-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VLW8/cYMfOMKJ/0Onm/eusD3lLMMw/gbACULhcNA8+BJvgzxXVu6ixTn5GF0U21N O+Y/M/+rKben8o4JKmXeAw== 0000854395-00-000003.txt : 20000214 0000854395-00-000003.hdr.sgml : 20000214 ACCESSION NUMBER: 0000854395-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CENTRAL INDEX KEY: 0000854395 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 611168311 STATE OF INCORPORATION: KY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18832 FILM NUMBER: 534910 BUSINESS ADDRESS: STREET 1: 2323 RING ROAD CITY: ELIZABETHTOWN STATE: KY ZIP: 42701 BUSINESS PHONE: 5027652131 MAIL ADDRESS: STREET 1: 2323 RING ROAD CITY: ELIZABETHTOWN STATE: KY ZIP: 42701 10-Q 1 DECEMBER 1999 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended: December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ___________ to ___________ Commission File Number 0-18832 First Federal Financial Corporation of Kentucky (Exact Name of Registrant as specified in its charter) Kentucky 61-1168311 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 2323 Ring Road Elizabethtown, Kentucky 42701 (Address of principal executive offices) (Zip Code) (270) 765-2131 (Registrants's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of January 31, 2000 ----- ------------------------------------ Common Stock 3,853,919 shares This document is comprised of 16 pages. FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY INDEX PART I - Financial Information Page Number Item 1 -Consolidated Financial Statements Consolidated Statement of Financial Condition as of December 31, 1999 (Unaudited) and June 30, 1999. 3 Consolidated Statement of Income for the Three Months and Six Months Ended December 31, 1999 and 1998(Unaudited). 4 Consolidated Statement of Comprehensive Income for the Three Months and Six Months Ended December 31, 1999 and 1998 (Unaudited). 5 Consolidated Statement of Cash Flows for the Six Months Ended December 31, 1999 and 1998 (Unaudited). 6 Notes to Consolidated Financial Statements 7 Item 2 -Management's Discussion and Analysis of the Consolidated Statements of Financial Condition and Results of Operations 9 Item 3 -Market Disclosure 13 PART II - Other Information 14 SIGNATURES 16 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Consolidated Statements of Financial Condition
December 31, June 30, ASSETS 1999 1999 ---- ---- (unaudited) Cash and due from banks $ 10,508,679 $ 10,257,162 Interest bearing deposits 3,244,901 1,634,475 ------------ ----------- Total cash and cash equivalents 13,753,580 11,891,637 Securities available-for-sale 2,278,838 2,935,979 Securities held-to-maturity 43,288,396 44,404,392 Loans receivable, less allowance for loan losses of $2,241,292 (December) and $2,107,994 (June) 431,046,589 400,360,402 Federal Home Loan Bank stock 3,258,400 3,200,000 Premises and equipment 11,414,875 11,594,369 Real estate owned: Acquired through foreclosure 206,127 108,610 Held for development 445,683 445,683 Excess of cost over net assets acquired 10,463,072 10,878,972 Accrued interest 1,791,576 1,603,514 Other assets 796,577 880,216 ------------ ------------ TOTAL ASSETS $518,743,713 $488,303,774 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Non-interest bearing $ 16,964,142 $ 15,223,267 Interest bearing 389,875,303 384,220,172 ----------- ----------- Total Deposits 406,839,445 399,443,439 Advances from Federal Home Loan Bank 54,469,553 25,894,127 Accrued interest payable 890,481 868,840 Accounts payable and other liabilities 1,204,668 2,336,503 Deferred income taxes 1,864,778 1,898,703 ----------- ----------- TOTAL LIABILITIES 465,268,925 430,441,612 ----------- ----------- STOCKHOLDERS' EQUITY: Serial preferred stock, 5,000,000 shares authorized and unissued - - Common stock, $1 par value per share; authorized 10,000,000 shares; issued and outstanding, 4,121,112 shares in June and 3,893,405 shares in September 3,893,405 4,121,112 Additional paid-in capital 1,110 3,055,644 Retained earnings 48,915,008 49,587,422 Accumulated other comprehensive Income, net of tax 665,265 1,097,984 ----------- ------------ TOTAL STOCKHOLDERS' EQUITY 53,474,788 57,862,162 ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $518,743,713 $488,303,774 ============ ============
