UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003       Commission File Number 0-22608

                               FFLC BANCORP, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                               59-3204891
(State or other jurisdiction of incorporation                   (I.R.S. Employer
or organization)                                             Identification No.)

800 North Boulevard West, Post Office Box 490420, Leesburg, Florida   34749-0420
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code:               (352) 787-3311

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

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

The aggregate market value of the voting and nonvoting common equity held by
nonaffiliates was $110,818,187 computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of June 30, 2003 the last business day of the Registrant's most
recently completed second fiscal quarter.

The Registrant had 5,397,454 shares outstanding as of February 23, 2004.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Portions of the Annual Report to Stockholders for the Fiscal Year Ended
      December 31, 2003. (Part II and IV)

2.    Portions of Proxy Statement for the 2004 Annual Meeting of Stockholders.
      (Part III)

                                                                (CONFORMED COPY)

<PAGE>

                                      INDEX

PART I                                                                      Page
                                                                            ----

Item I.  Description of Business

                  Business                                                     3
                  Market Area and Competition                                  3
                  Market Risk                                                  4
                  Lending Activities                                         4-9
                  Asset Quality                                             9-14
                  Investment Activities                                       15
                  Mortgage-Backed Securities                                  15
                  Investment Securities                                    15-17
                  Sources of Funds                                         18-20
                  Borrowings                                               21-22
                  Off-Balance Sheet and Aggregate Contractual Obligations  22-23
                  Subsidiary Activities                                       23
                  Personnel                                                   23
                  Regulation and Supervision                               24-29
                  Federal and State Taxation                               30-31

Item 2.  Properties                                                        32-33

Item 3.  Legal Proceedings                                                    34

Item 4.  Submission of Matters to a Vote of Security Holders                  34

PART II

Item 5.  Market for Registrant's Common Equity and Related
                  Stockholder Matters                                         34

Item 6.  Selected Financial Data                                              34

Item 7.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                   34

Item 7A. Quantitative and Qualitative Disclosure About Market Risk            34

Item 8.  Financial Statements and Supplementary Data                          34

Item 9.  Changes In and Disagreements with Accountants on
                  Accounting and Financial Disclosure                         34

Item 9A. Controls and Procedures                                              35

PART III

Item 10. Directors and Executive Officers of the Registrant                   35

Item 11. Executive Compensation                                               35

Item 12. Security Ownership of Certain Beneficial Owners and Management       35

Item 13. Certain Relationships and Related Transactions                       35

Item 14. Principal Accountant Fees and Services                               35

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K   36-37

SIGNATURES                                                                    38

CERTIFICATIONS                                                             39-42


                                       2
<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

Business

FFLC Bancorp, Inc., ("FFLC" or the "Company") was incorporated in Delaware on
September 16, 1993, and acquired First Federal Savings Bank of Lake County (the
"Bank") in connection with the Bank's conversion to stock form on January 4,
1994. The Company is a savings and loan holding company subject to regulation by
the Office of Thrift Supervision ("OTS") which mainly transacts its business
through its subsidiary, the Bank. At December 31, 2003, the Company had total
assets of $947.9 million and stockholders' equity of $77.4 million.

The Bank was established in 1934 as a federally-chartered mutual savings and
loan association. The Bank is a member of the Federal Home Loan Bank ("FHLB")
System and its deposit accounts are insured to the maximum allowable amount by
the Federal Deposit Insurance Corporation ("FDIC"). At December 31, 2003, the
Bank had total assets of $946.0 million and stockholders' equity of $79.2
million.

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

Market Area and Competition

The Bank is a community-oriented savings institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank's
deposit gathering and lending markets are primarily concentrated in the
communities surrounding its full service offices located in Lake, Sumter, Citrus
and Marion counties in central Florida. Management believes that its offices are
located in communities that generally can be characterized as rural service and
retirement communities with residential neighborhoods comprised predominately of
one-to-four-family residences. The Bank is the largest (by asset size)
locally-based financial institution in Lake County, and serves its market area
with a wide selection of residential mortgage loans and other retail financial
services. Management considers the Bank's reputation for financial strength and
customer service as a major advantage in attracting and retaining customers in
its market area and believes it benefits from its community orientation as well
as its established deposit base and level of core deposits.

The Bank's competition for loans comes principally from commercial banks,
savings institutions, and mortgage banking companies. The Bank's most direct
competition for savings has historically come from commercial banks, savings
institutions and credit unions. The Bank faces additional competition for
savings from money-market mutual funds and other corporate and government
securities funds. The Bank also faces increased competition for deposits from
other financial intermediaries such as securities brokerage firms and insurance
companies.


                                       3
<PAGE>

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest-rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest-rate risk exposure. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 9 of Notes to Consolidated Financial Statements.

The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank's net interest
income and capital, and to adjust the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability management to control interest-rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.

Lending Activities

Loan Portfolio. The Bank's loan portfolio consists primarily of conventional
first mortgage loans secured by one-to-four-family residences. At December 31,
2003, the Bank's total gross loans outstanding were $797.4 million, of which
$384.5 million or 48.22% of the Bank's total loan portfolio were
one-to-four-family residential first mortgage loans. Of the one-to-four-family
residential mortgage loans outstanding at that date, approximately 42% were
fixed rate loans and 58% were adjustable-rate ("ARM") loans. At the same date,
commercial real estate loans and other loans on improved real estate totaled
$167.4 million, or 20.99% of the Bank's total loan portfolio; construction
(excluding construction/permanent loans) and land loans totaled $43.6 million or
5.47% of the Bank's total loan portfolio; and multi-family mortgage loans
totaled $12.5 million or 1.56% of the Bank's total loan portfolio. Consumer, and
other loans held by the Bank, which principally consist of home equity loans,
deposit, consumer, and other loans, totaled $155.4 million or 19.50% of the
Bank's total loan portfolio and commercial loans totaled $34.0 million or 4.26%
of the Bank's total loan portfolio at December 31, 2003.


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          At December 31,
                                 --------------------------------------------------------------------------------------------------
                                             1999                2000                 2001                 2002               2003
                                 --------------------------------------------------------------------------------------------------
                                             % of                % of                 % of                 % of               % of
                                  Amount     Total    Amount     Total     Amount     Total     Amount     Total    Amount    Total
                                  ------     -----    ------     -----     ------     -----     ------     -----    ------    -----
                                                                                        ($ in thousands)
<S>                              <C>        <C>      <C>        <C>       <C>        <C>       <C>        <C>      <C>       <C>
Mortgage loans:
     One-to-four-family          $354,317    68.28%  $409,600    64.97%   $413,712    58.77%   $395,116    52.23%  $384,514   48.22%
     Construction and land         11,861     2.29%    13,006     2.06%     22,951     3.26%     30,792     4.07     43,575    5.47%
     Multi-family                  13,394     2.58%    17,602     2.79%     20,304     2.88%     22,796     3.01     12,453    1.56%
     Commercial real estate
          and other                61,052    11.76%    79,729    12.65%    108,804    15.46%    140,770    18.61    167,381   20.99%
                                 --------   ------   --------   ------    --------   ------    --------   ------   --------  ------

            Total mortgage
                  loans           440,624    84.91%   519,937    82.47%    565,771    80.37%    589,474    77.92    607,923   76.24%

Consumer loans                     64,042    12.34%    95,824    15.20%    119,357    16.96%    138,202    18.61    155,438   19.50%
Commercial loans                   14,285     2.75%    14,677     2.33%     18,814     2.67%     28,879     3.82     33,990    4.26%
                                 --------   ------   --------   ------    --------   ------    --------   ------   --------  ------

            Total loans
                  receivable (1)  518,951   100.00%   630,438   100.00%    703,942   100.00%    756,555   100.00%   797,351  100.00%
                                            ======              ======               ======               ======             ======

Less:
     Loans in process             (15,907)            (12,128)             (14,310)             (16,770)            (24,573)
     Net deferred loan costs          668                 726                  592                  734                 699
     Allowance for loan losses     (2,811)             (3,552)              (4,289)              (5,181)             (5,490)
                                 --------            --------             --------             --------            --------

            Loans receivable,
                  net            $500,901            $615,484             $685,935             $735,338            $767,987
                                 ========            ========             ========             ========            ========

----------
(1) Total loans receivable
      outstanding by department
      consists of the following:
          Residential            $353,422    68.10%  $404,494    64.16%   $403,897    57.37%   $385,711    50.98%   372,551   46.72%
          Commercial              101,487    19.56%   130,120    20.64%    180,688    25.67%    229,930    30.39%   265,655   33.32%
          Consumer                 64,042    12.34%    95,824    15.20%    119,357    16.96%    140,914    18.63%   159,145   19.96%
                                 --------   ------   --------   ------    --------   ------    --------   ------   --------  ------

                                 $518,951   100.00%  $630,438   100.00%   $703,942   100.00%   $756,555   100.00%  $797,351  100.00%
                                 ========   ======   ========   ======    ========   ======    ========   ======   ========  ======
</TABLE>


                                       5
<PAGE>

Purchase of Mortgage Loans. In 2001, the Bank purchased $4.1 million mortgage
loans originated by other lenders. At December 31, 2003, $1.7 million, or .21%
of the Bank's total loan portfolio consisted of purchased mortgage loans or loan
participations. Purchased or participated mortgage loans consist of
one-to-four-family residential mortgage loans and commercial real estate loans.

