[FFLC LOGO HERE]




                               1996 ANNUAL REPORT








                                    CONTENTS

                                                                            Page

Corporate Profile, Corporate Organization and General Information ............1
Office Locations and Common Stock Prices and Dividends .......................2
Consolidated Financial Highlights ............................................3
Letter to Stockholders .....................................................4-5
Selected Consolidated Financial Data and Financial Ratios.....................6
Management's Discussion and Analysis of Financial
    Condition and Results of Operations ...................................7-17
Consolidated Financial Statements ........................................18-46
Independent Auditors' Report.................................................47
Directors and Officers of FFLC Bancorp, Inc. ................................48
Directors and Officers of First Federal Savings Bank of Lake County..........49
Employees ...................................................................50
<PAGE>
                                 [Inside Cover]


<PAGE>
CORPORATE PROFILE

FFLC Bancorp,  Inc. ("FFLC" or the "Holding Company") became the holding company
for First Federal  Savings Bank of Lake County (the "Savings  Bank")  (together,
the  "Company")  on January 4, 1994 upon the Savings  Bank's  conversion  from a
federally  chartered mutual savings  association to a federally  chartered stock
savings bank.  The  acquisition  of the Savings Bank by the Holding  Company was
accounted for as a pooling-of-interest. The Savings Bank is a community-oriented
savings  institution  offering a variety of financial services to meet the needs
of the  communities  it serves.  The deposit  accounts  of the Savings  Bank are
insured by the Federal Deposit Insurance Corporation.

CORPORATE ORGANIZATION

Holding Company
    FFLC Bancorp, Inc.

Thrift Subsidiary
    First Federal Savings Bank of Lake County

Affiliate of Thrift Subsidiary
    Lake County Service Corporation

GENERAL INFORMATION

Corporate Headquarters
    800 North Boulevard West, Post Office Box 490420, Leesburg, Florida
    34749-0420

Annual Meeting
    The  Annual  Meeting  of the  Stockholders  will  be  held  at the  Leesburg
    Community Building located at 109 East Dixie Avenue in Leesburg at 2:00 p.m.
    on May 8, 1997.

Form 10-K
    A copy  of the  Form  10-K,  as  filed  with  the  Securities  and  Exchange
    Commission,  may be obtained by  stockholders  without  charge upon  written
    request to Sandra L.  Rutschow,  Vice  President - Secretary,  FFLC Bancorp,
    Inc., Post Office Box 490420, Leesburg, Florida 34749-0420.

Transfer Agent and Registrar
    Registrar and Transfer Company
    10 Commerce Drive
    Cranford, New Jersey 07016
    800-368-5948

Corporate Counsel
    George W. Murphy, Jr.
    Muldoon, Murphy & Faucette
    5101 Wisconsin Avenue
    Washington, D.C. 20016
<PAGE>
Independent Auditors
    Hacker, Johnson, Cohen & Grieb
    Certified Public Accountants
    930 Woodcock Road, Suite 211
    Orlando, Florida 32803

Visit First  Federal's  World-wide Web Site at  http://www.1stfederal.com.  This
site provides  up-to-date  rates for certificates of deposit and mortgage loans,
as well as access to FFLC's current stock quotes and SEC filings.







                                        1

<PAGE>
                            [FIRST FEDERAL LOGO HERE]
OFFICE LOCATIONS

[MAP INSERT MAP - HALF PAGE]





COMMON STOCK PRICES AND DIVIDENDS

FFLC's  common stock is traded in the  over-the-counter  market and is quoted on
the National  Association of Securities  Dealers Automated  Quotation - National
Market System  ("NASDAQ - National  Market  System")  under the symbol FFLC. The
following table sets forth market price information, based on closing prices, as
reported by the NASDAQ  National Market System for the common stock high and low
closing  sales prices and the amount of  dividends  paid on the common stock for
the periods indicated.  See Note 20 of the Consolidated Financial Statements for
a summary of quarterly financial data.
<TABLE>
<CAPTION>
                                                                                                              Cash
                                                                                                            Dividends
                                                                                                              Paid
                                                                         High                 Low           Per Share
                                                                         ----                 ---           ---------
<S>                                                                    <C>                 <C>                 <C>
         Quarter Ended:
         March 31, 1995............................................... 17 1/4              14 1/4              .06
         June 30, 1995................................................ 17                  15 3/4              .08
         September 30, 1995........................................... 20 1/4              16 1/4              .08
         December 31, 1995............................................ 20 1/4              18 3/4              .08
         March 31, 1996............................................... 19 1/8              17 1/4              .08
         June 30, 1996................................................ 18 3/4              17 1/4              .10
         September 30, 1996........................................... 19                  18                  .10
         December 31, 1996............................................ 22                  18 1/4              .10

As of January 27, 1997, the Company had 941 holders of record of common stock.



                                        2
<PAGE>
CONSOLIDATED FINANCIAL  HIGHLIGHTS
(Dollars in thousands, except per share amounts)

AT YEAR END:                                                                        1996                 1995                1994
                                                                                 ----------           ---------           ---------
<S>                                                                              <C>                  <C>                 <C>    
Total assets ...........................................................         $  346,442             325,832             310,622
Loans receivable, net ..................................................         $  227,948             183,448             148,286
Investment securities ..................................................         $   32,832              25,265              27,851
Mortgage-backed securities .............................................         $   65,736              93,883             117,003
Deposits ...............................................................         $  282,664             267,703             251,752
Equity, substantially restricted .......................................         $   53,626              55,360              53,762
Book value per share ...................................................         $    22.00               20.99               19.47
Shares outstanding .....................................................          2,437,737           2,637,356           2,761,819
Equity-to-assets ratio .................................................              15.48%              16.99%              17.31%
Nonperforming assets to total assets ...................................               0.30%               0.10%               0.13%

FOR THE YEAR:

Interest income ........................................................         $   24,218              22,493              19,480
Net interest income after provision for loan losses ....................         $   11,152              10,186              10,083
Net income .............................................................         $    2,184               3,093               3,570
Earnings per share .....................................................         $      .85                1.16                1.35
Loan originations ......................................................         $   83,569              56,751              49,190
Return on average assets ...............................................                .65%                .98%               1.19%
Return on average equity ...............................................               3.94%               5.59%               6.81%
Average equity to average assets ratio .................................              16.62%              17.46%              17.47%
Noninterest expense to average assets ..................................               2.49%               1.85%               1.74%

YIELDS AND RATES:
<CAPTION>
                                                                        Weighted Average
                                                                          Rate or Yield             Average Rate or Yield During
                                                                         at December 31,               Year Ended December 31,
                                                                        -----------------         ------------------------------
                                                                        1996         1995         1996         1995         1994
                                                                        ----         ----         ----         ----         ---- 
<S>                                                                     <C>          <C>          <C>          <C>          <C>  
Mortgage loans, net ...............................................     8.08%        8.18%        8.20%        8.29%        8.21%
Collateralized mortgage obligations ...............................     5.91%        5.92%        5.76%        5.73%        5.34%
Other mortgage-backed securities ..................................     7.04%        6.84%        6.87%        6.41%        5.51%
All interest-earning assets .......................................     7.62%        7.42%        7.52%        7.31%        6.66%
Deposits ..........................................................     4.72%        4.87%        4.72%        4.71%        3.78%
All interest-bearing liabilities ..................................     4.74%        4.87%        4.72%        4.71%        3.78%
Interest-rate spread (1) ..........................................     2.87%        2.55%        2.80%        2.60%        2.88%
Net yield on average interest-earning assets (2) ..................      N/A          N/A         3.50%        3.35%        3.50%

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

                                        3
<PAGE>
                                   [LOGO HERE]

Dear Stockholders:

In each year's annual report, I like to mention some of the important events for
our Company during the past year, and reflect upon things we might expect during
the new year.

The year 1996  will be  remembered  as a very  important  year in our  Company's
history.  Significant  progress was made during the year in increasing  the loan
portfolio and total deposits of the Company's subsidiary,  First Federal Savings
Bank of Lake County.  For the year, the Bank's mortgage loan  originations  were
$74.4 million,  an increase of more than 48% above the prior year. Consumer loan
originations  totaled  $12.4  million,  for an increase of 101%.  All told,  the
Bank's loan portfolio at the end of 1996 stood at $236.9 million,  a gain of 26%
when  compared  to the end of 1995.  Deposit  growth was also  good,  with total
deposits  at year-end  being  282.7  million.  This  represents  a gain in total
deposits of $15 million, or 6%.

The single  largest  impact on our financial  statements  came from the one-time
payment all savings  institutions  were required to make to the Federal  Deposit
Insurance Corporation (FDIC). In the case of First Federal, the required payment
to the FDIC was $1.7  million  ($1.0  million  after-tax).  In exchange for this
one-time  payment,  we expect First  Federal  will enjoy a 72%  reduction in its
deposit  insurance  premium in 1997. While the financial data within this annual
report fully reflects the cost of the one-time payment to the FDIC, I would like
stockholders to know what some of these figures would have been, absent the FDIC
payment.

Without the one-time  payment to the FDIC,  our Company's  earnings for the year
would have been $3.2  million,  or $123,000  more than 1995.  On an earnings per
share basis, the Company would have reported earnings of $1.25 per share, a 7.8%
increase  from the prior  year.  The  return on average  assets  would have been
0.96%,  the return on average  equity would have been 5.80%,  and the  operating
efficiency  ratio would have been  55.05%.  If we were to exclude  the  one-time
payment to the FDIC,  the Company's  price-to-earnings  ratio at year-end  would
have been 17.2.

During the year, the Company's Board of Directors conducted a strategic planning
session  in which  ways to  better  prepare  the  Company  for the  future  were
discussed.  The  greatest  challenge  for the Company is to produce a reasonable
return on equity. At year-end, the Company had a capital ratio of 15.48%. With a
capital  ratio at that  level,  it is  difficult  to produce a strong  return on
equity. The strategic planning session produced a plan of action that we believe
will better utilize the capital that we have and will produce  improved  results
in the future. It is worth noting that rather than one simple approach, the plan
of action addresses several areas.

First, we believe the repurchase of outstanding shares of stock should continue.
By the end of 1996,  FFLC  Bancorp  had  repurchased  a total of nearly  340,000
shares  of  stock.  In  January,  1997,  the  Board of  Directors  approved  the
repurchase of an additional  10% of the Company's  outstanding  shares,  or more
than 238,000 shares of stock.  By continuing to repurchase  stock,  we expect to
improve earnings per share.
<PAGE>
With our Company's  high level of capital,  we have the means to grow in several
ways.  We  recently  opened our third  branch  office  within the past  eighteen
months,  and we  continue to consider  locations  in which to open new  offices.
Growth can also occur by way of acquiring another financial institution. To date
that has not occurred, but it remains an alternative.


                                        4

<PAGE>
Our Company is also moving toward increased  involvement in commercial  lending.
Two local financial institutions in the Lake County market have recently sold to
out-of-state regional banks, and we believe the timing is right for us to become
more involved in local commercial  lending.  To that end, we recently brought on
board a commercial  loan officer with extensive  lending  experience in the Lake
County  area.  We believe  added  commercial  lending  will  diversify  our loan
portfolio,  and will  provide  us with new  opportunities  both in  lending  and
deposits.

Growth is also  possible  through  wholesale  transactions  in which the Company
finances the purchase of securities by borrowing the necessary  funds.  To date,
we have made two such  transactions,  and we have  maintained a positive  spread
between the earnings of the securities and the cost of the borrowing.

Looking to 1997, there are two important  events that will positively  influence
the Company's earnings.  First, as mentioned above, the Bank's deposit insurance
premium  rate has been  dramatically  lowered.  In addition,  the stock  benefit
program known as the  Recognition and Retention Plan (RRP) was fully expensed as
of the end of 1996.  Expenses  related to these two items will be  substantially
reduced during 1997.

The Bank's  newest branch  office,  located south of Leesburg at the Lake Harris
Square shopping center,  opened in February 1997. We believe continued expansion
of our branch network will provide long-term benefits to the Company. Of course,
by opening new branch  offices,  the  Company  increases  its current  expenses.
However, we believe that by undertaking the expense of new branch locations now,
we will be enhancing the  Company's  profitability  and franchise  value for the
future.

The performance of the Company's stock is of great  importance to  stockholders.
The price per share of FFLC  Bancorp's  stock began the year at $18.75 and ended
it at $21.50. When combined with the dividends paid during 1996, the result is a
total rate of return of 16.9%. FFLC Bancorp originally issued shares of stock at
$10.00 per share on January 4, 1994.  As of  December  31,  1996,  the stock has
enjoyed an  annualized  total rate of return of 31.6%  from its  initial  public
offering.

The directors,  officers and staff of FFLC Bancorp appreciate the support of our
stockholders  over the past three years. We are dedicated to profitably  serving
the banking needs of our local communities,  and to meeting the investment goals
of our  stockholders.  We firmly  believe  our  Company is on the right track to
accomplishing these goals.

Cordially yours,

Stephen T. Kurtz
President and Chief Executive Officer


                                        5
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)

                                                                                            At December 31,
                                                                  ------------------------------------------------------------------
                                                                      1996          1995         1994            1993         1992
                                                                  ----------     ---------     ---------       -------       -------
<S>                                                               <C>            <C>           <C>             <C>           <C>    
Total assets .................................................    $  346,442       325,832       310,622       292,254       271,148
Loans receivable, net ........................................       227,948       183,448       148,286       122,211       114,347
Cash and cash equivalents ....................................        10,157        13,929        10,255        24,875         8,162
Investment securities ........................................        32,832        25,265        27,851        29,370        26,782
Mortgage-backed securities ...................................        65,736        93,883       117,003       109,077       115,331
Deposits .....................................................       282,664       267,703       251,752       241,000       245,436
Borrowed funds ...............................................         8,198           150         3,150           150           150
Conversion stock subscriptions ...............................          --            --            --          21,834          --
Stockholders' equity .........................................        53,626        55,360        53,762        27,246        23,705
<CAPTION>

                                                                                     For the Year Ended December 31,
                                                                  ------------------------------------------------------------------
                                                                      1996          1995         1994            1993         1992
                                                                  ----------     ---------     ---------       -------       -------
<S>                                                               <C>            <C>           <C>             <C>           <C>    
Interest income ..............................................    $   24,218        22,493        19,480        18,453        20,388
Interest expense .............................................        12,959        12,183         9,259         9,268        11,649
Net interest income ..........................................        11,259        10,310        10,221         9,184         8,739
Provision for loan losses ....................................           107           124           138           250           232
Net interest income after provision for loan losses ..........        11,152        10,186        10,083         8,935         8,507
Noninterest income ...........................................           809           709           647           619           848
Noninterest expense ..........................................         8,299         5,874         5,212         3,936         3,721
Income before provision for income taxes .....................         3,662         5,021         5,518         5,618         5,634
Provision for income taxes ...................................         1,478         1,928         1,948         2,114         2,120
Net income ...................................................         2,184         3,093         3,570         3,504         3,514

Earnings per share ...........................................           .85          1.16          1.35          --  (1)      --(1)
Weighted average number of common
      shares outstanding .....................................     2,560,795     2,656,259     2,645,829          --  (1)      --(1)
</TABLE>
---------------------------
(1)  The  Company  issued  stock and  acquired  the Savings  Bank  during  1994,
     therefore, earnings per share prior to 1994 is not available.
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA:
                                                                              At or For the Year Ended December 31,
                                                             -----------------------------------------------------------------
                                                                1996            1995              1994        1993       1992
                                                             ---------        ---------        ---------     ------     ------    
<S>                                                          <C>              <C>              <C>           <C>        <C>  
Return on average assets .................................        0.65%            0.98%            1.19%      1.29%      1.32%
Return on average equity .................................        3.94%            5.59%            6.81%     13.72%     16.00%
Dividend payout ratio (1) ................................       44.71%           25.86%           13.33%       N/A        N/A
Average equity to average assets .........................       16.62%           17.46%           17.47%      9.40%      8.25%
Total equity to total assets .............................       15.48%           16.99%           17.31%      9.32%      8.74%
Interest rate spread during year(2) ......................        2.80%            2.60%            2.88%      3.15%      3.02%
Net interest margin (3) ..................................        3.50%            3.35%            3.50%      3.48%      3.36%
Nonperforming assets to total assets (4) .................        0.30%            0.10%            0.13%      0.23%      0.17%
Nonperforming loans to total loans (5) ...................        0.28%            0.09%            0.21%      0.47%      0.34%
Allowance for loan losses to non-performing loans ........      159.61%          561.49%          264.13%    121.29%    130.65%
Allowance for loan and REO
      losses to nonperforming assets .....................      103.51%          288.48%          210.41%    108.41%    111.11%
Allowance for loan losses to total loans .................        0.45%            0.52%            0.55%      0.57%      0.45%
Operating expenses to average assets .....................        2.49%            1.85%            1.74%      1.45%      1.40%
Average interest-earning assets to
      average interest-bearing liabilities ...............        1.17             1.19             1.19       1.09       1.08
Net interest income to operating expenses ................        1.36             1.76             1.96       2.33       2.35
Total shares outstanding (1) .............................   2,437,737        2,637,356        2,761,819        --  (1)    --  (1)
Book value per common share outstanding (1) ..............     $ 22.00            20.99            19.47        --  (1)    --  (1)
Number of banking offices (all full-service) .............           9                8                6          6          6
</TABLE>
------------------
(1)  Item is only presented at December 31, 1996,  1995 and 1994 since there was
     no outstanding common stock in prior years.

