<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 DECEMBER 31, 1997
----------------------------------
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
-------------------------
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 11, 1998, THERE WERE ISSUED AND OUTSTANDING 646,383
SHARES OF THE REGISTRANT'S COMMON STOCK.
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>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (as of December 31,
1997 (unaudited) and September 30, 1997).............................. 3
Consolidated Statements of Income (for the three
months ended December 31, 1997 (unaudited)
and 1996 (unaudited))................................................. 4
Consolidated Statements of Changes in Stockholders' Equity (for
the three months ended December 31, 1997 (unaudited) and
the year ended September 30, 1997).................................... 5
Consolidated Statements of Cash Flows (for the three
months ended December 31, 1997 (unaudited)
and 1996 (unaudited).................................................. 6
Notes to Consolidated Financial Statements............................ 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 15
Item 2. Changes in Securities................................................. 15
Item 3. Defaults Upon Senior Securities....................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................... 15
Item 5. Other Information..................................................... 15
Item 6. Exhibits and Reports on Form 8-K...................................... 15
Signatures .................................................................... 16
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 927,476 $ 807,314
INVESTMENT SECURITIES HELD
TO MATURITY 6,867,075 7,257,115
INVESTMENT SECURITIES AVAILABLE
FOR SALE 1,694,817 1,694,104
LOANS RECEIVABLE 39,964,741 39,026,547
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY 4,553,273 4,695,838
MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE 3,696,521 3,130,178
ACCRUED INTEREST RECEIVABLE 389,201 360,604
FORECLOSED REAL ESTATE 40,325 50,046
OFFICE PROPERTIES AND EQUIPMENT 1,917,789 2,052,833
OTHER ASSETS 114,371 123,216
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$ 60,165,589 $ 59,197,795
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
DEPOSITS $ 44,847,528 $ 44,992,698
ADVANCES FROM FEDERAL HOME LOAN BANK 4,575,000 3,300,000
DEFERRED FEDERAL INCOME TAXES PAYABLE 104,303 101,736
ACCRUED INTEREST PAYABLE 19,566 18,192
OTHER LIABILITIES 114,774 305,834
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Total liabilities 49,661,171 48,718,460
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STOCKHOLDERS' EQUITY:
Common stock 6,464 6,464
Employee benefit plans (715,421) (739,000)
Additional paid-in capital 6,067,657 6,060,242
Retained earnings-substantially restricted 5,140,193 5,127,312
Unrealized holding gain on investment
securities available for sale, net of taxes 5,525 24,317
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Total stockholders' equity 10,504,418 10,479,335
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$ 60,165,589 $ 59,197,795
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</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Three Months Ended
--------------------------------
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
INTEREST INCOME: (Unaudited) (Unaudited)
Loans receivable-
First mortgage loans $ 741,571 $ 681,135
Consumer and other loans 33,130 34,065
Mortgage-backed and related securities 119,595 115,378
Investment securities 138,944 189,239
Other interest-earning assets 10,640 12,856
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Total interest income 1,043,880 1,032,673
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INTEREST EXPENSE:
Interest-bearing checking 4,406 3,460
Passbook savings 69,233 73,493
Certificates of deposit 513,780 503,516
Advances from Federal Home
Loan Bank 52,851 7,699
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Total interest expense 640,270 588,168
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Net interest income 403,610 444,505
PROVISION FOR LOAN LOSSES 3,000 -
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Net interest income after provision
for loan losses 400,610 444,505
