FFLC BANCORP, INC.
                               2002 ANNUAL REPORT


                                   OUR MISSION


Our mission is to operate First Federal  Savings Bank as a community  bank, in a
manner consistent with the high expectations of our shareholders,  customers and
employees.  We will achieve  attractive  financial results for our stockholders,
provide  quality  financial  services and products to our  customers,  and offer
rewarding  careers to our employees,  while maintaining a high level of personal
service and integrity. The Company's primary goals are to: provide an attractive
return to its shareholders,  as measured by long-term  capital  appreciation and
the  continued   payment  of  reasonable   dividends;   provide  a  competitive,
progressive and profitable array of financial  services and products in a manner
focused on  excellent  customer  service;  attract and retain  highly-motivated,
top-quality  employees;  and make a positive impact on the  communities  that we
serve.


                           FORWARD-LOOKING STATEMENTS

The  Private  Securities  Litigation  Reform  Act of  1995  evidences  Congress'
determination  that the disclosure of  forward-looking  information is desirable
for  investors  and  encourages  such  disclosure by providing a safe harbor for
forward-looking   statements  by  corporate  management.   This  Annual  Report,
including  the  Letter  to  Stockholders  and the  Management's  Discussion  and
Analysis  of   Financial   Condition   and  Results  of   Operations,   contains
forward-looking statements that involve risk and uncertainty. In order to comply
with the terms of the safe harbor,  the Company  notes that a variety of factors
could cause the Company's  actual  results and  experience to differ  materially
from the anticipated  results or other  expectations  expressed in the Company's
forward-looking  statements.  The risks and  uncertainties  that may  affect the
operations,  performance,  development,  growth  projections  and results of the
Company's  business include,  but are not limited to, the growth of the economy,
interest  rate  movements,  timely  development  by the  Company  of  technology
enhancements for its products and operating  systems,  the impact of competitive
products,  services and pricing,  customer business requirements,  Congressional
legislation  and similar  matters.  Readers of this report are  cautioned not to
place  undue  reliance  on  forward-looking  statements  which  are  subject  to
influence  by the named risk factors and  unanticipated  future  events.  Actual
results, accordingly, may differ materially from management expectations.

                                    CONTENTS

                                                                            Page

Corporate Profile, Corporate Organization and General Information .............1
Office Locations and Common Stock Prices and Dividends ........................2
Consolidated Financial Highlights .............................................3
Letter to Stockholders ......................................................4-5
First Federal Website and Online Banking.....................................6-7
Selected Consolidated Financial Data and Financial Ratios....................8-9
Management's Discussion and Analysis of Financial
    Condition and Results of Operations ...................................10-20
Consolidated Financial Statements .........................................21-53
Independent Auditors' Report..................................................54
Directors and Officers of FFLC Bancorp, Inc. .................................55
Directors and Officers of First Federal Savings Bank of Lake County...........56
Employees ....................................................................57




                                  Inside Cover


<PAGE>



                                        3


CORPORATE PROFILE

FFLC  Bancorp,  Inc.  ("FFLC" or the  "Holding  Company")  was  incorporated  in
Delaware on September 16, 1993, and acquired First Federal  Savings Bank of Lake
County (the "Bank")  (together,  the  "Company") in  connection  with the Bank's
conversion  to stock form on January 4, 1994.  The Holding  Company is a savings
and  loan  holding  company  subject  to  regulation  by the  Office  of  Thrift
Supervision  ("OTS") which transacts its business  through its  subsidiary,  the
Bank. The Bank is a community-oriented  savings institution,  chartered in 1934,
which  offers a variety of  financial  services to  individuals  and  businesses
primarily  located  in Lake  County,  Sumter  County,  Citrus  County and Marion
County,  Florida.  The  deposits of the Bank are insured by the Federal  Deposit
Insurance  Corporation  ("FDIC") through the Savings Association  Insurance Fund
("SAIF").  During 2001, First Alliance Title, LLC, a 90% owned subsidiary of the
Holding  Company,  was formed to operate as a title  agency.  During  2002,  the
Holding Company formed FFLC Statutory Trust I, a wholly-owned subsidiary for the
sole purpose of issuing $5,000,000 of trust preferred securities.

CORPORATE ORGANIZATION

Holding Company
    FFLC Bancorp, Inc.

Subsidiaries
    First Federal Savings Bank of Lake County
    First Alliance Title, LLC
    FFLC Statutory Trust I

Bank's Subsidiary
    Lake County Service Corporation

GENERAL INFORMATION

Corporate Headquarters
     800 North  Boulevard  West,  Post  Office  Box  490420,  Leesburg,  Florida
     34749-0420
     Telephone:    Local       (352) 787-3311
                   Toll Free   (877) 955-2265
Annual Meeting
     The  Annual  Meeting  of the  Stockholders  will be  held  at the  Leesburg
     Community  Building  located at 109 East Dixie  Avenue in  Leesburg at 2:00
     p.m. on May 8, 2003.

Form 10-K
     A copy of the  Form  10-K,  as  filed  with  the  Securities  and  Exchange
     Commission,  may be obtained by  stockholders  without  charge upon written
     request to Sandra L. Rutschow,  Vice  President - Secretary,  FFLC Bancorp,
     Inc., Post Office Box 490420, Leesburg,  Florida 34749-0420.  The Company's
     SEC  filings,  annual and  quarterly  reports and press  releases  are also
     available at our Website, http://www.1stfederal.com/fflc.htm., in the "FFLC
     Bancorp" section.

Stockholder Assistance
     Stockholders  requiring a change of address,  records or information  about
     lost certificates, dividend checks or dividend reinvestment should contact:

     Registrar and Transfer Company
     10 Commerce Drive
     Cranford, New Jersey 07016
     800-368-5948
     Website:  http://www.rtco.com

Corporate Counsel
     George W. Murphy, Jr.
     Muldoon, Murphy & Faucette LLP
     5101 Wisconsin Avenue
     Washington, D.C. 20016

Independent Auditors
     Hacker, Johnson & Smith PA
     Certified Public Accountants
     930 Woodcock Road, Suite 211
     Orlando, Florida 32803










<PAGE>


                             FIRST FEDERAL LOGO HERE
OFFICE LOCATIONS

MAP INSERT MAP - HALF PAGE






























COMMON STOCK PRICES AND DIVIDENDS

FFLC's common stock is listed on the National  Association of Securities Dealers
Automated  Quotation  ("NASDAQ") under the symbol FFLC. The following table sets
forth  market price  information,  based on closing  prices,  as reported by the
NASDAQ for the common stock high and low closing  sales prices and the amount of
dividends paid on the common stock for the periods indicated. See Note 21 of the
Consolidated Financial Statements for a summary of quarterly financial data.

                                                                         Cash
                                                                       Dividends
                                                                         Paid
                                                      High      Low    Per Share
                                                      ----      ---    ---------
         Quarter Ended:

         March 31, 2001...........................  19.250    14.875      .13
         June 30, 2001............................  19.950    18.500      .13
         September 30, 2001.......................  21.300    18.500      .13
         December 31, 2001........................  23.250    18.700      .13
         March 31, 2002...........................  25.350    20.300      .14
         June 30, 2002............................  28.350    24.800      .14
         September 30, 2002.......................  29.650    26.750      .14
         December 31, 2002........................  29.570    26.750      .14

As of January 31, 2003,  the Company had 1,665 holders of record of common stock
(includes shares held by brokers).





                                       2
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED FINANCIAL  HIGHLIGHTS
(Dollars in thousands, except per share amounts)

AT YEAR END:                                             2002           2001          2000
                                                         ----           ----          ----

<S>                                                   <C>              <C>           <C>
Total assets ......................................   $  915,821       823,151       711,493
Loans, net ........................................   $  735,338       685,935       615,484
Securities ........................................   $   77,324        59,503        42,717
Deposits ..........................................   $  668,058       585,128       518,885
Equity ............................................   $   71,062        64,068        59,283
Book value per share ..............................   $    19.83         17.98         16.78
Shares outstanding ................................    3,583,275     3,563,932     3,532,561
Equity-to-assets ratio ............................         7.76%         7.78%         8.33%
Nonperforming assets to total assets ..............          .35%          .28%          .39%

FOR THE YEAR:

Interest income ...................................   $   56,533        56,485        49,128
Net interest income after provision for loan losses   $   25,205        20,054        18,183
Net income ........................................   $    8,836         6,289         5,309
Basic income per share ............................   $     2.47          1.77          1.50
Diluted income per share ..........................   $     2.42          1.73          1.46
Loan originations .................................   $  323,728       257,862       188,141
Return on average assets ..........................         1.00%          .82%          .82%
Return on average equity ..........................        13.05%        10.20%         9.24%
Average equity to average assets ratio ............         7.67%         8.05%         8.88%
Noninterest expense to average assets .............         1.68%         1.68%         1.76%
</TABLE>

YIELDS AND RATES:

<TABLE>
<CAPTION>

                                                             Weighted Average
                                                             Rate or Yield              Average Rate or Yield During
                                                              at December 31,              Year Ended December 31,
                                                       ------------------------------   ------------------------------
                                                             2002              2001        2002        2001      2000
                                                             ----              ----        ----        ----      ----

<S>                                                           <C>              <C>         <C>         <C>        <C>
Loans .............................................           7.10%            7.61%       7.28%       7.99%      8.08%
Securities..............................................      4.45%            5.16%       3.76%       5.84%      6.47%
All interest-earning assets ............................      6.52%            7.17%       6.73%       7.71%      7.94%
Deposits................................................      2.84%            3.85%       3.27%       4.95%      5.07%
All interest-bearing liabilities .......................      3.29%            4.22%       3.72%       5.15%      5.28%
Interest-rate spread (1)................................      3.23%            2.95%       3.01%       2.56%      2.66%
Net yield on average interest-earning assets (2)........       N/A              N/A        3.22%       2.89%      3.08%
</TABLE>

(1)  Average yield on all interest-earning  assets less average rate paid on all
     interest-bearing liabilities.
(2)  Net interest income divided by average interest-earning assets.


                                       3
<PAGE>


                                    LOGO HERE





Dear Stockholders:

I am pleased to report that 2002 was a solid year for your Company.  In spite of
an uncertain economy,  we enjoyed a successful year, both in terms of the growth
of the Bank and in operating earnings.  During 2002, we again experienced record
net income from operations, and increased quarterly cash dividends on our common
stock.  First Federal Savings Bank, the Company's  subsidiary,  set a new record
for total  assets,  ending the year with total assets in excess of $915 million.
Our success results from a team effort,  and I want to take this  opportunity to
thank all of you - our  stockholders,  our  employees,  our  customers,  and our
communities  - for your  efforts and support as we moved  through  2002 and into
2003.

The Company's  net income from  operations  increased  40%, from $6.3 million in
2001 to $8.8 million in 2002. On a diluted basis, net income per share increased
39% from  $1.73 for 2001 to $2.42 for 2002.  The  increase  in net  income  from
operations  was primarily due to the  significant  decrease in the cost of funds
that the Bank  experienced,  as a result of the  continued  reductions in market
interest rates that began in 2001.

In January 2003, your Board of Directors approved a 7% increase in the quarterly
cash dividend, to $.15 per common share, from the $.14 per common share paid for
the  prior  four  quarters.  That  increase  continues  the  practice  of annual
increases in effect since 1994,  when the quarterly  cash dividend was $.036 per
common share (adjusted for the five-for-three stock split in November, 1997). In
February,  2003, the Board approved a 3-for-2 split of our common stock,  in the
nature of a stock dividend.  Stockholders  will receive one additional  share of
common  stock for every two shares  held as of the close of business on February
28, 2003,  which is the record date of the split. The payable date for the stock
split dividend is March 14, 2003.

It is  gratifying  to note that our stock price rose over 42% during 2002,  from
$20.75 to $29.57.  Since our  initial  public  offering  in 1994,  our stock has
yielded an average  annual return,  including  dividends,  of 20.85%.  We remain
convinced  that  our  best  strategy  for  creating   long-term   value  to  our
stockholders is to focus on profitability and excellence in customer service.

Asset  growth  continues to be an  important  focal point for the  Company.  The
Company's  total assets grew 11%, from $823 million at December 31, 2001 to $916
million at December 31, 2002.  During 2002,  loans receivable grew 7%, from $686
million to $735  million.  During  2002,  the Bank's loan  originations  totaled
$323.7 million,  compared to $257.9 million in 2001. The Bank originated  $148.3
million  in  residential  loans,  $95.1  million in  commercial  loans and $80.3
million in consumer  loans in 2002.  As reflected in our  financial  statements,
those  volume  levels,  as well as the  increases  in our  cash  and  investment
securities reflect  significant  increases over our results from fiscal 2001. In
reviewing our financial statements, you will see that the Company's asset growth
was funded primarily by an increase in the Bank's deposits.  We are particularly
pleased  that,  during 2002,  the Bank's  deposits  grew 14% with a  substantial
portion  of that  growth  in  checking  and  other  non-certificate  of  deposit
accounts.

The Company's  continued  success and growth is the result of team effort by our
employees  to keep pace with the growth of our  communities  and the  increasing
competition  in the  financial  services  sector.  In order to  ensure  that our
customers  have  sufficient  physical  locations  at  which to  conduct  banking
transactions,  we have continued to expand our branch structure. During 2002, we
opened  branches at two new  locations,  relocated two branches to larger sites,
and  added  one  remote  ATM  location.  We have  plans to open  two new  branch
locations in 2003.

                                       4
<PAGE>



Our  customers  continue  to indicate a desire to conduct  banking  transactions
electronically,  and I am very  pleased  to report  that  First  Federal  Online
Banking, our Internet banking solution, has continued to enjoy support from both
our retail and commercial  customers.  We currently  have over 2,900  registered
users of our online banking service, which represents an increase over last year
of approximately 61%.

If you have not had a chance  to check  out  First  Federal  Online  Banking,  I
encourage  you to visit  our  website,  www.1stfederal.com,  and click the "Test
Drive"  button.  I believe you will be pleased at how easily and  completely you
can  check  account  balances,  transfer  funds,  pay  bills,  and  access  cash
management services (for commercial customers) on a 24-hour-a-day, 7-days-a-week
basis.  While you are at our website, I also encourage you to note all the other
useful information,  including our loan and deposit products, links to our press
releases  and  financial  reports,  local  weather,  and  links  to  some  other
"local-interest" websites.

Our  customers  have also  welcomed  our  efforts  to  provide  other  financial
services.  We  have  been  pleased  with  the  positive  feedback  and  customer
acceptance of mutual funds, annuities, discount brokerage and financial planning
services. These investment, retirement and financial planning services are being
offered through a joint venture program with T.H.E.  Financial  Group,  Ltd., an
independent  securities  broker-dealer firm, and member of the NASD and SIPC. We
began  offering these services in 2001, and have been pleased with the growth in
this area of the Bank's operations.  We also continue to offer trust services to
our  customers,  provided by the Trust  Department of the First National Bank of
Mount Dora under a referral  agreement.  In  addition to these  services,  First
Alliance Title, LLC, a 90% owned subsidiary of FFLC Bancorp, Inc., was formed to
operate as a title agency, and we have begun to offer title agency services on a
limited basis, primarily for construction loans.

I also want to take this  opportunity  to renew our  commitment  to honesty  and
integrity - in light of the disturbing examples of poor corporate  governance so
widely reported in the national press over recent months,  I want you to know of
our unrelenting  commitment to the highest standards of ethics,  fair and honest
reporting,  and sound corporate  oversight on which this Company was founded and
on which we continue to operate.  We have  carefully  reviewed the  unfolding of
these stories, and the resulting laws and regulations that have been issued, and
believe we are in compliance  with all of those  guidelines.  We appreciate  the
trust that you have placed in us over the past  years,  and will strive in every
way to continue to be worthy of that trust.

Community banking very much remains a "people" business.  We are blessed to have
a number of Directors and staff members who have been  associated  with the Bank
for many years.  Also,  many new employees  have joined the Bank with  extensive
banking  experience  in our market area. It is my belief that our team is second
to none in terms of providing our customers with quality customer service.

We truly appreciate the loyalty and support of our stockholders,  our customers,
and our employees.  We remain committed to increasing the long-term value of our
Company.   That  commitment   includes  meeting  the  investment  needs  of  our
stockholders, the financial needs of our customers, the personal growth needs of
our employees and the needs of the communities in which we have the privilege to
serve.  We believe FFLC Bancorp,  Inc., is well  positioned to meet those needs,
and we look forward to the opportunities before us.

Cordially yours,




Stephen T. Kurtz
President and Chief Executive Officer



                                       5
<PAGE>

                             First Federal Logo Here








Visit First Federal's website at http://www.1stfederal.com.  This site serves as
a portal  for First  Federal  banking  services,  local  news,  and  information
regarding our  communities.  From this site,  customers can gain access to First
Federal Online Banking,  our fully interactive  banking system, that allows bill
payments, account inquiries, transfer of funds and more. In addition, commercial
customers can access cash management  tools,  make tax payments and make payroll
direct deposit payments through First Federal Online Banking.  Also available at
1stfederal.com is current  information about the Bank's locations,  products and
services.  Investors can also get the latest information regarding FFLC Bancorp,
including stock quotes, press releases, and financial data.



                                        6
<PAGE>


                              First Federal Online







First Federal  introduced  First Federal Online Banking in July 2000 through the
Bank's  website at  http://www.1stfederal.com.  First Federal  customers can now
access practically their entire First Federal  relationship through the website,
24 hours a day, 7 days a week.  From the First  Federal  website,  customers can
view our online banking  product and may enroll online.  After  receiving  their
user ID and password,  customers may log-on to check  balances,  pay their bills
online,  reconcile their account statements,  transfer funds from one account to
another, review account histories, reorder checks and more. First Federal Online
Banking is just one more added convenience to banking with First Federal.



                                       7
<PAGE>










SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                      At December 31,
                                                            ---------------------------------------------------------
                                                             2002           2001        2000      1999         1998
                                                             ----           ----        ----      ----         ----

<S>                                                         <C>           <C>         <C>         <C>         <C>
Total assets..........................................      $ 915,821     823,151     711,493     590,432     463,820
Loans, net ...........................................        735,338     685,935     615,484     500,901     389,059
Cash and cash equivalents.............................         69,394      49,792      30,481      34,339      22,928
Securities ...........................................         77,324      59,503      42,717      36,909      40,392
Deposits   ...........................................        668,058     585,128     518,885     429,274     351,030
Borrowed funds........................................        168,303     167,327     129,376     102,914      56,789
Stockholders' equity..................................         71,062      64,068      59,283      55,637      53,223
</TABLE>


<TABLE>
<CAPTION>

                                                                                     For the Year Ended December 31,
                                                            --------------------------------------------------------
                                                               2002         2001        2000        1999        1998
                                                               ----         ----        ----        ----        ----

<S>                                                         <C>         <C>         <C>         <C>         <C>
Interest income.......................................      $  56,533      56,485      49,128      38,383      31,870
Interest expense......................................         29,483      35,316      30,065      21,214      17,271
Net interest income...................................         27,050      21,169      19,063      17,169      14,599
Provision for loan losses.............................          1,845       1,115         880         719         682
Net interest income after provision for loan losses...         25,205      20,054      18,183      16,450      13,917
Noninterest income (1)................................          3,776       2,773       1,904       1,675       1,567
Noninterest expense...................................         14,868      12,841      11,414      10,313       8,446
Income before income taxes (1)........................         14,113       9,986       8,673       7,812       7,038
Income taxes (1)......................................          5,277       3,697       3,364       2,962       2,641
Net income (1)........................................          8,836       6,289       5,309       4,850       4,397
Basic income per share (1)............................         $ 2.47        1.77        1.50        1.37        1.22
Weighted average number of common
      shares outstanding for basic....................      3,573,665   3,547,764   3,541,400   3,548,568   3,592,253
Diluted income per share (1)..........................         $ 2.42        1.73        1.46        1.32        1.16
Weighted average number of common shares
      outstanding for diluted.........................      3,644,586   3,629,432   3,615,740   3,677,038   3,777,085
</TABLE>

--------------------------

(1)  Excludes gain on sale of real estate held for  development  in 1999 of $886
     ($552 net of tax).