(2)  Difference  between weighted average yield on all  interest-earning  assets
     and weighted average rate on all interest-bearing liabilities.

(3)  Based upon net interest income before  provision for loan losses divided by
     average interest-earning assets.

(4)  Nonperforming assets consist of nonperforming loans and real estate owned.

(5)  Nonperforming loans consist of loans 90 days or more delinquent.



                                        6

<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

GENERAL

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

The Savings Bank is a community-oriented  savings institution offering a variety
of  financial  services  to meet the needs of the  communities  it  serves.  The
Savings Bank's deposit gathering and lending markets are primarily  concentrated
in the  communities  surrounding  its full service  offices  located in Lake and
Sumter  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 Savings  Bank is the oldest and largest (by
asset size)  locally-based  savings  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 Savings  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 Savings Bank had net  earnings of $2.2  million for the year ended  December
31, 1996,  compared to net earnings of $3.1 million for the year ended  December
31,  1995.  At December  31,  1996,  the Savings Bank had total assets of $346.4
million, an increase of 6.3% over total assets of $325.8 million at December 31,
1995. That increase resulted primarily from a $44.5 million, or 24.3%,  increase
in loans  receivable  from $183.4 million at December 31, 1995 to $227.9 million
at December  31, 1996,  reflecting  increased  local loan demand.  Cash and cash
equivalents decreased $3.8 million or 27.1% from $13.9 million to $10.1 million.
Mortgage-backed   securities  also  decreased  $28.1  million  while  investment
securities  increased  $7.7 million for a net decrease of $20.4 million or 17.6%
in investment and mortgage-backed securities.  Deposits increased $15.0 million,
or 5.6%,  from $267.7 million at December 31, 1995 to $282.7 million at December
31,  1996.   Stockholders'  equity  decreased  $1.7  million  primarily  due  to
repurchases  of Holding  Company stock during 1996,  partially  offset by income
from operations.

                                        7
<PAGE>
REGULATION AND LEGISLATION

General

The  operating  results of the Savings  Bank are  affected  by Federal  laws and
regulations and the Savings Bank is subject to extensive regulation, examination
and supervision by the Office of Thrift Supervision  ("OTS"),  as its chartering
agency, and the Federal Deposit Insurance  Corporation  ("FDIC"), as the deposit
insurer.  The Savings  Bank is a member of the Federal  Home Loan Bank  ("FHLB")
System and its deposit accounts are insured up to applicable  limits by the FDIC
under the SAIF ("Savings  Association  Insurance  Fund").  The Savings Bank must
file reports with the OTS and the FDIC  concerning  its activities and financial
condition in addition to obtaining  regulatory  approvals prior to entering into
certain  transactions  such as mergers with, or acquisitions of, other financial
institutions.  There are periodic  examinations  by the OTS and the FDIC to test
the  Savings  Bank's  compliance  with  various  regulatory  requirements.   The
activities of savings institutions are governed by the Home Owner's Loan Act, as
amended (the "HOLA") and, in certain respects, the Federal Deposit Insurance Act
(the "FDIA").  The HOLA and the FDIA were amended by the Financial  Institutions
Reform,  Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance  Corporation  Improvement  Act  of  1991("FDICIA").  A  more  complete
description  of the HOLA and FDIA as amended by FIRREA and FDICIA is included in
the Form 10-K.

Capital Requirements

The OTS capital regulations  require savings  institutions to meet three capital
standards: a 1.5% tangible capital standard; a 3% leverage (core capital) ratio;
and an 8% risk-based  capital  standard.  Under the OTS final rule  implementing
FDICIA,  generally, a well-capitalized  institution is defined as one that meets
the following capital standards:  a 5% tangible capital standard;  a 6% leverage
(core capital) ratio; and a 10% risk-based  capital  standard,  and has not been
notified by its federal banking agency that it is in a "troubled  condition." At
December 31, 1996,  the Savings  Bank met each of its capital  requirements,  in
each  case  on  a  fully   phased-in   basis,   and  met  the   criteria   of  a
"well-capitalized" institution as defined above.

Insurance of Deposit Accounts

The FDIC has adopted a risk-based deposit insurance system that assesses deposit
insurance  premiums  according to the level of risk involved in an institution's
activities. An institution's risk category is based upon whether the institution
is  classified as "well  capitalized,"  "adequately  capitalized"  or "less than
adequately  capitalized" and one of three supervisory  subcategories within each
capital group.  The supervisory  subgroup to which an institution is assigned is
based on a supervisory  evaluation and information  which the FDIC determines to
be relevant to the institution's  financial  condition and the risk posed to the
deposit  insurance fund.  Based on its capital and supervisory  subgroups,  each
SAIF member  institution  was assigned an annual FDIC  assessment  rate for 1996
between 23 basis  points  for an  institution  in the  highest  category  (i.e.,
well-capitalized  and  healthy) and 31 basis  points for an  institution  in the
lowest  category  (i.e.,  undercapitalized  and posing  substantial  supervisory
concern).  The Savings  Bank's  assessment  rate for 1996 was .23% of  deposits.
Effective January 1, 1997, the FDIC lowered the annual assessment rates for SAIF
members to 0 to 27 basis points,  as discussed  below. The FDIC has authority to
further raise premiums if deemed  necessary.  If such action is taken,  it could
have an adverse effect on the earnings of the institution.

                                        8
<PAGE>
On September  30,  1996,  legislation  was enacted  which,  among other  things,
imposed a special one-time assessment on SAIF member institutions, including the
Savings Bank, to  recapitalize  the SAIF and spread the obligations for payments
of Financing  Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund
("BIF")  members.  The FDIC  special  assessment  levied  amounted to 65.7 basis
points on SAIF  assessable  deposits  held as of March  31,  1995.  The  special
assessment  of $1.7 million  before taxes was  recognized by the Savings Bank in
the  third  quarter  and is tax  deductible.  That  legislation  eliminated  the
substantial  disparity  between  the amount  that BIF and SAIF  members had been
paying for deposit insurance premiums.

Beginning on January 1, 1997, BIF members will pay a portion of the FICO payment
equal to 1.3 basis points on BIF-insured deposits, compared to 6.48 basis points
payable by SAIF members on SAIF-insured  deposits, and will pay a pro rata share
of the FICO payment on the earlier of January 1, 2000 or the date upon which the
last  savings  association,  such as the  Savings  Bank,  ceases to  exist.  The
legislation  also requires BIF and SAIF to be merged by January 1, 1999 provided
that  subsequent  legislation  is adopted to eliminate  the savings  association
charter and no savings associations remain as of that time.

Effective  January 1, 1997, the FDIC has lowered annual SAIF assessment rates to
0 to 27 basis points, a range comparable to those of BIF members,  although SAIF
members will continue to be subject to the higher FICO payments described above.
Management cannot predict the level of FDIC insurance  assessments on an ongoing
basis or whether the BIF and SAIF will eventually be merged.

Under the FDI Act,  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 Savings Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.

CREDIT RISK

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

RESULTS OF OPERATIONS

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

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

                                        9
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend  income of the Company from
interest-earning  assets and the resultant average yields; (ii) the total dollar
amount of interest  expense on  interest-bearing  liabilities  and the resultant
average costs; (iii) net  interest/dividend  income; (iv) interest-rate  spread;
(v) net interest margin;  and (vi) weighted average yields and rates at December
31,  1996.  Yields and costs were  derived by dividing  income or expense by the
average balance of assets or liabilities,  respectively,  for the periods shown.
The average balance of loans receivable  includes loans on which the Company has
discontinued  accruing  interest.  The yields and costs  include  fees which are
considered to constitute adjustments to yields.
<TABLE>
<CAPTION>
                                                           1996                        1995                        1994
                                                 -------------------------   ------------------------    -------------------------
                                    Yield At                      Average                     Average                      Average
                                   December 31,  Average           Yield/     Average          Yield/    Average            Yield/
                                      1996       Balance  Interest  Cost      Balance  Interest Cost     Balance   Interest  Cost
                                      ----       -------  --------  ----      -------  -------------     -------   --------  ----
                                                                             (Dollars in thousands)
<S>                                    <C>     <C>          <C>     <C>      <C>        <C>     <C>     <C>         <C>      <C>  
Interest-earning assets:
    Loans receivable                   8.20%   $ 201,840    16,813  8.33%    $ 163,961  13,817  8.43%   $ 132,165   10,988   8.31%
    Mortgage-backed securities         6.45       80,355     5,020  6.25       106,574   6,403  6.01      116,906    6,312   5.40
    Investment securities and other
       interest-earning assets (1)     6.19       39,745     2,385  6.00        37,138   2,273  6.12       43,343    2,180   5.03
                                               ---------    ------           ---------  ------          ---------   ------        

         Total interest-earning
            assets                     7.62      321,940    24,218  7.52       307,673  22,493  7.31      292,414   19,480   6.66
                                                            ------                      ------                      ------        

Noninterest-earning assets                        11,727                         9,107                      7,605
                                               ---------                     ---------                  ---------

         Total assets                          $ 333,667                     $ 316,780                  $ 300,019
                                               =========                     =========                  =========

Interest-bearing liabilities:
    NOW and money market
       accounts                        2.38       42,682       960  2.25        42,425     967  2.28       48,205    1,063   2.21
    Passbook and statement savings
       accounts                        2.74       24,218       629  2.60        26,802     721  2.69       29,472      745   2.53
    Certificates                       5.45      206,471    11,311  5.48       188,806  10,455  5.54      166,818    7,433   4.46
    FHLB advances                      7.17          150        11  7.33           150      11  7.33          150       11   7.33
    Securities sold under agreement
       to repurchase                   5.63          849        48  5.65           470      29  6.17          107        7   6.54
                                               ---------    ------           ---------  ------          ---------   ------        

         Total interest-bearing
           liabilities                 4.74      274,370    12,959  4.72       258,653  12,183  4.71      244,752    9,259   3.78
                                                            ------                      ------                      ------        
<PAGE>
<CAPTION>
                                                           1996                        1995                        1994
                                                 -------------------------   ------------------------    -------------------------
                                    Yield At                      Average                     Average                      Average
                                   December 31,  Average           Yield/     Average          Yield/    Average            Yield/
                                      1996       Balance  Interest  Cost      Balance  Interest Cost     Balance   Interest  Cost
                                      ----       -------  --------  ----      -------  -------------     -------   --------  ----
                                                                             (Dollars in thousands)
<S>                                    <C>     <C>          <C>     <C>      <C>        <C>     <C>     <C>         <C>      <C>  
Noninterest-bearing liabilities                    3,836                         2,812                      2,851
Stockholders' equity                              55,461                        55,315                     52,416
                                               ---------                     ---------                  ---------

         Total liabilities and equity          $ 333,667                     $ 316,780                  $ 300,019
                                               =========                     =========                  =========

Net interest-earning assets and
    interest rate spread (2)           2.87%   $  47,570            2.80%    $  49,020          2.60%   $  47,662            2.88%
                                      =====    =========            ====     =========          ====    =========            ==== 


Net interest income and net
    margin (3)                                            $ 11,259  3.50%             $ 10,310  3.35%             $ 10,221   3.50%
                                                          ========  ====              ========  ====              ========   ==== 
Ratio of interest-earning assets
    to interest-bearing liabilities                1.17                          1.19                       1.19
                                                  =====                          ====                       ====



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

(2)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the  average  cost  of  interest-   bearing
     liabilities.

(3)  Net   interest   margin  is  net   interest   income   divided  by  average
     interest-earning assets.
</TABLE>

                                       10
<PAGE>
The following  table discloses the extent to which changes in interest rates and
changes  in  the  volume  of   interest-earning   assets  and   interest-bearing
liabilities  have affected the Company's  interest  income and interest  expense
during the periods  indicated.  Information  is provided in each  category  with
respect to (i)  changes  attributable  to changes in volume  (changes  in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate  multiplied by prior volume),  (iii) changes  attributable to changes in
rate/volume  (changes in rate multiplied by changes in volume), and (iv) the net
change. The changes  attributable to the combined impact of volume and rate have
been allocated  proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
                                                               Year Ended December 31,               Year Ended December 31,
                                                                  1996 vs. 1995                           1995 vs. 1994
                                                                Increase (Decrease)                    Increase (Decrease)
                                                       ------------------------------------    ------------------------------------
                                                                     Due to                                   Due to
                                                       ------------------------------------    ------------------------------------
                                                                           Rate/                                   Rate/
                                                        Rate     Volume    Volume     Net       Rate     Volume    Volume     Net
                                                       ------    ------    ------    ------    ------    ------    ------    ------
                                                                                  (Dollars in thousands)
<S>                                                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>  
Interest-earning assets:
    Loan receivable, net ...........................   $ (164)    3,193       (33)    2,996       159     2,642        28     2,829
    Mortgage-backed securities .....................      253    (1,576)      (60)   (1,383)      713      (558)      (64)       91
    Investment securities
        and other interest-earning
        assets (1) .................................      (44)      159        (3)      112       472      (312)      (67)       93
                                                       ------    ------    ------    ------    ------    ------    ------    ------

           Total ...................................       45     1,776       (96)    1,725     1,344     1,772      (103)    3,013
                                                       ------    ------    ------    ------    ------    ------    ------    ------

Interest-bearing liabilities:
    NOW and money market accounts ..................      (13)        6      --          (7)       34      (128)       (2)      (96)
    Passbook and
        statement savings accounts .................      (25)      (69)        2       (92)       47       (67)       (4)      (24)
    Certificates ...................................     (117)      979        (6)      856     1,801       981       240     3,022
    FHLB advances ..................................     --        --        --        --        --        --        --        --
    Securities sold under agreement
        to repurchase ..............................       (2)       23        (2)       19        (1)       24        (1)       22
                                                       ------    ------    ------    ------    ------    ------    ------    ------

           Total ...................................     (157)      939        (6)      776     1,881       810       233     2,924
                                                       ------    ------    ------    ------    ------    ------    ------    ------

Net change in net interest
    income .........................................   $  202       837       (90)      949      (537)      962      (336)       89
                                                       ======    ======    ======    ======    ======    ======    ======    ======


(1) Includes interest-bearing deposits and FHLB Stock.
</TABLE>

                                       11
<PAGE>
LIQUIDITY AND CAPITAL  RESOURCES

The Savings  Bank is required to  maintain  minimum  levels of liquid  assets as
defined  by  OTS  regulations.  That  requirement,   which  varies  periodically
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and  short-term  borrowings.  The current  required ratio is 5%. The
Savings Bank  historically  has maintained a level of liquid assets in excess of
the regulatory requirement.  Liquid assets consist of cash, cash equivalents and
short- and  intermediate-term  U.S. Government and government agency securities.
The maintenance of liquid assets allows for the possibility of disintermediation
when interest rates  fluctuate.  The Savings Bank's  liquidity ratios were 13.5%
and 13.8% at December 31, 1996 and December 31, 1995, respectively.

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

At December 31, 1996, the Savings Bank had outstanding  commitments to originate
$4.4 million of loans and to fund the undisbursed portion of loans in process of
$8.0  million.  The Savings Bank  believes  that it will have  sufficient  funds
available to meet its commitments. At December 31, 1996, certificates of deposit
which  were  scheduled  to mature in one year or less  totaled  $135.6  million.
Management  believes,  based on past experience,  that a significant  portion of
these funds will remain with the Savings Bank.

