-----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, I48XUtX1Y10OrxvnAK/N+DaejKoULGcfErOkllrLcgTRdDN2+dk7Aek0DDvUdn+Y L6efczIpxoYT42A3eRYcLg== /in/edgar/work/0000854395-00-000009/0000854395-00-000009.txt : 20001114 0000854395-00-000009.hdr.sgml : 20001114 ACCESSION NUMBER: 0000854395-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CENTRAL INDEX KEY: 0000854395 STANDARD INDUSTRIAL CLASSIFICATION: [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: 760743 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 0001.txt SEPTEMBER 2000 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 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 (Registrant'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 ------- ------ 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 October 31, 2000 ----------- -------------------------------------- Common Stock 3,754,818 shares This document is comprised of 20 pages. FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY INDEX PART I - FINANCIAL INFORMATION Page Number Item 1 -Consolidated Financial Statements and Notes to Consolidated Financial Statements 3-11 Item 2 -Management's Discussion and Analysis of the Consolidated Statements of Financial Condition and Results of Operations 12-18 Item 3 -Quantitative and Qualitative Disclosures about Market Risk 18 PART II - OTHER INFORMATION 19 SIGNATURES 20 2 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) SEPTEMBER 30, JUNE 30, ASSETS 2000 2000 ---- ---- (DOLLARS IN THOUSANDS) Cash and due from banks $ 12,018 $ 11,310 Interest bearing deposits 4,469 3,669 -------- -------- Total cash and cash equivalents 16,487 14,979 Securities available-for-sale 2,038 2,048 Securities held-to-maturity (fair value of $41,626 and $41,195 at September and June 2000) 43,115 43,134 Loans receivable, less allowance for loan losses of $2,311 (Sept.) and $2,252 (June) 490,278 471,231 Federal Home Loan Bank stock 4,849 4,081 Premises and equipment 11,960 11,709 Real estate owned: Acquired through foreclosure 80 - Held for development 446 446 Repossessed assets 93 - Excess of cost over net assets acquired 9,839 10,047 Accrued interest receivable ,687 2,032 Other assets 1,827 1,078 -------- -------- TOTAL ASSETS $582,699 $560,785 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Non-interest bearing $ 17,573 $ 16,822 Interest bearing 412,037 406,937 ------- ------- Total Deposits 429,610 423,759 Advances from Federal Home Loan Bank 95,142 80,339 Accrued interest payable 1,031 1,129 Accounts payable and other liabilities 2,669 1,962 Deferred income taxes 1,900 1,915 ------- ------- TOTAL LIABILITIES 530,352 509,104 ------- ------- 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, 3,756,000 shares in June and 3,755,000 shares in September 3,755 3,756 Additional paid-in capital - - Retained earnings 48,171 47,481 Accumulated other comprehensive income, net of tax 421 444 -------- -------- TOTAL STOCKHOLDERS' EQUITY 52,347 51,681 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $582,699 $560,785 ======== ======== See notes to consolidated financial statements. 3 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- INTEREST INCOME: Interest and fees on loans $ 9,977 $ 8,286 Interest and dividends on investments and deposits 841 814 ------- ------- Total interest income 10,818 9,100 ------- ------- INTEREST EXPENSE: Deposits 5,198 4,241 Federal Home Loan Bank advances 1,405 392 ------- ------- Total interest expense 6,603 4,633 ------- ------- Net interest income 4,215 4,467 Provision for loan losses 195 89 ------- ------- Net interest income after provision for loan losses 4,020 4,378 ------- ------- NON-INTEREST INCOME: Customer service fees on deposit accounts 578 450 Secondary mortgage market closing fees 111 134 Gain on sale of investments 345 153 Brokerage and insurance commissions 126 109 Other income 153 116 ------- ------ Total non-interest income 1,313 962 ------- ------ NON-INTEREST EXPENSE: Employee compensation and benefits 1,499 1,286 Office occupancy expense and equipment 367 351 FDIC insurance premium 22 57 Marketing and advertising 125 128 Outside services and data processing 322 301 State franchise tax 103 100 Amortization of intangibles 208 208 Other expense 610 567 ------ ------ Total non-interest expense 3,256 2,998 ------ ------ Income before income taxes 2,077 2,342 Income taxes 688 769 ------ ------ NET INCOME $1,389 $1,573 ====== ====== Earnings per share: Basic $ 0.37 $ 0.39 Diluted $ 0.37 $ 0.38 See notes to consolidated financial statements. 