                                        8
<PAGE>


SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA:
<TABLE>
<CAPTION>
                                                                                At or For the Year Ended December 31,
                                                                -----------------------------------------------------
                                                                     2002       2001       2000      1999       1998
                                                                     ----       ----       ----      ----       ----

<S>                                                             <C>        <C>        <C>        <C>        <C>
Return on average assets (5).................................        1.00%      0.82%      0.82%      0.93%      1.05%
Return on average equity (5).................................       13.05%     10.20%      9.24%      8.88%      8.37%
Dividend payout ratio .......................................       22.66%     29.35%     32.32%     28.95%     29.51%
Average equity to average assets.............................        7.67%      8.05%      8.88%     10.45%     12.52%
Total equity to total assets.................................        7.76%      7.78%      8.33%      9.42%     11.47%
Interest rate spread during year(1)..........................        3.01%      2.56%      2.66%      2.98%      3.01%
Net interest margin (2)......................................        3.22%      2.89%      3.08%      3.44%      3.61%
Nonperforming assets to total assets (3).....................        0.35%      0.28%      0.39%      0.47%      0.17%
Nonperforming loans to total loans (4).......................        0.34%      0.27%      0.40%      0.46%      0.11%
Allowance for loan losses to non-performing loans............      199.88%    224.20%    141.51%    119.01%    514.19%
Allowance for loan and REO
      losses to nonperforming assets.........................      161.00%    187.62%    127.49%    101.77%    281.85%
Allowance for loan losses to gross loans.....................        0.68%      0.61%      0.56%      0.54%      0.57%
Noninterest expenses to average assets.......................        1.68%      1.68%      1.76%      1.97%      2.01%
Operating efficiency ratio (5)...............................       48.23%     53.63%     54.44%     54.73%     52.25%
Average interest-earning assets to
      average interest-bearing liabilities...................        1.06       1.07       1.09       1.11       1.14
Net interest income to noninterest expenses..................        1.82       1.69       1.69       1.69       1.76
Total shares outstanding.....................................   3,583,275  3,563,932  3,532,561  3,583,938  3,655,620
Book value per common share outstanding......................     $ 19.83      17.98      16.78      15.52      14.56
Number of banking offices (all full-service).................          14         12         12         12          9
</TABLE>



(1)  Difference  between weighted average yield on all  interest-earning  assets
     and weighted average rate on all interest-bearing liabilities.
(2)  Based upon net interest income before  provision for loan losses divided by
     average  interest-earning  assets.  (3)  Nonperforming  assets  consist  of
     nonperforming  loans and foreclosed assets. (4) Nonperforming loans consist
     of loans 90 days or more delinquent.
(5)  Excludes  gain on  sale of real  estate  held  for  development  in 1999 of
     $886,000 ($552,000 net of tax).

                                        9
<PAGE>


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

GENERAL

First Federal Savings Bank of Lake County, the subsidiary of FFLC, was organized
in 1934 as a federally chartered savings and loan association and converted to a
federally  chartered stock savings bank on January 4, 1994. The Bank's principal
business  continues to be attracting retail deposits from the general public and
investing  those  deposits,  together  with  principal  repayments  on loans and
investments  and funds  generated from  operations,  primarily in mortgage loans
secured by one-to-four-family,  owner-occupied homes, commercial loans, consumer
loans  and,  to a  lesser  extent,  construction  loans  and  other  loans,  and
multi-family residential mortgage loans. In addition, the Bank holds investments
permitted by federal laws and  regulations  including  securities  issued by the
U.S.   Government  and  agencies  thereof.   The  Bank's  revenues  are  derived
principally from interest on its loan and mortgage-backed  securities portfolios
and interest and dividends on its investment securities.

The Bank is a  community-oriented  savings  institution  offering  a variety  of
financial  services to meet the needs of the  communities it serves.  The Bank's
deposit  gathering  and  lending  markets  are  primarily  concentrated  in  the
communities surrounding its full service offices located in Lake, Sumter, 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 Company's net income from operations increased 40.5% to $8.8 million for the
year ended  December  31, 2002 from $6.3  million for the year 2001.  The Bank's
total assets  increased 11.3% to $915.8 million at December 31, 2002 from $823.2
million at December 31,  2001.  That  increase  resulted  primarily  from a 7.2%
increase in net loans to $735.3 million at December 31, 2002 from $685.9 million
at  December  31,  2001,  reflecting  increased  local loan  demand.  Securities
increased 29.9% or $17.8 million during 2002. Deposits increased 14.2% to $668.1
million at December 31, 2002 from $585.1 million at December 31, 2001.  Advances
from the Federal Home Loan Bank  decreased  $5.0 million,  to $149.0  million at
December 31, 2002 from $154.0  million at December  31,  2001.  The Company also
raised $5.0 million through the issuance of trust preferred  securities  through
its newly formed subsidiary FFLC Statutory Trust I.

CRITICAL ACCOUNTING POLICIES

Our financial  condition  and results of operations  are sensitive to accounting
measurements  and  estimates  of matters  that are  inherently  uncertain.  When
applying  accounting policies in areas that are subjective in nature, we use our
best  judgment  to arrive at the  carrying  value of  certain  assets.  The most
critical  accounting  policy we applied is related to the  valuation of the loan
portfolio.

A variety of factors impact  carrying value of the loan portfolio  including the
calculation   of  the  allowance  for  loan  losses,   valuation  of  underlying
collateral,  the timing of loan  charge-offs and the amount and  amortization of
loan fees and deferred origination costs.



                                       10


<PAGE>




The allowance for loan losses is the most difficult and subjective judgment. The
allowance is  established  and maintained at a level that we believe is adequate
to cover losses  resulting  from the  inability  of  borrowers to make  required
payments on loans.  Estimates for loan losses are arrived at by analyzing  risks
associated  with  specific  loans  and the loan  portfolio,  current  trends  in
delinquencies and charge-offs, the views of our regulators,  changes in the size
and  composition of the loan portfolio and peer  comparisons.  The analysis also
requires  consideration  of the economic  climate and  direction,  change in the
interest  rate  environment,  which  may  impact a  borrower's  ability  to pay,
legislation  impacting the banking industry and economic  conditions specific to
our service  area.  Because the  calculation  of the  allowance  for loan losses
relies on estimates  and  judgments  relating to  inherently  uncertain  events,
results may differ from our estimates.

The  allowance  for  loan  losses  is also  discussed  as part  of  "Results  of
Operations"  and  in  Note  3 to  the  consolidated  financial  statements.  The
significant  accounting  policies are  discussed  in Note 1 to the  consolidated
financial statements.


<PAGE>



REGULATION AND LEGISLATION

General

The operating  results of the Bank are affected by Federal laws and  regulations
and the Bank is subject to extensive regulation,  examination and supervision by
the Office of Thrift  Supervision  ("OTS"),  as its chartering  agency,  and the
Federal Deposit Insurance Corporation ("FDIC"), as the deposit insurer. The Bank
is a member of the  Federal  Home  Loan Bank  ("FHLB")  System  and its  deposit
accounts  are  insured  up to  applicable  limits  by the  FDIC  under  the SAIF
("Savings  Association Insurance Fund"). The Bank must file reports with the OTS
and the FDIC  concerning its  activities and financial  condition in addition to
obtaining  regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other financial  institutions.  The OTS and
the FDIC  conduct  periodic  examinations  to test the  Bank's  compliance  with
various regulatory requirements.  The activities of the Company and the Bank are
governed by the Home Owner's Loan Act, as amended (the "HOLA"),  and, in certain
respects,  the Federal  Deposit  Insurance  Act (the  "FDIA").  A more  complete
description of the HOLA and FDIA is included in the Form 10-K.

Capital Requirements

The OTS capital regulations  require savings  institutions to meet three capital
standards: a 1.5% tangible capital standard; a 3% leverage (core capital) ratio;
and an 8% risk-based  capital  standard.  Under the OTS final rule  implementing
FDICIA,  generally, a well-capitalized  institution is defined as one that meets
the following capital standards:  a 5% tangible capital standard;  a 6% leverage
(core capital) ratio; and a 10% risk-based  capital  standard,  and has not been
notified by its Federal banking agency that it is in a "troubled  condition." At
December 31,  2002,  the Bank met each of its capital  requirements  and met the
criteria of a "well-capitalized" institution as defined above.

Insurance of Deposit Accounts

The FDIC has adopted a risk-based deposit insurance system that assesses deposit
insurance  premiums  according to the level of risk involved in an institution's
activities. An institution's risk category is based upon whether the institution
is  classified as "well  capitalized,"  "adequately  capitalized"  or "less than
adequately  capitalized" and one of three supervisory  subcategories within each
capital group.  The supervisory  subgroup to which an institution is assigned is
based on a supervisory  evaluation and information  which the FDIC determines to
be relevant to the institution's  financial  condition and the risk posed to the
deposit  insurance fund.  Effective January 1, 1997, the FDIC lowered the annual
assessment  rates  for  SAIF  members  to 0 to 27  basis  points.  The  FDIC has
authority to raise  premiums if deemed  necessary.  If such action is taken,  it
could have an adverse effect on the earnings of the institution.

Under the FDIA,  insurance  of  deposits  may be  terminated  by the FDIC upon a
finding that the institution has engaged in unsafe or unsound  practices,  is in
an unsafe or unsound  condition  to  continue  operations  or has  violated  any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
OTS.  The  management  of the Bank does not know of any  practice,  condition or
violation that might lead to termination of deposit insurance.


                                       11
<PAGE>

CREDIT RISK

The Bank's primary business is lending on residential real estate, commercial
real estate and consumer financing, activities with the inherent risk of
generating potential loan losses the magnitude of which depend on a variety of
factors affecting borrowers which are beyond the control of the Bank. The Bank
has underwriting guidelines and credit review procedures designed to minimize
such credit losses.

RESULTS OF OPERATIONS

The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its
interest-earning assets, primarily its loans, mortgage-backed securities and
investment securities, and its interest-bearing liabilities, consisting of
deposits and borrowings. The operating expenses of the Company principally
consist of employee compensation, occupancy expenses and other general and
administrative expenses. The Company's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.

Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.

                                       12
<PAGE>


The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend  income of the Company from
interest-earning  assets and the resultant average yields; (ii) the total dollar
amount of interest  expense on  interest-bearing  liabilities  and the resultant
average costs; (iii) net  interest/dividend  income; (iv) interest-rate  spread;
(v) net interest margin;  and (vi) weighted average yields and rates at December
31,  2002.  Yields and costs were  derived by dividing  income or expense by the
average balance of assets or liabilities,  respectively,  for the periods shown.
The  average   balance  of  loans  includes  loans  on  which  the  Company  has
discontinued  accruing  interest.  The yields and costs  include  fees which are
considered to constitute adjustments to yields.


<TABLE>
<CAPTION>

                                                                                                             Year Ended December 31,
                                                ------------------------------------------------------------------------------------
                                                                           2002                                     2001
                                                ------------------------------------------------------------------------------------
                                            Yield At                     Interest       Average                   Interest
                                          December 31,     Average          and         Yield/        Average      and
                                              2002         Balance       Dividends       Cost         Balance    Dividends

<S>                                          <C>          <C>           <C>            <C>          <C>            <C>
Interest-earning assets:
    Loans.........................            7.10%        $721,521      52,496         7.28%        $655,306       52,384
    Securities.........................       4.45           79,757       3,002         3.76           49,709        2,901
    Other interest-earning assets (1)..       1.77           38,186       1,035         2.71           27,837        1,200
                                                            -------      -------                      -------       ------

         Total interest-earning assets.       6.52          839,464      56,533         6.73          732,852       56,485
                                                                         ------                                     ------

Noninterest-earning assets.............                      43,409                                    32,885
                                                           --------                                  --------

         Total assets..................                    $882,873                                  $765,737
                                                            =======                                   =======

Interest-bearing liabilities:
    NOW and money market
       accounts........................        .85          131,538       1,449         1.10           97,574        2,278
    Passbook and statement savings
       accounts........................        .82           23,501         216          .92           20,121          359
    Certificates.......................       3.54          460,206      18,461         4.01          419,923       23,959
    FHLB advances......................       5.40          160,235       8,999         5.62          136,041        8,257
    Other borrowings...................       5.08           16,915         358         2.12           11,842          463
                                                            -------      ------                       -------       ------

         Total interest-bearing
           liabilities.................       3.29          792,395      29,483         3.72          685,501       35,316
                                                                         ------                                     ------

Noninterest-bearing deposits...........                      13,655                                    13,683
Noninterest-bearing liabilities........                       9,122                                     4,911
Stockholders' equity...................                      67,701                                    61,642
                                                            -------                                   -------

         Total liabilities and equity..                     882,873                                  $765,737
                                                            =======                                   =======

Net interest-earning assets and
    interest-rate spread (2)...........       3.23%        $ 47,069                     3.01%        $ 47,351
                                              ====          =======                     ====          =======

Net interest income and net
    margin (3).........................                                  $ 27,050       3.22%                      $21,169
                                                                           ======       ====                        ======
======
Ratio of interest-earning assets
    to interest-bearing liabilities....                        1.06                                      1.07
                                                               ====                                      ====
</TABLE>




<TABLE>
<CAPTION>



                                                                      Year Ended December 31,
                                          ---------------------------------------------------

                                            2001                         2000
                                          ---------------------------------------------------

                                          Average                        Interest     Average
                                           Yield/          Average          and       Yield/
                                            Cost           Balance       Dividends     Cost

Interest-earning assets:
<S>                                        <C>             <C>             <C>         <C>
    Loans.........................         7.99%           $562,392        45,434      8.08
    Securities........................     5.84              37,382         2,417      6.47
    Other interest-earning assets (1).     4.31              19,026         1,277      6.71
                                                            -------        ------

         Total interest-earning assets     7.71             618,800        49,128      7.94
                                                                           ------

Noninterest-earning assets............                       28,090
                                                             ------

         Total assets.................                     $646,890
                                                           ========

Interest-bearing liabilities:
    NOW and money market
       accounts.......................     2.33              82,710         2,182      2.64
    Passbook and statement savings
       accounts.......................     1.78              20,179           421      2.09
    Certificates......................     5.71             356,219        20,672      5.80
    FHLB advances.....................     6.07             104,647         6,497      6.21
    Other borrowings..................     3.91               5,729           293      5.11
                                                            -------        ------

         Total interest-bearing
           liabilities................     5.15             569,484        30,065      5.28
                                                                           ------

Noninterest-bearing deposits..........                       13,221
Noninterest-bearing liabilities.......                        6,756
Stockholders' equity..................                       57,429
                                                            -------

         Total liabilities and equity.                     $646,890
                                                            =======

Net interest-earning assets and
    interest-rate spread (2)..........     2.56%           $ 49,316                    2.66
                                           ====             =======                    ====

Net interest income and net
    margin (3)........................     2.89%                         $ 19,063      3.08
                                           ====                            ======      ====
Ratio of interest-earning assets
    to interest-bearing liabilities...                         1.09
                                                               ====
</TABLE>
(1)  Includes interest-bearing deposits and FHLB Stock.
(2)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the  average   cost  of  interest   bearing
     liabilities.
(3)  Net   interest   margin  is  net   interest   income   divided  by  average
     interest-earning assets.



                                       13


<PAGE>


The following  table discloses the extent to which changes in interest rates and
changes  in  the  volume  of   interest-earning   assets  and   interest-bearing
liabilities  have affected the Company's  interest  income and interest  expense
during the periods  indicated.  Information  is provided in each  category  with
respect to (i)  changes  attributable  to changes in volume  (changes  in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume) and (iii) changes attributable to changes in
rate/volume (changes in rate multiplied by changes in volume).



<TABLE>
<CAPTION>


                                                 Year Ended December 31,                      Year Ended December 31,
                                                  2002 vs. 2001                                     2001 vs. 2000
                                                 Increase (Decrease)                             Increase (Decrease)
                                                   Due to                                             Due to
                                                 --------------------------------------------------------------------
                                                              Rate/                                  Rate/
                                            Rate    Volume   Volume        Net      Rate   Volume    Volume      Net
                                            ----    ------   ------        ---      ----   ------    ------      ---
                                                                                           ($ in thousands)
<S>                                        <C>        <C>      <C>         <C>      <C>     <C>         <C>     <C>
Interest-earning assets:
    Loans, net...........................  $(4,706)   5,293    (475)       112      (506)   7,507       (51)    6,950
    Securities...........................   (1,030)   1,754    (623)       101      (235)     797       (78)      484
    Other interest-earning (1)...........     (445)     446    (166)      (165)     (457)     591      (211)      (77)
                                            ------   ------  ------     ------    ------   ------       ---    ------

           Total.........................   (6,181)   7,493  (1,264)        48    (1,198)   8,895      (340)    7,357
                                             -----    -----   -----    -------     -----    -----       ---     -----

Interest-bearing liabilities:
    NOW and money market accounts........   (1,203)     793    (419)      (829)     (251)     392       (45)       96
    Passbook and statement savings
        accounts.........................     (174)      60     (29)      (143)      (61)      (1)      -         (62)
    Certificates.........................   (7,114)   2,298    (682)    (5,498)     (348)   3,697       (62)    3,287
    FHLB advances........................     (617)   1,469    (110)       742      (145)   1,949       (44)    1,760
    Other borrowings.....................     (212)     198     (91)      (105)      (69)     313       (74)      170
                                           -------   ------  ------     ------   -------   ------      ----    ------

           Total.........................   (9,320)   4,818  (1,331)    (5,833)     (874)   6,350      (225)    5,251
                                             -----    -----   -----      -----    ------    -----       ---     -----

Net change in net interest
    income .......................         $ 3,139    2,675      67      5,881      (324)   2,545      (115)    2,106
                                             =====    =====    ====      =====    ======    =====       ===     =====
</TABLE>

--------------------------------------

(1) Includes interest-bearing deposits and FHLB Stock.



                                       14
<PAGE>


CAPITAL  RESOURCES

The Bank's  sources of funds include  proceeds from payments and  prepayments on
mortgage loans and mortgage-backed  securities,  proceeds from the maturities of
investment securities and deposits.  While maturities and scheduled amortization
of loans and investment  securities are  predictable  sources of funds,  deposit
inflows and mortgage  prepayments  are greatly  influenced by local  conditions,
general interest rates, and regulatory changes.

At December 31, 2002, the Bank had  outstanding  commitments to originate  $25.8
million of loans,  to fund unused lines of credit of $51.8 million,  to fund the
undisbursed  portion of loans in process of $16.8  million  and $1.5  million in
outstanding  standby  letters of  credit.  The Bank  believes  that it will have
sufficient  funds  available  to meet its  commitments.  At December  31,  2002,
certificates  of  deposit  which  were  scheduled  to mature in one year or less
totaled $251.6 million.  Management believes,  based on past experience,  that a
significant portion of those funds will remain with the Bank.

