares outstanding at October 21, 2004
   
  CONFORMED COPY



FFLC BANCORP, INC.

INDEX
   
Part I.   FINANCIAL INFORMATION  
   

   Item 1.  Financial Statements

Page


       Condensed Consolidated Balance Sheets -

          at September 30, 2004 (Unaudited) and at December 31, 2003

2

 

       Condensed Consolidated Statements of Income (Unaudited) -

          Three and Nine months ended September 30, 2004 and 2003

3

  

       Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) -

          Nine months ended September 30, 2004 and 2003

4-5

  

       Condensed Consolidated Statements of Cash Flows (Unaudited) -

          Nine months ended September 30, 2004 and 2003

6-7

  

       Notes to Condensed Consolidated Financial Statements (Unaudited)

8-13

  

       Review by Independent Registered Public Accounting Firm

14

  

       Report of Independent Registered Public Accounting Firm

15

  

   Item 2.   Management’s Discussion and Analysis of Financial Condition

 

       and Results of Operations

16-23

  

   Item 3.   Quantative and Qualitative Disclosures About Market Risk

24

  

   Item 4.  Controls and Procedures

24

    

Part II.   OTHER INFORMATION

    

   Item 1.   Legal Proceedings

25

  

   Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of

 

       Equity Securities

25

  

   Item 3.   Default upon Senior Securities

25

  

   Item 4.   Submission of Matters to a Vote of Security Holders

25

   

 

   Item 5.   Other Information

25

  

   Item 6.   Exhibits and Reports on Form 8-K

26

  

SIGNATURES

27


1



FFLC BANCORP, INC.

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Condensed Consolidated Balance Sheets
($ in thousands, except per share amounts)


  At
September 30,
2004
  At
December 31,
2003
 
           
  
 
 
            Assets (unaudited)        
             
Cash and due from banks $ 41,500     35,072  
Interest-earning deposits   23,559     27,088  


             
                  Cash and cash equivalents   65,059     62,160  
             
Securities available for sale   71,563     82,137  
Loans, net of allowance for loan losses of $6,118 in 2004
       and $5,490 in 2003   861,435     767,987  
Accrued interest receivable   3,897     3,849  
Premises and equipment, net   22,718     21,448  
Foreclosed assets   528     881  
Federal Home Loan Bank stock, at cost   7,650     6,900  
Deferred income taxes   1,508     1,134  
Other assets   5,335     1,418  


             
                  Total $ 1,039,693     947,914  


 
                  Liabilities and Stockholders’ Equity
 
Liabilities:
       Noninterest-bearing demand deposits   40,567     31,481  
       NOW and money-market accounts   182,616     161,527  
       Savings accounts   29,556     26,636  
       Certificates   517,468     485,945  


             
                  Total deposits   770,207     705,589  
             
Advances from Federal Home Loan Bank   153,000     133,000  
Other borrowed funds   15,099     17,786  
Junior subordinated debentures   5,155     5,155  
Accrued expenses and other liabilities   13,639     9,028  


             
                  Total liabilities   957,100     870,558  


 
Stockholders’ equity:
       Preferred stock, $.01 par value, 1,000,000 shares authorized,
              none outstanding        
       Common stock, $.01 par value, 15,000,000 shares authorized,
              6,408,802 in 2004 and 6,397,202 in 2003 shares issued   64     64  
       Additional paid-in-capital   32,283     31,837  
       Retained income   70,327     65,071  
       Accumulated other comprehensive income (loss)   (81 )   297  
       Treasury stock, at cost (1,003,373 shares in 2004 and
              1,000,048 shares in 2003)   (20,000 )   (19,913 )


             
                  Total stockholders’ equity   82,593     77,356  


             
                  Total $ 1,039,693     947,914  


 
See accompanying Notes to Condensed Consolidated Financial Statements.

2



FFLC BANCORP, INC.

Condensed Consolidated Statements of Income (Unaudited)
($ in thousands, except per share amounts)

         
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
 
 
  2004   2003   2004   2003  




Interest income:
       Loans $ 13,301     12,264     38,497     37,576  
       Securities   556     482     1,725     1,607  
       Other   170     160     414     629  




                         
                  Total interest income   14,027     12,906     40,636     39,812  




 
Interest expense:
       Deposits   3,742     3,916     11,175     12,561  
       Borrowed funds   2,132     2,010     6,039     6,224  




                         
                  Total interest expense   5,874     5,926     17,214     18,785  




                         
                  Net interest income   8,153     6,980     23,422     21,027  
                         
Provision for loan losses   389     330     1,122     1,124  




                         
                  Net interest income after provision for loan losses   7,764     6,650     22,300     19,903  




 
Noninterest income:
       Deposit account fees   395     276     1,010     762  
       Other service charges and fees   479     670     1,494     1,956  
       Net gain on sales of loans held for sale   111     381     391     1,011  
       Other   292     138     602     451  




                         
                  Total noninterest income   1,277     1,465     3,497     4,180  




Noninterest expense:
       Salaries and employee benefits   2,723     2,624     8,031     7,570  
       Occupancy expense   747     704     2,167     2,054  
       Data processing expense   407     333     1,187     886  
       Professional services   139     123     409     346  
       Advertising and promotion   116     111     469     364  
       Other   575     540     1,685     1,600  




                         
                  Total noninterest expense   4,707     4,435     13,948     12,820  




                         
Income before income taxes   4,334     3,680     11,849     11,263  
                         
                  Income taxes   1,650     1,387     4,487     4,250  




                         
Net income $ 2,684     2,293     7,362     7,013  




                         
Basic income per share $ .50     .42     1.37     1.30  




 
Weighted-average number of shares outstanding
       for basic   5,403,300     5,389,768     5,398,349     5,383,140  




                         
Diluted income per share $ .49     .42     1.34     1.28  




 
Weighted-average number of shares outstanding
       for diluted   5,486,033     5,482,560     5,484,992     5,481,431  




                         
Dividends per share $ .13     .13     .39     .33  




 
See accompanying Notes to Condensed Consolidated Financial Statements

3



FFLC BANCORP, INC.
   