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NON-INTEREST INCOME:
Gains on foreclosed real estate 5,320 7,633
Other 11,595 4,273
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Total non-interest income 16,915 11,906
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NON-INTEREST EXPENSE:
Compensation and benefits 153,441 144,783
Occupancy and equipment 36,326 22,649
SAIF deposit insurance premium 7,223 21,362
Directors' fees and expenses 23,862 16,261
Franchise taxes 36,675 19,110
Data processing 16,071 14,884
Advertising 16,799 14,395
Professional services 24,569 61,496
Other 39,483 30,640
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Total non-interest expense 354,449 345,580
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INCOME BEFORE PROVISION FOR INCOME TAXES 63,076 110,831
PROVISION FOR INCOME TAXES 8,710 38,423
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NET INCOME $ 54,366 $ 72,408
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NET INCOME PER SHARE $ .09 $ .12
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NET INCOME PER SHARE ASSUMING DILUTION $ .09 $ .09
========== ==========
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Employee Additional Earnings-
Common Benefit Paid-in Substantially
Stock Plans Capital Restricted
----- ----- ------- ----------
<S> <C> <C> <C> <C>
BALANCES, September 30, 1996 $ 6,718 $ (513,080) $ 6,280,193 $ 5,111,660
NET INCOME, 1997 - - - 286,347
CHANGE IN UNREALIZED HOLDING LOSS,
net of deferred taxes $13,543 - - - -
ESOP SHARES RELEASED, 5,810
shares; $12.68 average fair
market value - 58,100 17,004 -
RRP SHARES PURCHASED, 26,871 shares;
$11.75 per share - (315,734) - -
RRP SHARES AMORTIZED, 2,603 shares - 30,604 - -
DIVIDENDS PAID ($.28 per share) - 1,110 281 (166,923)
PURCHASE OF 25,400 TREASURY SHARES (254) - (237,236) (103,772)
----------- ----------- ----------- -----------
BALANCES, September 30, 1997 6,464 (739,000) 6,060,242 5,127,312
NET INCOME, three months ended
December 31, 1997 (unaudited) - - - 54,366
CHANGE IN UNREALIZED HOLDING GAIN, net
of deferred taxes $9,680 (unaudited) - - - -
ESOP SHARES RELEASED, 1,416 shares; $15.68
average fair market value (unaudited) - 14,160 7,415 -
RRP SHARES AMORTIZED, 802 shares
(unaudited) - 9,419 - -
DIVIDENDS PAID ($.07 per share)
(unaudited) - - - (41,485)
----------- ----------- ----------- -----------
BALANCES, December 31, 1997
(unaudited) $ 6,464 $ (715,421) $ 6,067,657 $ 5,140,193
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Holding Gain (Loss)
On Investment
Securities Total
Available Stockholders'
For Sale Equity
------------ ------------
<S> <C> <C>
BALANCES, September 30, 1996 $ (1,973) $ 10,883,518
NET INCOME, 1997 - 286,347
CHANGE IN UNREALIZED HOLDING LOSS,
net of deferred taxes $13,543 26,290 26,290
ESOP SHARES RELEASED, 5,810
shares; $12.68 average fair
market value - 75,104
RRP SHARES PURCHASED, 26,871 shares;
$11.75 per share - (315,734)
RRP SHARES AMORTIZED, 2,603 shares - 30,604
DIVIDENDS PAID ($.28 per share) - (165,532)
PURCHASE OF 25,400 TREASURY SHARES - (341,262)
------------ ------------
BALANCES, September 30, 1997 24,317 10,479,335
NET INCOME, three months ended
December 31, 1997 (unaudited) - 54,366
CHANGE IN UNREALIZED HOLDING GAIN, net
of deferred taxes $9,680 (unaudited) (18,792) (18,792)
ESOP SHARES RELEASED, 1,416 shares; $15.68
average fair market value (unaudited) - 21,575
RRP SHARES AMORTIZED, 802 shares
(unaudited) - 9,419
DIVIDENDS PAID ($.07 per share)
(unaudited) - (41,485)
------------ ------------
BALANCES, December 31, 1997
(unaudited) $ 5,525 $ 10,504,418
============ ============
</TABLE>
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FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
December 31, December 31,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 54,366 $ 72,408
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 3,000 -
Depreciation 24,069 13,065
FHLB stock dividends (8,500) (7,700)
Amortization and accretion, net 3,421 (2,096)
ESOP compensation 21,575 17,078
RRP compensation 9,419 1,766
Change in -
Accrued interest receivable (28,597) (19,254)
Other assets 8,843 43,197
Deferred Federal income taxes 12,247 1,858
Accrued interest payable 1,374 (417)
Accrued SAIF special assessment - (269,363)
Other liabilities (71,060) 45,047
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Net cash provided by (used for) operating activities 24,837 (112,044)