REGULATORY  CAPITAL  REQUIREMENTS

As a federally-chartered financial institution, the Bank is required to maintain
certain  minimum  amounts of  regulatory  capital.  Regulatory  capital is not a
valuation  allowance and has not been created by charges against  earnings.  The
following  table  provides a summary  of the  capital  requirements,  the Bank's
regulatory capital and the amounts in excess at December 31, 2002:



<TABLE>
<CAPTION>
                                                      Tangible                  Core                    Risk-Based
                                              -------------------------------------------------------------------------
                                                              % of                      % of               % of Risk-
                                                             Adjusted                 Adjusted              Weighted
                                                     Amount   Assets         Amount    Assets        Amount  Assets
                                                                 ($ in thousands)

<S>                                                <C>         <C>         <C>          <C>         <C>         <C>
      Regulatory capital.......................... $ 71,139    7.78%       $ 71,139     7.78%       $ 75,645    12.66%
      Requirement.................................   13,719    1.50          27,439     3.00          47,794     8.00
                                                     ------    ----          ------     ----          ------   -------

      Excess...................................... $ 57,420    6.28%       $ 43,700     4.78%       $ 27,851     4.66%
                                                     ======    ====          ======     ====          ======    =====
</TABLE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from  interest-rate  risk inherent in
its  lending and deposit  taking  activities.  The Company has little or no risk
related to trading accounts, commodities or foreign exchange.

Management  actively  monitors and manages its interest rate risk exposure.  The
primary objective in managing interest-rate risk is to limit, within established
guidelines, the adverse impact of changes in interest rates on the Company's net
interest  income and capital,  while  adjusting  the  Company's  asset-liability
structure to obtain the maximum yield-cost spread on that structure.  Management
relies primarily on its asset-liability structure to control interest rate risk.
However,  a sudden and  substantial  increase in interest rates could  adversely
impact the Company's  earnings,  to the extent that the interest  rates borne by
assets and liabilities do not change at the same speed,  to the same extent,  or
on the same basis.

Disclosure about the fair value of financial instruments,  which reflect changes
in  market  prices  and  rates,  can be  found  in  Note 9 of the  notes  to the
consolidated financial statements.


The Bank's  primary  mission is to provide  financing by offering  permanent and
construction  residential  mortgage  loans,  commercial  real  estate  loans and
consumer and commercial loans and by providing  conveniently  located depository
facilities with transaction,  savings and certificate accounts.  The Bank's goal
is to continue to be a well-capitalized  and profitable  operation that provides
service that is professional, efficient and courteous. The Bank seeks to fulfill
its mission and accomplish its goals by pursuing the following  strategies:  (i)
emphasizing lending in the one-to-four-family  residential






                                     15

<PAGE>

mortgage,  commercial real estate and consumer lending markets; (ii) controlling
interest-rate  risk;  (iii)  managing  deposit  pricing and asset  growth;  (iv)
emphasizing cost control; and (v) maintaining asset quality by investing in U.S.
government and agency  securities  which,  in management's  judgment,  provide a
balance between yield and safety.  It is  management's  intention to continue to
employ these strategies over the foreseeable future.

The Bank's profitability, like that of most financial institutions, is dependent
to a large extent upon its net interest income,  which is the difference between
its interest income on interest-earning  assets, such as loans,  mortgage-backed
securities   and   investment   securities,   and  its   interest   expense   on
interest-bearing liabilities,  such as deposits and other borrowings.  Financial
institutions  continue to be  affected by general  changes in levels of interest
rates and other economic factors beyond their control. At December 31, 2002, the
Bank's one-year interest  sensitivity gap (the difference  between the amount of
interest-earning  assets anticipated by the Bank to mature or reprice within one
year and the amount of interest-bearing  liabilities  anticipated by the Bank to
mature  or  reprice  within  one year) as a  percentage  of total  assets  was a
positive 13.04%.  Generally, an institution with a positive gap would experience
an increase in net  interest  income in a period of rising  interest  rates or a
decrease  in net  interest  income  in a period  of  declining  interest  rates.
However, certain shortcomings are inherent in the sensitivity analysis presented
above.  For example,  although  certain assets and  liabilities may have similar
maturities  or  periods to  repricing,  they may react in  different  manners to
changes in market interest rates.  Therefore, no assurance can be given that the
Bank will be able to maintain its net  interest-rate  spread as market  interest
rates fluctuate.

The Bank monitors its interest-rate risk through the  Asset/Liability  Committee
which meets monthly and reports the results of such monitoring  quarterly to the
Board of Directors.  The Bank's policy is to seek to maintain a balance  between
interest-earning  assets  and  interest-bearing  liabilities  so that the Bank's
cumulative  one-year gap is within a range established by the Board of Directors
and which management believes is conducive to maintaining  profitability without
incurring  undue risk. The Bank has increased its investment in  adjustable-rate
and  shorter  average  life,  mortgage-related  securities  in order to position
itself  against  the  consequences  of  rising  interest  rates.  The Bank  also
maintains  liquid  assets in an  amount  which  allows  for the  possibility  of
disintermediation when interest rates fluctuate.  The Bank's liquidity ratio was
21.1% at December 31, 2002. In addition,  the Bank's large, stable, core deposit
base resulting from its continuing  commitment to quality  customer  service has
historically provided it with a steady source of funds.





                                       16


<PAGE>


The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing  liabilities outstanding at December 31, 2002 that are expected
to reprice, based upon certain assumptions and contractual  maturities,  in each
of the future periods shown.


<TABLE>
<CAPTION>
                                               More       More       More       More      More
                                               than       than       than       than      than
                                               Three       Six        One       Three     Five       More
                                    Three      Months    Months      Year       Years     Years      than
                                   Months      to Six     to 12      to 3       to 5      to 10       Ten
                                   or Less    Months     Months      Years      Years     Years      Years      Total
                                   -------    ------     ------      -----      -----     -----      -----      -----
                                                                ($ in thousands)
Rate-sensitive assets:
<S>                              <C>           <C>       <C>        <C>         <C>        <C>          <C>    <C>
   Mortgage loans, net of LIP..  $ 174,913     90,200    130,061    142,840     27,343     6,982        364    572,203
   Commercial and consumer
    loans, net of LIP..........     56,872     11,957     20,743     45,204     19,705    10,552      2,049    167,082
   Mortgage-backed
    securities.................      5,682      3,985      5,490      5,643      1,300       196      -         22,296
   Interest-earning deposits...     49,237      -          -          -          -         -          -         49,237
   Investment securities.......      3,015      -         10,729     24,910      -         -          7,000     45,654
   Mutual funds................      9,374      -          -          -          -         -          -          9,374
   FHLB stock .........              7,700      -          -          -          -         -          -          7,700
                                   -------    -------    -------    -------    -------   -------    -------    --------


       Total interest-earning
         assets................    306,793    106,142    167,023    218,597     48,348    17,730      9,413    874,046
                                   -------    -------    -------    -------    -------   -------    -------    --------

Rate-sensitive liabilities:
   Deposits:
    Savings accounts...........     25,403      -          -          -          -         -          -         25,403
    NOW and money
       market accounts.........    137,858      -          -          -          -         -          -        137,858
    Certificates...............     73,335     57,683    110,921    181,064     62,927     -          -        485,930
   Borrowed funds..............     29,303     11,000     15,000     94,000      -        19,000      -        168,303
                                   -------    -------    -------    -------    -------   -------    -------    -------


       Total interest-bearing
         liabilities...........    265,899     68,683    125,921    275,064     62,927    19,000      -        817,494
                                   -------    -------    -------    -------    -------   -------    -------    -------


Interest-sensitivity gap.......  $  40,894     37,459     41,102    (56,467)   (14,579)   (1,270)     9,413     56,552
                                   =======    =======    =======    =======    =======   =======    =======    =======

Cumulative interest-
    sensitivity gap............ $   40,894     78,353    119,455     62,988     48,409    47,139     56,552
                                   =======    =======    =======    =======    =======   =======    =======

Cumulative interest-earning
    assets.....................  $ 306,793    412,935    579,958    798,555    846,903   864,633    874,046
                                   =======    =======    =======    =======    =======   =======    =======

Cumulative interest-bearing
    liabilities................  $ 265,899    334,582    460,503    735,567    798,494   817,494    817,494
                                   =======    =======    =======    =======    =======   =======    =======

Cumulative interest-sensitivity
    gap as a percentage of
    total assets...............       4.47%      8.56%     13.04%      6.88%      5.29%     5.15%      6.18%
                                   =======    =======    =======    =======    =======   =======    =======

Cumulative interest-earning
    assets as a percentage of
    cumulative interest-bearing
    liabilities................     115.38%    123.42%    125.94%    108.56%    106.06%   105.77%    106.92%
                                    ======     ======     ======     ======     ======   =======    =======
</TABLE>


                                       17


     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2002 TO THE YEAR ENDED  DECEMBER
     31, 2001


     General Operating Results.  Net income for the year ended December 31, 2002
         was $8.8 million, or $2.47 per basic share and $2.42 per diluted share,
         compared  to $6.3  million,  or $1.77  per  basic  share  and $1.73 per
         diluted share,  for the year ended December 31, 2001. That increase was
         primarily  due to an increase in net interest  income of $5.9  million,
         partially offset by a $2.0 million increase in noninterest expense.

     Interest Income. Interest income increased $48,000 to $56.5 million for the
         year ended  December 31,  2002.  The  increase  resulted  from a $106.6
         million  or  14.5%   increase   in  average   interest-earning   assets
         outstanding  for the year ended  December  31,  2002  compared to 2001,
         offset by a decrease in the average  yield  earned on  interest-earning
         assets from 7.71% for the year ended December 31, 2001 to 6.73% for the
         year ended December 31, 2002.

     Interest Expense.  Interest expense  decreased $5.8 million or 16.5%,  from
         $35.3 million for the year ended December 31, 2001 to $29.5 million for
         the year ended  December 31, 2002.  The decrease was due primarily to a
         decrease in the average cost of interest-bearing liabilities from 5.15%
         for the year  ended  December  31,  2001 to 3.72% for  2002,  partially
         offset by  increases  of $77.6  million  and $29.3  million  in average
         interest-bearing  deposits and  borrowings  outstanding,  respectively.
         Average   interest-bearing   deposits  increased  from  $537.6  million
         outstanding  during the year ended  December 31, 2001 to $615.2 million
         outstanding  during  2002.  Average  borrowings  increased  from $147.9
         million  outstanding  during the year ended December 31, 2001 to $177.2
         million in 2002.

     Provision for Loan  Losses.  The  provision  for loan  losses is charged to
         income to increase  the  allowance  for loan losses to the level deemed
         appropriate by  management.  The provision is based upon the volume and
         type  of  lending  conducted  by the  Company,  charge-off  experience,
         industry standards, the amount of nonperforming loans, general economic
         conditions,  particularly as they relate to the Company's  market area,
         and other factors related to the  collectibility  of the Company's loan
         portfolio.  The  Company  recorded  provisions  for loan losses for the
         years  ended  December  31,  2002  and  2001 of $1.8  million  and $1.1
         million,  respectively.  Net  loans  charged  off for the  years  ended
         December 31, 2002 and 2001 were  $953,000 and  $378,000,  respectively.
         Management believes that the allowance for loan losses,  which was $5.2
         million or .68% of gross loans at December 31, 2002 is adequate.

     Noninterest Income.  Noninterest  income  increased $1.0 million,  or 36.2%
         from $2.8 million for the year ended  December 31, 2001 to $3.8 million
         for 2002.  That  increase was primarily due to increases of $321,000 in
         other  service  charges  and fees and  $360,000 in net gain on sales of
         loans held for sale.  The  increase  in gain on sales of loans held for
         sale was due to an increase in the amount of residential mortgage loans
         originated to be sold in the secondary market.

     Noninterest  Expense.  Noninterest  expense  increased  by $2.0  million or
         15.8%, from $12.8 million for the year ended December 31, 2001 to $14.9
         million  for the  year  ended  December  31,  2002.  The  increase  was
         primarily  due to increases  in salaries and employee  benefits of $1.3
         million and occupancy expense of $404,000 related to the overall growth
         of the Company.

     Income Tax  Provision.  The income tax  provision  was $5.3 million for the
         year ended December 31, 2002 (an effective tax rate of 37.4%)  compared
         to $3.7  million  (an  effective  tax rate of 37.0%) for the year ended
         December 31, 2001.


                                       18
<PAGE>


     COMPARISON OF THE YEAR ENDED  DECEMBER 31, 2001 TO THE YEAR ENDED  DECEMBER
     31, 2000


     General Operating Results.  Net income for the year ended December 31, 2001
         was $6.3  million,  or $1.77 and $1.73  per  basic and  diluted  share,
         respectively,  compared to $5.3  million,  or $1.50 and $1.46 per basic
         and diluted  share,  respectively,  for the year 2000. The increase was
         primarily  due to an  increase  in  interest  income  of $7.4  million,
         partially  offset by increases in interest  expense of $5.3 million and
         noninterest expense of $1.4 million.

     Interest Income.  Interest  income  increased  $7.4 million or 15.0%,  from
         $49.1 million for the year ended December 31, 2000 to $56.5 million for
         2001.  The  increase was due to a $114.1  million or 18.4%  increase in
         average interest-earning assets outstanding for the year ended December
         31, 2001 compared to the 2000 period, partially offset by a decrease in
         the average yield earned on interest-earning  assets from 7.94% for the
         year ended  December 31, 2000 to 7.71% for the year ended  December 31,
         2001.

     Interest Expense.  Interest expense  increased $5.3 million or 17.5%,  from
         $30.1 million for the year ended December 31, 2000 to $35.3 million for
         the year ended  December 31, 2001.  The increase was due to an increase
         of $116.0  million in  average  interest-bearing  liabilities.  Average
         interest-bearing  liabilities increased from $569.5 million outstanding
         during the year ended December 31, 2000 to $685.5  million  outstanding
         during  the  comparable  period  for  2001.  The  average  rate paid on
         interest-bearing  liabilities  decreased  from 5.28% for the year ended
         December 31, 2000 to 5.15% for the comparable 2001 period.

     Noninterest Income. Noninterest income increased $869,000, or 45.6% for the
         year ended  December 31, 2001  compared to the year ended  December 31,
         2000 primarily due to an increase of $685,000 in other service  charges
         and fees during the 2001 period.

     Noninterest  Expense.  Noninterest  expense  increased  by $1.4  million or
         12.5%, from $11.4 million for the year ended December 31, 2000 to $12.8
         million  for the  year  ended  December  31,  2001.  The  increase  was
         primarily  due to  increases  in  salaries  and  employee  benefits  of
         $873,000,  occupancy expense of $127,000 and data processing expense of
         $90,000, all of which related to the overall growth of the Company.

     Provision for Income  Taxes.  The  provision  for federal and state  income
         taxes  increased from $3.4 million for the year ended December 31, 2000
         (an effective tax rate of 38.8%) to $3.7 million (an effective tax rate
         of 37.0%) for the corresponding period for 2001.


                                       19
<PAGE>


IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated  Financial  Statements and Notes thereto  presented herein have
been  prepared in  accordance  with GAAP,  which  requires  the  measurement  of
financial  position and operating results in terms of historical dollars without
considering the changes in the relative  purchasing power of money over time due
to inflation.  The impact of inflation is reflected in the increased cost of the
Bank's operations.  Unlike most industrial companies,  nearly all the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.


                                       20
<PAGE>





                       FFLC BANCORP, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>


                                                                                        At December 31,
                                                                                        ---------------
                                                                                    2002               2001
                                                                                    ----               ----
            Assets

<S>                                                                               <C>                  <C>
Cash and due from banks.........................................................  $  20,157            19,609
Interest-bearing deposits.......................................................     49,237            30,183
                                                                                   --------           -------

            Cash and cash equivalents...........................................     69,394            49,792

Securities available for sale...................................................     77,324            59,503
Loans, net of allowance for loan losses of $ 5,181 in 2002
    and $4,289 in 2001..........................................................    735,338            685,935
Accrued interest receivable:
    Securities..................................................................        811               718
    Loans.......................................................................      3,370             3,475
Premises and equipment, net.....................................................     19,369            14,338
Foreclosed assets...............................................................        626               373
Federal Home Loan Bank stock, at cost...........................................      7,700             7,700
Deferred income taxes...........................................................        487               274
Other assets....................................................................      1,402             1,043
                                                                                    -------           -------

            Total...............................................................  $ 915,821           823,151
                                                                                    =======           =======

            Liabilities and Stockholders' Equity

Liabilities:
    Noninterest-bearing demand deposits.........................................     18,867            14,334
    NOW and money market accounts...............................................    137,858           111,961
    Savings accounts............................................................     25,403            24,093
    Certificates................................................................    485,930           434,740
                                                                                                      -------


            Total deposits......................................................    668,058           585,128

Advances from Federal Home Loan Bank............................................    149,000           154,000
Other borrowed funds............................................................     14,303            13,327
Guaranteed preferred beneficial interest in junior subordinated debentures......      5,000              -
Accrued expenses and other liabilities..........................................      8,398             6,628
                                                                                  ---------           -------

            Total liabilities...................................................    844,759           759,083
                                                                                    -------           -------

Commitments and contingencies (Notes 4, 9 and 12)

Stockholders' equity:
    Preferred stock, $.01 par value, 1,000,000 shares authorized,
        none outstanding........................................................     -                 -
    Common stock, $.01 par value, 9,000,000 shares authorized,
        4,574,944 in 2002 and 4,542,953 in 2001 shares issued...................         46                45
    Additional paid-in-capital..................................................     31,638            31,355
    Retained income.............................................................     58,409            51,575
    Accumulated other comprehensive income......................................        636               440
    Treasury stock, at cost (991,669 shares in 2002 and
        979,021 shares in 2001).................................................    (19,667)          (19,347)
                                                                                    -------           -------

            Total stockholders' equity..........................................     71,062            64,068
                                                                                    -------           -------

            Total...............................................................  $ 915,821           823,151
                                                                                    =======           =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       21
<PAGE>


                       FFLC BANCORP, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>


                                                                       Year Ended December 31,
                                                                   2002          2001         2000
                                                                   ----          ----         ----

<S>                                                             <C>              <C>          <C>
Interest income:
    Loans ...................................................   $   52,496       52,384       45,434
    Securities available for sale ...........................        3,002        2,901        2,417
    Other interest-earning assets ...........................        1,035        1,200        1,277
                                                                ----------   ----------   ----------

        Total interest income ...............................       56,533       56,485       49,128
                                                                ----------   ----------   ----------

Interest expense:
    Deposits ................................................       20,126       26,596       23,275
    Borrowed funds ..........................................        9,357        8,720        6,790
                                                                ----------   ----------   ----------

        Total interest expense ..............................       29,483       35,316       30,065
                                                                ----------   ----------   ----------

        Net interest income .................................       27,050       21,169       19,063

Provision for loan losses ...................................        1,845        1,115          880
                                                                ----------   ----------   ----------

        Net interest income after provision for loan losses..       25,205       20,054       18,183
                                                                ----------   ----------   ----------

Noninterest income:
    Deposit account fees ....................................          953          835          825
    Other service charges and fees ..........................        1,900        1,579          894
    Net gain on sales of loans held for sale ................          403           43            7
    Other ...................................................          520          316          178
                                                                ----------   ----------   ----------

        Total noninterest income ............................        3,776        2,773        1,904
                                                                ----------   ----------   ----------

Noninterest expense:
    Salaries and employee benefits ..........................        8,814        7,554        6,681
    Occupancy expense .......................................        2,420        2,016        1,889
    Deposit insurance premium ...............................          104           99           90
    Advertising and promotion ...............................          492          410          328
    Data processing expense .................................          991          990          900
    Professional services ...................................          432          386          297
    Other ...................................................        1,615        1,386        1,229
                                                                ----------   ----------   ----------

        Total noninterest expense ...........................       14,868       12,841       11,414
                                                                ----------   ----------   ----------

Income before income taxes ..................................       14,113        9,986        8,673

        Income taxes ........................................        5,277        3,697        3,364
                                                                ----------   ----------   ----------

Net income ..................................................      .$8,836        6,289        5,309
                                                                ==========   ==========   ==========

Basic income per share of common stock ......................   $     2.47         1.77         1.50
                                                                ==========   ==========   ==========

Weighted-average number of shares outstanding for basic .....    3,573,665    3,547,764    3,541,400
                                                                ==========   ==========   ==========

Diluted income per share of common stock ....................   $     2.42         1.73         1.46
                                                                ==========   ==========   ==========

Weighted-average number of shares outstanding for diluted . .    3,644,586    3,629,432    3,615,740
                                                                ==========   ==========   ==========
</TABLE>




See accompanying Notes to Consolidated Financial Statements.