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
    

Nine Months Ended September 30, 2004 and 2003
($ in thousands)

   
  Common Stock
  Additional Paid-In
Capital
      Accumulated
Other
Comprehensive
Income
  Total
Stockholders’
Equity
 
  Number of
Shares
Amount Treasury
Stock
Retained
Income







                                           
Balance at December 31, 2002   4,574,944   $ 46     31,638     (19,667 )   58,409     636     71,062  

 
Comprehensive income:
        Net income (unaudited)                   7,013         7,013  
 
        Change in unrealized gains on securities
                    available for sale, net of income tax
                    benefit of $203 (unaudited)                       (336 )   (336 )
 
        Change in unrealized loss on derivative
                    instrument, net of income tax
                    benefit of $10 (unaudited)                       (17 )   (17 )
 
                                           
Comprehensive income (unaudited)                                       6,660  

 
Net proceeds from the issuance of common
        stock, stock options exercised
        (unaudited)   26,715         191                 191  
                                           
Dividends paid (unaudited)                   (1,784 )       (1,784 )
 
Purchase of treasury stock, 8,379 shares
        (unaudited)               (247 )           (247 )
                                           
Three-for-two stock split (unaudited)   1,792,269     18     (18 )                







                                         
Balance at September 30, 2003 (unaudited)   6,393,928   $ 64     31,811     (19,914 )   63,638     283     75,882







      
(continued)

4



FFLC BANCORP, INC.
   
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited), Continued
   

Nine Months Ended September 30, 2004 and 2003
($ in thousands)

   
  Common Stock

  Additional Paid-In
Capital
      Accumulated
Other
Comprehensive
Income (Loss)
  Total Stockholders’
Equity
 
  Number of
Shares
Amount Treasury
Stock
Retained
Income







                                           
Balance at December 31, 2003   6,397,202   $ 64     31,837     (19,913 )   65,071     297     77,356  

 
Comprehensive income:
        Net income (unaudited)                   7,362         7,362  
 
        Change in unrealized gains on securities
                    available for sale, net of income tax
                    benefit of $247 (unaudited)                       (409 )   (409 )
 
        Change in unrealized loss on derivative
                    instrument, net of income tax
                    benefit of $19 (unaudited)                       31     31  

                                           
Comprehensive income (unaudited)                               6,984  

 
Net proceeds from the issuance of common
        stock, stock options exercised
        (unaudited)   11,600         132                 132  
                                           
Tax benefit from stock compensation plans           314                 314  
                                           
Dividends paid (unaudited)                   (2,106 )       (2,106 )
 
Purchase of treasury stock, 3,325 shares
        (unaudited)               (87 )           (87 )
                                           
Three-for-two stock split (unaudited)                            







                                           
Balance at September 30, 2004 (unaudited)   6,408,802   $ 64     32,283     (20,000 )   70,327     (81 )   82,593  







  
See accompanying Notes to Condensed Consolidated Financial Statements.

5



FFLC BANCORP, INC.
  
 Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

   
  Nine Months Ended
September 30,

 
  2004   2003  


Cash flows from operating activities:
    Net income $ 7,362     7,013  
    Adjustments to reconcile net income to net cash provided by operations:
        Provision for loan losses   1,122     1,124  
        Depreciation and amortization   1,009     989  
        Deferred income taxes   (146 )   (262 )
        Net amortization of premiums and discounts on securities   324     912  
        Net amortization of deferred loan fees and costs   108     216  
        Net gain on sales of loans held for sale   (391 )   (1,011 )
        Loans originated for sale   (10,644 )   (69,173 )
        Proceeds from sales of loans held for sale   16,921     71,767  
        Tax benefit from stock compensation plans   314      
        Decrease in accrued interest receivable   (48 )   727  
        Decrease (increase) in other assets   (3,917 )   38  
        Increase in accrued expenses and other liabilities   4,661     2,726  


             
                    Net cash provided by operating activities   16,675     15,066  


 
Cash flows from investing activities:
    Proceeds from principal repayments and maturities on securities
          available for sale   21,986     27,754  
    Purchase of securities available for sale   (12,392 )   (30,482 )
    Loan disbursements   (227,199 )   (186,426 )
    Principal repayments on loans   125,217     180,129  
    Purchase of premises and equipment, net   (2,279 )   (2,350 )
    Redemption (purchase) of Federal Home Loan Bank stock   (750 )   800  
    Net proceeds from sales of foreclosed assets   1,771     1,181  


             
                    Net cash used in investing activities   (93,646 )   (9,394 )


      
(continued)

6



FFLC BANCORP, INC.
  
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)

   
  Nine Months Ended
September 30,
 
 
 
  2004   2003  


Cash flows from financing activities:        
      Net increase in deposits $ 64,618     17,441  
      Net (decrease) increase in advances from Federal Home Loan Bank   20,000     (16,000 )
      Net increase in other borrowed funds   (2,687 )   849  
      Issuance of common stock   132     191  
      Purchase of treasury stock   (87 )   (247 )
      Cash dividends paid   (2,106 )   (1,784 )


             
                         Net cash provided by financing activities   79,870     450  


             
Net increase in cash and cash equivalents   2,899     6,122  
             
Cash and cash equivalents at beginning of period   62,160     69,394  


             
Cash and cash equivalents at end of period $ 65,059     75,516  


 
Supplemental disclosures of cash flow information-
      Cash paid during the period for:
             Interest $ 17,055     18,891  


             
             Income taxes $ 4,178     4,908  


 
Noncash investing and financing activities:
      Accumulated other comprehensive  income:
              Net change in unrealized gain on securities available for sale, net of tax $ (409 )   (336 )


             
             Net change in unrealized loss on derivative instrument, net of tax $ 31     (17 )


             
      Transfers from loans to foreclosed assets $ 1,743     1,418  


             
      Loans originated on sales of foreclosed assets $ 325     136  


             
      Loans funded by and sold to correspondent $ 8,697     12,264  


  

See accompanying Notes to Condensed Consolidated Financial Statements.


