<PAGE> 1
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 MARCH 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
COMMISSION FILE NUMBER 0-28020
FIRST FEDERAL FINANCIAL BANCORP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 31-1456058
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
415 CENTER STREET, IRONTON, OHIO 45638
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(614) 532-6845
(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 / /
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE:
AS OF MAY 12, 1998, THERE WERE ISSUED AND OUTSTANDING 622,223 SHARES OF
THE REGISTRANT'S COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES / / NO /X/
<PAGE> 2
FIRST FEDERAL FINANCIAL BANCORP, INC.
TABLE OF CONTENTS
*****************
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (as of March 31,
1998 (unaudited) and September 30, 1997).................................. 3
Consolidated Statements of Income (for the three
months ended March 31, 1998 (unaudited)
and 1997 (unaudited))..................................................... 4
Consolidated Statements of Income (for the six
months ended March 31, 1998 (unaudited) and
1997 (unaudited))......................................................... 5
Consolidated Statements of Changes in Stockholders' Equity (for
the six months ended March 31, 1998 (unaudited) and
the year ended September 30, 1997)........................................ 6
Consolidated Statements of Cash Flows (for the six
months ended March 31, 1998 (unaudited)
and 1997 (unaudited)...................................................... 7
Notes to Consolidated Financial Statements................................ 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 11-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 17
Item 2. Changes in Securities..................................................... 17
Item 3. Defaults Upon Senior Securities........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders....................... 17
Item 5. Other Information......................................................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 18
Signatures .......................................................................... 19
</TABLE>
<PAGE> 3
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 1,225,801 $ 807,314
INVESTMENT SECURITIES HELD
TO MATURITY 4,537,661 7,257,115
INVESTMENT SECURITIES AVAILABLE
FOR SALE 999,128 1,694,104
LOANS RECEIVABLE 41,090,535 39,026,547
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY 5,674,252 4,695,838
MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE 5,765,165 3,130,178
ACCRUED INTEREST RECEIVABLE 350,454 360,604
FORECLOSED REAL ESTATE 40,325 50,046
OFFICE PROPERTIES AND EQUIPMENT 1,895,280 2,052,833
OTHER ASSETS 164,924 123,216
------------ ------------
$ 61,743,525 $ 59,197,795
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 45,389,896 $ 44,992,698
ADVANCES FROM FEDERAL HOME LOAN BANK 6,022,062 3,300,000
DEFERRED FEDERAL INCOME TAXES PAYABLE 94,877 101,736
ACCRUED INTEREST PAYABLE 25,791 18,192
OTHER LIABILITIES 87,757 305,834
------------ ------------
Total liabilities 51,620,383 48,718,460
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 6,222 6,464
Employee benefit plans (691,215) (739,000)
Additional paid-in capital 5,851,849 6,060,242
Retained earnings-substantially restricted 4,958,620 5,127,312
Unrealized holding gain (loss) on investment
securities available for sale, net of taxes (2,334) 24,317
------------ ------------
Total stockholders' equity 10,123,142 10,479,335
------------ ------------
$ 61,743,525 $ 59,197,795
============ ============
</TABLE>
- 3 -
<PAGE> 4
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
INTEREST INCOME: (Unaudited) (Unaudited)
Loans receivable-
First mortgage loans $ 746,984 $ 696,958
Consumer and other loans 35,841 34,406
Mortgage-backed and related securities 147,133 111,514
Investment securities 124,276 163,756
Other interest-earning assets 11,958 14,876
---------- ----------
Total interest income 1,066,192 1,021,510
---------- ----------
INTEREST EXPENSE:
Interest-bearing checking 5,032 2,969
Passbook savings 68,318 69,467
Certificates of deposit 507,745 522,728
Advances from Federal Home
Loan Bank 71,398 5,828
---------- ----------
Total interest expense 652,493 600,992
---------- ----------
Net interest income 413,699 420,518
PROVISION FOR LOAN LOSSES 3,000 --
---------- ----------
Net interest income after provision
for loan losses 410,699 420,518