                                       22
<PAGE>




                       FFLC BANCORP, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity

                  Years Ended December 31, 2002, 2001 and 2000
                   ($ in thousands, except per share amounts)


<TABLE>
<CAPTION>



                                                                                                           Stock
                                                                                                           Held
                                                Common Stock                                                By
                                           ----------------------------   Additional                     Incentive
                                             Number of                     Paid-In       Treasury          Plan
                                              Shares          Amount       Capital        Stock           Trusts

<S>                                        <C>            <C>               <C>           <C>              <C>
Balance at December 31, 1999 ........      4,447,461      $      44         30,273        (17,721)         (316)


Comprehensive income:

     Net income .....................           --             --             --             --              --

     Change in unrealized losses
       on securities available for
       sale, net of income taxes
       of $158 ......................           --             --             --             --              --


Comprehensive income ................


Net proceeds from the issuance of
     common stock, stock options
     exercised ......................         34,217              1            210           --              --

Net proceeds from the issuance of
     common stock under the
     Dividend Reinvestment Plan .....          9,968           --              132           --              --

Shares committed to participants
     in incentive plans (2,735 shares
     remain uncommitted at
     December 31, 2000) .............           --             --              395           --             316

Dividends paid ($.48 per share) .....           --             --             --             --              --

Purchase of treasury stock,
     95,562 shares ..................           --             --             --           (1,264)           --
                                           ---------      ---------      ---------      ---------        ---------

Balance at December 31, 2000 ........      4,491,646      $      45         31,010        (18,985)           --
                                           =========      =========      =========      =========        =========
</TABLE>

                                                                     (continued)
<TABLE>
<CAPTION>



                                                         Accumulated
                                                            Other          Total
                                           Retained     Comprehensive   Stockholder's
                                            Income      Income  (Loss)     Equity

<S>                                        <C>                  <C>            <C>
Balance at December 31, 1999 ........         43,539           (182)           55,637
                                                                               ------

Comprehensive income:

     Net income .....................          5,309           --               5,309

     Change in unrealized losses
       on securities available for
       sale, net of income taxes
       of $158 ......................           --              263               263
                                                                               ------

Comprehensive income ................                                           5,572
                                                                               ------

Net proceeds from the issuance of
     common stock, stock options
     exercised ......................           --             --                 211

Net proceeds from the issuance of
     common stock under the
     Dividend Reinvestment Plan .....           --             --                 132

Shares committed to participants
     in incentive plans (2,735 shares
     remain uncommitted at
     December 31, 2000) .............           --             --                 711

Dividends paid ($.48 per share) .....         (1,716)          --              (1,716)

Purchase of treasury stock,
     95,562 shares ..................           --             --              (1,264)
                                                                                -----

Balance at December 31, 2000 ........         47,132             81            59,283
                                              ======       ========            ======

                                                                     (continued)
</TABLE>



                                       23


<PAGE>

                       FFLC BANCORP, INC. AND SUBSIDIARIES

      Consolidated Statements of Changes in Stockholders' Equity, Continued

                  Years Ended December 31, 2002, 2001 and 2000
                   ($ in thousands, except per share amounts)
<TABLE>
<CAPTION>




                                                                                                        Accumulated
                                           Common Stock              Additional                            Other          Total
                                            Number of                 Paid-In    Treasury   Retained   Comprehensive  Stockholders
                                              Shares       Amount     Capital      Stock     Income       Income         Equity
                                              ------       ------     -------      -----     ------       ------         ------
<S>                                         <C>         <C>            <C>         <C>      <C>              <C>         <C>
Balance at December 31, 2000 ............   4,491,646   $      45      31,010     (18,985)   47,132           81         59,283
                                                                                                                         ------

Comprehensive income:

     Net income .........................        --          --          --          --       6,289         --            6,289

     Change in unrealized gains on
       securities available for sale, net
       of income taxes of $217 ..........        --          --          --          --        --            359            359
                                                                                                                         ------

Comprehensive income ....................                                                                                 6,648
                                                                                                                         ------

Net proceeds from the issuance of
     common stock, stock options
     exercised ..........................      51,307        --           345        --        --           --              345

Dividends paid ($.52 per share) .........        --          --          --          --      (1,846)        --           (1,846)

Purchase of treasury stock, 19,936
     shares .............................        --          --          --          (362)     --           --             (362)
-----------------------------------------   ---------   ---------      ------      ------    ------      ---------       ------

Balance at December 31, 2001 ............   4,542,953   $      45      31,355     (19,347)   51,575          440         64,068
                                            =========   =========      ======      ======    ======      =========       ======
</TABLE>

                                                                     (continued)



                                       24
<PAGE>


                       FFLC BANCORP, INC. AND SUBSIDIARIES

      Consolidated Statements of Changes in Stockholders' Equity, Continued

                  Years Ended December 31, 2002, 2001 and 2000
                   ($ in thousands, except per share amounts)


<TABLE>
<CAPTION>


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

<S>                                         <C>         <C>            <C>         <C>         <C>             <C>         <C>
Balance at December 31, 2001 ............   4,542,953   $      45      31,355      (19,347)    51,575          440         64,068
                                                                                                                           ------

Comprehensive income:

     Net income .........................        --          --          --           --        8,836         --            8,836

     Change in unrealized gains on
       securities available for sale, net
       of income taxes of $163 ..........        --          --          --           --         --            271            271
                                                                                                                           ------

     Change in unrealized loss on
       derivative instrument, net of
       income tax benefit of $45 ........        --          --          --           --         --            (75)           (75)
                                                                                                                           ------

Comprehensive income ....................                                                                                   9,032
                                                                                                                           ------

Net proceeds from the issuance of
     common stock, stock options
     exercised ..........................      31,991           1         283         --         --           --              284

Dividends paid ($.56 per share) .........        --          --          --           --       (2,002)        --           (2,002)

Purchase of treasury stock, 12,648
     shares .............................        --          --          --           (320)      --           --             (320)
-----------------------------------------   ---------   ---------   ---------    ---------    -------    ---------         ------

Balance at December 31, 2002 ............   4,574,944   $      46      31,638      (19,667)    58,409          636         71,062
                                            =========   =========   =========    =========    =======    =========         ======
</TABLE>


See accompanying Notes to Consolidated Financial Statements.

                                       25
<PAGE>
<TABLE>
<CAPTION>


                       FFLC BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                                ($ in thousands)

                                                                                       Year Ended December 31,
                                                                                  2002           2001           2000
                                                                                  ----           ----           ----
Cash flows from operating activities:
<S>                                                                           <C>                 <C>           <C>
    Net income  ............................................................. $   8,836           6,289         5,309
    Adjustments to reconcile net income
        to net cash provided by operations:
            Provision for loan losses........................................     1,845           1,115           880
            Depreciation and amortization....................................     1,062             852           760
            Credit for deferred income taxes.................................      (331)           (251)         (500)
            Shares committed and dividends to incentive
                plan participants............................................     -               -               711
            Net amortization of premiums and discounts on securities.........       297             (52)            5
            Net deferral of loan fees and costs..............................      (142)            134           (58)
            Net gain on sales of loans held for sale.........................      (403)            (43)           (7)
            Loan originated for sale.........................................   (44,207)        (10,323)       (1,487)
            Proceeds from sales of loans held for sale.......................    37,289           5,191         1,457
            (Gain) loss on sale of foreclosed assets.........................       (51)            (28)            4
            Decrease (increase) in accrued interest receivable...............        12            (443)         (935)
            Increase in other assets.........................................      (359)           (138)         (173)
            Increase in accrued expenses and other liabilities...............     1,650           2,679         1,444
                                                                               --------        --------     ----------

                    Net cash provided by operating activities................     5,498           4,982         7,410
                                                                                -------         -------     ---------

Cash flows from investing activities:
    Purchase of securities available for sale................................   (41,433)        (30,751)      (13,411)
    Proceeds from principal repayments and maturities of securities
        available for sale...................................................    23,749          14,593         8,019
    Loan disbursements.......................................................  (209,046)       (188,618)     (186,654)
    Principal repayments on loans............................................   163,820         121,526        70,824
    Purchase of premises and equipment, net..................................    (6,093)         (3,700)       (2,864)
    Purchase of Federal Home Loan Bank stock.................................    -               (1,550)       (1,200)
    Proceeds from sales of foreclosed assets.................................     1,239             498           582
                                                                               --------        --------    ----------

                    Net cash used in investing activities....................   (67,764)        (88,002)     (124,704)
                                                                                -------         -------       -------

                                                                                                            (continued)
</TABLE>










                                       26
<PAGE>


<TABLE>
<CAPTION>


                       FFLC BANCORP, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued
                                ($ in thousands)

                                                                                               Year Ended December 31,
                                                                                         2002            2001          2000
                                                                                         ----            ----          ----
<S>                                                                                   <C>               <C>           <C>
Cash flows from financing activities:
    Net increase in deposits................................................          $ 82,930          66,243        89,611
    Net (decrease) increase in Federal Home Loan Bank advances..............            (5,000)         31,000        24,000
    Net increase in other borrowed funds....................................               976           6,951         2,462
    Increase in guaranteed preferred beneficial interest in junior
        subordinated debentures.............................................             5,000             -             -
    Issuance of common stock................................................               284             345           343
    Purchase of treasury stock..............................................              (320)           (362)       (1,264)
    Cash dividends paid.....................................................            (2,002)         (1,846)       (1,716)
                                                                                        ------         -------       --------

                Net cash provided by financing activities...................            81,868         102,331       113,436
                                                                                        ------         -------       -------

Net increase (decrease) in cash and cash equivalents........................            19,602          19,311        (3,858)

Cash and cash equivalents at beginning of year..............................            49,792          30,481        34,339
                                                                                        ------         -------       -------

Cash and cash equivalents at end of year....................................          $ 69,394          49,792        30,481
                                                                                        ======         =======       =======

Supplemental disclosures of cash flow information: Cash paid during the year
    for:
        Interest............................................................          $ 29,690          35,217        29,829
                                                                                        ======         =======       ========


        Income taxes........................................................          $  5,458           3,821         3,700
                                                                                       =======         =======       ========

    Noncash investing and financing activities: Accumulated other comprehensive
        income:
             Net change in unrealized gain on securities available for
                sale, net of tax............................................          $    271             359          263
                                                                                      ========         =======       ========

            Net change in unrealized loss on derivative investment,
                net of tax..................................................          $    (75)          -              -
                                                                                     =========         =======       ========

        Transfers from loans to foreclosed assets...........................          $  1,679             656          826
                                                                                       =======         =======       ========

        Loans originated on sales of foreclosed assets......................          $    238              89          364
                                                                                      ========         =======       ========

        Loans funded by and sold to correspondent...........................          $ 20,541          14,926        1,121
                                                                                        ======         =======       ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.



                                       27
<PAGE>


                       FFLC BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

            December 31, 2002, 2001 and For Each of the Years in the
                    Three-Year Period Ended December 31, 2002


(1)  Summary of Significant Accounting Policies
     FFLCBancorp,  Inc. (the "Holding  Company") was incorporated in Delaware on
         September 16, 1993,  and acquired  First  Federal  Savings Bank of Lake
         County (the "Bank") in connection  with the Bank's  conversion to stock
         form on January  4, 1994.  The  Holding  Company is a savings  and loan
         holding   company  subject  to  regulation  by  the  Office  of  Thrift
         Supervision  ("OTS") which mainly  transacts  its business  through its
         subsidiary,   the  Bank.  The  Bank  is  a  community-oriented  savings
         institution,  chartered  in 1934,  which  offers a variety of financial
         services  to  individuals  and  businesses  primarily  located  in Lake
         County,  Sumter County,  Citrus County and Marion County,  Florida. The
         Bank's   deposits  are  insured  by  the  Federal   Deposit   Insurance
         Corporation  ("FDIC")  through the Savings  Association  Insurance Fund
         ("SAIF").

         During 2001, First Alliance Title, LLC ("First Alliance"),  a 90% owned
         subsidiary  of the  Holding  Company  was  formed to operate as a title
         agency. In addition,  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 Note 7.

     Principles of Consolidation.  The consolidated financial statements include
         the  accounts of the Holding  Company and its three  subsidiaries,  the
         Bank,  First  Alliance  and  FFLC  Trust  and the  Bank's  wholly-owned
         subsidiary, Lake County Service Corporation (the "Service Corporation")
         (all   together,   the   "Company").   All   significant   intercompany
         transactions and balances have been eliminated in consolidation.

     General. The  accounting and reporting  policies of the Company  conform to
         accounting  principles  generally  accepted  in the  United  States  of
         America  and to general  practices  within the  banking  industry.  The
         following  summarizes  the  significant   accounting  policies  of  the
         Company:

     Use of  Estimates.   In  preparing  consolidated  financial  statements  in
         conformity with accounting  principles generally accepted in the United
         States  of  America,  management  is  required  to make  estimates  and
         assumptions  that affect the reported amounts of assets and liabilities
         as of the date of the balance  sheet and  reported  amounts of revenues
         and expenses during the reporting  period.  Actual results could differ
         from  those  estimates.   Material   estimates  that  are  particularly
         susceptible  to  significant  change  in the near  term  relate  to the
         determination of the allowance for loan losses and foreclosed assets.

     Cashand Cash  Equivalents.  For purposes of the consolidated  statements of
         cash flows,  cash and cash  equivalents  include  cash and balances due
         from banks and interest-bearing deposits.

     The Bank is required to maintain certain cash reserve balances  pursuant to
         regulations  of the  Federal  Reserve  Board.  These  balances  must be
         maintained in the form of vault cash or noninterest bearing deposits at
         other  banks.  The reserve  balances at December 31, 2002 and 2001 were
         approximately $8.7 million and $5.7 million, respectively.

     Securities. The Company may classify its securities as either trading, held
         to  maturity  or  available  for  sale.  Trading  securities  are  held
         principally  for resale and recorded at their fair  values.  Unrealized
         gains and losses on trading  securities  are  included  immediately  in
         earnings.  Held-to-maturity  securities are those which the Company has
         the positive intent and ability to hold to maturity and are reported at
         amortized cost. Available-for-sale securities consist of securities not
         classified as trading  securities nor as  held-to-maturity  securities.
         Unrealized holding gains and losses, net of tax, on  available-for-sale
         securities are excluded from income and reported in other comprehensive
         income. Gains and losses on the sale of  available-for-sale  securities
         are   recorded   on  the   trade   date  and   determined   using   the
         specific-identification  method.  Premiums and  discounts on securities
         available for sale are recognized in interest income using the interest
         method over the period to maturity.



                                       28
<PAGE>


     Loans Held For Sale.  Loans originated and held for sale by the Company are
         carried  at the  lower  of  cost  or  fair  value  using  the  specific
         identification  method.  At December 31, 2002 and 2001,  the  aggregate
         fair value of loans held for sale  exceeded the carrying  value.  Gains
         and losses on the sales of such loans are recognized using the specific
         identification  method. The Company held $14.4 million and $7.1 million
         of loans held for sale at  December  31,  2002 and 2001,  respectively,
         which are included in loans on the  accompanying  consolidated  balance
         sheets.

     Loans. Loans that management has the intent and the Company has the ability
         to hold for the  foreseeable  future or until  maturity  or pay-off are
         reported at their outstanding  principal  adjusted for any charge-offs,
         the  allowance  for  loan  losses,  and any  deferred  fees or costs on
         originated loans.

         Loan  origination  fees  and  certain  direct   origination  costs  are
         capitalized and recognized as an adjustment of the yield of the related
         loan.

         The accrual of interest on loans is  discontinued  at the time the loan
         is ninety days delinquent unless the loan is well collateralized and in
         process of collection.  In all cases, loans are placed on nonaccrual or
         charged-off  at an earlier date if  collection of principal or interest
         is considered doubtful.

         All  interest  accrued but not  collected  for loans that are placed on
         nonaccrual or  charged-off is reversed  against  interest  income.  The
         interest  on  these  loans  is  accounted  for  on  the  cash-basis  or
         cost-recovery method, until qualifying for return to accrual. Loans are
         returned to accrual status when all the principal and interest  amounts
         contractually   due  are  brought   current  and  future  payments  are
         reasonably assured.

     Allowance for Loan Losses.  The allowance for loan losses is established as
         losses are  estimated  to have  occurred  through a provision  for loan
         losses  charged to  earnings.  Loan  losses  are  charged  against  the
         allowance  when  management  believes  the  uncollectibility  of a loan
         balance is confirmed.  Subsequent  recoveries,  if any, are credited to
         the allowance.

         The  allowance  for loan  losses is  evaluated  on a  regular  basis by
         management  and is  based  upon  management's  periodic  review  of the
         collectibility  of the  loans in light of  historical  experience,  the
         nature and volume of the loan  portfolio,  adverse  situations that may
         affect  the  borrower's  ability  to  repay,  estimated  value  of  any
         underlying   collateral  and  prevailing  economic   conditions.   This
         evaluation is inherently  subjective as it requires  estimates that are
         susceptible  to  significant   revision  as  more  information  becomes
         available.

         A loan is considered  impaired when,  based on current  information and
         events,  it is probable  that the Company will be unable to collect the
         scheduled  payments of principal or interest  when due according to the
         contractual  terms  of  the  loan  agreement.   Factors  considered  by
         management in determining impairment include payment status, collateral
         value,  and the  probability  of  collecting  scheduled  principal  and
         interest payments when due. Loans that experience insignificant payment
         delays and payment shortfalls generally are not classified as impaired.
         Management  determines the  significance  of payment delays and payment
         shortfalls on a case-by-case  basis,  taking into  consideration all of
         the circumstances surrounding the loan and the borrower,  including the
         length of the delay,  the reasons for the delay,  the borrower's  prior
         payment  record,  and the amount of the  shortfall  in  relation to the
         principal and interest  owed.  Impairment is measured on a loan by loan
         basis for  commercial  loans by either the  present  value of  expected
         future cash flows discounted at the loan's effective interest rate, the
         loan's  obtainable market price, or the fair value of the collateral if
         the loan is collateral dependent.

         Large  groups of smaller  balance  homogeneous  loans are  collectively
         evaluated for impairment.  Accordingly, the Company does not separately
         identify  individual  consumer  and  residential  loans for  impairment
         disclosures.



