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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-28020
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FIRST FEDERAL FINANCIAL BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 31-1456058
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
415 CENTER STREET, IRONTON, OHIO 45638
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(Address of principal executive offices)
(Zip Code)
(614) 532-6845
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of February 7, 1997, there were issued and outstanding 671,783
shares of the Registrant's Common Stock. As of December 31, 1995,
First Federal Savings and Loan Association of Ironton, the
Registrant's wholly-owned subsidiary, had not yet completed its
mutual-to-stock conversion and reorganization into a holding company
format. The financial information presented herein at September 30,
1995, and for the period ending December 31, 1995 is for First Federal
Savings and Loan Association of Ironton only.
Transitional Small Business Disclosure Format (check one):
Yes No X
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FIRST FEDERAL FINANCIAL BANCORP, INC.
TABLE OF CONTENTS
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<TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (as of December 31,
1996 (unaudited) and September 30, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income (for the three
months ended December 31, 1996 (unaudited)
and 1995 (unaudited)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders' Equity (for
the three months ended December 31, 1996 (unaudited) and
the year ended September 30, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (for the three
months ended December 31, 1996 (unaudited)
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
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(Unaudited)
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,058,387 $ 801,243
INVESTMENT SECURITIES HELD
TO MATURITY 8,495,007 8,983,577
INVESTMENT SECURITIES AVAILABLE
FOR SALE 1,542,306 2,531,995
LOANS RECEIVABLE 36,746,786 34,955,329
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY 4,936,836 5,190,066
MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE 2,524,964 2,575,973
FORECLOSED REAL ESTATE 11,603 33,367
ACCRUED INTEREST RECEIVABLE 402,251 382,997
OFFICE PROPERTIES AND EQUIPMENT 1,110,290 1,037,768
OTHER ASSETS 101,040 144,237
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$ 57,929,470 $ 56,636,552
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 45,892,804 $ 44,809,072
ADVANCES FROM FEDERAL HOME LOAN BANK 1,000,000 500,000
OTHER BORROWED FUNDS 66,000 -
DEFERRED FEDERAL INCOME TAXES PAYABLE 93,738 84,015
ACCRUED INTEREST PAYABLE 4,807 5,224
ACCRUED SAIF SPECIAL ASSESSMENT - 269,363
OTHER LIABILITIES 130,407 85,360
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Total liabilities 47,187,756 45,753,034
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STOCKHOLDERS' EQUITY:
Common stock 6,718 6,718
Employee benefit plans (702,089) (513,080)
Additional paid-in capital 6,282,422 6,280,193
Retained earnings-substantially restricted 5,140,806 5,111,660
Unrealized holding gain (loss) on investment
securities available for sale, net of taxes 13,857 (1,973)
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Total stockholders' equity 10,741,714 10,883,518
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$ 57,929,470 $ 56,636,552
================= ===============
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Three Months Ended
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December 31, December 31,
1996 1995
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INTEREST INCOME: (Unaudited) (Unaudited)
<S> <C> <C>
Loans receivable-
First mortgage loans $ 681,135 $ 651,825
Consumer and other loans 34,065 28,854
Mortgage-backed and related securities 115,378 138,647
Investment securities 189,239 81,993
Other interest-earning assets 12,856 34,417
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Total interest income 1,032,673 935,736
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INTEREST EXPENSE:
Interest-bearing checking 3,460 4,041
Passbook savings 73,493 82,043
Certificates of deposit 503,516 508,603
Advances from Federal Home
Loan Bank 7,699 -
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Total interest expense 588,168 594,687
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Net interest income 444,505 341,049
PROVISION FOR LOAN LOSSES - 6,000