7



FFLC BANCORP, INC.
  
Notes to Condensed Consolidated Financial Statements (Unaudited)
   
1.  Basis of Presentation.  In the opinion of the management of FFLC Bancorp, Inc.(the “Holding Company”),
   the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position at September 30, 2004 and the results of operations for the three- and nine-month periods ended September 30, 2004 and 2003 and cash flows for the nine-month periods ended September 30, 2004 and 2003. The results of operations for the three-and nine-month periods ended September 30, 2004 are not necessarily indicative of results that may be expected for the year ending December 31, 2004.
 
  The condensed consolidated financial statements include the accounts of the Holding Company and its two subsidiaries, First Federal Savings Bank of Lake County (the “Bank”) and First Alliance Title, LLC and the Bank’s wholly-owned subsidiary, Lake County Service Corporation (together, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. First Alliance Title, LLC ceased operations in November 2003.
 
2.  Loans. The following table sets forth the composition of the Company’s loan portfolio in dollar amounts and
  percentages at the dates indicated (in thousands):
 
  At September 30, 2004 At December 31, 2003  
 
 
 
Amount   % of
Total
  Amount   % of
Total
 




First mortgage loans secured by:                
       One-to-four-family residential * $ 419,428     46.33 % $ 384,514     48.22 %
       Construction and land   75,819     8.37     43,575     5.47  
       Multi-family units   13,561     1.50     12,453     1.56  
       Commercial real estate, churches and other   184,149     20.34     167,381     20.99  




                         
               Total first mortgage loans   692,957     76.54     607,923     76.24  
                         
Consumer loans   174,410     19.26     155,438     19.50  
Commercial loans   38,005     4.20     33,990     4.26  




                         
               Total loans (1)   905,372     100.00 %   797,351     100.00 %

 
                         
Undisbursed portion of loans in process   (38,856 )         (24,573 )      
Net deferred loan costs   1,037           699        
Allowance for loan losses (2)   (6,118 )         (5,490 )      
 
       
 
                         
               Loans, net $ 861,435         $ 767,987        
 
       
 
    
* Includes $9.7 million and $15.6 million of loans classified as held for sale at September 30, 2004 and December 31, 2003, respectively.
 
(1)  Total loans outstanding by department consisted of the following ($ in thousands):
 
  At
 
  September 30, 2004 December 31, 2003  
 
 
 
Amount   % of
Total
  Amount   % of
Total
 




                         
Residential $ 414,552    45.79 % $ 372,551    46.72 %
Commercial 312,729    34.54    265,655    33.32  
Consumer 178,091    19.67    159,145    19.96  




                         
 $ 905,372    100.00 % $ 797,351    100.00 %




      
(continued)

8



FFLC BANCORP, INC.
   
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
   
2.   Loans, Continued.
 
(2)  Total allowance for loan losses by department consisted of the following ($ in thousands):
  At  
 
 
  September 30, 2004 December 31, 2003  
 
 
 
Amount   % to
Gross
Loans
  Amount   % to
Gross
Loans
 




                         
Residential $ 919    .22 % $ 911    .24 %
Commercial 3,798    1.21    3,371    1.27  
Consumer 1,401    .79    1,208    .76  


 
                         
 $ 6,118    .68 % $ 5,490    .69 %




   
  Total gross loans originated by department, including unfunded construction and line of credit loans, consist of the following (in thousands):
    
Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
  2004   2003   2004   2003  




                         
Residential$ 49,814    57,583    138,239    154,174  
Commercial 35,630    22,238    116,737    75,174  
Consumer 31,944    24,381    92,582    71,628  




                         
 $ 117,388    104,202    347,558    300,976  





3.  Loan Impairment and Loan Losses.  The Company prepares a quarterly review of the adequacy of the
  allowance for loan losses to identify and value impaired loans in accordance with guidance in the Statements of Financial Accounting Standards No. 114 and 118.
 
  An analysis of the change in the allowance for loan losses was as follows (in thousands):
    
Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
  2004   2003   2004   2003  




                         
Beginning balance $ 5,891    5,426    5,490    5,181  
Provision for loan losses 389    330    1,122    1,124  
Net loans charged-off (162 )  (345 )  (494 )  (894 )




                         
Ending balance $ 6,118    5,411    6,118    5,411  




 
(continued)

9



FFLC BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

   
3.  Loan Impairment and Loan Losses, Continued. The following summarizes the amount of impaired loans,
  all of which were collateral dependent (in thousands):
   
At  

 
September 30,   December 31,  
 
 
 
  2004   2003  
 
 
 
Loans identified as impaired:        
       Gross loans with no related allowance for losses $ 731     2,971  
       Gross loans with related allowance for losses recorded   400     400  
       Less: Allowances on these loans   (50 )   (50 )


             
Net investment in impaired loans $ 1,081     3,321  


   
The average net investment in impaired loans and interest income recognized and received on impaired loans
  was as follows (in thousands):
   
Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
 
 
2004   2003   2004   2003  
 
 
 
 
 
                         
Average net investment in impaired loans $ 2,211     3,149     2,958     1,742  




                         
Interest income recognized on impaired loans $ 4     64     16     73  




                         
Interest income received on impaired loans $ 4     64     16     73  




   
    Nonaccrual and past due loans were as follows (in thousands):
   
At  
 
 
September 30,   December 31,  


2004 2003


             
Nonaccrual loans $ 3,170     5,287  
Accruing loans past due ninety days or more   159      


             
       Total $ 3,329     5,287  


   
The decrease in impaired and nonaccrual loans during the quarter mainly resulted from the pay-down of
  one agricultural loan that had been in nonaccrual and designated as impaired.
   