4 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (DOLLARS IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- NET INCOME $1,389 $1,573 Other comprehensive income (loss), net of tax: Change in unrealized gain (loss) on securities 205 (129) Reclassification of realized amount (228) (101) ------ ------ Net unrealized gain (loss) recognized in Comprehensive income (23) (230) ------ ------ COMPREHENSIVE INCOME $1,366 $1,343 ====== ====== See notes to consolidated financial statements. 5 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE PAID - IN RETAINED INCOME, SHARES AMOUNT CAPITAL EARNINGS NET OF TAX TOTAL ------ ------ ------- -------- ----------- ----- BALANCE, JUNE 30, 2000 3,756 $ 3,756 $ - $47,481 $ 444 $51,681 Net income - - - 1,389 - 1,389 Exercise of stock options 1 1 5 - - 6 Net change in unrealized gains (losses) on securities available- for-sale, net of tax - - - - (23) (23) Cash dividends declared ($.18 per share) - - - (676) - (676) Stock repurchased (2) (2) (5) (23) - (30) ----- ------- ------ ------- ------ ------- BALANCE, SEPTEMBER 30, 2000 3,755 $ 3,755 $ - $48,171 $ 421 $52,347 ===== ======= ====== ======= ====== =======
See notes to consolidated financial statements. 6 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- OPERATING ACTIVITIES: Net income $ 1,389 $ 1,573 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 195 89 Depreciation of premises and equipment 279 248 Net change in deferred loan fees and costs 97 84 Federal Home Loan Bank stock dividends (82) (58) Amortization of acquired intangible assets 208 208 Amortization and accretion on securities (15) (16) Gain on sale of investments available-for-sale (345) (153) Gain on sale of real estate held for development (3) - Deferred taxes (3) 173 Changes in: Interest receivable 345 443 Other assets (749) (12) Interest payable (98) (66) Accounts payable and other liabilities 710 1,175 ------ ------ Net cash provided by operating activities 1,928 3,688 ------ ------ INVESTING ACTIVITIES: Sales of securities available-for-sale 351 156 Purchases of securities available-for-sale (31) - Maturities of securities held-to-maturity 34 6,090 Net increase in loans (19,512) (14,754) Purchase of Federal Home Loan Bank stock (686) - Net purchases of premises and equipment (530) (61) ------- ------ Net cash used in investing activities (20,374) (8,569) ------- ------ FINANCING ACTIVITIES: Net increase in deposits 5,851 1,552 Advances from Federal Home Loan Bank 14,803 11,576 Dividends paid (676) (730) Proceeds from stock options exercised 6 - Common stock repurchased (30) (3,635) ------ ------ Net cash provided by financing activities 19,954 8,763 ------ ------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,508 3,882 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,979 11,892 ------- ------ CASH AND CASH EQUIVALENTS, END OF PERIOD $16,487 $15,774 ======= ======= See notes to consolidated financial statements. 7 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION - The consolidated financial statements include the accounts of First Federal Financial Corporation of Kentucky (the Corporation) and its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown (the Bank), and its wholly owned subsidiaries, First Service Corp. of Elizabethtown and First Heartland Mortgage. All significant intercompany transactions and balances have been eliminated. 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 period ending September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended June 30, 2001. 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, 2000. NEW ACCOUNTING PRONOUNCEMENTS - On July 1, 2000, the Corporation adopted a new accounting standard that will require all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. The adoption of this new standard did not have a material effect on the Corporation's financial statements. RECLASSIFICATIONS - Certain amounts have been reclassified in the prior financial statements to conform to the current period classifications. The reclassifications have no effect on net income or stockholders' equity as previously reported. 8 2. SECURITIES The amortized cost basis and fair values of securities at September 30, are as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE ---- ----- ------ ---------- (DOLLARS IN THOUSANDS) Securities available-for-sale: September 30, 2000: Equity securities $ 390 $ 739 $ (52) $ 1,077 Obligation of states and political subdivisions 1,010 - (49) 961 ------ ----- ----- ------- Total available-for-sale $1,400 $ 739 $(101) $ 2,038 ====== ===== ===== ======= Securities held-to-maturity: September 30, 2000: U.S. Treasury and agencies $41,872 $ 70 $(1,545) $40,397 Mortgage-backed securities 1,243 5 (19) 1,229 ------- ----- ------- ------- Total held-to-maturity $43,115 $ 75 $(1,564) $41,626 ======= ===== ======= =======