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Net interest income after provision
for loan losses 444,505 335,049
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NON-INTEREST INCOME:
Gains on foreclosed real estate 7,633 -
Other 4,273 8,474
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Total non-interest income 11,906 8,474
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NON-INTEREST EXPENSE:
Compensation and benefits 144,783 112,994
Occupancy and equipment 22,649 18,731
SAIF deposit insurance premium 21,362 25,327
Directors' fees and expenses 16,261 21,857
Ohio franchise tax 19,110 17,357
Data processing 14,884 13,758
Advertising 14,395 12,328
Professional services 61,496 7,775
Other 30,640 30,890
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Total non-interest expense 345,580 261,017
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INCOME BEFORE PROVISION FOR INCOME TAXES 110,831 82,506
PROVISION FOR INCOME TAXES 38,423 15,552
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NET INCOME $ 72,408 $ 66,954
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NET INCOME PER SHARE $ .12 $ N/A
=============== ==============
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Holding Gain
(Loss) On
Retained Investment
Employee Additional Earnings- Securities Total
Common Benefit Paid-in Substantially Available Stockholders'
Stock Plans Capital Restricted For Sale Equity
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BALANCES, September 30, 1995 $ - $ - $ - $ 4,938,274 $ (9,410) $ 4,928,864
CHANGE IN UNREALIZED HOLDING LOSS,
net of deferred taxes of $3,831 - - - 7,437 7,437
NET INCOME, 1996 - - - 216,648 - 216,648
COMMON STOCK ISSUED, $.01 par value 6,718 (537,600) 6,279,293 - - 5,748,411
ESOP SHARES RELEASED, 2,452
shares; $10.37 average fair
market value - 24,520 900 - - 25,420
DIVIDENDS PAID ($.07 per share) - - - (43,262) - (43,262)
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BALANCES, September 30, 1996 6,718 (513,080) 6,280,193 5,111,660 (1,973) 10,883,518
NET INCOME, three months ended
September 30, 1996 (unaudited) - - - 72,408 - 72,408
CHANGE IN UNREALIZED HOLDING LOSS,
net of deferred taxes $8,155 - - - - 15,830 15,830
ESOP SHARES RELEASED, 1,484
shares; $11.50 average fair
market value (unaudited) - 14,849 2,229 - - 17,078
RRP SHARES PURCHASED 17,500 shares;
$11.75 per share - (205,624) - - - (205,624)
RRP SHARES AMORTIZED, 150 shares
(unaudited) - 1,766 - - - 1,766
DIVIDENDS PAID ($.07 per share)
(unaudited) - - - (43,262) - (43,262)
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BALANCES, December 31, 1996
(unaudited) $ 6,718 $ (702,089) $ 6,282,422 $ 5,140,806 $ 13,857 $ 10,741,714
======== ============ ============= ============= ========== ==============
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
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December 31, December 31,
1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 72,408 $ 66,954
Adjustments to reconcile net income to net cash
provided by operating activities -
Gains on foreclosed real estate (7,633) -
Provision for loan losses - 6,000
Depreciation 13,065 12,124
FHLB stock dividends (7,700) (7,200)
Amortization and accretion, net (2,096) 10,962
ESOP compensation 17,078 -
RRP compensation 1,766 -
Change in -
Accrued interest receivable (19,254) (2,827)
Other assets 43,197 (10,456)
Deferred Federal income taxes 1,858 3,608
Accrued interest payable (417) (3,443)
Accrued SAIF special assessment (269,363) -
Other liabilities 45,047 8,392
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Net cash provided by (used for) operating activities (112,044) 84,114
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INVESTING ACTIVITIES:
Net increase in loans (1,803,060) (65,857)
Proceeds from maturities of investment securities held to maturity 497,000 99,000
Proceeds from maturities and sales of investment securities available for sale 1,000,000 -
Purchases of investment securities held to maturity - (1,233,790)
Principal collected on mortgage-backed securities held to maturity 249,141 228,875
Principal collected on mortgage-backed securities available for sale 69,847 238,304
Purchases of office properties and equipment (85,586) (12,374)
Proceeds from sale of foreclosed real estate 41,000 -
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Net cash used for investing activities (31,658) (745,842)
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FINANCING ACTIVITIES:
Net increase in deposits 1,083,732 34,063
Dividends paid (43,262) -
