<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION AND OTHER DATA:
Total assets $ 67,620 $ 65,136 $ 62,396 $ 59,078 $ 56,637
Cash and cash equivalents 1,210 941 746 807 801
Investment securities(1) 2,525 3,108 3,920 8,951 11,516
Mortgage-backed securities(2) 8,288 9,146 10,887 7,826 7,766
Loans receivable, net 53,417 49,703 44,643 39,026 34,955
Real estate owned - 45 11 50 33
Deposits 46,366 47,743 45,437 44,993 44,809
FHLB advances 11,690 7,846 7,004 3,300 500
Stockholders' equity, net 9,286 9,283 9,651 10,479 10,884
Full service offices 2 2 2 2 2
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income $ 4,748 $ 4,378 $ 4,239 $ 4,134 $ 3,871
Total interest expense 2,873 2,663 2,620 2,448 2,331
---------- ----------- ---------- ---------- ----------
Net interest income 1,875 1,715 1,619 1,686 1,540
Provision for loan losses 23 17 12 3 14
---------- ----------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,852 1,698 1,607 1,683 1,526
Non-interest income 106 101 145 52 41
Non-interest expense(3) 1,440 1,455 1,421 1,306 1,298
---------- ----------- ---------- ---------- ----------
Income before provision
for income taxes 518 344 331 429 269
Provision for income taxes 162 104 79 142 52
---------- ----------- ---------- ---------- ----------
Net income $ 356 $ 240 $ 252 $ 287 $ 217
========== =========== ========== ========== ==========
Earnings per share:
Basic $ .70 $ .45 $ .44 $ .46 $ .35
Diluted $ .70 $ .45 $ .43 $ .46 $ .35
Book value per share $ 17.52 $ 16.83 $ 16.54 $ 16.21 $ 16.20
SELECTED OPERATING RATIOS(4):
Return on average assets 0.53% 0.37% 0.41% 0.49% 0.41%
Return on average equity 3.81 2.58 2.56 2.70 3.43
Average equity to average assets 13.99 14.39 15.93 18.23 12.00
Equity to assets at
end of year 13.73 14.25 15.47 17.70 19.22
Interest rate spread(5) 2.32 2.18 2.04 2.12 2.36
Net interest margin(5) 2.90 2.75 2.72 2.97 2.95
Average interest-earning assets
to average interest-bearing
liabilities 113.12 113.30 115.48 119.77 113.16
Net interest income after
provision for loan losses to
total expense 128.61 116.70 113.93 128.87 117.57
Non-interest expense to average
total assets 2.15 2.24 2.30 2.24 2.46
ASSET QUALITY RATIOS(6):
Non-performing loans to total
loans at end of year 0.41 0.30 0.27 0.21 0.31
Non-performing assets to total
assets at end of year 0.33 0.34 0.22 0.22 0.25
Allowance for loan losses to
total loans outstanding
at end of year 0.55 0.59 0.64 0.73 0.81
</TABLE>
---------------------------------------
(1)Includes investment securities held to maturity as well as those available
for sale.
(2)Includes mortgage-backed securities held to maturity as well as those
available for sale.
(3)Includes $269,000 SAIF special assessment in 1996.
(4)With the exception of end of year ratios, all ratios are based on average
monthly balances during the year.
(5)Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on interest-
bearing liabilities. Net interest margin represents net interest income as a
percentage of average interest-earning assets.
(6)Non-performing loans consist of non-accrual loans and loans that are
contractually past due 90 days or more but still accruing interest, and non-
performing assets consist of non-performing loans and real estate acquired by
foreclosure or deed-in-lieu thereof.
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
First Federal Financial Bancorp, Inc. (the "Company") is a Delaware
corporation organized in 1996 by First Federal Savings and Loan Association of
Ironton (the "Association") for the purpose of acquiring all of the capital
stock of First Federal Savings Bank of Ironton (the "Bank") issued in the
conversion of the Association from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings bank (the "Conversion"). The
Conversion was completed on June 3, 1996. The only significant assets of the
Company are the capital stock of the Bank and the remaining net conversion
proceeds retained by the Company. To date, the business of the Company has
consisted of the business of the Bank.
The Bank conducts business from its main office located in Ironton,
Ohio and one full-service branch office located in Proctorville, Ohio. The
Bank's deposits are insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation ("FDIC") to the maximum extent
permitted by law. At September 30, 2000, the Company had total consolidated
assets of $67.6 million, total consolidated liabilities of $58.3 million, and
total stockholders' equity of $9.3 million.
The Bank is primarily engaged in attracting deposits from the general
public and using those funds to originate loans secured by single-family
residences located in Lawrence County and surrounding counties in Southern Ohio
and to invest in mortgage-backed securities and United States Government and
federal agency securities. To a lesser extent, the Bank also makes consumer
loans and loans secured by savings accounts.
The operating results of the Company depend primarily upon its net
interest income, which is determined by the difference between interest income
on interest-earnings assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities,
which consist of interest-bearing checking accounts, passbook savings accounts,
certificates of deposit and advances from the FHLB. The Company's net income is
also affected by its provision for loan losses, as well as its non-interest
income, including fees and gains or losses on sales of assets, its operating
expenses, including compensation and benefits expenses, occupancy and equipment
expenses, federal deposit insurance premiums, miscellaneous other expenses and
federal income taxes.
"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 generally and more specifically in the markets in which the Bank
operates), the impact of competition for the Bank's customers from other
providers of financial services, the impact of government legislation and
regulation (which change from time to time and over which the Bank has no
control), and other risks detailed in this Annual Report and in the Company's
other Securities and Exchange Commission 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, including the
Quarterly Reports on Form 10-QSB to be filed by the Company in 2001 and any
Current Reports on Form 8-K filed by the Company.
-3-
<PAGE>
FINANCIAL CONDITION
ASSETS. Total assets increased by $2.5 million, or 3.8%, from $65.1
million at September 30, 1999 to $67.6 million at September 30, 2000. The
increase consisted primarily of increases in loans receivable of $3.7 million
and cash and cash equivalents of $.3 million, partially offset by decreases in
mortgage-backed securities of $.8 million and investment securities of $.6
million.
CASH AND CASH EQUIVALENTS. These balances consist of cash on hand and
interest-bearing checking accounts and overnight deposit accounts in other
financial institutions. Cash and cash equivalents increased slightly, totaling
$1,210,000 at September 30, 2000 as compared to $941,000 at September 30, 1999.
INVESTMENT SECURITIES. Investment securities consist primarily of U.S.
Government agency securities and obligations of states and political
subdivisions. Investment securities, both held to maturity and available for
sale, decreased $.6 million, or 19.4%, from $3.1 million at September 30, 1999
to $2.5 million at September 30, 2000. Net cash generated from maturities of
investment securities was used primarily to fund increased loan demand.
LOANS RECEIVABLE. The Company's loans receivable, net, increased by
$3.7 million, or 7.4%, from $49.7 million at September 30, 1999 to $53.4 million
at September 30, 2000. Total loan originations during the year amounted to $13.6
million, of which $9.0 million were for single-family residential loans within
the Company's local trade area.
LOAN CONCENTRATIONS. 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 $50.1 million, or 92.4%, of total gross loans
outstanding at September 30, 2000, while consumer loans, including installment
loans, loans secured by deposit accounts and unsecured loans, totaled $4.1
million, or 7.6%, of total gross loans outstanding.
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 Company's policy is to establish an
allowance for estimated losses on loans when it determines that a significant
and probable decline in value occurs. The allowance for losses on loans is
maintained at a level believed adequate by management to absorb estimated losses
in the portfolio. Management's determination of the adequacy of the allowance is
based on an evaluation of the portfolio, past loss experience, current economic
conditions, volume, growth and composition of the portfolio, and other relevant
factors. The allowance is increased by provisions for loan losses which are
charged against income. The Company's allowance for loan losses has historically
been predicated on its low loss experience.
The allowance for loan losses as a percentage of total loans decreased
slightly from .59% at September 30, 1999 to .55% at September 30, 2000. The
total dollar amount of the allowance increased slightly, from $292,000 at
September 30, 1999 to $297,000 at September 30, 2000.
-4-
<PAGE>
Charge-off activity for the year ended September 30, 2000 totaled
$24,491 as compared to $12,496 for the preceding year. Recoveries totaled $6,313
and $146 for the years ended September 30, 2000 and 1999, respectively.
The Company had $206,000 and $153,000 of non-accrual loans at September
30, 2000 and 1999, respectively. At the same dates, there were loans of $15,000
and $21,000 greater than 90 days delinquent which were still accruing interest.
The Company had no troubled debt restructurings during the years ended
September 30, 2000 and 1999.
Management has determined that the allowance for loan losses is
adequate at September 30, 2000 and 1999.
MORTGAGE-BACKED SECURITIES. The Company invests in both fixed-rate and
adjustable-rate mortgage-backed securities, which are classified either as held
to maturity or available for sale. Aggregate balances of mortgage-backed
securities decreased $.8 million, or 8.8%, totaling $8.3 million at September
30, 2000 and $9.1 million at September 30, 1999. During the year ended September
30, 2000, there were no mortgage-backed securities purchased, and $.8 million in
principal repayments.
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 sold the Chesapeake, Ohio facility during the 1998
fiscal year resulting in a $47,000 gain. The Proctorville, Ohio branch
relocation has provided increased business opportunities for the Company. The
Company purchased $11,000 of computers, equipment and software during 1999, and
purchased $13,840 of furniture and equipment during 2000.
DEPOSITS. The Company's deposit accounts consist of passbook savings
accounts, certificates of deposit and checking accounts. Deposits decreased $1.3
million, or 2.7%, from $47.7 million at September 30, 1999 to $46.4 million at
September 30, 2000. The Bank continues to offer competitive interest rates on
deposit accounts, but has elected to utilize available advances from the FHLB to
meet its funding requirements, rather than to pay above market rates of interest
to retain, or increase deposits.