3. LOANS RECEIVABLE Loans receivable are summarized as follows: SEPTEMBER 30, JUNE 30, 2000 2000 ---- ---- (DOLLARS IN THOUSANDS) Commercial $ 12,787 $ 15,769 Real estate commercial 75,271 65,244 Real estate construction 13,692 15,257 Real estate mortgage 316,840 311,756 Consumer and home equity 63,191 59,744 Indirect consumer 19,297 15,186 ------- ------ Total loans 501,078 482,956 ------- ------- Less: Undisbursed construction loans (6,093) (6,890) Net deferred loan origination fees (2,396) (2,583) Allowance for loan losses (2,311) (2,252) -------- ------ (10,800) (11,725) -------- ------- Loans, net $490,278 $471,231 ======== ======== 9 The following table sets forth the changes in the allowance for loan losses: THREE MONTHS ENDED SEPTEMBER 30, -------------------------- 2000 1999 ---- ---- (DOLLARS IN THOUSANDS) Allowance for loan losses: Balance, beginning of period $ 2,252 $ 2,108 Provision for loan losses 195 89 Charge-offs (143) (44) Recoveries 7 4 ------- ------- Balance, end of period $ 2,311 $ 2,157 ======= ======= Investment in impaired loans is summarized below. There were no impaired loans for the periods presented without an allowance allocation. SEPTEMBER 30, JUNE 30, 2000 2000 ---- ---- (DOLLARS IN THOUSANDS) End of period impaired loans $1,900 $1,562 Amount of allowance for loan loss allocated 122 117 Average impaired loans outstanding 2,067 2,764 4. BORROWINGS Deposits are the primary source of funds for First Federal's lending and investment activities and for its general business purposes. The Bank can also use advances (borrowings) from the FHLB of Cincinnati to supplement its supply of lendable funds, meet deposit withdrawal requirements and to extend the term of its liabilities. Advances from the FHLB are typically secured by the Bank's stock in the FHLB and a portion of the Bank's first mortgage loans. At September 30, 2000 First Federal had $95.1 million in advances outstanding from the FHLB and the capacity to increase its borrowings an additinal $196 million. The FHLB of Cincinnati functions as a central reserve bank providing credit for savings banks and certain other member financial institutions. As a member, First Federal is required to own capital stock in the FHLB and is authorized to apply for advances on the security of such stock and certain of its home mortgages and other assets (principally, securities which are obligations of, or guaranteed by, the United States) provided certain standards related to credit-worthiness have been met. 10 5. EARNINGS PER SHARE 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. A reconciliation of the numerators and denominators of the basic and diluted EPS is as follows: THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- (IN THOUSANDS) Net income available to common shareholders $1,389 $1,573 ====== ====== Basic EPS: Weighted average common shares 3,756 4,069 ===== ====== Diluted EPS: Weighted average common shares 3,756 4,069 Dilutive effect of stock options 9 19 ----- ----- Weighted average common and incremental shares 3,765 4,088 ===== ===== Earnings Per Share: Basic $0.37 $0.39 ===== ===== Diluted $0.37 $0.38 ===== ===== 11 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 Hillview. 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. The primary regulator for First Federal is the Office of Thrift Supervision (OTS). The following discussion and analysis covers any significant changes in the financial condition since June 30, 2000 and any material changes in the results of operations for the three-month period ending, September 30, 2000. This discussion and analysis should be read in conjunction with "Managements Discussion and Analysis of Financial Condition and Results of Operations" included in the 2000 Annual Report to Shareholders. PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this report that are not statements of historical fact constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. In addition, forward-looking statements may be made in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of the Company. Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per share, capital structure and other financial items; (2) statements of plans and objectives of the Company or its management or Board of Directors; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "plans," "targeted," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those indicated by such statements. Some of the events or circumstances that could cause actual results to differ from those indicated by forward-looking statements include, but are not limited to, changes in economic conditions in the markets served by the Corporation, in Kentucky and the surrounding region, or in the nation as a whole; changes in interest rates; the impact of legislation and regulation; the Corporation's ability to offer competitive banking products and services; competition from other providers of financial services, the continued growth of the markets in which the Corporation operates; and the Corporation's ability to expand into new markets and to maintain profit margins in the face of pricing pressure. All of these events and circumstances are difficult to predict and many of them are beyond the Corporation's control. All dollar amounts (except per share data) are presented in thousands unless otherwise noted. 