See notes to consolidated financial statements. 3 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, 1999 1998 1999 1998 ---- ---- ---- ---- Interest income: Interest and fees on loans $8,639,821 $8,069,729 $16,930,547 $15,776,543 Interest and dividends on investments and deposits 796,788 894,713 1,610,947 1,898,589 Total interest income 9,436,609 8,964,442 18,541,494 17,675,132 ---------- ---------- ----------- ----------- Interest expense: Deposits 4,333,318 4,480,944 8,574,360 8,708,291 Federal Home Loan Bank advances 659,198 309,921 1,051,326 708,725 ---------- ---------- ----------- ----------- Total interest expense 4,992,516 4,790,865 9,625,686 9,417,016 ---------- ---------- ----------- ----------- Net interest income 4,444,093 4,173,577 8,915,808 8,258,116 Provision for loan losses 90,470 60,000 179,995 120,000 ---------- ---------- ----------- ----------- Net interest income after provision for loan losses 4,353,623 4,113,577 8,735,813 8,138,116 ---------- ---------- ----------- ----------- Noninterest Income: Customer service fees on deposit accounts 491,912 448,408 942,416 835,903 Secondary mortgage market closing fees 95,191 199,870 224,476 314,784 Gain on sale of investments 152,026 94,933 305,161 203,200 Brokerage and insurance commissions 124,205 79,122 232,905 165,086 Other income 137,675 156,970 268,701 271,450 ---------- --------- ----------- ----------- Total other noninterest income 1,001,009 979,303 1,973,659 1,790,423 ---------- --------- ----------- ------------ Noninterest Expense: Employee compensation and benefits 1,446,137 1,146,482 2,732,401 2,238,429 Office occupancy expense and equipment 327,605 317,535 678,836 619,140 FDIC insurance premium 58,966 44,363 115,981 92,623 Marketing and advertising 113,995 83,751 257,209 170,776 Outside services and data processing 304,835 333,322 605,569 602,154 State franchise tax 99,531 79,357 199,063 158,714 Acquisition related expense 0 0 0 291,869 Amortization of intangibles 207,950 207,950 415,900 365,447 Other expense 632,781 523,774 1,200,040 933,518 ---------- ---------- ----------- ---------- Total other noninterest expense 3,191,800 2,736,534 6,204,999 5,472,670 ---------- ---------- ----------- ---------- Income before income taxes 2,162,832 2,356,346 4,504,473 4,455,869 Income taxes 698,195 818,253 1,466,690 1,545,468 ---------- ---------- ----------- ---------- Net income $1,464,637 $1,538,093 $3,037,783 $2,910,401 ========== ========== ========== ========== Earnings per share: Basic $ 0.37 $ 0.37 $ 0.76 $ 0.70 Diluted $ 0.37 $ 0.37 $ 0.76 $ 0.70
See notes to consolidated financial statements. 4 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Net Income Other comprehensive income (loss), net of tax: $1,464,637 $1,538,093 $3,037,783 $2,910,401 Change in unrealized gain (loss) on securities (102,595) 332,171 (231,313) 405,685 Reclassification of realized amount (100,337) (62,656) (201,406) (134,112) ---------- ---------- ---------- ----------- Net unrealized gain recognized in comprehensive income (202,932) 269,515 (432,719) 271,573 Comprehensive Income $1,261,705 $1,807,608 $2,605,064 $3,181,974 ========== ========== ========== ==========
See notes to consolidated financial statements. 5 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended December 31, ------------------------ 1999 1998 ---- ---- Operating Activities: Net income $ 3,037,783 $ 2,910,401 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 179,995 120,000 Depreciation of premises and equipment 499,440 376,297 Net change in deferred loan fees and costs 173,325 111,867 Federal Home Loan Bank stock dividends (58,400) (108,100) Amortization of acquired intangible assets 415,900 365,447 Amortization and accretion on securities (30,944) (36,611) Gain on sale of investments available-for-sale (305,161) (203,200) Interest receivable (188,062) 624,737 Other assets 86,947 121,769 Interest payable 21,641 720,256 Accounts payable and other liabilities (1,131,836) 234,948 Deferred taxes 188,990 30,990 ----------- ---------- Net cash provided by operating activities 2,889,618 5,268,801 ----------- ---------- Investing Activities: Sales of securities available-for-sale 305,989 211,237 Purchases of securities available-for-sale - (1,010,000) Purchases of securities held-to-maturity (5,000,000) (46,855,000) Maturities of securities held-to-maturity 6,147,619 30,142,101 Net increase in loans (31,137,025) (21,035,689) Net purchases of premises and equipment (319,946) (1,106,460) Net cash received in acquisition - 52,456,754 ----------- ----------- Net cash used in investing activities (30,003,363) 12,802,943 ----------- ----------- Financing Activities: Net increase in deposits 7,396,006 14,055,347 Net advances from (repayments to) Federal Home Loan Bank 28,575,426 (20,089,296) Dividends paid (1,433,391) (1,238,509) Common stock repurchased (5,562,353) (70,792) ----------- ------------- Net cash provided by financing activities 28,975,688 (7,343,250) ----------- ------------- Increase (decrease) in cash and cash equivalents 1,861,943 10,728,494 Cash and cash equivalents, beginning of year 11,891,637 9,149,712 Cash and cash equivalents, end of period $13,753,580 $19,878,206 =========== ===========
