-----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, WfD/qu1WTc5SvvUf284Q+j0Gq/yvd1J2BL6E1Y+pCNhO9zb2p9ODNHL/EENSAB3P QR3hX8oKCJHxwBTNSwImwg== 0000854395-99-000005.txt : 19990517 0000854395-99-000005.hdr.sgml : 19990517 ACCESSION NUMBER: 0000854395-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621610 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 MARCH 1999 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended: March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from___________to__________ Commission File Number 0-18832 First Federal Financial Corporation of Kentucky (Exact Name of Registrant as specified in its charter) Kentucky 61-1168311 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 2323 Ring Road Elizabethtown, Kentucky 42701 (Address of principal executive offices) (Zip Code) (502)765-2131 (Registrants's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of April 30, 1999 ----------- ------------------------------------ Common Stock 4,127,112 shares This document is comprised of 15 pages. FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY INDEX PART I - Financial Information Page Number Item 1 - Financial Statements Consolidated Statements of Financial Condition as of March 31, 1999 (Unaudited) and June 30, 1998. 3 Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 1999 and 1998 (Unaudited). 4 Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended March 31, 1999 and 1998 (Unaudited). 5 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1999 and 1998 (Unaudited). 6 Notes to Consolidated Financial Statements. 7 Item 2 - Management's Discussion and Analysis of the Consolidated Statements of Financial Condition and Results of Operations. 8 PART II - Other Information 13 SIGNATURES 15
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION March 31, June 30, ASSETS 1999 1998 ------ ---------- -------- (unaudited) Cash and cash equivalents $ 9,367,233 $ 4,992,588 Interest bearing deposits 6,131,324 4,157,124 Securities: Securities held-to-maturity (fair value approximates $44,220,035 and $24,935,000 at March 31, 1999 and June 30, 1998, respectively.) 44,506,060 24,639,484 Securities available-for-sale 3,099,456 1,934,412 Loans receivable, net 391,589,777 355,306,342 Real estate owned: Acquired through foreclosure 255,667 133,584 Held for development 533,638 642,491 Investment in Federal Home Loan Bank stock 3,140,900 2,983,800 Premises and equipment 11,317,501 10,747,145 Other assets 929,915 1,329,890 Excess of cost over net assets of affiliate purchased 11,086,922 2,784,409 ----------- ----------- TOTAL ASSETS $481,958,393 $409,651,269 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- LIABILITIES: Savings deposits $396,239,762 $306,702,649 Advances from Federal Home Loan Bank 22,997,767 43,248,855 Accrued interest payable 832,700 358,435 Accounts payable and other liabilities 2,455,518 2,576,839 Deferred income taxes 2,178,140 2,076,104 ----------- ----------- TOTAL LIABILITIES 424,703,887 354,962,882 ----------- ----------- STOCKHOLDERS' EQUITY: Serial preferred stock, 5,000,000 shares authorized and unissued -- -- Common stock, $1 par value per share; authorized 10,000,000 shares; issued and outstanding 4,127,112 shares on March 31, 1999 and 4,129,612 shares on June 30, 1998 4,127,112 4,129,612 Additional paid-in capital 3,185,372 3,253,664 Retained earnings - substantially restricted 48,737,884 46,208,807 Net unrealized holding gain on securities available-for-sale, Net of tax 1,204,138 1,096,304 ---------- ---------- Total Stockholders' Equity 57,254,506 54,688,387 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $481,958,393 $409,651,269 =========== ===========
See notes to consolidated financial statements. 3
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- INTEREST INCOME: Interest on loans $8,107,831 $7,451,143 $23,884,427 $21,811,011 Interest and dividends on investments and deposits 859,225 438,094 2,757,814 1,292,910 --------- --------- ----------- ---------- Total interest income 8,967,056 7,889,237 26,642,241 23,103,921 --------- --------- ---------- ---------- INTEREST EXPENSE: Savings deposits 4,264,242 3,434,597 12,972,532 10,071,475 Federal Home Loan Bank advances 291,491 612,639 1,000,216 1,796,851 --------- --------- ---------- ---------- Total interest expense 4,555,733 4,047,236 13,972,748 11,868,326 --------- --------- ---------- ---------- Net interest income 4,411,323 3,842,001 12,669,493 11,235,595 Provision for loan losses 