-----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, VSRyqlN/8OGL/M2Znq1Hpkbf5PqKDKK8r5u+9RH1bCFU2wE6jnjISWY6ENjAotDx sWIXgroVClfDHDS9QhiYxQ== 0000854395-01-500004.txt : 20010514 0000854395-01-500004.hdr.sgml : 20010514 ACCESSION NUMBER: 0000854395-01-500004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 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: 1630310 BUSINESS ADDRESS: STREET 1: 2323 RING ROAD CITY: ELIZABETHTOWN STATE: KY ZIP: 42701 BUSINESS PHONE: 2707652131 MAIL ADDRESS: STREET 1: 2323 RING ROAD CITY: ELIZABETHTOWN STATE: KY ZIP: 42701 10-Q 1 mar01.txt MARCH 2001 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 March 31, 2001 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 April 30, 2001 ----------- ------------------------------------ Common Stock 3,755,235 shares 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 12-22 Item 3 -Quantitative and Qualitative Disclosures about Market Risk 20-22 PART II - OTHER INFORMATION 23 SIGNATURES 24 2 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY Consolidated Statements of Financial Condition (Unaudited) March 31, June 30, ASSETS 2001 2000 ---- ---- (Dollars in thousands) Cash and due from banks $ 13,874 $ 11,310 Interest bearing deposits 12,184 3,669 ------ ------ Total cash and cash equivalents 26,058 14,979 Securities available-for-sale 1,907 2,048 Securities held-to-maturity (fair value of $30,080 and $41,195 at March 2001 and June 2000) 29,935 43,134 Loans receivable, less allowance for loan losses of $2,716 (March) and $2,252 (June) 513,464 471,231 Federal Home Loan Bank stock 5,741 4,081 Premises and equipment 11,571 11,709 Real estate owned: Acquired through foreclosure 107 - Held for development 721 446 Repossessed assets 77 - Excess of cost over net assets acquired 9,423 10,047 Accrued interest receivable 1,782 2,032 Other assets 1,092 1,078 ------- -------- TOTAL ASSETS $601,878 $560,785 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Non-interest bearing $ 19,017 $ 16,822 Interest bearing 444,997 406,937 ------- ------- Total Deposits 464,014 423,759 Advances from Federal Home Loan Bank 78,963 80,339 Accrued interest payable 1,890 1,129 Accounts payable and other liabilities 1,358 1,962 Deferred income taxes 2,030 1,915 ------- ------- TOTAL LIABILITIES 548,255 509,104 ------- ------- 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 March 3,755 3,756 Additional paid-in capital - - Retained earnings 49,530 47,481 Accumulated other comprehensive income, net of tax 338 444 ------ ------ TOTAL STOCKHOLDERS' EQUITY 53,623 51,681 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $601,878 $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 Nine Months Ended March 31, March 31, 2001 2000 2001 2000 Interest Income: Interest and fees on loans $10,759 $ 8,946 $31,171 $25,858 Interest and dividends on investments and deposits 903 798 2,610 2,409 ------ ----- ------ ------ Total interest income 11,662 9,744 33,781 28,267 ------ ----- ------ ------ Interest Expense: Deposits 5,666 4,615 16,339 13,189 Federal Home Loan Bank advances 1,267 753 4,374 1,804 ----- ----- ------ ------ Total interest expense 6,933 5,368 20,713 14,993 ----- ----- ------ ------ Net interest income 4,729 4,376 13,068 13,274 Provision for loan losses 285 90 786 270 ----- ----- ------ ------ Net interest income after provision for loan losses 4,444 4,286 12,282 13,004 ----- ----- ------ ------ Non-interest Income: Customer service fees on deposit accounts 663 467 1,862 1,409 Secondary mortgage market closing fees 117 56 343 280 Gain on sale of investments - 152 696 457 Brokerage and insurance commissions 175 119 498 352 Other income 157 191 490 460 ----- ---- ----- ----- Total non-interest income 1,112 985 3,889 2,958 ----- ---- ----- ----- Non-interest Expense: Employee compensation and benefits 1,658 1,490 4,726 4,222 Office occupancy expense and equipment 366 323 1,089 1,002 FDIC insurance premium 21 21 64 137 Marketing and advertising 125 128 376 385 Outside services and data processing 372 303 1,035 908 State franchise tax 109 102 315 301 Amortization of intangibles 208 208 624 624 Other expense 588 549 1,822 1,731 ----- ----- ----- ----- Total non-interest expense 3,447 3,124 10,051 9,310 ----- ----- ------ ----- Income before income taxes 2,109 2,147 6,120 6,652 Income taxes 705 744 2,022 2,211 ------ ------ ----- ----- Net income $1,404 $1,403 $4,098 $4,441 ====== ====== ====== ====== Earnings per share: Basic $ 0.37 $ 0.36 $ 1.09 $ 1.12 Diluted $ 0.37 $ 0.36 $ 1.09 $ 1.12