---------- ----------
NON-INTEREST INCOME:
Other 18,071 10,784
---------- ----------
Total non-interest income 18,071 10,784
---------- ----------
NON-INTEREST EXPENSE:
Compensation and benefits 148,391 119,376
Occupancy and equipment 36,669 24,247
SAIF deposit insurance premiums 7,034 7,233
Directors' fees and expenses 17,308 16,500
Ohio franchise tax 41,017 36,356
Data processing 28,410 17,236
Advertising 17,414 14,563
Professional services 34,325 30,905
Other 40,395 34,169
---------- ----------
Total non-interest expense 370,963 300,585
---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 57,807 130,717
PROVISION FOR INCOME TAXES 9,164 40,911
---------- ----------
NET INCOME $ 48,643 $ 89,806
========== ==========
NET INCOME PER SHARE $ .08 $ .14
========== ==========
NET INCOME PER SHARE ASSUMING DILUTION $ .08 $ .14
========== ==========
</TABLE>
- 4 -
<PAGE> 5
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans receivable -
First mortgage loans $1,488,555 $1,378,094
Consumer and other loans 68,971 68,471
Mortgage-backed and related
securities 266,728 226,892
Investment securities 263,220 352,993
Other interest-earning assets 22,598 27,732
---------- ----------
Total interest income 2,110,072 2,054,182
---------- ----------
INTEREST EXPENSE:
Interest-bearing checking 9,438 6,429
Passbook savings 137,551 142,959
Certificates of deposit 1,021,525 1,026,244
Advances from Federal Home
Loan Bank 124,249 13,527
---------- ----------
Total interest expense 1,292,763 1,189,159
---------- ----------
Net interest income 817,309 865,023
PROVISION FOR LOAN LOSSES 6,000 --
---------- ----------
Net interest income after
provision for loan losses 811,309 865,023
---------- ----------
NON-INTEREST INCOME:
Gains on foreclosed real estate 5,320 7,633
Other 29,666 22,106
---------- ----------
Total non-interest income 34,986 29,739
---------- ----------
NON-INTEREST EXPENSE:
Compensation and benefits 301,832 263,859
Occupancy and equipment 74,495 48,311
SAIF deposit insurance premiums 14,258 28,595
Directors' fees and expenses 41,170 32,760
Ohio franchise tax 77,692 55,466
Data processing 52,359 34,444
Advertising 34,214 28,958
Professional services 58,894 82,519
Other 70,498 78,300
---------- ----------
Total non-interest expense 725,412 653,212
---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 120,883 241,550
PROVISION FOR INCOME TAXES 17,874 79,334
---------- ----------
NET INCOME $ 103,009 $ 162,216
========== ==========
NET INCOME PER SHARE $ .17 $ .26
========== ==========
NET INCOME PER SHARE ASSUMING DILUTION $ .17 $ .26
========== ==========
</TABLE>
- 5 -
<PAGE> 6
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
------- --------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, September 30, 1996 $ 6,718 $(513,080) $ 6,280,193 $ 5,111,660 $ (1,973) $ 10,883,518
NET INCOME, 1997 -- -- -- 286,347 -- 286,347
CHANGE IN UNREALIZED HOLDING LOSS,
net of deferred taxes of $13,543 -- -- -- -- 26,290 26,290
ESOP SHARES RELEASED, 5,810
shares; $12.68 average fair
market value -- 58,100 17,004 -- -- 75,104
RRP SHARES PURCHASED, 26,871 shares;
$11.75 per share -- (315,734) -- -- -- (315,734)
RRP SHARES AMORTIZED, 2,603 shares -- 30,604 -- -- -- 30,604
DIVIDENDS PAID ($.28 per share) -- 1,110 281 (166,923) -- (165,532)
PURCHASE OF 25,400 TREASURY
SHARES (254) -- (237,236) (103,772) -- (341,262)
------- --------- ----------- ----------- -------- ------------
BALANCES, September 30, 1997 6,464 (739,000) 6,060,242 5,127,312 24,317 10,479,335
NET INCOME, six months ended
March 31, 1998 (unaudited) -- -- -- 103,009 -- 103,009
CHANGE IN UNREALIZED HOLDING GAIN,
net of deferred taxes of $13,729 (unaudited) -- -- -- -- (26,651) (26,651)
ESOP SHARES RELEASED, 2,812 shares; $15.99
average fair market value (unaudited) -- 28,180 16,870 -- -- 45,050
RRP SHARES AMORTIZED, 1,619 shares
(unaudited) -- 19,025 -- -- -- 19,025
DIVIDENDS PAID ($.14 per share)
(unaudited) -- 580 381 (81,957) -- (80,996)
PURCHASE OF 24,160 TREASURY SHARES (242) -- (225,644) (189,744) -- (415,630)
------- --------- ----------- ----------- -------- ------------
BALANCES, MARCH 31, 1998 (unaudited) $ 6,222 $(691,215) $ 5,851,849 $ 4,958,620 $ (2,334) $ 10,123,142
======= ========= =========== =========== ======== ============
</TABLE>
- 6 -
<PAGE> 7
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 103,009 $ 162,216
Adjustments to reconcile net income to net cash
provided by operating activities -
Gains on foreclosed real estate (5,320) (7,633)