                                       29
<PAGE>






     Foreclosed Assets. Assets acquired through, or in lieu of, loan foreclosure
         are held for sale and are initially recorded at the lower of fair value
         or the loan balance at the date of foreclosure, establishing a new cost
         basis. Subsequent to foreclosure, valuations are periodically performed
         by  management  and the  assets are  carried  at the lower of  carrying
         amount or fair value less cost to sell.

     Premises and Equipment.  Land is carried at cost.  The Company's  premises,
         furniture and equipment and leasehold improvements are carried at cost,
         less accumulated  depreciation and  amortization  computed  principally
         using the straight-line method.

    Transfer of Financial Assets. Transfers of financial assets are accounted
        for as sales, when control over the assets has been surrendered. Control
        over transferred assets is deemed to be surrendered when (1) the assets
        have been isolated from the Company, (2) the transferee obtains the
        right (free of conditions that constrain it from taking advantage of
        that right) to pledge or exchange the transferred assets, and (3) the
        Company does not maintain effective control over the transferred assets
        through an agreement to repurchase them before their maturity.

     Income Taxes.  Deferred  income tax assets and  liabilities are recorded to
         reflect the tax  consequences on future years of temporary  differences
         between  revenues and expenses  reported for  financial  statement  and
         those  reported  for  income  tax  purposes.  Deferred  tax  assets and
         liabilities  are measured using the enacted tax rates expected to apply
         to taxable income in the years in which those temporary differences are
         expected to be realized or settled.  Valuation  allowances are provided
         against assets which are not likely to be realized.

     Stock  Compensation  Plans.  Statement  of Financial  Accounting  Standards
         (SFAS) No. 123, Accounting for Stock-Based Compensation,  as amended by
         SFAS No. 148,  Accounting for Stock-Based  Compensation  Transition and
         Disclosure,  (collectively,  "SFAS No. 123") encourages all entities to
         adopt a fair  value  based  method of  accounting  for  employee  stock
         compensation plans,  whereby compensation cost is measured at the grant
         date based on the value of the award and is recognized over the service
         period, which is usually the vesting period. However, it also allows an
         entity to continue to measure  compensation  cost for those plans using
         the intrinsic value based method of accounting prescribed by Accounting
         Principles  Board  Opinion  No. 25 (APB No. 25),  Accounting  for Stock
         Issued to Employees,  whereby  compensation cost is the excess, if any,
         of the  quoted  market  price of the stock at the grant  date (or other
         measurement  date) over the amount an employee  must pay to acquire the
         stock.  Stock options issued under the Company's stock option plan have
         no  intrinsic  value  at the  grant  date,  and  under  APB  No.  25 no
         compensation  cost is recognized  for them.  The Company has elected to
         continue  with  the  accounting  methodology  in APB No.  25 and,  as a
         result, has provided proforma  disclosures of net income and income per
         share and  other  disclosures,  as if the fair  value  based  method of
         accounting had been applied. (See Note 17).

     Derivative Financial Instruments. The Company has one derivative instrument
         which is used to hedge its  interest  rate  exposure by  modifying  the
         characteristics   of  the  related  balance  sheet   instrument.   This
         derivative  instrument  qualifies  as  a  cash  flow  hedge  under  the
         provisions  of  Statement  of Financial  Accounting  Standards  No. 133
         "Accounting for Derivative  Instruments and Hedging  Activities" ("SFAS
         133").  Changes  in the  fair  value  of a  derivative  that is  highly
         effective,  and that is designated  and qualifies as a cash flow hedge,
         are recorded in other comprehensive income, net of tax.

     Off-Balance  Sheet  Instruments.  In the ordinary  course of business,  the
         Company has entered into  off-balance-sheet  instruments  consisting of
         commitments to extend credit, unused lines of credit, undisbursed loans
         in process and standby  letters of credit.  Such financial  instruments
         are recorded in the financial statements when they are funded.




                                       30
<PAGE>





     Fair Values  of  Financial  Instruments.  The  fair  value of  a  financial
         instrument  is the  current  amount  that  would be  exchanged  between
         willing parties, other than in a forced liquidation. Fair value is best
         determined based upon quoted market prices. However, in many instances,
         there are no quoted market prices for the Company's  various  financial
         instruments.  In cases where quoted  market  prices are not  available,
         fair  values  are  based  on  estimates  using  present  value or other
         valuation  techniques.  Those techniques are significantly  affected by
         the  assumptions  used,  including  the discount  rate and estimates of
         future cash flows.  Accordingly,  the fair value  estimates  may not be
         realized  in an  immediate  settlement  of the  instrument  or may  not
         necessarily  represent the  underlying  fair value of the instrument to
         the Company.  The following  methods and  assumptions  were used by the
         Company in estimating fair values of financial instruments:

         Cash  and  Cash  Equivalents.  The  carrying  amounts  of cash and cash
         equivalents approximate their fair value.

         Securities.  Fair values for securities available for sale are based on
         quoted market prices, where available.  If quoted market prices are not
         available,  fair values are based on quoted market prices of comparable
         instruments.

         Federal Home Loan Bank Stock. Fair value of the Company's investment in
         Federal Home Loan Bank stock is based on its redemption value, which is
         its cost of $100 per share.

         Loans.  For  variable-rate  loans that reprice  frequently  and have no
         significant  change in credit  risk,  fair values are based on carrying
         values. Fair values for fixed-rate loans are estimated using discounted
         cash flow analyses,  using interest rates  currently  being offered for
         loans with similar terms to borrowers of similar credit quality.

         Deposit  Liabilities.  The fair values disclosed for demand, NOW, money
         market and savings  deposits  are, by  definition,  equal to the amount
         payable  on demand at the  reporting  date  (that  is,  their  carrying
         amounts).  Fair  values for  fixed-rate  certificates  of  deposit  are
         estimated  using  a  discounted  cash  flow  calculation  that  applies
         interest rates currently being offered on certificates to a schedule of
         aggregated expected monthly maturities of certificates of deposit.

         Borrowed Funds.  The carrying  amounts of borrowings  under  repurchase
         agreements  approximate their fair values.  Fair values of Federal Home
         Loan Bank  advances and  guaranteed  preferred  beneficial  interest in
         junior subordinated debentures are estimated using discounted cash flow
         analysis based on the Company's current incremental borrowing rates for
         similar types of borrowing arrangements.

         Derivative  Instruments.  Fair  value  for  the  derivative  instrument
         (interest-rate swap) is based on current settlement value.

         Accrued Interest.  The carrying amounts of accrued interest approximate
         their fair values.

         Off-Balance-Sheet   Instruments.   Fair  values  for  off-balance-sheet
         lending  commitments are based on fees currently  charged to enter into
         similar  agreements,  taking into  account the  remaining  terms of the
         agreements and the counterparties' credit standing.

                                       31
<PAGE>







     Income Per Share of Common  Stock.  The Company  follows the  provisions of
         Financial  Accounting Standards No. 128, "Earnings Per Share" (SFAS No.
         128).  SFAS No. 128 provides  accounting  and  reporting  standards for
         calculating  income per share.  Basic  income per share of common stock
         has  been  computed  by  dividing  the net  income  for the year by the
         weighted-average  number of shares outstanding.  Shares of common stock
         purchased by the Employee  Stock Option Plan ("ESOP") and the Retention
         and  Recognition  Plan  ("RRP")  (see  Note  17)  are  only  considered
         outstanding  when the shares are  released or  committed to be released
         for allocation to participants.  The ESOP initially  purchased  368,242
         shares,   of  which  4,383  shares  were  released  for  allocation  to
         participants each month beginning in January,  1994. As of December 31,
         2000, all ESOP shares had been allocated.  The RRP initially  purchased
         184,122 shares, of which 181,387 were allocated to participants and are
         considered  outstanding  for each of the years ended December 31, 2000,
         2001 and 2002. As of December 31, 2002, 2,735 shares remain uncommitted
         under the RRP plan and are not considered  outstanding  for purposes of
         the computation of net income per share of common stock. Diluted income
         per share is computed by  dividing  net income by the  weighted-average
         number of shares  outstanding  including  the dilutive  effect of stock
         options (see Note 17) computed  using the treasury  stock  method.  The
         following  table  presents the  calculation  of net income per share of
         common stock:

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                           -----------------------
                                                                                     2002           2001            2000
                                                                                     ----           ----            ----
<S>                                                                             <C>               <C>            <C>
            Weighted-average shares of common stock issued
                and outstanding before adjustments for ESOP,
                RRP and common stock options.............................          3,576,400       3,550,499     3,571,858

            Adjustment to reflect the effect of unallocated
                ESOP and RRP average shares..............................             (2,735)         (2,735)      (30,458)
                                                                                ------------       ---------     ---------

            Weighted-average shares for basic income per share...........          3,573,665       3,547,764     3,541,400
                                                                                ============       =========     =========

            Basic income per share.......................................       $       2.47           1.77          1.50
                                                                                =============      =========     =========

            Total weighted-average common shares and equivalents
                outstanding for basic income per share
                computation..............................................          3,573,665       3,547,764     3,541,400

            Additional dilutive shares using the average market value for the
                period utilizing the treasury stock method
                regarding stock options..................................             70,921          81,668        74,340
                                                                                ------------       ---------     ---------

            Weighted-average common shares and equivalents
                outstanding for diluted income per share.................          3,644,586       3,629,432     3,615,740
                                                                                ============       =========     =========

            Diluted income per share.....................................       $        2.42           1.73          1.46
                                                                                =============      =========     =========
</TABLE>

     Comprehensive  Income.   Accounting   principles   generally  require  that
         recognized  revenue,  expenses,  gains and  losses be  included  in net
         income.  Although  certain changes in assets and  liabilities,  such as
         unrealized  gains and  losses  on  available-for-sale  securities,  are
         reported as a separate  component of the equity  section of the balance
         sheet,   such  items,   along  with  net  income,   are  components  of
         comprehensive income. The components of other comprehensive income were
         unrealized  holding gains and losses on  securities  available for sale
         and an unrealized loss on a derivative instrument.


                                       32
<PAGE>




     Recent   Pronouncements.   In   November   2002,   the  FASB   issued  FASB
         Interpretation   No.  45,   "Guarantor's   Accounting   and  Disclosure
         Requirements   for  Guarantees,   Including   Indirect   Guarantees  of
         Indebtedness  to Others" ("FIN 45"),  which expands  previously  issued
         accounting guidance and disclosure requirements for certain guarantees.
         FIN 45 requires the Company to recognize an initial  liability  for the
         fair  value of an  obligation  assumed  by  issuing  a  guarantee.  The
         provision for initial recognition and measurement of the liability will
         be applied on a  prospective  basis to  guarantees  issued or  modified
         after  December  31,  2002.  The  adoption of FIN 45 is not expected to
         materially affect the consolidated financial statements.

     Reclassifications.  Certain  amounts  in the  2000  and  2001  consolidated
         financial   statements  have  been   reclassified  to  conform  to  the
         presentation for 2002.

(2)  Securities
     All securities  have been  classified as available for sale by  management.
         The  carrying  amounts  of  securities  available  for sale  and  their
         approximate fair values were as follows:


<TABLE>
<CAPTION>

                                                                                 Gross          Gross
                                                               Amortized      Unrealized     Unrealized       Fair
                                                                 Cost            Gains         Losses         Value
                                                                 ----            -----         ------         -----
                                                                                                      (In thousands)
        Securities available for sale:
        At December 31, 2002:
<S>                                                            <C>              <C>             <C>            <C>
            Mutual funds...................................... $   9,433            -           (59)           9,374
            U.S. Government and agency securities.............    36,801          853            (5)          37,649
            Mortgage-backed securities........................    21,961          335             -           22,296
            Other investment securities.......................     7,990           22            (7)           8,005
                                                                  ------      -------          ----         --------

                Total.........................................  $ 76,185        1,210           (71)          77,324
                                                                  ======        =====           ===          =======

        At December 31, 2001:
            Mutual funds......................................     9,125          -             (82)           9,043
            U.S. Government and agency securities.............    32,670          625           (54)          33,241
            Mortgage-backed securities........................    10,735          279           (71)          10,943
            Other investment securities.......................     6,268            8           -              6,276
                                                                 -------     --------         -----         --------

                Total.........................................  $ 58,798          912          (207)          59,503
                                                                  ======       ======           ===          =======
</TABLE>

The scheduled  maturities of securities  available for sale at December 31, 2002
were as follows:

<TABLE>
<CAPTION>
                                                                                           Amortized          Fair
                                                                                              Cost            Value
                                                                                              ----            -----
                                                                                                     (In thousands)

<S>                                                                                         <C>               <C>
        Due in less than one year.....................................................      $ 12,531          12,738
        Due from one year to five years...............................................        24,270          24,911
        Due after ten years...........................................................         7,990           8,005
        Mortgage-backed securities....................................................        21,961          22,296
        Mutual funds..................................................................         9,433           9,374
                                                                                             -------         --------

            Total.....................................................................      $ 76,185         77,324
                                                                                              ======         =======
</TABLE>

     Securities with a carrying  value of  approximately  $16.4 million and $8.8
         million at December  31, 2002 and 2001,  respectively,  were pledged to
         secure  public  funds and tax  deposits.  The Company has also  pledged
         securities with a carrying value of $18.7 million for borrowings  under
         retail  repurchase  agreements with customers at both December 31, 2002
         and 2001, respectively (See Note 6).





                                       33

<PAGE>

    There were no sales of securities during the years ended December 31, 2002,
2001 or 2000.

(3)  Loans
     The components of loans were as follows:

<TABLE>
<CAPTION>

                                                                                                  At December 31,
                                                                                                  ---------------
                                                                                               2002           2001
                                                                                               ----           ----
                                                                                                (In thousands)
<S>                                                                                           <C>            <C>
            First mortgage loans secured by:
                One-to-four-family residential.............................................   $ 395,116      413,712
                Construction and land......................................................      30,792       22,951
                Multi-family units.........................................................      22,796       20,304
                Commercial real estate, churches and other.................................     140,770      108,804
            Consumer loans.................................................................     138,202      119,357
            Commercial loans...............................................................      28,879       18,814
                                                                                              ---------      -------

                    Subtotal (1)...........................................................     756,555      703,942

            Undisbursed portion of loans in process........................................     (16,770)     (14,310)
            Net deferred loan costs........................................................         734          592
            Allowance for loan losses (2)..................................................      (5,181)      (4,289)
                                                                                               --------      -------

                    Loans, net.............................................................   $ 735,338      685,935
                                                                                                =======      =======
</TABLE>

    (1) Total loans outstanding by department consists of the following (in
thousands):
<TABLE>
<CAPTION>

                                                                                                         At December 31,
                                                                                                         ---------------
                                                                                      2002                      2001
                                                        ----------------------------------------------------------------
                                                                                      % of                      % of
                                                                     Amount          Total       Amount        Total

<S>                                                               <C>                <C>      <C>             <C>
            Residential.........................................  $ 385,711          50.98%   $ 403,897       57.37%
            Commercial..........................................    229,930          30.39      180,688       25.67
            Consumer............................................    140,914          18.63      119,357       16.96
                                                                    -------        -------      -------      ------

                                                                  $ 756,555         100.00%   $ 703,942      100.00%
                                                                    =======         ======      =======      ======
</TABLE>




                                       34

<PAGE>



    (2) Total allowance for loan losses by department consists of the following
(in thousands):
<TABLE>
<CAPTION>


                                                                                                         At December 31,
                                                                                                         ---------------
                                                                     2002                            2001
                                                        ----------------------------------------------------------------
                                                                                      % to                      % to
                                                                                     Gross                     Gross
                                                                     Amount          Loans       Amount        Loans

<S>                                                                 <C>                <C>    <C>               <C>
            Residential.........................................    $ 1,175            .30%   $ 1,229           .30%
            Commercial..........................................      2,949           1.28      2,039          1.13
            Consumer............................................      1,057         .75         1,021           .86
                                                                      -----       -----         -----

                                                                    $ 5,181         .68%      $ 4,289           .61%
                                                                      =====       =====         =====          ====
</TABLE>

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

<TABLE>
<CAPTION>

                                                                                                     Year Ended
                                                                                                     December 31,
                                                                                                     ------------
                                                                                                  2002         2001
                                                                                                  ----         ----

<S>                                                                                             <C>           <C>
            Residential......................................................................   $ 148,271     102,396
            Commercial.......................................................................      95,160      80,153
            Consumer.........................................................................      80,297      75,313
                                                                                                  -------     -------

                                                                                                $ 323,728     257,862
                                                                                                  =======     =======
</TABLE>

    An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>

                                                                                         Year Ended December 31,
                                                                                ----------------------------------------
                                                                                  2002            2001          2000
                                                                                  ----            ----          ----
                                                                                       (In thousands)

<S>                                                                             <C>               <C>           <C>
            Balance at January 1..............................................  $ 4,289           3,552         2,811
            Provision for loan losses.........................................    1,845           1,115           880
            Net loans charged-off.............................................     (953)           (378)         (139)
                                                                                 ------          ------         -----

            Balance at December 31............................................  $ 5,181           4,289         3,552
                                                                                  =====           =====         =====
</TABLE>

    The following summarizes the amount of impaired loans at December 31, 2002
        and 2001, all of which are collateral dependent:


<TABLE>
<CAPTION>
                                                                                                     At December 31,
                                                                                                     ---------------
                                                                                                    2002         2001
                                                                                                    ----         ----
                                                                                                     (In thousands)
<S>                                                                                                <C>            <C>
            Loans identified as impaired:
                Gross loans with no related allowance for losses.........................          $   -            -
        Gross loans with related allowance for losses recorded...........................            400          306
                Less:  Allowances on these loans.........................................            (50)        (150)
                                                                                                    ----          ---

            Net investment in impaired loans.............................................          $ 350          156
                                                                                                     ===          ===
</TABLE>


                                       35

<PAGE>





    The average net investment in impaired loans and interest income recognized
        and received on impaired loans during the years ended December 31, 2002,
        2001 and 2000 was as follows:
<TABLE>
<CAPTION>

                                                                                       Year Ended December 31,
                                                                                       -----------------------
                                                                                   2002         2001           2000
                                                                                   ----         ----           ----
                                                                                    (In thousands)

<S>                                                                               <C>            <C>           <C>
            Average net investment in impaired loans....................          $ 184          581           1,117
                                                                                    ===          ===           =====

            Interest income recognized on impaired loans................          $  35           81              46
                                                                                   ====          ===           =====

            Interest income received on impaired loans..................          $  35           81              46
                                                                                   ====          ===           =====
</TABLE>

During  the  second  quarter  of 2001,  an  impaired  loan in the amount of $1.3
million was repaid.

     The Company  originates or purchases  nonresidential  real property  loans.
         These loans are considered by management to be of somewhat greater risk
         of  uncollectibility  due to the  dependency  on income  production  or
         future development of the real estate. Nearly all of the Company's real
         property loans were  collateralized  by real property in Lake,  Sumter,
         Citrus and Marion Counties, Florida.

     Nonaccrual  loans at December  31, 2002 and 2001  totaled  $2.6 million and
         $1.9 million, respectively. There were no loans past due ninety days or
         more and still accruing  interest  income at December 31, 2002 or 2001.
         For the years ended December 31, 2002,  2001 and 2000,  interest income
         on loans would have been increased approximately $106,000, $116,000 and
         $230,000,  respectively,  if the interest on nonaccrual  loans had been
         recorded under the original terms of such loans.

     Loans serviced for others,  consisting solely of  participations  sold, are
         not  included in the  accompanying  consolidated  balance  sheets.  The
         unpaid  principal  balances  of these  loans  were  approximately  $1.5
         million at both December 31, 2002 and 2001.