Secondary Market Activities. The Bank participates in the secondary market
directly and through correspondent relationships, originating loans (primarily
30-year fixed-rate loans) which are primarily funded by the Bank and then
reimbursed by the investor correspondents. Funding by the correspondent occurs
on some loans. These loans are closed on the Bank's documents with funds
provided by the investor correspondent at closing with all credit conditions
established by the investor correspondent being satisfied prior to the issuance
of a loan commitment. The Bank receives a fee for originating, processing and
closing the loans and reports the loans to the OTS as loans originated and sold.
In the year ended December 31, 2003, total loans originated by the Bank and
through the correspondents amounted to $77.7 million or 32.2% of total mortgage
loans originated.

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

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                        ---------------------------------------
                                                           2001           2002           2003
                                                           ----           ----           ----
                                                                     (In thousands)
<S>                                                     <C>              <C>            <C>
Mortgage loans (gross):
     At beginning of year                               $ 519,937        565,771        589,474
                                                        ---------       --------       --------
     Mortgage loans originated:
          One-to-four-family                              101,977        114,238        183,241
          Construction and land                             9,314         19,875         24,652
          Multi-family                                      4,475          1,875          2,191
          Commercial real estate                           12,408         50,362         31,349
                                                        ---------       --------       --------

               Total mortgage loans originated            128,174        186,350        241,433

     Mortgage loans purchased or participated               4,134             --             --
                                                        ---------       --------       --------

               Total mortgage loans originated and
                         purchased or participated        132,308        186,350        241,433

     Transfer of loans to foreclosed assets                  (656)        (1,679)        (1,951)
     Principal repayments                                 (70,892)      (103,541)      (132,808)
     Sales of loans (1)                                   (14,926)       (57,427)       (88,225)
                                                        ---------       --------       --------

               At end of year                           $ 565,771        589,474        607,923
                                                        =========       ========       ========

Consumer loans (gross):
     At beginning of year                                  95,824        119,357        138,202
     Loans originated                                      68,777         69,884         72,188
     Principal repayments                                 (45,244)       (51,039)       (54,952)
                                                        ---------       --------       --------

               At end of year                           $ 119,357        138,202        155,438
                                                        =========       ========       ========

Commercial loans (gross):
     At beginning of year                                  14,677         18,814         28,879
     Loans originated                                      12,782         17,560         15,968
     Principal repayments                                  (8,645)        (7,495)       (10,857)
                                                        ---------       --------       --------

               At end of year                           $  18,814         28,879         33,990
                                                        =========       ========       ========
</TABLE>

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


                                       6
<PAGE>

Maturities of Loans. The following table shows the contractual maturities of the
Bank's loan portfolio at December 31, 2003. Loans that have adjustable rates are
shown as amortizing to final maturity rather than when the interest rates are
next subject to change. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on the
Bank's loans totaled $124.8 million, $162.1 million and $198.6 million for the
years ended December 31, 2001, 2002 and 2003, respectively.

<TABLE>
<CAPTION>
                                                 Mortgage Loans
                                           ------------------------
                                            One-to-                                                     Total
                                             Four-                      Commercial      Consumer        Loans
                                            Family          Other          Loans          Loans       Receivable
                                           ---------       --------     ----------      --------      ----------
                                                                      (In thousands)
<S>                                        <C>              <C>            <C>           <C>            <C>
 Amounts due:
     Within 1 year                         $   5,183         21,610         3,024          6,973         36,790
                                           ---------       --------       -------       --------       --------

     1 to 3 years                              5,393         32,292         9,488         36,977         84,150
     3 to 5 years                              4,277         31,018        12,238         49,231         96,764
     5 to 10 years                             8,428         30,895         1,961         15,313         56,597
     10 to 20 years                           78,076         78,740         7,279         46,564        210,659
     Over 20 years                           283,157         28,854            --            380        312,391
                                           ---------       --------       -------       --------       --------

     Total due after 1 year                  379,331        201,799        30,966        148,465        760,561
                                           ---------       --------       -------       --------       --------

     Total amounts due                       384,514        223,409        33,990        155,438        797,351

     Loans in process                        (24,573)            --            --             --        (24,573)
     Net deferred loan fees and costs            830           (209)           --             78            699
     Allowance for loan losses                  (918)        (2,888)         (491)        (1,193)        (5,490)
                                           ---------       --------       -------       --------       --------

Loans receivable, net                      $ 359,853        220,312        33,499        154,323        767,987
                                           =========       ========       =======       ========       ========
</TABLE>

Loans Due After December 31, 2004. The following table sets forth at December
31, 2003, the dollar amount of all loans due or scheduled to reprice after
December 31, 2004, classified according to whether such loans have fixed or
adjustable interest rates.

                                                Due after December 31, 2004
                                          --------------------------------------
                                           Fixed        Adjustable        Total
                                          --------      ----------       -------
                                                      (In thousands)
Mortgage loans:
     One-to-four-family                   $142,091        237,240        379,331
     Construction and land                  13,048         34,459         47,507
     Multi-family                            6,739         11,523         18,262
     Commercial real estate                 21,309        114,721        136,030

Consumer loans                             118,526         29,939        148,465
Commercial loans                            15,981         14,985         30,966
                                          --------        -------        -------

          Total                           $317,694        442,867        760,561
                                          ========        =======        =======

One-to-Four-Family Mortgage Lending. The Bank's primary residential lending
emphasis is on the origination of first mortgage loans secured by
one-to-four-family residences within its primary lending area. Such residences
are primarily single family homes, including condominium and townhouses, that
serve as the primary residence of the owner. To a lesser degree, the Bank makes
loans on residences used as second homes or as investments. The Bank also offers
second mortgage loans which are underwritten applying the same standards as for
first mortgage loans.


                                       7
<PAGE>

In the years ended December 31, 2001, 2002 and 2003, the Bank's total mortgage
loan originations, including loans purchased or participated, amounted to $132.3
million, $186.4 million and $241.4 million, respectively, of which $102.0
million, $114.2 million and $183.2 million, respectively, were secured by
one-to-four-family properties.

At December 31, 2003, 48.22% of total loans consisted of one-to-four-family
residential loans, of which approximately 61% were ARM loans. The Bank's ARM
loans may carry an initial interest rate which is less than the fully indexed
rate for the loan. The initial discounted rate is determined by the Bank in
accordance with market and competitive factors. The Bank offers one-, three-,
and five-year ARM loans which adjust by a maximum of 2% per adjustment period,
with lifetime caps on increases of 5% to 6%, depending upon the program chosen.

The Bank's policy on one-to-four-family residential mortgage loans generally is
to lend up to 80% of the appraised value of property securing the loan, or up to
95% if private mortgage insurance is obtained on the amount of the loan which
exceeds 80%.

Commercial and Multi-Family Real Estate Lending. As of December 31, 2003, $167.4
million, or 20.99% of the Bank's total loan portfolio consisted of commercial
real estate loans and $12.5 million, or 1.56% of the Bank's total loan
portfolio, consisted of multi-family mortgage loans.

The commercial real estate loans in the Bank's portfolio consist of fixed-rate
and ARM loans which were originated at prevailing market rates. The Bank's
policy has been to originate commercial or multi-family loans only in its
primary market area. Commercial and multi-family mortgage loans are generally
made in amounts up to 80% of the appraised value of the property. In making such
loans, the Bank primarily considers the net operating income generated by the
real estate to support the debt service, the financial resources and income
level and managerial expertise of the borrower, the marketability of the
property and the Bank's lending experience with the borrower.

Commercial Loans. As of December 31, 2003, $34.0 million or 4.26% of the Bank's
total loan portfolio, consisted of commercial loans.

Construction and Land Loans. The Bank originates loans to finance the
construction of one-to-four-family homes and, to a much lesser extent,
originates loans for the acquisition and development of land (either unimproved
land or improved lots) on which the purchaser can then build. At December 31,
2003, construction (excluding construction/permanent loans) and land loans
totaled $43.6 million or 5.47% of the Bank's total loan portfolio.