Proceeds from FHLB advances 500,000 -
Proceeds from other borrowed funds 66,000 -
Purchase of RRP shares (205,624) -
Prepaid stock conversion expenses - 17,466
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Net cash provided by financing activities 1,400,846 51,529
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,257,144 (610,199)
CASH AND CASH EQUIVALENTS, beginning of period 801,243 2,528,416
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CASH AND CASH EQUIVALENTS, end of period $ 2,058,387 $ 1,918,217
============= ==============
NONCASH INVESTING ACTIVITIES:
Loans taken into foreclosed real estate $ 11,603 $ 36,009
Change in unrealized holding loss on investment
securities available for sale 23,695 (12,792)
Transfer of securities classified as held to maturity
to available for sale - 2,216,252
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Federal income taxes paid 31,750 39,250
Interest paid 588,585 598,130
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
First Federal Financial Bancorp, Inc. (the "Company") was
incorporated under Delaware law in February 1996 by First Federal Savings and
Loan Association of Ironton (the "Association") in connection with the
conversion of the Association from a federally-chartered mutual savings and
loan association to a federally-chartered stock savings bank to be known as
"First Federal Savings Bank of Ironton" (the "Bank") and the issuance of the
Bank's common stock to the Company and the offer and sale of the Company's
common stock by the Company to the members of the public, the Association's
Board of Directors, its management, and the First Federal Financial Bancorp,
Inc. Employee Stock Ownership Plan (the "ESOP") (the "Conversion"). For
purposes of this Form 10-QSB, the financial statements for the three months
ended December 31, 1995, are for the Bank only, because as of December 31,
1995, the Company had not yet been formed or issued any stock.
The accompanying financial statements were prepared in
accordance with instructions to Form 10-QSB, and therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all normal, recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the financial statements, have been included. These financial statements
should be read in conjunction with the audited consolidated financial
statements and the notes thereto for the year ended September 30, 1996.
Business
The Company's principal business is conducted through the Bank
which conducts business from its main office located in Ironton, Ohio, and one
full-service branch located in Chesapeake, Ohio. The Bank's deposits are
insured by the Savings Association Insurance Fund ("SAIF") to the maximum
extent permitted by law. The Bank is subject to examination and comprehensive
regulation by the Office of Thrift Supervision ("OTS"), which is the Bank's
chartering authority and primary regulator. The Bank is also subject to
regulation by the Federal Deposit Insurance Corporation ("FDIC"), as the
administrator of the SAIF, and to certain reserve requirements established by
the Federal Reserve Board ("FRB"). The Bank is a member of the Federal Home
Loan Bank of Cincinnati ("FHLB").
Principles of Consolidation
The consolidated financial statements at December 31, 1996 and
September 30, 1996, and for the three months ended December 31, 1996, include
the accounts of the Company and the Bank. The financial statements for the
three months ended December 31, 1995, include only the accounts of the Bank.
All significant intercompany transactions and balances have been eliminated in
consolidation. Additionally, certain reclassifications may have been made in
order to conform with the current period's presentation. The accompanying
financial statements have been prepared on the accrual basis.
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(2) CONVERSION TRANSACTION
On June 3, 1996, (i) the Association converted from a federally
chartered mutual savings and loan association to a federally chartered stock
savings bank to be named "First Federal Savings Bank of Ironton", and (ii) the
Company acquired all of the common stock of the Bank in the Conversion. As
part of the Conversion, the Company issued 671,783 shares of its Common Stock.
Total proceeds of $6,717,830 were reduced by $537,600 for shares to be
purchased by the ESOP and by approximately $432,000 for conversion expenses.
As a result of the Conversion, the Company contributed approximately $3,145,000
of additional capital to the Bank and retained the balance of the proceeds.