Provision for loan losses 6,000 --
Depreciation 46,577 26,235
FHLB stock dividends (17,000) (15,300)
Amortization and accretion, net (1,352) 2,080
ESOP compensation 45,050 35,815
RRP compensation 19,025 11,275
Change in -
Accrued interest receivable 10,150 14,467
Other assets (41,708) (18,023)
Deferred Federal income taxes 6,870 2,867
Accrued interest payable 7,599 (2,266)
Accrued SAIF special assessment -- (269,363)
Other liabilities (98,077) 7,173
----------- -----------
Net cash provided by (used for) operating
activities 80,823 (50,457)
----------- -----------
INVESTING ACTIVITIES:
Net increase in loans (2,099,710) (2,241,586)
Proceeds from sales and maturities of investment securities available for sale 700,000 1,000,000
Proceeds from maturities of investment securities held to maturity 2,999,000 846,000
Purchases of investment securities held to maturity (250,000) (99,000)
Purchases of mortgage-backed securities held to maturity (1,303,750) --
Purchases of mortgage-backed securities available for sale (3,071,635) --
Principal collected on mortgage-backed securities held to maturity 317,611 401,882
Principal collected on mortgage-backed securities available for sale 387,775 136,091
Purchases of office properties and equipment (9,024) (341,025)
Proceeds from sale of foreclosed real estate 44,763 41,000
----------- -----------
Net cash used for investing activities (2,284,970) (256,638)
----------- -----------
FINANCING ACTIVITIES:
Dividends paid (80,996) (85,565)
Purchase of treasury shares (415,630) (128,188)
Proceeds from FHLB advances 6,725,000 500,000
Purchase of RRP shares -- (315,733)
Principal paid on FHLB advances (4,002,938) (1,000,000)
Proceeds from other borrowed funds -- 66,000
Net increase in deposits 397,198 2,300,881
----------- -----------
Net cash provided by financing activities 2,622,634 1,337,395
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 418,487 1,030,300
CASH AND CASH EQUIVALENTS, beginning of period 807,314 801,243
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,225,801 $ 1,831,543
=========== ===========
NONCASH INVESTING ACTIVITIES:
Loans taken into foreclosed real estate $ 29,722 $ 11,603
Change in unrealized holding loss on investment securities
available for sale (40,380) 12,931
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Federal income taxes paid $ 41,385 $ 34,473
Interest paid 1,285,164 1,191,425
</TABLE>
- 7 -
<PAGE> 8
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").
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, 1997.
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 Proctorville, Ohio (formerly 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 March 31, 1998 and
September 30, 1997, and for the three and six months ended March 31, 1998 and
1997, include the accounts of the Company and 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.
- 8 -
<PAGE> 9
(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 $537,430 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 $537,430 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 for the three month
periods ended March 31, 1998 and 1997 was $23,475 and $18,737, respectively, and
for the six month periods ended March 31, 1998 and 1997 was $45,050 and $35,815,
respectively.
(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 have been awarded as of
March 31, 1998. These options are subject to vesting provisions as well as other
provisions of the Plan. No options have been exercised through March 31, 1998.
(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 have been awarded as of March 31, 1998. Awards 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 periods ended March 31, 1998 and 1997 was
$9,606 and $9,509, respectively, and for the six months ended March 31, 1998 and
1997 was $19,025 and $11,275, respectively.
The Company purchased 26,871 shares of common stock during the
year ended September 30, 1997, to fully fund the RRP. The cost of unearned RRP
shares is recorded as a reduction of stockholders' equity.
- 9 -
<PAGE> 10
(6) PURCHASE OF COMMON STOCK
During the three months ended March 31, 1998, the Company
purchased 24,160 shares of its outstanding common stock at an aggregate cost of
$415,630. During the year ended September 30, 1997, the Company purchased 25,400
shares of its outstanding common stock at an aggregate cost of $341,262. The
purchase of these shares has been recorded as a purchase of common stock shares,
which are authorized but unissued.