See notes to consolidated financial statements. 6 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Notes to Consolidated Financial Statements 1. Interim Financial Statements First Federal Financial Corporation of Kentucky ("Corporation") is the parent to its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown ("Bank"). The Corporation has no material income, other than that generated by the Bank. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ending December 31, 1999 are not necessarily indicative of the results that may be expected for the year ended June 30, 2000. For further information, refer to the consolidated financial statements and footnotes thereto-included in First Federal's annual report on Form 10-K for the year ended June 30, 1999 and Form 10-Q for the quarter ended September 30, 1999. New Accounting Pronouncements-In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This new standard requires companies to record derivatives on the balance sheet as assets or liabilities at fair value. Depending on the use of the derivative and whether it qualifies for hedge accounting, gains or losses resulting from changes in the values of those derivatives would either be recorded as a component of net income or as a change in stockholders' equity. First Federal is required to adopt this new standard July 1, 2000. Management has not yet determined the impact of this standard. Reclassifications - Certain amounts have been reclassified in the prior financial statements to conform with the current period classifications. The reclassifications have no effect on net income or stockholders' equity as previously reported. It is suggested that these financial statements be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Appendix to the Company's 1999 Proxy Statement which has been previously filed with the Commission. 2. Earnings Per Common Share - Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options. The reconciliation of the numerators and denominators of the basic and diluted EPS is as follows: 7 Three Months Ended Six Months Ended December 31, December 31, ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) Net income available to common shareholders $ 1,465 $ 1,538 $ 3,038 $ 2,910 ======= ======= ======= ======= Basic EPS: Weighted average common shares 3,922,581 4,128,987 3,999,477 4,129,255 ========= ========= ========= ========= Diluted EPS: Weighted average common shares 3,922,581 4,128,987 3,999,477 4,129,255 Dilutive effect of stock options 17,248 22,131 18,701 21,446 ---------- ---------- --------- --------- Weighted average common and Earnings Per Share: Basic $0.37 $0.37 $0.76 $0.70 ===== ===== ===== ===== Diluted $0.37 $0.37 $0.76 $0.70 ===== ===== ===== ===== 8 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Federal Financial Corporation of Kentucky ("Corporation") is the parent to its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown ("Bank"). The Bank has operations in the Kentucky communities of Elizabethtown, Radcliff, Bardstown, Munfordville, Shepherdsville, Mt. Washington, Brandenburg, Flaherty, and Paducah. The Bank's activities include the acceptance of deposits for checking, savings and time deposit accounts, making secured and unsecured loans, investing in securities and trust services. The Bank's lending services include the origination of real estate, commercial and consumer loans. Operating revenues are derived primarily from interest and fees on domestic real estate, commercial and consumer loans, and from interest on securities of the United States Government and Agencies, states, and municipalities. Regulators for First Federal include the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (and the Federal Reserve Bank of St. Louis) and the Kentucky Department of Fiunancial Institutions. The following discussion and analysis covers any significant changes in the financial condition since June 30, 1999 and any material changes in