(3) COMMON STOCK ACQUIRED BY THE EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an ESOP for employees of the Company
and the Bank which became effective upon the Conversion,. Full time employees
of the Company and the Bank who have been credited with at least 1,000 hours of
service during a twelve month period and who have attained age 21 are eligible
to participate in the ESOP. The Company loaned the ESOP $537,600 for the
initial purchase of the ESOP shares. The loan is due and payable in
forty-eight (48) equal quarterly installments of $11,200 beginning June 29,
1996, plus interest at the rate of 8.75% per annum. The Company makes
scheduled discretionary cash contributions to the ESOP sufficient to amortize
the principal and interest on the loan over a period of 12 years. The Company
accounts for its ESOP in accordance with Statement of Position 93-6,
"Employer's Accounting For Employee Stock Ownership Plans." As shares are
committed to be released to participants, the Company reports compensation
expense equal to the average market price of the shares during the period.
ESOP compensation expense recorded during the three month period ended December
31, 1996 was $17,078.
(4) STOCK OPTION PLAN
On December 16, 1996, the Stock Option Plan ("the Plan") was
approved by the Bank's stockholders. A total of 67,178 shares of common stock
may be issued pursuant to the Plan and 37,529 shares were awarded during the
three months ended December 31, 1996. These options are subject to vesting
provisions as well as other provisions of the Plan. No options have been
exercised through December 31, 1996.
(5) RECOGNITION AND RETENTION PLAN AND TRUST
On December 16, 1996, the Recognition and Retention Plan and
Trust ("the RRP") was approved by the Company's stockholders. A total of
26,871 shares of common stock are available for awards pursuant to the RRP and
16,426 shares were awarded during the three months ended December 31, 1996.
Awards will vest in equal installments over a five year period, with the first
installment vesting on the first anniversary date of the grant and each
additional installment vesting on the four subsequent anniversaries of such
date, subject to certain conditions as more fully described in the plan
documents. Compensation cost related to RRP shares earned during the three
month period ended December 31, 1996 was $1,766.
The Company purchased 17,500 shares of common stock on the open
market during the three months ended December 31, 1996, and an additional 9,371
shares subsequent to December 31, 1996, to fully fund the RRP. The cost of
unearned RRP shares is recorded as a reduction of stockholders' equity.
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(6) NET INCOME PER SHARE
Net income per share for the three month period ended December
31, 1996, was calculated by dividing the consolidated net income by the
weighted average number (620,475) of shares outstanding. Shares which have not
been committed to be released to the ESOP are not considered to be outstanding
for purposes of calculating net income per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS. Total assets increased $1.3 million, or 2.3%, from
$56.6 million at September 30, 1996 to $57.9 million at December 31, 1996. The
increase consisted primarily of increases in cash and cash equivalents of $1.3
million and loans receivable of $1.8 million, partially offset by a decline in
mortgage-backed securities (held to maturity and available for sale) of
$304,239 and investment securities (held to maturity and available for sale) of
$1.5 million.
CASH AND CASH EQUIVALENTS. The $1.3 million increase in cash
and cash equivalents, or 162.5%, resulted primarily from the retention of
proceeds from sales and maturities of investment securities during the period.
INVESTMENT SECURITIES. Investment securities (held to maturity
and available for sale) decreased $1.5 million, or 13.0%, from $11.5 million at
September 30, 1996 to $10.0 million at December 31, 1996. The Bank primarily
invests in U.S. Treasury and U.S. government agency securities. To a lesser
extent, the Bank invests in municipal securities and in certificates of deposit
in other insured financial institutions (in amounts up to $99,000 at any one
institution). The decrease resulted primarily from sales and maturities of
investment securities during the period with no corresponding reinvestment of
the proceeds.
LOANS RECEIVABLE. Loans receivable increased $1.8 million, or
5.2%, from $34.9 million at September 30, 1996 to $36.7 million at December 31,
1996. The majority of the increase is attributed to variable-rate mortgage
loan originations.
