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UNITED STATES
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, 2004            | 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
  or organization)    |  | (I.R.S. Employer
  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. |_|

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES 
|X|   NO  |_|

The aggregate market value of the voting and nonvoting common equity
held by nonaffiliates was $107,080,935 computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of
such common equity, as of June 30, 2004, the last business day of the
Registrants most recently completed second fiscal quarter.

The Registrant had 5,411,702 shares outstanding as of February 28,
2005.

DOCUMENTS INCORPORATED BY REFERENCE

|1. | Portions of
  the Annual Report to Stockholders for the Fiscal Year Ended December 31,
  2004. (Part II and IV)
|-- | ---------------------------------------------------------------------------------------------------------------
|2. | Portions of
  Proxy Statement for the 2005 Annual Meeting of Stockholders. (Part III)                          

(CONFORMED COPY)

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INDEX

|               |                                                                                                                |                                                         | Page 
|-------------- | -------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | -----
|               |                                                                                                                |                                                         |      
|PART I         |                                                                                                                |                                                         |      
|               |                                                                                                                |                                                         |      
|Item I.        | Description of Business                                                                                        |                                                         |      
|               |                                                                                                                |                                                         |      
|               |                                                                                                                | Business                                                |      
|               |                                                                                                                | Acquisition                                             |      
|               |                                                                                                                | Market Area and Competition                             |      
|               |                                                                                                                | Market Risk                                             |      
|               |                                                                                                                | Lending Activities                                      |      
|               |                                                                                                                | Asset Quality                                           |      
|               |                                                                                                                | Investment Activities                                   |      
|               |                                                                                                                | Mortgage-Backed Securities                              |      
|               |                                                                                                                | Investment Securities                                   |      
|               |                                                                                                                | Sources of Funds                                        |      
|               |                                                                                                                | Borrowings                                              |      
|               |                                                                                                                | Off-Balance Sheet and Aggregate Contractual Obligations |      
|               |                                                                                                                | Subsidiary Activities                                   |      
|               |                                                                                                                | Personnel                                               |      
|               |                                                                                                                | Regulation and Supervision                              |      
|               |                                                                                                                | Federal and State Taxation                              |      
|               |                                                                                                                |                                                         |      
|Item 2.        | Properties                                                                                                     |                                                         | 32-33
|               |                                                                                                                |                                                         |      
|Item 3.        | Legal Proceedings                                                                                              |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 4.        | Submission of Matters to a Vote of Security Holders                                                            |                                                         | 34   
|               |                                                                                                                |                                                         |      
|PART II        |                                                                                                                |                                                         |      
|               |                                                                                                                |                                                         |      
|Item 5.        | Market for Registrants Common Equity, Related Stockholder Matters
  and Issuer Purchases of Equity Securities |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 6.        | Selected Financial Data                                                                                        |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 7.        | Managements Discussion and Analysis of Financial Condition and
  Results of Operations                        |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 7A.       | Quantitative and Qualitative Disclosure About Market Risk                                                      |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 8.        | Financial Statements and Supplementary Data                                                                    |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 9.        | Changes In and Disagreements with Accountants on Accounting and
  Financial Disclosure                         |                                                         | 34   
|               |                                                                                                                |                                                         |      
|Item 9A.       | Controls and Procedures                                                                                        |                                                         | 35   
|               |                                                                                                                |                                                         |      
|Item 9B.       | Other Information                                                                                              |                                                         | 35   
|               |                                                                                                                |                                                         |      
|PART III       |                                                                                                                |                                                         |      
|               |                                                                                                                |                                                         |      
|Item 10.       | Directors and Executive Officers of the Registrant                                                             |                                                         | 36   
|               |                                                                                                                |                                                         |      
|Item 11.       | Executive Compensation                                                                                         |                                                         | 36   
|               |                                                                                                                |                                                         |      
|Item 12.       | Security Ownership of Certain Beneficial Owners and Management                                                 |                                                         | 36   
|               |                                                                                                                |                                                         |      
|Item 13.       | Certain Relationships and Related Transactions                                                                 |                                                         | 36   
|               |                                                                                                                |                                                         |      
|Item 14.       | Principal Accountant Fees and Services                                                                         |                                                         | 36   
|               |                                                                                                                |                                                         |      
|PART IV        |                                                                                                                |                                                         |      
|               |                                                                                                                |                                                         |      
|Item 15.       | Exhibits and Financial Statement Schedules                                                                     |                                                         | 37-38
|               |                                                                                                                |                                                         |      
|SIGNATURES     |                                                                                                                | 39                                                     
|               |                                                                                                                |                                                         |      
|CERTIFICATIONS |                                                                                                                | 39-42                                                  

2

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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 mainly transacts its business through its subsidiary,
the Bank.  At December 31, 2004, the
Company had total assets of $1,065.3 million and stockholders equity of $84.5
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, 2004, the Bank had total assets of $1,063.3 million and
stockholders equity of $86.0 million.

During 2002, FFLC Statutory Trust I (the Trust) was formed for the
sole purpose of issuing $5,000,000 of trust preferred securities as more fully
described in the Borrowings section.

Acquisition

On January 14, 2005, the Company entered into a definitive agreement
for the Company and the Bank to be acquired by Colonial BancGroup, Inc., a bank
holding company incorporated in Delaware with a subsidiary bank, Colonial Bank,
N.A., operating in Alabama, Florida, Georgia, Nevada and Texas.   Under the terms of the agreement,
shareholders of the Company will elect to receive either 2.0 shares of Colonial
stock or $42.00 in cash for each share of the Company stock they own. The cash
consideration will be capped at 35% of the transaction and an over-election of
cash will result in a pro rata distribution of stock.   Completion of the transaction is subject to approval by the shareholders
of the Company and various regulatory agencies.  See Exhibit 99.1.

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,
Citrus and Marion 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 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

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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, and to a lesser extent,
commercial real estate, multi-family loans and consumer related loans. At
December 31, 2004, the Banks total gross loans outstanding were $936.8
million, of which $438.6 million or 46.8% 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,
approximately 41% were fixed rate loans and 59% were adjustable-rate (ARM)
loans. At the same date, commercial real estate loans and other loans on
improved real estate totaled $183.8 million or 19.6% of the Banks total loan
portfolio; construction loans (excluding construction/permanent loans) and land
loans totaled $82.0 million or 8.8% of the Banks total loan portfolio; and
multi-family mortgage loans totaled $11.0 million or 1.2% of the Banks total
loan portfolio. Consumer loans, which principally consist of home equity loans,
deposit, consumer, and other loans held by the Bank, totaled $183.8 million or
19.6% of the Banks total loan portfolio and commercial loans totaled $37.6
million or 4.0% of the Banks total loan portfolio at December 31, 2004.

4

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The following table sets forth the composition of the Banks loan
portfolio in dollar amounts and percentages at the dates indicated:

|                 |                                    | At December 31,  |       
|---------------- | ---------------------------------- | ---------------- | ------
|                 |                                    |                  |       
|                 |                                    | 2000             |       
|                 |                                    |                  |       
|                 |                                    | Amount           |       
|                 |                                    |                  |       
|                 |                                    | ($ in thousands) |       
|Mortgage loans:  |                                    |                  |       
|                 | One-to-four-family                 |                  | $     
|                 | Construction and land              |                  |       
|                 | Multi-family                       |                  |       
|                 | Commercial real estate and
  other |                  |       
|                 |                                    |                  |       
|                 |                                    |                  |       
|                 | Total mortgage loans               |                  |       
|                 |                                    |                  |       
|Consumer loans   |                                    |                  | 95,824
|Commercial loans |                                    |                  | 14,677
|                 |                                    |                  |       
|                 |                                    |                  |       
|                 | Total loans receivable (1)         |                  |       
|                 |                                    |                  |       
|                 |                                    |                  |       
|Less:            |                                    |                  |       
|                 | Loans in process                   |                  |       
|                 | Net deferred loan costs            |                  |       
|                 | Allowance for loan losses          |                  |       
|                 |                                    |                  |       
|                 |                                    |                  |       
|                 | Loans receivable, net              |                  | $     
|                 |                                    |                  |       
|                 |                                    |                  |       