12 RESULTS OF OPERATIONS Net income for the quarter ended September 30, 2000 was $1.4 million or $0.37 per share diluted down from $1.6 million or $0.38 per share diluted for the same period in 1999. Lower net interest income caused by rapidly rising interest rates during the previous fiscal year resulted in the decrease in earnings. The following discussion outlines the significant differences in income and expenses for the quarter ended September 30, 2000, as compared to 1999. NET INTEREST INCOME-Net interest income decreased by $252 in 2000 to $4.2 million compared to $4.5 million in 1999. Rising interest rates resulted in a decline in the net interest margin of 70 basis points from 3.82% for 1999 to 3.12% for 2000. This decline in net interest margin can be largely attributed to the rise in certificate of deposit rates on specials offered by the Bank over the past eight months. To maintain our customer base in the midst of fierce rate competition, the Bank offered both short and long term certificate specials to retain maturing accounts renewing at much lower rates. These promotions were also necessary to assist in funding the loan growth in the Bank driven by the transition to a sales culture for retail associates. A commercial loan program composed of shorter-term fixed and variable rate loans is responsible for much of the Bank's loan growth and management's ability to manage rate risk during the rising rate environment. A dealer loan program was also developed to produce a large volume of consumer loans at higher yields than our mortgage portfolio. Realizing that both these programs represent products with added credit risk, the Bank has also developed loan processing review procedures to monitor loan underwriting and documentation. A formal process of application presentation to the Executive Loan Committee has been developed to assure the accuracy of lending policies. Monthly reporting requirements have been developed to provide additional control over delinquencies and foreclosures. Loan demand continued to be strong during the quarter ended September 30, 2000, as net loans increased by $19.1 million from $471.2 million at June 30, 2000, to $490.3 million at September 30, 2000, a 16% annualized growth rate. The increase in loans was primarily attributable to the Bank's commercial real estate loan portfolio, which increased $10.0 million for the quarter, and its secured real estate loan portfolio, which increased $5.1 million. This increase is a result of the Bank's continued emphasis on the active pursuit of lending opportunities. The Bank's dealer loan program increased $4.1 million while consumer and home equity loans increased $3.5 million for the quarter ended September 30, 2000. Average interest earning assets increased by $72.2 million from $464.5 million for the 1999 quarter to $536.7 million for the 2000 period due to the Bank's strong loan growth. Average loans, which comprise 90% of the total interest earning assets, were $70.5 million higher and averaged $482.6 million during quarter ended September 30, 2000, while the average yield on loans increased by 22 basis points to 8.20%. Average interest-bearing liabilities increased by $78.9 million to an average balance of $496.1 million for the 2000 quarter. Customer deposits averaged $408.6 million during the quarter ended September 30, 2000, a $25.4 million increase from the 1999 average balance of $383.2 million. Average Federal Home Loan Bank advances increased $53.5 million for the 2000 period to fund the Bank's increased lending activity that exceeded its deposit growth. Should loan demand continue to outpace deposit growth, as an alternative to FHLB advances, the Bank may choose to use maturing investments to fund this growth which will result in a decline in the Banks average balance of investment securities. 13 AVERAGE BALANCE SHEET The following table provides detailed information as to average balance, interest income/expense, and rates by major balance sheet categories for the three months ended September 30, 2000 and 1999.