60,000 30,000 180,000 120,000 --------- --------- ---------- ---------- Net interest income after provision for loan losses 4,351,323 3,812,001 12,489,493 11,115,595 --------- --------- ---------- ---------- OTHER INCOME: Customer service fees on deposit accounts 431,810 306,635 1,267,713 943,583 Other income 743,520 278,008 1,506,840 878,930 Gain on sale of investment 0 125,622 203,200 242,567 ------- ------- --------- ------- Total other income 1,175,330 710,265 2,977,753 2,065,080 --------- ------- --------- --------- OTHER EXPENSE: Employee compensation and benefits 1,260,228 944,057 3,500,529 2,757,621 Office occupancy and equipment expense 310,644 226,179 941,783 696,237 Federal insurance premiums 47,544 44,777 140,167 133,390 Marketing and advertising 225,009 91,850 395,784 276,472 Outside services and data processing 249,134 188,277 661,980 497,539 State franchise tax 99,531 74,039 258,245 224,016 Goodwill amortization 207,950 60,018 573,397 180,054 Other expense 631,387 402,919 1,752,398 1,244,846 Acquisition related expense 0 0 291,869 0 Data and equipment converion expense 290,934 0 290,934 0 --------- ------- --------- --------- Total other expense 3,322,361 2,032,116 8,807,086 6,010,175 --------- --------- --------- --------- Income before taxes 2,204,292 2,490,150 6,660,160 7,170,500 Income taxes 728,095 840,645 2,273,563 2,464,827 --------- --------- --------- --------- NET INCOME $1,476,197 $1,649,505 $4,386,597 $4,705,673 ========== ========== ========== ========== Weighted average common shares outstanding 4,127,112 4,133,516 4,128,476 4,149,667 Net income per share of common stock (Note 2) $0.36 $0.40 $1.06 $1.13 ===== ===== ===== ===== Dividends per share of common stock $0.15 $0.14 $0.45 $0.42 ===== ===== ===== =====
See notes to consolidated financial statements. 4
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended Nine Months Ended March 31, March 31, 1999 1998 1999 1998 ---- ----- ---- ---- NET INCOME $1,476,197 $1,649,505 $4,386,597 $4,705,673 ---------- ---------- ---------- ---------- Other comprehensive income, net of tax: Unrealized gains (losses) on securities arising during period (161,682) 56,847 107,834 226,170 Less: reclassification adjustment for accumulated gains included in net income 0 (82,911) (134,112) (160,094) --------- -------- --------- --------- Other comprehensive income (161,682) (26,064) (26,278) 66,076 --------- -------- --------- --------- TOTAL COMPREHENSIVE INCOME $1,314,515 $1,623,441 $4,360,319 $4,771,749 ========== ========== ========== ==========
See notes to consolidated financial statements. 5
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) Nine Months Ended March 31, ----------------- 1999 1998 ---- ---- OPERATING ACTIVITIES: Net income $ 4,386,597 $ 4,705,673 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses and real estate owned 180,000 120,000 Provision for depreciation 590,072 446,565 Net change in deferred loan fees and costs 167,336 143,768 Federal Home Loan Bank stock dividends (161,400) (153,700) Amortization of discounts on securities held-to-maturity (50,538) (81,968) Amortization of acquired intangible assets 573,397 180,054 Gain on sale of investments available-for-sale (203,200) (242,567) Increase in interest payable 474,265 397,105 (Increase) Decrease in other assets 399,975 (48,288) Increase (Decrease) in accounts payable and other liabilities (19,285) 1,101,676 -------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,337,219 6,568,318 --------- --------- INVESTING ACTIVITIES: Sale of securities available-for-sale 211,237 3,615,708 Purchases of securities available-for-sale (1,010,000) (36,082) Purchases of securities held-to-maturity (59,855,000) (10,000,000) Principal collections on securities held-to-maturity 40,109,865 6,150,699 Net increase in loans to customers (25,393,453) (22,858,245) Purchases of premises and equipment (1,160,428) (827,178) Sales of real estate acquired in settlement of loans 173,131 593,448 Sales of real estate held for development 108,853 44,770 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (46,815,795) (23,316,880) ----------- ----------- FINANCING ACTIVITIES: Advances from (repayments to) Federal Home Loan Bank (20,251,088) 1,882,101 Net increase in customer savings deposits 17,042,367 24,552,576 Dividends paid (1,857,520) (1,742,689) Proceeds from stock options exercised -- -- Common stock repurchased (70,792) (1,046,131) Cash proceeds from acquisition 51,964,454 -- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 46,827,421 23,585,857 ----------- ----------- Increase (Decrease) in cash and cash equivalents 6,348,845 6,837,295 Cash and cash equivalents, beginning of year 9,149,712 9,175,713 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $15,498,557 $16,013,008 ============ ==========