  (continued)

10



FFLC BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued


4.  Income Per Share of Common Stock.  Basic income per share of common stock has been computed by
    dividing the net income for the period by the weighted-average number of shares outstanding. Shares of common stock purchased by the Retention and Recognition Plan (“RRP”) are only considered outstanding when the shares are released or committed to be released for allocation to participants. Diluted income per share is computed by dividing net income by the weighted-average number of shares outstanding including the dilutive effect of stock options computed using the treasury stock method. All per share amounts reflect the three-for-two stock split declared on February 14, 2003. The following table presents the calculation of basic and diluted income per share of common stock for the periods indicated:
     
Three Months Ended
September 30,
Nine Months Ended
September 30,
 
 
 
2004
  2003
  2004
  2003
 
Weighted-average shares of common stock issued                
     and outstanding before adjustments for
     RRP and common stock options   5,403,300     5,393,871     5,399,859     5,387,243  
 
Adjustment to reflect the effect of unallocated
     RRP average shares       (4,103 )   (1,510 )   (4,103 )




 
Weighted-average shares for basic income per
     share   5,403,300     5,389,768     5,398,349     5,383,140  




                         
Basic income per share $ .50     .42     1.37     1.30  




 
Total weighted-average common shares and
     equivalents outstanding for basic income
     per share computation   5,403,300     5,389,768     5,398,349     5,383,140  
 
Additional dilutive shares using the average market
     value for the period utilizing the treasury stock
     method regarding stock options   82,733     92,792     86,643     98,291  




 
Weighted-average shares and equivalents
     outstanding for diluted income per share   5,486,033     5,482,560     5,484,992     5,481,431  




                         
Diluted income per share $ .49     .42     1.34     1.28  




   
5.   Stock Split. On February 14, 2003, the Board of Directors declared a three-for-two stock split in the nature
    of a dividend on the common shares outstanding on February 28, 2003, which was distributed on March 14, 2003. In lieu of fractional shares resulting from the split, stockholders received cash based on the closing price on the record date.
     
    (continued)

11



FFLC BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 
6.  Stock Option Plans.  During 2002, the Company adopted a new stock option plan (the “2002 Plan”) which
  authorizes the Company to issue up to 375,000 shares (adjusted) in connection with options granted to directors, officers or employees of the Company. The terms and vesting periods will be determined as each option is granted, but the option price cannot be less than the then current market value of the common stock at the grant date. At September 30, 2004, 367,447 options remain available for future grants under the 2002 Plan.
   
     The Company also has a 1993 stock option plan (the “1993 Plan”) under which common shares are
  authorized to be issued in connection with options granted to directors, officers and employees of the Company. Options granted under the 1993 Plan are exercisable at the market price of the common stock at the date of grant. Such incentive stock options granted to officers and employees are exercisable in three equal annual installments, with the first installment becoming exercisable one year from the date of grant. Options granted to outside directors are exercisable immediately, but any common shares obtained from exercise of the options may not be sold prior to one year from the date of grant. All options expire at the earlier of ten years from the date of grant for officers and employees or twenty years for directors or one year following the date which the outside director, officer or employee ceases to serve in such capacity. All authorized options under the 1993 Plan have been granted.
   
     The following is a summary of stock option transactions during the nine-month periods ended September
    30, 2004 and 2003 (all options and option price per share information has been adjusted to reflect the three-for-two stock split in 2003):
     
  Number
of Options
  Range of
Exercise Prices
  Weighted-
Average
Exercise
Price
 
 
 
 
 
                   
Outstanding, December 31, 2002   152,327   $ 4.00-14.17     6.61  
Exercised   (28,828 )   4.00-11.75     6.03  

 
                   
Outstanding, September 30, 2003   123,499   $ 4.00-14.17     6.99  



                   
Outstanding, December 31, 2003   170,796   $ 4.00-26.74     12.61  
Granted   7,553     25.36     25.36  
Exercised   (11,600 )   8.00-26.74     11.44  

 
                   
Outstanding, September 30, 2004   166,749   $ 4.00-26.74     13.27  



     
(continued)

12



FFLC BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

   
6.  Stock Option Plans, Continued.   Statement of Financial Accounting Standards (SFAS) No. 123,
    Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (collectively, “SFAS 123”) requires pro forma fair value disclosures if the intrinsic value method is being utilized to value stock-based compensation awards. For purposes of pro forma disclosure, the estimated fair value of stock options granted is included in expense in the period vesting occurs. The proforma information has been determined as if the Company had accounted for its stock options under the fair value method of SFAS 123. The Company accounts for the stock option plans under the recognition and measurement principles of APB No. 25. No stock-based employee compensation cost is reflected in net income during the periods presented, as all stock options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and basic and diluted income per share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation ($ in thousands, except per share data):
     
Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
 
 
2004
  2003
  2004
  2003
 
                         
Weighted-average-grant-date fair value of                
     stock options issued during the period $ N/A     N/A     42     N/A  




                         
Net income, as reported $ 2,684     2,293     7,362     7,013  
 
Deduct: Total stock-based employee compensation
     determined under the fair value based method
     for all awards, net of related tax benefit   (38 )       (142 )




                         
Proforma net income $ 2,646     2,293     7,220     7,013  




 
Basic income per share:
     As reported $ .50     .42     1.37     1.30  




                         
     Proforma $ .49     .42     1.34     1.30  




 
Diluted income per share:
     As reported $ .49     .42     1.34     1.28  




                         
     Proforma $ .48     .42     1.32     1.28  




   
7.  Reclassifications.   Certain amounts in the 2003 condensed consolidated financial statements have been
  reclassified to conform to the 2004 presentation.

13



FFLC BANCORP, INC.

Review by Independent Registered Public Accounting Firm

 
Hacker, Johnson & Smith PA, the Company’s independent registered public accounting firm, have made a limited review of the financial data as of September 30, 2004, and for the three- and nine-month periods ended September 30, 2004 and 2003 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.
 
Their report furnished pursuant to Article 10 of Regulation S-X is included herein.