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------ 2000 1999 ---- ---- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST (Dollars in thousands) ASSETS Interest earning assets: Equity securities $ 1,098 $ 8 2.89% $ 1,836 $ 5 1.08% State and political subdivision securities (1) 947 17 7.12 983 17 6.86 U.S. Treasury and agencies 41,876 678 6.42 39,982 673 6.68 Mortgage-backed securities 1,251 22 6.98 1,524 25 6.51 Loans receivable (2) (3) 482,627 9,977 8.20 412,134 8,286 7.98 FHLB stock 4,427 82 7.35 3,219 58 7.15 Interest bearing deposits 4,523 40 3.51 4,814 42 3.46 ------- ------ ---- -------- ----- ---- TOTAL INTEREST EARNING ASSETS 536,749 10,824 8.00 464,492 9,106 7.78 Less: Allowance for loan losses (2,285) (2,134) Non-interest earning assets 37,305 35,452 -------- -------- TOTAL ASSETS $571,769 $497,810 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Savings accounts $35,199 $ 267 3.01% $ 36,494 $ 205 2.23% NOW and money market accounts 78,480 499 2.52 78,690 429 2.16 Certificates of deposit and other time deposits 294,904 4,432 5.96 268,061 3,607 5.34 FHLB Advances 87,490 1,405 6.37 33,977 392 4.58 ------- ----- ---- ------- ----- ---- TOTAL INTEREST BEARING LIABILITIES 496,073 6,603 5.28 417,222 4,633 4.41 Non-interest bearing liabilities: Non-interest bearing deposits 17,569 17,181 Other liabilities 5,999 6,524 ------- ------- TOTAL LIABILITIES 519,641 440,927 Stockholders' equity 52,128 56,883 ------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $571,769 $497,810 ======== ======== NET INTEREST INCOME $4,221 $4,473 ====== ====== NET INTEREST SPREAD 2.72% 3.37% ===== ===== NET INTEREST MARGIN 3.12% 3.82% ===== =====
- ----------------------------------------------------- (1) Taxable equivalent yields are calculated assuming a 34% federal income tax rate. (2) Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans. (3) Calculations include non-accruing loans in the average loan amounts outstanding. 14 RATE/VOLUME ANALYSIS The table below sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (change in volume multiplied by old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are proportionately allocated between rate and volume variance. THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. 1999 INCREASE (DECREASE) DUE TO CHANGE IN (Dollars in thousands) NET RATE VOLUME CHANGE INTEREST INCOME: ---- ------ ------ Loans $201 $1,490 $1,691 Equity securities 2 1 3 State and political subdivision securities 0 0 0 U.S. Treasury and agencies 6 (1) 5 Mortgage-backed securities 5 (8) (3) FHLB stock 2 22 24 Interest bearing deposits 1 (3) (2) --- ----- ----- TOTAL INTEREST EARNING ASSETS 217 1,501 1,718 --- ----- ----- INTEREST EXPENSE: Savings accounts 33 29 62 NOW and money market accounts 35 35 70 Certificates of deposit and other time deposits 278 547 825 FHLB advances 133 880 1,013 ---- ------ ------ TOTAL INTEREST BEARING LIABILITIES 479 1,491 1,970 ---- ------ ------ NET CHANGE IN NET INTEREST INCOME $(262) $ 10 $ (252) ===== ====== ====== NON-INTEREST INCOME AND EXPENSE-Non-interest income was $1.3 million for the quarter ended September 30, 2000, as compared to $962 for the 1999 period, an increase of $351. Gains on investment sales were $345 during the 2000 period compared to $153 for the 1999 quarter, and increase of $192. Fee income from secondary market lending operations decreased by $23 or 17% during the 2000 period compared to 1999 due to rising mortgage rates that slowed the new originations and refinancing activity in home loans. Customer service fees charged on deposit accounts increased by $128 or 28% during the 2000 quarter due to growth in accounts and deposit relationships with existing customers. Other sources of income such as brokerage commissions, loan fees, and other customer transaction fees also increased during the 2000 period as compared to the 1999 period. Non-interest expense increased by $258 or 8.6% during the quarter ended September 30, 2000 as compared to the 1999 quarter. The increase is primarily attributable to costs associated with salaries, employee benefits and occupancy and equipment. Compensation and employee benefit expenses increased $213 in 2000 as compared to 1999. The increase includes inflationary salary adjustments and reflects growth in the overall staffing level from 160 full-time equivalent employees at September 30, 1999 to 192 full-time equivalent employees at September 30, 2000. Additional staffing was required to establish a bank-wide service and sales culture and to staff the re-opening of a banking center located in Bardstown, Kentucky. 