---

|(1) | Total loans receivable
  outstanding by department consists of the following: |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |  
|--- | ----------------------------------------------------------------------------- | - | ------- | ------- |  | ------ | ----- | - | ------- | ------- |  | ------ | ----- | - | ------- | ------- |  | ------ | ----- | - | ------- | ------- |  | ------ | ----- | - | ------- | ------- |  | ------ | ----- | -
|    | Residential                                                                   |   | $       | 404,494 |  |        | 64.16 | % | $       | 403,897 |  |        | 57.37 | % | $       | 385,711 |  |        | 50.98 | % | $       | 372,551 |  |        | 46.72 | % | $       | 433,116 |  |        | 46.23 | %
|    | Commercial                                                                    |   |         | 130,120 |  |        | 20.64 | % |         | 180,688 |  |        | 25.67 | % |         | 229,930 |  |        | 30.39 | % |         | 265,655 |  |        | 33.32 | % |         | 315,507 |  |        | 33.68 | %
|    | Consumer                                                                      |   |         | 95,824  |  |        | 15.20 | % |         | 119,357 |  |        | 16.96 | % |         | 140,914 |  |        | 18.63 | % |         | 159,145 |  |        | 19.96 | % |         | 188,199 |  |        | 20.09 | %
|    |                                                                               |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |      
|    |                                                                               |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |      
|    |                                                                               | $ | 630,438 |         |  | 100.00 | %     | $ | 703,942 |         |  | 100.00 | %     | $ | 756,555 |         |  | 100.00 | %     | $ | 797,351 |         |  | 100.00 | %     | $ | 936,822 |         |  | 100.00 | %    
|    |                                                                               |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |       |   |         |         |  |        |      

5

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Purchase of Mortgage
Loans.At December 31, 2004, $1.6 million, or .17%
of the Banks total loan portfolio consisted of purchased mortgage loans or
participations in mortgage loans. 
Purchased mortgage loans and participations in mortgage loans consist of
one-to-four-family residential mortgage loans and commercial real estate loans.

Secondary Market
Activities. The Bank participates in the secondary
market directly and through correspondent relationships, originating loans
(primarily 30-year fixed-rate loans) which are primarily funded by the Bank and
then reimbursed by the investor correspondents. Funding by the correspondent
occurs on some loans. These 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, 2004, total loans originated by the Bank
and through the correspondents amounted to $14.4 million or 6.1% of total
mortgage loans originated.

Loan Originations,
Sales and Principal Repayments.  The following table sets forth the Banks
loan originations, sales and principal repayments for the periods indicated.

|                            |                                                                 | Year
  Ended December 31, |  
|--------------------------- | --------------------------------------------------------------- | ------------------------- | -
|                            |                                                                 |                           |  
|                            |                                                                 | 2002                      |  
|                            |                                                                 |                           |  
|                            |                                                                 | (In
  thousands)          |  
|Mortgage
  loans (gross):   |                                                                 |                           |  
|                            | At beginning
  of year                                          |                           | $
|                            |                                                                 |                           |  
|                            | Mortgage
  loans originated:                                    |                           |  
|                            | One-to-four-family                                              |                           |  
|                            | Construction
  and land                                         |                           |  
|                            | Multi-family                                                    |                           |  
|                            | Commercial
  real estate                                        |                           |  
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|                            | Total
  mortgage loans originated                               |                           |  
|                            |                                                                 |                           |  
|                            | Mortgage
  loans purchased or participated                      |                           |  
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|                            | Total
  mortgage loans originated and purchased or participated |                           |  
|                            |                                                                 |                           |  
|                            | Transfer of
  loans to foreclosed assets                        |                           |  
|                            | Principal
  repayments                                          |                           |  
|                            | Sales of
  loans (1)                                            |                           |  
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|                            | At end of
  year                                                |                           | $
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|Consumer
  loans (gross):   |                                                                 |                           |  
|                            | At beginning
  of year                                          |                           |  
|                            | Loans
  originated                                              |                           |  
|                            | Principal
  repayments                                          |                           |  
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|                            | At end of
  year                                                |                           | $
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|Commercial
  loans (gross): |                                                                 |                           |  
|                            | At beginning
  of year                                          |                           |  
|                            | Loans
  originated                                              |                           |  
|                            | Principal
  repayments                                          |                           |  
|                            |                                                                 |                           |  
|                            |                                                                 |                           |  
|                            | At end of
  year                                                |                           | $
|                            |                                                                 |                           |  

(1) Represents loans originated for and funded by correspondents and
loans originated and sold by the Bank.

6

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Maturities of Loans.
The following table shows the contractual maturities of the Banks loan
portfolio at December 31, 2004.  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 $162.1 million,
$198.6 million and $138.1 million for the years ended December 31, 2002, 2003
and 2004, respectively.

|                        |                                    | Mortgage
  Loans         |         |         |   |                    |         |                  |  |                            |        |  
|----------------------- | ---------------------------------- | ------------------------ | ------- | ------- | - | ------------------ | ------- | ---------------- |  | -------------------------- | ------ | -
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        |                                    | One-to-
  Four-
  Family |         | Other   |   | Commercial
  Loans |         | Consumer
  Loans |  | Total
  Loans
  Receivable |       
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |       
|                        |                                    | (In
  thousands)         |        
|Amounts due:            |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        | Within 1
  year                    |                          | $       | 9,477   |   |                    | 35,904  |                  |  |                            | 5,480  |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        | 1 to 3 years                       |                          |         | 5,555   |   |                    | 49,147  |                  |  |                            | 10,777 |  
|                        | 3 to 5 years                       |                          |         | 3,742   |   |                    | 9,830   |                  |  |                            | 11,801 |  
|                        | 5 to 10
  years                    |                          |         | 8,900   |   |                    | 37,927  |                  |  |                            | 6,260  |  
|                        | 10 to 20
  years                   |                          |         | 94,392  |   |                    | 116,551 |                  |  |                            | 3,232  |  
|                        | Over 20
  years                    |                          |         | 316,543 |   |                    | 27,511  |                  |  |                            |       |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        | Total due
  after 1 year           |                          |         | 429,132 |   |                    | 240,966 |                  |  |                            | 32,070 |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        | Total
  amounts due                |                          |         | 438,609 |   |                    | 276,870 |                  |  |                            | 37,550 |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        | Loans in
  process                 |                          |         | (47,490 | ) |                    |        |                  |  |                            |       |  
|                        | Net deferred
  loan fees and costs |                          |         | 1,285   |   |                    | (254    | )                |  |                            | 109    |  
|                        | Allowance
  for loan losses        |                          |         | (1,096  | ) |                    | (3,408  | )                |  |                            | (702   | )
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  
|Loans
  receivable, net |                                    | $                        | 391,308 |         |   | 273,208            |         |                  |  | 36,957                     |        |  
|                        |                                    |                          |         |         |   |                    |         |                  |  |                            |        |  

Loans Due After
December 31, 2005. The following table sets forth
at December 31, 2004, the dollar amount of all loans due or scheduled to reprice
after December 31, 2005, classified according to whether such loans have fixed
or adjustable interest rates.

|                   |                          | Due
  after December 31, 2005 |        
|------------------ | ------------------------ | ----------------------------- | -------
|                   |                          |                               |        
|                   |                          | Fixed                         |        
|                   |                          |                               |        
|                   |                          | (In
  thousands)              |        
|Mortgage
  loans:  |                          |                               |        
|                   | One-to-four-family       |                               | $      
|                   | Construction
  and land  |                               |        
|                   | Multi-family             |                               |        
|                   | Commercial
  real estate |                               |        
|                   |                          |                               |        
|Consumer
  loans   |                          |                               | 116,870
|Commercial
  loans |                          |                               | 16,437 
|                   |                          |                               |        
|                   |                          |                               |        
|                   | Total                    |                               | $      
|                   |                          |                               |        
|                   |                          |                               |        

One-to-Four-Family
Mortgage Lending. The Banks primary residential
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.

7

---



In the years ended December 31, 2002, 2003 and 2004, the Banks total
mortgage loan originations, including loans purchased or participated, amounted to $186.4 million, $241.4
million and $235.6 million, respectively, of which $114.2 million, $183.2
million and $175.1 million, respectively, were secured by one -to-four-family
properties.