At December 31, 2003, the Bank had loans in process (undisbursed loan proceeds
of construction loans) of $24.6 million which were mainly secured by residential
mortgages. The Bank makes residential construction loans to homeowners on a
long-term basis with amortization beginning at the conclusion of construction,
usually a period of about six months. Such loans are carried in the
one-to-four-family category and are not separately classified as construction
loans. Residential construction loans to builders are carried in the
construction and land category.

Consumer Lending. At December 31, 2003, $155.4 million or 19.50% of the Bank's
total loan portfolio consisted of consumer loans, including home equity loans of
$38.2 million, lines of credit of $26.5 million, direct auto and truck loans of
$16.3 million, indirect auto and truck loans of $17.0 million, home improvement
loans and other secured consumer loans of $25.5 million, lot loans of $30.9
million and unsecured personal loans of $1.0 million.

The Bank's home equity loans are originated on one-to-four-family residences,
either on a fixed-rate basis with terms of up to 15 years or as balloon loans
with terms up to five years with fifteen year amortization periods. Those loans
are generally limited to aggregate outstanding indebtedness on the property
securing the loan or 90% of the loan to value ratio. The Bank also offers home
equity lines of


                                       8
<PAGE>

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

Consumer loans are offered primarily on a fixed-rate, short-term basis. Except
for second mortgage loans, which are underwritten pursuant to the standards
applicable to one-to-four-family residential loans, the underwriting standards
employed by the Bank for consumer loans include a determination of the
applicant's payment history on other debts and an assessment of the borrower's
ability to make payments on the proposed loan and other indebtedness.

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

The Bank's policy is to require title and hazard insurance on all real estate
loans, except home equity loans for which a title search is conducted in lieu of
obtaining title insurance. Borrowers may be permitted to pay real estate taxes
and hazard insurance premiums applicable to the secured property for a mortgage
loan. In some instances, borrowers may be required to advance funds together
with each payment of principal and interest to a mortgage escrow account from
which the Bank makes disbursements for items such as real estate taxes, hazard
insurance premiums and private mortgage insurance premiums.

Asset Quality

Delinquent Loans and Nonperforming Assets. Loans are generally placed on
nonaccrual status when the collection of principal or interest is 90 days or
more past due, or earlier if collection is deemed uncertain. The Bank provides
an allowance for accrued interest deemed uncollectible. Accrued interest
receivable is reported net of the allowance for uncollected interest. Loans may
be reinstated to accrual status when all payments are brought current and, in
the opinion of management, collection of the remaining balance can be reasonably
expected.


                                       9
<PAGE>

At December 31, 2001, 2002 and 2003, delinquencies in the Bank's loan portfolio
were as follows:

<TABLE>
<CAPTION>
                             At December 31, 2001                 At December 31, 2002                  At December 31, 2003
                     -----------------------------------  ------------------------------------  -----------------------------------
                         60-89 Days     90 Days or More       60-89 Days      90 Days or More       60-89 Days      90 Days or More
                     ----------------  -----------------  -----------------  -----------------  -----------------  ----------------
                     Number Principal  Number  Principal  Number  Principal  Number  Principal  Number  Principal  Number Principal
                         of   Balance      of   Balance       of    Balance      of    Balance      of    Balance      of   Balance
                      Loans  of Loans   Loans   of Loans   Loans   of Loans   Loans   of Loans   Loans   of Loans   Loans  of Loans
                      -----  --------   -----   --------   -----   --------   -----   --------   -----   --------   -----  --------
                                                                   ($ in thousands)
<S>                      <C>     <C>       <C>    <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>   <C>
One-to-four-family        4      $126      12     $1,004      10     $  793      27     $1,956      --     $   --      11    $1,180
Construction and land    --        --       1         47      --         --      --         --      --         --      --        --
Multi-family             --        --      --         --      --         --      --         --      --         --      --        --
Commercial real estate   --        --       2        390      --         --       2        254      --         --      --        --
                         --      ----      --     ------      --     ------      --     ------      --     ------      --    ------

    Total mortgage
      loans               4       126      15      1,441      10        793      29      2,210      --         --      11     1,180

Consumer loans           27       391      20        472      49        584      14        152      26        334      21       614
Commercial loans          2       194      --         --      --         --       1        230       4      3,845       4       499
                         --      ----      --     ------      --     ------      --     ------      --     ------      --    ------

    Total loans          33      $711      35     $1,913      59     $1,377      44     $2,592      30     $4,179      36    $2,293
                         ==      ====      ==     ======      ==     ======      ==     ======      ==     ======      ==    ======

Delinquent loans to
  total loans                     .10%               .27%               .18%               .34%               .52%              .29%
                                  ===                 ===                ===                ===                ===               ===
</TABLE>


                                       10
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   At December 31,
                                                ------------------------------------------------------
                                                 1999        2000        2001        2002        2003
                                                 ----        ----        ----        ----        ----
                                                                   ($ in thousands)
<S>                                             <C>          <C>         <C>         <C>         <C>
Nonaccrual mortgage loans                       $2,200       2,472       1,441       2,210       1,180

Nonaccrual commercial and consumer loans           162          38         472         382       4,107
                                                ------       -----       -----       -----       -----

Total nonperforming loans                        2,362       2,510       1,913       2,592       5,287

Foreclosed assets                                  400         276         373         626         881
                                                ------       -----       -----       -----       -----

          Total nonperforming assets            $2,762       2,786       2,286       3,218       6,168
                                                ======       =====       =====       =====       =====

Nonperforming loans to total loans                 .46%        .40%        .27%        .34%        .66%
                                                ======       =====       =====       =====       =====

Total nonperforming assets to total assets         .47%        .39%        .28%        .35%        .65%
                                                ======       =====       =====       =====       =====
</TABLE>

At December 31, 2003, the Bank had no accruing loans which were contractually
past due 90 days or more as to principal and interest and no troubled debt
restructurings as defined by Statement of Financial Accounting Standards No. 15.
The increase in nonaccrual commercial loans mainly resulted from two loans to an
agricultural borrower being identified as impaired and placed on nonaccrual
status. Management estimates that equity in the related collateral is sufficient
and no loss is anticipated on these loans. Nonaccrual loans for which interest
has been reduced totaled approximately $5.3 million, $2.6 million and $1.9
million at December 31, 2003, 2002 and 2001, respectively. For the year ended
December 31, 2003, interest income that would have been recorded under the
original terms of nonaccrual loans at December 31, 2003 and interest income
actually recognized is summarized below (in thousands):

     Interest income that would have been recorded                  $  225
     Interest income recognized                                        142
                                                                    ------

     Interest income foregone                                       $   83
                                                                    ======

Classified Assets. Federal regulations and the Bank's policy require the
classification of loans and other assets, such as debt and equity securities,
considered to be of lesser quality as "substandard", "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full", on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. In
addition, the Bank's policies require that assets which do not currently expose
the insured institution to sufficient risk to warrant classification as
substandard but possess other weaknesses are designated "special mention" by
management.


                                       11
<PAGE>

If an asset is classified, the estimated fair value of the asset is determined
and if that value is less than the then carrying value of the asset, the
difference is established as a specific reserve. If an asset is classified as
loss, the amount of the asset classified as loss is reserved. General reserves
or general valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities
but, unlike specific reserves, are not allocated to particular assets.

The following table sets forth information concerning the number and dollar
amount of loans and foreclosed assets classified as "special mention" or
"substandard" at the dates indicated. No loans or foreclosed assets were
classified "doubtful" or "loss" at those dates.

                                      Special Mention        Substandard
                                      ----------------    ----------------
                                      Number    Amount    Number    Amount
                                      ------    ------    ------    ------
                                               ($ in thousands)
At December 31, 2003:
Loans                                   17      $8,132      51      $7,095

Foreclosed assets:
     One-to-four-family properties      --          --       5         439

     Other                              --          --      22         442
                                        --      ------      --      ------

          Total                         17      $8,132      78      $7,976
                                        ==      ======      ==      ======

At December 31, 2002:
Loans                                   20       5,659      54       3,076

Foreclosed assets:
     One-to-four-family properties      --          --       5         422

     Other                              --          --      18         204
                                        --      ------      --      ------

          Total                         20      $5,659      77      $3,702
                                        ==      ======      ==      ======

Allowance for Loan Losses. The Bank's allowance for loan losses is established
and maintained through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and the condition of the
local economy in the Bank's market area. Such evaluation, which includes a
review of all loans on which full collectibility may not be reasonably assured,
considers, among other matters, the estimated fair value of the underlying
collateral, economic and regulatory conditions, and other factors that warrant
recognition in providing for an adequate loan loss allowance. Although
management believes it uses the best information available to make
determinations with respect to the Bank's allowance for loan losses, future
adjustments may be necessary if economic conditions vary substantially from the
economic conditions in the assumptions used in making the initial determinations
or if other circumstances change.