ADVANCES FROM FEDERAL HOME LOAN BANK. The Company utilized
$19.6 million in new advances during the year ended September 30, 2000 to meet
its loan demand and other funding needs. Approximately $15.7 million of advances
were repaid during the year. Outstanding advances totaled $11.7 million at
September 30, 2000 as compared to $7.8 million at September 30, 1999. The
Company has ample borrowing capacity if needed to fund future commitments.
STOCKHOLDERS' EQUITY. Stockholders' equity remained unchanged totaling
$9.3 million at September 30, 2000, and September 30, 1999. Net income during
the year of $356,000 was offset by dividends paid, the purchase of treasury
stock, and stock released to employee benefit plans.
-5-
<PAGE>
RESULTS OF OPERATIONS
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.
The following table presents for the years indicated the total dollar amount of
interest from average interest-earning assets and the resultant yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in dollars and rates, and the net interest margin. The table does not reflect
any effect of income taxes. All average balances are based on month-end
balances.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- -----------------------------
(Dollars in Thousands)
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(7) $ 52,051 $ 3,986 7.66% $ 49,124 $ 3,583 7.29% 43,639 $ 3,189 7.31%
Mortgage-backed
securities(8) 8,941 540 6.04 9,469 570 6.02 10,128 605 5.98
Investment securities(9) 2,717 174 6.40 3,183 177 5.56 5,155 401 7.78
Other interest-
earning assets 897 48 5.35 671 48 7.15 612 44 7.19
-------- -------- -------- -------- -------- --------
Total interest-
earning assets 64,606 4,748 7.35 62,447 4,378 7.01 59,534 4,239 7.12
-------- ------ -------- ------ -------- ------
Non-interest earning
assets 2,263 2,267 2,203
-------- -------- --------
Total assets $ 66,869 $ 64,714 $ 61,737
======== ======== ========
Interest-bearing liabilities:
Deposits $ 47,509 2,290 4.82 $ 47,992 2,294 4.78 $ 45,259 2,323 5.13
FHLB advances 9,603 583 6.07 7,123 369 5.18 6,296 297 4.72
-------- -------- -------- -------- -------- --------
Total interest-
bearing liabilities 57,112 2,873 5.03 55,115 2,663 4.83 51,555 2,620 5.08
-------- ------ -------- ------ -------- ------
Non-interest bearing
liabilities 403 287 345
-------- -------- --------
Total liabilities 57,515 55,402 51,900
Stockholders' equity 9,354 9,312 9,837
-------- -------- --------
Total liabilities and
stockholders' equity $ 66,869 $ 64,714 $ 61,737
======== ======== ========
Net interest income;
interest rate spread $ 1,875 2.32% $ 1,715 2.18% $1,619 2.04%
======== ====== ======== ====== ======== ======
Net interest margin(10) 2.90% 2.75% 2.72%
====== ====== ======
Average interest-earning
assets to average
interest-bearing liabilities 113.12% 113.30% 115.48%
====== ====== ======
</TABLE>
---------------------------------------
(7)Includes non-accrual loans.
(8)Includes mortgage-backed securities held to maturity as well as those
available for sale.
(9)Includes investment securities held to maturity as well as those available
for sale.
(10)Net interest margin is net interest income divided by average interest-
earning assets.
-6-
<PAGE>
RATE/VOLUME ANALYSIS. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
total change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998 1998 vs. 1997
------------------------------ ----------------------------- -----------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due To Total Due To Total Due To Total
------ Increase ------ Increase ------ Increase
Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume (Decrease)
-------- ------ ---------- ---- ------ ---------- ---- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 179 $ 224 $ 403 $ (7) $ 401 $ 394 $ (232) $ 467 $ 235
Mortgage-backed securities(11) 2 (32) (30) 4 (39) (35) (12) 150 138
Investment securities(12) 23 (26) (3) (71) (153) (224) 66 (303) (237)
Other interest-earning assets (16) 16 - - 4 4 12 (43) (31)
-------- ------ ------- ------- ------ -------- -------- ------ ------
Total interest-earning
assets 188 182 370 (74) 213 139 (166) 271 105
-------- ------ ------- ------- ------ -------- -------- ------ ------
Interest-bearing liabilities:
Deposits 19 (23) (4) (142) 113 (29) (13) (38) (51)
FHLB advances 63 151 214 9 63 72 (56) 279 223
-------- ------ ------- ------- ------ -------- -------- ------ ------
Total interest-bearing
liabilities 82 128 210 (133) 176 43 (69) 241 172
-------- ------ ------- ------- ------ -------- -------- ------ ------
Increase (decrease) in net
interest income $ 106 $ 54 $ 160 $ 59 $ 37 $ 96 $ (97) $ 30 $ (67)
======== ====== ======= ======= ====== ======== ======== ====== ======
</TABLE>
---------------------------------------
(11)Includes mortgage-backed securities held to maturity as well as those
available for sale.
(12)Includes investment securities held to maturity as well as those available
for sale.
-7-
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
NET INCOME. Net income was $356,000 for the year ended September 30,
2000 as compared to $240,000 for the year ended September 30, 1999, an increase
of $116,000, or 48.3%. Basic and diluted earnings per share were $.70 and $.45
for the years ended September 30, 2000 and 1999, respectively. The $116,000
increase in net income resulted from an increase in net interest income of
$160,000, or 9.3%, an increase in non-interest income of $5,000, or 5.0%, and a
decrease in non-interest expenses of $15,000, or 1.0%, partially offset by
increases in the provision for loan losses of $6,000, or 35.3%, and the
provision for income taxes of $58,000, or 55.8%.
INTEREST INCOME. Interest income increased $370,000, or 8.5%, from
$4,378,000 for the year ended September 30, 1999 to $4,748,000 for the year
ended September 30, 2000. The increase consisted of an increase in interest
earned on loans receivable of $403,000, offset by declines in interest earned on
mortgage-backed securities and investment securities of $30,000 and $3,000,
respectively. The increase in loan interest income resulted primarily from a
higher volume of loans during the year, and to a lesser extent, from increased
yields on the loan portfolio. The decreases in interest earned on
mortgage-backed securities and investment securities resulted primarily from
declines in the average volumes of these portfolios. Overall, the
interest-earning assets yield increased 34 basis points, from 7.01% for fiscal
year 1999 to 7.35% for fiscal year 2000, reflecting higher market rates of
interest during the year.
INTEREST EXPENSE. Interest expense increased $210,000, or 7.9%, from
$2,663,000 for the year ended September 30, 1999 to $2,873,000 for the year
ended September 30, 2000. The increase resulted primarily from a higher volume
of advances from the FHLB during fiscal 2000 as compared to fiscal 1999, and to
a lesser extent, from increased rates paid on such advances and on deposits. The
average volume of advances from the FHLB approximated $9.6 million during fiscal
2000 as compared to $7.1 million during fiscal 1999. The yield paid on all
interest-bearing liabilities increased 20 basis points, from 4.83% for fiscal
1999 to 5.03% for fiscal 2000.
PROVISION FOR LOAN LOSSES. For the 2000 fiscal year, the provision for
loan losses totaled $23,000 as compared to $17,000 for fiscal 1999. The
increased provision represents management's estimate of losses that may be
inherent in the loan portfolio, the average balance of which increased $3.0
million during fiscal 2000. However, past due loans continue to remain at
historically low levels. Non-performing loans as a percentage of total loans at
September 30, 2000 totaled .41%. In providing for loan losses, management makes
a review of non-performing loans, the overall quality of the loan portfolio,
levels of past due loans and prior loan loss experience.
NON-INTEREST INCOME. The $5,000 increase in non-interest income, from
$101,000 for the year ended September 30, 1999 to $106,000 for the year ended
September 30, 2000 resulted primarily from increased service charges on checking
accounts and increased fees earned on ATM transactions. The Company's
advertising campaign, along with their expanded facilities, have enabled it to
better compete with other area institutions for transaction accounts, resulting
in increased service fee income. Also, for the 2000 fiscal year, $11,000 in
gains on sales of foreclosed real estate were offset by $13,000 of losses on
sales of securities.
NON-INTEREST EXPENSE. The $15,000 decrease in non-interest expense,
from $1,455,000 for the year ended September 30, 1999 to $1,440,000 for the year
ended September 30, 2000, resulted primarily from decreases in SAIF deposit
insurance premiums of $13,000, franchise taxes of $10,000 and other expenses of
$10,000, partially offset by increases in data processing expenses and occupancy
and equipment expenses of $18,000 and $8,000, respectively. The decrease in SAIF
deposit insurance premiums resulted from a lower rate paid on insured deposits
throughout fiscal year 2000. Franchise taxes decreased due to lower levels of
stockholders' equity on which such taxes are
-8-
<PAGE>
based, while no single, significant factor attributed to the decline in other
expenses. Data processing costs increased due to increased ATM usage and from
increased deposit and check processing costs associated with a higher
transaction volume, while the increase in occupancy and equipment expenses
resulted from higher depreciation charges associated with newer buildings and
equipment.
PROVISION FOR INCOME TAXES. The $58,000 increase in the provision for
income taxes, from $104,000 for the year ended September 30, 1999 to $162,000
for the year ended September 30, 2000 resulted from the increase in pretax
income. The Company's effective tax rates were 31.2% and 30.2% for the 2000 and
1999 fiscal years, respectively.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1999
AND 1998
NET INCOME. Net income was $240,000 for the year ended September 30,
1999 as compared to $252,000 for the year ended September 30, 1998, a decrease
of $12,000, or 4.8%. Basic earnings per share were $.45 and $.44 for the years
ended September 30, 1999 and 1998, respectively, while diluted earnings per
share were $.45 and $.43 for the 1999 and 1998 fiscal years, respectively. The
$12,000 decrease in net income resulted from a decrease in non-interest income
of $44,000, or 30.3%, and increases in the provision for loan losses of $5,000,
or 41.7%, non-interest expenses of $34,000, or 2.4%, and the provision for
income taxes of $25,000, or 31.6%, partially offset by an increase in net
interest income of $96,000, or 5.9%.