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 Nine Months Ended March 31, March 31, --------- --------- 2001 2000 2001 2000 ---- ---- ---- ---- Net Income $1,404 $1,403 $4,098 $4,441 Other comprehensive income (loss), net of tax: Change in unrealized gain (loss) on securities (21) (76) 353 (306) Reclassification of realized amount - (100) (459) (302) ------ ------ ----- ----- Net unrealized gain (loss) recognized in Comprehensive income (21) (176) (106) (608) ------ ------ ----- ------ Comprehensive Income $1,383 $1,227 $3,992 $3,833 ====== ====== ====== ======
See notes to consolidated financial statements. 5 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY Consolidated Statements of Changes in Stockholders' Equity For the Nine Months Ended March 31, 2001 (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 $51,681 Net income - - - 4,098 - 4,098 Exercise of stock options 1 1 7 - - 8 Net change in unrealized gains (losses) on securities available- for-sale, net of tax - - - - (106) (106) Cash dividends declared ($.54 per share) - - - (2,028) - (2,028) Stock repurchased (2) (2) (7) (21) - (30) ----- ------- ------- ------- ------ ------- Balance, March 31, 2001 3,755 $ 3,755 $ - $49,530 $ 338 $53,623 ===== ======= ======= ======= ====== =======
See notes to consolidated financial statements. 6 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Nine Months Ended March 31, 2001 2000 ---- ---- Operating Activities: Net income $ 4,098 $ 4,441 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 786 270 Depreciation of premises and equipment 841 757 Net change in deferred loan fees and costs 232 112 Federal Home Loan Bank stock dividends (281) (116) Amortization of acquired intangible assets 624 624 Amortization and accretion on securities (45) (46) Gain on sale of investments available-for-sale (696) (457) Gain on sale of real estate held for development (9) - Deferred taxes 170 204 Changes in: Interest receivable 250 197 Other assets (14) 5 Interest payable 761 30 Accounts payable and other liabilities (595) (421) ----- ----- Net cash provided by operating activities 6,122 5,600 ----- ----- Investing Activities: Sales of securities available-for-sale 708 462 Purchases of securities available-for-sale (32) - Purchases of securities held-to-maturity - (5,000) Maturities of securities held-to-maturity 13,244 6,299 Net increase in loans (43,435) (49,116) Purchase of Federal Home Loan Bank stock (1,379) - Net purchases of premises and equipment (703) (652) Purchase of real estate held for development (275) - ------- ------- Net cash used in investing activities (31,872) (48,007) ------- ------- Financing Activities: Net increase in deposits 40,255 27,254 Advances from Federal Home Loan Bank 32,590 52,844 Repayments to Federal Home Loan Bank (33,966) (25,151) Dividends paid (2,028) (2,127) Proceeds from stock options exercised 8 5 Common stock repurchased (30) (7,549) ------- ------ Net cash provided by financing activities 36,829 45,276 ------ ------ Increase in cash and cash equivalents 11,079 2,869 Cash and cash equivalents, beginning of period 14,979 11,891 ------ ------ Cash and cash equivalents, end of period $26,058 $14,760 ======= ======= 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 and nine-month periods ending March 31, 2001 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 are as follows:
Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- (Dollars in thousands) Securities available-for-sale: March 31, 2001: Equity securities $ 385 $ 560 $ (53) $ 892 Obligation of states and political subdivisions 1,010 5 - 1,015 ------- ----- ----- ------ Total available-for-sale $ 1,395 $ 565 $ (53) $ 1,907 ======= ===== ===== ====== Securities held-to-maturity: March 31, 2001: U.S. Treasury and agencies $28,894 $ 183 $ (26) $29,051 Mortgage-backed securities 1,041 4 (16) 1,029 ------- ----- ---- ------- Total held-to-maturity $29,935 $ 187 $ (42) $30,080 ======= ===== ===== =======
Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- (Dollars in thousands) Securities available-for-sale: June 30, 2000: Equity securities $ 365 $ 807 $ (67) $ 1,105 Obligation of states and political subdivisions 1,010 - (67) 943 ------- ----- -------- ------- Total available-for-sale $ 1,375 $ 807 $ (134) $ 2,048 ======= ===== ======== ======= Securities held-to-maturity: June 30, 2000: U.S. Treasury and agencies $41,860 $ 65 $(1,989) $39,936 Mortgage-backed securities 1,274 7 (23) 1,258 ------- ---- -------- ------- Total held-to-maturity $43,134 $ 72 $(2,012) $41,194 ======= ==== ======= =======
9 3. LOANS RECEIVABLE Loans receivable are summarized as follows: March 31, June 30, 2001 2000 ---- ---- (Dollars in thousands) Commercial $ 15,360 $ 15,769 Real estate commercial 89,106 65,244 Real estate construction 10,337 8,367 Real estate mortgage 317,121 311,756 Consumer and home equity 65,051 59,744 Indirect consumer 21,611 15,186 ------- ------- Total loans 518,586 476,066 ------- ------- Less: Net deferred loan origination fees (2,406) (2,583) Allowance for loan losses (2,716) (2,252) -------- ------ (5,122) (4,835) -------- ------ Loans, net $513,464 $471,231 ======== ======== The following table sets forth the changes in the allowance for loan losses:
Three Months Ended Nine Months Ended March 31, March 31, ----------------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in thousands) Allowance for loan losses: Balance, beginning of period $ 2,541 $ 2,241 $ 2,252 $ 2,108 Provision for loan losses 285 90 786 270 Charge-offs (122) (29) (361) (81) Recoveries 12 2 39 7 ------- ------- ------- ------- Balance, end of period $ 2,716 $ 2,304 $ 2,716 $ 2,304 ======= ======= ======= =======
Investment in impaired loans is summarized below. There were no impaired loans for the periods presented without an allowance allocation. March 31, June 30, 2001 2000 ---- ---- (Dollars in thousands) End of period impaired loans $ 739 $1,562 Amount of allowance for loan loss allocated 59 117 10 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 substantially all of the Bank's first mortgage loans. At March 31, 2001 First Federal had $78.9 million in advances outstanding from the FHLB and the capacity to increase its borrowings an additional $222 million. 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 Nine Months Ended March 31, March 31, --------- --------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) Net income available to common shareholders $1,404 $1,403 $4,098 $4,441 ====== ====== ====== ====== Basic EPS: Weighted average common shares 3,755 3,849 3,755 3,950 ===== ===== ===== ====== Diluted EPS: Weighted average common shares 3,755 3,849 3,755 3,950 Dilutive effect of stock options 6 15 7 30 ----- ----- ----- ----- Weighted average common and incremental shares 3,761 3,864 3,762 3,980 ===== ===== ===== ===== Earnings Per Share: Basic $0.37 $0.36 $1.09 $1.12 ===== ===== ===== ===== Diluted $0.37 $0.36 $1.09 $1.12 ===== ===== ===== =====
11 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL 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 and nine-month periods ending, March 31, 2001. 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 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. OVERVIEW Net income for the quarter ended March 31, 2001 was $1.4 million or $0.37 per share diluted compared to $1.4 million or $0.36 per share diluted for the same period in 2000. During the 2000 quarter, the Corporation sold investments with gains of $152,000. Excluding this gain, earnings per share for the 2000 quarter would have been $0.34 per share diluted compared to the recently completed 2001 quarter of $0.37 per share diluted. Net income for the nine months ended March 31, 2001 was $4.1 million or $1.09 per share diluted compared to $4.4 million or $1.12 per share diluted for the same period in 2000. The decline in earnings is a direct result of the decreasing net interest margin. The Bank's customer deposits and borrowings are shorter in term than the loan and investment portfolio. During the rapidly rising interest rate environment of 1999 and the first half of 2000, the Bank's cost of funds increased much faster than its yield on interest earning assets. In January 2001, the Bank restructured $75 million of its Federal Home Loan Bank advances to secure longer term financing at lower interest rates. The effective interest rate on this debt declined sharply from 6.6% to 4.93%, resulting in anticipated future interest savings of approximately $313,000 per quarter, compared to the interest cost during the six months ended December 31, 2000. Management anticipates that the restructuring of advances coupled with the Federal Open Market Committee's interest rate reductions occurring during the March 31, 2001 quarter will have a positive impact on future earnings. The Bank's book value per common share increased from $13.70 at March 31, 2000 to $14.28 at March 31, 2001. 12 The Bank's total assets at March 31, 2001 grew to $601.9 million compared to $560.8 million at June 30, 2000. Net loans increased $42.3 million from June 30, 2000 to $513.5 million at March 31, 2001. Real estate lending remained strong across all product lines, particularly commercial real estate. The commercial real estate portfolio increased $23.9 million while the residential real estate portfolio grew $5.4 million. This growth is a result of the Bank's continued emphasis on the active pursuit of lending opportunities. The Bank's dealer loan program increased $6.4 million while consumer and home equity loans increased $5.3 million. While loan growth remained strong, the percentage of non-performing loans to total loans remained low at 0.14%, as the Bank maintained its underwriting standards and continued its emphasis on secured real estate lending. Funding for the growth in the loan portfolio was