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. The transition has been responsible for much of the renewed growth in the lending area of the Bank and has made the certificate special promotions a success in all offices. 15 Occupancy and equipment expense increased $16 during the 2000 quarter compared to the 1999 quarter. The increase is attributable to additional computer equipment needed to service the Bank's transition to a service and sales culture. All other expenses increased $29 during the quarter ended September 30, 1999 compared to the 1999 period including postage, telephone, data processing and customer account expenses. ALLOWANCE AND PROVISION FOR LOAN LOSSES The allowance for loan losses is regularly evaluated by management and maintained at a level believed to be adequate to absorb loan losses in the Bank's lending portfolios. Periodic provisions to the allowance are made as needed. An appropriate level of the general allowance is determined based on the application of projected risk percentages to graded loans by categories. In addition, specific reserves are established for individual loans when deemed necessary by management. The amount of the provision for loan losses necessary to maintain an adequate allowance is based upon an assessment of loan quality, changes in the size and character of the loan portfolio, consultation with regulatory authorities, delinquency trends, economic conditions and industry trends. Management believes, based on information presently available, that it has adequately provided for loan losses at September 30, 2000. Although management believes it uses the best information available to make allowance provisions, future adjustments, which could be material, may be necessary if management's assumptions differ significantly from the loan portfolio's actual performance. Net loan charge-offs increased $95 to $136 for the three months ended September 30, 2000 compared to $40 for the same period in 1999. The increase is primarily related to charge-offs of indirect consumer loans during the 2000 quarter. The Bank recorded provision for loan losses of $195 for the three months ended September 30, 2000 compared to $89 for 1999, as a result of the increase in charge-offs for the period. The following table sets forth an analysis of the Bank's loan loss experience for the three months ended September 30, 2000 and 1999. THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- (Dollars in thousands) Balance-beginning of period $2,252 $2,108 ------ ------ Loans charged-off: Real estate mortgage (2) (35) Consumer (141) (8) Commercial 0 0 ------ ------ Total charge-offs (143) (43) ------ ------ Recoveries: Real estate mortgage 0 0 Consumer 7 3 Commercial 0 0 ------ ------ Total recoveries 7 3 ------ ------ Net loans charged-off (136) (40) ------ ------ Provision for loan losses 195 89 ------ ------ Balance-end of period $2,311 $2,157 ------ ------ Net charge-offs to average loans outstanding .028% .010% Allowance for loan losses to total non-performing loans 122% 88% Allowance for loan losses to to net loans outstanding .47% .52% 16 NON-PERFORMING ASSETS The Bank's non-performing assets consist of loans on which interest is no longer accrued, real estate acquired through foreclosure and repossessed assets. The Bank does not have any loans greater than 90 days past due still on accrual. All loans considered impaired under SFAS 114 are included in non-performing loans. Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual loan terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loans effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is less than the unpaid balance. If these allocations cause the allowance for loan losses to require increase, such increase is reported in the provision for loan losses. Loans are reviewed on a regular basis and normal collection procedures are implemented when a borrower fails to make a required payment on a loan. If the delinquency on a mortgage loan exceeds 90 days and is not cured through normal collection procedures or an acceptable arrangement is not worked out with the borrower, the Bank institutes measures to remedy the default, including commencing a foreclosure action. Consumer loans generally are charged off when a loan is deemed uncollectible by management and any available collateral has been disposed of. Commercial business and real estate loan delinquencies are handled on an individual basis by management with the advice of the Bank's legal counsel. The Bank anticipates that the increase in non-performing real estate loans will continue due to the growth of the Bank's loan portfolio. The following table sets forth information with respect to the Bank's non-performing assets for the periods indicated. SEPTEMBER 