                                       12
<PAGE>

The following table sets forth the Bank's allowance for loan losses at the dates
indicated, the provisions made and the charge-offs and recoveries effected
during the years indicated.

<TABLE>
<CAPTION>
                                                             At or For the Year Ended December 31,
                                                ----------------------------------------------------------------
                                                1999           2000           2001           2002           2003
                                                ----           ----           ----           ----           ----
                                                                          (In thousands)
<S>                                            <C>              <C>            <C>            <C>            <C>
     Balance at beginning of year              $ 2,283          2,811          3,552          4,289          5,181
     Provision for loan losses                     719            880          1,115          1,845          1,514
     Charge-offs:
          One-to-four-family                        --            (58)           (48)           (93)          (167)
          Construction and land                    (44)            --             --             --             --
          Multi-family                              --             --             --             --             --
          Commercial real estate                    --             --            (90)          (150)           (73)
          Commercial and consumer loans           (166)           (99)          (258)          (753)        (1,062)
                                               -------         ------         ------         ------         ------

          Total charge-offs by category           (210)          (157)          (396)          (996)        (1,302)

     Recoveries                                     19             18             18             43             97
                                               -------         ------         ------         ------         ------

     Balance at end of year                    $ 2,811          3,552          4,289          5,181          5,490
                                               =======         ======         ======         ======         ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                          1999          2000         2001         2002            2003
                                                          ----          ----         ----         ----            ----
<S>                                                     <C>           <C>          <C>          <C>              <C>
     Net charge-offs during the year
          as a percentage of average loans
          outstanding during the year                      .04%          .03%         .06%         .13%            .16%

     Allowance for loan losses as a
          percentage of gross loans receivable
          at end of year                                   .54%          .56%         .61%         .68%            .69%

     Allowance for loan losses as a
          percentage of total nonperforming
          assets at end of year                         101.77%       127.49%      187.62%      161.00%          89.01%

     Allowance for loan losses as a
          percentage of nonperforming loans
          at end of year                                119.01%       141.51%      224.20%      199.88%         103.84%
</TABLE>


                                       13
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         At December 31,
                                ------------------------------------------------------------------------------------------------
                                       1999                 2000                2001               2002               2003
                                -----------------     -----------------   ----------------    ---------------    ---------------
                                             % of                  % of               % of               % of               % of
                                         Loans to              Loans to           Loans to           Loans to           Loans to
                                            Total                 Total              Total              Total              Total
                                Amount      Loans     Amount      Loans    Amount    Loans    Amount    Loans    Amount    Loans
                                ------      -----     ------      -----    ------    -----    ------    -----    ------    -----
                                                                                     ($ in thousands)
<S>                             <C>        <C>        <C>        <C>       <C>      <C>       <C>      <C>       <C>      <C>
At end of year allocated to:
     One-to-four-family         $  528      68.28%    $  609      64.97%   $  752    58.77%   $  840    52.23%   $  918    48.22%
     Construction and land         408       2.29        423       2.06       595     3.26       693     4.07       861     5.47
     Multi-family                  301       2.58        488       2.79       353     2.88       376     3.01       229     1.56
     Commercial real estate        750      11.76        998      12.65     1,357    15.46     1,781    18.61     1,798    20.99
     Consumer loans                447      12.34        708      15.20       895    16.96     1,057    18.26     1,193    19.50
     Commercial loans              377       2.75        326       2.33       337     2.67       434     3.82       491     4.26
                                ------     ------     ------     ------    ------   ------    ------   ------    ------   ------

          Total                 $2,811     100.00%    $3,552     100.00%   $4,289   100.00%   $5,181   100.00%   $5,490   100.00%
                                ======     ======     ======     ======    ======   ======    ======   ======    ======   ======
</TABLE>


                                       14
<PAGE>

Investment Activities

The investment policy of the Bank, which is established by the Board of
Directors and implemented by the Chief Executive Officer who is designated as
the Investment Officer, is designed primarily to provide and maintain liquidity,
to generate a favorable return on investments without incurring undue interest
rate and credit risk, and to complement the Bank's lending activities. In
establishing its investment strategies, the Bank considers its business and
growth plans, the economic environment, the types of securities to be held and
other factors. Federally chartered savings institutions have the authority to
invest in various types of assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers acceptances, repurchase
agreements, loans on federal funds, and, subject to certain limits, commercial
paper and mutual funds.

The Company follows Statement of Financial Accounting Standards No. 115. That
statement requires investment and mortgage-backed securities that the Company
has the positive intent and ability to hold to maturity to be classified as
held-to-maturity securities and reported at amortized cost. Securities that are
held principally for selling in the near term are to be classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings. Securities not classified as either held-to-maturity securities or
trading securities are to be classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of stockholders' equity. At December 31,
2003, all securities have been classified as available for sale by management.

Mortgage-Backed Securities

The Company's mortgage-backed securities consist of securities issued by the
Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA"). These mortgage-backed securities totaled $28.5 million or 34.7% of
total securities at December 31, 2003.

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

                                                 Year Ended December 31,
                                             ------------------------------
                                               2001       2002       2003
                                               ----       ----       ----
                                                     (In thousands)

     At beginning of year                    $ 14,394     10,943     22,296
     Purchases                                    500     17,891     25,639
     Amortization and principal repayments     (4,009)    (6,665)   (19,371)
     Change in unrealized gain                     58        127        (25)
                                             --------    -------    -------

               At end of year                $ 10,943     22,296     28,539
                                             ========    =======    =======

Investment Securities

At December 31, 2003, the Bank held $53.6 million in investment securities
consisting of $36.6 million in U.S. Government and agency securities, $9.0
million in mutual funds and $7.9 million in other investment securities. In
addition, the Bank holds $27.1 million in interest-earning deposits and $6.9
million of FHLB of Atlanta stock.


                                       15
<PAGE>

The following table sets forth certain information regarding the amortized cost
and market values of the Bank's interest-earning deposits, FHLB stock and
investment securities at the dates indicated:

<TABLE>
<CAPTION>
                                                                           At December 31,
                                            ------------------------------------------------------------------------------
                                                     2001                         2002                        2003
                                            ----------------------       ---------------------       ---------------------
                                            Amortized       Market       Amortized      Market       Amortized      Market
                                              Cost           Value         Cost          Value         Cost         Value
                                              ----           -----         ----          -----         ----         -----
                                                                             (In thousands)
<S>                                          <C>            <C>           <C>           <C>           <C>           <C>
Interest-earning deposits                    $30,183        30,183        49,237        49,237        27,088        27,088
                                             =======        ======        ======        ======        ======        ======

FHLB stock                                   $ 7,700         7,700         7,700         7,700         6,900         6,900
                                             =======        ======        ======        ======        ======        ======

Investment securities-

     Available-for-sale:
          U.S. Government and
               agency securities              32,670        33,241        36,801        37,649        36,298        36,639
          Other investment securities          6,268         6,276         7,990         8,005         7,904         7,943
          Investment in mutual funds           9,125         9,043         9,433         9,374         9,146         9,016
                                             -------        ------        ------        ------        ------        ------

          Total investment securities        $48,063        48,560        54,224        55,028        53,348        53,598
                                             =======        ======        ======        ======        ======        ======
</TABLE>


                                       16
<PAGE>

The following table sets forth information concerning the amortized cost and
weighted average yields by maturity on investment securities and FHLB stock at
December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    Due After              Due After
                                                   One Through            Five Through         Due After
                           Due Within One Year      Five Years              10 Years            10 Years               Total
                          -------------------- ---------------------  -------------------- ------------------- ---------------------
                                    Annualized            Annualized            Annualized          Annualized
                                     Weighted              Weighted              Weighted            Weighted            Approximate
                          Amortized   Average  Amortized    Average   Amortized   Average  Amortized  Average  Amortized    Market
                             Cost      Yield     Cost        Yield      Cost       Yield      Cost     Yield      Cost      Value
                           -------     -----    -------      -----     -------     -----    -------    -----     ------    -------
                                                                        ($ in thousands)
<S>                        <C>          <C>     <C>           <C>      <C>             <C>   <C>         <C>     <C>       <C>
At December 31, 2003:
FHLB stock (no
     defined maturity)     $ 6,900      3.50%   $    --         --%    $    --         --%   $    --       --%   $ 6,900   $ 6,900
                           =======      ====                                                                     =======   =======

Investment securities:
     U.S. Government
         and agency
         obligations        16,067      4.94     20,231       3.12          --         --         --       --     36,298    36,639
     Other investment
         securities             --        --         --         --          --         --      7,904     2.77      7,904     7,943
     Mutual funds (no
     defined maturity)       9,146      2.38         --         --          --         --         --       --      9,146     9,016
                           -------              -------                -------               -------             -------   -------