REGULATORY  CAPITAL  REQUIREMENTS

As a federally-chartered  financial institution, the Savings Bank is required to
maintain certain minimum amounts of regulatory  capital.  Regulatory  capital is
not a valuation  allowance and has not been created by charges against earnings.
The following table is a summary of the capital requirements, the Savings Bank's
regulatory capital and the amounts in excess at December 31, 1996:
<TABLE>
<CAPTION>
                                                        Tangible                  Core                  Risk-Based
                                                    -----------------     ---------------------     ------------------
                                                               % of                      % of               % of Risk-
                                                             Adjusted                 Adjusted               Weighted
                                                     Amount    Assets        Amount     Assets        Amount   Assets
                                                     ------    ------        ------     ------        ------   ------
                                                                          (Dollars in thousands)
<S>                                                 <C>        <C>         <C>          <C>         <C>        <C>   
      Regulatory capital.......................     $ 41,651   12.02%      $ 41,651     12.02%      $ 42,714   26.96%
      Requirement..............................        5,198    1.50         10,395      3.00         12,676    8.00
                                                    --------   -----       --------      ----       --------   ----- 

      Excess...................................     $ 36,453   10.52%      $ 31,256      9.02%      $ 30,038   18.96%
                                                    ========   =====       ========      ====       ========   ===== 
</TABLE>

                                                          12
<PAGE>
ASSET /LIABILITY MANAGEMENT

The Savings  Bank's  primary  mission is to provide  home  ownership by offering
permanent and construction residential mortgage loans and consumer financing and
by  providing  conveniently  located  depository  facilities  with  transaction,
savings and certificate accounts. The Savings Bank's goal is to continue to be a
well-capitalized   and  profitable  operation  that  provides  service  that  is
professional,  efficient  and  courteous.  The Savings Bank seeks to fulfill its
mission and  accomplish  its goals by pursuing  the  following  strategies:  (i)
emphasizing lending in the one-to-four-family  residential mortgage market; (ii)
controlling interest-rate risk; (iii) managing deposit pricing and asset growth;
(iv) emphasizing cost control; and (v) maintaining asset quality by investing in
mortgage-backed  securities which, in management's  judgment,  provide a balance
between  yield  and  safety  in  a  home  mortgage  related  investment.  It  is
management's   intention  to  continue  to  employ  these  strategies  over  the
foreseeable future.

The Savings Bank's profitability,  like that of most financial institutions,  is
dependent  to a  large  extent  upon  its  net  interest  income,  which  is the
difference  between its  interest  income on  interest-earning  assets,  such as
loans,  mortgage-backed  securities and investment securities,  and its interest
expense on interest-bearing  liabilities, such as deposits and other borrowings.
Financial  institutions  continue to be affected by general changes in levels of
interest rates and other economic factors beyond their control.  At December 31,
1996, the Savings  Bank's  one-year  interest  sensitivity  gap (the  difference
between the amount of  interest-earning  assets anticipated by the Savings Bank,
based on  certain  assumptions,  to mature or  reprice  within  one year and the
amount of interest-bearing liabilities anticipated by the Savings Bank, based on
certain  assumptions,  to mature or reprice  within one year) as a percentage of
total assets was a positive 5.64%. Generally, an institution with a positive gap
would  experience  an  increase  in net  interest  income  in a period of rising
interest rates.  However,  certain  shortcomings are inherent in the sensitivity
analysis  presented above. For example,  although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
manners to changes in market  interest  rates.  Therefore,  no assurance  can be
given  that the  Savings  Bank will be able to  maintain  its net  interest-rate
spread as market interest rates fluctuate.

The Savings Bank  monitors its  interest  rate risk through the  Asset/Liability
Committee  which  meets  weekly  and  reports  the  results  of such  monitoring
quarterly to the Board of  Directors.  The Savings  Bank's  policy is to seek to
maintain  a  balance  between   interest-earning   assets  and  interest-bearing
liabilities so that the Savings Bank's cumulative one-year gap ratio is within a
range  which  management  believes is  conducive  to  maintaining  profitability
without incurring undue risk. Considering the current interest rate environment,
the Savings Bank has increased its  investment  in  adjustable-rate  and shorter
average life,  fixed-rate  mortgage-related  securities and, generally,  has not
retained in its portfolio 30 year fixed-rate  loans, in order to position itself
against  the  consequences  of rising  interest  rates.  The  Savings  Bank also
maintains  liquid assets in excess of the regulatory  requirement,  allowing for
the possibility of disintermediation when interest rates fluctuate.  The Savings
Bank's  liquidity  ratio of 13.5% at December 31, 1996 is  significantly  higher
than the  regulatory  requirement  of 5%. In addition,  the Savings Bank's large
stable core deposit base  resulting  from its  continuing  commitment to quality
customer service has historically provided it with a steady source of funds.

                                       13
<PAGE>
The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing  liabilities outstanding at December 31, 1996 that are expected
to reprice or mature,  based  upon  certain  assumptions,  in each of the future
periods shown. (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                               More       More        More      More       More
                                               than       than        than      than       than
                                               Three      Six         One       Three      Five       More
                                   Three       Months    Months      Year       Years      Years      than
                                   Months      to Six    to 12       to 3       to 5       to 10      Ten
                                  or Less      Months    Months      Years      Years      Years      Years   Other (1)    Total
                                  --------     ------    -------    ------      ------     -----      -----   ---------   ------
<S>                               <C>          <C>       <C>        <C>         <C>       <C>         <C>      <C>       <C>    
Rate-sensitive assets:
    Mortgage loans, net           $ 44,526     23,518     32,163     76,240     12,947    11,669      5,960       (691)  206,332
    Consumer and other loans         3,226      1,891      3,108      7,282      3,714     2,641         29       (275)   21,616
    Mortgage-backed securities
       and related securities
       and mortgage-backed
       and related securities
       held for sale, net           35,196     15,531     8,964       4,556        842       705        143       (201)   65,736
    Interest-earning deposits        4,077        --        --          --         --        --         --         --      4,077
    Investment securities and
       investment securities
       held for sale.............    5,231        -          -       17,450      1,000        85        205       (59)    23,912
    Mutual funds.................      103      7,187        -        1,745        -         -          -        (115)     8,920
    FHLB stock...................    1,939        -          -          -          -         -          -          -       1,939
                                  --------     ------    -------    ------      ------     -----      -----    ------     ------

         Total interest-earning
            assets...............   94,298     48,127     44,235    107,273     18,503    15,100      6,337    (1,341)   332,532
                                  --------     ------    -------    ------      ------     -----      -----    ------     ------

Rate-sensitive liabilities:
    Deposits:
       Passbook and statement
         savings.................    2,610      2,363      4,072     10,122      4,544     3,201        500        -      27,412
       NOW accounts..............    2,652      2,401      4,136     10,283      4,616     3,252        508        -      27,848
       Money market..............    1,473      1,333      2,296      5,708      2,562     1,805        281        -      15,458
       Certificates..............   41,956     44,482     49,141     64,578     11,789       -          -          -     211,946
    Borrowed funds...............      -        3,198      5,000        -          -         -          -          -       8,198
                                  --------     ------    -------    ------      ------     -----      -----    ------     ------

         Total interest-bearing
            liabilities..........   48,691     53,776     64,646     90,691     23,511     8,258      1,289        -     290,862
                                  --------     ------    -------    ------      ------     -----      -----    ------     ------


<PAGE>

<CAPTION>
                                               More       More        More      More       More
                                               than       than        than      than       than
                                               Three      Six         One       Three      Five       More
                                   Three       Months    Months      Year       Years      Years      than
                                   Months      to Six    to 12       to 3       to 5       to 10      Ten
                                  or Less      Months    Months      Years      Years      Years      Years   Other (1)    Total
                                  --------     ------    -------    ------      ------     -----      -----   ---------   ------
<S>                               <C>          <C>       <C>        <C>         <C>       <C>         <C>      <C>       <C>    
Interest sensitivity gap......    $ 45,607     (5,649)   (20,411)   16,582      (5,008)    6,842      5,048    (1,341)    41,670
                                  ========    ======    =======     ======    ======       =====      =====    ======     ======

Cumulative interest-
    sensitivity gap.............. $ 45,607     39,958     19,547     36,130     31,121    37,963     43,011
                                  ========     ======     ======     ======     ======    ======     ======

Cumulative interest-sensitivity
    gap as a percentage of
    total assets.................   13.16%     11.53%      5.64%     10.43%      8.98%    10.96%     12.42%
                                    =====      =====       ====      =====       ====     =====      ===== 

Cumulative interest-earning assets
    as a percentage of cumulative
    interest-bearing liabilities   193.67%    139.00%    111.70%   114.01%    111.06%    113.11%   114.79%
                                   ======     ======     ======    ======     ======     ======    ====== 

--------------------------
(1)  Represents premiums,  discounts, market value adjustments and provision for
     loan losses.
</TABLE>

                                       14
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1995

General Operating Results.  Net income for the year ended December 31, 1996, was
    $2.2  million or $.85 per share,  compared  to net income for the year ended
    December  31, 1995 of $3.1  million or $1.16 per share.  The decrease in net
    income  was  primarily  the  result  of  the  effect  of the  one-time  SAIF
    assessment of $1.7 million before taxes,  included in  noninterest  expense,
    partially  offset by an increase of $949,000 in net interest  income  before
    provision for loan losses.

Interest Income.  Interest  income  increased  $1.7 million,  or 7.7% from $22.5
    million for the year ended  December 31, 1995 to $24.2  million for the year
    ended  December 31, 1996. The increase was due to an increase in the average
    balance of total  interest-earning  assets from $307.7  million for the year
    ended  December 31, 1995 to $321.9  million for the year ended  December 31,
    1996, an increase of $14.2  million,  or 4.6%,  primarily as a result of new
    branch  openings,  and an increase in the average yield on  interest-earning
    assets from 7.31% for the year ended December 31, 1995 to 7.52% for the year
    ended  December 31, 1996.  The yield on loans  decreased  from 8.43% for the
    year ended  December 31, 1995 to 8.33% for the year ended December 31, 1996.
    The yield on  mortgage-backed  securities  increased from 6.01% for the year
    ended  December 31, 1995 to 6.25% for the year ended  December 31, 1996. The
    yield on investment  securities and other interest  earning assets decreased
    from 6.12% for the year ended  December 31, 1995 to 6.00% for the year ended
    December 31, 1996.

Interest  Expense.  Interest  expense  increased  $776,000 from $12.2 million at
    December 31, 1995 to $13.0  million at December  31,  1996,  as the weighted
    average  rate paid on  interest-bearing  liabilities  increased  from  4.71%
    during 1995 to 4.72% in 1996.

Net Interest Income Before Provision for Loan Losses. Net interest income before
    provision for loan losses increased  $949,000 or 9.2% from $10.3 million for
    the year ended December 31, 1995 to $11.3 million for the comparable  period
    ended December 31, 1996.

Provision  for Loan  Losses.  The  Savings  Bank's  provision  for  loan  losses
    decreased from $124,000 for the year ended December 31, 1995 to $107,000 for
    the year ended  December  31,  1996.  The  decrease of $17,000  reflects the
    Savings Bank's continuing policy of evaluating the adequacy of its allowance
    for loan  losses  and  prevailing  standards  within  the  thrift  industry.
    Generally,   such  evaluation   includes   consideration  of  the  level  of
    nonperforming loans and the level and composition of the Savings Bank's loan
    portfolio.

Noninterest  Income.  Noninterest  income  increased  from $709,000 for the year
    ended  December 31, 1995 to $809,000  for the year ended  December 31, 1996.
    The  increase  was due to an increase in other  service  charges and fees of
    $93,000, and deposit account fees of $12,000 for the year ended December 31,
    1996.
<PAGE>

Noninterest  Expense.  Noninterest  expense  consists  primarily of salaries and
    employee  benefits,   occupancy  expense  and  deposit  insurance  premiums.
    Noninterest  expense  increased $2.4 million for the year ended December 31,
    1996 compared to 1995.  That increase was primarily due to the one-time SAIF
    recapitalization  expense of $1.7  million and  increases  in  salaries  and
    employee benefits of $356,000 and occupancy expense of $233,000,  due to the
    opening of two new branches.  The  remaining  items in  noninterest  expense
    increased $136,000 for the year ended December 31, 1996 compared to the year
    ended December 31, 1995 primarily due to the growth of the Company.

Provision for Income  Taxes.  The  provision  for federal and state income taxes
    decreased  from $1.9  million for the year ended  December  31, 1995 to $1.5
    million  for the year  ended  December  31,  1996.  The  effective  tax rate
    decreased  from 38.4% for the year ended  December 31, 1995 to 40.4% for the
    year ended December 31, 1996.






                                       15

<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994

General Operating Results.  Net income for the year ended December 31, 1995, was
    $3.1  million or $1.16 per share,  compared to net income for the year ended
    December  31, 1994 of $3.6  million or $1.35 per share.  The decrease in net
    income was due to an increase in noninterest  expense of $662,000  partially
    offset by an increase of $89,000 in net interest income before provision for
    loan losses.

Interest Income.  Interest  income  increased $3.0 million,  or 15.5% from $19.5
    million for the year ended  December 31, 1994 to $22.5  million for the year
    ended  December 31, 1995.  The increase was due  primarily to an increase in
    the average balance of total interest-earning assets from $292.4 million for
    the year  ended  December  31,  1994 to $307.7  million  for the year  ended
    December 31, 1995, an increase of $15.3 million,  or 5.2%.  That increase is
    primarily  the result of new branch  openings and an increase in the average
    yield on interest-earning  assets from 6.66% for the year ended December 31,
    1994 to 7.31% for the year  ended  December  31,  1995.  The 65 basis  point
    increase represented a 9.8% increase and was primarily due to an increase in
    interest rates on loans and mortgage-backed  securities.  The yield on loans
    increased  from 8.31% for the year ended  December 31, 1994 to 8.43% for the
    year  ended  December  31,  1995.  The yield on  mortgage-backed  securities
    increased  from 5.40% for the year ended  December 31, 1994 to 6.01% for the
    year ended  December 31, 1995 because of increases in the rates at which new
    loans  were  originated  and  existing  ARM  loans  repriced.  The  yield on
    investment securities and other interest earning assets increased from 5.03%
    for the year ended  December  31, 1994 to 6.12% for the year ended  December
    31, 1995.

Interest Expense.  Interest expense  increased $2.9 million from $9.3 million at
    December  31,  1994 to $12.2  million at December  31, 1995 as the  weighted
    average  rate paid on  interest-bearing  liabilities  increased  from  3.78%
    during 1994 to 4.71% in 1995.

Net Interest Income Before Provision for Loan Losses. Net interest income before
    provision for loan losses  increased  $89,000 or .87% from $10.2 million for
    the year ended December 31, 1994 to $10.3 million for the comparable  period
    ended December 31, 1995.

Provision  for Loan  Losses.  The  Savings  Bank's  provision  for  loan  losses
    decreased from $138,000 for the year ended December 31, 1994 to $125,000 for
    the year ended  December  31,  1995.  The  decrease of $13,000  reflects the
    Savings Bank's continuing policy of evaluating the adequacy of its allowance
    for loan  losses  and  prevailing  standards  within  the  thrift  industry.
    Generally,   such  evaluation   includes   consideration  of  the  level  of
    nonperforming loans and the level and composition of the Savings Bank's loan
    portfolio.

Noninterest  Income.  Noninterest  income  increased  from $647,000 for the year
    ended  December 31, 1994 to $709,000  for the year ended  December 31, 1995.
    The  increase  was due to an increase in other  service  charges and fees of
    $55,000, and deposit account fees of $26,000 for the year ended December 31,
    1995 as compared to 1994,  partially  offset by a gain on sale of investment
    securities  available-for-sale of $27,000 during the year ended December 31,
    1994 compared to none during the year ended December 31, 1995.
<PAGE>

Noninterest  Expense.   Noninterest   expenses  consist  primarily  of  employee
    compensation  and  benefits,   occupancy  and  equipment  expense  and  FDIC
    insurance  premiums.  Noninterest  expenses  increased $662,000 for the year
    ended December 31, 1995 compared to 1994.  Compensation and benefits expense
    increased  from $3.0  million for the year ended  December  31, 1994 to $3.4
    million  for the year ended  December  31,  1995,  primarily  related to the
    growth of the Company and normal salary  increases.  The remaining  items in
    noninterest expenses increased $238,000 for the year ended December 31, 1995
    compared to the year ended  December 31, 1994 primarily due to the growth of
    the Company.

Provision for Income  Taxes.  The  provision  for federal and state income taxes
    remained  substantially  the same and was $1.9  million  for the years ended
    December 31, 1994 and December 31, 1995.  The effective  tax rate  increased
    from 35.3% for the year ended  December 31, 1994 to 38.4% for the year ended
    December 31, 1995.




                                       16

<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES

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

FUTURE ACCOUNTING REQUIREMENTS

The FASB has issued Statement of Financial  Accounting  Standards No. 125 ("SFAS
125"). The statement provides  accounting and reporting  standards for transfers
and servicing of financial assets as well as extinguishments of liabilities. The
statement also provides  consistent  standards for  distinguishing  transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
125 is effective  for  transfers  and  servicing of financial  assets as well as
extinguishments of liabilities occurring in 1997. Management does not anticipate
SFAS 125 will have a material impact on the Company.














                                       17

<PAGE>
                               FFLC BANCORP, INC.
  (Parent Company of First Federal Savings Bank of Lake County and Subsidiary)
                                Leesburg, Florida


                    Audited Consolidated Financial Statements
                           December 31, 1996 and 1995
                        and for each of the Years in the
                       Three Years Ended December 31, 1996


                  (Together with Independent Auditors' Report)
<PAGE>
<TABLE>
<CAPTION>
                                                   FFLC BANCORP, INC.