See notes to consolidated financial statements. 6 FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Interim Financial Statements First Federal Financial Corporation of Kentucky ("Corporation") is the parent to its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown ("Bank"). The Corporation has no material income, other than that generated by the Bank. In the opinion of management, these unaudited consolidated financial statements include all adjustments necessary for a fair presentation of its financial position as of March 31, 1999 and the results of its operations and its cash flows for the three month and nine month periods then ended. All such adjustments were of a normal recurring nature. The results of operations for the three month and nine month periods ended March 31, 1999 and 1998 are not necessarily indicative of the results for the full years. It is suggested that these financial statements be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Appendix to the Company's 1998 Proxy Statement which has been previously filed with the Commission. 2. SFAS "Earnings Per Share," established new standards for computing and presenting earnings per share. The reconciliation of the numerators and denominators of the basic and diluted EPS computations is as follows: Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) Net income available to common shareholders $1,476 $1,650 $4,387 $4,706 ====== ====== ====== ====== Basic EPS: Weighted average common shares 4,127,112 4,133,516 4,128,476 4,149,667 ========= ========= ========= ========= Diluted EPS: Weighted average common shares 4,127,112 4,133,516 4,128,476 4,149,667 Dilutive effect of stock options 20,503 28,433 21,141 29,055 Weighted average common --------- --------- --------- --------- and incremental shares 4,147,615 4,161,949 4,149,617 4,178,722 ========= ========= ========= ========= Earnings Per Share: Basic $0.36 $0.40 $1.06 $1.13 ===== ===== ===== ===== Diluted $0.36 $0.40 $1.06 $1.13 ===== ===== ===== ===== 7 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Federal Financial Corporation of Kentucky ("Corporation") is the parent to its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown ("Bank"). The Bank has operations in the Kentucky communities of Elizabethtown, Radcliff, Bardstown, Munfordville, Shepherdsville, Mt. Washington, Brandenburg, Flaherty, and Paducah. The following discussion and analysis covers any material changes in the financial condition since June 30, 1998 and any material changes in the results of operations for the three month and nine month periods ending, March 31, 1999. This discussion and analysis should be read in conjunction with "Managements Discussion and Analysis of Financial Condition and Results of Operations" included in the 1998 Annual Report to Shareholders. PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The information set forth in this report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. Although the Corporation believes that the forward-looking statements are based upon reasonable assumptions, the statements are subject to certain risks and uncertainties that could cause the Corporation's actual results to differ materially from those indicated by the forward-looking statements. Among the key factors that may have a direct bearing on the Corporation's operating results are fluctuations in the economy; the relative strengths and weakness in the consumer and commercial credit sectors and in the real estate market; the actions taken by the Federal Reserve for the purpose of managing the economy; the Corporation's success in assimilating acquired branches and operations into the Bank's existing operations; the Bank's success in converting its systems to integrate new hardware and software without material disruption; the Corporation's ability to offer competitive banking products and services; the continued growth of the markets in which the Corporation operates consistent with recent historical experience; the enactment of federal legislation affecting the operations of the Corporation; and the Corporation's ability to expand into new markets and to maintain profit margins in the face of