derived from deposits. Deposits increased by $40.2 million to $464 million as of March 31, 2001 compared to $423.8 million at June 30, 2000. The growth in retail deposits was primarily in short-term certificate of deposits and money market accounts caused in part by a shift during recent quarters in funds from the stock market to more conservative investments. FHLB advances decreased from $80.3 million at June 30, 2000 to $78.9 million at March 31, 2001. RESULTS OF OPERATIONS Net Interest Income-For the quarter ended March 31, 2001, net interest income was $4.7 million, up $353,000 from the $4.4 million attained during the 2000 quarter. The net interest rate spread decreased from 3.15% during the 2000 quarter to 2.93% in the comparable quarter of 2001. The Bank's net interest margin decreased from 3.53% during the quarter ended March 31, 2000 to 3.32% for the 2001 period. The decrease in net interest spread and margin occurred because the yield on interest earning assets increased 33 basis points while the rate paid on liabilities increased 55 basis points. During the 2001 quarter, average interest-earning assets were $569.6 million, an increase of $73.5 million over the same period in 2000. Total average interest bearing liabilities increased from $455.6 million during the quarter ended March 31, 2000 to $527.5 million for the same period in 2001. Net interest income for the nine months ended March 31, 2001 was $13.1 million, down from $13.3 million attained during the same period of 2000. The Bank's net interest spread decreased 54 basis points as well as the net interest margin for the nine months ended March 31, 2001 compared to the same period in 2000. The decrease in the net interest spread and margin occurred because the yield on interest earning assets increased 28 basis points while the rate paid on liabilities increased 82 basis points. While market interest rates have increased over the past year, short-term rates have increased more than long-term rates during that time period. This has caused interest-bearing liabilities, which are generally tied to shorter-term market indices to reprice at higher rates than interest earning assets, which are generally tied to longer-term indexes. Also, the Bank's interest bearing liabilities have a shorter repricing frequency and are subject to repricing at a faster pace than its interest earning assets. Management expects that with the Federal Open Market Committee's interest rate reductions occurring during the March 31, 2001 quarter, the Bank's overall net interest margin and spread are likely to improve. These improvements in spread and in margin would, in turn, increase net interest income, even if there was no growth in the Bank's overall loan portfolio. 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 March 31, 2001 and 2000.
Three Months Ended March 31, ----------------------------------------------------------------------------- 2001 2000 ---- ---- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ASSETS (Dollars in thousands) Interest earning assets: Equity securities $ 935 $ 8 3.42% $ 1,242 $ 8 2.58% State and political subdivision Securities (1) 997 17 6.82 947 17 7.18 U.S. Treasury and agencies 38,656 710 7.35 41,848 674 6.44 Mortgage-backed securities 1,037 19 7.33 1,348 23 6.82 Loans receivable (2) (3) 516,392 10,759 8.33 444,474 8,945 8.05 FHLB stock 5,666 101 7.13 3,316 58 7.00 Interest bearing deposits 5,959 54 3.62 2,923 24 3.28 ------- ------ ---- ------- ----- ---- Total interest earning assets 569,642 11,668 8.19 496,098 9,749 7.86 ------ ---- ----- ---- Less: Allowance for loan losses (2,641) (2,273) Non-interest earning assets 37,493 36,809 -------- -------- Total assets $604,494 $530,634 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Savings accounts $33,151 $ 225 2.71% $ 34,938 $ 222 2.54% NOW and money market accounts 80,509 550 2.73 77,973 530 2.72 Certificates of deposit and other time deposits 314,915 4,891 6.21 289,774 3,863 5.33 FHLB Advances 98,957 1,267 5.12 52,899 753 5.69 ------- ------ ---- ------- ----- ---- Total interest bearing liabilities 527,532 6,933 5.26 455,584 5,368 4.71 ----- ---- ----- ---- Non-interest bearing liabilities: Non-interest bearing deposits 17,982 16,915 Other liabilities 5,558 5,300 ------- ------ Total liabilities 551,072 477,799 Stockholders' equity 53,422 52,835 ------- ------- Total liabilities and stockholders' equity $604,494 $530,634 ======== ======== Net interest income $4,735 $4,381 ====== ====== Net interest spread 2.93% 3.15% ===== ===== Net interest margin 3.32% 3.53% ===== =====
- ----------------------------------------------------- (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 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 nine months ended March 31, 2001 and 2000.