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

                                                                                                         December 31,
                                                                                                     1996           1995
                                                                                                   ---------      -------
<S>                                                                                                <C>            <C>    
            Assets

Cash and due from banks ........................................................................   $   6,080        5,005
Interest-bearing deposits ......................................................................       4,077        8,924
                                                                                                   ---------      -------
            Cash and cash equivalents ..........................................................      10,157       13,929
                                                                                                   ---------      -------
Investment securities held to maturity, at cost
    (market value of $3,271 in 1996 and $3,472 in 1995) ........................................       3,239        3,441
Investment securities available for sale, at market ............................................      29,593       21,824
Mortgage-backed and related securities held to maturity, at cost (market value
    of $47,396 in 1996 and $75,257 in 1995) ....................................................      46,892       74,925
Mortgage-backed and related securities available for sale, at market ...........................      18,844       18,958
Loans receivable, net of allowance for loan losses of $1,063 in 1996
    and $977 in 1995 ...........................................................................     227,948      183,448
Accrued interest receivable:
    Investment securities ......................................................................         577          643
    Mortgage-backed securities .................................................................         243          291
    Loans receivable ...........................................................................       1,199        1,012
Premises and equipment, net ....................................................................       5,144        4,817
Foreclosed real estate .........................................................................         361          165
Real estate held for development ...............................................................         122          122
Restricted securities - Federal Home Loan Bank stock, at cost...................................       1,939        1,928
Other assets ...................................................................................         184          329
                                                                                                   ---------      -------
            Total ..............................................................................   $ 346,442      325,832
                                                                                                   =========      =======
<PAGE>
<CAPTION>
                                                   FFLC BANCORP, INC.

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

                                                                                                         December 31,
                                                                                                     1996           1995
                                                                                                   ---------      -------
<S>                                                                                                <C>            <C>    
            Liabilities and Stockholders' Equity

Liabilities:
    NOW and money market accounts ..............................................................      43,306       40,755
    Passbook and statement savings accounts ....................................................      27,412       26,811
    Certificates ...............................................................................     211,946      200,137
                                                                                                   ---------      -------
            Total deposits .....................................................................     282,664      267,703
                                                                                                   ---------      -------
Advances from Federal Home Loan Bank ...........................................................         150          150
Securities sold under agreements to repurchase .................................................       8,048         --
Deferred income taxes ..........................................................................         930        1,105
Accrued expenses and other liabilities .........................................................       1,024        1,514
                                                                                                   ---------      -------
            Total liabilities ..................................................................     292,816      270,472
                                                                                                   ---------      -------
Commitments and contingencies (Notes 5, 10 and 13)

Stockholders' equity:
    Preferred stock, $.01 par value, 1,000,000 shares authorized,
        none outstanding .......................................................................        --           --
    Common stock, $.01 par value, 4,500,000 shares authorized,
        2,761,819 shares issued ................................................................          28           28
    Additional paid-in-capital .................................................................      27,386       27,041
    Retained income ............................................................................      33,962       32,704
    Unrealized loss on securities available for sale, net of tax of
        $116 in 1996 and $57 in 1995 ...........................................................        (193)         (94)
    Treasury stock, at cost (339,656 shares in 1996 and
        132,044 shares in 1995) ................................................................      (6,295)      (2,373)
    Stock held by Incentive Plan Trusts ........................................................      (1,262)      (1,946)
                                                                                                   ---------      -------
            Total stockholders' equity .........................................................      53,626       55,360
                                                                                                   ---------      -------
            Total ..............................................................................   $ 346,442      325,832
                                                                                                   =========      =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                       18
<PAGE>
<TABLE>
<CAPTION>
                               FFLC BANCORP, INC.

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

                                                                  Year Ended December 31,
                                                              1996         1995         1994
                                                           ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>      
Interest income:
    Loans receivable ..................................   $   16,813       13,817       10,988
    Mortgage-backed securities ........................        5,020        6,403        6,312
    Investment securities and time deposits ...........        2,385        2,273        2,180
                                                          ----------    ---------    ---------
        Total interest income .........................       24,218       22,493       19,480
                                                          ----------    ---------    ---------
Interest expense:
    Deposits ..........................................       12,900       12,143        9,241
    Borrowed funds ....................................           59           40           18
                                                          ----------    ---------    ---------
        Total interest expense ........................       12,959       12,183        9,259
                                                          ----------    ---------    ---------
Net interest income ...................................       11,259       10,310       10,221

Provision for loan losses .............................          107          124          138
                                                          ----------    ---------    ---------
    Net interest income after provision for loan losses       11,152       10,186       10,083
                                                          ----------    ---------    ---------
Noninterest income:
    Deposit account fees ..............................          489          477          451
    Other service charges and fees ....................          266          173          119
    Gain on sale of securities available for sale .....         --           --             27
    Other .............................................           54           59           50
                                                          ----------    ---------    ---------
        Total noninterest income ......................          809          709          647
                                                          ----------    ---------    ---------
Noninterest expense:
    Salaries and employee benefits ....................        3,740        3,384        2,960
    Occupancy expense .................................          812          579          527
    Deposit insurance premium .........................          624          579          553
    SAIF recapitalization assessment ..................        1,655         --           --
    Advertising and promotion .........................          122          120          123
    Data processing expense ...........................          384          322          290
    Professional services .............................          270          259          230
    Other .............................................          692          631          529
                                                          ----------    ---------    ---------
        Total noninterest expense .....................        8,299        5,874        5,212
                                                          ----------    ---------    ---------

<PAGE>
<CAPTION>
                               FFLC BANCORP, INC.

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

                                                                  Year Ended December 31,
                                                              1996         1995         1994
                                                           ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>      
Income before income taxes ............................        3,662        5,021        5,518
                                                           
Income taxes ..........................................        1,478        1,928        1,948
                                                          ----------    ---------    ---------
Net income ............................................   $    2,184        3,093        3,570
                                                          ==========    =========    =========
Net income per share of common stock ..................   $      .85         1.16         1.35
                                                          ==========    =========    =========
Weighted average number of shares outstanding .........    2,560,795    2,656,529    2,645,829
                                                          ==========    =========    =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                         FFLC BANCORP, INC.

                                           Consolidated Statements of Stockholders' Equity
                                             ($ in thousands, except per share amounts)

                                                                                                            Stock
                                                                          Unrealized                         Held
                                                          Retained          Loss on                           By
                                           Additional      Income,        Securities                       Incentive       Total
                               Common       Paid-In    Substantially      Available        Treasury          Plan      Stockholders'
                               Stock        Capital      Restricted        For Sale          Stock          Trusts         Equity
                               -----        -------      ----------        --------          -----          ------         ------
<S>                           <C>           <C>          <C>               <C>             <C>             <C>          <C>
Balance at December 31,
     1993 .................   $    -             -            27,259            (14)            -               -            27,245

Net proceeds from the
     issuance of 2,761,819
     shares of common
     stock ................        28          26,563           -               -               -               -            26,591

Purchase of 331,418
     shares of common
     stock by incentive
     plans ................        -             -              -               -               -            (3,314)         (3,314)

Shares committed to
     participants in
     incentive plans
     (194,216 shares
     remain uncommitted
     at December 31,
     1994) ................        -              161           -               -               -                684            845

Dividends paid, net of
     $40 of dividends
     on ESOP shares recorded
     as compensation
     expense ..............        -             -             (457)            -               -               -              (457)

Net income ................        -             -             3,570            -               -               -             3,570

Unrealized gains on
     investment and mortgage-
     backed securities
     available for sale, net
     of income taxes of $172
     upon implementation of
     SFAS No. 115 as of
     January 1, 1994 ......        -             -                -            276              -               -               276

                                                                                                                         (continued)

                                                                 20
<PAGE>
<CAPTION>
                                                         FFLC BANCORP, INC.

                                     Consolidated Statements of Stockholders' Equity, Continued
                                             ($ in thousands, except per share amounts)

                                                                                                            Stock
                                                                          Unrealized                         Held
                                                          Retained          Loss on                           By
                                           Additional      Income,        Securities                       Incentive       Total
                               Common       Paid-In    Substantially      Available        Treasury          Plan      Stockholders'
                               Stock        Capital      Restricted        For Sale          Stock          Trusts         Equity
                               -----        -------      ----------        --------          -----          ------         ------
<S>                           <C>           <C>          <C>               <C>             <C>             <C>          <C>
Change in unrealized gains
     (losses) on investment
     and mortgage-backed
     securities available
     for sale, net of income
     taxes of $613                -             -                -            (994)             -               -              (994)
                              ------        --------     ----------        -------         -------         -------      -----------
Balance at December 31,
     1994                         28          26,724         30,372           (732)            -            (2,630)          53,762

Net proceeds from the
     issuance of 7,581
     shares of common
     stock...............     $    -               76           -               -               -               -                 76

Shares committed to
     participants in
     incentive plans
     (164,980 shares
     remain uncommitted
     at December 31,
     1995)...............          -              241           -               -               -                684             925

Dividends paid, net of
     $56 of dividends
     on ESOP shares
     recorded as
     compensation
     expense.............          -             -             (761)            -               -               -              (761)

Purchase of treasury
     stock, 132,044
     shares..............          -             -              -               -            (2,373)            -            (2,373)

Net income...............          -             -             3,093            -               -               -              3,093

                                                                                                                         (continued)
                                                                 21

<PAGE>
<CAPTION>
                                                         FFLC BANCORP, INC.

                                     Consolidated Statements of Stockholders' Equity, Continued
                                             ($ in thousands, except per share amounts)

                                                                                                            Stock
                                                                          Unrealized                         Held
                                                          Retained          Loss on                           By
                                           Additional      Income,        Securities                       Incentive       Total
                               Common       Paid-In    Substantially      Available        Treasury          Plan      Stockholders'
                               Stock        Capital      Restricted        For Sale          Stock          Trusts         Equity
                               -----        -------      ----------        --------          -----          ------         ------
<S>                           <C>           <C>          <C>               <C>             <C>             <C>          <C>
Change in unrealized
     gains (losses) on
     investment and
     mortgage-backed
     securities available
     for sale, net of
     income taxes of
     $384................          -             -              -               638            -               -                638
                              -------      ----------     ----------        -------         -------         -------      -----------
Balance at December 31,
     1995................          28          27,041         32,704            (94)         (2,373)         (1,946)          55,360

Net proceeds from the
     issuance of 7,993
     shares of common
     stock...............         -                80            -               -               -               -                80

Shares committed to
     participants in
     incentive plans
     (130,217 shares
     remain uncommitted
     at December 31,
     1996)...............         -               265            -               -               -               684             949

Dividends paid, net of
     $60 of dividends
     on ESOP shares
     recorded as
     compensation
     expense.............         -               -            (926)             -               -               -             (926)

Purchase of treasury
     stock, 207,612
     shares..............         -               -              -               -           (3,922)             -           (3,922)

Net income...............         -               -            2,184             -               -               -             2,184

                                                                                                                         (continued)
<PAGE>
<CAPTION>
                                                         FFLC BANCORP, INC.

                                     Consolidated Statements of Stockholders' Equity, Continued
                                             ($ in thousands, except per share amounts)

                                                                                                            Stock
                                                                          Unrealized                         Held
                                                          Retained          Loss on                           By
                                           Additional      Income,        Securities                       Incentive       Total
                               Common       Paid-In    Substantially      Available        Treasury          Plan      Stockholders'
                               Stock        Capital      Restricted        For Sale          Stock          Trusts         Equity
                               -----        -------      ----------        --------          -----          ------         ------
<S>                           <C>           <C>          <C>               <C>             <C>             <C>          <C>
Change in unrealized
     gains (losses) on
     investment and
     mortgage-backed
     securities available
     for sale, net of
     income taxes of
     $59.................          -              -              -              (99)             -               -              (99)
                               ------       ---------    -----------       --------        --------        --------      ----------
Balance at December 31,
     1996................        $ 28          27,386         33,962           (193)         (6,295)         (1,262)          53,626
                               ======       =========    ===========       ========        ========        ========      ===========
</TABLE>



















See accompanying Notes to Consolidated Financial Statements.

                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                  FFLC BANCORP, INC.

                                         Consolidated Statements of Cash Flows
                                                   ($ in thousands)

                                                                                                     Year Ended December 31,
                                                                                               1996           1995           1994
                                                                                             --------       --------       --------
<S>                                                                                           <C>            <C>            <C>     
Cash flows from operating activities:
    Net income ........................................................................      $  2,184          3,093          3,570
    Adjustments to reconcile net income
        to net cash provided by operations:
            Provision for loan losses .................................................           107            124            138
            Depreciation ..............................................................           345            212            184
            Gain on sale of securities available for sale .............................          --             --              (27)
            Gain on sale of foreclosed real estate ....................................          --               (7)            (3)
            (Credit) provision for deferred income taxes ..............................          (116)           152           (265)
            Shares committed and dividends to incentive
                plan participants .....................................................         1,009            981            885
            Amortization of premiums or discounts
                on investment and mortgage-backed securities ..........................          (106)           (12)            66
            Accretion of deferred loan fees and unearned interest .....................           (18)           (96)          (251)
            Deferral of loan fees collected, net of costs deferred ....................           157             80            (85)
            Dividends on FHLB stock ...................................................           (11)          --              (24)
            Increase in accrued interest receivable ...................................           (73)          (181)          (217)
            Decrease (increase) in other assets .......................................           145           (112)           183
            (Decrease) increase in accrued expenses and other liabilities .............          (490)           125            640
                                                                                             --------       --------       --------
                    Net cash provided by operating activities .........................         3,133          4,359          4,794
                                                                                             --------       --------       --------
Cash flows from investing activities:
    Purchase of investment securities held to maturity ................................          --             (475)        (3,692)
    Proceeds from maturities of investment securities held to maturity ................           202            290          3,319
    Purchase of investment securities available for sale ..............................       (22,743)        (2,562)        (5,744)
    Proceeds from maturities of investment securities available for sale ..............        14,953          5,633          3,194
    Proceeds from sales of investment securities available for sale ...................          --             --            4,087
    Purchase of mortgage-backed securities held to maturity ...........................          --           (4,275)       (40,100)
    Principal repayments on mortgage-backed securities
        held to maturity ..............................................................        28,098         27,013         28,603
    Purchase of mortgage-backed securities available for sale .........................        (8,596)        (1,762)        (3,996)
    Principal repayments on mortgage-backed securities
        available for sale ............................................................         8,614          2,878          6,726
    Purchase of loans receivable ......................................................        (2,106)          --             --
    Proceeds from sale of loans receivable ............................................         1,557           --             --
    Loan disbursements ................................................................       (83,569)       (56,751)       (49,190)
    Principal repayments on loans .....................................................        39,106         21,302         23,274
    Purchase of premises and equipment, net ...........................................          (672)        (1,918)          (621)
    Proceeds from sales of foreclosed real estate .....................................            70            104             30
                                                                                             --------       --------       --------
                    Net cash used in investing activities .............................       (25,086)       (10,523)       (34,110)
                                                                                             --------       --------       --------

                                                                                                                         (continued)

                                       23
<PAGE>
                                                  FFLC BANCORP, INC.

                                   Consolidated Statements of Cash Flows, Continued
                                                   ($ in thousands)
                                                                                                     Year Ended December 31,
                                                                                               1996           1995           1994
                                                                                             --------       --------       --------
<S>                                                                                           <C>            <C>            <C>     
Cash flows from financing activities:
    Net increase (decrease) in noninterest-bearing demand, savings,
        NOW and money market accounts .................................................         3,152         (8,968)        (1,624)
    Net increase in certificate accounts ..............................................        11,809         24,920         12,375
    Net increase (decrease) in securities sold under agreements
        to repurchase .................................................................         8,048         (3,000)         3,000
    Net proceeds from the sale of common stock ........................................          --             --            1,442
    Stock options exercised ...........................................................            80             76           --
    Purchase of treasury stock ........................................................        (3,922)        (2,373)          --
    Cash dividends paid ...............................................................          (986)          (817)          (497)
                                                                                             --------       --------       --------
                Net cash provided by financing activities .............................        18,181          9,838         14,696
                                                                                             --------       --------       --------
Net (decrease) increase in cash and cash equivalents ..................................        (3,772)         3,674        (14,620)
Cash and cash equivalents at beginning of year ........................................        13,929         10,255         24,875
                                                                                             --------       --------       --------
Cash and cash equivalents at end of year ..............................................      $ 10,157         13,929         10,255
                                                                                             ========         ======         ======
Supplemental disclosures of cash flow information
    Cash paid during the year for:
        Interest ......................................................................      $ 12,937         12,082          9,253
                                                                                             ========         ======         ======
        Income taxes ..................................................................      $  1,500          2,009          2,252
                                                                                             ========         ======         ======
    Noncash investing and financing activities:
        (Decrease) increase in equity valuation allowance
            for market value of investments ...........................................      $    (99)           638           (718)
                                                                                             ========         ======         ======
        Common stock issued for subscriptions
            outstanding ...............................................................      $   --             --           21,834
                                                                                             ========         ======         ======
        Transfers from loans to foreclosed real estate ................................      $    287            478            232
                                                                                             ========         ======         ======
        Loans originated on sales of foreclosed real estate ...........................      $     21            300            193
                                                                                             ========         ======         ======
        Loans funded by and sold to correspondent .....................................      $  2,368          1,151          1,198
                                                                                             ========         ======         ======
        Transfer of investment and mortgage-backed
            securities to available-for-sale category, upon
            adoption of SFAS No. 115 ..................................................      $   --             --           16,852
                                                                                             ========         ======         ======
        Transfer of investment and mortgage-backed
            securities from held-to-maturity category
            to available-for-sale category, as permitted
            under SFAS No. 115 Implementation Guide ...................................      $   --           14,759           --
                                                                                             ========         ======         ======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                       24
<PAGE>
                               FFLC BANCORP, INC.