INTEREST INCOME. Interest income increased $139,000, or 3.3%, to $4.4
million for the year ended September 30, 1999. The increase consisted of
increases of $394,000 and $4,000 in interest earned on loans receivable and
other interest-earning assets, offset by declines in interest earned on
mortgage-backed securities and investment securities of $35,000 and $224,000,
respectively. The increases in 1999 as compared to 1998 resulted primarily from
increases in the average volume of the loan and other interest-earning assets
portfolios. The decreases in interest earned on mortgage-backed securities and
investment securities resulted primarily from declines in the average volumes of
these portfolios. Overall, the interest-earning assets yield declined 11 basis
points, from 7.12% for fiscal year 1998 to 7.01% for fiscal year 1999.
INTEREST EXPENSE. Interest expense increased $43,000, or 1.6%, from
$2,620,000 for the year ended September 30, 1998 to $2,663,000 for the year
ended September 30, 1999. The increase resulted primarily from higher volumes of
interest-bearing deposits and FHLB advances during fiscal 1999 as compared to
fiscal 1998, partially offset by a decrease in the average rate paid on
interest-bearing deposits. The average volume of interest-bearing deposits and
FHLB advances approximated $48.0 million and $7.1 million, respectively, during
fiscal 1999 as compared to $45.3 million and $6.3 million, respectively, for
fiscal 1998. The yield paid on all interest-bearing liabilities fell 25 basis
points, from 5.08% for fiscal 1998 to 4.83% for fiscal 1999.
PROVISION FOR LOAN LOSSES. For the 1999 fiscal year, the provision for
loan losses was $17,000 as compared to $12,000 for fiscal 1998. The increased
provision represents management's estimate of losses that may be inherent in the
loan portfolio, the average balance of which increased $5.5 million during
fiscal 1999. However, past due loans continue to remain at historically low
levels. In providing for loan losses, management makes a review of
non-performing loans, the overall quality of the loan portfolio, levels of past
due loans and prior loan loss experience.
NON-INTEREST INCOME. The $44,000 decrease in non-interest income, from
$145,000 for the year ended September 30, 1998 to $101,000 for the year ended
September 30, 1999 resulted primarily from a $47,000 gain in fiscal year 1998 on
the sale of the former Chesapeake, Ohio branch office facility with no
comparable gain during fiscal 1999, partially offset by increased service
charges on deposit accounts. Expansion and improvements to the Company's main
office and branch facilities
-9-
<PAGE>
has enabled the Company to better compete with other area institutions for
transaction accounts, resulting in increased service fee income.
NON-INTEREST EXPENSE. The $34,000 increase in non-interest expense,
from $1,421,000 for the year ended September 30, 1998 to $1,455,000 for the year
ended September 30, 1999, resulted primarily from increases in data processing
expenses of $11,000, advertising expenses of $14,000, professional services
expenses of $16,000, and other expenses of $13,000, partially offset by declines
in occupancy and equipment expenses and franchise taxes of $15,000 and $12,000,
respectively. Data processing costs increased primarily due to increased costs
associated with ATM usage, while advertising costs increased due to more media
advertising during fiscal 1999 as compared to fiscal 1998. Professional services
expenses increased due to the timing of services rendered. There was no
significant increase in any single category of other non-interest expenses.
Occupancy and equipment expenses decreased due to lower depreciation charges on
equipment during the 1999 fiscal year as compared to 1998, while franchise taxes
decreased due to lower levels of taxable stockholders' equity.
PROVISION FOR INCOME TAXES. The $25,000 increase in the provision for
income taxes, from $79,000 for the year ended September 30, 1998 to $104,000 for
the year ended September 30, 1999 reflects higher levels of taxable income taxed
at higher statutory tax rates.
ASSET AND LIABILITY MANAGEMENT
The Company's profitability, like that of many financial institutions,
is dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and advances. When interest-earning liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net interest income. Finally, a flattening of the "yield curve" (i.e., a
decline in the difference between long- and short-term interest rates) could
adversely impact net interest income to the extent that the Company's assets
have a longer average term than its liabilities. At September 30, 2000, the
ratio of the Company's average interest-earning assets to average
interest-bearing liabilities amounted to 113.12% as compared to 113.30% at
September 30, 1999.
The Company's actions with respect to interest rate risk and its
asset/liability gap management are taken under the guidance of the Bank's Board
of Directors, through its Executive/Loan Committee, which generally meets every
two to three weeks.
The Company attempts to mitigate the interest-rate risk of holding
long-term assets in its portfolio through the origination of adjustable-rate,
residential and commercial mortgage loans, which have interest rates which
adjust annually, and the purchase of mortgage-backed securities, primarily
secured by single-family residential dwellings financed with adjustable-rate
mortgages. The following table presents, as of September 30, information showing
the relative short-term nature of certain of the Company's assets, the maturity
proceeds of which are subject to reinvestment in loans or securities at then
market rates:
<TABLE>
<CAPTION>
2000 1999
------------------ ------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Adjustable rate: (Dollars in Millions)
Single family mortgage loans $ 28.4 65.6% $ 28.5 69.0%
Total loans 34.4 63.4 34.1 67.7
Mortgage-backed securities 8.2 99.2 9.0 98.9
Investment securities (maturities of
five years or less) 1.5 60.0 1.8 58.1
</TABLE>
-10-
<PAGE>
As part of its efforts to maximize net interest income and manage the
risks associated with changing interest rates, management of the Bank uses the
"market value of portfolio equity" ("NPV") methodology which the Office of
Thrift Supervision ("OTS") has adopted as part of its capital regulations.
Although the Bank would not be subject to the NPV regulation because such
regulation does not apply to institutions with less than $300 million in assets
and risk based capital in excess of 12%, the application of the NPV methodology
may illustrate the Bank's interest rate risk.
Under this methodology, interest rate risk exposure is assessed by
reviewing the estimated changes in the Bank's NPV which would hypothetically
occur if interest rates rapidly rise or fall all along the yield curve.
Projected values of NPV at both higher and lower regulatory defined rate
scenarios are compared to base case values (no changes in rates) to determine
the sensitivity to changing interest rates.
Presented below, as of September 30, 2000 and 1999, is an analysis of
the Bank's interest rate risk ("IRR") as measured by changes in NPV for
instantaneous and sustained parallel shifts of 100 basis points in market
interest rates. The table also contains the policy that the Board of Directors
deems advisable in the event of various changes in interest rates. Such limits
have been established with consideration of the impact of various rate changes
and the Bank's currently strong capital position.
<TABLE>
<CAPTION>
Market Value of Portfolio Equity
--------------------------------
Changes in As of September 30, 2000 As of September 30, 1999
Interest Rates Board Limit ---------------------------------- ----------------------------------
(Basis Points) % Change $ Change in NPV % Change in NPV $ Change in NPV % Change in NPV
-------------- ----------- --------------- --------------- --------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 (30)% $ (2,512) (30)% $ (2,463) (28)%
+200 (20) (1,471) (17) (1,434) (16)
+100 (10) (600) (7) (573) (6)
- - - - - -
-100 (10) 362 4 257 3
-200 (20) 579 7 465 5
-300 (30) 885 10 719 8
</TABLE>
As indicated in the table above, a slight increase in the Company's
exposure to interest rate risk for 2000 as compared to 1999 would occur in an
increasing interest rate environment. This results primarily from an increase in
the weighted average contractual maturity of the fixed rate loan portfolio, and
to a lesser extent, from a decrease in the weighted average contractual maturity
of the fixed-rate, interest-bearing deposits.
The OTS uses the above NPV calculation to monitor an institution's IRR.
The OTS has promulgated regulations regarding a required adjustment to the
institution's risk-based capital based on IRR. The application of the OTS'
methodology quantifies IRR as the change in the NPV which results from a
theoretical 200 basis point increase or decrease in market interest rates. If
the NPV from either calculation would decrease by more than 2% of the present
value of the institution's assets, the institution must deduct 50% of the amount
of the decrease in excess of such 2% in the calculation of risk-based capital.
At September 30, 2000 and 1999, 2% of the present value of the Bank's assets was
approximately $1.3 million and $1.1 million, respectively, and, as shown in the
table, a 200 basis point increase or decrease in market interest rates would not
significantly impact the Bank's portfolio value. Thus, at September 30, 2000 and
1999, the Bank would not have a significant interest rate risk component
deducted from its regulatory capital.
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
-11-
<PAGE>
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 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 and 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, averaged 24.7% for the quarter ended September 30, 2000, as
compared to 31.2% for the quarter ended September 30, 1999. At September 30,
2000, the Bank's "liquid" assets totaled approximately $10.2 million, which was
$8.5 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 by
general 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. Outstanding advances totaled
$11.7 million at September 30, 2000.
Liquidity management is both a daily and long-term function of business
management. 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 September 30, 2000, the total approved loan commitments and
unused lines of credit outstanding amounted to $1.3 million. Certificates of
deposit scheduled to mature in one year or less at September 30, 2000 totaled
$25.9 million. The Company 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 September 30, 2000, the Bank had regulatory capital which was well
in excess of applicable limits. At September 30, 2000, the Bank was required to
maintain tangible capital of 1.5% of adjusted total assets, core capital of 4.0%
of adjusted total assets and risk-based capital of 8.0% of adjusted
risk-weighted assets. At September 30, 2000, the Bank's tangible capital was
$8.1 million or 12.1% of adjusted total assets, core capital was $8.1 million or
12.1% of adjusted total assets and risk-based capital was $8.4 million or 21.2%
of adjusted risk-weighted assets, exceeding the requirements by $7.1 million,
$5.4 million and $5.3 million, respectively.
The Company, as a separately incorporated holding company, has no
significant operations other than serving as sole stockholder of the Bank. On an
unconsolidated basis, the Company has no paid employees. The Company's assets
consist of its investment in the Bank, the Company's loan to the ESOP and the
net proceeds retained from the Conversion, and its sources of income consist
primarily of earnings from the investment of such funds as well as any dividends
from the Bank. The only significant expenses incurred by the Company relate to
its reporting obligations under federal securities laws and related expenses as
a publicly traded company. The Company retained 50% of the net Conversion
proceeds, and management believes that the Company will have adequate liquidity
available to respond to liquidity demands.
-12-
<PAGE>
Any future cash dividends will be based on a percentage of the
Company's consolidated earnings and should not have a significant impact on its
liquidity. In addition, the Company also has the ability to obtain dividends
from the Bank.