At December 31, 2004, 46.8% of total loans consisted of one
-to-four-family residential loans, of which approximately 59% 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, 2004, $183.8 million, or 19.6% of the Banks total loan portfolio consisted
of commercial real estate loans and $11.0 million, or 1.2% of the Banks total
loan portfolio, consisted of multi-family mortgage 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 mortgage 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, 2004, $37.8 million or
4.0% 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 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,
2004, construction (excluding construction/permanent loans) and land loans
totaled $82.0 million or 8.8% of the Banks total loan portfolio.

At December 31, 2004, the Bank had loans in process (undisbursed loan
proceeds of construction loans) of $47.5 million which were 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.

Consumer Lending.
At December 31, 2004, $183.8 million or 19.6% of the Banks total loan
portfolio consisted of consumer loans, including home equity loans of $41.1
million, lines of credit of $51.5 million, direct auto and truck loans of $12.8
million, indirect auto and truck loans of $12.5 million, home improvement loans
and other secured consumer loans of $27.2 million, lot loans of $37.7 million
and unsecured personal loans of $1.0 million.

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 or 90% of the loan to value
ratio.  The Bank also offers home equity
lines of

8

---



credit, which bear prime-based, adjustable interest rates with terms
up to fifteen years.  Such loans
generally require monthly payments of 1.5% of the balance outstanding including
interest.

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. Loan approval authority for loans
exceeding $2,000,000 is vested in the Loan Committee which meets weekly to
consider loan recommendations of the Loan Committee.  The Loan Committee is comprised of three directors, the President
and the Senior Lending Officers of the Bank. 
Management has been delegated authority to approve mortgage loans,
commercial loans, home equity loans, home equity lines of credit and secured
consumer loans up to $2,000,000.

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

---



At December 31, 2002, 2003 and 2004, delinquencies in the Banks loan portfolio
were as follows:

|                                |                      | At
  December 31, 2002 |  | At
  December 31, 2003         |    | At
  December 31, 2004 | 
|------------------------------- | -------------------- | ---------------------- |  | ------------------------------ | -- | ---------------------- | 
|                                |                      |                        |  |                                |    |                        | 
|                                |                      | 60-89
  Days           |  | 90 Days
  or More              |    | 60-89
  Days           | 
|                                |                      |                        |  |                                |    |                        | 
|                                |                      | Number
  of
  Loans    |  | Principal
  Balance
  of Loans |    | Number
  of
  Loans    | 
|                                |                      |                        |  |                                |    |                        | 
|                                |                      | ($ in
  thousands)     | 
|                                |                      |                        |  |                                |    |                        | 
|One-to-four-family              |                      |                        |  | 10                             |    |                        | 
|Construction and land           |                      |                        |  |                               |    |                        | 
|Multi-family                    |                      |                        |  |                               |    |                        | 
|Commercial real estate          |                      |                        |  |                               |    |                        | 
|                                |                      |                        |  |                                |    |                        | 
|                                |                      |                        |  |                                |    |                        | 
|                                | Total mortgage loans |                        |  |                                | 10 |                        | 
|                                |                      |                        |  |                                |    |                        | 
|Consumer loans                  |                      |                        |  | 49                             |    |                        | 
|Commercial loans                |                      |                        |  |                               |    |                        | 
|                                |                      |                        |  |                                |    |                        | 
|                                |                      |                        |  |                                |    |                        | 
|                                | Total loans          |                        |  |                                | 59 |                        | 
|                                |                      |                        |  |                                |    |                        | 
|                                |                      |                        |  |                                |    |                        | 
|Delinquent loans to total loans |                      |                        |  |                                |    |                        | 
|                                |                      |                        |  |                                |    |                        | 

10

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Nonperforming
Assets. The following table sets forth information
with respect to the Banks nonperforming assets at the dates indicated.

|                                             |                              | At December 31,  |      
|-------------------------------------------- | ---------------------------- | ---------------- | -----
|                                             |                              |                  |      
|                                             |                              | 2000             |      
|                                             |                              |                  |      
|                                             |                              | ($ in thousands) |      
|                                             |                              |                  |      
|Nonaccrual
  mortgage loans                  |                              | $                | 2,472
|                                             |                              |                  |      
|Nonaccrual
  commercial and consumer loans   |                              |                  | 38   
|                                             |                              |                  |      
|Accruing
  loans                             |                              |                  |     
|                                             |                              |                  |      
|                                             |                              |                  |      
|Total
  nonperforming loans                  |                              |                  | 2,510
|                                             |                              |                  |      
|Foreclosed
  assets                          |                              |                  | 276  
|                                             |                              |                  |      
|                                             |                              |                  |      
|                                             | Total
  nonperforming assets |                  | $    
|                                             |                              |                  |      
|                                             |                              |                  |      
|Nonperforming
  loans to total loans         |                              |                  | .40  
|                                             |                              |                  |      
|                                             |                              |                  |      
|Total
  nonperforming assets to total assets |                              |                  | .39  
|                                             |                              |                  |      
|                                             |                              |                  |      

At December
31, 2004, 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.  The increase in nonaccrual commercial loans
in 2003 mainly resulted from two loans to an agricultural borrower being
identified as impaired and placed on nonaccrual status, but no loss was
recorded on these loans.  Nonaccrual
loans for which interest has been reduced totaled approximately $2.8 million,
$5.3 million and $2.6 million at December 31, 2004, 2003 and 2002,
respectively.  For the year ended
December 31, 2004, interest income that would have been recorded under the
original terms of nonaccrual loans at December 31, 2004 and interest income
actually recognized is summarized below (in thousands):

| | Interest
  income that would have been recorded |  | $ | 615 | 
| | ----------------------------------------------- |  | - | --- | 
| | Interest
  income recognized                    |  |   | 515 | 
| |                                                 |  |   |     | 
| |                                                 |  |   |     | 
| | Interest
  income foregone                      |  | $ | 100 | 
| |                                                 |  |   |     | 

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 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

---



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 foreclosed assets classified as special mention or
substandard at the dates indicated. No loans or foreclosed assets were
classified doubtful or loss at those dates.

| |                       |                                 | Special Mention  |  | Substandard |   
| | --------------------- | ------------------------------- | ---------------- |  | ----------- | --
| |                       |                                 |                  |  |             |   
| |                       |                                 | Number           |  | Amount      |   
| |                       |                                 |                  |  |             |   
| |                       |                                 | ($ in thousands) | 
| | At December 31, 2004: |                                 |                  |  |             |   
| | Loans                 |                                 |                  |  | 24          |   
| |                       |                                 |                  |  |             |   
| | Foreclosed
  assets:  |                                 |                  |  |             |   
| |                       | One-to-four-family
  properties |                  |  |             |  
| |                       |                                 |                  |  |             |   
| |                       | Other                           |                  |  |             |  
| |                       |                                 |                  |  |             |   
| |                       |                                 |                  |  |             |   
| |                       | Total                           |                  |  |             | 24
| |                       |                                 |                  |  |             |   
| |                       |                                 |                  |  |             |   
| | At December 31, 2003: |                                 |                  |  |             |   
| | Loans                 |                                 |                  |  | 17          |   
| |                       |                                 |                  |  |             |   
| | Foreclosed
  assets:  |                                 |                  |  |             |   
| |                       | One-to-four-family
  properties |                  |  |             |  
| |                       |                                 |                  |  |             |   
| |                       | Other                           |                  |  |             |  
| |                       |                                 |                  |  |             |   
| |                       |                                 |                  |  |             |   
| |                       | Total                           |                  |  |             | 17
| |                       |                                 |                  |  |             |   
| |                       |                                 |                  |  |             |   

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

---



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.