14



Report of Independent Registered Public Accounting Firm

 
FFLC Bancorp, Inc.
Leesburg, Florida:
 

        We have reviewed the accompanying condensed consolidated balance sheet of FFLC Bancorp, Inc. and Subsidiaries (the “Company”) as of September 30, 2004, the related condensed consolidated statements of income for the three- and nine-month periods ended September 30, 2004 and 2003 and the related condensed consolidated statements of changes in stockholders’ equity and cash flows for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

        We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

        Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

        We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board, the consolidated balance sheet as of December 31, 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated January 16, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 
/s/ Hacker, Johnson & Smith PA
 
HACKER, JOHNSON & SMITH PA
Orlando, Florida
October 18, 2004

15



FFLC BANCORP, INC.

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

 
General
 
  FFLC Bancorp, Inc., (the “Holding Company”) is the holding company for First Federal Savings Bank of Lake County (the “Bank”) and the Bank’s wholly-owned subsidiary, Lake County Service Corporation (“LCSC”) (together, the “Company”). The Company’s consolidated results of operations are primarily those of the Bank.
 
  The Bank’s principal business continues to be attracting retail deposits from the general public and investing those deposits, together with borrowings and principal repayments on loans and investments and funds generated from operations in loans. Those loans are primarily loans secured by first mortgages on one-to-four-family homes or commercial real estate. The Bank also makes commercial and consumer loans and, to a lesser extent, construction, land and multi-family mortgage loans. In addition, the Bank holds investments permitted by federal laws and regulations including securities issued by the U.S. Government and its agencies. The Bank’s revenues are derived principally from interest on its loan and securities portfolios. The Bank is a member of the Federal Home Loan Bank (“FHLB”) system and its deposits are insured up to the applicable limits by the Savings Association Insurance Fund (“SAIF”) of the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is subject to regulation by the Office of Thrift Supervision (the “OTS”) as its chartering agency, and the FDIC as its deposit insurer.
 
  The Bank has sixteen full-service banking facilities in Lake, Sumter, Citrus and Marion Counties, Florida. The Bank’s sixteenth branch opened during the second quarter of 2004 in Sumter County.
 
  The Company’s results of operations depend primarily on its net interest income, which is the difference between the interest income earned primarily on its loan and securities portfolios, and its cost of funds, consisting of the interest paid on its deposits and borrowings. The Company’s operating results are also affected, to a lesser extent, by fee income. The Company’s operating expenses consist primarily of salaries and employee benefits, occupancy expenses, and other general and administrative expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies, and actions of regulatory authorities.

16



FFLC BANCORP, INC.

 
Off-Balance Sheet Arrangements
 
  The Company’s primary sources of funds include proceeds from payments and prepayments on mortgage loans and mortgage-backed securities, proceeds from maturities of investment securities, and increases in deposits and advances from the Federal Home Loan Bank and other borrowed funds. 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.
 
  To meet the financing needs of its customers, the Company is a party to financial instruments with off-balance sheet risk in the normal course of business. In the event of nonperformance by the other party to the off-balance sheet financial instrument, the Company’s exposure to credit loss is the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Based on it’s capital resources shown below, the Company believes that it will have sufficient funds available to meet its commitments. A summary of the contractual amounts of the Company’s financial instruments with off-balance sheet risk at September 30, 2004 follows (in thousands):
         
  Commitments to extend credit $ 24,842  

         
  Unused lines of credit $ 108,583  

         
  Undisbursed portion of loans in process $ 38,856  

         
  Standby letters of credit $ 2,997  

 
Capital Resources
 
  At September 30, 2004, certificates of deposit which were scheduled to mature in one year or less totaled $259.8 million. Based on past experience, management believes that a significant portion of those funds will remain with the Company to meet it’s commitments.
 
Regulatory Capital Requirements
   
  The Bank is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can result in regulators initiating certain mandatory, and possibly additional discretionary, actions that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.
 
  Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts (set forth in the table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined). Management believes that, as of September 30, 2004, the Bank meets all capital adequacy requirements to which it is subject.

17



FFLC BANCORP, INC.

As of September 30, 2004, the most recent notification from the OTS categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum tangible, Tier I (core), Tier I (risk-based) and total risk-based capital percentages as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Bank’s actual capital amounts and percentages at September 30, 2004 are also presented in the table.


  Actual   Minimum
For Capital
Adequacy
Purposes
  To Be Well
Capitalized
For Prompt
Corrective Action
Provisions
 
 
 
 
 
  %   Amount   %   Amount   %   Amount  
 
 
 
 
 
 
 
              ($ in thousands)  
Stockholders equity,                        
    and ratio to total                                    
    assets   8.19 % $ 85,210      
Less: investment in
    nonincludable
    subsidiary         (4,449 )
Less: unrealized gain on
    securities available for sale         (58 )
 
   
Tangible capital,  
    and ratio to adjusted
    total assets   7.79 % $ 80,703     1.5 % $ 15,531  


 
 
Tier 1 (core) capital, and
    ratio to adjusted
    total assets   7.79 % $ 80,703     3.0 % $ 31,061     5.0 % $ 51,769  
 


 
Tier 1 capital, and ratio
    to risk-weighted assets   11.02 %   80,703     4.0 % $ 29,206     6.0 % $ 43,959  
   

 
Tier 2 capital (allowance for
    loan losses)         6,037  

 
Total risk-based capital,
    and ratio to risk-
    weighted assets   11.84 % $ 86,740     8.0 % $ 58,611     10.0 % $ 73,264  
 


             
Total assets       $ 1,039,887  
       
 
             
Adjusted total assets       $ 1,035,372  
       
 
             
Risk-weighted assets       $ 732,642  
       
 

18



FFLC BANCORP, INC.

The following table shows selected ratios for the periods ended or at the dates indicated:


Nine Months
Ended
September 30,
2004

 

Year Ended
December 31,
2003
Nine Months
Ended
September 30,
2003
   
   
   
 
Average equity as a percentage                  
     of average assets   8.08 %   8.02 %   7.96 %
                   
Total equity to total assets at end of period   7.94 %   8.16 %   8.20 %
                   
Return on average assets (1)   .99 %   .98 %   1.01 %
                   
Return on average equity (1)   12.24 %   12.23 %   12.63 %
                   
Noninterest expense to average assets (1)   1.87 %   1.86 %   1.84 %
                   
Nonperforming assets to total assets                  
     at end of period   .37 %   .65 %   .64 %
                   
Operating efficiency ratio (1)   51.81 %   51.66 %   50.86 %
                   

(1) Annualized for the nine months ended September 30, 2004 and 2003.