MORTGAGE-BACKED SECURITIES. The Bank invests primarily in
adjustable-rate, mortgage-backed securities, which are classified as either
held to maturity (carried at amortized cost), or available for sale (carried at
quoted market). Mortgage backed securities decreased $304,239, or 3.9%, from
$7.8 million at September 30, 1996 to $7.5 million at December 31, 1996, due to
scheduled principal payments. There were no new purchases of mortgage-backed
securities during the three months ended December 31, 1996.
OFFICE PROPERTIES AND EQUIPMENT. The Bank began construction on
a drive-through facility expansion during the three months ended December 31,
1996. Construction costs incurred during the period were $71,627.
DEPOSITS. Deposits increased by $1.1 million, or 2.5%, from
$44.8 million at September 30, 1996 to $45.9 million at December 31, 1996. The
Bank continues to offer competitive interest rates on deposits which
contributed to the increase.
ADVANCES FROM FEDERAL HOME LOAN BANK. The Bank obtained an
additional $500,000 advance during the three months ended December 31, 1996 to
partially fund increased loan demand.
OTHER BORROWED FUNDS. Other borrowed funds of $66,000
represents the amount owed for the purchase of land on which the drive-through
facility expansion is being built.
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STOCKHOLDERS' EQUITY. Stockholders' equity totaled $10.7
million at December 31, 1996, as compared to $10.9 million at September 30,
1996. The decrease of $141,804, or 1.3%, resulted primarily from the purchase
of common shares to fund the Recognition and Retention Plan, partially offset
by net income during the three month period.
RESULTS OF OPERATIONS-THREE MONTHS ENDED DECEMBER 31, 1996 AS
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1995
Net income increased $5,454, or 8.1%, from $66,954 for the
quarter ended December 31, 1995 to $72,408 for the comparable 1996 quarter.
The increase resulted primarily from a $103,456, or 30.3%, increase in net
interest income, a $3,432 increase in non-interest income and a $6,000 decrease
in the provision for loan losses, which was offset by increases in non-interest
expense and the provision for income taxes of $84,563 and $22,871,
respectively.
Total interest income increased $96,937, or 10.4%, from $935,736
for the three months ended December 31, 1995 to $1,032,673 for the comparable
1996 period. The increase was largely due to increases in interest on
investment securities and loans receivable of $107,246 and $34,521,
respectively, offset by reductions in interest on other interest-earning assets
of $21,561 and interest income on mortgage-backed securities of $23,269. The
increases were primarily due to increased levels of these interest-earning
assets during the 1996 period as compared to 1995. Interest income on other
interest-earning assets and mortgage-backed securities decreased due to lower
volumes during the 1996 period as compared to 1995. The volume increases were
primarily the result of Conversion proceeds.
Total interest expense decreased modestly by $6,519, or 1.1%,
from $594,687 for the three months ended December 31, 1995 to $588,168 for the
three months ended December 31, 1996. The decrease is attributable to lower
volumes of interest-bearing liabilities during the 1996 three month period as
compared to 1995.
The provision for loan losses decreased $6,000 for the 1996
three month period as compared to the 1995 three month period. Management
determined that the allowance for loan losses was adequate at December 31, 1996
and, therefore, no additional provision was necessary.
The $3,432 increase in non-interest income consisted of gains on
foreclosed real estate of $7,633 for the three months ended December 31, 1996
as compared to no gains during the 1995 three month period, partially offset by
a $4,201 decrease in other miscellaneous non-interest income consisting
primarily of late payment fees on loans.
The $84,563 increase in non-interest expense, or 32.4%, from
$261,017 for the three months ended December 31, 1995 to $345,580 for the
comparable 1996 period, consisted primarily of increases in compensation and
benefits of $31,789 and professional services expenses of $53,721. Other
increases and decreases were relatively insignificant between periods.
The increase in compensation and benefits was due to $17,078 in
ESOP compensation expense recorded in the 1996 period with no comparable
expense for 1995, along with normal salary increases given to management and
employees. The increase in professional services expenses is due to increased
cost during the 1996 period associated with operating as a public company.