| |                                |                                 | At or For the Year Ended December 31, |      
| | ------------------------------ | ------------------------------- | ------------------------------------- | -----
| |                                |                                 |                                       |      
| |                                |                                 | 2000                                  |      
| |                                |                                 |                                       |      
| |                                |                                 | (In thousands)                        |      
| |                                |                                 |                                       |      
| | Balance at
  beginning of year |                                 | $                                     | 2,811
| | Provision
  for loan losses    |                                 |                                       | 880  
| | Charge-offs:                   |                                 |                                       |      
| |                                | One-to-four-family              |                                       |      
| |                                | Construction
  and land         |                                       |      
| |                                | Multi-family                    |                                       |      
| |                                | Commercial
  real estate        |                                       |      
| |                                | Commercial
  and consumer loans |                                       |      
| |                                |                                 |                                       |      
| |                                |                                 |                                       |      
| |                                | Total
  charge-offs by category |                                       |      
| |                                |                                 |                                       |      
| | Recoveries                     |                                 |                                       | 18   
| |                                |                                 |                                       |      
| |                                |                                 |                                       |      
| | Balance at
  end of year       |                                 | $                                     | 3,552
| |                                |                                 |                                       |      

The following
table sets forth the ratios of the Banks charge-offs and allowances for losses
for the years indicated.

| |                                                                                              |  | 2000 |        | 2001 |  | 2002   |   | 2003 |        | 2004 | 
| | -------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ------ | - | ---- | ------ | ---- | 
| |                                                                                              |  |      |        |      |  |        |   |      |        |      | 
| | Net charge-offs during the year as a percentage of average loans outstanding during the year |  |      | .03    | %    |  | .06    | % |      | .13    | %    | 
| |                                                                                              |  |      |        |      |  |        |   |      |        |      | 
| | Allowance for loan losses
  as a percentage of gross loans receivable at end of year         |  |      | .56    | %    |  | .61    | % |      | .68    | %    | 
| |                                                                                              |  |      |        |      |  |        |   |      |        |      | 
| | Allowance for loan losses
  as a percentage of total nonperforming assets at end of year     |  |      | 127.49 | %    |  | 187.62 | % |      | 161.00 | %    | 
| |                                                                                              |  |      |        |      |  |        |   |      |        |      | 
| | Allowance for loan losses
  as a percentage of nonperforming loans at end of year            |  |      | 141.51 | %    |  | 224.20 | % |      | 199.88 | %    | 

13

---



The following table sets forth the Banks specific and general
allowance for possible loan losses by type of loan for the years indicated.

|                               |                        | At December
  31, |  
|------------------------------ | ---------------------- | ----------------- | -
|                               |                        |                   |  
|                               |                        | 2000              |  
|                               |                        |                   |  
|                               |                        | Amount            |  
|                               |                        |                   |  
|                               |                        | ($ in thousands)  |  
|At end of year allocated
  to: |                        |                   |  
|                               | One-to-four-family     |                   | $
|                               | Construction and land  |                   |  
|                               | Multi-family           |                   |  
|                               | Commercial real estate |                   |  
|                               | Consumer loans         |                   |  
|                               | Commercial loans       |                   |  
|                               |                        |                   |  
|                               | Total                  |                   | $
|                               |                        |                   |  

14

---



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.

The Company follows 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.  At December 31,
2004, all securities have been classified as available for sale by
management.

Mortgage-Backed Securities

The Companys mortgage-backed securities consist of securities issued
by the Government National Mortgage Association (GNMA), the Federal Home Loan
Mortgage Corporation (FHLMC) or the Federal National Mortgage Association
(FNMA).  These mortgage-backed
securities totaled $22.7 million or 30.4% of total securities at December 31,
2004.

The following table sets forth mortgage-backed security purchases,
sales, amortization and principal repayments during the periods indicated:

|                                        |                  | Year Ended December 31, |       
|--------------------------------------- | ---------------- | ----------------------- | ------
|                                        |                  |                         |       
|                                        |                  | 2002                    |       
|                                        |                  |                         |       
|                                        |                  | (In thousands)          |       
|                                        |                  |                         |       
|At beginning
  of year                  |                  | $                       | 10,943
|Purchases                               |                  |                         | 17,891
|Amortization
  and principal repayments |                  |                         | (6,665
|Change in
  unrealized gain             |                  |                         | 127   
|                                        |                  |                         |       
|                                        |                  |                         |       
|                                        | At end of
  year |                         | $     
|                                        |                  |                         |       

Investment Securities

At December 31, 2004, the Bank held $51.8 million in investment
securities consisting of $35.0 million in U.S. Government and agency
securities, $9.2 million in mutual funds and $7.7 million in other investment
securities.  In addition, the Bank holds
$38.3 million in interest-earning deposits and $8.8 million of FHLB of Atlanta
stock.

15

---



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:

|                          |                                         | At December 31,  |       
|------------------------- | --------------------------------------- | ---------------- | ------
|                          |                                         |                  |       
|                          |                                         | 2002             |       
|                          |                                         |                  |       
|                          |                                         | Amortized
  Cost |       
|                          |                                         |                  |       
|                          |                                         | (In thousands)   |       
|                          |                                         |                  |       
|Interest-earning deposits |                                         | $                | 49,237
|                          |                                         |                  |       
|                          |                                         |                  |       
|FHLB stock                |                                         | $                | 7,700 
|                          |                                         |                  |       
|                          |                                         |                  |       
|Investment securities-    |                                         |                  |       
|                          |                                         |                  |       
|                          | Available-for-sale:                     |                  |       
|                          | U.S. Government and agency
  securities |                  |       
|                          | Other investment securities             |                  |       
|                          | Investment in mutual funds              |                  |       
|                          |                                         |                  |       
|                          |                                         |                  |       
|                          | Total
  investment securities           |                  | $     
|                          |                                         |                  |       

16

---



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, 2004 and 2003.

|                                 |                                        | Due Within One Year |   | Due After
  One Through
  Five Years      |        | Due After
  Five Through
  10 Years |  | Due After
  10 Years                    |      | Total         |  
|-------------------------------- | -------------------------------------- | ------------------- | - | ----------------------------------------- | ------ | ----------------------------------- |  | --------------------------------------- | ---- | ------------- | -
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 |                                        | Amortized
  Cost    |   | Annualized
  Weighted 
  Average 
  Yield |        | Amortized
  Cost                    |  | Annualized
  Weighted
  Average
  Yield |      | AmortizedCost |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 |                                        | ($ in thousands)    |  
|At December 31, 2004:            |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|FHLB stock (no defined maturity) |                                        |                     | $ | 8,782                                     |        |                                     |  |                                         | 3.75 | %             |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|Investment securities:           |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 | U.S. Government and agency obligations |                     |   |                                           | 12,019 |                                     |  |                                         |      | 3.23          |  
|                                 | Other investment securities            |                     |   |                                           |       |                                     |  |                                         |      |              |  
|                                 | Mutual funds (no defined maturity)     |                     |   |                                           | 9,371  |                                     |  |                                         |      | 2.97          |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 | Total investment securities            |                     |   | $                                         | 21,390 |                                     |  |                                         |      | 3.12          | %
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|At December 31, 2003:            |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|FHLB stock (no defined maturity) |                                        |                     | $ | 6,900                                     |        |                                     |  |                                         | 3.50 | %             |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|Investment securities:           |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 | U.S. Government and agency obligations |                     |   |                                           | 16,067 |                                     |  |                                         |      | 4.94          |  
|                                 | Other investment securities            |                     |   |                                           |       |                                     |  |                                         |      |              |  
|                                 | Mutual funds (no defined maturity)     |                     |   |                                           | 9,146  |                                     |  |                                         |      | 2.38          |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 | Total investment securities            |                     |   | $                                         | 25,213 |                                     |  |                                         |      | 3.90          | %
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  
|                                 |                                        |                     |   |                                           |        |                                     |  |                                         |      |               |  

17

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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, 2004,
$65.8 million or 8.1% 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 27.26%,
31.13% and 32.59% of total deposits at December 31, 2002, 2003 and 2004,
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, 2004 ($ in thousands).