    At
September 30,
2004
    At
December 31,
2003
    At
September 30,
2003
 
   
   
   
 
Weighted-average interest rates:                  
      Interest-earning assets:                  
            Loans   6.28 %   6.45 %   6.57 %
            Securities   3.12 %   3.24 %   3.90 %
            Other interest-earning assets   2.23 %   1.45 %   1.32 %
                  Total interest-earning assets   5.92 %   5.96 %   6.03 %
      Interest-bearing liabilities:                  
            Interest-bearing deposits   2.20 %   2.22 %   2.37 %
            Borrowed funds   4.85 %   4.93 %   5.13 %
                  Total interest-bearing liabilities   2.59 %   2.70 %   2.80 %
      Interest-rate spread   3.33 %   3.26 %   3.23 %

Changes in Financial Condition

Total assets increased $91.8 million or 9.68%, from $947.9 million at December 31, 2003 to $1,039.7 million at September 30, 2004, primarily as a result of a $93.4 million increase in net loans. Deposits increased $64.6 million from $705.6 million at December 31, 2003 to $770.2 million at September 30, 2004 and advances from the Federal Home Loan Bank increased $20.0 million to $153.0 million at September 30, 2004 from $133.0 million at December 31, 2003. The $5.2 million net increase in stockholders’ equity during the nine months ended September 30, 2004 resulted primarily from net income of $7.4 million less dividends paid of $2.1 million.


19



FFLC BANCORP, INC.

Results of Operations

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include certain fees which are considered to constitute adjustments to yields.


  Three Months Ended September 30,  
 
 
  2004   2003  
 
 
 
                         
  Average
Balance
  Interest
and
Dividends
  Average
Yield/
Cost
  Average
Balance
  Interest
and
Dividends
  Average
Yield/
Cost
 
 
 
 
 
 
 
 
  ($ in Thousands)  
Interest-earning assets:                        
    Loans $ 848,962     13,301     6.27 % $ 736,183     12,264     6.66 %
    Securities   80,005     556     2.78     87,031     482     2.22  
    Other interest-earning assets (1)   28,295     170     2.40     42,478     160     1.51  
 
 
       
 
       
                                     
        Total interest-earning assets   957,262     14,027     5.86     865,692     12,906     5.96  
     
           
       
                                     
Noninterest-earning assets   67,486                 57,500            
 
           
           
                                     
        Total assets $ 1,024,748               $ 923,192            
 
           
           
 
Interest-bearing liabilities:
    NOW and money-market accounts   181,072     168     .37     150,907     163     .43  
    Savings accounts   28,911     34     .47     25,804     37     .57  
    Certificates   504,488     3,540     2.81     478,979     3,716     3.10  
    Federal Home Loan Bank advances   153,000     2,008     5.25     133,000     1,891     5.69  
    Other borrowed funds (2)   21,824     124     2.27     21,944     119     2.17  
 
 
       
 
       
                                     
        Total interest-bearing liabilities   889,295     5,874     2.64     810,634     5,926     2.92  
     
           
       
                                     
Noninterest-bearing deposits   42,591                 26,059            
Noninterest-bearing liabilities   10,991                 10,902            
Stockholders’ equity   81,871                 75,597            
 
           
           
                                     
        Total liabilities and stockholders’ equity $ 1,024,748               $ 923,192            
 
           
           
                                     
Net interest income       $ 8,153               $ 6,980      
     
           
       
                                     
Interest-rate spread (3)               3.22 %               3.04 %
         
         
 
                                     
Net interest-earning assets, net margin (4) $ 67,967           3.41 % $ 55,058           3.23 %
 
     
 
     
 
 
Ratio of interest-earning assets to interest-bearing
    liabilities   1.08                 1.07            
 
           
           

(1)

Includes interest-bearing deposits and Federal Home Loan Bank stock.

   
(2)

Includes other borrowed funds and junior subordinated debentures.

   
(3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
   
(4) Net margin is annualized net interest income divided by average interest-earning assets.

20



FFLC BANCORP, INC.

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest and dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include certain fees which are considered to constitute adjustments to yields.


  Nine Months Ended September 30,  
 
 
  2004   2003  
 
 
 
                         
  Average
Balance
  Interest
and
Dividends
  Average
Yield/
Cost
  Average
Balance
  Interest
and
Dividends
  Average
Yield/
Cost
 
 
 
 
 
 
 
 
  ($ in Thousands)  
Interest-earning assets:                        
    Loans $ 816,654     38,497     6.29 % $ 738,253     37,576     6.79 %
    Securities   83,029     1,725     2.77     89,478     1,607     2.39  
    Other interest-earning assets (1)   26,684     414     2.07     47,718     629     1.76  
 
 
       
 
       
                                     
        Total interest-earning assets   926,367     40,636     5.85     875,449     39,812     6.06  
     
           
       
                                     
Noninterest-earning assets   66,944                 54,377              
 
           
           
                                     
        Total assets $ 993,311               $ 929,826              
 
             
             
 
Interest-bearing liabilities:
    NOW and money-market accounts   173,592     499     .38     147,798     617     .56  
    Savings accounts   27,758     104     .50     25,789     118     .61  
    Certificates   498,991     10,572     2.82     485,195     11,826     3.25  
    Federal Home Loan Bank advances   141,704     5,675     5.34     141,136     5,856     5.53  
    Other borrowed funds (2)   22,032     364     2.20     21,117     368     2.32  
 
 
       
 
       
                                     
        Total interest-bearing liabilities   864,077     17,214     2.66     821,035     18,785     3.05  
     
           
       
                                     
Noninterest-bearing deposits   38,179                 24,006              
Noninterest-bearing liabilities   10,845                 10,738              
Stockholders’ equity   80,210                 74,047              
 
         
         
                                     
        Total liabilities and stockholders’ equity $ 993,311               $ 929,826              
 
         
         
                                     
Net interest income       $ 23,422               $ 21,027        
     
           
       
                                     
Interest-rate spread (3)             3.19 %             3.01 %
         
         
 
                                     
Net interest-earning assets, net margin (4) $ 62,290         3.37 % $ 54,414         3.20 %
 
     
 
     
 
Ratio of interest-earning assets to
    interest-bearing liabilities   1.07               1.07              
 
           
           

  (1)

Includes interest-bearing deposits and Federal Home Loan Bank stock.