                   Notes to Consolidated Financial Statements
                        December 31, 1996, 1995 and 1994

(1)  Summary of Significant Accounting Policies
    FFLC Bancorp,  Inc. (the "Holding  Company") was incorporated in Delaware on
    September  16,  1993 as a unitary  savings  and loan  holding  company.  The
    Holding Company  completed its public offering of 2,761,819 shares of common
    stock on January 4, 1994 and  acquired  First  Federal  Savings Bank of Lake
    County (the "Savings Bank") in connection with the Savings Bank's conversion
    from   a    federally-chartered    mutual    savings    association   to   a
    federally-chartered stock savings bank. The Holding Company's acquisition of
    the Savings Bank was  accounted  for as a  pooling-of-interest.  The Savings
    Bank was  established  in 1934 as a  federally-chartered  mutual savings and
    loan  association.   The  Savings  Bank  is  a  community-oriented   savings
    institution which offers a variety of financial  services to individuals and
    businesses primarily located in Lake County and Sumter County,  Florida. The
    deposits of the Savings  Bank are insured by the Federal  Deposit  Insurance
    Corporation   ("FDIC")  through  the  Savings  Association   Insurance  Fund
    ("SAIF").

    Principles of Consolidation.  The consolidated  financial statements include
    the  accounts of the Holding  Company,  the  Savings  Bank,  and the Savings
    Bank's  wholly-owned  subsidiary,   Lake  County  Service  Corporation  (the
    "Service  Corporation").   All  significant  intercompany  transactions  and
    balances have been eliminated in consolidation.

    General. The accounting and reporting policies of FFLC Bancorp, Inc. and its
    subsidiaries  (together,   the  "Company")  conform  to  generally  accepted
    accounting  principles and to general  practices within the thrift industry.
    The following summarizes significant accounting policies of the Company.

    Estimates.  The  preparation  of financial  statements  in  conformity  with
    generally  accepted  accounting   principles  requires  management  to  make
    estimates  and  assumptions  that affect the reported  amounts of assets and
    liabilities and disclosure of contingent  assets and liabilities at the date
    of the  financial  statements  and the  reported  amounts  of  revenues  and
    expenses during the reporting period. Actual results could differ from those
    estimates.

    Cash  and  Cash  Equivalents.   For  the  purpose  of  presentation  in  the
    consolidated statements of cash flows, cash and cash equivalents are defined
    as those  amounts  included  in the  balance-sheet  caption  "cash  and cash
    equivalents."

    The Savings Bank is required to maintain  certain average  reserve  balances
    pursuant to regulations of the Federal Reserve Board. These balances must be
    maintained in the form of vault cash or  noninterest  bearing  deposits at a
    Federal Reserve Bank. The Savings Bank exceeded this requirement,  which was
    $680,000 and $550,000 at December 31, 1996 and 1995, respectively.

    Trading Securities.  Securities which are held principally for resale in the
    near term are  classified  as trading  and  carried  at their  fair  values.
    Unrealized gains and losses on trading  securities are included  immediately
    in income.
<PAGE>
    Securities  Held to  Maturity.  Securities  for  which the  Company  has the
    positive  intent  and  ability to hold to  maturity  are  reported  at cost,
    adjusted for premiums and discounts that are  recognized in interest  income
    using the interest method over the period to maturity.

    Securities  Available  for Sale.  Available-for-sale  securities  consist of
    securities  not  classified as trading  securities  nor as  held-to-maturity
    securities.







                                       25

<PAGE>
    Securities  Available  for Sale,  Continued.  Unrealized  holding  gains and
    losses, net of tax, on  available-for-sale  securities are reported as a net
    amount in a separate component of stockholders' equity until realized.

    Gains and losses on the sale of available-for-sale securities are determined
    using the specific identification method.

    Declines   in  the   fair   value   of   individual   held-to-maturity   and
    available-for-sale securities below their cost that are other than temporary
    have  resulted in  write-downs  of the  individual  securities to their fair
    value.  There were no such  write-downs  included  in  earnings  as realized
    losses during the three years ended December 31, 1996.

    Premiums and discounts are recognized in interest  income using the interest
    method over the period to maturity.

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

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

    The  accrual  of  interest  on  impaired  loans  is  discontinued  when,  in
    management's  opinion,  the borrower may be unable to meet  payments as they
    become  due.  When  interest  accrual is  discontinued,  all unpaid  accrued
    interest is reversed. Interest income is subsequently recognized only to the
    extent cash payments are received.

    The  allowance  for loan  losses is  increased  by  charges  to  income  and
    decreased  by  charge-offs  (net  of  recoveries).   Management's   periodic
    evaluation of the adequacy of the  allowance is based on the Company's  past
    loan loss  experience,  known and inherent risks in the  portfolio,  adverse
    situations  that may affect the borrower's  ability to repay,  the estimated
    value of any underlying collateral, and current economic conditions.

    Foreclosed Real Estate.  Real estate properties acquired through, or in lieu
    of, loan foreclosure are to be sold and are initially recorded at fair value
    at the date of foreclosure establishing a new cost basis. After foreclosure,
    valuations are  periodically  performed by management and the real estate is
    carried  at the lower of  carrying  amount or fair  value less cost to sell.
    Revenue and expenses from operations and changes in the valuation  allowance
    are included in the consolidated statements of income.

    Income Taxes. Deferred tax assets and liabilities are reflected at currently
    enacted income tax rates  applicable to the period in which the deferred tax
    assets or liabilities are expected to be realized or settled.  As changes in
    tax laws or rates are  enacted,  deferred  tax  assets and  liabilities  are
    adjusted through the provision for income taxes.

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

                                       26
<PAGE>
    Off-Balance  Sheet  Instruments.  In the ordinary  course of  business,  the
    Company  has  entered  into  off-balance-sheet   instruments  consisting  of
    commitments  to extend credit and  commitments  under lines of credit.  Such
    financial instruments are recorded in the financial statements when they are
    funded.

    Fair Values of Financial Instruments.  The following methods and assumptions
    were used by the Company in estimating fair values of financial instruments:

        Cash and Cash  Equivalents.  The carrying amounts of cash and short-term
        instruments approximate their fair value.

        Investment and  Mortgage-Backed  Securities.  Fair values for securities
        are based on quoted  market  prices.  If quoted  market  prices  are not
        available,  fair  value is based on quoted  market  prices  for  similar
        securities.

        Loans Receivable.  For variable-rate  loans that reprice  frequently and
        have no  significant  change in credit  risk,  fair  values are based on
        carrying  values.  Fair values for  certain  fixed-rate  mortgage  (e.g.
        one-to-four family  residential),  commercial real estate and commercial
        loans are estimated using discounted cash flow analyses,  using interest
        rates  currently being offered for loans with similar terms to borrowers
        of similar credit quality.

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

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

        Borrowed  Funds.  The carrying  amounts of borrowings  under  repurchase
        agreements   approximate  their  fair  values.   Fair  values  of  other
        borrowings are estimated  using  discounted  cash flow analysis based on
        the Company's current  incremental  borrowing rates for similar types of
        borrowing arrangements.

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

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


                                       27
<PAGE>
    Net Income Per Share of Common  Stock.  Net income per share of common stock
    has been computed  since the date of  conversion  from a mutual to a capital
    stock  company,  by  dividing  the net income  for the year by the  weighted
    average number of shares  outstanding.  Shares of common stock  purchased by
    the Employee  Stock Option Plan ("ESOP") and the  Retention and  Recognition
    Plan ("RRP")  incentive plans (see Note 17) are only considered  outstanding
    when the shares are released or committed to be released for  allocation  to
    participants.  The ESOP initially  purchased  220,945 shares, of which 2,630
    shares were released for allocation to participants  each month beginning in
    January,  1994. At December 31, 1996,  126,254 shares remain uncommitted and
    are not considered outstanding for purposes of the computation of net income
    per share of common stock. The RRP initially  purchased  110,473 shares,  of
    which 106,838 and 106,510 were allocated to participants  and are considered
    outstanding  for December  31, 1995 and 1996,  respectively.  The  remaining
    unallocated RRP shares were not considered outstanding during 1995 and 1996.
    For the year ended December 31, 1995 and 1996,  the weighted  average number
    of shares  outstanding  includes common stock equivalents (stock options-see
    Note 17) computed  using the treasury  stock  method.  The  following  table
    presents the calculation of net income per share of common stock:
<TABLE>
<CAPTION>
                                                                                                    Year Ended December 31,
                                                                                               1996           1995            1994
                                                                                             ---------      ---------      ---------
<S>                                                                                          <C>            <C>            <C>      
Weighted average shares of common stock issued
    and outstanding before adjustments for ESOP,
    RRP and common stock options ......................................................      2,590,500      2,719,435      2,761,819

Adjustment to reflect the effect of unallocated
    ESOP and RRP shares ...............................................................      (148,605)      (179,936)      (209,999)
                                                                                             ---------      ---------      ---------
Weighted average shares outstanding before adjustments
    for common stock options ..........................................................      2,441,895      2,539,499      2,551,820

Shares assumed outstanding to reflect the
    dilutive effect of common stock options ...........................................        118,900        116,760         94,009
                                                                                             ---------      ---------      ---------
Weighted average shares, including common
    stock equivalents for primary earnings per share ..................................      2,560,795      2,656,259      2,645,829
                                                                                             =========      =========      =========
Primary earnings per share ............................................................      $     .85           1.16           1.35
                                                                                             =========           ====           ====

Total weighted average common shares and equivalents
    outstanding for primary earnings per share
    computation .......................................................................      2,560,795      2,656,259      2,645,829

Additional  dilutive  shares  using the  higher of the end of period
    market  value  versus average  market  value  for  the  period
    utilizing the treasury stock method regarding stock options .......................         20,495          8,588           --
                                                                                             ---------      ---------      ---------
Weighted average common shares and equivalents
    outstanding for fully diluted earnings per share ..................................      2,581,290      2,664,847      2,645,829
                                                                                             =========      =========      =========
Fully-diluted earnings per share ......................................................      $     .85           1.16           1.35
                                                                                             =========           ====           ====
</TABLE>

                                       28
<PAGE>
    Future Accounting  Requirements.  The FASB has issued Statement of Financial
    Accounting   Standards  No.  125  ("SFAS  125").  This  Statement   provides
    accounting and reporting  standards for transfers and servicing of financial
    assets  as well as  extinguishments  of  liabilities.  This  Statement  also
    provides  consistent  standards  for  distinguishing  transfers of financial
    assets that are sales from transfers that are secured  borrowings.  SFAS 125
    is effective  for  transfers  and  servicing of financial  assets as well as
    extinguishments  of  liabilities  occurring  in  1997.  Management  does not
    anticipate SFAS 125 will have a material impact on the Company.

    Reclassifications.  Certain  amounts  in  the  1994  and  1995  consolidated
    financial  statements have been  reclassified to conform to the presentation
    for 1996.

(2) Investment Securities
    Investment  securities  have been  classified  in the  consolidated  balance
    sheets according to management's  intent. The carrying amounts of securities
    and their approximate fair values at December 31, were as follows:
<TABLE>
<CAPTION>
                                                                                          Gross             Gross
                                                                       Amortized        Unrealized        Unrealized           Fair
                                                                         Cost             Gains            Losses             Value
                                                                       -------           -------           -------           -------
                                                                                              (In thousands)
<S>                                                                    <C>              <C>                <C>               <C>
At December 31, 1996:
Investment securities held to maturity-
    SBA-related investment securities ......................           $ 3,239                32              --               3,271
                                                                       =======           =======           =======           =======
Investment securities available for sale:
    Mutual funds ...........................................             9,035              --                 115             8,920
    U.S. Government and agency securities ..................            20,208                 2                34            20,176
    Other investment securities ............................               495                 3                 1               497
                                                                       -------           -------           -------           -------

        Total ..............................................           $29,738                 5               150            29,593
                                                                       =======           =======           =======           =======

At December 31, 1995:
Investment securities held to maturity-
    SBA-related investment securities ......................             3,441                31              --               3,472
                                                                       =======           =======           =======           =======

Investment securities available for sale:
    Mutual funds ...........................................             8,939              --                  39             8,900
    U.S. Government and agency securities ..................            11,475                55               138            11,392
    Other investment securities ............................             1,523                 9              --               1,532
                                                                       -------           -------           -------           -------
        Total ..............................................           $21,937                64               177            21,824
                                                                       =======           =======           =======           =======
</TABLE>

    Gross realized gains on sales of available-for-sale  securities were $27,000
    during the year ended December 31, 1994. There were no gross realized losses
    during the year ended  December 31, 1994.  There were no sales of investment
    securities during 1996 and 1995.

                                       29
<PAGE>
    The  scheduled  maturities  of  investment  securities  held to maturity and
    investment securities (other than equity) available for sale at December 31,
    1996 were as follows:
<TABLE>
<CAPTION>
                                                          Held-to-Maturity Securities     Available-for-Sale Securities
                                                          ---------------------------     -----------------------------
                                                            Amortized         Fair             Amortized        Fair
                                                               Cost           Value              Cost           Value
                                                             -------          -----             ------         ------
                                                                                   (In thousands)
<S>                                                          <C>              <C>               <C>            <C>   
        Due within one year..............................   $    -              -                2,000          2,002
        Due from one year to five years..................        -              -               18,413         18,378
        Due from five years to ten years.................        -              -                   85             85
        Due after ten years..............................      3,239          3,271                205            208
                                                             -------          -----             ------         ------
            Total                                            $ 3,239          3,271             20,703         20,673
                                                             =======          =====             ======         ======
</TABLE>

    Investment securities carried at approximately $3.0 million and $1.0 million
    at December 31, 1996 and 1995,  respectively,  were pledged to secure public
    funds and tax deposits.