(4)  Premises and Equipment
     Components of premises and equipment were as follows:
<TABLE>
<CAPTION>

                                                                                                  At December 31,
                                                                                                  ---------------
                                                                                                 2002          2001
                                                                                                 ----          ----
                                                                                                  (In thousands)
<S>                                                                                            <C>             <C>
        Cost:
            Land.......................................................................        $  4,924        4,115
            Building and leasehold improvements........................................          15,553       11,672
            Furniture and equipment....................................................           3,539        2,882
            Construction in progress...................................................             816          158
                                                                                                -------     --------

                Total cost.............................................................          24,832       18,827

        Less accumulated depreciation..................................................          (5,463)      (4,489)
                                                                                                 ------       ------

            Net book value.............................................................        $ 19,369       14,338
                                                                                                 ======       ======
</TABLE>


                                       36


<PAGE>






     Certain  Company  facilities  are leased  under  operating  leases.  Rental
         expense was approximately $70,000,  $118,000 and $180,000 in 2002, 2001
         and 2000,  respectively.  At December 31, 2002,  future  minimum rental
         commitments under noncancellable leases were as follows (in thousands):
<TABLE>
<CAPTION>

            Year Ending
            December 31,                                                                                       Amount
            ------------                                                                                       ------

<S>             <C>                                                                                            <C>
                2003.......................................................................................    $  64
                2004.......................................................................................       66
                2005.......................................................................................       69
                2006.......................................................................................       72
                2007.......................................................................................       75
                Thereafter.................................................................................       78
                                                                                                               -----
                                                                                                               $ 424
</TABLE>

(5)  Deposits
     The aggregate amount of short-term jumbo time deposits, each with a minimum
         denomination of $100,000,  was approximately  $140.6 million and $107.2
         million at December 31, 2002 and 2001, respectively.

At December 31, 2002, the scheduled  maturities of time deposits were as follows
(in thousands):
<TABLE>
<CAPTION>

            Year Ending
            -----------

<S>             <C>                                                                                         <C>
                2003......................................................................................  $ 251,557
                2004......................................................................................    127,809
                2005......................................................................................     44,343
                2006......................................................................................     20,872
                2007......................................................................................     41,349
                                                                                                             --------

                                                                                                            $ 485,930
                                                                                                            =========
</TABLE>


                                       37

<PAGE>


(6)  Advances from Federal Home Loan Bank and Other Borrowings
     As  of December 31, 2002,  the Bank had $149.0 million in Federal Home Loan
         Bank of Atlanta  ("FHLB")  advances  outstanding.  These advances had a
         weighted-average   interest  rate  of  5.40%  and  interest  rates  and
         maturities as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                                                     At December 31,
                                                                                 Interest           ----------------
            Year Ending December 31,                                              Rate              2002        2001
            ------------------------                                            --------            ----        ----

<S>             <C>                                                                 <C>         <C>           <C>
                2002..........................................................      6.10%       $   -           5,000
                2002..........................................................      5.96%           -          15,000
                2002..........................................................      4.03%           -           5,000
                2003..........................................................      4.90%          10,000      10,000
                2003..........................................................      4.91%           6,000       6,000
                2003..........................................................      4.53%           5,000       5,000
                2003..........................................................      3.77%           5,000       5,000
                2003..........................................................      1.86%(A)        5,000       -
                2004..........................................................      6.05%          10,000      10,000
                2004..........................................................      3.76%          10,000       -
                2004..........................................................      3.39%           5,000       -
                2005..........................................................      6.39%          20,000      20,000
                2005..........................................................      6.60%          13,500      13,500
                2005..........................................................      6.68%          12,500      12,500
                2005..........................................................      6.31%           7,000       7,000
                2005..........................................................      6.04%          10,000      10,000
                2005..........................................................      6.00%           6,000       6,000
                2006..........................................................      1.47%(A)        5,000       5,000
                2009..........................................................      6.39%(B)       14,000      14,000
                2011..........................................................      4.44%(B)        5,000       5,000
                                                                                                  --------  ---------

                     Total..................................................................    $ 149,000     154,000
                                                                                                  =======     =======
</TABLE>

     (A) Adjustable Rate
     (B) The FHLB has the option to convert to an adjustable rate in future
         years, at which time the Company has the option to prepay the advance
         without penalty.

     The security agreement with FHLB includes a blanket floating lien requiring
         the Bank to maintain first  mortgage loans as pledged  collateral in an
         amount  equal  to at  least,  when  discounted  at 75%  of  the  unpaid
         principal  balances,  100% of these  advances.  The FHLB  stock is also
         pledged as collateral  for these  advances.  At December 31, 2002,  the
         Bank  could  borrow  up to  $247.3  million  under  the  FHLB  security
         agreement.

     The Bank  has  an $8  million  line  of  credit  facility  with  one of its
         correspondent  banks  under  which  the Bank may draw  funds  for daily
         liquidity.  Borrowings  under this line of credit must be repaid within
         seven days. The line of credit bears a floating  interest rate equal to
         the  average  federal  funds rate and expires on June 30,  2003.  As of
         December 31, 2002, the Bank has not used this line of credit.

     Other borrowed  funds were composed of retail  repurchase  agreements  with
         customers.  The Company enters into retail  repurchase  agreements with
         customers in which the funds  received are  accounted for as borrowings
         to the Company.  The total amount outstanding under these agreements at
         December  31,  2002 and 2001 were $ 14.3  million  and  $13.3  million,
         respectively.  The Company pledged  securities with a carrying value of
         $18.7 million as collateral  for these  agreements at both December 31,
         2002 and 2001.



                                       38
<PAGE>

(7)  Guaranteed Preferred Beneficial Interest in 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 Holding  Company  then  invested
         $3,000,000 as a capital contribution in the Bank. 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.  At
         December 31, 2002,  approximately  $4,000 of distributions were accrued
         and are  included  in accrued  expenses  and other  liabilities  in the
         consolidated  balance sheet.  Issuance costs of approximately  $169,000
         associated  with the Capital  Securities  have been  capitalized by the
         Holding   Company  and  are  being  amortized  over  the  life  of  the
         securities.

<TABLE>
<CAPTION>


                                                                      Capital
                    Securities Outstanding at
                                                                          December 31,                Prepayment
            Name                                                        2002          2001            Option Date
            ----                                                        ----          ----            -----------
                                                                          (In thousands)

<S>                                                                   <C>                          <C>
        FFLC Statutory Trust I....................................    $ 5,000        -             September 26, 2007
                                                                        =====    =========

</TABLE>

     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.

     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 SFAS 133,  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, 2002, the unrealized loss
         on the derivative instrument was $120,000 ($75,000 net of tax).


                                       39
<PAGE>










(8)  Income Taxes
     The Holding Company files consolidated Federal and state income tax returns
         with the Bank and the Service  Corporation.  Income taxes are allocated
         proportionally  to the Holding Company and each of the  subsidiaries as
         though separate  income tax returns were filed.  First Alliance and the
         Trust file separate income tax returns.

     Income taxes are summarized as follows:
<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                                          -----------------------
                                                                                       2002          2001      2000
                                                                                       ----          ----      ----
                                                                                                      (In thousands)

<S>                                                                                    <C>           <C>        <C>
            Current .................................................................  $ 5,608       3,948      3,864
            Deferred.................................................................     (331)       (251)      (500)
                                                                                        ------      ------     ------

                                                                                       $ 5,277       3,697      3,364
                                                                                         =====       =====      =====
</TABLE>

     The effective  tax rate on income before income taxes differs from the U.S.
         statutory rate of 35% for 2002 and 34% for 2001 and 2000. The following
         summary  reconciles taxes at the U.S. statutory rate with the effective
         rates:
<TABLE>
<CAPTION>

                                                                                                 Year Ended December 31,
                                                                                                 -----------------------
                                                            2002                        2001                       2000
                                  --------------------------------------------------------------------------------------
                                             Amount           %         Amount           %         Amount           %
                                             ------           -         ------           -         ------           -
                                                                                        ($ in thousands)
<S>                                         <C>             <C>        <C>             <C>        <C>             <C>
            Taxes on income at U.S.
                statutory rate........      $ 4,940         35.0%      $ 3,395         34.0%      $ 2,949         34.0%
            State income taxes, net of
                federal tax benefit...          477          3.4           341          3.4           324          3.7
            Graduated tax rates.......         (100)         (.7)         -             -            -             -
            Other, net................          (40)         (.3)          (39)         (.4)           91          1.1
                                              -----        -----         -------      -----          ------       ----

            Taxes on income at
                effective rates.......      $ 5,277         37.4%      $ 3,697         37.0%      $ 3,364         38.8%
                                              =====         ====         =====         ====         =====         ====
</TABLE>

     Temporary differences  between the financial statement carrying amounts and
         tax  bases of assets  and  liabilities  that  gave rise to  significant
         portions of the deferred tax asset relate to the following:
<TABLE>
<CAPTION>



                                                                                                 At December 31,
                                                                                                 ---------------
                                                                                              2002             2001
                                                                                              ----             ----
                                                                                                 (In thousands)
<S>                                                                                         <C>                 <C>
            Deferred tax assets:
                Allowance for loan losses...........................................        $ 1,825             1,263
                Accrued interest....................................................             27                 9
                RRP incentive plan..................................................             68                74
                Deferred loan fees..................................................           -                   24
                Unrealized loss on derivative instrument............................             45               -
                Other...............................................................           -                   24
                                                                                           --------            -------

            Gross deferred tax assets...............................................          1,965             1,394
                                                                                              -----             -----

            Deferred tax liabilities:
                FHLB stock dividends................................................            332               349
                Building and land...................................................            342               334
                Accumulated depreciation............................................            363               155
                Unrealized gain on securities available for sale....................            428               265
                Deferred loan costs.................................................             13                17
                                                                                            -------           -------

            Gross deferred tax liabilities..........................................          1,478             1,120
                                                                                              -----             -----

            Net deferred tax asset..................................................       $    487               274
                                                                                             ======            ======
</TABLE>



                                       40

<PAGE>



     Retained earnings at December 31, 2002 and 2001 includes approximately $5.8
         million for which no deferred  federal  income tax  liability  has been
         recognized.  This amount represents an allocation of income to bad debt
         deductions for tax purposes only. Reduction of amounts so allocated for
         purposes  other than tax bad debt losses or  adjustments  arising  from
         carryback of net operating  losses would create income for tax purposes
         only,  which would be subject to the then current  corporate income tax
         rate. The unrecorded  deferred income tax liability on the above amount
         was approximately $2.2 million at December 31, 2002 and 2001.

     The Small  Business Job  Protection Act of 1996 (the "1996 Act") enacted on
         August 2, 1996  requires  savings  institutions,  such as the Bank,  to
         recapture certain portions of their accumulated bad debt reserves,  and
         eliminated  the  Percentage of Taxable  Income Method of accounting for
         bad debts for tax purposes.  The Bank was required to change its method
         of accounting for bad debts for tax purposes effective January 1, 1996.
         In addition,  the Bank was required to recapture  the excess of its bad
         debt  reserves  at  December  31,  1995 over its base year  reserves at
         December 31, 1987, ratably over a six-year period beginning in 1998. At
         December 31, 2002, the Bank had approximately  $111,000 of deferred tax
         liabilities recorded for the recapture of its excess bad debt reserves.

(9)  Financial Instruments
     The Company is a party to financial instruments with off-balance-sheet risk
         in the normal  course of  business to meet the  financing  needs of its
         customers  and to reduce its own exposure to  fluctuations  in interest
         rates.  These  financial  instruments are commitments to extend credit,
         unused  lines of  credit,  undisbursed  loans in  process  and  standby
         letters of credit and may  involve,  to varying  degrees,  elements  of
         credit and interest-rate risk in excess of the amount recognized in the
         consolidated  balance sheet. The contract amounts of these  instruments
         reflect the extent of  involvement  the Company has in these  financial
         instruments.

     The Company's exposure to credit loss in the event of nonperformance by the
         other  party to the  financial  instrument  for  commitments  to extend
         credit is represented by the contractual  amount of those  instruments.
         The Company uses the same credit  policies in making  commitments as it
         does for on-balance-sheet instruments.

     Commitments to extend  credit are  agreements to lend to a customer as long
         as there is no violation of any condition  established in the contract.
         Commitments  generally have fixed expiration dates or other termination
         clauses and may require payment of a fee. Since some of the commitments
         are expected to expire without being drawn upon,  the total  commitment
         amounts do not  necessarily  represent  future cash  requirements.  The
         Company  evaluates each customer's  credit worthiness on a case-by-case
         basis.  The amount of  collateral  obtained if deemed  necessary by the
         Company  upon  extension  of  credit  is based on  management's  credit
         evaluation of the counterparty.

     Standby letters of credit are conditional commitments issued by the Company
         to guarantee the performance of a customer to a third party. The credit
         risk involved in issuing  letters of credit is essentially  the same as
         that involved in extending loans to customers.

                                       41
<PAGE>





The  estimated  fair  values  of the  Company's  financial  instruments  were as
follows:
<TABLE>
<CAPTION>



                                                                     At December 31, 2002        At December 31, 2001
                                                                     --------------------        --------------------
                                                                     Carrying        Fair       Carrying        Fair
                                                                      Amount         Value       Amount        Value
                                                                      ------         -----       ------        -----
                                                                                                       (In thousands)
              Financial assets:
<S>                                                                <C>              <C>           <C>          <C>
                  Cash and cash equivalents....................... $   69,394       69,394        49,792       49,792
                  Securities available for sale...................     77,324       77,324        59,503       59,503
                  Loans...........................................    735,338      739,329       685,935      689,362
                  Accrued interest receivable.....................      4,181        4,181         4,193        4,193
                  Federal Home Loan Bank stock....................      7,700        7,700         7,700        7,700

              Financial liabilities:
                  Deposit liabilities.............................    668,058      674,925       585,128      587,642
                  Advances from FHLB..............................    149,000      156,891       154,000      161,205
                  Other borrowed funds............................     14,303       14,303        13,327       13,327
                  Guaranteed preferred beneficial interest in junior
                      subordinated debentures.......................    5,000        5,000           -            -
              Derivatives:
                  Interest rate swap (loss position)................     (120)        (120)          -            -
</TABLE>

     Commitments to extend credit typically result in loans with a market
         interest rate when funded. A summary of the Company's financial
         instruments with off-balance-sheet risk at December 31, 2002, follows:
<TABLE>
<CAPTION>

                                                                               Notional      Carrying         Fair
                                                                                Amount        Amount          Value
                                                                                ------        ------          -----
                                                                                          (In thousands)

<S>                                                                            <C>        <C>           <C>
              Commitments to extend credit.................................    $ 25,762        -              -
                                                                                 ======   ===========    ===========

              Unused lines of credit.......................................    $ 51,792        -              -
                                                                                 ======   ===========    ===========

              Undisbursed portion of loans in process .....................    $ 16,770        -              -
                                                                                 ======   ===========    ===========

              Standby letters of credit....................................    $  1,548        -              -
                                                                                =======   ===========    ===========
</TABLE>

(10) Significant Group Concentration of Credit Risk
     The Company grants real estate,  commercial and consumer loans to customers
         primarily  in the State of Florida  with the  majority of such loans in
         the Lake,  Sumter,  Citrus  and  Marion  County  area.  Therefore,  the
         Company's exposure to credit risk is significantly  affected by changes
         in the economy of the Lake, Sumter,  Citrus and Marion County areas. In
         addition, the Company has a concentration of single-family  residential
         mortgage  loans  in a  specific  residential  retirement  community  of
         approximately $80.8 million at December 31, 2002.

     The contractual  amounts of credit related  financial  instruments  such as
         commitments  to  extend  credit  represent  the  amounts  of  potential
         accounting  loss should the contract be fully drawn upon,  the customer
         default and the value of any existing collateral become worthless.

                                       42
<PAGE>





(11) Related Parties
     Loans to directors and  executive  officers of the Company were made in the
         ordinary  course of business  and did not involve more than normal risk
         of collectibility or present other  unfavorable  features.  Activity in
         loans to directors and executive officers were as follows:
<TABLE>
<CAPTION>

                                                                                                     Year Ended
                                                                                                     December 31,
                                                                                                     ------------
                                                                                                 2002            2001
                                                                                                 ----            ----
                                                                                                   (In thousands)

<S>                                                                                             <C>             <C>
            Beginning balance................................................................   $ 6,785         5,413
            Loans originated.................................................................     5,401         4,086
            Principal repayments.............................................................    (3,879)       (2,714)
                                                                                                  -----         -----

                Ending balance...............................................................   $ 8,307         6,785
                                                                                                  =====         =====
</TABLE>



(12) Commitments and Contingencies
     In  the ordinary  course of business,  the Company has various  outstanding
         commitments  and contingent  liabilities  that are not reflected in the
         accompanying   consolidated  financial  statements.  In  addition,  the
         Company is a defendant in certain  claims and legal actions  arising in
         the ordinary  course of business.  In the opinion of management,  after
         consultation  with legal  counsel,  the ultimate  disposition  of these
         matters  is not  expected  to have a  material  adverse  effect  on the
         consolidated financial condition of the Company.

(13) Restrictions on Retained Earnings
     The Bank is subject to certain restrictions on the amount of dividends that
         it may declare without prior regulatory approval. At December 31, 2002,
         approximately  $26.1 million of retained  earnings  were  available for
         dividend declaration without prior regulatory approval.

(14) Regulatory Matters
     The Bank is subject to various regulatory capital requirements administered
         by the  federal  banking  agencies.  Failure  to meet  minimum  capital
         requirements  can initiate  certain  mandatory and possibly  additional
         discretionary  actions by regulators that, if undertaken,  could have a
         direct  material  effect  on  the  Company's   consolidated   financial
         statements.  Under  capital  adequacy  guidelines  and  the  regulatory
         framework  for prompt  corrective  action,  the Bank must meet specific
         capital  guidelines  that involve  quantitative  measures of the Bank's
         assets, liabilities,  and certain off-balance-sheet items as calculated
         under regulatory accounting  practices.  The Bank's capital amounts and
         classification  are  also  subject  to  qualitative  judgements  by the
         regulators about components, risk weightings, and other factors.

     Quantitative measures  established by regulation to ensure capital adequacy
         require the Bank to maintain  minimum  amounts  (set forth in the table
         below) of total and Tier I capital (as defined in the  regulations)  to
         risk-weighted assets (as defined).  Management believes, as of December
         31,  2002,  that the Bank meets all capital  adequacy  requirements  to
         which it is subject.

     As  of  December  31,  2002,  the  most  recent  notification  from the OTS
         categorized the Bank as well capitalized under the regulatory framework
         for prompt  corrective  action.  To be categorized as well capitalized,
         the  Bank  must  maintain  minimum  tangible,  tier  I  (core),  tier I
         (risk-based)  and total  risk-based  capital ratios as set forth in the
         table.  There are no conditions or events since that  notification that
         management believes have changed the institution's category.