         Total investment
              securities   $25,213      3.90%   $20,231       3.12%    $    --         --%   $ 7,904     2.77%   $53,348   $53,598
                           =======      ====    =======       ====     =======    =======    =======     ====    =======   =======

At December 31, 2002:
FHLB stock (no
     defined maturity)     $ 7,700      5.00%   $    --         --%    $    --         --%   $    --       --%   $ 7,700   $ 7,700
                           =======      ====                                                                     =======   =======
Investment securities:
     U.S. Government
         and agency
         obligations        12,531      4.46     24,270       4.49          --         --         --       --     36,801    37,649
     Other investment
         securities             --        --         --         --          --         --      7,990     3.37      7,990     8,005
     Mutual funds (no
     defined maturity)       9,433      2.60         --         --          --         --         --       --      9,433     9,374
                           -------              -------                -------               -------             -------   -------

         Total investment
              securities   $21,964      3.66%   $24,270       4.49%    $    --         --%   $ 7,990     3.37%   $54,224   $55,028
                           =======      ====    =======       ====     =======    =======    =======     ====    =======   =======
</TABLE>


                                       17
<PAGE>

Sources of Funds

General. Repayments and maturities of mortgage-backed and investment securities,
loan repayments, deposits and cash flows generated from operations are the
primary sources of the Bank's funds for use in lending, investing and for other
general purposes.

Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of regular savings,
non-interest-bearing checking, NOW checking, money market and certificate
accounts. Of the deposit accounts at December 31, 2003, $56.9 million or 8.1%
consist of individual retirement accounts ("IRAs").

The Bank seeks to retain core deposits consisting of passbook and statement
savings, money market, noninterest-bearing checking, and NOW accounts, which
contribute to a low cost of funds. Such core deposits represented 25.70%, 27.26%
and 31.13% of total deposits at December 31, 2001, 2002 and 2003, respectively.

The following table shows the distribution of the Bank's deposits by type at the
dates indicated and the weighted-average nominal interest rates on each category
of deposits presented at December 31, 2003 ($ in thousands).

<TABLE>
<CAPTION>
                                                                        At December 31,
                                 ------------------------------------------------------------------------------------------
                                          2001                       2002                              2003
                                 ----------------------     ----------------------     ------------------------------------
                                                Percent                    Percent                    Percent     Weighted-
                                               of Total                   of Total                   of Total      Average
                                  Amount       Deposits      Amount       Deposits      Amount       Deposits         Rate
                                 --------      --------     --------      --------     --------      --------     --------
<S>                              <C>             <C>        <C>             <C>        <C>             <C>            <C>
Demand accounts:
     Noninterest-bearing
          checking               $ 14,334          2.45%    $ 18,867          2.82%    $ 31,481          4.46%         .00%
     NOW and money-
          market accounts         111,961         19.13      137,858         20.64      161,527         22.89          .40
     Passbook and
          statement savings        24,093          4.12       25,403          3.80       26,636          3.78          .55
                                 --------      --------     --------      --------     --------      --------     --------

          Total                   150,388         25.70      182,128         27.26      219,644         31.13          .36
                                 --------      --------     --------      --------     --------      --------     --------

Certificate accounts:
     Custom                        38,854          6.64       31,600          4.73       32,599          4.62         1.07
     91 day                           279           .05          209           .03          372           .05         1.31
     182 day                       10,085          1.72       10,599          1.59       13,034          1.85         1.28
     7 months                         325           .06           --            --           --            --           --
     9 months                      17,974          3.07       11,042          1.65       12,892          1.83         1.51
     12 months                     55,356          9.46       62,564          9.36       58,558          8.30         1.77
     13 months                     88,670         15.15       18,078          2.71           --            --           --
     14 months                     18,835          3.22           --            --       19,004          2.69         1.77
     15 months                         --            --       34,654          5.19       25,445          3.61         2.16
     18 months                     27,374          4.68       26,363          3.95       17,915          2.54         2.00
     20 months                         26           .00           --            --           --            --           --
     21 months                     94,807         16.20       50,623          7.58           52           .01         3.15
     22 months                      4,721           .81           --            --           --            --           --
     24 months                     25,414          4.34      112,025         16.77      135,052         19.14         3.30
     25 months                     18,193          3.11           --            --           --            --           --
     30 months                     21,471          3.67       19,202          2.87       18,517          2.62         4.29
     36 months                      2,615           .45       41,388          6.20       57,944          8.21         3.74
     54 months                         --            --       51,537          7.71       77,766         11.02         4.12
     60 months                      9,741          1.67       16,046          2.40       16,795          2.38         4.55
                                 --------      --------     --------      --------     --------      --------     --------

          Total                   434,740         74.30      485,930         72.74      485,945         68.87         2.96
                                 --------      --------     --------      --------     --------      --------     --------

          Total deposits         $585,128        100.00%    $668,058        100.00%    $705,589        100.00%        2.15%
                                 ========      ========     ========      ========     ========      ========     ========
</TABLE>


                                       18
<PAGE>

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

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                            ---------------------------------------------
                                               2001              2002             2003
                                               ----              ----             ----
                                                            (In thousands)
<S>                                         <C>                <C>              <C>
     Deposits                               $ 2,394,602        3,161,518        3,554,299
     Withdrawals                             (2,353,541)      (3,094,131)      (3,529,005)
                                            -----------       ----------       ----------

     Deposits in excess of withdrawals           41,061           67,387           25,294

     Interest credited on deposits               25,182           15,543           12,237
                                            -----------       ----------       ----------

     Total increase in deposits             $    66,243           82,930           37,531
                                            ===========       ==========       ==========
</TABLE>

The following table presents the amount of time deposit accounts in amounts of
$100,000 or more at December 31, 2003 maturing as follows (in thousands):

                  Maturity Period
                  ---------------

          One month through three months                        $  24,328
          Over three through six months                            18,957
          Over six through 12 months                               31,193
          Over 12 months                                           72,960
                                                                ---------

                     Total                                      $ 147,438
                                                                =========


                                       19
<PAGE>

The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 2001, 2002 and 2003 and the
periods to maturity of the certificate accounts outstanding at December 31,
2003.

<TABLE>
<CAPTION>
                                                                           Period to Maturity from December 31, 2003
                               At December 31,              ---------------------------------------------------------------------
                      -------------------------------        Within      1 to        2 to        3 to         4 to
                      2001          2002        2003         1 Year     2 Years     3 Years     4 Years      5 Years      Total
                      ----          ----        ----         ------     -------     -------     -------      -------      -----
                                                                    (In thousands)
<S>                 <C>           <C>          <C>          <C>          <C>         <C>         <C>          <C>         <C>
2.00% or less       $     --       48,547      151,505      138,085      12,801         619          --           --      151,505
2.01% to 3.00%        48,916      112,037      102,354       48,940      39,910      13,365          --          139      102,354
3.01% to 4.00%        92,048      122,814       91,897       34,364      17,548       3,219      24,449       12,317       91,897
4.01% to 5.00%       141,637      171,116      126,882       57,625      22,993      13,493      32,327          444      126,882
5.01% to 6.00%        68,394       30,092       12,096        2,589         803       7,121       1,583           --       12,096
6.01% or more         83,745        1,324        1,211           --       1,128          83          --           --        1,211
                    --------      -------      -------      -------      ------      ------      ------      -------      -------

                    $434,740      485,930      485,945      281,603      95,183      37,900      58,359       12,900      485,945
                    ========      =======      =======      =======      ======      ======      ======      =======      =======
</TABLE>


                                       20
<PAGE>

Borrowings

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

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
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities," this interest rate swap qualifies as a cash
flow hedge. The fair value of this interest rate swap is recorded as an asset or
liability on the consolidated balance sheet with an offsetting entry recorded in
other comprehensive income, net of the income tax effect. At December 31, 2003
and 2002, the unrealized loss of the derivative instrument was $83,000 ($52,000
net of tax) and $120,000 ($75,000 net of tax), respectively.

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


                                       21
<PAGE>

Federal Home Loan Bank Advances and Other Borrowings. The Bank is authorized to
obtain advances from the Federal Home Loan Bank ("FHLB") of Atlanta which are
generally collateralized by a blanket lien against the Bank's mortgage
portfolio. Such advances may be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB of Atlanta will advance to member institutions,
including the Bank, for purposes other than meeting withdrawals, fluctuates from
time to time in accordance with the policies of the Federal Housing Finance
Board and the FHLB of Atlanta. At December 31, 2003, the Bank had $133.0 million
in FHLB advances outstanding.