           
  (2)

Includes other borrowed funds and junior subordinated debentures.

          
  (3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
           
  (4) Net margin is annualized net interest income divided by average interest-earning assets.

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FFLC BANCORP, INC.

Comparison of the Three-Month Periods Ended September 30, 2004 and 2003

 
General Operating Results.  Net income for the three-month period ended September 30, 2004 was $2.7
  million, or $.50 per basic and $.49 per diluted share, compared to $2.3 million, or $.42 per basic share and diluted share, for the comparable period in 2003. All per share information has been adjusted to reflect the three-for-two stock split in 2003. The increase in net income was primarily the result of an increase in net interest income, partially offset by a decrease in noninterest income and an increase in noninterest expense.
   
Interest Income.  Interest income increased $1.1 million to $14.0 million for the three-month period ended
  September 30, 2004. The increase was due to a $91.6 million increase in average interest-earning assets outstanding for the three-month period ended September 30, 2004 compared to the 2003 period, and was partially offset by a decrease in the average yield earned on interest-earning assets from 5.96% for the three-month period ended September 30, 2003 to 5.86% for the three-month period ended September 30, 2004.
   
Interest Expense.  Interest expense decreased $52,000 or .9%, from $5.93 million for the three-month period
  ended September 30, 2003 to $5.87 million for the three-month period ended September 30, 2004. Average interest-bearing deposits outstanding during the three-month period ended September 30, 2004 increased $58.8 million and was offset by a decrease in the average cost of interest-bearing deposits from 2.39% for the three-month period ended September 30, 2003 to 2.10% for the comparable 2004 period. Average borrowings increased $19.9 million from $154.9 million during the three-month period ended September 30, 2003 to $174.8 million for the comparable 2004 period, and was offset by a decrease in the average cost of borrowed funds from 5.19% for the three-month period ended September 30, 2003 to 4.88% for the comparable 2004 period.
   
Provision for Loan Losses. The provision for loan losses is charged to income to increase the total allowance to
  a level deemed appropriate by management. It is based upon the volume and type of lending conducted by the Company, the Company’s charge-off experience, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the collectibility of the Company’s loan portfolio. The Company recorded provisions for loan losses for the three-month periods ended September 30, 2004 and 2003 of $389,000 and $330,000, respectively. Net loans charged off for the three-month periods ended September 30, 2004 and 2003 were $162,000 and $345,000, respectively. Management believes that the allowance for loan losses, which was $6.1 million or .68% of gross loans at September 30, 2004 is adequate.
   
Noninterest Income.  Noninterest income decreased $188,000 or 12.8% from $1.5 million during the three-
  month period ended September 30, 2003 to $1.3 million during the 2004 period. The decrease was partly due to a $270,000 decrease in gain on sales of loans held for sale and a decrease of $191,000 in other service charges and fees. Those decreases were offset by a $119,000 increase in deposit account fees and a $154,000 increase in other income.
   
Noninterest Expense.  Noninterest expense increased by $272,000 or 6.1% from $4.4 million for the three-
  month period ended September 30, 2003 to $4.7 million for the three-month period ended September 30, 2004. The increase was primarily due to increases of $99,000 in salaries and employee benefits, $74,000 in data processing expense, and $43,000 in occupancy expense related to the overall growth of the Company.
   
Income Taxes.   Income taxes increased from $1.4 million for the three-month period ended September 30,
  2003 (an effective tax rate of 37.7%) to $1.7 million (an effective tax rate of 38.1%) for the corresponding period in 2004.

22



FFLC BANCORP, INC.

Comparison of the Nine-Month Periods Ended September 30, 2004 and 2003

 
General Operating Results.  Net income for the nine-month period ended September 30, 2004 was $7.4
  million, or $1.37 per basic share and $1.34 per diluted share, compared to $7.0 million, or $1.30 per basic share and $1.28 per diluted share, for the comparable period in 2003. All per share information has been adjusted to reflect the three-for-two stock split in 2003. The increase in net income was primarily a result of an increase of net interest income and a decrease in noninterest income, offset by an increase in noninterest expense.
   
Interest Income.  Interest income increased $824,000 to $40.6 million for the nine-month period ended
  September 30, 2004. The increase was due to a $50.9 million or 5.8% increase in average interest-earning assets outstanding for the nine months ended September 30, 2004 compared to the 2003 period, offset by a decrease in the average yield earned on interest-earning assets from 6.06% for the nine months ended September 30, 2003 to 5.85% for the nine months ended September 30, 2004.
   
Interest Expense.  Interest expense decreased $1.6 million or 8.4%, from $18.8 million for the nine-month
  period ended September 30, 2003 to $17.2 million for the nine-month period ended September 30, 2004. The decrease was primarily due to a decrease in the average cost of interest-bearing liabilities from 3.05% for the nine months ended September 30, 2003 to 2.66% for the comparable 2004 period, offset by an increase of $43.0 million in average interest-bearing liabilities outstanding. Average interest-bearing deposits increased $41.6 million from $658.8 million outstanding during the nine months ended September 30, 2003 to $700.3 million outstanding during the comparable period for 2004. Average borrowings increased $1.5 million from $162.3 million during the nine months ended September 30, 2003 to $163.7 million for the comparable 2004 period.
   