pricing pressure. ACQUISITION On July 24, 1998, the Bank completed its acquisition of three bank branches located in Meade County, Kentucky from Bank One, Kentucky, N.A. Two of the branches are located in Brandenburg, Kentucky and the third branch is in Flaherty, Kentucky. In the transaction, the Bank acquired certain assets and assumed certain liabilities associated with the acquisition of the Meade County banking centers. The transaction resulted in recording of assets of $11,870,000, liabilities of $72,500,000 and core deposit intangibles of approximately $8,670,000. The consideration paid for the assets totaled approximately $20,500,000, which was determined based on a premium for the core deposits of the acquired banking centers plus the book or cash value of certain other transferred assets. The acquisition was funded by reducing proceeds due for the net liability amount assumed. RESULTS OF OPERATIONS Three Month Period Ended March 1999 vs. 1998 - During the quarter ended March 31, 1999, the Corporation took a pre-tax adjustment of $291,000 in connection with its computer conversion resulting in net income for the quarter in the amount of $1,476,000 or $.36 per share. Excluding this adjustment, net earnings for the three month period ended March 31, 1999 would have been $1,668,000 or $.40 per share compared to $1,650,000 or $.40 per share for the same period in 1998. Net interest income increased by $569,322 in 1999 as compared to 1998 in spite of the declining net interest margin which was 4.00% for the 1999 period, as compared to 4.11% for the 1998 period. The purchase of three banking centers during the quarter ended September 30, 1998, contributed approximately $375,000 to the total increase in net interest income for the 1999 quarter. The Corporation's cost of funds decreased by 37 basis points in 1999 compared to 1998, due to lower rates paid on short-term customer deposits. 8 Average interest-earning assets increased by $71 million from $376 million for the 1998 period to $447 million for the 1999 period due to the interest-earning assets acquired from the three Meade County banking centers. Average loans were $44 million higher and averaged $391 million during 1999, while the average yield on loans decreased by 30 basis points to 8.40% due to a decrease in loan rates. Average interest-bearing liabilities increased by $75.5 million to an average balance of $418 million for the 1999 period due to the interest-bearing liabilities acquired from the three banking centers. Customer deposits averaged $395 million during 1999, an increase of $95.8 million compared to the 1998 quarter. The acquisition contributed approximately $72.5 million to the total deposit growth. Total other income was $1,175,330 for the three months ended March 31, 1999, as compared to $710,265 for the 1998 period, an increase of $465,065. There were no sales of securities recorded during the 1999 quarter while gains on investment sales recorded during the 1998 quarter totaled $125,622. Customer service fees charged on deposit accounts increased by $125,175 during 1999 due to a growth in customer accounts. Miscellaneous other income increased by $465,512 during the 1999 period. Included in this increase was a gain of $305,000 recorded on the sale of two lots owned by First Service Corporation, a subsidiary of the Bank. Other sources of miscellaneous income such as brokerage commissions, loan fees, and other customer transaction fees increased by $160,512 due to growth in deposit relationships with existing customers and new customers as a result of the acquisition. Total other expense was $3,322,361 for the three month period ended March 31, 1999, as compared to $2,032,116 for the 1998 period, an increase of $1,290,245. Compensation and benefits increased by $316,171 in 1999 as compared to 1998, $193,000 of the increase is due to the additional associates gained in the three branch acquisition while the other $123,171 increase is due to routine inflationary salary raises and new associate positions required to service the normal customer growth of the Bank. Office occupancy and equipment expenses increased by $84,465 in 1999 as compared to 1998. Approximately $69,000 of the increase is due to the acquisition of the three banking centers while the remaining $15,465 is due to inflationary increases in other occupancy and equipment related expenses. Marketing and advertising expenses increased $133,159 during the 1999 period. Approximately $31,118 