Nine Months Ended March 31, ----------------------------------------------------------------------------------- 2001 2000 ---- ---- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ASSETS (Dollars in thousands) Interest earning assets: Equity securities $ 1,029 $ 25 3.24% $ 1,532 $ 34 2.96% State and political subdivision Securities (1) 970 50 6.87 965 50 6.91 U.S. Treasury and agencies 40,591 2,071 6.80 41,388 2,027 6.53 Mortgage-backed securities 1,152 64 7.41 1,445 71 6.55 Loans receivable (2) (3) 500,234 31,171 8.31 428,457 25,858 8.05 FHLB stock 5,101 281 7.35 3,265 174 7.11 Interest bearing deposits 4,976 136 3.64 3,605 70 2.59 ------- ------ ---- ------- ------ Total interest earning assets 554,053 33,798 8.13 480,657 28,284 7.85 ------ ---- ------ ---- Less: Allowance for loan losses (2,449) (2,206) Non-interest earning assets 37,318 36,501 ------- -------- Total assets $588,922 $514,952 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Savings accounts $33,791 $ 816 3.22% $ 35,561 $ 745 2.79% NOW and money market accounts 78,984 1,519 2.56 78,471 1,398 2.38 Certificates of deposit and other time deposits 304,007 14,004 6.14 276,709 11,046 5.32 FHLB Advances 95,727 4,374 6.09 46,530 1,804 5.17 ------- ------ ---- ------- ------ ---- Total interest bearing liabilities 512,509 20,713 5.39 437,271 14,993 4.57 ------ ---- ------ ---- Non-interest bearing liabilities: Non-interest bearing deposits 17,806 16,879 Other liabilities 5,808 6,273 ------ ------ Total liabilities 536,123 460,423 Stockholders' equity 52,799 54,529 ------ ------ Total liabilities and stockholders' equity $588,922 $514,952 ======== ======== Net interest income $13,085 $13,291 ======= ======= Net interest spread 2.74% 3.28% ===== ===== Net interest margin 3.15% 3.69% ===== =====
- ----------------------------------------------------- (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. 15 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 Nine Months Ended March 31, March 31, 2001 vs. 2000 2001 vs. 2000 --------------- ------------- Increase (decrease) Increase (decrease) Due to change in Due to change in (Dollars in thousands) Net Net Rate Volume Change Rate Volume Change Interest income: Loans $266 $1,548 $1,814 $722 $ 4,591 $5,313 Equity securities (14) (9) State and political subdivision securities 0 0 0 0 0 0 U.S. Treasury and agencies 26 10 36 29 15 44 Mortgage-backed securities 3 (7) (4) (28) 21 (7) FHLB stock 1 42 43 6 101 107 Interest bearing deposits 2 28 30 20 46 66 --- ----- ----- --- ----- ----- Total interest earning assets 298 1,621 1,919 754 4,760 5,514 --- ----- ----- --- ----- ----- Interest expense: Savings accounts 2 1 3 44 27 71 NOW and money market accounts 2 18 20 56 65 121 Certificates of deposit and other time deposits 394 634 1,028 1,081 1,877 2,958 FHLB advances (88) 602 514 285 2,285 2,570 --- --- ----- ----- ----- ----- Total interest bearing liabilities 310 1,255 1,565 1,466 4,254 5,720 --- ----- ----- ----- ----- ----- Net change in net interest income $(12) $ 366 $ 354 $ (712) $ 506 $ (206) ==== ====== ====== ====== ====== ======
Non-Interest Income-Non-interest income was $1.1 million for the quarter ended March 31, 2001, as compared to $1.0 million for the 2000 period, an increase of $127,000. During the March 2001 quarter the Bank did not report any gains from investment sales compared to reported gains of $152,000 for the 2000 period. Fee income from secondary market lending operations increased by $61,000 or 109% during the 2001 period compared to 2000. Customer service fees charged on deposit accounts increased by $196,000 or 42% during the 2001 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 2001 period by $22,000 or 7% as compared to the 2000 period. Non-interest income was $3.9 million for the nine months ended March 31, 2001, as compared to $3.0 million for the same period last year. Gains on investment sales were $696,000 during the 2001 period compared to $457,000 for the 2000 period, an increase of $239,000. Customer service fees charged on deposit accounts increased by $453,000 or 32% during the 2001 period. Other sources of income such as brokerage commissions, secondary market lending operations, loan fees, and other customer transaction fees also increased during the 2001 as compared to the 2000 period. 