                                       43
<PAGE>





The Bank's actual capital  amounts and percentages at December 31, 2002 and 2001
are also presented in the tables.
<TABLE>
<CAPTION>

                                                                                                      To Be Well
                                                                             Minimum                  Capitalized
                                                                           For Capital                For Prompt
                                                                            Adequacy               Corrective Action
                                                   Actual                   Purposes                  Provisions
                                                   ------                   --------                  ----------
                                             %         Amount            %         Amount            %         Amount
                                             -         ------            -         ------            -         ------
<S>                                         <C>      <C>               <C>       <C>                <C>      <C>
         As of December 31, 2002:                                                      ($ in thousands)
         Stockholders' equity, and
             ratio to total assets.....     7.9%    $   72,404
         Less: investment in
             nonincludable
             subsidiary................                   (518)
         Unrealized gain on
             available-for-sale
             securities................                   (747)
                                                     --------- -

         Tangible capital,
             and ratio to adjusted
             total assets..............     7.8%     $  71,139         1.5%      $ 13,719
                                                       =======                    =======

         Tier 1 (core) capital, and
             ratio to adjusted total
             assets....................     7.8%     $  71,139         3.0%      $ 27,439           5.0%     $ 45,731
                                                       =======                     ======                      =======

         Tier 1 capital, and ratio
             to risk-weighted assets...    11.9%        71,139         4.0%      $ 23,897           6.0%     $ 35,846
                                                                                   ======                      =======

         Less: nonincludable
             investment in 80%
             land loans................                   (499)

         Tier 2 capital (allowance for
             loan losses)..............                  5,005
                                                      ---------

         Total risk-based capital,
             and ratio to risk-
             weighted assets...........    12.7%    $   75,645         8.0%      $ 47,794          10.0%     $ 59,743
                                                      ========                     ======                      =======

         Total assets..................             $ 915,881
                                                      ========

         Adjusted total assets.........             $ 914,624
                                                      ========

         Risk-weighted assets..........             $ 597,427
                                                      ========
</TABLE>






                                       44
<PAGE>


<TABLE>
<CAPTION>



                                                                                                      To Be Well
                                                                             Minimum                  Capitalized
                                                                           For Capital                For Prompt
                                                                            Adequacy               Corrective Action
                                              Actual                        Purposes                 Provisions
                                              ------                        --------                 ----------
                                             %         Amount            %         Amount            %         Amount
                                             -         ------            -         ------            -         ------
<S>                                         <C>      <C>               <C>       <C>                <C>      <C>
         As of December 31, 2001:                                                      ($ in thousands)
         Stockholders' equity, and
             ratio to total assets.....     7.3%     $  60,108
         Less: investment in
             nonincludable
             subsidiary................                   (477)
         Unrealized gain on
             available-for-sale
             securities................                   (490)
                                                         -----

         Tangible capital,
             and ratio to adjusted
             total assets..............     7.2%     $  59,141         1.5%     $ 12,344
                                                       =======                    =======

         Tier 1 (core) capital, and
             ratio to adjusted total
             assets....................     7.2%     $  59,141         3.0%      $ 24,688           5.0%     $ 41,147
                                                       =======                     ======                      =======

         Tier 1 capital, and ratio
             to risk-weighted assets...    10.8%        59,141         4.0%      $ 21,933           6.0%     $ 32,900
                                                                                   ======                      =======

         Less: nonincludable
             investment in 80%
             land loans................                   (656)

         Tier 2 capital (allowance for
             loan losses)..............                  4,035
                                                       --------

         Total risk-based capital,
             and ratio to risk-
             weighted assets...........    11.4%    $   62,520         8.0%      $ 43,867          10.0%     $ 54,833
                                                      ========                     ======                      =======

         Total assets..................             $ 823,916
                                                      ========

         Adjusted total assets.........             $ 822,946
                                                      ========

         Risk-weighted assets..........             $ 548,332
                                                      ========
</TABLE>






                                       45

<PAGE>




(15) Conversion to Stock Savings Bank
     The Bank  successfully  completed a conversion  from a federally  chartered
         mutual savings  association to a federally chartered stock savings bank
         on  January 4, 1994  pursuant  to the Plan of  Conversion.  The Plan of
         Conversion  provided for the  establishment  of a  Liquidation  Account
         equal to the retained  income of the Bank as of September 30, 1993 (the
         date of the most  recent  financial  statement  presented  in the final
         conversion  prospectus).  The  Liquidation  Account is  established  to
         provide  a  limited  priority  claim  to  the  assets  of the  Bank  to
         qualifying  depositors  as of  September  30,  1992  (Eligible  Account
         Holders)  who   continue  to  maintain   deposits  in  the  Bank  after
         conversion.  In the  unlikely  event of a complete  liquidation  of the
         Bank,  and only in such  event,  each  Eligible  Account  Holder  would
         receive from the Liquidation  Account a liquidation  distribution based
         on their  proportionate  share of the then total  remaining  qualifying
         deposits.

     Current regulations  allow the Bank to pay dividends on its stock after the
         conversion if its regulatory capital would not thereby be reduced below
         the amount then required for the  aforementioned  Liquidation  Account.
         Also, capital distribution regulations limit the Bank's ability to make
         capital  distributions  which include dividends,  stock redemptions and
         repurchases, cash-out mergers, interest payments on certain convertible
         debt and other  transactions  charged to the capital  account  based on
         their capital level and supervisory condition.

(16)  401(k) Plan
     Effective  January 1, 2001,  the Board of  Directors  approved the transfer
         from the multi-employer  401(k) plan the Company had participated in to
         a  single   employer  401(k)  plan  ("KSOP"),   and  the   simultaneous
         combination  of that  plan  with  the  Employee  Stock  Ownership  Plan
         discussed in Note 17. Under the new KSOP,  participation is open to all
         employees   the  month  after  hire  date  (for  purposes  of  employer
         contributions,  one year of service is required), and participants have
         the twelve  investment  options  offered by the previous  plan,  plus a
         Company stock fund. The Company makes a contribution  of at least 3% of
         compensation (for all participants who have met the one-year of service
         requirement),  which vests immediately.  In addition,  the Company will
         make a discretionary  matching  contribution  (for all participants who
         have met the  one-year of service  requirement),  which will vest after
         five years of service. For 2002 and 2001, the Board approved a matching
         contribution  equal  to  100%  of  employees'  deferrals  up  to  3% of
         compensation.   The  Company  also  makes   quarterly   profit  sharing
         contributions  (more fully discussed in Note 17) in connection with the
         KSOP. Total  contribution  expense  recognized by the Company under the
         KSOP during the years ended  December  31, 2002 and 2001 were  $642,000
         and  $513,000,  respectively.  The  amounts of  employee  and  employer
         contributions  under the KSOP,  401(k) and the ESOP are  subject to IRS
         limitations.

     Prior to January 1, 2001,  the  Company had a defined  contribution  profit
         sharing  401(k)  plan (the  "401(k)  Plan").  All  employees  who met a
         minimum service  requirement  (1,000 hours of service in a twelve-month
         period)  participated in the Plan. Under the 401(k) Plan, a participant
         could  elect  to  contribute  up to 15% of their  annual  compensation,
         subject to IRS limitations on total annual  contributions.  The Company
         made contributions to the 401(k) Plan on a monthly basis at two percent
         of participants' compensation. Contributions to the 401(k) Plan for the
         year ended December 31, 2000 were $65,700.

                                       46
<PAGE>





(17)  Stock Benefit Plans

     The Company  follows the  provisions  of Statement of Financial  Accounting
         Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
         123").  SFAS No. 123  applies  to  stock-based  compensation  under the
         Company's incentive stock option plan (the "Option Plan") and under the
         Company's Recognition and Retention Plan discussed below. As allowed by
         SFAS No. 123, the Company  elected to continue to measure  compensation
         cost for the  options or shares  granted  under  either  plan using the
         intrinsic value method of accounting  prescribed by APB Opinion No. 25,
         "Accounting for Stock Issued to Employees." SFAS No. 123 does not apply
         to the Employee Stock Ownership Plan discussed below.

     Stock Option Plan. During 2002, the Company adopted a new stock option plan
         (the "2002 Plan") which  authorizes  the Company to issue up to 250,000
         shares in connection  with options  granted to  directors,  officers or
         employees  of the  Company.  The  terms  and  vesting  periods  will be
         determined  as each option is granted,  but the option price can not be
         less than the then  current  market  value of the  common  stock at the
         grant date. No options have been granted under the 2002 Plan.

         The Company also has a 1993 stock option plan (the "Plan")  under which
         460,303  common shares are  authorized to be issued in connection  with
         options  granted to  directors,  officers and employees of the Company.
         Options  granted under the Plan are  exercisable at the market price of
         the common stock at the date of grant.  Such  incentive  stock  options
         granted to officers and employees are exercisable in three equal annual
         installments,  with the first installment becoming exercisable one year
         from the date of  grant.  Options  granted  to  outside  directors  are
         exercisable  immediately,  but any common shares obtained from exercise
         of the  options  may not be sold  prior  to one  year  from the date of
         grant.  All options expire at the earlier of ten years for officers and
         employees or twenty years for  directors  from the date of grant or one
         year following the date which the outside director, officer or employee
         ceases to serve in such capacity.  At December 31, 2002,  33,713 shares
         remain available under the Plan for grant to future directors, officers
         and employees.

     The following is a summary of option transactions:


<TABLE>
<CAPTION>

                                                                                                            Weighted-
                                                                                            Range of         Average
                                                                          Number            Per Share       Per Share
                                                                         of Shares        Option Price        Price
                                                                         ---------        ------------        -----

<S>                                                                        <C>           <C>    <C>            <C>
            Outstanding, December 31, 1999......................           214,030       $ 6.00-21.25          7.93
            Granted ............................................             5,035              12.56         12.56
            Exercised...........................................           (34,217)        6.00-12.00          6.16
                                                                           -------

            Outstanding, December 31, 2000......................           184,848         6.00-21.25          8.49
            Exercised...........................................           (51,307)        6.00-12.56          6.76
                                                                           -------

            Outstanding, December 31, 2001......................           133,541         6.00-21.25          9.02
                                                                                                                  =
            Exercised...........................................           (31,990)        6.00-16.25          7.04
                                                                           -------

            Outstanding, December 31, 2002......................           101,551       $ 6.00-21.25        $ 9.92
                                                                           =======         ==========         =====
</TABLE>



                                       47
<PAGE>








     The weighted-average  remaining  contractual life of the outstanding  stock
         options at December 31, 2002, 2001 and 2000 was 8.3, 7.7 and 7.9 years,
         respectively.  All outstanding stock options are currently  exercisable
         at December 31, 2002.






     During the year ended  December 31, 2000,  5,035 options were  granted.  No
         options were granted  under the Plan during 2002 or 2001.  SFAS No. 123
         requires pro forma fair value disclosures if the intrinsic value method
         is being utilized.  In order to calculate the fair value of the options
         granted in 2000,  it was assumed that the  risk-free  interest rate was
         7.0%, an annualized  dividend yield of  approximately  2.0% would apply
         over the exercise period, the expected life of the options would be the
         entire exercise  period and the expected stock  volatility was 37%. For
         purposes of pro forma disclosures, the estimated fair value is included
         in expense in the period vesting occurs.  The proforma  information has
         been  determined  as if the Company had accounted for its stock options
         and share  awards  under the fair  value  method of SFAS No.  123.  The
         Company accounts for their stock option plans under the recognition and
         measurement   principles  of  APB  No.  25.  No  stock-based   employee
         compensation  cost is  reflected  in net income,  as all stock  options
         granted under the Plan had an exercise  price equal to the market value
         of the  underlying  common  stock on the date of grant.  The  following
         table illustrates the effect on net income and basic and diluted income
         per share as if the  Company  had  applied  the fair value  recognition
         provisions of SFAS No. 123 to  stock-based  employee  compensation  (in
         thousands, except per share amounts):


<TABLE>
<CAPTION>



                                                                                         Year Ended December 31,
                                                                                         -----------------------
                                                                                     2002           2001          2000
                                                                                     ----           ----          ----
<S>                                                                           <C>                  <C>           <C>
             Weighted-average grant-date fair value of options
                  issued during the year..................................... $     -               -               28
                                                                                =========      =========       =======

             Net income, as reported.........................................     $ 8,836          6,289         5,309

             Deduct:  Total stock-based employee compensation
                  determined under the fair value based method for
                  all awards, net of related tax benefit.....................          (7)           (39)         (127)
                                                                                ---------        -------        ------

             Proforma net income.............................................     $ 8,829          6,250         5,182
                                                                                    =====          =====         =====

             Basic income per share, as reported.............................    $   2.47           1.77          1.50
                                                                                   ======          =====         =====

             Proforma basic income per share.................................    $   2.47           1.76          1.46
                                                                                   ======         ======        ======

             Diluted income per share, as reported...........................    $   2.42           1.73          1.46
                                                                                   ======         ======        ======

             Proforma diluted income per share...............................    $   2.42           1.72          1.43
                                                                                   ======         ======        ======
</TABLE>



                                       48
<PAGE>





     Employee Stock  Ownership  Plan.  Through  December 31,  2000,  the Company
         sponsored  a  leveraged  ESOP  that  covered  eligible   employees  who
         completed a year of service.  The Bank made quarterly  contributions to
         the ESOP equal to the ESOP's  debt  service.  The ESOP Trust  purchased
         368,242 shares of common stock in the Company's initial public offering
         with the  proceeds  from a loan from the Company  which was paid-off in
         December 2000. The ESOP shares initially were pledged as collateral for
         its debt. As the debt was repaid,  shares were released from collateral
         and  allocated  to active  employees  based on the  proportion  of debt
         service  paid during the year.  The Company  accounted  for its ESOP in
         accordance  with Statement of Position 93-6.  Accordingly,  the debt of
         the ESOP was  recorded  as debt and the cost of the  shares  pledged as
         collateral  were  reported as a contra equity  account.  As shares were
         released from collateral,  the Company recorded  compensation  expense,
         and an offsetting credit to capital,  equal to the current market price
         of the shares,  and the shares became  outstanding for income per share
         computations.   Dividends   on  all  ESOP  shares   were   recorded  as
         compensation  expense as it was management's  intention to allocate the
         dividends  along with the shares when allocated.  Compensation  expense
         for the year ended  December  31,  2000  included  the  following  ESOP
         related costs:
<TABLE>
<CAPTION>

                                                                                                             Amount
                                                                                                             ------
                                                                                                         (In thousands)

<S>                                            <C>                                                           <C>
            Amortization of the original cost, $6 per share..........................................        $ 316
            Market appreciation of the FFLC shares...................................................          395
                                                                                                               ---

                Total................................................................................        $ 711
                                                                                                               ===
</TABLE>

     Effective January 1, 2001, the Board of Directors approved the combining of
         the ESOP with the Company's  401(k) Plan to form a new Plan,  the KSOP.
         (See Note 16). In connection  therewith,  the Company  makes  quarterly
         profit-sharing  contributions  in amounts  approved  by the Board,  and
         those  contributions  are  allocated to the  accounts of  participating
         employees on a quarterly basis.  Company  contributions  under the KSOP
         vest after five years of service. For 2002 and 2001, the Board approved
         profit-sharing  contributions  equal to four percent (4%) of the Bank's
         operating  net income,  which were made after each quarter based on the
         actual  results  of the  preceding  quarter.  During  the  years  ended
         December  31,  2002  and  2001,   the  Company   made  profit   sharing
         contributions  totaling  $312,000 and  $231,000,  respectively,  to the
         KSOP.  The Plan allows the Company to fund such KSOP  contributions  by
         either issuing  shares,  or purchasing the required number of shares on
         the open market.  As these shares are  allocated on a quarterly  basis,
         the Company  records  compensation  expense,  and either an  offsetting
         credit to capital  (in the event that new shares are issued) or to cash
         (in the event that shares are purchased on the open  market),  equal to
         the current market price of the shares.  The shares become  outstanding
         for income per share computations when allocated.

     Recognition and Retention Plan. The Company  adopted,  and the shareholders
         approved,  an RRP for  directors,  officers and employees to enable the
         Bank to attract  and  retain  experienced  and  capable  personnel.  On
         January 4, 1994,  the conversion  date,  184,122 shares of common stock
         were  purchased for the RRP which  included  8,067 shares  reserved for
         future  directors,  officers and employees.  The shares were granted in
         the  form of  restricted  stock to be  earned  in  three  equal  annual
         installments  beginning April 4, 1995. The RRP shares  purchased in the
         conversion  initially  were excluded  from  stockholders'  equity.  The
         Company  recognized  compensation  expense  in the  amount  of the fair
         market value of the common stock at the grant date of $6 per share, pro
         rata over the years (1996,  1995 and 1994) during which the shares were
         earned and payable and recorded a credit to stockholders' equity.





                                       49


<PAGE>



     If  a holder of restricted  stock under the RRP  terminated  employment for
         reasons other than death,  disability,  retirement or change of control
         in the Company,  such  employee  forfeited  all rights to any allocated
         shares which are still  restricted.  If termination is caused by death,
         disability,  retirement  or  change  in  control  of the  Company,  all
         allocated  shares become  unrestricted.  Forfeitures are reallocated to
         eligible  participants  annually.  At December 31,  2002,  2,735 shares
         remain reserved for future directors, officers and employees.

(18) Stock Repurchase Program
     In  September  1998,  the Company's  Board of Directors  approved a program
         which allowed the Company to acquire  369,285 shares of common stock in
         the open market.  During 2002,  2001,  2000, 1999 and 1998, the Company
         repurchased  12,648,   19,936,   95,562,  147,102  and  32,025  shares,
         respectively or 3.4%, 5.4%, 25.9%,  39.8% and 8.7%,  respectively under
         this  program.  In  October  2002,  the  Company's  Board of  Directors
         authorized the repurchase of up to an additional  179,040 shares of the
         Company's  common stock in  open-market  transactions.  At December 31,
         2002,  the Company can still  repurchase an additional  241,052  shares
         under both programs.

(19)  Dividend Reinvestment Plan
     On  January 7, 2000, the Company  established a Dividend  Reinvestment Plan
         (the "DRP"). The DRP was approved by the Board of Directors on December
         30, 1999 and provides stockholders of record of at least 50 shares with
         a convenient  and  economical  way to  automatically  reinvest all or a
         portion of their cash  dividends and to invest  optional cash payments,
         subject to minimum  and maximum  purchase  limitations,  in  additional
         shares  of  common  stock.  Stockholders  pay  no  service  charges  or
         brokerage  commissions for common stock purchased under the DRP. During
         the years ended  December 31, 2002,  2001 and 2000,  8,772,  19,341 and
         19,969 shares of common stock,  respectively,  were purchased under the
         DRP of which 0, 0 and 9,968 were new shares  issued by the  Company and
         8,772,  19,341 and 10,001  shares were  purchased  in the open  market,
         respectively in these periods.

                                       50
<PAGE>





(20) Parent Company Only Financial Statements
     Condensed  financial  statements of the Holding  Company as of December 31,
         2002 and 2001 and for each of the years in the three-year  period ended
         December  31,  2002  are  presented  below.   Amounts  shown  as  cash,
         investment  in  subsidiaries,  loans  to  subsidiaries  and  equity  in
         earnings of subsidiaries are eliminated in consolidation.