(3)  Mortgage-Backed Securities
    The  principal  balance,  amortized  cost and  estimated  market  values  of
mortgage-backed securities were as follows:
<TABLE>
<CAPTION>
                                                Principal      Unamortized      Unearned    Amortized         Fair
                                                 Balance        Premiums       Discounts      Cost            Value
                                                 -------        --------       ---------      ----            -----
<S>                                             <C>                 <C>           <C>          <C>            <C>   
        At December 31, 1996:                                               (In thousands)
          Securities held to maturity:
            FHLMC certificates..................$  9,505             3            10            9,498          9,752
            GNMA certificates...................   9,520             1            41            9,480          9,791
            FNMA certificates...................   5,561            -              3            5,558          5,637
            Collateralized mortgage
                obligations.....................  22,365             7            16           22,356         22,216
                                                --------            --            --           ------         ------
                                                $ 46,951            11            70           46,892         47,396
                                                ========            ==            ==           ======         ======

          Securities available for sale:
            FHLMC certificates..................   5,081             4             2            5,083          4,995
            FNMA certificates...................   1,973            20             -            1,993          1,998
            Collateralized mortgage
                obligations.....................  11,933            20            21           11,932         11,851
                                                --------            --            --           ------         ------
                                                $ 18,987            44            23           19,008         18,844
                                                ========            ==            ==           ======         ======
</TABLE>

                                                          30
<PAGE>
<TABLE>
<CAPTION>
                                                Principal      Unamortized      Unearned    Amortized         Fair
                                                 Balance        Premiums       Discounts      Cost            Value
                                                 -------        --------       ---------      ----            -----
<S>                                             <C>                 <C>           <C>          <C>            <C>   
                                                               (In thousands)
        At December 31, 1995:
          Securities held to maturity:
            FHLMC certificates..................$ 12,963             5            14           12,954         13,122
            GNMA certificates...................  11,237             3            50           11,190         11,503
            FNMA certificates...................   7,140            -              6            7,134          7,175
            Collateralized mortgage
                obligations.....................  43,661            38            52           43,647         43,457
                                                --------            --            --           ------         ------
                                                $ 75,001            46           122           74,925         75,257
                                                ========            ==           ===           ======         ======

          Securities available for sale:
            FHLMC certificates..................   5,999             8             5            6,002          5,990
            FNMA certificates...................   1,272            -             -             1,272          1,284
            Collateralized mortgage
                obligations.....................  11,724            33            35           11,722         11,684
                                                --------            --            --           ------         ------
                                                $ 18,995            41            40           18,996         18,958
                                                ========            ==            ==           ======         ======
</TABLE>

    The amortized cost,  gross  unrealized gains and losses and estimated market
    values of mortgage-backed securities were as follows:
<TABLE>
<CAPTION>
                                                                                Gross        Gross
                                                                 Amortized    Unrealized   Unrealized         Fair
                                                                   Cost         Gains        Losses           Value
                                                                   ----         -----        ------           -----
        At December 31, 1996:                                                       (In thousands)
<S>                                                               <C>              <C>            <C>          <C>  
          Securities held to maturity:
            FHLMC certificates..................................  $  9,498         268            14           9,752
            GNMA certificates...................................     9,480         315             4           9,791
            FNMA certificates...................................     5,558          86             7           5,637
            Collateralized mortgage
                obligations.....................................    22,356           8           148          22,216
                                                                  --------         ---           ---          ------
                                                                  $ 46,892         677           173          47,396
                                                                  ========         ===           ===          ======
          Securities available for sale:
            FHLMC certificates..................................     5,083           8            96           4,995
            FNMA certificates...................................     1,993          24            19           1,998
            Collateralized mortgage
                obligations.....................................    11,932          -             81          11,851
                                                                  --------         ---           ---          ------
                                                                  $ 19,008          32           196          18,844
                                                                  ========         ===           ===          ======
</TABLE>

                                                          31
<PAGE>
<TABLE>
<CAPTION>
                                                                                Gross        Gross
                                                                 Amortized    Unrealized   Unrealized         Fair
                                                                   Cost         Gains        Losses           Value
                                                                   ----         -----        ------           -----
                                                                                   (In thousands)
        At December 31, 1995:
<S>                                                               <C>               <C>          <C>          <C>   
          Securities held to maturity:
            FHLMC certificates..................................    12,954         168            -           13,122
            GNMA certificates...................................    11,190         314             1          11,503
            FNMA certificates...................................     7,134          55            14           7,175
            Collateralized mortgage
                obligations.....................................    43,647          24           214          43,457
                                                                  --------          --           ---          ------
                                                                  $ 74,925         561           229          75,257
                                                                  ========         ===           ===          ======
          Securities available for sale:
            FHLMC certificates..................................     6,002          28            40           5,990
            FNMA certificates...................................     1,272          12            -            1,284
            Collateralized mortgage
                obligations.....................................    11,722          35            73          11,684
                                                                  --------          --           ---          ------
                                                                  $ 18,996          75           113          18,958
                                                                  ========          ==           ===          ======
</TABLE>

    There were no sales of  mortgage-backed  securities  during the years  ended
    December 31, 1996, 1995 and 1994.

    The Company's portfolio of mortgage-backed securities include collateralized
    mortgage  obligations  (CMOs).  CMOs are  generally  divided  into  tranches
    whereby  principal   repayments  from  the  underlying  mortgages  are  used
    sequentially  to retire the  securities  according  to the  priority  of the
    tranches.  The  Company  invests in the  following  collateralized  mortgage
    obligation  tranches:   sequential,  planned  amortization  class,  targeted
    amortization  class or support or  companion  floating-rate  tranches.  Such
    tranches have stated maturities ranging from 1-28 years; however, because of
    prepayments,  the  expected  weighted  average life of these  securities  at
    December 31, 1996 is approximately 2.1 years. The majority of the CMOs owned
    by the Company are insured or  guaranteed,  either  directly or  indirectly,
    through mortgage-backed  securities underlying the obligations by either the
    FNMA,   FHLMC  or  GNMA.   Depending   on  the   amount  of  the   Company's
    available-for-sale mortgage-backed securities,  fluctuations in the interest
    rate  environment  and other factors,  the Company may  experience  material
    effects on its capital  resources due to  categorizing  these  securities as
    available  for sale.  The Company's  CMOs may be subject to price  movements
    which typically  result from prepayment on the underlying  obligations.  The
    Company's  CMOs have  coupon  rates  ranging  from  4.00% to 7.51% and had a
    weighted  average rate of 5.91% at December 31, 1996. The Company  purchases
    only CMOs rated AA or better by nationally recognized rating services.

                                       32
<PAGE>
(4)  Loans Receivable
    The components of loans were as follows:
<TABLE>
<CAPTION>
                                                                                                 At December 31,
                                                                                               1996           1995
                                                                                               ----           ----
                                                                                                  (In thousands)
<S>                                                                                          <C>              <C>    
            First mortgage loans secured by:
                One-to-four-family residential.............................................  $ 191,788        159,170
                Construction and land......................................................      5,489          5,343
                Multi-family units.........................................................      4,180          3,098
                Commercial real estate, churches and other.................................     13,565          6,654
            Consumer loans.................................................................     21,016         13,375
            Other loans....................................................................        883          1,118
                                                                                             ---------        -------
                    Subtotal...............................................................    236,921        188,758
                Undisbursed portion of loans in process....................................    (8,007)        (4,267)
                Net deferred loan costs (fees).............................................         97           (66)
                Allowance for loan losses..................................................    (1,063)          (977)
                                                                                             ---------        -------
                    Loans receivable, net..................................................  $ 227,948        183,448
                                                                                             =========        =======
</TABLE>
    An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                                   1996           1995           1994
                                                                                   ----           ----           ----
                                                                                              (In thousands)
<S>                                                                             <C>                <C>            <C>
            Balance at January 1..............................................  $   977            869            735
            Loans charged off.................................................      (21)           (17)            (4)
            Provision for loan losses.........................................      107            125            138
                                                                                -------            ---            ---
            Balance at December 31............................................  $ 1,063            977            869
                                                                                =======            ===            ===
</TABLE>
    There were no impaired  loans  recognized  under SFAS 114 and 118 during the
    years ended December 31, 1996 and 1995.

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

    Nonaccrual  loans  at  December  31,  1996  and 1995  totaled  $666,000  and
    $174,000,  respectively.  For the year ended  December  31,  1996,  interest
    income on loans  would  have been  increased  approximately  $23,000  if the
    interest on nonaccrual  loans at December 31, 1996 had been  recorded  under
    the original terms of such loans.  All of the  nonaccrual  loans at December
    31, 1996 were  first-mortgage,  single-family  residential loans or consumer
    loans.  There  have been no loans  restructured  during  any of the  periods
    presented.
                                       33
<PAGE>
(5)  Premises and Equipment
    Components of properties and equipment were as follows:
<TABLE>
<CAPTION>
                                                                                                   At December 31,
                                                                                                 1996          1995
                                                                                                 ----          ----
                                                                                                   (In thousands)
<S>                                                                                            <C>              <C>  
        Cost:
            Land.......................................................................        $ 1,754          1,378
            Building and improvements..................................................          4,041          4,045
            Furniture and equipment....................................................          2,145          1,974
            Construction in progress...................................................            112             19
                                                                                               -------          -----
                Total cost.............................................................          8,052          7,416

        Less accumulated depreciation..................................................          2,908          2,599
                                                                                               -------          -----
            Net book value.............................................................        $ 5,144          4,817
                                                                                               =======          =====
</TABLE>

    Certain company facilities are leased under various operating leases. Rental
    expense was $22,000 in 1996. No related rental  expense was incurred  during
    1995 and 1994. At December 31, 1996, future minimum rental commitments under
    noncancellable leases were as follows (in thousands):

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

                1997...............................    $  43
                1998...............................       46
                1999...............................       46
                2000...............................       31
                2001...............................        8
                                                       -----
                                                       $ 174
                                                       =====

(6)  Deposits
    The  aggregate   amount  of  short-term  jumbo  CDs,  each  with  a  minimum
    denomination of $100,000, was approximately $9.0 million and $8.3 million in
    1996 and 1995, respectively.

    At December 31, 1996,  the  scheduled  maturities of CDs were as follows (in
    thousands):

            1997.............................. $ 135,579
            1998..............................    55,513
            1999..............................     9,065
            2000..............................     9,879
            2001 and thereafter...............     1,910
                                               ---------
                                               $ 211,946
                                               =========

                                       34
<PAGE>
(7)  Advances from Federal Home Loan Bank and Other Borrowings
    The $150,000 community  investment fund advance  outstanding at December 31,
    1996 and 1995 bears  interest at 7.17% and matures  February 28, 1997.  This
    advance was obtained in accordance  with the Community  Reinvestment  Act to
    provide lower interest rate  financing to developers of low-income  housing.
    The Savings Bank is required by its  collateral  agreement  with the Federal
    Home Loan Bank of Atlanta  ("FHLB") to maintain  qualifying  first  mortgage
    loans in an amount equal to at least 150% of the advance as collateral.  The
    Savings Bank has also pledged its FHLB stock for such advances.

    The Savings Bank also has $60 million of credit  availability  from the FHLB
    under the same collateral  conditions  discussed above. The Savings Bank did
    not draw  funds on this line of credit at any time  during  the years  ended
    December 31, 1996 and 1995.

    Mortgage-backed  securities sold under dollar reverse repurchase  agreements
    were  delivered to the  broker-dealers  who arranged the  transactions.  The
    broker-dealers  may  have  sold,  loaned,  or  otherwise  disposed  of  such
    securities to other parties in the normal  course of their  operations,  and
    have agreed to resell to the Company  substantially  identical securities at
    the maturities of the agreements. The agreements at December 31, 1996 mature
    within forty-five days.

    Information  concerning  securities  sold under  agreements to repurchase is
    summarized as follows:
<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                              1996             1995
                                                                                              ----             ----
                                                                                              (Dollars in thousands)
<S>                                                                                          <C>                <C>  
            Average balance during the year...........................................       $   849              470
                                                                                             =======            =====
            Average interest rate during the year.....................................          5.65%            6.20%
                                                                                             =======            =====
            Maximum month-end balance
                during the year.......................................................       $ 8,048            2,031
                                                                                             =======            =====
            Mortgage-backed securities underlying the agreements at year end:

                Carrying value........................................................       $ 8,245              -
                                                                                             =======            =====
                Fair value............................................................       $ 8,237              -
                                                                                             =======            =====
</TABLE>

(8)  Income Taxes
    The Holding Company and its subsidiaries file a consolidated  federal income
    tax return. Income taxes are allocated proportionally to the Holding Company
    and each of the  subsidiaries  as though  separate  income tax returns  were
    filed.

                                       35
<PAGE>
    The income tax provision is summarized as follows:
<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                     1996       1995         1994
                                                     ----       ----         ----
                                                           (In thousands)
<S>                                                <C>            <C>        <C>  
            Current .............................. $ 1,594        1,776      2,213
            Deferred..............................    (116)         152       (265)
                                                   -------        -----      -----
                                                   $ 1,478        1,928      1,948
                                                   =======        =====      =====
</TABLE>

    The  effective  tax rate on income before income taxes differs from the U.S.
    statutory rate of 34%. The following  summary  reconciles  taxes at the U.S.
    statutory rate with the effective rates:
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                            -----------------------------------------------------------------------
                                                     1996                        1995                       1994
                                            ----------------------     ----------------------    ------------------
                                             Amount           %         Amount           %        Amount        %
                                            ----------------------     ----------------------    ------------------
                                                                                          (Dollars in thousands)
<S>                                         <C>              <C>       <C>              <C>       <C>         <C>  
            Taxes on income at U.S.
                statutory rate...........   $ 1,245          34.0%     $ 1,707          34.0%     $ 1,876     34.0%
            State income taxes, net of
                federal tax benefit......       131           3.6          181           3.6          200      3.6
            Other - net..................       102           2.8           40            .8         (128)    (2.3)
                                            -------          ----      -------          ----      -------     ---- 
            Taxes on income at
                effective rates..........   $ 1,478          40.4%     $ 1,928          38.4%     $ 1,948     35.3%
                                            =======          ====      =======          ====      =======     ==== 
</TABLE>

    Temporary  differences  between the financial statement carrying amounts and
    tax bases of assets and liabilities  that gave rise to significant  portions
    of the deferred tax liability relate to the following:
<TABLE>
<CAPTION>
                                                                                                 At December 31,
                                                                                              1996             1995
                                                                                              ----             ----
                                                                                                 (In thousands)
<S>                                                                                         <C>                  <C>
            Deferred tax liabilities:
                Deferred loan fees..................................................        $   111               201
                Bad debt expense....................................................            501               559
                FHLB stock dividends................................................            304               304
                Depreciation........................................................            186               151
                Certain accrued interest............................................             24                34
                Other...............................................................            128                93
                                                                                              -----             -----
            Gross deferred tax liabilities..........................................          1,254             1,342
                                                                                              -----             -----
            Deferred tax assets:
                Unrealized loss on securities available for sale....................            116                57
                Employee stock option plan..........................................            208               180
                                                                                              -----             -----
            Gross deferred tax assets...............................................            324               237
                                                                                              -----             -----
            Net deferred tax liabilities............................................        $   930             1,105
                                                                                            =======             =====
</TABLE>

                                       36
<PAGE>
    Retained  earnings at  December  31,  1996 and 1995  includes  approximately
    $5,810,000  for which no  deferred  federal  income tax  liability  has been
    recognized.  This  amount  represents  an  allocation  of income to bad debt
    deductions  for tax purposes  only.  Reduction  of amounts so allocated  for
    purposes  other  than  tax bad  debt  losses  or  adjustments  arising  from
    carryback of net operating losses would create income for tax purposes only,
    which would be subject to the then current  corporate  income tax rate.  The
    unrecorded   deferred   income  tax   liability  on  the  above  amount  was
    approximately $2,186,000 at December 31, 1996 and 1995.

    The Small  Business Job  Protection  Act of 1996 (the "1996 Act") enacted on
    August 2, 1996 requires savings  institutions,  such as the Savings Bank, to
    recapture  certain  portions of their  accumulated  bad debt  reserves,  and
    eliminated  the  Percentage of Taxable  Income Method of accounting  for bad
    debts for tax  purposes.  The  Savings  Bank will be  required to change its
    method of  accounting  for bad debts for tax purposes  effective  January 1,
    1996. In addition, the Savings Bank will be required to recapture the excess
    of its bad debt reserves at December 31, 1995 over its base year reserves at
    December 31,  1987,  ratably over a six-year  period  beginning in 1996.  At
    December 31, 1996, the Savings Bank had  approximately  $900,000 of deferred
    tax liabilities  recorded for the recapture of its excess bad debt reserves.
    As provided  under the 1996 Act, the Savings Bank may defer the recapture of
    the excess  reserves  for tax purposes  for each of two  successive  taxable
    years in which  the  Savings  Bank  originates  a defined  minimum  level of
    certain residential loans. Management believes that the Savings Bank will be
    able to originate such minimum levels, and accordingly  expects to defer the
    recapture of the excess  reserves for the two years  allowed  under the 1996
    Act.

(9)  Pension Plan
    Prior to 1996, the Company participated in a multi-employer  defined benefit
    pension plan (the  "Pension  Plan") which covered  substantially  all of its
    employees. The Company's funding policy with respect to the Pension Plan was
    to make an annual  contribution  determined by the Pension Plan's  actuaries
    that would not be less than the minimum required  contribution,  nor greater
    than  the  maximum  federal  income  tax  deductible  limit.  The  Company's
    contributions for the Pension Plan for the years ended December 31, 1995 and
    1994 were  $65,000  and  $31,000,  respectively.  During  1996,  the Company
    decided to withdraw from participation in the Pension Plan, and accordingly,
    participants'  benefits were frozen and participants  became fully vested at
    that date. The Company did not make a  contribution  to the Pension Plan for
    1996.

    In connection with the above, the Company adopted a new defined contribution
    profit sharing 401(k) plan (the "401(k) Plan")  effective April 1, 1996. All
    employees who have met a minimum service requirement (1,000 hours of service
    in a  twelve-month  period) may  participate  in the Plan.  Under the 401(k)
    Plan,  a  participant  may  elect to  contribute  up to 15% of their  annual
    compensation,  subject to IRS limitations on total annual contributions. The
    Company will make contributions to the 401(k) Plan on a monthly basis at two
    percent of participants' compensation.  Contributions to the 401(k) Plan for
    the year ended December 31, 1996 were $23,000.
<PAGE>

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

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


                                       37
<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 some of the commitments are
    expected to expire without being drawn upon, the total commitment amounts do
    not necessarily  represent future cash  requirements.  The Company evaluates
    each customer's  credit  worthiness on a case-by-case  basis.  The amount of
    collateral  obtained if deemed  necessary by the Company  upon  extension of
    credit is based on management's credit evaluation of the counterparty.