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

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

<TABLE>
<CAPTION>
                                                                                       At or For the Year
                                                                                       Ended December 31,
                                                                        -------------------------------------------------
                                                                            2001              2002                2003
                                                                            ----              ----                ----
                                                                                        ($ in thousands)
<S>                                                                     <C>               <C>                 <C>
FHLB advances:
     Average balance outstanding                                        $   136,041       $   160,235         $   139,372
                                                                        ===========       ===========         ===========
     Maximum amount outstanding at any month end during the year        $   154,000       $   164,000         $   149,000
                                                                        ===========       ===========         ===========
     Balance outstanding at end of year                                 $   154,000       $   149,000         $   133,000
                                                                        ===========       ===========         ===========
     Weighted average interest rate during the year                            6.07%             5.62%               5.55%
                                                                        ===========       ===========         ===========
     Weighted average interest rate at end of year                             5.73%             5.40%               5.40%
                                                                        ===========       ===========         ===========

Other borrowed funds:
     Average balance outstanding                                        $    11,842       $    16,915         $    22,654
                                                                        ===========       ===========         ===========
     Maximum amount outstanding at any month end during the year        $    18,427       $    24,216         $    20,482
                                                                        ===========       ===========         ===========
     Balance outstanding at end of year                                 $    13,327       $    19,303         $    17,786
                                                                        ===========       ===========         ===========
     Weighted average interest rate during the year                            3.91%             2.12%               2.17%
                                                                        ===========       ===========         ===========
     Weighted average interest rate at end of year                             2.15%             5.08%               2.04%
                                                                        ===========       ===========         ===========

Total borrowings:
     Average balance outstanding                                        $   147,883       $   177,150         $   162,026
                                                                        ===========       ===========         ===========
     Maximum amount outstanding at any month end during the year        $   172,427       $   188,216         $   169,482
                                                                        ===========       ===========         ===========
     Balance outstanding at end of year                                 $   167,327       $   168,303         $   150,786
                                                                        ===========       ===========         ===========
     Weighted average interest rate during the year                            5.90%             5.29%               5.08%
                                                                        ===========       ===========         ===========
     Weighted average interest rate at end of year                             5.44%             5.38%               5.00%
                                                                        ===========       ===========         ===========
</TABLE>

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

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


                                       22
<PAGE>

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

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

The following is a summary of the Company's contractual obligations, including
certain on-balance sheet obligations, at December 31, 2003 (in thousands):

<TABLE>
<CAPTION>
                                                                        Payments Due by Period
                                                ------------------------------------------------------------------
                                                                  Less                                       More
                                                                 Than 1          1-3            3-5         Than 5
Contractual Obligations                           Total           Year          Years          Years         Years
                                                  -----           ----          -----          -----         -----
<S>                                             <C>              <C>            <C>           <C>           <C>
FHLB advances - assumed final maturity          $133,000         25,000         74,000        15,000        19,000
Time deposit maturities                          485,945        281,603        133,083        71,259            --
Junior subordinated debentures - assumed
   final maturity                                  5,155             --             --            --         5,155
Other borrowings                                  17,786         17,786             --            --            --
Operating leases                                     441             66            141           153            81
Loan commitments                                  12,710         12,710             --            --            --
Standby letters of credit                          3,382          3,382             --            --            --
Undisbursed construction and line of
     credit loans                                100,051        100,051             --            --            --
                                                --------        -------        -------        ------        ------

Total                                           $758,470        440,598        207,224        86,412        24,236
                                                ========        =======        =======        ======        ======
</TABLE>

Subsidiary Activities

The Bank has a wholly-owned subsidiary, Lake County Service Corporation
("LCSC"), originally formed to develop a 100-lot subdivision. LCSC sold the last
remaining lots of that project during 2001. During the second quarter of 2001,
the Bank introduced an Investment Services Program through a joint venture with
an independent securities broker-dealer firm. Through this program, mutual
funds, annuities, discount brokerage and financial planing services are offered
to bank customers. Certain of those products are offered through LCSC, which
received monthly fees on sales made through this program. During 2003 and 2002,
the Bank and LCSC recognized fees of $244,000 and $295,000 and expenses of
$190,000 and $227,000, respectively from this program.

During 2001, First Alliance was formed to facilitate the sale of title
insurance. During 2003 and 2002, this subsidiary recognized fees of $67,000 and
$26,000 and expenses of $21,000 and $12,000, respectively. In the third quarter
of 2003, the Board approved discontinuing the sale of title insurance and making
this subsidiary inactive except for real estate purchases by the Company.

Personnel

As of February 13, 2004, the Bank had 251 full-time employees and 11 part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank considers its relationship with its employees to be good.


                                       23
<PAGE>

REGULATION AND SUPERVISION

General

As a savings and loan holding company, the Company is required by federal law to
file reports with, and otherwise comply with, the rules and regulations of the
OTS. The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Bank is a member of the Federal Home Loan Bank System and, with respect to
deposit insurance, of the Savings Association Insurance Fund ("SAIF") managed by
the FDIC. The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Bank's safety and soundness and compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and their operations. Certain of the
regulatory requirements applicable to the Bank and to the Company are referred
to below or elsewhere herein. The description of statutory provisions and
regulations applicable to savings institutions and their holding companies set
forth in this Form 10-K does not purport to be a complete description of such
statutes and regulations and their effects on the Bank and the Company.

Holding Company Regulation

The Company is a nondiversified unitary savings and loan holding company within
the meaning of federal law. Under prior law, a unitary savings and loan holding
company, such as the Company was not generally restricted as to the types of
business activities in which it may engage, provided that the Bank continued to
be a qualified thrift lender. See "Federal Savings Institution Regulation - QTL
Test." The Gramm-Leach-Bliley Act of 1999 provides that no company may acquire
control of a savings association after May 4, 1999 unless it engages only in the
financial activities permitted for financial holding companies under the law or
for multiple savings and loan holding companies as described below. Further, the
Gramm-Leach-Bliley Act specifies that existing savings and loan holding
companies may only engage in such activities. The Gramm-Leach-Bliley Act,
however, grandfathered the unrestricted authority for activities with respect to
unitary savings and loan holding companies existing prior to May 4, 1999, such
as the Company, so long as the Bank continues to comply with the QTL Test. Upon
any non-supervisory acquisition by the Company of another savings institution or
Bank that meets the qualified thrift lender test and is deemed to be a savings
institution by the OTS, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would generally be limited to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the
prior approval of the OTS, and certain activities authorized by OTS regulation.

A savings and loan holding company is prohibited from, directly or indirectly,
acquiring more than 5% of the voting stock of another savings institution or
savings and loan holding company, without prior written approval of the OTS and
from acquiring or retaining control of a depository institution that is not
insured by the FDIC. In evaluating applications by holding companies to acquire
savings institutions, the OTS considers the financial and managerial resources
and future prospects of the company and institution involved, the effect of the
acquisition on the risk to the deposit insurance funds, the convenience and
needs of the community and competitive factors.

The OTS may not approve any acquisition that would result in a multiple savings
and loan holding company controlling savings institutions in more than one
state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.


                                       24
<PAGE>

Although savings and loan holding companies are not subject to specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, federal regulations do prescribe such restrictions on
subsidiary savings institutions as described below. The Bank must notify the OTS
30 days before declaring any dividend to the Company. In addition, the financial
impact of a holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.

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

Federal Savings Institution Regulation

Business Activities. The activities of federal savings institutions are governed
by federal law and regulations. These laws and regulations delineate the nature
and extent of the activities in which federal associations may engage. In
particular, many types of lending authority for federal association, e.g.,
commercial, non-residential real property loans and consumer loans, are limited
to a specified percentage of the institution's capital or assets.

Capital Requirements. The OTS capital regulations require savings institutions
to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4%
leverage ratio (3% for institutions receiving the highest rating on the CAMELS
rating system) and an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in effect, a minimum
2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving
the highest rating on the CAMELS rating system), and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The
OTS regulations also require that, in meeting the tangible, leverage and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.

The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships.

The components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.


                                       25
<PAGE>

The OTS has the authority to establish minimum capital requirements in
appropriate cases upon a determination that an institution's capital level is or
may become inadequate in light of the particular circumstances. For the present
time, the OTS has deferred implementation of the interest rate risk capital
charge. At December 31, 2003, the Bank met each of its capital requirements.

The following table presents the Bank's capital position at December 31, 2003.

                                                                Capital Ratios
                                                                --------------
                     Actual       Required      Excess       Actual     Required
                     Capital      Capital       Amount       Percent     Percent
                     -------      -------       ------       -------     -------
                                           ($ in thousands)

Tangible            $ 78,482       14,217       64,265         8.28%       1.50%
Core (Leverage)     $ 78,482       28,435       50,047         8.28        3.00
Risk-based          $ 83,908       50,961       32,946        13.17        8.00

Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.