the results of operations for the three month and six month periods ending, December 31, 1999. This discussion and analysis should be read in conjunction with "Managements Discussion and Analysis of Financial Condition and Results of Operations" included in the 1999 Annual Report to Shareholders. PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The information set forth in this report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. Although the Corporation believes that the forward-looking statements are based upon reasonable assumptions, the statements are subject to certain risks and uncertainties that could cause the Corporation's actual results to differ materially from those indicated by the forward-looking statements. Among the key factors that may have a direct bearing on the Corporation's operating results are fluctuations in the economy; the relative strengths and weakness in the consumer and commercial credit sectors and in the real estate market; the actions taken by the Federal Reserve for the purpose of managing the economy; the Corporation's success in assimilating acquired branches and operations into the Bank's existing operations; the Bank's success in converting its systems to integrate new hardware and software without material disruption; the Corporation's ability to offer competitive banking products and services; the continued growth of the markets in which the Corporation operates consistent with recent historical experience; the enactment of federal legislation affecting the operations of the Corporation; and the Corporation's ability to expand into new markets and to maintain profit margins in the face of pricing pressure. Acquisition On July 24, 1998, the Bank completed its acquisition of three bank branches located in Meade County, Kentucky from Bank One, Kentucky, N.A. Two of the branches are located in Brandenburg, Kentucky and the third branch is in Flaherty, Kentucky. In the transaction, the Bank acquired certain assets and assumed certain liabilities associated with the acquisition of the Meade County banking centers. The transaction resulted in recording of approximately $11,000,000 of loans and $72,000,000 of deposits. The net deposits assumed exceeded the cash received by $8,670,000. Any ratios or analysis comparing years before acquisition will not be comparable. 9 Results of Operations Three Month Period Ended December 1999 vs. 1998 - Net income was $1,465,000 or $0.37 per share for the three month period ended December 31, 1999, as compared to $1,538,000 or $0.37 per share for the same period in 1998. The following discussion outlines the significant differences in income and expenses for the quarter ended December 31, 1999, as compared to 1998. Net interest income increased by $270,000 in 1999 to $4,444,000 compared to $4,174,000 in 1998. The increase is due to a higher volume of interest earning assets. Rising interest rates resulted in a decline in the net interest margin of .11% from 3.83% for 1998 to 3.72% for 1999. However, a robust growth in loans outstanding had a greater impact on net interest income than the Bank's decline in net interest margin. Average interest-earning assets increased by $46 million from $435 million for the 1998 quarter to $481 million for the 1999 quarter due primarily to the growth in loans outstanding. The Bank began an indirect auto dealer loan program in April 1999 within its existing market areas. Loans outstanding under this program were $8.4 million at December 31, 1999. Mortgage and consumer loans increased by $8.6 million, during the quarter ended December 31, 1999. The Bank's increased emphasis on commercial loans resulted in a growth of $7.5 million, in outstanding commercial loan balances. The yield on interest earning assets declined by 34 basis points for the 1999 quarter as compared to the 1998 quarter. During the 1998 quarter, the Bank's yield inflated due to the record levels of home mortgage refinancing activity which resulted in $154,000 of additional interest income from the unamortized portion of unearned loan fees on the loans paid off. Average interest-bearing liabilities increased by $25 million to an average balance of $438 million for the 1999 quarter compared to $413 million during the 1998 quarter. Customer deposits averaged $386 million during 1999, a decline of $5 million compared to the 1998 quarter. Federal Home Loan Bank advances increased $30 million for the period ending December 1999 to fund