RECENT ACCOUNTING PRONOUNCEMENTS
There are no recent accounting pronouncements to be implemented which
management believes will have a material adverse effect on the Company's
financial position or results of operations.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements of the Company and related notes
presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services, since such prices are affected by inflation to a larger
extent than interest rates. In the current interest rate environment, liquidity
and the maturity structure of the Bank's assets and liabilities are critical to
the maintenance of acceptable performance levels.
-13-
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
First Federal Financial Bancorp, Inc.
Ironton, Ohio 45638
We have audited the accompanying consolidated balance sheets of First Federal
Financial Bancorp, Inc. and subsidiary as of September 30, 2000 and 1999, and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years ended September 30, 2000, 1999 and 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First Federal Financial Bancorp, Inc. and subsidiary as of September 30,
2000 and 1999, and the results of their operations and their cash flows for
the years ended September 30, 2000, 1999 and 1998, in conformity with
generally accepted accounting principles.
/s/ Kelley, Galloway & Company, PSC
-------------------------------------
Ashland, Kentucky
November 21, 2000
-14-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, including interest-bearing
deposits of $947,422 and $563,530, respectively $ 1,209,531 $ 940,751
INVESTMENT SECURITIES HELD TO MATURITY, approximate
market value of $2,184,272 and $2,332,859, respectively 2,178,891 2,317,111
INVESTMENT SECURITIES AVAILABLE FOR SALE,
at approximate market value 346,609 791,159
LOANS RECEIVABLE, less allowance for loan losses of
$296,822 and $292,500, respectively 53,417,289 49,703,008
MORTGAGE-BACKED SECURITIES HELD TO MATURITY, approximate
market value of $3,814,684 and $4,340,142, respectively 3,876,431 4,443,450
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE,
at approximate market value 4,411,254 4,702,702
ACCRUED INTEREST RECEIVABLE 380,444 337,610
FORECLOSED REAL ESTATE - 45,499
OFFICE PROPERTIES AND EQUIPMENT 1,710,719 1,760,051
OTHER ASSETS 88,358 94,407
------------- -------------
$ 67,619,526 $ 65,135,748
============= =============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
DEPOSITS $ 46,365,769 $ 47,743,450
ADVANCES FROM FEDERAL HOME LOAN BANK 11,690,299 7,845,869
ACCRUED INCOME TAXES PAYABLE:
Current 19,147 12,391
Deferred 23,326 54,461
ACCRUED INTEREST PAYABLE 64,726 37,015
OTHER LIABILITIES 169,977 159,477
------------- -------------
Total liabilities 58,333,244 55,852,663
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 3,000,000 shares
authorized; 529,892 and 551,597 shares, respectively,
issued and outstanding 5,299 5,516
Employee benefit plans (456,009) (549,531)
Additional paid-in capital 5,021,867 5,227,406
Retained earnings-substantially restricted 4,846,126 4,658,872
Accumulated other comprehensive loss (131,001) (59,178)
------------- -------------
Total stockholders' equity 9,286,282 9,283,085
------------- -------------
$ 67,619,526 $ 65,135,748
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
-15-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable -
First mortgage loans $ 3,659,298 $ 3,346,707 $ 3,022,710
Consumer and other loans 326,594 236,365 166,851
Mortgage-backed and related securities 539,745 569,842 604,886
Investment securities 173,858 176,640 400,524
Other interest-earning assets 48,179 48,587 43,882
------------ ------------ ------------
Total interest income 4,747,674 4,378,141 4,238,853
------------ ------------ ------------
INTEREST EXPENSE:
Interest-bearing checking 22,531 24,145 20,767
Passbook savings 241,533 254,576 272,110
Certificates of deposit 2,025,630 2,015,890 2,030,590
Advances from Federal Home Loan Bank 583,420 368,737 296,636
------------ ------------ ------------
Total interest expense 2,873,114 2,663,348 2,620,103
------------ ------------ ------------
Net interest income 1,874,560 1,714,793 1,618,750
PROVISION FOR LOAN LOSSES 22,500 16,500 12,000
------------ ------------ ------------
Net interest income after provision for
loan losses 1,852,060 1,698,293 1,606,750
------------ ------------ ------------
NON-INTEREST INCOME:
Gains on foreclosed real estate 11,112 1,661 5,599
Securities gains (losses) (12,873) - 22,289
Gains on sales of assets - 8,223 47,068
Other 108,029 90,782 70,743
------------ ------------ ------------
Total non-interest income 106,268 100,666 145,699
------------ ------------ ------------
NON-INTEREST EXPENSE:
Compensation and benefits 586,911 590,853 590,686
Occupancy and equipment 136,376 128,167 143,226
SAIF deposit insurance premiums 14,612 27,521 28,079
Directors' fees and expenses 91,904 86,743 80,573
Franchise taxes 131,297 141,499 153,455
Data processing 130,948 113,370 102,135
Advertising 76,971 80,085 65,701
Professional services 118,666 123,069 106,990
Other 152,945 163,432 150,255
------------ ------------ ------------
Total non-interest expense 1,440,630 1,454,739 1,421,100
------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 517,698 344,220 331,349
------------ ------------ ------------
PROVISION FOR INCOME TAXES:
Current 155,720 107,179 86,730
Deferred 5,866 (2,585) (7,638)
------------ ------------ ------------
Total provision for income taxes 161,586 104,594 79,092
------------ ------------ ------------
NET INCOME $ 356,112 $ 239,626 $ 252,257
============ ============ ============
EARNINGS PER SHARE:
BASIC $ .70 $ .45 $ .44
============ ============ ============
DILUTED $ .70 $ .45 $ .43
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-16-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Retained Accumulated
Employee Additional Earnings- Other Total
Common Benefit Paid-in Substantially Comprehensive Stockholders'
Stock Plans Capital Restricted Income (Loss) Equity
----- ----- ------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, September 30, 1997 $ 6,464 $ (739,000) $ 6,060,242 $ 5,127,312 $ 24,317 $ 10,479,335
COMPREHENSIVE INCOME:
Net income, 1998 - - - 252,257 - 252,257
Other comprehensive income, net of tax:
Change in unrealized gain on investments
available for sale, net of tax of $25,655 - - - - 51,836 51,836
Less reclassification adjustment - - - - (4,878) (4,878)
-------- ---------- ----------- ------------ ------------- -----------
TOTAL COMPREHENSIVE INCOME - - - 252,257 46,958 299,215
ESOP SHARES RELEASED, 5,554
shares; $16.76 average fair market value - 55,540 37,559 - - 93,099
RRP SHARES AMORTIZED, 3,254 shares - 38,236 - - - 38,236
DIVIDENDS PAID ($.28 per share) - 1,370 1,088 (160,419) - (157,961)
PURCHASE OF 63,022 TREASURY SHARES (630) - (588,625) (511,773) - (1,101,028)
-------- ---------- ----------- ------------ ------------- -----------
BALANCES, September 30, 1998 5,834 (643,854) 5,510,264 4,707,377 71,275 9,650,896
COMPREHENSIVE INCOME:
Net income, 1999 - - - 239,626 - 239,626
Other comprehensive income, net of tax:
Change in unrealized gain on investments
available for sale, net of tax of $67,203 - - - - (130,453) (130,453)
-------- ---------- ----------- ------------ ------------- -----------
TOTAL COMPREHENSIVE INCOME - - - 239,626 (130,453) 109,173
ESOP SHARES RELEASED, 5,261
shares; $12.44 average fair market value - 52,610 12,863 - - 65,473
RRP SHARES AMORTIZED, 3,270 shares - 38,422 - - - 38,422
DIVIDENDS PAID ($.28 per share) - 3,291 955 (146,095) - (141,849)
PURCHASE OF 31,764 TREASURY SHARES (318) - (296,676) (142,036) - (439,030)
-------- ---------- ----------- ------------ ------------- -----------
BALANCES, September 30, 1999 5,516 (549,531) 5,227,406 4,658,872 (59,178) 9,283,085
</TABLE>
(continued)
-17-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Retained Accumulated
Employee Additional Earnings- Other Total
Common Benefit Paid-in Substantially Comprehensive Stockholders'
Stock Plans Capital Restricted Income (Loss) Equity
----- ----- ------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
COMPREHENSIVE INCOME:
Net income, 2000 - - - 356,112 - 356,112
Other comprehensive income, net of tax:
Change in unrealized loss on investments
available for sale, net of tax of $39,298 - - - - (80,319) (80,319)
Add reclassification adjustment - - - - 8,496 8,496
-------- ---------- ----------- ------------ ------------- -----------
TOTAL COMPREHENSIVE INCOME - - - 356,112 (71,823) 284,289
ESOP SHARES RELEASED, 4,955
shares; $9.40 average fair market value - 49,550 (2,948) - - 46,602
RRP SHARES AMORTIZED, 3,270 shares - 38,422 - - - 38,422
DIVIDENDS PAID ($.28 per share) - 5,550 134 (141,612) - (135,928)
PURCHASE OF 21,705 TREASURY SHARES (217) - (202,725) (27,246) - (230,188)
-------- ---------- ----------- ------------ ------------- -----------
BALANCES, September 30, 2000 $ 5,299 $ (456,009) $ 5,021,867 $ 4,846,126 $ (131,001) $ 9,286,282
======== ========== =========== ============ ============= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-18-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
---------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 356,112 $ 239,626 $ 252,257
Adjustments to reconcile net income
to net cash provided by operating
activities -
Gains on sales of assets - (8,223) (47,068)
Securities (gains) losses 12,873 - (22,289)
Gains on foreclosed real estate (11,112) (1,661) (5,599)
Provision for loan losses 22,500 16,500 12,000
Depreciation 78,343 70,843 88,669
FHLB stock dividends (40,300) (36,500) (34,800)
RRP compensation 38,422 38,422 38,236
Amortization and accretion, net 25,560 14,463 21,490
ESOP compensation 46,602 65,473 93,099
Change in -
Accrued interest receivable (42,834) 3,800 19,194
Other assets 6,049 1,214 27,595
Current income taxes 6,756 (8,715) 21,106
Deferred income taxes 5,866 (2,585) (7,638)
Accrued interest payable 27,711 4,201 14,622
Other liabilities 10,500 33,363 (53,956)
------------- ------------- --------------
Net cash provided by operating activities 543,048 430,221 416,918
------------- ------------- --------------
INVESTING ACTIVITIES:
Net increase in loans (3,756,900) (5,205,103) (5,657,816)
Proceeds from maturities and calls of
investment securities held to maturity 440,000 1,523,000 4,247,000
Purchases of investment securities
held to maturity (245,547) (495,000) (249,375)
Proceeds from sales, calls and maturities of
investment securities available for sale 436,930 - 1,347,391
Purchases of investment securities
available for sale - (200,000) (249,688)
Principal collected on mortgage-backed
securities held to maturity 542,767 804,555 713,517
Purchases of mortgage-backed
securities held to maturity - - (1,303,750)
Principal collected on mortgage-backed
securities available for sale 177,230 744,457 643,667
Purchases of mortgage-backed
securities available for sale - - (3,071,635)
Purchases of FHLB stock (17,100) - -
Purchases of office properties
and equipment (29,011) (75,363) (16,076)
Proceeds from sale of office property - 5,000 155,000
Proceeds from sales of foreclosed
real estate 76,730 95,000 74,764
------------- ------------- --------------
Net cash used for investing activities (2,374,901) (2,803,454) (3,367,001)
------------- ------------- --------------
</TABLE>
(continued)
-19-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
---------------- -------------- ---------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Dividends paid (135,928) (141,849) (157,961)
Purchase of Treasury shares (230,188) (439,030) (1,101,028)
Proceeds from FHLB advances 19,575,000 2,300,000 13,275,000
Principal paid on FHLB advances (15,730,570) (1,458,267) (9,570,864)
Net increase (decrease) in deposits (1,377,681) 2,306,869 443,883
------------- ------------- --------------
Net cash provided by financing activities 2,100,633 2,567,723 2,889,030
------------- ------------- --------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 268,780 194,490 (61,053)
CASH AND CASH EQUIVALENTS, beginning of year 940,751 746,261 807,314
------------- ------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 1,209,531 $ 940,751 $ 746,261
============= ============= ==============
NONCASH INVESTING ACTIVITIES:
Loans taken into foreclosed real estate $ 13,806 $ 128,236 $ 29,722
Unrealized holding gain (loss) on securities
available for sale $ (108,823) $ (197,656) $ 71,346
SUPPLEMENTAL DISCLOSURES:
Federal income taxes paid $ 148,966 $ 113,013 $ 41,385
Interest paid $ 2,845,403 $ 2,659,147 $ 2,605,481
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
-20-
<PAGE>
FIRST FEDERAL FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
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").