Insurance of Deposit Accounts. The Bank is a member of the SAIF. The FDIC
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for SAIF member institutions are determined
semiannually by the FDIC and currently range from zero basis points for the
healthiest institutions to 27 basis points for the riskiest.

In addition to the assessment for deposit insurance, institutions are required
to make payments on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF. By law, there has been
equal sharing of FICO payments between SAIF and BIF members since January 1,
2000.

The Bank did not pay an assessment for deposit insurance in 2003, however, its
payments toward the FICO bonds amounted to approximately $108,000. The FDIC has
authority to increase insurance assessments. A significant increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank. Management cannot predict what insurance


                                       26
<PAGE>

assessment rates will be in the future.

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

Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At December
31, 2003, the Bank's limit on loans to one borrower was $12.6 million and the
Bank's largest aggregate outstanding loans and extensions of credit to one
borrower was $11.4 million.

QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender test. Under the test, a savings association is required to either qualify
as a "domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.

A savings institution that fails the qualified thrift lender test is subject to
certain operating restrictions and may be required to convert to a bank charter.
As of December 31, 2003, the Bank maintained 75% of its portfolio assets in
qualified thrift investments and, therefore, met the qualified thrift lender
test. Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered "qualified thrift
investments."

Limitation on Capital Distributions. OTS regulations impose limitations upon all
capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger. Under current regulations, an application to
and the prior approval of the OTS is required prior to any capital distribution
if the institution does not meet the criteria for "expedited treatment" of
applications under OTS regulations (i.e., generally, examination ratings in the
two top categories), the total capital distributions for the calendar year
exceed net income for that year plus the amount of retained net income for the
preceding two years, the institution would be undercapitalized following the
distribution or the distribution would otherwise be contrary to a statute,
regulation or agreement with OTS. If an application is not required, the
institution must still provide prior notice to OTS of the capital distribution
if, like the Bank, it is a subsidiary of a holding company. In the event the
Bank's capital fell below its regulatory requirements or the OTS notified it
that it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.

Assessments. Savings institutions are required to pay assessments to the OTS to
fund the agency's operations. The general assessments, paid on a semi-annual
basis, are computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The Bank was assessed approximately $184,000 for the fiscal
year ended December 31, 2003.


                                       27
<PAGE>

Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its
executive officers and directors. However, that Act contains a specific
exception for loans by the Bank to its executive officers and directors in
compliance with federal banking laws. The Bank's authority to extend credit to
executive officers, directors and 10% shareholders ("insiders"), as well as
entities such persons control, is also governed by federal law. Such loans are
required to be made on terms substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
There is an exception for loans made pursuant to a benefit or compensation
program that is widely available to all employees of the institution and does
not give preference to insiders over other employees.

Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.

Standards for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines prescribing Standards for Safety and Soundness. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that a savings
institution fails to meet any standard prescribed by the guidelines, the OTS may
require the institution to submit an acceptable plan to achieve compliance with
the standard.


                                       28
<PAGE>

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank ("FHLB") System, which
consists of 12 regional FHLBs. The FHLB provides a central credit facility
primarily for member institutions. In order to borrow from the FHLB, the Bank is
required to purchase shares of the FHLB's nonmarketable equity securities at
par. The Bank, as a member of the FHLB, is required to acquire and hold shares
of capital stock in that FHLB in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at December 31, 2003 of $6.9
million. For the year ended December 31, 2003, the dividend yield on FHLB stock
was 3.94%.

The FHLBs are required to provide funds for the resolution of insolvent thrifts
in the late 1980s and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future FHLB
advances increased, the Bank's net interest income would likely also be reduced.
Recent legislation has changed the structure of the FHLBs funding obligations
for insolvent thrifts, revised the capital structure of the FHLBs and
implemented entirely voluntary membership for FHLBs. Management cannot predict
the effect that these changes may have with respect to its FHLB membership.

Federal Reserve System

The Federal Reserve Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The regulations generally provide that reserves
be maintained against aggregate transaction accounts as follows: for accounts
aggregating $42.1 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts aggregating greater than
$42.1 million, the reserve requirement is $1.083 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $42.1 million. The first $6.0 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. At December 31, 2003, the
Bank complied with the foregoing requirements.

Community Reinvestment Act

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


                                       29
<PAGE>

Federal and State Taxation

General. The Company and the Bank report their income on a consolidated basis
using the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited by the IRS for the year ended
December 31, 1996. For its 2003 taxable year, the Bank is subject to a maximum
federal income tax rate of 35%.

Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995, thrift
institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.

The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, requires savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves. The
1996 Act repeals the reserve method of accounting for bad debts effective for
tax years beginning after 1995. Thrift institutions that would be treated as
small banks are allowed to utilize the Experience Method applicable to such
institutions, while thrift institutions that are treated as large banks (those
generally exceeding $500 million in assets) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.

A thrift institution required to change its method of computing reserves for bad
debts will treat such change as a change in method of accounting, initiated by
the taxpayer, and having been made with the consent of the IRS. Any Section
481(a) adjustment required to be taken into income with respect to such change
generally will be taken into income ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to the
residential loan requirement.

Under the residential loan requirement provision, the recapture required by the
1996 Act is suspended for each of two successive taxable years, beginning with
1996, in which the Bank originates a minimum of certain residential loans based
upon the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding its current taxable year. Under the 1996 Act,
for its current and future taxable years, the Bank is permitted to make
additions to its tax bad debt reserves. In addition, the Bank is required to
recapture (i.e., take into income) over a six year period the excess of the
balance of its tax bad debt reserves as of December 31, 1995 over the balance of
such reserves as of December 31, 1987. At December 31, 2003, the Bank had
recaptured all of its bad debt reserves.

Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.


                                       30
<PAGE>

The amount of additional taxable income triggered by a non-dividend is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution. Thus, if the Bank makes a non-dividend distribution to the
Company, approximately one and one-half times the amount of such distribution
(but not in excess of the amount of such reserves) would be includable in income
for federal income tax purposes, assuming a 35% federal corporate income tax
rate. The Bank does not intend to pay dividends that would result in a recapture
of any portion of its bad debt reserves.

Corporate Alternative Minimum Tax. The Code imposes a tax on alternative minimum
taxable income ("AMTI") at a rate of 20%. For fiscal years beginning prior to
January 1, 1996, the excess of the bad debt reserve deduction using the
percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. The adjustment to AMTI based on book income is an amount equal
to 75% of the amount by which a corporation's adjusted current earnings exceeds
its AMTI (determined without regard to this adjustment and prior to reduction
for net operating losses). In addition, for taxable years through 1995, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2.0 million is imposed on corporations, including the Bank, whether or not
an Alternative Minimum Tax ("AMT") is paid. The Bank does not expect to be
subject to the AMT.

Dividends Received Deduction and Other Matters. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, 80% of any dividends received may be
deducted.

Florida Taxation. The Bank files Florida franchise tax returns. For Florida
franchise tax purposes, savings institutions are presently taxed at a rate equal
to 5.5% of taxable income. For this purpose, "taxable income" generally means
federal taxable income, subject to certain adjustments (including the addition
of interest income on State and municipal obligations). The Bank is not
currently under audit with respect to its Florida franchise tax returns.


                                       31
<PAGE>

ITEM 2. PROPERTIES

The Bank conducts its business through its main office and 14 branch offices.
The following table sets forth certain information regarding the Bank's office
properties:

                                                          Net Book Value of Land
                                           Date             and Buildings at
Location                                  Acquired           December 31, 2003
                                          --------           -----------------
                                                              (In thousands)
Main Office
800 North Boulevard, West
Leesburg, Florida  34748-5053                1961                $ 2,104

Wildwood
837 South Main Street
Wildwood, Florida  34785-5302                1967                    287

Main Street
1409 West Main Street
Leesburg, Florida  34748-4854                1972                    303

Clermont
481 East Highway 50
Clermont, Florida  34711-4032                1982                    583

Eustis
2901 South Bay Street
Eustis, Florida  32726-6551                  1979                    450

Fruitland Park
410 Palm Street
Fruitland Park, Florida  34731-4013          1983                    673

Lady Lake
431 US Highway 441/27
Lady Lake, Florida  32159-3046               1995                  1,093

Lake Square
32612 Vista Avenue
Leesburg, Florida  34788-3952                2002                  1,270

South Leesburg
27417 U.S. Highway 27
Leesburg, Florida  34748                     1996                  1,231

Inverness
2709 East Gulf to Lake Highway
Inverness, Florida 34453-3245                1998                    804