|                      |                                  | At December
  31, |  
|--------------------- | -------------------------------- | ----------------- | -
|                      |                                  |                   |  
|                      |                                  | 2002              |  
|                      |                                  |                   |  
|                      |                                  | Amount            |  
|                      |                                  |                   |  
|Demand accounts:      |                                  |                   |  
|                      | Noninterest-bearing
  checking   |                   | $
|                      | NOW and money-market
  accounts  |                   |  
|                      | Passbook and statement
  savings |                   |  
|                      |                                  |                   |  
|                      |                                  |                   |  
|                      | Total                            |                   |  
|                      |                                  |                   |  
|                      |                                  |                   |  
|Certificate accounts: |                                  |                   |  
|                      | Custom                           |                   |  
|                      | 91 day                           |                   |  
|                      | 182 day                          |                   |  
|                      | 9 months                         |                   |  
|                      | 12 months                        |                   |  
|                      | 13 months                        |                   |  
|                      | 14 months                        |                   |  
|                      | 15 months                        |                   |  
|                      | 18 months                        |                   |  
|                      | 21 months                        |                   |  
|                      | 24 months                        |                   |  
|                      | 30 months                        |                   |  
|                      | 36 months                        |                   |  
|                      | 54 months                        |                   |  
|                      | 60 months                        |                   |  
|                      |                                  |                   |  
|                      |                                  |                   |  
|                      | Total                            |                   |  
|                      |                                  |                   |  
|                      |                                  |                   |  
|                      | Total deposits                   |                   | $
|                      |                                  |                   |  
|                      |                                  |                   |  

18

---



The following table presents the deposit activity of the Bank for the
years indicated.

| |                                     |  | Year Ended
  December 31, |           
| | ----------------------------------- |  | ------------------------- | ----------
| |                                     |  |                           |           
| |                                     |  | 2002                      |           
| |                                     |  |                           |           
| |                                     |  | (In
  thousands)          |           
| |                                     |  |                           |           
| | Deposits                            |  | $                         | 3,161,518 
| | Withdrawals                         |  |                           | (3,094,131
| |                                     |  |                           |           
| |                                     |  |                           |           
| | Deposits in excess of
  withdrawals |  |                           | 67,387    
| |                                     |  |                           |           
| | Interest credited on
  deposits     |  |                           | 15,543    
| |                                     |  |                           |           
| |                                     |  |                           |           
| | Total increase in deposits          |  | $                         | 82,930    
| |                                     |  |                           |           

The following
table presents the amount of time deposit accounts in amounts of $100,000 or
more at December 31, 2004 maturing as follows (in thousands):

|Maturity
  Period                |       |   |        |        
|-------------------------------- | ----- | - | ------ | -------
|                                 |       |   |        |        
|                                 |       |   |        |        
|One month
  through three months |       | $ | 33,674 |        
|Over three
  through six months  |       |   | 18,605 |        
|Over six
  through 12 months     |       |   | 36,819 |        
|Over 12
  months                 |       |   | 88,544 |        
|                                 |       |   |        |        
|                                 |       |   |        |        
|                                 | Total |   | $      | 177,642
|                                 |       |   |        |        

19

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The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 2002, 2003 and 2004 and the
periods to maturity of the certificate accounts outstanding at December 31,
2004.

|               |  |                 |         |                 |  |                |  |                |         |                | Period to Maturity from December 31, 2004 |               
|-------------- |  | --------------- | ------- | --------------- |  | -------------- |  | -------------- | ------- | -------------- | ----------------------------------------- | --------------
|               |  | At December 31, |         |                 |  |                |  |               
|               |  |                 |         | Within
  1 Year |  | 1 to
  2 Years |  | 2 to
  3 Years |         | 3 to
  4 Years |                                           | 4 to
  5 Years
|               |  | 2002            |         | 2003            |  | 2004           |  |                |         |                |                                           |               
|               |  |                 |         |                 |  |                |  |                |         |                |                                           |               
|               |  | (In thousands)  |        
|               |  |                 |        
|               |  |                 |         |                 |  |                |  |                |         |                |                                           |               
|2.00% or less  |  | $               | 48,547  |                 |  | 151,505        |  |                | 114,766 |                |                                           | 110,484       
|2.01% to 3.00% |  |                 | 112,037 |                 |  | 102,354        |  |                | 143,723 |                |                                           | 100,339       
|3.01% to 4.00% |  |                 | 122,814 |                 |  | 91,897         |  |                | 180,024 |                |                                           | 17,762        
|4.01% to 5.00% |  |                 | 171,116 |                 |  | 126,882        |  |                | 86,579  |                |                                           | 23,386        
|5.01% to 6.00% |  |                 | 30,092  |                 |  | 12,096         |  |                | 9,661   |                |                                           | 774           
|6.01% or more  |  |                 | 1,324   |                 |  | 1,211          |  |                | 1,233   |                |                                           | 1,147         
|               |  |                 |         |                 |  |                |  |                |         |                |                                           |               
|               |  |                 |         |                 |  |                |  |                |         |                |                                           |               
|               |  | $               | 485,930 |                 |  | 485,945        |  |                | 535,986 |                |                                           | 253,892       
|               |  |                 |         |                 |  |                |  |                |         |                |                                           |               

20

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Borrowings

Junior Subordinated
Debentures.On
September 26, 2002, the Trust sold adjustable-rate Trust Preferred Securities
due September 26, 2032 in the aggregate principal amount of $5,000,000 (the
Capital Securities) in a pooled trust preferred securities offering. The
interest rate on the Capital Securities adjusts quarterly, to a rate equal to
the then current three-month London Interchange Bank Offering Rate (LIBOR),
plus 340 basis points. In addition, the Holding Company contributed capital of
$155,000 to the Trust for the purchase of the common securities of the
Trust.  The proceeds from these sales
were paid to the Holding Company in exchange for $5,155,000 of its
adjustable-rate Junior Subordinated Debentures (the Debentures) due September
26, 2032. The Debentures have the same terms as the Capital Securities.  The sole asset of the Trust, the obligor on
the Capital Securities, is the Debentures.

The Holding Company has guaranteed the Trusts payment of distributions
on, payments on any redemptions of, and any liquidation distribution with
respect to, the Capital Securities. 
Cash distributions on both the Capital Securities and the Debentures are
payable quarterly in arrears on March 26, June 26, September 26 and December 26
of each year.

The Capital Securities are subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Debentures at stated maturity or,
at the option of the Holding Company, their earlier redemption in whole upon
the occurrence of certain changes in the tax treatment or capital treatment of
the Capital Securities, or a change in the law such that the Trust would be
considered an Investment Company and (ii) in whole or in part at any time on or
after September 26, 2007 contemporaneously with the optional redemption by the
Holding Company of the Debentures in whole or in part.  The Debentures are redeemable prior to
maturity at the option of the Holding Company (i) on or after September 26,
2007, in whole at any time or in part from time to time, or (ii) in whole, but
not in part, at any time within 90 days following the occurrence and
continuation of certain changes in the tax treatment or capital treatment of
the Capital Securities, or a change in law such that the Trust would be
considered an Investment Company, required to be registered under the
Investment Company Act of 1940.

In 2003, the Company adopted Financial Accounting Standards Board
Interpretation No. 46,Consolidation of
Variable Interest Entities as revised in December 2003.   In accordance with Interpretation No. 46,
the Trust is not consolidated in the financial statements of the Company, but
rather accounted for under the equity method of accounting.  The Company has elected to apply
Interpretation No. 46 on a retroactive basis and therefore has restated its
2002 consolidated financial statements. 
The effect to the 2002 consolidated balance sheet was to record junior
subordinated debentures of $5,155,000, eliminate the guaranteed beneficial
interest in junior subordinated debentures of $5,000,000 and record the
Companys investment in the Trust of $155,000 in other assets.  Interpretation No. 46 had no effect on the
2002 consolidated statement of income.

The Company has entered into a five year interest rate swap agreement
that effectively converted the floating interest rate of these Capital
Securities into a fixed interest rate of 6.85%, thus reducing the impact of
interest rate changes on future interest expense for the five year period. In
accordance with Statement of Financial Accounting Standards No. 133 Accounting
for Derivative Instruments and Hedging Activities, this interest rate swap
qualifies as a cash flow hedge.  The
fair value of this interest rate swap is recorded as an asset or liability on
the consolidated balance sheet with an offsetting entry recorded in other
comprehensive income, net of the income tax effect.  At December 31, 2004, the unrealized gain of the derivative
instrument was $10,000 ($6,000 net of tax) and at December 31, 2003, the
unrealized loss was $83,000 ($52,000 net of tax).

21

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Federal Home Loan
Bank Advances and Other 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, 2004,
the Bank had $153.0 million in FHLB advances outstanding.