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.
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. 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 September 30, 2000 and 1999,
and for the years ended September 30, 2000, 1999 and 1998, include the accounts
of the Company and the Bank. All significant intercompany transactions and
balances have been eliminated in consolidation. The accompanying financial
statements have been prepared on the accrual basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for loan
losses, and the effect of prepayments on premiums and discounts associated with
investments and mortgage-backed securities. Management
-21-
<PAGE>
believes that the allowance for loan losses and the effect of prepayments on
premiums and discounts associated with investments and mortgage-backed
securities have been adequately evaluated. Various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses and valuations of foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowance or
adjustments to the valuations based on their judgments about information
available to them at the time of their examination.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
include cash and interest bearing deposits in other financial institutions. The
Company and Bank maintain cash deposits in other depository institutions which
occasionally exceed the amount of deposit insurance available. Management
periodically assesses the financial condition of these institutions.
Federal regulations require the maintenance of certain daily reserve
balances. Based upon the regulatory calculation, the Bank's reserve requirements
at September 30, 2000 and 1999 were $-0-. However, aggregate reserves (in the
form of vault cash) are maintained to satisfy federal regulatory requirements
should they be needed.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Investment securities and mortgage-backed securities held to maturity
are carried at amortized cost, based upon management's intent and their ability
to hold such securities to maturity. Adjustments for premiums and discounts are
recognized in interest income using the interest method over the period to
maturity.
Equity securities that are nonmarketable and restricted are carried at
cost. The Bank is required to maintain stock in the Federal Home Loan Bank of
Cincinnati in an amount equal to 1% of mortgage related assets (residential
mortgages and mortgage-backed securities) or 0.3% of the Bank's total assets at
December 31 of each year. Such stock is carried at cost.
Investment securities and mortgage-backed securities available for sale
are stated at approximate market value, adjusted for amortization of premiums
and accretion of discounts using the interest method. Unrealized gains and
losses on such securities are reported as a separate component of stockholders'
equity.
Realized gains and losses on sales of investment securities and
mortgage-backed securities are recognized in the statements of income using the
specific identification method.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan origination fees and costs.
It is the policy of the Bank to provide a valuation allowance for
estimated losses on loans when a significant and probable decline in value
occurs. The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Loans are placed on non-accrual when a loan is specifically determined
to be impaired or when principal and interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on
-22-
<PAGE>
specific impaired loans unless the likelihood of further loss is remote.
Interest payments received on such loans are applied as a reduction of the loan
principal balance. Interest income on other non-accrual loans is recognized only
to the extent of the interest payments received.
Unearned income on certain installment loans, home improvement loans
and automobile loans is amortized over the term of the loans using the Rule of
78's methods.
FORECLOSED REAL ESTATE
At the time of foreclosure, foreclosed real estate is recorded at the
lower of the Bank's cost or the asset's fair value, less estimated costs to
sell, which becomes the property's new basis. Any write-downs based on the
asset's fair value at date of acquisition are charged to the allowance for loan
losses. Costs incurred in maintaining foreclosed real estate and subsequent
write-downs to reflect declines in the fair value of the property are included
in expenses.
INCOME TAXES
Deferred income taxes are recognized for temporary differences between
transactions recognized for financial reporting purposes and income tax
purposes. Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment accounts are stated at cost.
Expenditures which increase values or extend useful lives of the respective
assets are capitalized, whereas expenditures for maintenance and repairs are
charged to expense as incurred.
DEPRECIATION
The Bank computes depreciation generally on the straight-line method.
The estimated useful lives used to compute depreciation are:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 20-50
Furniture, fixtures and equipment 5-10
Automobile 5
</TABLE>
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number
of outstanding common shares outstanding during each period. For diluted
earnings per share, the average number of stock options outstanding is included.
All references in the accompanying consolidated financial statements to
earnings per share have been presented to reflect the adoption of FASB Statement
No. 128, "Earnings Per Share" ("the Statement") in fiscal year 1998. The
Statement establishes standards for computing and presenting Earnings Per Share
("EPS") by replacing the presentation of primary EPS with a presentation of
basic EPS. Primary EPS includes common stock equivalents while basic EPS
excludes them. This change simplifies the computation of EPS. It also requires
dual presentation of basic and fully diluted EPS on the face of the income
statement.
-23-
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 financial statement presentation. These
reclassifications had no effect on net income.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used in estimating fair
value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
consolidated balance sheet for cash and cash equivalents approximates fair
value.
Investment securities and mortgage-backed securities: Fair values for
investment securities and mortgage-backed securities are based on quoted market
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate mortgage
loans) are estimated using discounted cash flow analysis, based on interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Loan fair value estimates include judgments regarding
future expected loss experience and risk characteristics. The carrying amount of
accrued interest receivable approximates fair value.
Deposits: The fair values disclosed for demand and passbook accounts
are, by definition, equal to the amount payable on demand at the reporting date
(that is their carrying amounts). The fair values for certificates of deposit
are considered to approximate carrying value if they have original maturities of
two years or less. For other certificates of deposit, fair values are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered to a schedule of aggregated contractual maturities on such
deposits. The carrying amount of accrued interest payable approximates fair
value.
Advances from Federal Home Loan Bank: Due to the short-term maturities
and/or variable interest rates, the advances from the Federal Home Loan Bank
carrying value approximates fair value.
-24-
<PAGE>
ACCUMULATED OTHER COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board Statement
No. 130, REPORTING COMPREHENSIVE INCOME, effective for the quarter ended
December 31, 1998. The Statement established standards for reporting and display
of comprehensive income and its components in financial statements. The
Company's other comprehensive income consists of unrealized securities gains and
losses on investment securities classified as available for sale. Prior year
financial statements have been reclassified to reflect the provisions of the
Statement. Adoption of the Statement had no effect on the previously reported
amounts of total assets, stockholders' equity, or net income.
(2) INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity consist of the following:
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Government agency
securities $ 490,640 $ - $ 6,364 $ 484,276
Obligations of states and
political subdivisions 1,089,451 12,071 326 1,101,196
------------ ---------- ---------- ------------
1,580,091 12,071 6,690 1,585,472
Restricted Equity Securities:
Stock in FHLB, at cost 598,800 - - 598,800
------------ ---------- ---------- ------------
$ 2,178,891 $ 12,071 $ 6,690 $ 2,184,272
============ ========== ========== ============
<CAPTION>
September 30, 1999
----------------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government agency
securities $ 495,000 $ - $ 2,572 $ 492,428
Obligations of states and
political subdivisions 1,090,978 18,278 225 1,109,031
Certificates of deposit 189,733 267 - 190,000
------------ ---------- -------- ------------
1,775,711 18,545 2,797 1,791,459
Restricted Equity Securities:
Stock in FHLB, at cost 541,400 - - 541,400
------------ ---------- --------- ------------
$ 2,317,111 $ 18,545 $ 2,797 $ 2,332,859
============ ========== ========= ============
</TABLE>
The amortized cost and estimated market value of investment securities
held to maturity at September 30, 2000, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations without call or prepayment
penalties.
-25-
<PAGE>
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------ -------------
<S> <C> <C>
Due in one year or less $ - $ -
Due after one year through five years 1,139,413 1,146,040
Due after five years through ten years 440,678 439,432
Due after ten years 598,800 598,800
------------ ------------
$ 2,178,891 $ 2,184,272
============ ============
</TABLE>
At September 30, 2000 and 1999, investment securities with a carrying
value of $560,000 and $560,000, respectively, were pledged to secure public
deposits.