the Bank's increased lending activity that exceeded the quarter's deposit growth. The Bank's cost of funds declined by 22 basis points for the 1999 quarter as compared to the 1998 quarter as CD rates repriced to the lower market rates during the 1999 year. Total other income was $1,001,000 for the three months ended December 31, 1999, as compared to $979,000 for the 1998 period, an increase of $22,000. Gains on investment sales were $152,000 compared to gains of $95,000 for the 1998 quarter. Other sources of income such as brokerage commissions, loan fees, and other customer transaction fees increased by $70,000 or 10% due to growth in deposit relationships. Fee income relating to loans originated for the secondary market declined $105,000 or 52% due to rising mortgage rates that slowed the new originations and refinancing activity in home loans. Total other expense was $3,192,000 for the three month period ended December 31, 1999, as compared to $2,737,000 for the 1998 period, an increase of $455,000. Compensation and benefits increased by $300,000 in 1999 as compared to 1998. The increase includes inflationary salary adjustments and reflects growth in the number of full time equivalent employees to 161 on December 31, 1999 from 121 on December 31, 1998. Two new offices required additional staffing that included an in-store banking center in Hillview, Kentucky just South of the Louisville, Jefferson County area. A second office in the downtown Bardstown, Kentucky area of Nelson County was also opened as a transaction facility. During 1999, management adopted a new strategic plan for growing the Bank. This plan includes the development of a bank-wide service and sales culture. The Bank now takes a more proactive approach in expanding account relationships with existing and new customers. A prerequisite to the success of this transition is the need to expand the number of retail associates at many of the banking centers, such as relationship bankers, business development officers, stock brokers and loan officers. Further, a Senior Vice President and Retail Banking Officer has been hired to implement management's strategic transition to the bank-wide service and sales culture. In addition to compensation and benefits, marketing and advertising expense increased $30,000 or 36% in 1999 compared to 1998. The increase is due to the development of new products and services. All other expenses increased $125,000, which included expenses directly related to customers' accounts, postage, telephone, supplies, and the growth of services provided by the Bank. 10 Six Month Period Ended December 31, 1999 vs. 1998 - Net income was $3,038,000 or $0.76 per share for the six month period ended December 31, 1999 compared to $2,910,000, or $.705 for December 31, 1998. Acquisition-related costs in connection with the purchase of three banking centers during the quarter ended September 30, 1998, in the amount of $193,000 (net of tax) were charged against earnings for that quarter. Excluding these costs, net earnings for the six month period ended December 31, 1998, would have been $3,103,000 or $0.75 per share. The following discussion outlines the significant differences in income and expenses for six months ending December 31, 1999, as compared to 1998. Net interest income increased by $658,000 in 1999 as compared to 1998 in spite of the declining net interest margin which was 3.78% for the 1999 period as compared to 3.83% for the 1998 period. The positive growth in net interest income resulted from loan growth that can be attributed to a combination of more aggressive commercial real estate lending practices, indirect auto lending, and a strong retail loan demand. Average interest-earning assets increased by $39 million from $434 million for the 1998 period to $473 million for the 1999 period. Loans averaged $420 million during 1999, an increase of $41 million, while the average yield on loans decreased by .37% to 7.86% Average interest-bearing liabilities increased by $19 million to an average balance of $428 million for 1999. Customer deposits averaged $385 million during 1999 compare to $386 million for 1998. Federal Home Loan Bank Advance increased $20 million for the period ending December 1999. This increase funded the Bank's outstanding loan growth during the period that exceeded a nominal deposit growth. Total other income was $1,973,000 for the six months ended December 31, 1999, as compared to $1,790,000 for