The Bank also borrows under retail repurchase agreements with customers
of the Bank.  These agreements are
accounted for as borrowings and are secured by securities owned by the
Bank.  The Holding Company also has
$5,155,000 in junior subordinated debentures outstanding-discussed previously.

The following table sets forth certain information relating to the
Banks borrowings at the dates indicated:

|                      |                                                               | At or For the Year
  Ended December 31, |  
|--------------------- | ------------------------------------------------------------- | --------------------------------------- | -
|                      |                                                               |                                         |  
|                      |                                                               | 2002                                    |  
|                      |                                                               |                                         |  
|                      |                                                               | ($ in thousands)                        |  
|                      |                                                               |                                         |  
|FHLB advances:        |                                                               |                                         |  
|                      | Average balance outstanding                                   |                                         | $
|                      |                                                               |                                         |  
|                      | Maximum amount outstanding
  at any month end during the year |                                         | $
|                      |                                                               |                                         |  
|                      | Balance outstanding at end
  of year                          |                                         | $
|                      |                                                               |                                         |  
|                      | Weighted average interest
  rate during the year              |                                         |  
|                      |                                                               |                                         |  
|                      | Weighted average interest
  rate at end of year               |                                         |  
|                      |                                                               |                                         |  
|                      |                                                               |                                         |  
|Other borrowed funds: |                                                               |                                         |  
|                      | Average balance outstanding                                   |                                         | $
|                      |                                                               |                                         |  
|                      | Maximum amount outstanding
  at any month end during the year |                                         | $
|                      |                                                               |                                         |  
|                      | Balance outstanding at end
  of year                          |                                         | $
|                      |                                                               |                                         |  
|                      | Weighted average interest
  rate during the year              |                                         |  
|                      |                                                               |                                         |  
|                      | Weighted average interest
  rate at end of year               |                                         |  
|                      |                                                               |                                         |  
|                      |                                                               |                                         |  
|Total borrowings:     |                                                               |                                         |  
|                      | Average balance outstanding                                   |                                         | $
|                      |                                                               |                                         |  
|                      | Maximum amount outstanding
  at any month end during the year |                                         | $
|                      |                                                               |                                         |  
|                      | Balance outstanding at end
  of year                          |                                         | $
|                      |                                                               |                                         |  
|                      | Weighted average interest
  rate during the year              |                                         |  
|                      |                                                               |                                         |  
|                      | Weighted average interest
  rate at end of year               |                                         |  
|                      |                                                               |                                         |  

Off-Balance Sheet Arrangements
and Aggregate Contractual Obligations

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 include commitments to extend credit, unused lines
of credit, undisbursed loans in process and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amounts recognized in the consolidated balance
sheet.  The contract amounts of these
instruments reflect the extent of the Companys involvement 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,
unused lines of credit, undisbursed loans in process and standby letters of
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.

22

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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 certain commitments expire
without being drawn upon, the total committed amounts do not necessarily
represent future cash requirements.  The
Company evaluates each customers credit worthiness on a case-by-case
basis.  The amount of collateral
obtained, if it is deemed necessary by the Company upon extension of credit, is
based on managements credit evaluation of the counter party.

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.

The following is a summary of the Companys contractual obligations,
including certain on-balance sheet obligations, at December 31, 2004 (in
thousands):

|                                                          |  | Payments Due by Period |        
|--------------------------------------------------------- |  | ---------------------- | -------
|                                                          |  |                        |        
|Contractual Obligations                                   |  |                        | Total  
|                                                          |  |                        |        
|                                                          |  |                        |        
|FHLB advances  assumed
  final maturity                  |  | $                      | 153,000
|Time deposit maturities                                   |  |                        | 535,986
|Junior subordinated
  debentures  assumed final maturity |  |                        | 5,155  
|Accrued interest payable                                  |  |                        | 1,075  
|Other borrowings                                          |  |                        | 17,031 
|Operating leases                                          |  |                        | 313    
|Loan commitments                                          |  |                        | 18,326 
|Standby letters of credit                                 |  |                        | 3,129  
|Undisbursed construction
  and line of credit loans       |  |                        | 117,477
|                                                          |  |                        |        
|                                                          |  |                        |        
|Total                                                     |  | $                      | 804,061
|                                                          |  |                        |        

Subsidiary Activities

The Bank has a wholly-owned subsidiary, Lake County Service Corporation
(LCSC), originally formed to develop a 100-lot subdivision.  LCSC sold the last remaining lots of that
project during 2001. In February 2004, the Bank made a $4.2 million capital
contribution to LCSC, the proceeds of which were used to purchase thirty-nine
(39) acres of real estate for investment purposes.  In connection with that transaction, LCSC entered into a joint
venture agreement with a local developer for commercial and residential development
of the purchased property. During the second quarter of 2001, the Bank
introduced an Investment Services Program through a joint venture with an
independent securities broker-dealer firm. 
Through this program, mutual funds, annuities, discount brokerage and
financial planing services are offered to bank customers.  Certain of those products are offered
through LCSC, which received monthly fees on sales made through this program.
During 2004 and 2003, the Bank and LCSC recognized fees of $419,000 and
$411,000 and expenses of $398,000 and $317,000, respectively from this program.

During 2001, First Alliance was formed to facilitate the sale of title
insurance. During 2004 and 2003, this subsidiary recognized fees of $1,050 and
$67,000 and expenses of $1,313 and $21,000, respectively. During 2004, the
Board approved discontinuing the sale of title insurance and making this
subsidiary inactive and in the fourth quarter of 2004, this subsidiary was
dissolved.

23

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Personnel

As of February 14, 2005, the Bank had 253 full-time employees and 8
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.

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.

24

---



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.

Acquisition of the
Company.Under the Federal Change in Bank
Control Act, a notice has been submitted to the OTS if any person (including a
company) or group acting in concert, wants to acquire control of a savings
and loan holding company.  Under certain
circumstances, change in control may occur, and prior notice is required, upon
the acquisition of 10% or more the Companys outstanding voting stock, unless
the OTS has found that the acquisition will not result in a change of control
of the Company.  Under the Change in
Bank Control Act, the OTS has 60 days from the filing of a complete notice to
act, taking into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects of the
acquisition.  Any company that acquires
control would then be subject to regulation as a borrowing and loan holding
company.

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 CAMELS 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 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.

25

---



The components of supplementary capital currently include cumulative
preferred 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 OTS has the authority to establish minimum capital requirements in
appropriate cases upon a determination that an institutions capital level is
or may become inadequate in light of the particular circumstances.  For the present time, the OTS has deferred
implementation of the interest rate risk capital charge.  At December 31, 2004, the Bank met each of its capital requirements.

The following table presents the Banks capital position at December
31, 2004.

|                |  | Capital
  Ratios |       
|--------------- |  | ---------------- | ------
|                |  |                  |       
|                |  | Actual
  Capital |       
|                |  |                  |       
|                |  | ($ in thousands) |       
|                |  |                  |       
|Tangible        |  | $                | 81,660
|Core (Leverage) |  | $                | 81,660
|Risk-based      |  | $                | 87,787

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.

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.

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. By law, there has been equal sharing
of FICO payments between SAIF and BIF members since January 1, 2000.

26

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The Bank did not pay an assessment for deposit insurance in 2004,
however, its payments toward the FICO bonds amounted to approximately
$107,000.  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, 2004, the Banks limit on
loans to one borrower was $13.8 million and the Banks largest aggregate
outstanding loans and extensions of credit to one borrower was $12.3 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, 2004,
the Bank maintained 74% 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. Under current
regulations, 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.

27

---



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 assessed approximately $191,000 for the fiscal year
ended December 31, 2004.

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.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company
to its executive officers and directors. 
However, that Act contains a specific exception for loans by the Bank to
its executive officers and directors in compliance with federal banking
laws.  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.  There is 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.

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.

28

---



Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank (FHLB) System,
which consists of 12 regional FHLBs. 
The FHLB provides a central credit facility primarily for member
institutions.  In order to borrow from
the FHLB, the Bank is required to purchase shares of the FHLBs nonmarketable
equity securities at par. The Bank, as a member of the FHLB, is required to
acquire and hold shares of capital stock in that FHLB.  The Bank was in compliance with this
requirement at December 31, 2004. For the year ended December 31, 2004, the
dividend yield on FHLB stock was 3.75%.