(7) NET INCOME PER SHARE
Primary and full dilution net income per share for the three and
six month periods ended March 31, 1998 and 1997, was calculated by dividing the
consolidated net income by the weighted average number of common shares, and
common stock equivalents outstanding, respectively. 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.
- 10 -
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS. Total assets increased $2.5 million, or 4.2%, from $59.2
million at September 30, 1997 to $61.7 million at March 31, 1998. The increase
consisted primarily of increases in cash and cash equivalents of $.4 million,
loans receivable of $2.1 million and mortgage-backed securities (held to
maturity and available for sale) of $3.6 million, partially offset by a decline
in investment securities (held to maturity and available for sale) of $3.5
million.
CASH AND CASH EQUIVALENTS. The $.4 million increase in cash and
cash equivalents, or 50.0%, resulted primarily from the retention of proceeds
from maturities of investment securities during the period along with an
increase in FHLB advances and deposits, partially offset by cash outflows used
to fund loan demand and to purchase mortgage-backed securities.
INVESTMENT SECURITIES. Investment securities (held to maturity
and available for sale) decreased $3.5 million, or 38.9%, from $9.0 million at
September 30, 1997 to $5.5 million at March 31, 1998. The Company primarily
invests in U.S. Treasury and U.S. government agency securities, and to a lesser
extent, 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 from maturities of investment securities during the period of
$3.5 million, with no corresponding reinvestments of the proceeds.
LOANS RECEIVABLE. Loans receivable increased $2.1 million, or
5.4%, from $39.0 million at September 30, 1997 to $41.1 million at March 31,
1998. The majority of the increase is attributed to variable-rate mortgage loan
originations.
The Company does not have a concentration of its loan portfolio
in any one industry or to any one borrower. Real estate lending (both mortgage
and construction loans) continues to be the largest component of the loan
portfolio, representing $39.7 million, or 95.9%, of total gross loans, while
consumer loans, including installment loans and loans secured by deposit
accounts, totaled $1.7 million, or 4.1%, of total gross loans outstanding at
March 31, 1998.
The Company's lending is concentrated to borrowers who reside in
and/or which are collateralized by real estate and property located in Lawrence
and Scioto County, Ohio, and Boyd and Greenup County, Kentucky. Employment in
these areas is highly concentrated in the petroleum, iron and steel industries.
Therefore, many debtors' ability to honor their contracts is dependent upon
these economic sectors.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses as a
percentage of total loans decreased slightly from .73% at September 30, 1997 to
.70% at March 31, 1998. The dollar amount of the allowance totaled $287,000 at
September 30, 1997 as compared to $289,000 at March 31, 1998.
Charge-off activity for the six months ended March 31, 1998 and
1997, totaled $3,635 and $-0-, respectively. Recoveries totaled $-0- and $4,355
for the six months ended March 31, 1998 and 1997, respectively.
- 11 -
<PAGE> 12
The Company had $156,000 and $84,000 of non-accrual loans at
March 31, 1998 and September 30, 1997, respectively. At the same dates, there
were no significant loans greater than 90 days delinquent which were still
accruing interest.
The Company had no troubled debt restructurings during the six
month periods ended March 31, 1998 and 1997.
MORTGAGE-BACKED SECURITIES. The Company 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 increased $3.6 million, or 46.2%,
from $7.8 million at September 30, 1997 to $11.4 million at March 31, 1998, due
to purchases of $4.3 million, offset by scheduled principal payments of $.7
million.
OFFICE PROPERTIES AND EQUIPMENT. The Company constructed a
drive-through facility expansion at its Ironton office and a new branch banking
facility located in Proctorville, Ohio during the year ended September 30, 1997.
The total cost of both projects approximated $1.0 million. In connection with
the opening of the new branch, the Chesapeake, Ohio branch was relocated to
Proctorville. The Company intends to sell the Chesapeake facility. The branch
relocation is expected to provide increased business opportunities for the
Company.
The Company purchased office properties and equipment of $9,024
and $341,025 during the six months ended March 31, 1998 and 1997, respectively.
DEPOSITS. Deposits increased by $.4 million, or .9%, from $45.0
million at September 30, 1997 to $45.4 million at March 31, 1998. The Company
continues to offer competitive interest rates on deposits.