Gross realized gains from investment securities classified as held to
maturity, which were called prior to scheduled maturity, were $14,898 for the
year ended September 30, 1998. There were no sales or calls of investment
securities held to maturity during the years ended September 30, 2000 and 1999.
(3) INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale consist of the following:
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------------------------
Gross Gross Carrying
Amortized Unrealized Unrealized (Market)
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government
agency securities $ 350,000 $ - $ 3,391 $ 346,609
=========== ========== ========== ===========
<CAPTION>
September 30, 1999
------------------------------------------------------------
Gross Gross Carrying
Amortized Unrealized Unrealized (Market)
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government
agency securities $ 799,777 $ - $ 8,618 $ 791,159
=========== ========== ========== ===========
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale at September 30, 2000, by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
<TABLE>
<CAPTION>
Carrying
Amortized (Market)
Cost Value
------------ ------------
<S> <C> <C>
Due after one year through five years $ 350,000 $ 346,609
Due after five years through ten years - -
------------ ------------
$ 350,000 $ 346,609
============ ============
</TABLE>
Gross realized losses from sales of investment securities available for
sale were $12,873 for the year ended September 30, 2000. For the year ended
September 1998, the Company had $7,391 in gross realized gains on available for
sale securities. There were no sales of investment securities available for sale
during the year ended September 30, 1999.
-26-
<PAGE>
(4) LOANS RECEIVABLE
Loans receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Real estate loans:
Single family residential $ 43,271,541 $ 41,355,517
Multi-family residential 2,439,691 1,680,603
Commercial real estate 4,368,788 4,142,529
------------- -------------
Total real estate loans 50,080,020 47,178,649
------------- -------------
Consumer and other loans:
Loans secured by deposit accounts 701,333 743,623
Home improvement 289,654 210,862
Automobile 973,251 798,020
Home equity 306,510 314,378
Other 1,869,033 1,175,766
------------- -------------
Total consumer and other loans 4,139,781 3,242,649
------------- -------------
Total loans 54,219,801 50,421,298
Less:
Unearned interest (254,503) (206,047)
Loans in process (115,199) (108,130)
Deferred loan fees and costs (135,988) (111,613)
Allowance for loan losses (296,822) (292,500)
------------- -------------
Loans receivable, net $ 53,417,289 $ 49,703,008
============= =============
Weighted average interest rate 7.61% 7.31%
============= =============
</TABLE>
Activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 292,500 $ 288,350 $ 286,571
Provision charged to expense 22,500 16,500 12,000
Loans charged off (24,491) (12,496) (10,221)
Loans recovered 6,313 146 -
---------- ----------- ---------
Balance, end of year $ 296,822 $ 292,500 $ 288,350
========== ========== =========
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced
and for which impairment had not been recognized totaled approximately $206,000,
$153,000 and $125,000, at September 30, 2000, 1999 and 1998, respectively.
Interest income which would have been recognized under the original terms of
these contracts was $7,086, $3,455 and $8,598, respectively.
The Bank is not committed to lend additional funds to debtors whose
loans are in nonaccrual status.
The Bank is principally a local lender and, therefore, has a
significant concentration of loans to borrowers who reside in and/or which are
collateralized by real estate 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.
-27-
<PAGE>
The aggregate amount of loans by the Bank to its directors and
executive officers, including loans to related persons and entities, was
$193,868 and $10,772 at September 30, 2000 and 1999, respectively. Management's
opinion is that these loans compare favorably to other loans made in the
ordinary course of business. An analysis of the activity of loans to directors
and executive officers is as follows:
<TABLE>
<CAPTION>
Year Ended
September 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Balance, beginning of year $ 10,772 $ 11,379
New loans advanced 189,143 -
Repayments (6,047) (607)
------------ ------------
Balance, end of year $ 193,868 $ 10,772
============ ============
</TABLE>
(5) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity at September 30 consist of
the following:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
FHLMC Certificates $ 1,399,593 $ 2,578 $ 48,208 $ 1,353,963
FNMA Certificates 831,224 2,794 32,295 801,723
GNMA Certificates 16,500 1,392 - 17,892
FNMA and FHLMC CMO's 1,629,114 11,992 - 1,641,106
------------ ---------- ---------- ------------
$ 3,876,431 $ 18,756 $ 80,503 $ 3,814,684
============ ========== ========== ============
Weighted average rate 6.25%
==========
<CAPTION>
1999
--------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
------------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
FHLMC Certificates $ 1,740,742 $ 4,120 $ 73,972 $ 1,670,890
FNMA Certificates 1,042,890 4,219 49,065 998,044
GNMA Certificates 17,579 1,240 - 18,819
FNMA and FHLMC CMO's 1,642,239 10,150 - 1,652,389
------------ ---------- ------------ ------------
$ 4,443,450 $ 19,729 $ 123,037 $ 4,340,142
============ ========== ============ ============
Weighted average rate 6.31%
============
</TABLE>
There were no sales of mortgage-backed securities held to maturity
during the years ended September 30, 2000, 1999 and 1998.
-28-
<PAGE>
(6) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale at September 30 consist
of the following:
<TABLE>
<CAPTION>
2000
--------------------------------------------------------
Gross Gross Carrying
Amortized Unrealized Unrealized (Market)
Cost Gains Losses Value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
FHLMC Certificates $ 270,723 $ 588 $ 2,878 $ 268,433
FNMA Certificates 412,033 108 12,060 400,081
GNMA Certificates 369,786 4,891 - 374,677
FNMA and FHLMC CMO's 3,553,808 - 185,745 3,368,063
------------ ---------- ---------- ------------
$ 4,606,350 $ 5,587 $ 200,683 $ 4,411,254
============ ========== ========== ============
Weighted average rate 5.82%
==========
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Gross Gross Carrying
Amortized Unrealized Unrealized (Market)
Cost Gains Losses Value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
FHLMC Certificates $ 321,680 $ 773 $ 3,944 $ 318,509
FNMA Certificates 469,248 153 16,942 452,459
GNMA Certificates 442,004 7,199 - 449,203
FNMA and FHLMC CMO's 3,550,815 22,973 91,257 3,482,531
------------ ---------- ---------- ------------
$ 4,783,747 $ 31,098 $ 112,143 $ 4,702,702
============ ========== ========== ============
Weighted average rate 5.85%
==========
</TABLE>
There were no sales of mortgage-backed securities available for sale
during the years ended September 30, 2000, 1999 or 1998.
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Loans $ 292,238 $ 244,985
Investment securities 35,763 40,037
Mortgage-backed and related
securities 52,443 52,588
-------------- --------------
$ 380,444 $ 337,610
============== ==============
</TABLE>
(8) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30 are summarized as
follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Land $ 445,271 $ 445,271
Buildings and improvements 1,434,130 1,434,130
Furniture, fixtures and equipment 313,539 299,700
Automobile 20,170 13,667
-------------- --------------
2,213,110 2,192,768
Less - accumulated depreciation (502,391) (432,717)
-------------- --------------
$ 1,710,719 $ 1,760,051
============== ==============
</TABLE>
-29-
<PAGE>
(9) OTHER ASSETS
Other assets at September 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
--------------- -------------
<S> <C> <C>
Prepaid Federal insurance $ 2,439 $ 7,155
Prepaid franchise taxes 27,250 28,123
Other prepaid expenses 58,669 59,129
--------------- -------------
$ 88,358 $ 94,407
=============== =============
</TABLE>
(10) DEPOSITS
Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average Rate
at September 30,
2000 2000 1999
------ ----------------------------- ----------------------------
Amount Percent Amount Percent
---------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Passbook 2.75% $ 8,343,483 18.0% $ 9,258,500 19.4%
------ ---------------- --------- --------------- ---------
Christmas club 3.00 88,652 .2 102,624 .2
------ ---------------- --------- --------------- ---------
Demand accounts - 1,262,475 2.7 1,236,293 2.6
------ ---------------- --------- --------------- ---------
NOW accounts 2.50 800,827 1.7 877,719 1.8
------ ---------------- --------- --------------- ---------
Certificates:
3.0-3.99% - - - 530,851 1.1
4.0-4.99% 4.55 1,128,748 2.5 1,624,505 3.4
5.0-5.99% 5.24 3,857,127 8.3 24,325,897 51.0
6.0-6.99% 6.41 30,687,183 66.2 9,787,061 20.5
7.0-7.99% 7.52 197,274 .4 - -
------ ---------------- --------- --------------- ---------
6.23 35,870,332 77.4 36,268,314 76.0
------ ---------------- --------- --------------- ---------
5.37% $ 46,365,769 100.0% $ 47,743,450 100.0%
====== ================ ========= =============== =========
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $5,005,000 and $4,348,000 at
September 30, 2000 and 1999, respectively.
At September 30, 2000, scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
Year
Ending
September 30, Amount Percent
------------- ---------------- ---------
<S> <C> <C>
2001 $ 25,940,935 72.3%
2002 7,345,906 20.5
2003 1,920,035 5.4
2004 663,456 1.8
---------------- ---------
$ 35,870,332 100.0%
================ =========
</TABLE>
-30-
<PAGE>
(11) OTHER LIABILITIES
Other liabilities at September 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- ------------
<S> <C> <C>
Escrow accounts $ 78,583 $ 90,605
Accrued expenses 63,714 49,157
Other liabilities 27,680 19,715
-------------- ------------
$ 169,977 $ 159,477
============== ============
</TABLE>
(12) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank at September 30 consist of
the following:
<TABLE>
<CAPTION>
Due in Year
Ending
September 30 2000 1999
------------ -------------- ------------
<S> <C> <C>
2000 $ - $ 2,475,000
2001 2,800,000 -
2002 3,575,000 1,000,000
2003 - -
2004 - -
2005 - -
After 2005 5,315,299 4,370,869
-------------- ------------
$ 11,690,299 $ 7,845,869
============== ============
Weighted average rate 6.31% 5.33%
============== ============
</TABLE>
The advances were collateralized by first mortgage loans totaling
$14,612,900 and $11,768,800 at September 30, 2000 and 1999, respectively.