Citrus Ridge
16550 Woodcrest Way
Clermont, Florida 34711-7004                 1998                    940

                                                                     (continued)


                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                                     Net Book Value of Land
                                                        Date           and Buildings at
Location                                               Acquired         December 31, 2003
                                                       --------         -----------------
                                                                         (In thousands)
<S>                                                       <C>             <C>
Bushnell (1)
1128 North Main Street
Bushnell, Florida 33513                                   1998            $      69

Administration
715 West Oak Terrace Drive
Leesburg, Florida  34748                                  1961                1,756

Boulevard (2)
900 North Boulevard West
Leesburg, Florida  34748                                  2000                  295

Retail Banking and Human Resource Offices
800 North Lee Street
Leesburg, Florida  34748                                  2001                  294

Kings Ridge
4299 South Highway 27
Clermont, Florida  34711                                  2001                1,518

Spruce Creek
17801 SE 109th Avenue
Summerfield, Florida  34491                               2002                1,986

Villages 466 (3)
3340 Wedgewood Lane
The Villages, Florida  32162                              2003                  296

Crystal River
180 North Sun Coast Boulevard
Crystal River, Florida  34429                             2003                1,838

Old Lake Square (4)
10105 U.S. Highway 441
Leesburg, Florida  34788                                  1995                  384

Office Park  (Accounting, Checking and Data Offices)
341 West Oak Terrace Drive (Building 100)
321 West Oak Terrace Drive (Building 200)
Leesburg, Florida  34748                                  2002                1,206
</TABLE>

(1)   Leased branch office opened May, 1999.

(2)   Storage facility owned by the Bank.

(3)   Branch under construction.

(4)   Unused branch office.

The Bank owns and operates personal computers, teller terminals and associated
equipment. At December 31, 2003, such equipment had a net book value of
$1,484,000. The Bank also had $131,000 in construction in process at December
31, 2003.


                                       33
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which FFLC Bancorp, Inc., or
any of its subsidiaries is a party or to which any of their property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the stockholders during the fourth
quarter of the fiscal year ended December 31, 2003, through the solicitation of
proxies or otherwise.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The above-captioned information appears under "Common Stock Prices and
Dividends" in the Registrant's 2003 Annual Report to Stockholders and is
incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The above-captioned information appears under "Selected Consolidated Financial
Data" on page 8 and 9 of the Registrant's 2003 Annual Report to Stockholders and
is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
2003 Annual Report to Stockholders on pages 10 through 20 and is incorporated
herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
2003 Annual Report to Stockholders on page 15, under the "Quantitative and
Qualitative disclosure about Market Risk" caption and is incorporated herein by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of FFLC Bancorp, Inc. and Subsidiary,
together with the report thereon by Hacker, Johnson & Smith PA appear in the
Registrant's 2003 Annual Report to Stockholders on pages 21 through 53 and are
incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

There have been no disagreements with the Registrant's accountants on any
matters of accounting principles or practices or financial statement
disclosures.


                                       34
<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES

      a.    Evaluation of disclosure controls and procedures. The Company
            maintains controls and procedures designed to ensure that
            information required to be disclosed in the reports that the Company
            files or submits under the Securities Exchange Act of 1934 is
            recorded, processed, summarized and reported within the time periods
            specified in the rules and forms of the Securities and Exchange
            Commission. Based upon their evaluation of those controls and
            procedures performed within the period, the chief executive and
            chief financial officers of the Company concluded that the Company's
            disclosure controls and procedures were adequate.

      b.    Changes in internal controls. The Company made no significant
            changes in its internal controls or in other factors that could
            significantly affect these controls subsequent to the date of the
            evaluation of those controls by the Chief Executive and Chief
            Financial officers.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information related to Directors and Executive Officers of the Registrant is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 13, 2004 at pages 6 through 9.

ITEM 11. EXECUTIVE COMPENSATION

The information relating to executive compensation is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 2004 at pages 12 and 13.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 13, 2004 at
pages 5 through 7.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information relating to certain relationships and related transactions is
incorporated herein by reference to pages 14 and 15 of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 13, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information relating to principal accountant fees and services is
incorporated herein by reference to page 18 of the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held on May 13, 2004.


                                       35
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)   The following documents are filed as a part of this report:

      (1) Consolidated Financial Statements of the Company are incorporated by
      reference from the following indicated pages of the 2003 Annual Report to
      Stockholders.

                                                                            Page
                                                                            ----

     Independent Auditors' Report                                             54

     Consolidated Balance Sheets as of December 31, 2003 and 2002             21

     Consolidated Statements of Income for the Years Ended
          December 31, 2003, 2002 and 2001                                    22

     Consolidated Statements of Changes in Stockholders' Equity for the
          Years Ended December 31, 2003, 2002 and 2001                     23-25

     Consolidated Statements of Cash Flows for the Years
          Ended December 31, 2003, 2002 and 2001                           26-27

     Notes to Consolidated Financial Statements for the Years
          Ended December 31, 2003, 2002 and 2001                           28-53


                                       36
<PAGE>

      The remaining information appearing in the Annual Report to Stockholders
      is not deemed to be filed as part of this report, except as expressly
      provided herein.

      (2) All schedules are omitted because they are not required or applicable,
      or the required information is shown in the consolidated financial
      statements or the notes thereto.

      (3)   Exhibits

            (a)   The following exhibits are filed as part of this report.

                  3.1   Certificate of Incorporation of FFLC Bancorp, Inc.*

                  3.2   Bylaws of FFLC Bancorp, Inc.***

                  4.0   Stock Certificate of FFLC Bancorp, Inc.*

                  10.1  First Federal Savings Bank of Lake County Recognition
                        and Retention Plan**

                  10.2  First Federal Savings Bank of Lake County Recognition
                        and Retention Plan for Outside Directors**

                  10.3  FFLC Bancorp, Inc. Incentive Stock Option Plans for
                        Officers and Employees**

                  10.4  FFLC Bancorp, Inc. Stock Option Plan for Outside
                        Directors**

                  13.0  Annual Report to Stockholders (filed herewith)

                  31.1  Certification of Chief Executive Officer required by
                        Rule 13a-14(a)/15d-14(a) under the Exchange Act

                  31.2  Certification of Chief Financial Officer required by
                        Rule 13a-14(a)/15d-14(a) under the Exchange Act

                  32.1  Certification of Chief Executive Officer, pursuant to
                        18 U.S.C. Section 1350, as adopted pursuant to Section
                        906 of the Sarbanes-Oxley Act of 2002.

                  32.2  Certification of Chief Financial Officer, pursuant to 18
                        U.S.C. Section 1350, as adopted pursuant to Section 906
                        of the Sarbanes-Oxley Act of 2002.

                  99    Proxy Statement for Annual Meeting (filed herewith)

*     Incorporated herein by reference into this document from the Exhibits to
      Form S-1, Registration Statement, initially filed on September 27, 1993,
      Registration No. 33-69466.

**    Incorporated herein by reference into this document from the Proxy
      Statement for the Annual Meeting of Stockholders held on May 12, 1994.

***   Incorporated herein by reference into this document from the September 30,
      1999 Form 10-Q, filed November 3, 1999.

      (b)   Reports on Form 8-K.

            On October 10, 2003, the Company filed a Form 8-K to disclose that
            the Company had issued a press release to announce the Company's
            third quarter earnings and declaration of a dividend.


                                       37
<PAGE>

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                       FFLC BANCORP, INC.


                                       By: /s/ Stephen T. Kurtz
                                           ------------------------
                                       Stephen T. Kurtz
                                       Chief Executive Officer and President

                                       Dated: March 11, 2004

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
Name                            Title                                       Date
----                            -----                                       ----
<S>                             <C>                                    <C>
/s/ Claron D. Wagner            Chairman of the Board                  March 11, 2004
--------------------
Claron D. Wagner

/s/ James P. Logan              Vice Chairman of the Board             March 11, 2004
------------------
James P. Logan

/s/ Joseph J. Junod             Director                               March 11, 2004
-------------------
Joseph J. Junod

/s/ Ted R. Ostrander, Jr.       Director                               March 11, 2004
-------------------------
Ted R. Ostrander

/s/ H.D. Robuck, Jr.            Director                               March 11, 2004
--------------------
H.D. Robuck, Jr.

/s/ Howard H. Hewitt            Director                               March 11, 2004
--------------------
Howard H. Hewitt

/s/ Stephen T. Kurtz            Chief Executive Officer,
--------------------            President and Director                 March 11, 2004
Stephen T. Kurtz

/s/ Paul K. Mueller             Executive Vice President, Chief
-------------------             Operating Officer and Treasurer
Paul K. Mueller                 and Director                           March 11, 2004
</TABLE>


                                       38