ADVANCES FROM FEDERAL HOME LOAN BANK. The Company obtained
advances totaling $6.7 million during the six months ended March 31, 1998 to
meet its loan demand and other funding needs. $4.0 million of advances were
repaid during the period. The Company has ample borrowing capacity if needed to
fund future commitments.
STOCKHOLDERS' EQUITY. Stockholders' equity totaled $10.1 million
at March 31, 1998 as compared to $10.5 million at September 30, 1997. The
Company's net income for the period was offset by dividends declared and the
release of common stock shares to the employee benefit plans. Also, the Company
purchased 24,160 shares of its outstanding stock at an aggregate cost of
$415,630 during the six months ended March 31, 1998.
RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 1998 AS
COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net income decreased $41,163, or 45.8%, from $89,806 for the
quarter ended March 31, 1997 to $48,643 for the comparable 1998 quarter. Net
income per share was $.08 and $.14 for the 1998 and 1997 quarters, respectively,
both primary and assuming full dilution. The decrease in net income resulted
from a decrease in net interest income of $6,819, or 1.6%, an increase in the
provision for loan losses of $3,000, or 100.0%, and an increase in non-interest
expense of $70,378, or 23.4%, offset by an increase in non-interest income of
$7,287, or 67.6%, and a decrease in the provision for income taxes of $31,747.
Total interest income increased $44,682, or 4.4%, from
$1,021,510 for the three months ended March 31, 1997 to $1,066,192 for the
comparable 1998 period. The increase was
- 12 -
<PAGE> 13
due to increased levels of interest earned on loans receivable and
mortgage-backed securities of $51,461 and $35,619, respectively, offset by
reductions in interest earned on investment securities and other
interest-earning assets of $39,480 and $2,918, respectively. Interest on loans
receivable and mortgage-backed securities increased primarily due to higher
volumes of these assets in the 1998 period as compared to 1997. The decreases in
interest on investment securities and other interest-earning assets for the 1998
quarter as compared to the 1997 quarter is primarily attributable to lower
volumes of these assets.
Total interest expense increased $51,501, or 8.6%, from $600,992
for the quarter ended March 31, 1997 to $652,493 for the quarter ended March 31,
1998, such increase being primarily attributable to higher volumes of
interest-bearing liabilities during the 1998 quarter as compared to the 1997
quarter, and to a lesser extent, due to higher interest rates paid on deposits.
The Company provided $3,000 for loan losses during the 1998
quarter to correspond with the growth in the loan portfolio. No provision was
deemed necessary during the comparable 1997 quarter.
The $7,287 increase in non-interest income, from $10,784 for the
1997 quarter to $18,071 for the 1998 quarter, resulted primarily from increased
service charge income on deposit accounts. Expansion and improvements to the
Company's main office and branch facilities completed during the 1997 fiscal
year has enabled the Company to better compete with other area institutions for
transaction accounts, resulting in increased service fees.
The $70,378 increase in non-interest expense, from $300,585 for
the 1997 quarter to $370,963 for the comparable 1998 quarter resulted primarily
from increases in compensation and benefits expenses of $29,015, occupancy and
equipment expenses of $12,422, and data processing expenses of $11,174.
Compensation and benefits increased primarily due to increased Employee Stock
Ownership Plan ("ESOP") expense associated with the increased market value of
the Company's stock and also due to higher employee insurance benefits costs.
Occupancy and equipment expenses increased due to the expansion and improvements
made to the Company's facilities in fiscal year 1997. Data processing expenses
increased due to the increased number of customer accounts and increased costs
associated with new services, such as ATM machines.
The provision for income taxes decreased $31,747 due to lower
pretax income and lower statutory tax rates applied to taxable income during the
1998 quarter as compared to the 1997 quarter.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1998 AS
COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Net income decreased $59,207, or 36.5%, from $162,216 for the
six months ended March 31, 1997 to $103,009 for the six months ended March 31,
1998. Net income per share was $.17 and $.26 for the 1998 and 1997 six month
periods, respectively, both primary and assuming full dilution. The decreases in
net income resulted from a decrease in net interest income of $47,714, or 5.5%,
an increase in the provision for loan losses of $6,000, or 100.0%, and an
increase in non-interest expense of $72,200, or 11.1%, offset by an increase in
non-interest income of $5,247, or 17.6%, and a decrease in the provision for
income taxes of $61,460.