                            Condensed Balance Sheets
<TABLE>
<CAPTION>

                                                                                               At December 31,
                                                                                               ---------------
                                                                                            2002               2001
                                                                                            ----               ----
                                                                                                 (In thousands)
            Assets

<S>                                                                                       <C>                  <C>
        Cash, deposited with subsidiary............................................       $   1,720            1,474
        Investment in subsidiaries.................................................          72,576           60,113
        Loans to subsidiaries......................................................           1,850            2,500
        Other assets...............................................................             217            -
                                                                                           --------     ------------

                Total assets.......................................................        $ 76,363           64,087
                                                                                             ======           ======

            Liabilities and Stockholders' Equity
        Subordinated debt..........................................................           5,155              -
        Other liabilities..........................................................             146               19
        Stockholders' equity.......................................................          71,062           64,068
                                                                                             ------           ------

                Total liabilities and stockholders' equity.........................        $ 76,363           64,087
                                                                                             ======           ======
</TABLE>


                                       51
<PAGE>
<TABLE>
<CAPTION>


                         Condensed Statements of Income
                                                                                              Year Ended December 31,
                                                                                              -----------------------
                                                                                          2002       2001        2000
                                                                                          ----       ----        ----
                                                                                                        (In thousands)

<S>                                                                                     <C>          <C>        <C>
        Revenues.....................................................................   $    60        130        179
        Expenses.....................................................................      (205)      (160)      (170)
                                                                                        -------    -------     ------

                (Loss) income before earnings of subsidiaries........................      (145)       (30)         9
                Earnings of subsidiaries.............................................     8,981      6,319      5,300
                                                                                          -----      -----      -----

                Net income...........................................................   $ 8,836      6,289      5,309
                                                                                          =====      =====      =====

                       Condensed Statements of Cash Flows
                                                                                             Year Ended December 31,
                                                                                         2002        2001        2000
                                                                                         ----        ----        ----
                                                                                           (In thousands)
    Cash flows from operating activities:
        Net income....................................................................  $ 8,836      6,289      5,309
        Adjustments to reconcile net income to net cash (used in)
          provided by operations:
            Equity in earnings of subsidiaries........................................   (8,981)    (6,319)    (5,300)
            Net (increase) decrease in other, net.....................................     (221)         4         (1)
                                                                                         ------  ---------    -------

                Net cash (used in) provided by operating activities...................     (366)       (26)         8
                                                                                         ------   --------   --------

    Cash flows from investing activities:
            Investment in subsidiaries................................................   (3,155)        (5)     -
            Cash dividends received from subsidiaries.................................      -        2,700      2,500
            Repayment of loans to subsidiaries........................................      650      -            316
                                                                                        ------- ----------     ------

                Net cash (used in) provided by investing activities...................   (2,505)     2,695      2,816
                                                                                          -----      -----      -----

    Cash flows from financing activities:
            Proceeds from issuance of subordinated debt...............................    5,155        -          -
            Purchase of treasury stock................................................     (320)      (362)    (1,264)
            Proceeds from issuance of stock...........................................      284        345        343
            Cash dividends paid.......................................................   (2,002)    (1,846)    (1,716)
                                                                                          -----      -----      -----

                Net cash provided by (used in) financing activities...................    3,117     (1,863)    (2,637)
                                                                                          -----      -----      -----

    Net increase in cash..............................................................      246        806        187

    Cash at beginning of year.........................................................    1,474        668        481
                                                                                          -----     ------     ------

    Cash at end of year...............................................................  $ 1,720      1,474        668
                                                                                          =====      =====     ======

    Noncash investing and financing activities: Accumulated other comprehensive
        income:
            Net change in investment in subsidiaries due to net change in unrealized
                gain on securities available for sale, net of tax..................... $    271        359        263
                                                                                         ======     ======     ======

            Net change in unrealized loss on derivative investment, net of tax........ $    (75)     -          -
                                                                                         ======  =========  =========
</TABLE>

                                       52
<PAGE>


(21) Quarterly Financial Data (Unaudited)
     The following  tables  present  summarized  quarterly  data (in thousands,
     except per share amounts):
<TABLE>
<CAPTION>

                                                                                         Year Ended December 31, 2002
                                                                        ---------------------------------------------
                                                              First      Second       Third       Fourth
                                                             Quarter     Quarter     Quarter      Quarter       Total
                                                             -------     -------     -------      -------       -----

<S>                                                        <C>            <C>          <C>         <C>         <C>
            Interest income............................... $ 13,868       14,143       14,434      14,088      56,533
            Interest expense..............................    7,491        7,284        7,577       7,131      29,483
                                                             ------      -------      -------     -------    --------

            Net interest income...........................    6,377        6,859        6,857       6,957      27,050

            Provision for loan losses.....................      258          613          399         575      1,845
                                                           --------     --------     --------    --------     -------
            Net interest income after provision
                for loan losses...........................    6,119        6,246        6,458       6,382      25,205

            Noninterest income............................      868          846          808       1,254       3,776
            Noninterest expense...........................   (3,444)      (3,597)      (3,774)     (4,053)    (14,868)
                                                             ------       ------       ------      ------      ------

            Income before income taxes....................    3,543        3,495        3,492       3,583      14,113

            Income taxes..................................    1,335        1,282        1,315       1,345      5,277
                                                            -------      -------      -------     -------    --------

            Net income.................................... $  2,208        2,213        2,177       2,238      8,836
                                                             ======       ======      =======     =======     =======

            Basic income per common share.................$      .62         .62          .61         .62       2.47
                                                            ========    ========    =========    ========    ========

            Diluted income per common share...............$      .61         .60          .60         .61       2.42
                                                            ========    ========    =========    ========    ========
</TABLE>


<TABLE>
<CAPTION>

                                                                                           Year Ended December 31, 2001
                                                              First      Second        Third      Fourth
                                                             Quarter     Quarter      Quarter     Quarter       Total
                                                             -------     -------      -------     -------       -----

<S>                                                        <C>            <C>          <C>         <C>         <C>
            Interest income............................... $ 13,849       14,209       14,284      14,143      56,485
            Interest expense..............................    8,921        9,149        9,062       8,184      35,316
                                                             ------      -------      -------      ------     -------

            Net interest income...........................    4,928        5,060        5,222       5,959      21,169

            Provision for loan losses.....................      275          325          225         290       1,115
                                                            -------     --------      -------     -------    --------
            Net interest income after provision
                for loan losses...........................    4,653        4,735        4,997       5,669      20,054
                                                                                                                    -

            Noninterest income............................      601          672          705         795       2,773
            Noninterest expense...........................   (2,963)      (3,052)      (3,201)     (3,625)    (12,841)
                                                             ------       ------       ------      ------      ------

            Income before income taxes....................    2,291        2,355        2,501       2,839       9,986

            Income taxes..................................      859          882          936       1,020      3,697
                                                             ------       ------      -------      ------     -------

            Net income.................................... $  1,432        1,473        1,565       1,819      6,289
                                                             ======       ======       ======      ======     =======

            Basic income per common share.................$      .41         .41          .44         .51       1.77
                                                            ========    ========     ========    ========    ========

            Diluted income per common share...............$      .40         .40          .43         .50       1.73
                                                            ========    ========     ========    ========    ========
</TABLE>

                                       53
<PAGE>




                          Independent Auditors' Report



The Board of Directors
FFLC Bancorp, Inc.
Leesburg, Florida:

   We have audited the accompanying consolidated balance sheets of FFLC Bancorp,
Inc. and  Subsidiaries  (the "Company") as of December 31, 2002 and 2001 and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for each of the years in the  three-year  period  ended  December 31,
2002.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

   We conducted  our audits in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

   In our  opinion,  the  consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of the Company
as of December 31, 2002 and 2001 and the results of its  operations and its cash
flows for each of the years in the three-year  period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.






HACKER, JOHNSON & SMITH PA
Orlando, Florida
January 15, 2003


                                       54
<PAGE>


                               FFLC BANCORP, INC.

                             DIRECTORS AND OFFICERS


Directors:
----------

Claron D. Wagner
Chairman of the Board

James P. Logan
Vice Chairman

Joseph J. Junod
Ted R. Ostrander, Jr.
H.D. Robuck, Jr.
Howard H. Hewitt
Stephen T. Kurtz
Paul K. Mueller


Advisory Directors:
-------------------

James R. Gregg
James H. Herlong
Horace D. Robuck

Officers:

Stephen T. Kurtz
President and Chief Executive Officer

Paul K. Mueller
Executive Vice President and Treasurer

Sandra L. Rutschow
Vice President and Secretary


Occupation
----------

President, Woody Wagner, Inc.


President/Owner, Logan Sitework Contractors, Inc.


Retired, General Manager, Avesta Sheffield Pipe
President, Lassiter-Ware, Inc.
Attorney; CEO, Ro-Mac Lumber & Supply, Inc.
President/Owner, Hewitt Construction Company
President, FFLC Bancorp, Inc. & Subsidiaries
Executive Vice President, FFLC Bancorp, Inc.& Subsidiaries



President, Jarol Company
Retired
President, Ro-Mac Lumber & Supply, Inc.



                                       55
 <PAGE>


                           FIRST FEDERAL SAVINGS BANK
                                 OF LAKE COUNTY

                        DIRECTORS, OFFICERS AND MANAGERS


<PAGE>



DIRECTORS

Claron D. Wagner
Chairman of the Board

James P. Logan
Vice Chairman

Joseph J. Junod
Ted R. Ostrander, Jr.
H.D. Robuck, Jr.
Howard H. Hewitt
Stephen T. Kurtz
Paul K. Mueller

Advisory Directors

James R. Gregg
James H. Herlong
Horace D. Robuck

OFFICERS

Stephen T. Kurtz
President
Chief Executive Officer

Paul K. Mueller
Executive Vice President and Chief Operations Officer
and Treasurer

Dwight L. Hart
Senior Vice President and Mortgage Loan Manager

Joseph D. Cioppa
Senior Vice President and Commercial Loan Manager

Paul S. Allen
Senior Vice President, Audit, Planning and Budget

Jay Bartholomew
Senior Vice President and Retail Banking Manager

Brenda M. Grubb
Senior Vice President and Human Resources Manager

Susan L. Berkebile
Vice President and Area Loan Manager

Michael J. Cox
Vice President and Area Loan Manager

Jankie Dhanpat
Vice President, SEC Reporting & Controller & Compliance

James D. Haug
Vice President and Lady Lake Branch Manager

Lawrence E. Hoag
Vice President and Operations Manager

Stephanie Hodges
Vice President and Secondary Market Manager

Brian R. Hofer
Vice President and Commercial Loan Officer

Karen L. Hollister
Vice President and Loan Operations Manager

Tara A. Keane
Vice President and Lake Square Branch Manager

B. Stan McCullars, Jr.
Vice President Finance

Dennis R. Rogers
Vice President, Wildwood Branch Manager and
Area Loan Manager

Sandra L. Rutschow
Vice President and Corporate Secretary

Sandra L. Seaton
Vice President and South Leesburg Branch Manager

Raynard S. (Ray) Taylor
Vice President and Commercial Loan Officer

Phillip P.  Tompetrini
Vice President and Inverness Branch Manager

Tara H. Wainwright
Vice President and Kings Ridge Branch Manager

Lynda F. Wemple
Vice President and Accounting Manager

Robert R. Wedlock
Vice President and Chief Information Officer

Donald E. Turner
Vice President and Commercial Loan Officer

Kimberly R. Bailey
Vice President and Spruce Creek Branch Manager

Natalie L. Rojas
Vice President and Commercial Loans Portfolio Manager

Stephen G. Knowles
Vice President and Main Office Branch Manager and Loan Officer

Vickie S. Baxter
Assistant Vice President and Loan Officer

Victoria M. Boren
Assistant Vice President and Deposit and Branch Operations Administrator

Donna L. Boyett
Assistant Vice President and Branch
Operations Coordinator

Norma J. Caron
Assistant Vice President and Checking Department Manager

James M. Combs
Assistant Vice President and Indirect Loan Manager

Carrie C. Cribb
Assistant Vice President and Mortgage Loan Originator

Lori M. Farfaglia
Assistant Vice President and Fruitland Park Branch Manager

Janet B. Farrar
Assistant Vice President and Branch
Operations Coordinator

Penny M. Hollis
Assistant Vice President and Security Officer

Cynthia M. Lay
Assistant Vice President and MIS Coordinator and
Data Department Manager

Marilyn A. Leugers
Assistant Vice President and IRA Coordinator

Sandra A. Rowe
Assistant Vice President and Loan Servicing Manager

Leigh S. Skehan
Assistant Vice President and Marketing Officer

Mary R. Asher
Inverness Office Manager

John A. Beaulieu
Assistant Vice President and Investment Officer

Craig S. Cannon
Bushnell Branch Manager

Amy S. Conner
Main Street Branch Manager

James R. Cummings
Collections Manager

Dawn R. Davison
Escrow Manager

Karen A. Dixon
Inverness Loan Officer

Deedee A. Dye
Lady Lake Office Manager

Jeffrey R. Dwiggins
Sales Training and Manager

Craig A. Dykstra
Assistant Vice President and Investment Officer

Amy L. Eckert
Business Development Officer

Cinda K. Franklin
Citrus Ridge Branch Manager

Doris E. Hyatt
Loan Closing Manager & Assistant Secretary

Jennifer J. Long
Spruce Creek Office Manager

Fay E. Phillips
Clermont Branch Manager

Michael J. Price
Assistant Vice President and Eustis Loan Officer

Leslie A. Rocha
Kings Ridge Office Manager

Pamela Self
Fruitland Park Office Manager

Carol A. Sieder
South Leesburg Office Manager

Juanita L. Taylor
Eustis Office Manager

Margaret R. White
Main Office Branch Office Manager

Betty L. Wolcott
Facilities Management Officer and Purchasing Manager

Sylvie M. Zimmerman
Wildwood Office Manager


                                       56
<PAGE>


                    FIRST FEDERAL SAVINGS BANK OF LAKE COUNTY
                     is Proud of the Outstanding Service its
           Employees Provide to the Community and the People it Serves







MAIN OFFICE & ADMINISTRATION:
Jamie L. Abbott
Paul S. Allen
Dianne A. Allen
Emily C. Ashline
Jay R. Bartholomew
Kathy E. Bauer
Vickie S. Baxter
Charlotte Bennett
Beth A. Bennett
Victoria M. Boren
Barbara Boscana
Donna L. Boyett
Deena M. Bryant
Norma J. Caron
Shu Een Chen-Noble
Dianna L. Christensen
Constance P. Christian
Joseph D. Cioppa
Sheila C. Coffey
Ursula T. Colla
James M. Combs
Betty Jo Conklin
Judith A. Cook
Diane S. Cook
Carrie C. Cribb
Robert Cumm
James R. Cummings
Tammy L. Dahl
Jason A. Davis
Cheryl A. Davis
Dawn R. Davison
Ginger L. Devine
Carol A. Dewey
Jankie Dhanpat
Alma H. Dunbar
Mary A. Durre
Martha M. Duty
Jeffrey R. Dwiggins
Craig A. Dykstra
Amy L. Eckert
Janet B. Farrar
Charlana M. Fenwick
Ruth E. Franzoni
Terry J. French
June E. Gasbarra
Joan P. Gibson
Zoann Goodman
Dexter L. Graham
Jennifer Grovesteen
Brenda M. Grubb
Allison M. Hamrick
Carol M. Harrison
Dwight L. Hart
Lynette N. Hipp
Lawrence E. Hoag
Stephanie Hodges
Carol B. Holley
Penny M. Hollis
Karen L. Hollister
Jamie G. Humphrey
Mary C. Hurst
Doris E. Hyatt
Patricia B Inman
Bobby H. Inscoe
Jennifer D. Jennings
Sondra Jones
Stephen G. Knowles
John S. Kolody
Kenneth G. Kramer
Stephen T. Kurtz
Cheryl R. Lamb
Linda N. Landers
Nancy J. Lane
Linda B. Law
Cynthia M. Lay
Leslie A. Leach
Betty J. Leech
Marilyn A. Leugers
Angie R. Liston
Margaret H. Locke
Sharon R. Luke
Susan Lutz
Connie K. Maynard
B. Stan McCullars, Jr.
Annette McCullough
Tammy Mizell
Keri L. Morris
Paul K. Mueller
John R. Nelson
Pamela A. O'Neal
Marquisa L. Parham
Tricka M. Parker
Shirley R. Randolph
Connie J. Rhodes
Susan J. Riggin
Natalie J. Rojas
Jennette L. Roode
Landa A. Rossman
Sandra A. Rowe
Sandra L. Rutschow
James Schaeffer
Dorene K. Shahan
Brandi L. Shaw
Traci A. Simanoski
Leigh S. Skehan
Claire M. Smith
Jill S. Spires
Lynn P. Stoffel
Raynard S. Taylor
Virginia D. Vann
Orpha M. Vogt
Catherine M. Wallin
Mary T. Walsh
Robert R. Wedlock
Jennifer D. Welch
Lynda F. Wemple
Margaret R. White
Jacqueline E. Widows
Rhonda L. Wilkerson
Joyce L. Williams
Betty L. Wolcott
Kristin L. Woods
Lisa K. Woolwine
Jeffrey W. Wright
Cathy Wrobleski


FRUITLAND PARK OFFICE:

Lori M. Farfaglia
Cynthia M. Page
Holly D. Sanders
Pamela Self
Jennifer A. Strow
Delphine C. Williams


LADY LAKE OFFICE:

John A. Beaulieu
Karen L. Bednarik
Sonja K. Craig
Estelle E. Crawley
DeeDee A. Dye
James D. Haug
Constance L. Merrell-Kasch
Mindy L. Mueller
Heather F. Ponsell
Brenda A. Simmons
Patricia L. Sizemore
Vanessa D. Wall
Betty T. Woods


MAIN STREET OFFICE:

Janis L. Brown
Amy S. Conner
Brandy A. Dawkins
Alesia Foster
Ernestine Thomas
LAKE SQUARE
MALL OFFICE:

Linda J. Giggey
Tara A. Keane
Christin M. King
Amber M. Moore
Shannon J. Peters
Regina D. Shiver





CLERMONT OFFICE:

Susan Lynn Berkebile
Zaida I. Colon
Birgit M. Fox
Donna L. Franklin
Linda Gallop
Judy L. Garafola
Brian R. Hofer
Sarah L. Liston
Tami Mosier
Fay E. Phillips
Anita Rodriguez
Melissa D. Schumm
Sharon M. Slack
Darla Jean Williams





EUSTIS OFFICE:

Amanda L. Collier
Michael Cox
Vivian R. Curry
Kristi E. Higgins
Natasha L. Pender
Michael J. Price
Carolyn A. Rodgers
Tamika J. Rolle
Katie Lynn Gamber
Juanita L. Taylor
Leandra Williams
Karen E. Wright





WILDWOOD OFFICE:

Carla A. Benavidez
Susan C. Berry
Karen A. Dalrymple
Dana L. Fields
Linda S. Finn
Latahna J. Green
Dennis R. Rogers
Crystal L. Thompson
Cathy H. Watson
Sylvie M. Zimmerman




SOUTH LEESBURG OFFICE:

Kari K. Caulk
Lynda S. Smith
Debra L. Eastwood
Geraldine L. Burgio-Pilch
Sandra L. Seaton
Carol A. Sieder
Cristina P. Simmons
Eva J. Snead
Catherine N. Williams
INVERNESS OFFICE:

Mary R. Asher
Karen A. Dixon
Jamie R. Hemmendinger
Teresa A. Kuechle
Judith Lamontagne
Lillian G. Russo
Phil P. Tompetrini
Donald E. Turner




CITRUS RIDGE OFFICE:

Stephany M. Barr
Cinda K. Franklin
Christine M. Martinez
Barbara J. Reutter
Amanda N. Slone
Sarah L. Williams





BUSHNELL OFFICE:

Craig S. Cannon
Betty J. Hewett
Toni J. Jacobs
Megan L. Marsh
Inge Pelfrey





SPRUCE CREEK OFFICE:

Kimberly R. Bailey
Nicholas C. Cabral
Lawashica M. Dawson
Danielle L. Dilts
Sophia A. Hamilton
Crystal L. House
Jennifer J. Long






KINGS RIDGE OFFICE:

Dena M. Castro
Erma R. Moore
Detra M. Nichols
Leslie A. Rocha
Isabel Saldate
Michele J. Silvers
Tara H. Wainwright





                                       57