(13) INCOME TAXES
The provision for income taxes differs from the amount computed by
applying the U.S. Federal income tax rate of 34 percent for 2000, 1999, and 1998
to income before the provision for income taxes as a result of the following:
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------------------------------------
2000 1999 1998
----------- ------------ -----------
<S> <C> <C> <C>
Expected provision for
income taxes at Federal tax rate $ 176,017 $ 117,035 $ 112,659
Tax-exempt interest (18,545) (15,734) (23,851)
Surtax exemption - - (1,813)
Others, net 4,114 3,293 (7,903)
----------- ------------ -----------
$ 161,586 $ 104,594 $ 79,092
=========== ============ ===========
</TABLE>
-31-
<PAGE>
The net deferred income tax liability consists of income taxes
applicable to temporary differences between transactions recognized for
financial reporting and income tax reporting purposes. A deferred tax asset
valuation allowance is established for deferred tax assets not expected to be
realized. The net deferred tax liability at September 30 consists of the
following:
<TABLE>
<CAPTION>
2000 1999
------------- ------------
<S> <C> <C>
FHLB stock dividends not currently
taxable $ (124,615) $ (110,913)
Depreciation (28,045) (26,395)
Loan fees 46,236 37,948
Unrealized securities gains and losses 67,786 30,485
Bad debts 84,208 84,924
Employee benefit plans 13,117 12,232
Others, net - (729)
------------ -----------
58,687 27,552
Less - valuation allowance for bad
debt deferred tax asset (82,013) (82,013)
------------ -----------
Net deferred tax liability $ (23,326) $ (54,461)
============ ===========
</TABLE>
Retained earnings at September 30, 2000 and 1999, includes
approximately $1,309,000 for which no deferred Federal income tax liability has
been recognized. These amounts represent an allocation of pre-1987 income to bad
debt deductions for tax purposes only. Reduction of amounts so allocated for
purposes other than bad debt losses would create income for tax purposes only,
which would be subject to the then current corporate income tax rate. The
unrecorded deferred income tax liability on the above amounts was approximately
$445,000 at September 30, 2000 and 1999, respectively.
(14) STOCK-BASED COMPENSATION PLANS
The Company's stockholders approved the Stock Option Plan on December
16, 1996. A total of 67,178 common shares have been reserved for issuance
pursuant to the Plan, of which 37,529 options were granted during the year ended
September 30, 1997. Participants vest in the options granted over a five year
period.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which established
financial accounting and reporting standards for stock-based compensation. The
new standard defines a fair value method of accounting for an employee stock
option or similar equity instrument. This statement allows for the choice
between adopting the fair value method or continuing to use the intrinsic value
method under Accounting Principles Board (APB) Opinion No. 25 with footnote
disclosures of the pro forma effects if the fair value method had been adopted.
The Company has opted for the latter approach. Accordingly, no compensation
expense has been recognized for the stock option plan. Had compensation expense
for the Company's stock option plan been determined based on the fair value at
the grant date for awards in 1997 consistent with the provisions of FASB No.
123, the Company's 2000, 1999 and 1998 results of operations would have been
reduced to the pro forma amounts indicated below:
-32-
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported $ 356,112 $ 239,626 $ 252,257
Pro forma $ 351,158 $ 235,217 $ 244,744
Basic earnings per share:
As reported $ .70 $ .45 $ .44
Pro forma $ .69 $ .45 $ .42
Diluted earnings per share:
As reported $ .70 $ .45 $ .43
Pro forma $ .69 $ .44 $ .41
</TABLE>
The fair value of each option granted is estimated using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Expected dividend yield $ .28 $ .28 $ .28
Expected stock price volatility 10.00% 14.56% 7.09%
Risk-free interest rate 6.00% 5.85% 4.39%
Expected life of options 4 years 5 years 6 years
</TABLE>
The following table summarizes information about fixed stock options
outstanding:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Number Weighted
Range of Number Contracted Average Exercisable Average
At Exercise Outstanding Life Exercise at Exercise
September 30, Prices 9/30/00 (Years) Price Year End Price
------------- ------ ------- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
1998 $ 12.00 13,135 8.4 $ 12.00 5,629 $ 12.00
1999 $ 12.00 20,641 6.9 $ 12.00 13,135 $ 12.00
2000 $ 12.00 28,147 5.4 $ 12.00 20,641 $ 12.00
</TABLE>
RECOGNITION AND RETENTION PLAN AND TRUST ("RRP")
The Company's stockholders approved the RRP on December 16, 1996. The
Company purchased 26,871 shares in the open market to fully fund the RRP at an
aggregate cost of $315,734. Awards are subject to five year vesting periods and
other provisions as more fully described in the RRP document. The deferred cost
of unearned RRP shares totaled $170,049 and $208,471 at September 30, 2000 and
1999, respectively, and is recorded as a charge against stockholders' equity.
Compensation expense will be recognized ratably over the five year vesting
period only for those shares awarded. Compensation cost charged to expense for
the years ended September 30, 2000, 1999 and 1998 was $38,422, $38,422 and
$38,236, respectively. RRP shares available which have not been awarded totaled
10,433 at September 30, 2000 and 1999. There were 3,270, 3,270 and 3,254 shares
amortized during the years ended September 30, 2000, 1999 and 1998,
respectively.
(15) REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
(the "OTS"). Failure to meet minimum regulatory capital requirements can
initiate certain mandatory, and possible additional discretionary
-33-
<PAGE>
actions by regulators, that if undertaken, could have a direct material
affect on the Bank and the consolidated financial statements. Under the
regulatory capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
involving quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification under the prompt
corrective action guidelines are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), Tier I capital to adjusted total assets (as defined), and tangible
capital to adjusted total assets (as defined). Management believes, as of
September 30, 2000, the Bank meets all capital adequacy requirements to which it
is subject.
As of September 30, 2000, the most recent notification from the OTS,
the Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized, the Bank
would have to maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as disclosed in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the Bank's category.
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
--------------------- --------------------------------------------------------------------
Amount Ratio Amount Ratio
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
As of September 30, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 8,429,974 21.2% less than or equal to $ 3,175,120 less than or equal to 8.0%
Tier I Capital
(to Adjusted Total Assets) $ 8,133,152 12.1% less than or equal to $ 2,694,165 less than or equal to 4.0%
Tangible Capital
(to Adjusted Total Assets) $ 8,133,152 12.1% less than or equal to $ 1,010,312 less than or equal to 1.5%
As of September 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 8,754,852 26.9% less than or equal to $ 2,599,040 less than or equal to 8.0%
Tier I Capital
(to Adjusted Total Assets) $ 8,462,352 13.1% less than or equal to $ 2,526,075 less than or equal to 4.0%
Tangible Capital
(to Adjusted Total Assets) $ 8,462,352 13.1% less than or equal to $ 965,820 less than or equal to 1.5%
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
--------------------------------------------
Amount Ratio
------------ -----
<S> <C> <C>
As of September 30, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) less than or equal to $3,968,900 10.0%
Tier I Capital
(to Adjusted Total Assets) less than or equal to $4,041,248 6.0%
Tangible Capital
(to Adjusted Total Assets) less than or equal to $3,367,707 5.0%
As of September 30, 1999:
Total Risk-Based Capital
(to Risk-Weighted Assets) less than or equal to $3,248,800 10.0%
Tier I Capital
(to Adjusted Total Assets) less than or equal to $3,863,280 6.0%
Tangible Capital
(to Adjusted Total Assets) less than or equal to $3,219,400 5.0%
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. The principal commitments of the Bank are
loan commitments which approximated $1,300,000 and $2,100,000 at September 30,
2000 and 1999, respectively. The Bank uses the same credit policies for making
loan commitments as it does for other loans.
The Bank was not committed to sell or purchase loans or securities at
September 30, 2000 or 1999.
-34-
<PAGE>
(17) 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 will make 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
years ended September 30, 2000, 1999 and 1998 was $46,602, $65,473 and $93,099,
respectively. During 2000, 1999 and 1998, 5,576, 5,590 and 5,676 shares were
allocated to the employees leaving 32,728 unallocated and unreleased shares at
September 30, 2000.
The Company uses dividends paid on allocated and unallocated ESOP
shares to reduce the outstanding loan balance.
The fair value of the unreleased ESOP shares was approximately $336,000
and $384,000 at September 30, 2000 and 1999, respectively.
(18) PURCHASE OF COMMON STOCK
The Company purchased 21,705, 31,764 and 63,022 shares of its
outstanding common stock at an aggregate cost of $230,188, $439,030 and
$1,101,028, during the years ended September 30, 2000, 1999 and 1998,
respectively. The purchase of these shares has been recorded as a purchase of
common stock shares, which are available for reissuance.
(19) EARNINGS PER SHARE
Basic and full dilution Earnings Per Share (EPS) were calculated by
dividing the consolidated net income by the weighted average number of common
shares, and common stock equivalents outstanding, as set forth below. Shares
which have not been committed to be released to the ESOP are not considered to
be outstanding for purposes of calculating EPS.
<TABLE>
<CAPTION>
Income Shares Per Share
Year Ending September 30, (Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
2000
Basic EPS $ 356,112 505,715 $ 0.70
Effect of dilutive securities -
options - - -
----------- ------------ ---------
Diluted EPS $ 356,112 505,715 $ 0.70
=========== ============ =========
</TABLE>
-35-
<PAGE>
<TABLE>
<S> <C> <C> <C>
1999
Basic EPS $ 239,626 528,074 $ 0.45
Effect of dilutive securities -
options - 1,327 -
----------- ------------ ---------
Diluted EPS $ 239,626 529,401 $ 0.45
============ ============ =========
1998
Basic EPS $ 252,257 579,613 $ 0.44
Effect of dilutive securities -
options - 10,734 (0.01)
----------- ------------ ---------
Diluted EPS $ 252,257 590,347 $ 0.43
============ ============ =========
</TABLE>
(20) DIVIDEND RESTRICTION
At the time of the Conversion, the Bank established a liquidation
account of approximately $5,005,000 (the amount equal to its total retained
earnings as of the date of the latest statement of financial condition appearing
in the final prospectus). The liquidation account will be maintained for the
benefit of eligible deposit account holders who continue to maintain their
accounts at the Bank after the Conversion. The liquidation account will be
reduced annually to the extent that eligible deposit account holders have
reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held.