The provision for income taxes increased for the 1996 quarter as
compared to 1995 due to increased pretax income.
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LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government and government agency obligations and other similar investments
having maturities of five years or less. Such investments are intended to
provide a source of relatively liquid funds upon which the Bank may rely if
necessary to fund deposit withdrawals and for other short-term funding needs.
The required level of such liquid investments is currently 5% of certain
liabilities as defined by the OTS and may be changed to reflect economic
conditions.
The liquidity of the Bank, as measured by the ratio of cash,
cash equivalents, qualifying investments, mortgage-backed securities and
interest receivable on investments, and mortgage-backed securities that would
qualify except for the maturity dates, to the sum of total deposits less any
share loans on deposits, was 14.6% at December 31, 1996, as compared to 15.0%
at September 30, 1996. At December 31, 1996, the Bank's "liquid" assets
totalled approximately $6.4 million, which was $4.2 million in excess of the
current OTS minimum requirement.
The Bank's liquidity, represented by cash and cash equivalents,
is a product of its operating, investing and financing activities. The Bank's
primary sources of funds are deposits, prepayments and maturities of
outstanding loans and mortgage-backed securities, maturities of short-term
investments, and funds provided from operations. While scheduled loan and
mortgage-backed securities amortization and maturing short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced generally by interest rates, economic conditions and
competition. The Bank generates cash through its retail deposits and,
occasionally to the extent deemed necessary, has utilized borrowings from the
FHLB of Cincinnati.
Liquidity management is both a daily and long-term function of
business management. The Bank maintains a strategy of investing in loans and
mortgage-backed securities. The Bank uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed
and investment securities. At December 31, 1996, the total approved loan
commitments outstanding amounted to $794,000. Certificates of deposit
scheduled to mature in one year or less at December 31, 1996, totaled $23.9
million. The Bank believes that it has adequate resources to fund all of its
commitments and that it could either adjust the rate of certificates of deposit
in order to retain deposits in changing interest rate environments or replace
such deposits with borrowings if it proved to be cost-effective to do so.
At December 31, 1996, the Bank had regulatory capital which was
well in excess of applicable limits. At December 31, 1996, the Bank was
required to maintain tangible capital of 1.5% of adjusted total assets, core
capital of 3.0% of adjusted total assets and risk-based capital of 8.0% of
adjusted risk-weighted assets At December 31, 1996, the Bank's tangible
capital was $8.4 million, or 15.1% of adjusted total assets, core capital was
$8.4 million, or 15.1% of adjusted total assets and risk-based capital was $8.7
million, or 35.2% of adjusted risk-weighted assets, exceeding the requirements
by $7.5 million, $7.0 million and $6.7 million, respectively.
RECAPITALIZATION OF SAIF
The deposits of the Bank are currently insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. Both the SAIF and the Bank Insurance Fund ("BIF"), the federal
deposit insurance fund that covers commercial bank deposits, are required by
law to attain and thereafter maintain a reserve ratio of 1.25% of insured
deposits.
- 12 -
<PAGE> 13
The BIF fund met its target reserve level in September 1995, but
the SAIF was not expected to meet its target reserve level until at least 2002.
Consequently, in late 1995, the FDIC approved a final rule regarding deposit
insurance premiums which, effective with respect to the semiannual premium
assessment beginning January 1, 1996, reduced deposit insurance premiums for
BIF member institutions to zero basis points (subject to an annual minimum of
$2,000) for institutions in the lowest risk category. Deposit insurance
premiums for SAIF members were maintained at their existing levels (23 basis
points for institutions in the lowest risk category).
On September 30, 1996, President Clinton signed into law
legislation which will eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions by recapitalizing the SAIF's reserves
to the required ratio. The legislation provides that all SAIF member
institutions pay a one-time special assessment to recapitalize the SAIF, which
in the aggregate will be sufficient to bring the reserve ratio of the SAIF to
1.25% of insured deposits. The legislation also provides for the merger of the
BIF and the SAIF, with such merger being conditioned upon the prior elimination
of the thrift charter.