of the increase is due to increased marketing and advertising for the three new banking centers while the remaining increase of $102,041 is related to the Bank's marketing efforts associated with expanded services and products offered to customers. Also, during the quarter ended March 31, 1999 the Bank incurred computer conversion costs of $291,000 relating to its conversion to a new data processor. All other expenses increased by $465,450 in 1999 compared to 1998. Expenses directly related to customer checking accounts increased due to a higher volume of accounts. Expenses directly related to postage, telephone, data processing costs, and supplies increased due to expanded services and products offered to customers. Nine Month Period Ended March 31, 1999 vs. 1998 - Net income was $4,386,000 or $1.06 per share for the nine month period ended March 31, 1999. Acquisition-related costs in connection with the purchase of three banking centers during the quarter ended September 30, 1998, in the amount of $292,000 were charged against earnings for that quarter. Also, during the quarter ended March 31, 1999, the Corporation incurred computer conversion costs of $291,000. Excluding these costs, net earnings for the nine month period ended March 31, 1999, would have been $4,772,000 or $1.16 per share compared to $4,706,000 or $1.13 per share for the same period in 1998. Net interest income increased by $1,433,898 in 1999 as compared to 1998 in spite of the declining net interest margin which was 3.86% for the 1999 period as compared to 4.06% for the 1998 period. The purchase of the three banking centers contributed approximately $853,898 to the total increase in net interest income for the 1999 period. The Corporation's cost of funds decreased by 26 basis points in 1999 compared to 1998, due to lower rates paid on short-term customer deposits. Average interest-earning assets increased by $72 million from $365 million for the 1998 period to $437 million for the 1999 period due to the interest-earning assets acquired from the three Meade County banking centers. Average loans were $42 million higher and averaged $382 million during 1999, while the average yield on loans decreased by 22 basis points to 8.32%. 9 Average interest-bearing liabilities increased by $81 million to an average balance of $412 million for 1999 due to the purchase of the three banking centers. Customer deposits averaged $389 million during 1999, an increase of $99 million compared to the 1998 period. The acquisition contributed approximately $72.5 million to the total deposit growth. Total other income was $2,977,753 for the nine months ended March 31, 1999, as compared to $2,065,080 for the 1998 period, an increase of $912,673. Gains on investment sales were $203,200 for 1999 period as compared to gains of $242,567 for the 1998 period. Customer service fees charged on deposit accounts increased by $324,130 during 1999 due to growth in customer accounts. Also included in other income for the 1999 period was a $305,000 gain recorded on the sale of two lots owned by First Service Corporation, a subsidiary of the Bank. Other sources of income such as loan fees, other customer transaction fees, and trust account commissions increased by $322,910 due to growth in deposit relationships with existing customers and new customers as a result of the three branch acquisition. Total other expense was $8,807,086 for the nine months ended March 31, 1999, as compared to $6,010,175 for the 1998 period, an increase of $2,796,911. Included in this income are the costs related to three branch acquisition and those related to the computer conversion as previously discussed. Compensation and benefits increased by $742,908 in 1999 as compared to 1998, $513,143 of the increase is result of the acquisition while the other $229,765 increase is due to new associate positions required to service the normal customer growth of the Bank. Office occupancy and equipment expenses increased by $245,546 in 1999 as compared to 1998. Approximately $185,868 of the increase is due to the purchase of the three banking centers while the remaining $59,678 is due to inflationary increases in other occupancy and equipment related expenses. Operating costs related to the acquisition such as supplies, marketing, data processing costs, and legal expenses resulted in an increase to total other expense of $261,686. Also, due to the acquisition, the amortization of goodwill increased by $393,343 from $180,054 