16 Non-Interest Expense-Total non-interest expense was $3.4 million for the 2001 quarter compared to $3.1 million for the 2000 quarter. Non-interest expense increased from $9.3 million for the nine months ended March 31, 2000 to $10 million for the comparable period in 2001. The increases for both the three and nine months ended March 31, 2001 were attributable to costs associated with salaries and employee benefits, primarily health insurance. Compensation and employee benefit expenses increased $168,000 for the 2001 quarter compared to the 2000 quarter, and $504,000 for the nine months ended March 31, 2001 compared to March 31, 2000. The increase includes inflationary salary adjustments and reflects growth in the overall staffing level from 163 full-time equivalent employees at March 31, 2000 to 196 full-time equivalent employees at March 31, 2001. Additional staffing was required to achieve a new strategic plan adopted by the Bank in 1999 to develop a bank-wide service and sales culture. The plan emphasizes expanding account relationships, which requires increasing the number of associates in banking centers, relationship bankers, business development officers, stockbrokers, and loan officers. A Senior Vice President and Retail Banking Officer was also hired to implement management's strategic plan. The transition has been responsible for much of the renewed growth in lending and certificates of deposit. Increased staffing also resulted from the re-opening of a Bardstown, Kentucky office due to customer requests and the opening of a new Customer Service Center to better assist customers with questions or problems and as an additional service, employees are able to cross sell products to customers while they are on the line. Occupancy and equipment expense increased for both the three and nine months ended March 31, 2001. The increase is largely attributable to costs associated with the Bank's new Customer Service Center, which became operational in July 2000 and the second Bardstown, Kentucky banking center, which opened in early 2000. Data processing expense increased for both the three and nine months ended March 31, 2001 due to an increase in processor charges relating to an increase in the number of users, training expenses, and the implementation of internet banking. 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, industry trends, historical charge-offs, recoveries, and other information. Management is monitoring the commercial real estate loan portfolio closely, recognizing that commercial real estate loans carry a greater risk of loss than residential real estate loans, and believes it has, based on information presently available, adequately provided for loan losses at March 31, 2001. 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. The provision for loan losses was $285,000 for the three months ended March 31, 2001 compared to $90,000 for the 2000 quarter. The provision for loan losses also increased for the nine months ended March 31, 2001 to $786,000 compared to $270,000 for the 2000 period. The increase in the provision is a result of the increase in charge-offs for the period and to compensate for the Bank's continued strong loan growth. Net loan charge-offs increased $83,000 to $110,000 for the three months ended March 31, 2001 compared to $27,000 for the same period in 2000. Net loan charge-offs also increased for the nine months ended March 31, 2001 to $322,000 compared to $74,000 for the same period in 2000. The increase in charge-offs is primarily related to charge-offs of indirect consumer loans during the 2001 period. 17 The following table sets forth an analysis of the Bank's loan loss experience for the three and nine months ended March 31, 2001 and 2000.