the 1998 period, an increase of $183,000. Gains on investment sales were $305,000 for 1999 period as compared to gains of $203,000 for the 1998 period. Customer service fees charged on deposit accounts increased by $107,000 or 13% during 1999 due to growth in customer accounts. Other sources of income such as loan fees, other customer transaction fees, and trust account commissions increased by $64,000 due to growth in deposit relationships with existing and new customers. Income from secondary market lending operations declined by $90,000, or 29% due to an increase in interest rates that slowed activity in home mortgages. Total other expense was $6,205,000 for the six months ended December 31, 1999. In the first quarter of 1998 the Bank had a one time expense $193,000 (net of tax) for the acquisition of three branches in Meade County. Excluding the above expenses, the total other expense was $5,181,000, representing an increase of $1,024,000. Compensation and benefits increased by $494,000 or 22% as compared to 1998. The increase includes inflationary salary increases and reflects an increase in number of full time equivalent employees to 161 at December 31, 1999 from 121 at December 31, 1998. The increased staffing is a result of the Bank adopting a strategic plan to develop a Sales and Service culture to promote retail growth. Beyond compensation and benefits, marketing and advertising expense increased $87,000 or 51% in 1999 compared to 1998. Increase is due to the development of new products and services. Office occupancy and equipment expenses increased by $60,000 in 1999 as compared to 1998 due to inflationary increases in other occupancy and equipment related expenses. These costs relate to the opening of an additional in-store facility, remodeling an existing office, and installing three new ATM's. All other expenses increased by $383,000 in 1999 compared to 1998. Expensed directly related to customer accounts increased due to a higher volume. The cost of postage, telephone, data processing, and supplies increased due to asset growth and new services provided by the Bank. 11 Non-Performing Assets Management periodically evaluates the adequacy of the allowance for loan losses based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may effect the borrower's ability to repay and other factors. During the quarter ended December 31, 1999 management chose to add $90,000 to the reserve for loan losses. Although current loan charge-offs and delinquencies are consistent with previous years, the reserve was increased to compensate for the Bank's continued strong loan growth. The Bank experienced an insignificant amount of uncollectible loans during the periods indicated in the table below. Approximately 75% of the Bank's non-performing assets are collateralized by one-to-four family residences at December 31, 1999. Three Months Ended Six Months Ended December 31, December 31, ------------------- ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) Allowance for loan losses: Balance, July 1 $ 2,157 $ 2,123 $ 2,108 $ 1,853 Balance acquired in merger - - - 205 Provision for loan losses 90 60 180 Charge-offs Recoveries 1 21 ------- ------- ------ ------- Balance, end of period $ 2,241 $ 2,002 $ 2,241 $ 2,002 ======= ======= ======= ======= Loans outstanding at quarter end -- Gross Loans $433,288 $388,890 Non-performing loans at quarter end: Other non-performing loans 623 926 -------- -------- Total non-performing loans 2,509 1,639 Real estate acquired through foreclosure 206 228 -------- -------- Total non-performing assets $ 2,715 $ 1,867 ======= ======= Ratios: Non performing loans to loans .62% .42% Allowance for loans losses to non-performing loans 89% 122% Allowance for loan losses to net loans .52% .51% Non-performing assets to total assets .52% .39% Liquidity & Capital Resources Loan demand continued to be strong during the three months ended December 31, 1999, as net loans increased by $16.1 million to $431 million, a 15% annualized growth. In spite of strong competition from new financial institutions, mutual funds and the stock market, customer deposits increased by $5.8 million during the period. The Bank's loan growth was funded by additional borrowings of $16.9 million from the Federal Home Loan Bank. Current regulations require the Corporation's subsidiary, First Federal Savings Bank, to maintain minimum specific levels of liquid assets, (currently 4%) of cash and eligible investments to deposits and short-term borrowings. At December 31, 1999, the Bank's liquid assets were 9.06% of its liquidity base. The Bank intends to continue to fund loan growth (outstanding loan commitments were $16.0 million at December 31, 1999) and any declines in customer deposits through additional advances from the FHLB. At December 31, 1999, the Bank had an unused approved line of credit in the amount of $16.7 million, and the potential to significantly increase its indebtedness with the FHLB, if necessary, due to its additional available collateral. 