30, JUNE 30, 2000 2000 ---- ---- (Dollars in thousands) Loans on non-accrual status (1)(2) $1,900 $1,562 Real estate acquired through foreclosure 80 - Repossessed assets 93 - ------ ------ Total non-performing assets $2,073 $1,562 ====== ====== Ratios: Non-performing loans to total loans .39% .33% Non-performing assets to total assets .36% .28% - -------------------------------------- (1) Loans on non-accrual status include impaired loans. (2) The interest income that would have been earned and received on non-accrual loans was not material. LIQUIDITY The Bank is required to maintain minimum specific levels of liquid assets as defined by the Office of Thrift Supervision's regulations. This requirement is based on a percentage of cash and eligible investments to deposits and short-term borrowings and is currently 4%. At September 30, 2000, the Bank's liquid assets were 5.84% of its liquidity base. The Bank's primary source of funds for meeting its liquidity needs are customer deposits, borrowings from the Federal Home Loan Bank, principal and interest payments from loans and mortgage-backed securities, and earnings from operations retained by the Bank. 17 The Bank intends to continue to fund loan growth (outstanding loan commitments were $3.9 million at September 30, 2000) with customer deposits and additional advances from the FHLB. At September 30, 2000, the Bank had an unused approved line of credit in the amount of $33.5 million and sufficient collateral to borrow an additional $196 million in advances from the FHLB. CAPITAL Savings institutions insured by the FDIC must meet various regulatory capital requirements. As of September 30, 2000, the Bank was categorized as well capitalized. The Bank's actual and required capital amounts and ratios are presented below:
TO BE CONSIDERED WELL CAPITALIZED UNDER PROMPT FOR CAPITAL CORRECTION ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ------------------------------------------------------------ AS OF SEPTEMBER 30, 2000: AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- Total risk-based capital (to risk- weighted assets) $44,147 10.6% $33,449 8.0% $41,812 10.0% Tier I capital (to risk-weighted assets) 41,837 10.0 16,725 4.0 25,087 6.0 Tier I capital (to average assets) 41,837 7.3 22,871 4.0 28,588 5.0
STOCK REPURCHASE PLAN-In October 1999 the Corporation's Board of Directors authorized the establishment of an additional stock repurchase program pursuant to which 10% of the Corporation's outstanding stock may be repurchased from time to time in the open market. The programs, which began in 1995, have repurchased a total of 613,681 shares. The Board will continue to evaluate earnings per share and monitor the success of the repurchase plan to maintain an attractive return to stockholders. The current plan expires in April 2001, at which time the Board will reanalyze the Bank's capital position and future earnings potential and if appropriate, initiate a new repurchase plan. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Bank currently does not engage in any derivative or hedging activity. Refer to the Bank's 2000 10-K for analysis of the interest rate sensitivity. 18 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY 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 Item 5. Other Information Not Applicable Item 6. Exhibits: Not Applicable Reports on Form 8-K: Not Applicable 19 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY 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: November 14, 2000 BY: (S) B. Keith Johnson ---------------------- B. Keith Johnson President and Chief Executive Officer DATE: November 14, 2000 BY: (S) Charles E. Chaney ----------------------- Charles E. Chaney Senior Vice President Chief Operating Officer 20 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
9 (This schedule contains summary financial information extracted from the registrant's unaudited consolidated financial statements for the three months ended September 30, 2000 and 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 3-MOS 3-MOS JUN-30-2001 JUN-30-2000 JUL-01-2000 JUL-01-1999 SEP-30-2000 SEP-30-1999 1.000 1.000 12,018 8,528 4,469 7,246 0 0 0 0 2,038 2,585 43,115 38,331 43,664 39,791 490,278 417,086 2,311 2,157 582,699 499,575 429,610 400,995 95,142 37,471 5,600 6,268 0 0 0 0 0 0 3,755 3,973 48,592 50,868 582,699 499,575 9,977 8,286 841 814 0 0 10,818 9,100 5,198 4,241 6,603 4,633 4,215 4,467 195 89 345 153 3,256 2,998 2,077 2,342 2,077 2,342 0 0 0 0 1,389 1,573 0.37 0.39 0.37 0.38 8.00 7.78 1,900 2,447 0 0 0 0 1,900 3,434 2,252 2,108 143 43 7 3 2,311 2,157 2,311 2,157 0 0 2,311 2,157
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