Effective October 8, 1996, FDIC regulations imposed a one-time
special assessment of 65.7 basis points on SAIF-assessable deposits as of March
31, 1995, which was collected on November 27, 1996. The Bank's one-time
special assessment amounted to $269,363 ($177,780 net of related tax benefits).
The payment of such special assessment had the effect of immediately reducing
the Bank's capital by such an amount. Nevertheless, management does not
believe that this one-time special assessment will have a material adverse
effect on the Company's consolidated financial condition or cause
non-compliance with the Bank's regulatory capital requirements.
On October 16, 1996, the FDIC proposed to lower assessment rates
for SAIF members to reduce the disparity in the assessment rates paid by BIF
and SAIF members. Beginning October 1, 1996, effective SAIF rates would range
from zero basis points to 27 basis points. From 1997 through 1999, SAIF
members will pay 6.4 basis points to fund the Financing Corporation while BIF
member institutions will pay about 1.3 basis points. The Bank's insurance
premiums, which have amounted to 23 basis points will be reduced to 6.4 basis
points. Based upon the $45.9 million of assessable deposits at December 31,
1996, the Bank would expect to pay $19,000 less in insurance premiums per
quarter during 1997, or $.03 per share.
- 13 -
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Issuer is a
part, or to which any of its property is subject.
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
a) A Special Meeting of Stockholders ("Special Meeting") was
held on December 16, 1996.
b) Not applicable.
c) Two matters were voted upon at the Special Meeting. The
matters voted upon together with the applicable voting
results were as follows:
1) Proposal to consider and approve the adoption of
the Company's 1996 Stock Option Plan - votes for
422,738; votes against 49,750; abstain 4,000; and
not voted 107,250.
2) Proposal to consider and approve the Company's
Recognition and Retention Plan and Trust - votes
for 406,263; votes against 66,225; abstain 4,000;
and not voted 107,250.
d) Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
27 Financial Data Schedule.
b) No Form 8-K reports were filed during the quarter.
- 14 -
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: February 7, 1997 By:/s/ I. Vincent Rice
------------------------ ---------------------------------
I. Vincent Rice, President
Date: February 7, 1997 By:/s/ Jeffery W. Clark
------------------------ ---------------------------------
Jeffery W. Clark, Comptroller
- 15 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the First
Federal Financial Bancorp, Inc. and Subsidiary Consolidated Balance Sheet as of
December 31, 1996 and the Consolidated Statement of Income for the three months
ended December 31, 1996 and is qualified in its entirety by reference to such
Consolidate Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 162,422
<INT-BEARING-DEPOSITS> 1,895,965
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,067,270
<INVESTMENTS-CARRYING> 13,431,843
<INVESTMENTS-MARKET> 13,353,229
<LOANS> 37,034,254
<ALLOWANCE> 287,468
<TOTAL-ASSETS> 57,929,470
<DEPOSITS> 45,892,804
<SHORT-TERM> 1,066,000
<LIABILITIES-OTHER> 228,952
<LONG-TERM> 0
0
0
<COMMON> 6,718
<OTHER-SE> 10,734,996
<TOTAL-LIABILITIES-AND-EQUITY> 57,929,470
<INTEREST-LOAN> 715,200
<INTEREST-INVEST> 304,617
<INTEREST-OTHER> 12,856
<INTEREST-TOTAL> 1,032,673
<INTEREST-DEPOSIT> 580,469
<INTEREST-EXPENSE> 588,168
<INTEREST-INCOME-NET> 444,505
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 345,580
<INCOME-PRETAX> 110,831
<INCOME-PRE-EXTRAORDINARY> 72,408
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,408
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.32
<LOANS-NON> 74,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 283,112
<CHARGE-OFFS> 0
<RECOVERIES> 4,356
<ALLOWANCE-CLOSE> 287,468
<ALLOWANCE-DOMESTIC> 287,468
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