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in thousands) Balance-beginning of period $2,541 $2,241 $2,252 $2,108 ------ ------ ------ ------ Loans charged-off: Real estate mortgage - - (2) (36) Consumer (122) (29) (359) (45) Commercial - - - - Total charge-offs (122) (29) (361) (81) ------ ------ ----- ----- Recoveries: Real estate mortgage 2 1 2 1 Consumer 10 1 37 6 Commercial - - - - Total recoveries 12 2 39 7 ------ ------ ------ ------ Net loans charged-off (110) (27) (322) (74) ------ ------ ------ ------ Provision for loan losses 285 90 786 270 ------ ------ ------ ------ Balance-end of period $2,716 $2,304 $2,716 $2,304 ------ ------ ------ ------ Net charge-offs to average loans outstanding .064% .017% Allowance for loan losses to total non-performing loans 368% 214% Allowance for loan losses to to net loans outstanding .53% .51%
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 loan's 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, the 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. 18 The following table presents information with respect to the Bank's non-performing assets for the periods indicated. March 31, June 30, 2001 2000 ---- ---- (Dollars in thousands) Loans on non-accrual status (1)(2) $739 $1,562 Real estate acquired through foreclosure 107 - Repossessed assets 77 - ---- ------ Total non-performing assets $923 $1,562 ==== ====== Ratios: Non-performing loans to total loans .18% .33% Non-performing assets to total assets .15% .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 approximately $61,000 for the nine month period ending March 31, and $126,000 for the year ending June 30. 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 March 31, 2001, the Bank's liquid assets were 5.39% 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. The Bank intends to continue to fund loan growth (outstanding loan commitments were $2.8 million at March 31, 2001) with customer deposits and additional advances from the FHLB. At March 31, 2001, the Bank had an unused approved line of credit in the amount of $35 million and sufficient collateral to borrow an additional $222 million in advances from the FHLB. Capital Savings institutions insured by the FDIC must meet various regulatory capital requirements. The Bank continues to exceed the regulatory requirements for Tier I, Tier I leverage and total risk-based capital. The Bank expects to maintain a capital position that meets or exceeds the "well capitalized" requirements as defined by the FDIC. 19 The Bank's actual and required capital amounts and ratios at March 31, 2001 are presented below:
To Be Considered Well Capitalized Under Prompt For Capital Correction Actual Adequacy Purposes Action Provisions --------------------------------------------------------------- As of March 31, 2001: Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- Total risk-based capital (to risk- weighted assets) $45,471 10.62% $34,244 8.0% $42,805 10.0% Tier I capital (to risk-weighted assets) 42,755 9.99 17,122 4.0 25,683 6.0 Tier I leverage capital (to Average assets) 42,755 7.07 24,180 4.0 30,225 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 May 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 To minimize the volatility of net interest income and exposure to economic loss that may result from fluctuating interest rates, the Bank manages its exposure to adverse changes in interest rates through asset and liability management activities within guidelines established by its Asset Liability Committee ("ALCO"). The ALCO, which includes senior management representatives, has the responsibility for approving and ensuring compliance with asset/liability management policies of the Corporation, which include managing the sensitivity repricing characteristics of the balance sheet components consistent with maintaining acceptable levels of changes in net portfolio value ("NPV") and net interest income. A primary purpose of the ALCO is to manage interest rate risk to effectively invest the Corporation's capital and to preserve the value created by its core business operations. As such, certain management monitoring processes are designed to minimize the impact of sudden and sustained changes in interest rates on NPV and net interest income. The Corporation's exposure to interest rate risk is reviewed on at least a quarterly basis by the Board of Directors and the ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the Corporation's change in NPV in the event of hypothetical changes in interest rates and interest rate sensitivity gap analysis is used to determine the repricing characteristics of the Bank's assets and liabilities. Refer to the Bank's 2000 10-K for analysis of the Corporation's projected change in NPV for the various rate shock levels as of June 30, 2000. All market risk sensitive instruments presented are held to maturity or available for sale. The Corporation has no trading securities. NPV is calculated by the Corporation pursuant to guidelines established by the OTS. The calculation is based on the net present value of estimated discounted cash flows utilizing market prepayment assumptions and market rates of interest provided by independent broker quotations and other public sources with adjustments made to reflect the shift in the Treasury yield curve as appropriate. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposits decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the ALCO could undertake in response to changes in interest rates. 20 Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. Actual values may differ from those projections presented, should market conditions vary from assumptions used in the calculation of the NPV. Certain assets, such as adjustable rate loans, which represent one of the Corporation's primary loan products, have features that restrict changes in interest rates on a short-term basis and over the life of the assets. In addition, the proportion of adjustable rate loans in the Corporation's portfolio could decrease in future periods if market interest rates remain at or decrease below current levels due to refinance activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the NPV. Finally, the ability of many borrowers to repay their adjustable-rate mortgage loans may decrease in the event of interest rate increases. Another tool for evaluating the institution's sensitivity to net interest income to changes in interest rates is to examine the extent to which its assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap". An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. The following interest rate sensitivity tables set forth the Bank's interest-earning assets and interest-bearing liabilities at March 31, 2001 and June 30, 2000, which are anticipated to reprice or mature in each of the future time periods shown. Interest Rate Sensitivity (Gap Analysis) As of March 31, 2001 (Dollars in thousands)
0-3 4-12 1-5 Over 5 Months Months Years Years Total ------ ------ ----- ----- ----- Interest earning assets: Loans $ 74,981 $125,449 $206,602 $111,583 $518,615 Securities 24,820 22,130 524 1,335 48,809 ------ -------- -------- ------- ------- Total rate sensitive assets 99,801 147,579 207,126 112,918 567,424 ------ -------- ------- ------- ------- Interest bearing liabilities: NOW, money market and Savings 20,329 60,983 40,232 17,207 138,751 Time deposits 87,675 191,368 45,178 2,474 326,695 Borrowed funds 35,601 10,173 22,460 10,729 78,963 ------- ------- ------- ------- ------- Total rate sensitive liabilities 143,605 262,524 107,870 30,410 544,409 ------- ------- -------- ------- ------- Interest sensitivity gap $ (43,804) $(114,945) $ 99,256 $ 82,508 $ 23,015 ========= ========= ======== ======== ======== Cumulative interest sensitivity gap $ (43,804) $(158,749) $(59,493) $ 23,015 ========= ========= ======== ======== Cumulative interest sensitivity gap as a percentage of total assets (7.28)% (26.38)% (9.88)% 3.82% ======= ======== ======== =====
21 Interest Rate Sensitivity (Gap Analysis) As of June 30, 2000 (Dollars in thousands)
0-3 4-12 1-5 Over 5 Months Months Years Years Total ------ ------ ----- ----- ----- Interest earning assets: Loans $ 66,914 $121,661 $185,552 $101,981 $476,108 Securities 24,896 7,118 13,562 6,549 52,125 ------ -------- -------- ------- ------- Total rate sensitive assets 91,810 128,779 199,114 108,530 528,233 ------ -------- ------- ------- ------- Interest bearing liabilities: NOW, money market and Savings 19,856 59,568 38,499 16,824 134,747 Time deposits 45,128 158,102 86,614 1,270 291,114 Borrowed funds 79,018 54 328 941 80,341 ------- ------- ------- ------- ------- Total rate sensitive liabilities 144,002 217,724 125,441 19,035 506,202 ------- ------- -------- ------- ------- Interest sensitivity gap $ (52,192) $ (88,945) $ 73,673 $ 89,495 $ 22,031 ========= ========= ======== ======== ======== Cumulative interest sensitivity gap $ (52,192) $(141,137) $(67,464) $ 22,031 ========= ========= ======== ======== Cumulative interest sensitivity gap as a percentage of total assets (9.31)% (25.17)% (12.03)% 3.93% ======= ======== ======== =====
As the preceding table indicates, the Bank has a negative cumulative gap for assets and liabilities maturing or repricing within one year in the amount of (158,749) million or 26.38% of total assets at March 31, 2001 compared to ($141,137) million or 25.17% of total assets at June 30, 2000. Thus, decreases in interest rates during this time period would generally increase net interest income, while increases in interest rates would generally decrease net interest income. However, even though the periodic gap analysis provides management with a method of measuring current interest rate risk, it only measures rate sensitivity at a specific point in time. Gap analysis does not take into consideration that assets and liabilities with similar repricing characteristics may not reprice at the same time or to the same degree and, therefore, does not necessarily predict the impact of changes in general levels of interest rates on net interest income. Additionally, certain assets such as adjustable rate mortgage loans have features, which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, prepayment and decay rates may deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to afford the payments on their adjustable rate mortgage loans may decrease if interest rates increase. 22 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 23 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: May 11, 2001 BY: (S) B. Keith Johnson ------------------------------ B. Keith Johnson President and Chief Executive Officer DATE: May 11, 2001 BY: (S) Charles E. Chaney ----------------------------- Charles E. Chaney Senior Vice President Chief Operating Officer 24 -----END PRIVACY-ENHANCED MESSAGE-----