Total interest income increased $55,890, or 2.7%, from
$2,054,182 for the six months ended March 31, 1997 to $2,110,072 for the
comparable 1998 period. The increase was due to increased levels of interest
earned on loans receivable and mortgage-backed securities of $110,961
- 13 -
<PAGE> 14
and $39,836, respectively, offset by reductions in interest earned on investment
securities and other interest earning assets of $89,773 and $5,134,
respectively. Interest on loans receivable and mortgage-backed securities
increased primarily due to higher volumes of these assets during the 1998 period
as compared to the 1997 period. The decreases in interest on investment
securities and other interest-earning assets is primarily attributable to lower
volumes of these assets during the 1998 period as compared to the 1997 period.
Total interest expense increased $103,604, or 8.7%, from
$1,189,159 for the 1997 six month period to $1,292,763 for the six months ended
March 31, 1998, such increase reflecting higher volumes of interest-bearing
liabilities during the 1998 period as compared to the 1997 period, and to a
lesser extent, higher market rates of interest.
The Company provided $6,000 for loan losses during the six
months ended March 31, 1998 to correspond to the increase in the loan portfolio.
No provision was deemed necessary during the comparable 1997 six month period.
The $5,247 increase in non-interest income resulted primarily
from increased levels of service fees on deposit accounts.
The $72,200 increase in non-interest expense, from $653,212 for
the 1997 period to $725,412 for the 1998 period resulted primarily from
increases in compensation and benefits expenses of $37,973, occupancy and
equipment expenses of $26,184, franchise taxes of $22,226, and data processing
costs of $17,915, partially offset by decreases in professional services
expenses and SAIF deposit insurance expense of $23,625 and $14,337,
respectively. Compensation and benefits increased due to higher RRP and ESOP
compensation expenses during the six months ended March 31, 1998 as compared to
the six months ended March 31, 1997, and due to increased employee salaries and
insurance benefits expense. The Company's RRP was not in effect for both
quarters during the 1997 period. Occupancy and equipment expenses increased due
to costs associated with the Company's expanded facilities. Franchise taxes
increased due to two full quarters of Delaware franchise tax expense during the
1998 period as compared to only one quarter in the 1997 comparable period. Data
processing expenses increased due to the increased number of customer accounts
and expanded services. The decline in SAIF deposit insurance premiums reflects
the lower assessment rate during the 1998 six month period as compared to the
1997 six month period, while professional services expenses decreased due to the
recurring nature of services provided to the Company in connection with its
public reporting obligations during the 1998 six month period as compared to the
1997 six month period.
The provision for income taxes decreased $61,460, or 77.5%, due to lower
statutory tax rates being applied to reduced pretax income for the six months
ended March 31, 1998 as compared to the six months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to
maintain specified levels of "liquid" investments. 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 4% 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
- 14 -
<PAGE> 15
mortgage-backed securities that would qualify except for the maturity dates, to
the sum of total deposits less any share loans on deposits, was 8.1% at March
31, 1998, as compared to 13.0% at September 30, 1997. At March 31, 1998, the
Bank's "liquid" assets totaled approximately $3.2 million, which was $1.2
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, 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 March 31, 1998, the total approved loan
commitments outstanding amounted to $1.2 million. Certificates of deposit
scheduled to mature in one year or less at March 31, 1998, totaled $28.9
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 March 31, 1998, the Bank had regulatory capital which was
well in excess of applicable limits. At March 31, 1998, 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 March 31, 1998, the Bank's tangible capital was $8.7
million, or 14.4% of adjusted total assets, core capital was $8.7 million, or
14.4% of adjusted total assets and risk-based capital was $9.0 million, or 32.4%
of adjusted risk-weighted assets, exceeding the requirements by $7.8 million,
$6.9 million and $6.8 million, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 ("the Statement"),
"Earnings Per Share." The Statement requires entities to give effect to all
dilutive potential common shares that were outstanding during the reporting
period for purposes of calculating earnings per share.