Subsequent to the Conversion, the Bank may not declare or pay cash
dividends on its shares of common stock if the effect thereon would cause
stockholders' equity to be reduced below the amount of the liquidation account
or applicable regulatory capital maintenance requirements, or if such
declaration and payment would otherwise violate regulatory requirements.
(21) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and the estimated fair values of the Company's
financial instruments at September 30 are as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- ---------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 1,209,531 $ 1,209,531 $ 940,751 $ 940,751
Loans receivable, less allowance 53,417,289 52,641,176 49,703,008 49,659,604
Investment securities held to
maturity 2,178,891 2,184,272 2,317,111 2,332,859
Investment securities available
for sale 346,609 346,609 791,159 791,159
Mortgage-backed securities held
to maturity 3,876,431 3,814,684 4,443,450 4,340,142
-36-
<PAGE>
Mortgage-backed securities
available for sale 4,411,254 4,411,254 4,702,702 4,702,702
Accrued interest receivable 380,444 380,444 337,610 337,610
Financial liabilities:
Deposits 46,365,769 46,381,724 47,743,450 47,767,348
Advances from Federal Home
Loan Bank 11,690,299 11,690,299 7,845,869 7,845,869
Accrued interest payable 64,726 64,726 37,015 37,015
</TABLE>
The carrying amounts in the preceding tables are included in the
consolidated balance sheets under the applicable captions.
While these estimates of fair value are based on management's judgment
of the most appropriate factors, there is no assurance that if the Company were
to have disposed of such items at September 30, 2000 and 1999, the estimated
fair values would necessarily have been achieved at those dates, since market
values may differ depending on various circumstances. The estimated fair values
at September 30, 2000 and 1999 should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, non-financial instruments typically not
recognized in the financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the trained
work force, customer goodwill, and similar items.
(22) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly consolidated financial data is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 2000
----------------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------- ------------- ------------- -------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 1,127 $ 1,156 $ 1,215 $ 1,249
Total interest expense 669 687 732 785
--------- --------- --------- ---------
Net interest income 458 469 483 464
Provision for loan losses 5 6 6 6
--------- --------- --------- ---------
Net interest income after
provision for loan losses 453 463 477 458
Non-interest income 28 28 36 27
Non-interest expense 372 363 359 359
--------- --------- --------- ---------
Income before provision
for income taxes 109 128 154 126
Provision for income taxes 35 40 48 38
--------- --------- --------- ---------
Net income $ 74 $ 88 $ 106 $ 88
========= ========= ========= =========
Net income per share:
Basic $ .14 $ .17 $ .21 $ .18
========= ========= ========= =========
Diluted $ .14 $ .17 $ .21 $ .18
========= ========= ========= =========
Dividends declared per share $ .07 $ .07 $ .07 $ .07
========= ========= ========= =========
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR 1999
----------------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 1,074 $ 1,095 $ 1,104 $ 1,105
Total interest expense 671 664 667 661
--------- --------- --------- ---------
Net interest income 403 431 437 444
Provision for loan losses 3 5 5 4
--------- --------- --------- ---------
Net interest income after
provision for loan losses 400 426 432 440
Non-interest income 27 29 23 22
Non-interest expense 375 377 358 345
--------- --------- --------- ---------
Income before provision
for income taxes 52 78 97 117
Provision for income taxes 20 15 34 35
--------- --------- --------- ---------
Net income $ 32 $ 63 $ 63 $ 82
========= ========= ========= =========
Net income per share:
Basic $ .06 $ .12 $ .12 $ .15
========= ========= ========= =========
Diluted $ .06 $ .12 $ .12 $ .15
========= ========= ========= =========
Dividends declared per share $ .07 $ .07 $ .07 $ .07
========= ========= ========= =========
</TABLE>
(23) CONDENSED PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for the parent company only (First
Federal Financial Bancorp, Inc.) as of and for the year ended September 30 is as
follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
ASSETS 2000 1999
----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 899,350 $ 54,524
Investment in subsidiary 8,004,389 8,408,862
Investment securities available for sale 346,609 791,159
Accrued interest receivable 6,882 15,849
Other assets 18,854 19,842
Income taxes refundable 57,620 25,241
Deferred income taxes 3,115 4,891
----------------- -----------------
$ 9,336,819 $ 9,320,368
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 50,537 $ 37,283
----------------- -----------------
Total liabilities 50,537 37,283
----------------- -----------------
Common stock 5,299 5,516
Employee benefit plans (456,009) (549,531)
Additional paid-in capital 5,021,867 5,227,406
Retained earnings 4,846,126 4,658,872
Accumulated other comprehensive income (loss) (131,001) (59,178)
----------------- -----------------
Total stockholders' equity 9,286,282 9,283,085
----------------- -----------------
$ 9,336,819 $ 9,320,368
================= =================
</TABLE>
-38-
<PAGE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
Interest on investment securities $ 41,464 $ 45,958
Non-interest income - -
Non-interest expense (168,690) (159,840)
----------------- -----------------
Loss before income taxes and equity in
income of subsidiary (127,226) (113,882)
Credit for income taxes (32,380) (22,687)
----------------- -----------------
Loss before equity in income of subsidiary (94,846) (91,195)
Equity in income of subsidiary 450,958 330,821
----------------- -----------------
Net income $ 356,112 $ 239,626
================= =================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
Operating activities:
Net income $ 356,112 $ 239,626
Adjustments to reconcile net income to net
cash flows provided by operating activities -
Equity in income of subsidiary (450,958) (330,821)
Dividends received from subsidiary 750,000 750,000
Accretion (26) (63)
Deferred income taxes - 7,837
Securities losses 12,873 -
ESOP compensation 76,759 65,473
RRP compensation 38,422 38,422
Change in:
Other assets 988 17,417
Accrued interest receivable 8,967 (2,661)
Income taxes refundable (32,379) (5,930)
Other liabilities 13,254 10,129
----------------- -----------------
Net cash provided by
operating activities 774,012 789,429
----------------- -----------------
Investing activities:
Purchases of investment securities available for sale - (200,000)
Proceeds from sales, calls and maturities of investment
securities available for sale 436,930 -
----------------- -----------------
Net cash provided by (used for)
investing activities 436,930 (200,000)
----------------- -----------------
-39-
<PAGE>
Financing activities:
Dividends paid (135,928) (141,849)
Purchase of treasury shares (230,188) (439,030)
----------------- -----------------
Net cash used for
financing activities (366,116) (580,879)
----------------- -----------------
Net increase in cash and cash equivalents 844,826 8,550
Cash and cash equivalents, beginning of year 54,524 45,974
----------------- -----------------
Cash and cash equivalents, end of year $ 899,350 $ 54,524
================= =================
</TABLE>
-40-
<PAGE>
STOCKHOLDER INFORMATION
First Federal Financial Bancorp, Inc. is a unitary savings and loan
holding company conducting business through its wholly-owned subsidiary, First
Federal Savings Bank of Ironton. The Bank is a federally chartered, SAIF-insured
savings bank conducting business from its main office located in Ironton, Ohio
and one branch office located in Proctorville, Ohio. The Company's headquarters
is located at the home office of the Savings Bank at 415 Center Street, Ironton,
Ohio 45638.
ANNUAL MEETING:
The Annual Meeting of Stockholders of First Federal Financial Bancorp,
Inc. will be held at the Ashland Plaza Hotel, located at 15th Street and
Winchester Avenue, Ashland, Kentucky, in the Board Room, on Wednesday, January
17, 2001 at 2:00 p.m.
TRANSFER AGENT/REGISTRAR:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Investor Relations
Telephone: 1-800-368-5948
INDEPENDENT AUDITORS:
Kelley, Galloway & Company, PSC
Certified Public Accountants
1200 Bath Avenue, P.O. Box 990
Ashland, Kentucky 41105-0990
SPECIAL COUNSEL:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
Washington, D.C. 20005
SHAREHOLDER REQUESTS:
Requests for stockholder literature should be directed to Corporate
Secretary, First Federal Financial Bancorp, Inc., 415 Center Street, Ironton,
Ohio 45638.
Shareholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, Registrar and
Transfer Company.
COMMON STOCK AND RELATED MATTERS:
The common stock of First Federal Financial Bancorp, Inc. is listed for
quotation on the OTC Bulletin Board under the symbol "FFFB". The stock was
issued on June 4, 1996 at
-42-
<PAGE>
$10.00 per share. As of December 1, 2000, there were 163 stockholders of record
and 477,612 outstanding shares of common stock.
The following table sets forth the high and low closing bid prices as
reported by the National Association of Securities Dealers, Inc. and dividends
declared per share of common stock for fiscal years 1998, 1999 and 2000:
<TABLE>
<CAPTION>
Price Per Share
------------------------------------------ Dividends
Quarter Ended High Low Declared
---------------------- ------------- ----------- ------------
<S> <C> <C> <C>
1998
December 31, 1997 $ 16 7/16 $ 14 1/2 $ .07
March 31, 1998 17 9/16 16 5/8 .07
June 30, 1998 18 3/4 17 .07
September 30, 1998 17 3/4 16 .07
1999
December 31, 1998 17 13 .07
March 31, 1999 14 10 3/4 .07
June 30, 1999 12 10 .07
September 30, 1999 11 1/2 11 .07
2000
December 31, 1999 10 3/4 9 1/8 .07
March 31, 2000 11 6 3/4 .07
June 30, 2000 7 6 3/4 .07
September 30, 2000 11 3/4 9 1/8 .07
</TABLE>
Payment of dividends on the common stock is subject to determination
and declaration by the Board of Directors and will depend upon a number of
factors, including capital requirements, regulatory limitations on the payment
of dividends, the Company's results of operations and financial condition, tax
considerations, and general economic conditions. No assurance can be given that
dividends will be declared or, if declared, what the amount of dividends will
be, or whether such dividends, once declared, will continue.
-43-