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INVESTING ACTIVITIES:
Net increase in loans (970,916) (1,803,060)
Proceeds from maturities of investment securities held to maturity 400,000 497,000
Proceeds from maturities and sales of investment securities available for sale - 1,000,000
Purchases of mortgage-backed securities available for sale (677,580) -
Principal collected on mortgage-backed securities held to maturity 139,280 249,141
Principal collected on mortgage-backed securities available for sale 80,458 69,847
Purchases of office properties and equipment (9,025) (85,586)
Proceeds from sale of foreclosed real estate 44,763 41,000
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Net cash used for investing activities (993,020) (31,658)
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FINANCING ACTIVITIES:
Net increase (decrease) in deposits (145,170) 1,083,732
Dividends paid (41,485) (43,262)
Proceeds from FHLB advances 2,375,000 500,000
Repayments of FHLB advances (1,100,000) -
Proceeds from other borrowed funds - 66,000
Purchase of RRP shares - (205,624)
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Net cash provided by financing activities 1,088,345 1,400,846
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INCREASE IN CASH AND CASH EQUIVALENTS 120,162 1,257,144
CASH AND CASH EQUIVALENTS, beginning of period 807,314 801,243
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CASH AND CASH EQUIVALENTS, end of period $ 927,476 $ 2,058,387
=========== ===========
NONCASH INVESTING ACTIVITIES:
Loans taken into foreclosed real estate $ 29,722 $ 11,603
Change in unrealized holding loss on investment
securities available for sale (28,472) 23,695
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Federal income taxes paid 41,385 31,750
Interest paid 638,896 588,585
</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").
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 December 31, 1997 and
September 30, 1997, and for the three months ended December 31, 1997 and 1996,
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.
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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 periods ended December 31, 1997 and 1996 was $21,575 and $17,078,
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
December 31, 1997. These options are subject to vesting provisions as well as
other provisions of the Plan. No options have been exercised through December
31, 1997.
(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 December 31, 1997. 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 periods ended December 31, 1997 and 1996
was $9,419 and $1,766, 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.
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(6) PURCHASE OF COMMON STOCK
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
Net income per share for the three month periods ended December
31, 1997 and 1996, was calculated by dividing the consolidated net income by the
weighted average number (602,501 and 620,475, respectively) of shares
outstanding. Assuming dilution for the Company's outstanding, but unexercised
stock options, the weighted average number of shares was 603,354 and 620,475,
for the three months ended December 31, 1997 and 1996, 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS. Total assets increased $1.0 million, or 1.7%, from $59.2
million at September 30, 1997 to $60.2 million at December 31, 1997. The
increase consisted primarily of increases in cash and cash equivalents of $.1
million, loans receivable of $.9 million and mortgage-backed securities (held to
maturity and available for sale) of $.4 million, offset by a decline in
investment securities (held to maturity and available for sale) of $.4 million.
CASH AND CASH EQUIVALENTS. The $.1 million increase in cash and
cash equivalents, or 12.5%, resulted primarily from the retention of proceeds
from maturities of investment securities during the period along with an
increase in FHLB advances, 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 $.4 million, or 4.4%, from $9.0 million at
September 30, 1997 to $8.6 million at December 31, 1997. 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
$.4 million, with no corresponding reinvestments of the proceeds.