12 The Office of Thrift Supervision's capital regulations require savings institutions to meet three capital standards: a 3% Tier I leverage ratio; a 4% Tier I capital ratio; and an 8% risk-based capital standard. As of September 30, 1999, the Bank's actual capital percentages for Tier I leverage of 7.77%, Tier I capital of 12.10%, and current risk-based capital of 12.79%, significantly exceed the regulatory requirement for each category. Year 2000 The transition into a new century for the Bank's information and technology systems experienced no problems on January 1, 2000. After months of preparation and testing, the work of the Bank's staff in renovating computer systems with guidance from regulators resulted in no impact to processing customer accounts. Quantitative and Qualitative Disclosures About Market Risk The Bank currently does not engage in any derivative or hedging activity. Refer to the Bank's 1999 10-K for analysis of the interest rate sensitivity. 13 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Part II - Other Information Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable The Corporation's 1999 Annual Meeting of Shareholders was held on November 10, 1999. At the meeting, the directors listed below were elected as directors of the Corporation for terms expiring at the annual meeting in the year set forth to each of their names. Name Term Expires Wreno M. Hall 2002 Walter P. Huddleston 2002 J. Stephen Mouser 2002 Michael L. Thomas 2002 In addition, the following directors will continue in office until the annual meeting of the year set forth beside each of their names. Name Term Expires Robert M. Brown 2001 Burlyn Pike 2001 J. Alton Rider 2001 B. Keith Johnson 2003 Irene B. Lewis 2003 Kennard Peden 2003 14 The voting results for the matters brought before the 1999 Annual Meeting are as follows: 1. Election of Directors. Cumulative voting applied in the election of directors. Name Votes For Abstentions Broker Nonvotes Stephen Mouser 3,108,028.932 0 0 Michael L. Thomas 3,131,781.582 0 0 Wreno M. Hall 2,888,776.054 0 0 Walter D. Huddleston 3,097,787.364 0 0 Item 5. Other Information Not Applicable Item 6. Exhibits: Not Applicable Reports on Form 8-K: The Corporation filed Form 8-K on October 20,1999 to report the establishment of a stock repurchase program to acquire up to 5% of the Corporation's currently outstanding shares of common stock. 15 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATE: February 11, 2000 BY: (S) B. Keith Johnson ------------------------- B. Keith Johnson President and Chief Executive Officer DATE: February 11, 2000 BY: (S) Charles E. Chaney ----------------------- Charles E. Chaney Senior Vice President 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 (This schedule contains summary financial information extracted from the registrant's unaudited consolidated financial statements for the six months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements.) 0000854395 First Federal Financial Corp of Kentucky 1,000 U.S. Dollars 6-MOS 6-MOS Jun-30-2000 Jun-20-1999 Jul-01-1999 Jul-01-1998 Dec-31-1999 Dec-31-1998 1.000 1.000 10,508,679 19,361,128 3,244,901 517,078 0 0 0 0 2,278,838 3,344,467 43,288,396 41,564,654 43,636,049 45,093,467 431,046,589 386,886,843 2,241,292 2,002,000 518,743,713 478,937,818 406,839,445 393,252,742 54,469,553 23,159,559 3,959,927 5,966,582 0 0 0 0 0 0 3,893,405 4,127,112 49,581,383 52,431,823 518,743,713 478,937,818 16,930,547 15,776,543 1,610,947 1,898,589 0 0 18,541,494 17,675,132 8,574,360 8,708,291 9,625,686 9,417,016 8,915,808 8,258,116 179,995 120,000 305,161 203,200 6,204,999 5,544,670 4,504,473 4,455,869 4,504,473 4,455,869 0 0 0 0 3,037,783 2,910,401 0.76 0.70 0.76 0.70 7.86 8.06 2,509,000 0 0 1,639,000 0 0 3,716,000 1,850,000 2,108,000 1,853,000 52,000 197,000 5,000 21,000 2,241,000 2,002,000 0 0 0 0 2,241,000 2,002,000
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