    The estimated  fair values of the Company's  financial  instruments  were as
    follows:
<TABLE>
<CAPTION>
                                                                     At December 31, 1996       At December 31, 1995
                                                                     Carrying       Fair         Carrying      Fair
                                                                      Amount       Value          Amount      Value
                                                                      ------       -----          ------      -----
                                                                                       (in thousands)
<S>                                                                 <C>              <C>          <C>          <C>   
              Financial assets:
                  Cash and cash equivalents.........................$  10,157        10,157       13,929       13,929
                  Investment securities.............................   32,832        32,865       25,265       25,296
                  Mortgage-backed securities........................   65,736        66,240       93,883       94,215
                  Loans receivable..................................  227,948       224,177      183,448      186,360
                  Accrued interest receivable.......................    2,019         2,019        1,946        1,946
                  Federal Home Loan Bank stock......................    1,939         1,939        1,928        1,928

              Financial liabilities:
                  Deposit liabilities...............................  282,664       284,034      267,704      270,660
                  Advance from FHLB.................................      150           150          150          152
                  Securities sold under agreements
                      to repurchase.................................    8,048         8,048          -            -
</TABLE>

     A summary of the notional  amounts of the Company's  financial  instruments
     which approximates fair value, with  off-balance-sheet risk at December 31,
     1996, follows-

                                                                Notional
                                                                 Amount
                                                                 ------
                                                            (in thousands)

              Commitments to extend credit..............       $ 4,376
                                                               =======

(11)  Significant Group Concentration of Credit Risk
     The Company grants real estate and consumer loans to customers primarily in
     the State of Florida with the majority of such loans in the Lake and Sumter
     County  area.   Therefore,   the  Company's  exposure  to  credit  risk  is
     significantly  affected  by changes  in the  economy of the Lake and Sumter
     County area.

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


                                       38
<PAGE>
(12)  Related Parties
     Loans to directors and executive  officers of the Company,  which were made
     at market rates,  were made in the ordinary  course of business and did not
     involve  more  than  normal  risk  of   collectibility   or  present  other
     unfavorable features. Activity in loans to directors and executive officers
     were as follows:
<TABLE>
<CAPTION>
                                                                                                      Year Ended
                                                                                                      December 31,
                                                                                                 1996            1995
                                                                                                 ----            ----
                                                                                                     (In thousands)
<S>                                                                                            <C>              <C>  
            Beginning balance..........................................................        $ 1,038            541
            Amounts related to new officers and directors..............................              -            402
            Loans originated...........................................................            111            226
            Principal repayments.......................................................          (119)          (131)
                                                                                               -------          -----
                Ending balance.........................................................        $ 1,030          1,038
                                                                                               =======          =====
</TABLE>

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

(14)  Restrictions on Retained Earnings
    The  Savings  Bank is  subject  to  certain  restrictions  on the  amount of
    dividends that it may declare without prior regulatory approval. At December
    31, 1996,  approximately $15 million of retained earnings were available for
    dividend declaration without prior regulatory approval.

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

    Quantitative  measures  established by regulation to ensure capital adequacy
    require the Savings Bank to maintain minimum amounts (set forth in the table
    below)  of total and Tier I  capital  (as  defined  in the  regulations)  to
    risk-weighted assets (as defined).  Management believes,  as of December 31,
    1996, that the Savings Bank meets all capital adequacy requirements to which
    it is subject.

    As of  December  31,  1996,  the  most  recent  notification  from  the  OTS
    categorized  the  Savings  Bank as well  capitalized  under  the  regulatory
    framework  for  prompt   corrective   action.  To  be  categorized  as  well
    capitalized, the Savings Bank must maintain minimum tangible, tier I (core),
    tier I (risk-based) and total risk-based  capital ratios as set forth in the
    table.  There are no  conditions  or events  since  that  notification  that
    management believes have changed the institution's category.


                                       39
<PAGE>
    The Savings  Bank's actual  capital  amounts and ratios at December 31, 1996
are also presented in the table.
<TABLE>
<CAPTION>
                                                                                                    To Be Well
                                                                            Minimum                 Capitalized
                                                                           For Capital              For Prompt
                                                                           Adequacy                 Corrective Action
                                                 Actual                    Purposes                 Provisions
                                            -----------------           -----------------           -----------------
                                            Ratio      Amount           Ratio      Amount           Ratio      Amount
                                            -----      ------           -----      ------           -----      ------
                                                                      (Dollars in thousands)
<S>                                        <C>        <C>                <C>       <C>              <C>        <C>     
         Stockholders' equity,
             and ratio to total
             assets.....................   12.05%      $ 41,731
         Less: investment in
             nonincludable
             subsidiary.................                   (201)
         Add back: unrealized loss on
             available-for-sale
             securities.................                    121
                                                            ---

         Tangible capital,
             and ratio to adjusted
             total assets...............   12.02%     $  41,651          1.5%      $  5,198
                                                      =========                    ========

         Tier 1 (core) capital, and
             ratio to adjusted total
             assets.....................   12.02%     $  41,651          3.0%      $ 10,395          5.0%      $ 17,326
                                                      =========                    ========                    ========

         Tier 1 capital, and ratio
             to risk-weighted assets....   26.29%        41,651          4.0%      $  6,338          6.0%      $  9,507
                                                                                   ========                    ========
         Tier 2 capital (allowance for
             loan losses)...............                  1,063
                                                          -----

         Total risk-based capital,
             and ratio to risk-
             weighted assets............   26.96%     $  42,714          8.0%      $ 12,676         10.0%      $ 15,846
                                                      =========                    ========                    ========

         Total assets...................              $ 346,442
                                                      =========

         Adjusted total assets..........              $ 346,511
                                                      =========

         Risk-weighted assets...........              $ 158,456
                                                      =========
</TABLE>

                                       40
<PAGE>
    On September 30, 1996,  legislation  was enacted which,  among other things,
    imposed a special one-time assessment on SAIF member institutions, including
    the Savings Bank, to  recapitalize  the SAIF and spread the  obligations for
    payments of  Financing  Corporation  ("FICO")  bonds across all SAIF and BIF
    members. The FDIC special assessment levied amounted to 65.7 basis points on
    SAIF assessable  deposits held as of March 31, 1995. The special  assessment
    was recognized in the third quarter and is tax deductible.  The Savings Bank
    recorded  a charge  of $1.7  million  before  taxes as a result  of the FDIC
    special assessment.  That legislation  eliminated the substantial  disparity
    between  the amount  that BIF and SAIF  members  had been paying for deposit
    insurance premiums.

    Beginning  on January 1, 1997,  BIF  members  will pay a portion of the FICO
    payment equal to 1.3 basis points on BIF-insured deposits,  compared to 6.48
    basis points payable by SAIF members on SAIF-insured  deposits, and will pay
    a pro rata share of the FICO  payment  on the  earlier of January 1, 2000 or
    the date upon which the last savings association,  such as the Savings Bank,
    ceases to exist.  The legislation also requires BIF and SAIF to be merged by
    January 1, 1999 provided that subsequent legislation is adopted to eliminate
    the savings  association  charter and no savings  associations  remain as of
    that time.

    The FDIC recently lowered SAIF assessments to a range comparable to those of
    BIF members,  although  SAIF  members  will  continue to pay the higher FICO
    payments  described  above.  Management  cannot  predict  the  level of FDIC
    insurance  assessments  on an ongoing basis or whether the BIF and SAIF will
    eventually be merged.

(16)  Conversion to Stock Savings Bank
    The  Savings  Bank  successfully  completed  a  conversion  from a federally
    chartered mutual savings  association to a federally chartered stock savings
    bank on January 4, 1994  pursuant to the Plan of  Conversion  adopted by the
    Savings Bank's Board of Directors on June 17, 1993 and subsequently approved
    by regulatory  authorities and members of the Bank.  FFLC Bancorp,  Inc. was
    created  as the  holding  company  for  the  Savings  Bank  as  part of this
    conversion, generating proceeds of $23.3 million (net of shares purchased by
    the  Savings  Bank for  employee  stock  incentive  plans)  from the sale of
    2,761,819  shares of stock at the  price of $10 per share in a  subscription
    and community offering.

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

    Current  regulations  allow the Savings  Bank to pay  dividends on its stock
    after the conversion if its regulatory  capital would not thereby be reduced
    below the amount then required for the aforementioned  Liquidation  Account.
    Also, capital  distribution  regulations limit the Savings Bank's ability to
    make capital  distributions  which include dividends,  stock redemptions and
    repurchases, cash-out mergers, interest payments on certain convertible debt
    and other transactions charged to the capital account based on their capital
    level and  supervisory  condition.  Federal  regulations  also  preclude any
    repurchase of the stock by the Savings Bank or its holding company for three
    years  after  conversion  except for  purchases  of  qualifying  shares of a
    director  and  repurchases  pursuant to an offer made on a pro rata basis to
    all stockholders and with prior approval of the Office of Thrift Supervision
    or pursuant to an open-market  stock  repurchase  program that complies with
    certain regulatory criteria.  See also Note 19 for information regarding the
    Savings Bank's Stock Repurchase Program.


                                       41
<PAGE>
(17)  Stock Benefit Plans
    During 1996,  the Company  adopted the  provisions of Statement of Financial
    Accounting  Standards No. 123,  "Accounting  for  Stock-Based  Compensation"
    ("SFAS No. 123"). SFAS No. 123 applies to stock-based compensation under the
    Company's  incentive  stock  option plan (the  "Option  Plan") and under the
    Company's Recognition and Retention Plan discussed below. As allowed by SFAS
    No. 123, the Company  elected to continue to measure  compensation  cost for
    the options or shares  granted under either plan using the  intrinsic  value
    method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
    Issued to  Employees."  SFAS No.  123 does not apply to the  Employee  Stock
    Ownership Plan discussed below.

    During the years ended  December 31, 1996 and 1995,  5,000 and 3,021 options
    were granted under the Option Plan,  and 3,600 and 2,709 shares were awarded
    under the  Recognition  and  Retention  Plan. If  compensation  cost for the
    Option Plan and the Recognition and Retention Plan had been determined based
    on the fair  value of the  awards at the grant  date,  using the fair  value
    method  defined in SFAS No. 123, the  Company's  net income and earnings per
    share for 1996 and 1995 would not have been materially reduced.

    Stock Option Plan.  During 1993,  the Company  adopted and the  shareholders
    approved the Option Plan. On January 4, 1994, upon conversion of the Savings
    Bank to a stock  association,  stock options for 276,182  common shares were
    authorized to be granted to directors, officers and employees of the Savings
    Bank including  39,801 shares  reserved for future  directors,  officers and
    employees.  Shares  granted  under the Option  Plan are  exercisable  at the
    market price at the date of grant.  Such incentive  stock options granted to
    officers and employees are  exercisable in three equal annual  installments,
    with the first  installment  becoming  exercisable one year from the date of
    grant. Options granted to outside directors are exercisable immediately, but
    any common  shares  obtained  from  exercise  of the options may not be sold
    prior to one year from the date of grant.  All options expire at the earlier
    of ten years from the date of grant or one year following the date which the
    outside director,  officer or employee ceases to serve in such capacity.  At
    December 31, 1996,  the Company is  authorized  to grant  options for future
    directors, officers and employees for 41,114 shares.
<PAGE>
    The following is a summary of option transactions:
<TABLE>
<CAPTION>
                                                                                                            Option
                                                                                         Number           Prices Per
                                                                                       of Shares           Shares
                                                                                       ---------           ------
<S>                                                                                      <C>             <C>    <C>  
            Granted..............................................................        237,881         $10.00-13.50
            Forfeited............................................................        (8,500)         $10.00-13.50
                                                                                         -------
            Outstanding, December 31, 1994.......................................        229,381               $10.00
            Granted..............................................................          3,021               $15.88
            Forfeited............................................................          (667)               $10.00
            Exercised............................................................        (7,581)               $10.00
                                                                                         -------
            Outstanding, December 31, 1995.......................................        224,154         $10.00-15.88
            Granted..............................................................          5,000               $20.00
            Forfeited............................................................        (1,667)               $10.00
            Exercised............................................................        (7,993)               $10.00
                                                                                         -------
            Outstanding, December 31, 1996.......................................        219,494         $10.00-20.00
                                                                                         =======
</TABLE>

                                       42
<PAGE>
    Employee Stock  Ownership  Plan. The Company  sponsors a leveraged ESOP that
    covers eligible employees who have a twelve-month  period of employment with
    the Savings  Bank during which they worked at least 1,000 hours and who have
    attained age 21. The Savings Bank makes quarterly  contributions to the ESOP
    equal to the ESOP's debt service. The ESOP Trust purchased 220,945 shares of
    common stock in the Company's initial public offering with the proceeds from
    a loan from the Company.  This loan bears  interest at a  fixed-rate  of six
    percent with principal and interest payable in equal quarterly  installments
    over seven years.  The ESOP shares  initially were pledged as collateral for
    its debt.  As the debt is repaid,  shares are released from  collateral  and
    allocated to active  employees  based on the proportion of debt service paid
    during  the year.  The  Company  accounts  for its ESOP in  accordance  with
    Statement of Position 93-6. Accordingly, the debt of the ESOP is recorded as
    debt and the cost of the shares  pledged as  collateral  are  reported  as a
    contra equity account.  As shares are released from collateral,  the Company
    records compensation expense, and an offsetting credit to capital,  equal to
    the current  market price of the shares,  and the shares become  outstanding
    for  earnings  per share  computations.  Dividends  on all ESOP  shares  are
    recorded as compensation expense as it is management's intention to allocate
    the dividends along with the shares when allocated. Compensation expense for
    the years ended December 31, 1996, 1995 and 1994 included the following ESOP
    related costs:
<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                          1996       1995        1994
                                                                                          ----       ----        ----
                                                                                                (In thousands)
<S>                                                                                       <C>          <C>        <C>
            Amortization of the original cost, $10 per share............................  $ 315        315        315
            Market appreciation of the FFLC shares......................................    265        242        160
            Dividends on ESOP shares....................................................     60         56         39
                                                                                          -----        ---        ---
                Total...................................................................  $ 640        613        514
                                                                                          =====        ===        ===
</TABLE>

    The ESOP shares were as follows:
<TABLE>
<CAPTION>
                                                                                                 At December 31,
                                                                                             1996               1995
                                                                                             ----               ----
                                                                                                 (In thousands)

<S>                                                                                       <C>                 <C>   
            Allocated shares and shares released for allocation....................       $  91,731            62,070
            Unreleased shares......................................................         126,254           157,817
                                                                                          ---------           -------

            Total ESOP shares......................................................         217,985           219,887
                                                                                          =========           =======

            Fair value of unreleased shares........................................       $   2,714             2,959
                                                                                          =========           =======
</TABLE>

    Recognition and Retention Plan. The Company  adopted,  and the  shareholders
    approved, an RRP for directors, officers and employees to enable the Savings
    Bank to attract and retain experienced and capable personnel.  On January 4,
    1994, the conversion date, 110,473 shares of common stock were purchased for
    the RRP which included 4,840 shares reserved for future directors,  officers
    and employees.  The shares are granted in the form of restricted stock to be
    earned in three equal annual  installments  beginning April 4, 1995. The RRP
    shares purchased in the conversion initially are excluded from stockholders'
    equity. The Company will recognize compensation expense in the amount of the
    fair  market  value of the common  stock at the grant date of $10 per share,
    pro rata over the years  during  which the shares are earned and payable and
    is  recorded  as a credit  to  shareholders'  equity.  Compensation  expense
    attributable  to the RRP  amounted to $368,000 in 1996,  1995 and 1994.  The
    shares are entitled to all voting and other shareholder rights,  except that
    the shares, while restricted,  cannot be sold, pledged or otherwise disposed
    of, and are required to be held in escrow.

                                       43
<PAGE>
    If a holder of  restricted  stock under the RRP  terminated  employment  for
    reasons other than death, disability, retirement or change of control in the
    Company, such employee forfeits all rights to any allocated shares which are
    still restricted. If termination is caused by death, disability,  retirement
    or  change  in  control  of  the  Company,   all  allocated   shares  become
    unrestricted. Forfeitures are reallocated to eligible participants annually.
    At December 31, 1996,  3,963 shares  remain  reserved for future  directors,
    officers and employees.