Provision for Loan Losses. The provision for loan losses is charged to income to increase the total allowance
  to a level deemed appropriate by management. It is based upon the volume and type of lending conducted by the Company, the Company’s charge-off experience, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the collectibility of the Company’s loan portfolio. The Company recorded provisions for loan losses for the nine-month periods ended September 30, 2004 and 2003 of $1.1 million. Net loans charged off for the nine-month periods ended September 30, 2004 and 2003 were $494,000 and $894,000, respectively. Management believes that the allowance for loan losses, which was $6.1 million or .68% of gross loans at September 30, 2004 is adequate.
   
Noninterest Income.  Noninterest income decreased $683,000 or 16.3% from $4.2 million during the 2003
  period to $3.5 million during the 2004 period. The decrease was mainly due to a $620,000 decrease in gain on sale of loans held for sale and a decrease in other service charges and fees.
   
Noninterest Expense.  Noninterest expense increased by $1.1 million or 8.8% from $12.8 million for the nine-
  month period ended September 30, 2003 to $13.9 million for the nine-month period ended September 30, 2004. The increase was primarily due to increases of $461,000 in salaries and employee benefits, $113,000 in occupancy expense and $301,000 in data processing expense related to the overall growth of the Company.
   
Income Taxes.   Income taxes increased from $4.3 million for the nine-month period ended September 30, 2003
  (an effective tax rate of 37.7%) to $4.5 million (an effective tax rate of 37.9%) for the corresponding period in 2004.

23



FFLC BANCORP, INC.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
  Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest-rate risk inherent in its lending and deposit taking activities. The Company has little or no risk related to trading accounts, commodities or foreign exchange.
   
  Management actively monitors and manages its interest rate risk exposure. The primary objective in managing interest-rate risk is to limit, within established guidelines, the adverse impact of changes in interest rates on the Company’s net interest income and capital, while adjusting the Company’s asset-liability structure to obtain the maximum yield-cost spread on that structure. Management relies primarily on its asset-liability structure to control interest rate risk. However, a sudden and substantial increase in interest rates could adversely impact the Company’s earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. There have been no significant change in the Company’s market risk exposure since December 31, 2003. The Company does not believe that the interest rate swap entered into in September 2002 exposes the Company to significant interest rate risk.
   
Item 4. Controls and Procedures
     
  a. Evaluation of disclosure controls and procedures.  The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive and Chief Financial officers of the Company concluded that the Company’s disclosure controls and procedures were adequate.
     
  b. Changes in internal controls.  The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial officers.

24



FFLC BANCORP, INC.

Part II - OTHER INFORMATION

 
Item 1.       Legal Proceedings
 
  There are no material pending legal proceeding to which FFLC Bancorp, Inc. or any of its subsidiaries is a party or to which any of their property is subject.
   
Item 2.       Changes in Securities and Use of Proceeds
 
Common Stock.   The following table shows information relating to the repurchase of shares of its common
  stock by the Holding Company during the three months ended September 30, 2004:

  Total Number
of Shares
Purchased
  Average
Price Paid
Per Share
  Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
  Maximum
Number
of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
 
   
 
 
 
 
                           
  July     $         230,698  
  August               230,698  
  September   1,350     26.93     1,350     229,348  
   
       
       
                           
          Total   1,350   $ 26.93     1,350     229,348  





Junior Subordinated Debentures.  The Holding Company has the right at one or more times, unless an event
  of default exists under the floating rate junior subordinated deferrable interest debentures due September 26, 2032 (the “Debentures”), to defer interest payments on the Debentures for up to twenty consecutive quarterly periods. During that time, the Holding Company will be prohibited from declaring or paying cash dividends on its common stock.

Item 3.       Defaults upon Senior Securities
 
Not applicable
   
Item 4.       Submission of Matters to a Vote of Security Holders
   
Not applicable
 
Item 5.       Other Information
 
Not applicable

25



FFLC BANCORP, INC.
 
Item 6.       Exhibits and Reports on Form 8-K
 
         (a)  The following exhibits are filed as part of this report.
 
3.1 Certificate of Incorporation of FFLC Bancorp, Inc.*
   
3.2 Bylaws of FFLC Bancorp, Inc. ***
   
4.0 Stock Certificate of FFLC Bancorp, Inc.*
   
10.1 First Federal Savings Bank of Lake County Recognition and Retention Plan**
   
10.2 First Federal Savings Bank of Lake County Recognition and Retention Plan for Outside Directors**
   
10.3 FFLC Bancorp, Inc. Incentive Stock Option Plans for Officers and Employees**
   
10.4 FFLC Bancorp, Inc. Stock Option Plan for Outside Directors**
   
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
   
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
   
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
   
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
 
* Incorporated herein by reference into this document from the Exhibits to Form S-1, Registration Statement, initially filed on September 27, 1993, Registration No. 33-69466.
   
** Incorporated herein by reference into this document from the Proxy Statement for the Annual Meeting of Stockholders held on May 12, 1994.
   
*** Incorporated herein by reference into this document from the June 30, 2004 FFLC Bancorp, Inc. Form 10-Q filed July 23, 2004.
 
(b) The following Forms 8-K filed during the three-month period ended September 30, 2004:
 
On July 9, 2004, the Company filed a Form 8-K to disclose that the Company had issued a press release to announce the Company’s second quarter earnings and declaration of a dividend.
 
On July 23, 2004, the Company filed a Form 8-K to disclose that the Company had issued a press release to announce that it will join over 85 other community banks participating in the 2004 Keefe, Bruyette & Woods 5th Annual Community Bank Investor Conference in New York.

26



FFLC BANCORP, INC.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date:       October 21, 2004
   
    FFLC Bancorp, Inc.
     
     
  By:     /s/ Stephen T. Kurtz 
    ——————————————
  Name:  Stephen T. Kurtz, President and
    Chief Executive Officer
     
     
  By:  /s/ Paul K. Mueller
    ——————————————
  Name:  Paul K. Mueller, Executive Vice
    President and Treasurer

27