The FHLBs 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 FHLBs pay to their members and could
also result in the FHLBs imposing a higher rate of interest on advances to
their members.  If dividends were
reduced, or interest on future FHLB advances increased, the Banks net interest
income would likely also be reduced. 
Recent legislation has changed the structure of the FHLBs funding
obligations for insolvent thrifts, revised the capital structure of the FHLBs
and implemented entirely voluntary membership for FHLBs.  Management cannot predict the effect that
these changes may have with respect to its FHLB membership.

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). 
For 2005, the regulations generally provide that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.6 million or less (subject to adjustment by the Federal Reserve Board), the
reserve requirement is 3%; and for accounts aggregating greater than $47.6
million, the reserve requirement is 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $47.6 million. The first $7.0 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. 
At December 31, 2004, the Bank complied with the foregoing requirements.

Community Reinvestment Act

Under the Community Reinvestment Act (CRA), as implemented by OTS
regulations, a savings association has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institutions discretion to develop the types
of products and services that it believes are best suited to its particular
community consistent with the CRA.  The
CRA requires the OTS, in connection with its examination of an institution, to
assess the institutions record of meeting the credit needs of its community
and to take such record into account in its evaluation of applications by such
institution.  The CRA requires public
disclosure of an institutions CRA rating. 
The latest CRA rating of the Bank received from the OTS was
Satisfactory.

29

---



Federal and State 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 2004 taxable year, the Bank is subject to a maximum federal
income tax rate of 35%.

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, 2004, the Bank had recaptured all of its bad debt reserves.

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.

30

---



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.

31

---



|ITEM 2. | PROPERTIES
|------- | ----------

The Bank conducts its business through its main office and 15 branch
offices. The following table sets forth certain information regarding the
Banks office properties:

|Location                                                 |  | DateAcquired |  | Net Book
  Value of Land
  and Buildings atDecember
  31, 2004 | 
|-------------------------------------------------------- |  | ------------ |  | -------------------------------------------------------------- | 
|                                                         |  |              |  |                                                                | 
|                                                         |  |              |  |                                                                | 
|Main Office                                              |  |              |  |                                                                | 
|800 North Boulevard, West
  Leesburg, Florida 34748-5053 |  |              |  | 1961                                                           | 
|                                                         |  |              |  |                                                                | 
|Wildwood                                                 |  |              |  |                                                                | 
|837 South Main Street                                    |  |              |  |                                                                | 
|Wildwood, Florida 34785-5302                             |  |              |  | 1967                                                           | 
|                                                         |  |              |  |                                                                | 
|Main Street                                              |  |              |  |                                                                | 
|1409 West Main Street                                    |  |              |  |                                                                | 
|Leesburg, Florida 34748-4854                             |  |              |  | 1972                                                           | 
|                                                         |  |              |  |                                                                | 
|Clermont                                                 |  |              |  |                                                                | 
|481 East Highway 50                                      |  |              |  |                                                                | 
|Clermont, Florida 34711-4032                             |  |              |  | 1982                                                           | 
|                                                         |  |              |  |                                                                | 
|Eustis                                                   |  |              |  |                                                                | 
|2901 South Bay Street                                    |  |              |  |                                                                | 
|Eustis, Florida 32726-6551                               |  |              |  | 1979                                                           | 
|                                                         |  |              |  |                                                                | 
|Fruitland Park                                           |  |              |  |                                                                | 
|410 Palm Street                                          |  |              |  |                                                                | 
|Fruitland Park, Florida 34731-4013                       |  |              |  | 1983                                                           | 
|                                                         |  |              |  |                                                                | 
|Lady Lake                                                |  |              |  |                                                                | 
|431 US Highway 441/27                                    |  |              |  |                                                                | 
|Lady Lake,
  Florida 32159-3046                          |  |              |  | 1995                                                           | 
|                                                         |  |              |  |                                                                | 
|Lake Square                                              |  |              |  |                                                                | 
|32612 Vista Avenue                                       |  |              |  |                                                                | 
|Leesburg, Florida 34788-3952                             |  |              |  | 2002                                                           | 
|                                                         |  |              |  |                                                                | 
|South Leesburg                                           |  |              |  |                                                                | 
|27417 U.S. Highway 27                                    |  |              |  |                                                                | 
|Leesburg, Florida 34748                                  |  |              |  | 1996                                                           | 
|                                                         |  |              |  |                                                                | 
|Inverness                                                |  |              |  |                                                                | 
|2709 East Gulf to Lake
  Highway                         |  |              |  |                                                                | 
|Inverness,
  Florida 34453-3245                          |  |              |  | 1998                                                           | 
|                                                         |  |              |  |                                                                | 
|Citrus Ridge                                             |  |              |  |                                                                | 
|16550 Woodcrest Way                                      |  |              |  |                                                                | 
|Clermont, Florida 34711-7004                             |  |              |  | 1998                                                           | 

(continued)

32

---



|Location                                              |  | DateAcquired |  | Net Book Value of Land
  and Buildings atDecember
  31, 2004 |               
|----------------------------------------------------- |  | ------------ |  | ------------------------------------------------------------ | --------------
|                                                      |  |              |  |                                                              |               
|                                                      |  |              |  |                                                              | (In thousands)
|Bushnell (1)                                          |  |              |  |                                                              |               
|1128 North Main Street                                |  |              |  |                                                              |               
|Bushnell, Florida 33513                               |  |              |  | 1998                                                         |               
|                                                      |  |              |  |                                                              |               
|Administration                                        |  |              |  |                                                              |               
|715 West Oak Terrace Drive                            |  |              |  |                                                              |               
|Leesburg, Florida 34748                               |  |              |  | 1961                                                         |               
|                                                      |  |              |  |                                                              |               
|Boulevard (2)                                         |  |              |  |                                                              |               
|900 North Boulevard West                              |  |              |  |                                                              |               
|Leesburg, Florida 34748                               |  |              |  | 2000                                                         |               
|                                                      |  |              |  |                                                              |               
|Retail Banking and Human
  Resource Offices           |  |              |  |                                                              |               
|800 North Lee Street                                  |  |              |  |                                                              |               
|Leesburg, Florida 34748                               |  |              |  | 2001                                                         |               
|                                                      |  |              |  |                                                              |               
|Kings Ridge                                           |  |              |  |                                                              |               
|4299 South Highway 27                                 |  |              |  |                                                              |               
|Clermont, Florida 34711                               |  |              |  | 2001                                                         |               
|                                                      |  |              |  |                                                              |               
|Spruce Creek                                          |  |              |  |                                                              |               
|17801 SE 109th
  Avenue                               |  |              |  |                                                              |               
|Summerfield, Florida 34491                            |  |              |  | 2002                                                         |               
|                                                      |  |              |  |                                                              |               
|Villages 466                                          |  |              |  |                                                              |               
|3340 Wedgewood Lane                                   |  |              |  |                                                              |               
|The Villages, Florida 32162                           |  |              |  | 2003                                                         |               
|                                                      |  |              |  |                                                              |               
|Crystal River                                         |  |              |  |                                                              |               
|180 North Sun Coast
  Boulevard                       |  |              |  |                                                              |               
|Crystal River, Florida 34429                          |  |              |  | 2003                                                         |               
|                                                      |  |              |  |                                                              |               
|Old Lake Square (3)                                   |  |              |  |                                                              |               
|10105 U.S. Highway 441                                |  |              |  |                                                              |               
|Leesburg, Florida 34788                               |  |              |  | 1995                                                         |               
|                                                      |  |              |  |                                                              |               
|Office Park (Accounting,
  Checking and Data Offices) |  |              |  |                                                              |               
|341 West Oak Terrace Drive
  (Building 100)           |  |              |  |                                                              |               
|321 West Oak Terrace Drive
  (Building 200)           |  |              |  |                                                              |               
|Leesburg, Florida 34748                               |  |              |  | 2002                                                         |               
|                                                      |  |              |  |                                                              |               
|Highway 466 Lot, CR 101                               |  |              |  |                                                              |               
|The Villages, Florida 32162                           |  |              |  | 1999                                                         |               

|(1) | Leased branch office opened
  May, 1999.
|--- | ----------------------------------------
|(2) | Storage facility owned by
  the Bank.   
|(3) | Unused branch office.                   