The Company adopted the provisions of the Statement effective
for the quarter ending December 31, 1997. Although the Company does have
potential common shares outstanding in the form of stock options, application of
the Statement had no effect on the reported net income per share amounts for the
quarters or six months ended March 31, 1998 and 1997.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
In addition to historical information, forward-looking
statements are contained herein that are subject to risks and uncertainties,
that could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that could cause future results to vary from
current expectations, include, but are not limited to, the impact of economic
conditions (both
- 15 -
<PAGE> 16
generally and more specifically in the markets in which the Company operates),
the impact of competition for the Company's customers from other providers of
financial services, the impact of government legislation and regulation (which
changes from time to time and over which the Company has no control), and other
risks detailed in this Form 10-QSB and in the Company's other Securities and
Exchange Commission (SEC) filings. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements, to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission.
THE YEAR 2000
Many existing computer programs, such as several utilized by the
Company, use only two digits to identify a year in the date field. These
programs were designed and developed without considering the impact of the
upcoming change in the century.
The Bank's primary regulator, the OTS, is requiring that the
Bank identify its computer applications which could fail or create erroneous
results because of the year 2000, and have in place and operating alternate
systems by December 31, 1998.
In this connection, Bank management is currently evaluating and
seeking cost proposals to meet the OTS imposed deadlines. They have tentatively
identified the need to replace "teller software" and "local area network
software" used in daily operations.
The Bank's most significant data processing is performed by an
outside service bureau. Management, as well as several other data center
customers, have already been in contact with the data center and received
favorable response regarding their plans and implementation schedules for
addressing the year 2000 issues.
The costs associated with the year 2000 issues are not known at
this time. However, such costs would be capitalized and depreciated over an
estimated five year period.
- 16 -
<PAGE> 17
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) An annual meeting of stockholders ("Annual Meeting") was held
on January 21, 1998.
b) Not applicable
c) Two matters were voted upon at the Annual Meeting. The
stockholders approved matters brought before the Annual
Meeting. The matters voted upon together with the applicable
voting results were as follows:
1) Proposal to elect three directors for a three-year term
or until their successors are elected and qualified; I.
Vincent Rice received votes for 469,149, against -0-,
abstain -0-, not voted 177,234;
Steven C. Milleson received votes for 469,149, against
-0-, abstain -0-, not voted 177,234;
and William P. Payne received votes for 469,149, against
-0-, abstain -0-, not voted 177,234.
2) Proposal to ratify the appointment of Kelley, Galloway &
Company, PSC as the Company's independent auditors for
the fiscal year ending September 30, 1998; received
votes for 456,649, against 12,500, abstain -0-, not
voted 177,234.
d) Not applicable
Item 5. Other Information
Not applicable.
- 17 -
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
No. Description
--- -----------
3.1 Certificate of Incorporation of First Federal
Financial Bancorp, Inc.(1)
3.2 Bylaws of First Federal Financial Bancorp, Inc.(1)
27 Financial Data Schedule.
(1) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-1672) filed by the Registrant with the SEC on February
26, 1996, as amended.
b) No Form 8-K reports were filed during the quarter.
- 18 -
<PAGE> 19
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: May 12, 1998 By: /s/I. Vincent Rice
------------------- ---------------------------------
I. Vincent Rice, President
Date: May 12, 1998 By: /s/Jeffery W. Clark
------------------- ---------------------------------
Jeffery W. Clark, Comptroller
- 19 -
<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
MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED
MARCH 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 228324
<INT-BEARING-DEPOSITS> 997477
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6764293
<INVESTMENTS-CARRYING> 10211913
<INVESTMENTS-MARKET> 10192462
<LOANS> 41379471
<ALLOWANCE> 288936
<TOTAL-ASSETS> 61743525
<DEPOSITS> 45389896
<SHORT-TERM> 0
<LIABILITIES-OTHER> 208425
<LONG-TERM> 6022062
0
0
<COMMON> 6222
<OTHER-SE> 10116920
<TOTAL-LIABILITIES-AND-EQUITY> 61743525
<INTEREST-LOAN> 1557526
<INTEREST-INVEST> 527948
<INTEREST-OTHER> 22598
<INTEREST-TOTAL> 2110072
<INTEREST-DEPOSIT> 1168514
<INTEREST-EXPENSE> 1292763
<INTEREST-INCOME-NET> 817309
<LOAN-LOSSES> 6000
<SECURITIES-GAINS> 5320
<EXPENSE-OTHER> 725412
<INCOME-PRETAX> 120883
<INCOME-PRE-EXTRAORDINARY> 103009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103009
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 2.12
<LOANS-NON> 156000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 286571
<CHARGE-OFFS> 3635
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 288936
<ALLOWANCE-DOMESTIC> 288936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