LOANS RECEIVABLE. Loans receivable increased $.9 million, or
2.3%, from $39.0 million at September 30, 1997 to $39.9 million at December 31,
1997. 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 $38.6 million, or 96.0%, of total gross loans, while
consumer loans, including installment loans and loans secured by deposit
accounts, totaled $1.6 million, or 4.0%, of total gross loans outstanding at
December 31, 1997.
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
.71% at December 31, 1997. The dollar amount of the allowance totaled $287,000
at September 30, 1997 as compared to $286,000 at December 31, 1997.
Charge-off activity for the three months ended December 31, 1997
and 1996, totaled $3,635 and $-0-, respectively. Recoveries totaled $-0- and
$4,355 for the three months ended December 31, 1997 and 1996, respectively.
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<PAGE> 11
The Company had $43,000 and $84,000 of non-accrual loans at
December 31, 1997 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 three
month periods ended December 31, 1997 and 1996.
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 $.4 million, or 5.1%, from
$7.8 million at September 30, 1997 to $8.2 million at December 31, 1997, due to
purchases of $.7 million, offset by scheduled principal payments of $.3 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 $9,025
and $85,586 during the three months ended December 31, 1997 and 1996,
respectively.
DEPOSITS. Deposits decreased by $.1 million, or .2%, from $45.0
million at September 30, 1997 to $44.9 million at December 31, 1997. The Company
continues to offer competitive interest rates on deposits.
ADVANCES FROM FEDERAL HOME LOAN BANK. The Company obtained
advances totaling $2.4 million during the three months ended December 31, 1997
to meet its loan demand and other funding needs. $1.1 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 $10.5 million
at December 31, 1997 and September 30, 1997. The Company's net income for the
quarter was offset by dividends declared and the release of common stock shares
to the employee benefit plans.
RESULTS OF OPERATIONS-THREE MONTHS ENDED DECEMBER 31, 1997 AS
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1996
Net income decreased $18,042, or 24.9%, from $72,408 for the
quarter ended December 31, 1996 to $54,366 for the comparable 1997 quarter. Net
income per share was $.09 and $.12 for the 1997 and 1996 quarters, respectively,
both primary and assuming full dilution. The decrease in net income resulted
from a decrease in net interest income of $40,895, or 9.2%, an increase in the
provision for loan losses of $3,000, or 100.0%, and an increase in non-interest
expense of $8,869, or 2.6%, offset by an increase in non-interest income of
$5,009, or 42.1%, and a decrease in the provision for income taxes of $29,713,
or 77.3%.
Total interest income increased $11,207, or 1.1%, from
$1,032,673 for the three months ended December 31, 1996 to $1,043,880 for the
comparable 1997 period. The increase was due to increased levels of interest
earned on loans receivable and mortgage-backed securities of
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<PAGE> 12
$59,501 and $4,217, respectively, offset by reductions in interest earned on
investment securities and other interest-earning assets of $50,295 and $2,216,
respectively. Interest on loans receivable and mortgage-backed securities
increased primarily due to higher volumes of these assets in the 1997 period as
compared to 1996. The decreases in interest on investment securities and other
interest-earning assets for the 1997 quarter as compared to the 1996 quarter is
primarily attributable to lower volumes of these assets.
Total interest expense increased $52,102, or 8.9%, from $588,168
for the quarter ended December 31, 1996 to $640,270 for the quarter ended
December 31, 1997, such increase being primarily attributable to higher volumes
of interest-bearing liabilities during the 1997 quarter as compared to the 1996
quarter, and to a lesser extent, due to higher interest rates paid on deposits.
The Company provided $3,000 for loan losses during the 1997
quarter to correspond with the growth in the loan portfolio. This compared to no
provision for loan losses for the 1996 quarter.
The $5,009 increase in non-interest income, from $11,906 for the
1996 quarter to $16,915 for the 1997 quarter, resulted primarily from increased
service charge income on deposit accounts.