The
Bank owns and operates personal computers, teller terminals and associated
equipment. At December 31, 2004, such equipment had a net book value of
$1,326,000.  The Bank also had $84,000
in construction in process at December 31, 2004.

33

---



|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, 2004, through the
solicitation of proxies or otherwise.

PART II

|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
  STOCKHOLDER  MATTERS AND ISSUER
  PURCHASES OF EQUITY SECURITIES
|------- | -----------------------------------------------------------------------------------------------------------------

The information with respect to the market for the registrants common
equity and related stockholder matters appear under Common Stock Prices and
Dividends in the Registrants 2004 Annual Report to Stockholders and is
incorporated herein by reference.  There
was no repurchase of shares of its common stock by the Company during the three
months ended December 31, 2004.

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The above-captioned information appears under Selected Consolidated
Financial Data on page 8 and 9 of the Registrants 2004 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 2004 Annual Report to Stockholders on pages 10 through 22 and is
incorporated herein by reference.

|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
  RISK
|-------- | ------------------------------------------------------------

The above-captioned information appears under Managements Discussion
and Analysis of Financial Condition and Results of Operations in the
Registrants 2004 Annual Report to Stockholders on page 16, under the
Quantitative and Qualitative disclosure about Market Risk caption 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 & Smith PA
appear in the Registrants 2004 Annual Report to Stockholders on pages 23
through 56 and are incorporated herein by reference.

|ITEM 9. | CHANGES 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.

34

---



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

| | 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
  during the year, the chief executive and chief financial officers of the
  Company concluded that the Companys disclosure controls and procedures were
  effective as of December 31, 2004.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Management Report On Internal Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Our
  management is responsible for establishing and maintaining adequate internal
  control over financial reporting. 
  Internal control is a process, effected by an entitys board of
  directors, management and other personnel, designed to provide reasonable
  assurance regarding the achievement of objectives in the following
  categories: effectiveness and efficiency of operations, reliability of
  financial reporting and compliance with applicable laws and regulations.                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | All internal
  control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined
  to be effective can provide only reasonable assurance with respect to
  financial statement preparation and presentation.                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Under the
  supervision and with participation of our management, including our principal
  executive officer and principal financial officer, we are in the process of
  assessing the effectiveness of the companys internal control over financial
  reporting as of December 31, 2004. In making this assessment, we used the
  criteria set forth by the Committee of Sponsoring Organizations of the
  Treadway Commission (COSO) in Internal
  Control-Integrated Framework. We expect to complete our assessment
  and report our conclusions on or before May 2, 2005.                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Hacker
  Johnson & Smith PA, an independent registered public accounting firm,
  will issue an audit report on our assessment of the companys internal
  control over financial reporting. 
  That report will be filed on or before May 2, 2005.                                                                                                                                                                                                                                                                                                                                                                                          

|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

| | On January
  14, 2005, the Company entered into a definitive agreement for the Company and
  the Bank to be acquired by Colonial BancGroup, Inc., a bank holding company
  incorporated in Delaware with a subsidiary bank, Colonial Bank, N.A.,
  operating in Alabama, Florida, Georgia, Nevada and Texas. Under the terms of
  the agreement, shareholders of the Company will elect to receive either 2.0
  shares of Colonial stock or $42.00 in cash for each share of the Company
  stock they own. The cash consideration will be capped at 35% of the
  transaction and an over-election of cash will result in a pro rata
  distribution of stock. Completion of the transaction is subject to approval
  by the shareholders of the Company and various regulatory agencies.  See Exhibit 99.1.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On December 8, 2004, the
Board of Directors granted Sandra L. Rutschow options to purchase 1,000 shares of the Company's
common stock at an exercise price of $32.99 per share. The Form of the Company's stock
option award agreement is attached as Exhibit 10.5 to this Report.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

---



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 12, 2005 at
pages 6 through 9.

|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 12, 2005 at pages 12 and 13.

|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 12,
2005 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 14 and 15 of the Registrants
Proxy Statement for the Annual Meeting of Stockholders to be held on May 12,
2005.

|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The information relating to principal accountant fees and services is
incorporated herein by reference to page 18 of the Registrants Proxy Statement
for the Annual Meeting of Stockholders to be held on May 12, 2005.

36

---



PART IV

|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                                                                           
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                      
|(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 2004 Annual Report to Stockholders.
|         |                                                                                                                                                                      

| |                                                                                                                     |  | Page 
| | ------------------------------------------------------------------------------------------------------------------- |  | -----
| |                                                                                                                     |  |      
| | Independent
  Auditors Report                                                                                      |  | 57   
| |                                                                                                                     |  |      
| | Consolidated
  Balance Sheets as of December 31, 2004 and 2003                                                      |  | 23   
| |                                                                                                                     |  |      
| | Consolidated
  Statements of Income for the Years Ended December 31, 2004, 2003 and 2002                            |  | 24   
| |                                                                                                                     |  |      
| | Consolidated
  Statements of Changes in Stockholders Equity for the Years Ended December
  31, 2004, 2003 and 2002 |  | 25-27
| |                                                                                                                     |  |      
| | Consolidated
  Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                        |  | 28-29
| |                                                                                                                     |  |      
| | Notes to
  Consolidated Financial Statements for the Years Ended December 31, 2004, 2003
  and 2002                 |  | 30-56

37

---



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**                                                                                                                    
| |      |                                                                                                                                                                                   
| | 10.5 | Stock Option Award Agreement                                                                                                                                                      
| |      |                                                                                                                                                                                   
| | 13.0 | Annual
  Report to Stockholders (filed herewith)                                                                                                                                  
| |      |                                                                                                                                                                                   
| | 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 the 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 the Sarbanes-Oxley Act of 2002.                           
| |      |                                                                                                                                                                                   
| | 99   | Proxy
  Statement for Annual Meeting to be filed within 120 days after the end of the
  fiscal year covered by this Form 10-K in accordance with Instruction G.(3) to
  Form 10-K.
| |      |                                                                                                                                                                                   
| | 99.1 | Form 8-K and
  Attached Exhibit 2.1 filed with the Commission on January 28, 2005, are
  incorporated herein by this reference.                                                   

|*   | 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 Form 10-Q,
  filed July 23, 2004.                                                                    

38

---



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
  10, 2005                

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/ James P.
  Logan        |  | Chairman of
  the Board           |  | March 10, 2005
|                            |  |                                   |  |               
|James P.
  Logan            |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ Ted R.
  Ostrander, Jr. |  | Vice
  Chairman of the Board      |  | March 10, 2005
|                            |  |                                   |  |               
|Ted R.
  Ostrander, Jr.     |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ Joseph
  J. Junod       |  | Director                          |  | March 10, 2005
|                            |  |                                   |  |               
|Joseph J.
  Junod           |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ Claron
  D. Wagner      |  | Director                          |  | March 10, 2005
|                            |  |                                   |  |               
|Claron D.
  Wagner          |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ H.D.
  Robuck, Jr.      |  | Director                          |  | March 10, 2005
|                            |  |                                   |  |               
|H.D. Robuck,
  Jr.          |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ Howard
  H. Hewitt      |  | Director                          |  | March 10, 2005
|                            |  |                                   |  |               
|Howard H.
  Hewitt          |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ Gregory
  P. Padgett    |  | Director                          |  | March 10, 2005
|                            |  |                                   |  |               
|Gregory P.
  Padgett        |  |                                   |  |               
|                            |  |                                   |  |               
|/s/ Stephen
  T. Kurtz      |  |                                   |  |               
|                            |  | Chief
  Executive Officer,        |  |               
|Stephen T.
  Kurtz          |  | President
  and Director          |  | March 10, 2005
|                            |  |                                   |  |               
|/s/ Paul K.
  Mueller       |  | Executive
  Vice President, Chief |  |               
|                            |  | Operating
  Officer and Treasurer |  |               
|Paul K.
  Mueller           |  | and Director                      |  | March 10, 2005

39

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