(18)  Parent Company Only Financial Statements
    Condensed  financial  statements  of the  Holding  Company as of and for the
    years ended December 31, 1996 and 1995 are presented below. Amounts shown as
    investment  in  subsidiary,  loans to  subsidiary  and equity in earnings of
    subsidiary are eliminated in consolidation.
<TABLE>
<CAPTION>
                                               Condensed Balance Sheets

                                                                                                At December 31,
                                                                                            1996               1995
                                                                                            ----               ----
                                                                                                (In thousands)
<S>                                                                                        <C>                 <C>   
            Assets

        Cash, deposited with subsidiary............................................       $     645             1,129
        Investment in subsidiary...................................................          41,731            41,667
        Loans to subsidiary........................................................          11,262            12,578
        Other assets...............................................................            -                    6
                                                                                           --------            ------
                Total assets.......................................................        $ 53,638            55,380
                                                                                           ========            ======

            Liabilities and Stockholders' Equity

        Current income taxes.......................................................            -                    4
        Accrued expense and other liabilities......................................              12                16
        Stockholders' equity.......................................................          53,626            55,360
                                                                                           --------            ------
                Total liabilities and stockholders' equity.........................        $ 53,638            55,380
                                                                                           ========            ======

<PAGE>

<CAPTION>
                                            Condensed Statements of Income

                                                                                             Year Ended December 31,
                                                                                          1996       1995        1994
                                                                                          ----       ----        ----
                                                                                                (In thousands)
<S>                                                                                     <C>          <C>        <C>  
        Revenues.....................................................................   $   772        871        621
        Expenses.....................................................................       396        432        317
                                                                                        -------      -----      -----
                Income before earnings of subsidiary.................................       376        439        304
                Earnings of subsidiary...............................................     1,808      2,654      3,266
                                                                                        -------      -----      -----
                Net income                                                              $ 2,184      3,093      3,570
                                                                                        =======      =====      =====
</TABLE>

                                       44
<PAGE>
<TABLE>
<CAPTION>
                                          Condensed Statements of Cash Flows

                                                                                            Year Ended December 31,
                                                                                         1996        1995        1994
                                                                                         ----        ----        ----
                                                                                                (In thousands)
<S>                                                                                     <C>         <C>       <C>
   Cash flows from operating activities:
        Net income....................................................................  $ 2,184      3,093     3,570
         Adjustments to reconcile net income to net cash
          provided by operations:
            Equity in earnings of subsidiary..........................................   (1,808)    (2,654)   (3,266)
            Decrease (increase) in other assets.......................................        6          8       (14)
            (Decrease) increase in current income taxes payable.......................       (4)       (27)       30
            (Decrease) increase in accrued expenses and
                other liabilities.....................................................       (4)         7         9
                                                                                         ------     ------    ------ 
                Net cash provided by operating activities.............................      374        427       329
                                                                                         ------     ------    ------ 
    Cash flows from investing activities:
            Purchase of common stock of subsidiary....................................      -          -     (13,295)
            Loans to subsidiary.......................................................      -          -     (13,209)
            Repayment of loan to subsidiary...........................................    1,316        316       316
                                                                                         ------     ------    ------ 
                Net cash provided by investing activities.............................    1,316        316   (26,188)
                                                                                         ------     ------    ------ 
    Cash flows from financing activities:
            Purchase of treasury stock................................................   (3,922)    (2,373)       -
            Proceeds from sale of common stock........................................       80         76    26,590
            Cash dividends paid.......................................................     (986)      (817)     (497)
            Cash dividends received...................................................    2,654      3,266       -
                                                                                         ------     ------    ------ 
                Net cash (used in) provided by financing activities...................   (2,174)       152    26,093
                                                                                         ------     ------    ------ 
    Net (decrease) increase in cash...................................................     (484)       895       234
 
    Cash at beginning of year.........................................................    1,129        234       -
                                                                                         ------     ------    ------ 
    Cash at end of year...............................................................  $   645      1,129       234
                                                                                        =======     ======    =======
</TABLE>

(19)  Stock Repurchase Program
    In  December  1994,  the  Company's  Board  of  Directors  approved  a Stock
    Repurchase  Program  ("Program")  which  allows the  Company to acquire  its
    outstanding  common  stock  in the open  market.  The  Company  subsequently
    received OTS approval for the Program,  and began repurchasing  shares early
    in 1995. Under the Program,  the Company was limited to repurchasing no more
    than 5%, or approximately  138,000 shares of its publicly-held  common stock
    over a  one-year  period  ending  January  16,  1996.  During the year ended
    December 31, 1995,  132,044  shares or 95.6% of the maximum number of shares
    approved under the Program were repurchased.

                                       45
<PAGE>
    In January  and August  1996,  the  Company's  Board of  Directors  approved
    programs which allow the Company to acquire  additional  common stock in the
    open  market.  The Company  received OTS approval for the programs and began
    repurchasing  shares  within  one month of  approval.  During the year ended
    December  31,  1996,  all 132,000  shares  approved  under the January  1996
    program  were  repurchased.  Under the August 1996  program,  the Company is
    limited to repurchasing no more than 5% or  approximately  126,000 shares of
    its publicly held common stock over a one year period  ending  September 25,
    1997. During the year ended December 31, 1996, 76,000 shares or 60.3% of the
    maximum number of shares approved under that program were repurchased.

(20) Quarterly Financial Data (unaudited)
    The following tables present summarized quarterly data (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
                                                                                   Year Ended December 31, 1996
                                                                 -------------------------------------------------------------------
                                                                 First         Second          Third           Fourth
                                                                 Quarter       Quarter         Quarter         Quarter        Total
                                                                 ------         ------         ------          ------         ------
<S>                                                              <C>             <C>            <C>             <C>           <C>   
Interest income ........................................         $5,946          5,939          6,086           6,247         24,218
Interest expense .......................................          3,215          3,168          3,240           3,336         12,959
                                                                 ------         ------         ------          ------         ------
Net interest income ....................................          2,731          2,771          2,846           2,911         11,259

Provision for loan losses ..............................             14             15             34              44            107
                                                                 ------         ------         ------          ------         ------
Net interest income after provision
    for loan losses ....................................          2,717          2,756          2,812           2,867         11,152
                                                                 ------         ------         ------          ------         ------
Other income ...........................................            182            195            208             224            809
Other expense ..........................................          1,563          1,636          3,334           1,766          8,299
                                                                 ------         ------         ------          ------         ------
Income (loss) before income taxes ......................          1,336          1,315           (314)          1,325          3,662
Income taxes (credit) ..................................            525            519            (91)            525          1,478
                                                                 ------         ------         ------          ------         ------
Net income (loss) ......................................         $  811            796           (223)            800          2,184
                                                                 ======         ======         ======          ======         ======

Net income (loss) per common share .....................         $  .31            .31           (.09)            .32            .85
                                                                 ======         ======         ======          ======         ======

<PAGE>

<CAPTION>
                                                                                   Year Ended December 31, 1995
                                                                 -------------------------------------------------------------------
                                                                 First         Second          Third           Fourth
                                                                 Quarter       Quarter         Quarter         Quarter        Total
                                                                 ------         ------         ------          ------         ------
<S>                                                              <C>             <C>            <C>             <C>           <C>   
Interest income ........................................         $5,372          5,569          5,728           5,824         22,493
Interest expense .......................................          2,709          3,041          3,200           3,233         12,183
                                                                 ------         ------         ------          ------         ------
Net interest income ....................................          2,663          2,528          2,528           2,591         10,310

Provision for loan losses ..............................             30             30             33              31            124
                                                                 ------         ------         ------          ------         ------
Net interest income after provision
    for loan losses ....................................          2,633          2,498          2,495           2,560         10,186
                                                                 ------         ------         ------          ------         ------
Other income ...........................................            157            171            163             218            709
Other expense ..........................................          1,364          1,490          1,433           1,587          5,874
                                                                 ------         ------         ------          ------         ------
Income before income taxes .............................          1,426          1,179          1,225           1,191          5,021
Income taxes ...........................................            534            442            457             495          1,928
                                                                 ------         ------         ------          ------         ------
Net income .............................................         $  892            737            768             696          3,093
                                                                 ======         ======         ======          ======         ======

Net income per common share ............................         $  .33            .28            .29             .26           1.16
                                                                 ======         ======         ======          ======         ======
</TABLE>

                                       46
<PAGE>
                          Independent Auditors' Report



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

We have audited the  accompanying  consolidated  balance sheets of FFLC Bancorp,
Inc. and Subsidiary (the "Company") (the parent company of First Federal Savings
Bank of  Lake  County)  as of  December  31,  1996  and  1995  and  the  related
consolidated statements of income,  stockholders' equity and cash flows for each
of the years in the three-year  period ended December 31, 1996.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 1996 and 1995 and the results of its  operations and its cash flows
for each of the  years in the  three-year  period  ended  December  31,  1996 in
conformity with generally accepted accounting principles.






HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
January 10, 1997




                                       47
<PAGE>
<TABLE>
<CAPTION>
                               FFLC BANCORP, INC.

                             DIRECTORS AND OFFICERS

Directors:                                        Occupation                                           
----------                                        ----------                                           
<S>                                               <C>
James R. Gregg                                    President, Jarol Company                             
Chairman of the Board                                                                                  
                                                                                                       
Joseph J. Junod                                   Retired, General Manager, Avesta andvik Tube         
Vice Chairman                                                                                          
                                                                                                       
James P. Logan                                    President/Owner, Logan Sitework Contractors, Inc.    
Ted R. Ostrander, Jr.                             President, Lassiter-Ware, Inc.                       
Claron D. Wagner                                  President, Woody Wagner, Inc.                        
Stephen T. Kurtz                                  President, FFLC Bancorp, Inc. & Subsidiary           
Paul K. Mueller                                   Executive Vice President, FFLC Bancorp, Inc. &       
                                                     Subsidiary                                        
                                                                                                       
Advisory Directors:                                                                                    
-------------------                                                                                    
                                                                                                       
Frank L. Cogburn                                  Retired, Past President, First Federal of Lake County
James H. Herlong                                  General Partner, A.S. Herlong, Ltd.                  
Horace D. Robuck                                  President, Romac Lumber                              
                                                  
Officers:
---------

Stephen T. Kurtz
President and
Chief Executive Officer

Paul K. Mueller
Executive Vice President,
Chief Operating Officer and
Treasurer

Dwight L. Hart
Senior Vice President

Sandra L. Rutschow
Vice President and Secretary

Judith M. Maddox
Vice President

Lawrence E. Hoag
Vice President
</TABLE>

                                       48
<PAGE>
<TABLE>
<CAPTION>
                           FIRST FEDERAL SAVINGS BANK
                                 OF LAKE COUNTY

                             DIRECTORS AND OFFICERS

<S>                                               <C>
DIRECTORS

James R. Gregg                                    Doris E. Hyatt                                
Chairman of the Board                             Assistant Secretary                           
                                                                                                
Joseph J. Junod                                   Susan L. Berkebile                            
Vice Chairman                                     Vice President                                
                                                  Clermont Branch Manager                       
James P. Logan                                                                                  
Ted R. Ostrander, Jr.                             Donna L. Boyett                               
Claron D. Wagner                                  Assistant Vice President                      
Stephen T. Kurtz                                  Wildwood Branch Manager                       
Paul K. Mueller                                                                                 
                                                  Carlos E. Colon                               
Advisory Directors                                Assistant Vice President                      
                                                  Fruitland Park Branch Manager                 
Frank L. Cogburn                                                                                
Horace D. Robuck                                  Vickie S. Baxter                              
James H. Herlong                                  Assistant Vice President                      
                                                  Eustis Branch Manager                         
                                                                                                
OFFICERS                                          Pamela S. Hayton                              
                                                  Main Street Branch Manager                    
Stephen T. Kurtz                                                                                
President                                         Connie J. Rhode                               
Chief Executive Officer                           Lake Square Office Manager                    
                                                                                                
Paul K. Mueller                                   Sandra L. Seaton                              
Executive Vice President                          Assistant Vice President                      
Chief Operating Officer and Treasurer             South Leesburg Branch Manager                 
                                                  Area Loan Manager                             
Dwight L. Hart                                                                                  
Senior Vice President                             Jay Bartholomew                               
                                                  Assistant Vice President                      
Sandra L. Rutschow                                Lady Lake Branch Manager                      
Vice President and Corporate Secretary                                                          
                                                  Jankie Dhanpat                                
Judith M. Maddox                                  Assistant Vice President                      
Vice President                                    SEC Reporting and Compliance Officer          
Human Resource Manager                                                                          
                                                  Karen Hollister                               
Lawrence E. Hoag                                  Assistant Vice President                      
Vice President                                    Loan Operations Manager                       
Deposit Accounts Manager                                                                        
                                                  Charles L. Lee                                
Michael J. Cox                                    Security Officer                              
Vice President and Area Loan Manager                                                            
                                                  Janet L. Glessner                             
Brian R. Hofer                                    Marketing Officer                             
Vice President and Commercial Loan Officer                                                      
                                                  Dennis R. Rogers                              
Lynda F. Wemple                                   Assistant Vice President                      
Vice President and Accounting Manager             Area Loan Manager                             
                                                                                                
Yvonne K. Ross                                    Debra L. McFarlane                            
Vice President and Loan Officer                   Main Office Branch Manager                    
                                                                                                
Brenda M. Grubb                                   Sandra A. Rowe                                
Assistant Vice President                          Assistant Secretary and Loan Servicing Manager
                                                                                                
Linda N. Landers                                  Carmen C. Passwaters                          
Assistant Secretary                               Assistant Secretary                           
</TABLE>

                                       49
<PAGE>
                    FIRST FEDERAL SAVINGS BANK OF LAKE COUNTY
                     is Proud of the Outstanding Service its
           Employees Provide to the Community and the People it Serves



            MAIN OFFICE:

Pamela Ali                              Leslie A. Leach           
Barbara J. Boscana                      Charles L. Lee            
Navena M. Brown                         Pamela J. Linville        
Shu Een Chen                            Judith M. Maddox          
Camilla R. Clark                        Debra L. McFarlane        
Adriane M. Connelly                     Constance L. Merrell      
Diane S. Cook                           Paul K. Mueller           
Barbara A. Cordes                       Lillian Y. Niles          
Jewel M. Correll                        Carmen C. Passwaters      
Jennifer Culberson                      Debra L. Possee           
Robert Cumm                             Michael J. Price          
Cheryl A. Davis                         Yvonne K. Ross            
Dawn Rene Davison                       Sandra A. Rowe            
Jankie Dhanpat                          Landa A. Russell          
Janene S. Dickerson                     Sandra L. Rutschow        
Ruth E. Fielding                        Stephanie D. Salmon       
Joan P. Gibson                          Sonja G. Sanders          
Janet L. Glessner                       James Schaeffer           
Jennifer L. Grovesteen                  Margaret M. Siegel        
Brenda M. Grubb                         Cheryl L. Shepherd        
Andrea Hanson                           Leigh S. Skehan           
Dwight L. Hart                          Lynn P. Stoffel           
Angela D. Hicks                         Tracy P. Storts           
Lawrence E. Hoag                        Michelle Strickland       
Penny M. Hollis                         Joyce H. Sutton           
Karen L. Hollister                      Michelle M. Thompson      
Stephanie Hodges                        Virginia D. Vann          
Doris E. Hyatt                          Theresa R. Wells          
Patricia B. Inman                       Lynda F. Wemple           
Juanita F. Jackson                      Louise E. Whitlock        
Kristina Keel                           Rhonda L. Carris-Wilkerson
Jennifer E. Kitchens                    Shirley Williams          
Erin Klink                              Betty L. Wolcott          
Stephen T. Kurtz                        Lisa K. Woolwine          
Linda N. Landers                        
Cynthia M. Lay
<PAGE>

FRUITLAND PARK OFFICE:                  CLERMONT OFFICE:          
                                                                  
Carlos E. Colon                         Susan L. Berkebile        
Melissa J. Judd                         Donna L. Franklin         
Julie Misty Weirich                     Linda C. Gallop           
Delphine C. Williams                    Brenda Heisner            
                                        Brian R. Hofer            
                                        Tammy R. Imundi           
LADY LAKE:                              Trinia C. McClendon       
                                        Glenda S. Riggs           
Jay R. Bartholomew                      Jeanne A. Sheiman         
Deede A. Dye                            Sharon M. Slack           
Julie A. Laws                                                     
Marilyn A. Leugers                      EUSTIS OFFICE:            
Mary E. Rutz                                                      
Patricia L. Sizemore                    Vickie S. Baxter          
Margaret A. Slimm                       Bernice E. Cooper         
                                        Michael J. Cox            
MAIN STREET OFFICE:                     Kasandra L. Curry         
                                        Peggy L. Harris           
Lori Cook                               Hilda Lozano              
Casey Giordano                          Veronica L. Turner        
Pamela S. Hayton                                                  
Sondra Jones                            WILDWOOD OFFICE:          
Dawn M. Loth                                                      
                                        Donna L. Boyett           
LAKE SQUARE:                            Suzanne E. Busenlehner    
                                        Julie Elaine Glenn        
Linda J. Giggey                         Krystal Hammond           
Arthur E. Middleton                     Vaneeda F. Potter         
Angela Nicole Phillips                  Dennis R. Rogers          
Connie J. Rhode                         Ledora Smith              
                                        Willie Lee Smith          
                                        Paula D. Williams         
                                        Wendy Williams            
                                                                  
                                        SOUTH LEESBURG            
                                                                  
                                        Amy M. Eaton              
                                        Edmund J. Laclair, Jr.    
                                        Sandra L. Seaton          
                                        Eva J. Snead              
                                        Stacey L. Wrightam  

                                       50