in 1998 to $573,397 in 1999. All other expenses increased by $570,428 in 1999 compared to 1998. Expenses directly related to customer checking accounts increased due to a higher volume of accounts. Expenses directly related to postage, telephone, data processing costs, marketing, and supplies increased due to asset growth and new services provided by the Bank. 10 NON-PERFORMING ASSETS Management periodically evaluates the adequacy of the allowance for loan losses based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may effect the borrower's ability to repay and other factors. During the nine month period ended March 31, 1999, management chose to add $180,000 to the reserve for loan loss. Although current loan charge-offs and delinquencies are consistent with previous years, the reserve was increased to compensate for the Bank's continued strong loan growth. The Bank experienced an insignificant amount of uncollectible loans during the periods indicated in the table below. Approximately 59% of the Bank's non-performing assets are secured by one-to-four-family residences at March 31, 1999. Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) Allowance for loan losses: Balance, beginning of period $2,002 $1,795 $1,853 $1,715 Balance acquired in merger -- -- 205 -- Provision for loan losses 60 30 180 120 Charge-offs (13) (7) (210) (32) Recoveries 3 3 24 18 ------ ------ ------ ------ Balance, end of period $2,052 $1,821 $2,052 $1,821 ====== ====== ====== ====== Net loans outstanding at period end $391,590 $349,773 Non-performing loans at period end: Collateralized by one-to-four family homes $1,379 $1,038 Other non-performing loans $713 $606 Ratios: Non-performing loans to total loans .53% .47% Allowance for loan losses to non-performing loans 98% 111% Allowance for loan losses to net loans .52% .52% Non-performing assets to total assets .49% .45% LIQUIDITY & CAPITAL RESOURCES Loan demand continued to be strong during the nine months ended March 31, 1999, as net loans increased from $355 million at June 30, 1998, to $392 million at March 31, 1999. The acquisition of the Meade County banking centers contributed $11 million to the total loan growth of $37 million, while the Bank achieved a 9.7% growth rate in its existing loan customer base, or $26 million in net new loans. The Meade County acquisition also contributed $72.5 million in new customer deposits. The acquisition coupled with a $17 million growth in the Bank's customer deposits resulted in a total deposit increase of $89.5 million during the nine month period ended March 31, 1999. Current regulations require the Corporation's subsidiary, First Federal Savings Bank, to maintain minimum specific levels of liquid assets, (currently 4%) of cash and eligible investments to the savings deposits and short-term borrowings. At March 31, 1999, the Bank's liquid assets were 11.55% of its liquidity base. The Bank intends to continue to fund loan growth (outstanding loan commitments were $8.9 million at March 31, 1999) and any declines in customer deposits through additional advances from the FHLB. At March 31, 1999, the Bank has an unused approved line of credit in the amount of $16.2 million, and the potential to significantly increase its indebtedness with the FHLB, if necessary, due to the Bank's strong financial condition. 11 The Office of Thrift Supervision's capital regulations require the Bank to meet three capital standards. As indicated below, the Bank substantially exceeded the regulatory requirements for each category at March 31, 1999. (Dollars in thousands) Tangible Core Risk-Weighted Actual capital $42,619 $42,619 $44,671 Regulatory requirement 7,029 18,743 23,879 ------- -------- ------- Excess $35,590 $23,876 $20,792 ======= ======= ======= YEAR 2000 COMPLIANCE The Year 2000 issue involves the ability of computers to accurately process dates in the new millennium. The Year 2000 date change can affect any system that uses computer software programs or computer chips, including automated equipment and machinery. Many programs or chips store calendar dates as two-digit dates rather than four-digit numbers. These programs record the year 1998 as "98". This approach will work until the Year 2000 when the "00" may read as 1900 instead of 2000. Therefore, our institution has been fixing our systems to make sure they will operate properly on January 1, 2000. Status First Federal Savings Bank's Board of Directors and senior management has placed the Year 2000 issue