The $8,869 increase in non-interest expense, from $345,580 for
the 1996 quarter to $354,449 for the 1997 quarter, consisted primarily of
increases in compensation and benefits, franchise taxes, occupancy expenses and
other expenses of $8,658, $17,565, $13,677 and $8,843, respectively, partially
offset by reductions in SAIF deposit insurance premiums and professional
services expenses of $14,139 and $36,927, respectively. Other categories of
non-interest expenses increased slightly. Compensation and benefits increased
due to a full 1997 quarter of Recognition and Retention Plan expense, as
compared to only a partial quarter for 1996. Franchise taxes increased due to
higher levels of stockholders' equity, on which the franchise taxes are based.
Occupancy expenses and other expenses increased due to increased costs
associated with the Company's branch bank relocation and drive-through
facilities expansion, both projects having been completed in August, 1997. SAIF
deposit insurance premiums decreased due to the lowering of the deposit
insurance rate effective January 1, 1997, from $.23 per hundred of insured
deposits to $.064 of insured deposits. Professional services expenses decreased
due to the timing of such services performed for the 1997 quarter as compared to
the 1996 quarter.
The Company's provision for income taxes decreased $29,713 due
to 1997 income levels being taxed at lower statutory tax rates as compared to
1996.
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 mortgage-backed securities that would
qualify except for the maturity dates, to the sum of total
- 12 -
<PAGE> 13
deposits less any share loans on deposits, was 12.8% at December 31, 1997, as
compared to 13.0% at September 30, 1997. At December 31, 1997, the Bank's
"liquid" assets totalled approximately $5.1 million, which was $3.5 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, 1997, the total approved loan
commitments outstanding amounted to $.9 million. Certificates of deposit
scheduled to mature in one year or less at December 31, 1997, totaled $18.3
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, 1997, the Bank had regulatory capital which was
well in excess of applicable limits. At December 31, 1997, 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, 1997, the Bank's tangible capital was $8.7
million, or 14.9% of adjusted total assets, core capital was $8.7 million, or
14.9% of adjusted total assets and risk-based capital was $8.9 million, or 33.2%
of adjusted risk-weighted assets, exceeding the requirements by $7.8 million,
$6.9 million and $6.7 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 ended December 31, 1997 and 1996.
"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
- 13 -
<PAGE> 14
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-Q 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.
- 14 -
<PAGE> 15
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
Not applicable.
Item 5. Other Information
Not applicable.
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.
- 15 -
<PAGE> 16
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 11, 1998 By:/s/ I. Vincent Rice
----------------------- ------------------------------------
I. Vincent Rice, President
Date: February 11, 1998 By:/s/ Jeffery W. Clark
----------------------- ------------------------------------
Jeffery W. Clark, Comptroller
- 16 -
<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, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 170,047
<INT-BEARING-DEPOSITS> 757,429
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,391,338
<INVESTMENTS-CARRYING> 11,420,348
<INVESTMENTS-MARKET> 11,410,943
<LOANS> 40,250,677
<ALLOWANCE> 285,936
<TOTAL-ASSETS> 60,165,589
<DEPOSITS> 44,847,528
<SHORT-TERM> 2,900,000
<LIABILITIES-OTHER> 238,643
<LONG-TERM> 1,675,000
0
0
<COMMON> 6,464
<OTHER-SE> 10,497,954
<TOTAL-LIABILITIES-AND-EQUITY> 60,165,589
<INTEREST-LOAN> 774,701
<INTEREST-INVEST> 258,539
<INTEREST-OTHER> 10,640
<INTEREST-TOTAL> 1,043,880
<INTEREST-DEPOSIT> 587,419
<INTEREST-EXPENSE> 640,270
<INTEREST-INCOME-NET> 403,610
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 354,449
<INCOME-PRETAX> 63,076
<INCOME-PRE-EXTRAORDINARY> 63,076
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,366
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<YIELD-ACTUAL> 2.12
<LOANS-NON> 43,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 286,571
<CHARGE-OFFS> 3,635
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 285,936
<ALLOWANCE-DOMESTIC> 285,936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