as a top priority. Management created a Year 2000 team in April 1997 to study the issue and to guide the Bank through the Year 2000 process. A formal Year 2000 Plan was established and filed with the bank's federal regulators, the Office of Thrift Supervision. The Plan continues to be updated with the primary focus on achieving compliance within established time frames. The following phases are the main objective of the Plan: Awareness, Assessment, Renovation, Validation, and Implementation. As of March 31, 1999, the awareness and assessment phases are complete and the renovation phase is substantially complete. Mission-critical systems and all hardware have been tested and validating the material other third parties have begun. An independent consultant assisted management during the validation phase of mission-critical applications. Findings to date have not identified material Year 2000 risks. By June 30, 1999, all mission-critical systems will be complete and implementation will be in process. The following table represents each phase and the estimated percentage completion to date: Description of Phase As of March 31, 1999 As of June 30, 1999 - -------------------- -------------------- ------------------- Awareness 100% 100% Assessment 100% 100% Renovation 80% 100% Validation 80% 100% Implementation 75% 90% 12 Cost Both internal and external resources are being utilized to renovate and validate equipment for Year 2000 readiness. Expenses as of March 31, 1999 total $213,000, net of tax. Total cost for Year 2000 is expected to be approximately $400,000, net of tax. Contingency Plan Since there is always the possibility of failure in the institution's system at critical future dates, a Contingency Plan was developed. The purpose of the Plan is to give management direction on how to handle problems which will minimize the impact on the customers. Critical business areas have been identified based on the core business processes. Manual procedures have been documented and will be validated. The Board of Directors will review the modified Contingency Plan prior to the June 30, 1999 Board meeting. Management will continue to review and validate the Contingency Plan throughout 1999. Risk First Federal Savings Bank relies upon numerous vendors and infrastructures to provide complete service to our customers, any failure on their part to not become Year 2000 compliant could have a material adverse effect on the bank. Monitoring of their efforts will continue so any risk can be mitigated. In addition, First Federal Savings Bank has established a process to manage the Year 2000 risks posed by its customers. Management has identified material customers and is evaluating their Year 2000 risk by sending questionnaires. Once management has fully evaluated the magnitude of the risk, a system will be implemented for controls if needed. 13 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 14 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 13, 1999 BY: (S) B. Keith Johnson ----------------------------------------- B. Keith Johnson President and Chief Executive Officer DATE: May 13, 1999 BY: (S) Richard L. Muse ------------------------------------ Richard L. Muse Vice President and Comptroller 15 EX-27 2 FINANCIAL DATA SCHEDULE
9 (This schedule contains summary financial information extracted from the registrant's unaudited consolidated financial statements for the nine months ended March 31, 1999 and is qualified in its entirety by reference to such financial statements.) 0000854395 First Federal Financial Corp of Kentucky 1,000 U.S. Dollars 9-MOS 9-MOS JUN-30-1999 JUN-30-1998 JUL-01-1998 JUL-01-1997 MAR-31-1999 MAR-31-1998 1.000 1.000 9,367,233 11,549,166 6,131,324 4,463,842 0 0 0 0 3,099,456 2,080,709 44,506,060 21,415,695 44,220,035 23,540,970 391,589,777 349,773,379 2,052,000 1,815,000 481,958,393 407,347,069 396,239,762 305,894,750 22,997,767 43,336,295 5,466,358 4,306,396 0 0 0 0 0 0 4,127,112 4,132,812 43,127,394 49,676,816 481,958,393 407,347,069 23,884,427 21,811,011 2,757,814 1,292,911 0 0 26,642,241 23,103,921 12,972,532 10,071,475 13,972,748 11,868,327 12,669,493 11,235,595 180,000 120,000 203,200 242,567 8,807,086 6,010,175 6,660,160 7,170,500 6,660,160 7,170,500 0 0 0 0 4,386,597 4,705,673 1.06 1.13 1.06 1.13 8.11 8.39 0 0 2,092,000 1,723,000 0 0 2,702,000 1,931,000 1,853,000 1,715,000 210,000 32,000 24,000 18,000 2,052,000 1,821,000 0 0 0 0 2,052,000 1,821,000
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