UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
__X__Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
or
_____Transition report pursuant to Section 13 or 15(d) of the Exchange Act
Commission File Number 333-33350
First Security Bancorp, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Kentucky 61-1364206
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Main Street, Lexington, KY 40507
(Address of Principal Executive Offices)
(859)- 367-3700
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
___ Yes _X_ No
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common stock, no par value - 1,000,000
shares outstanding as of August 11, 2000.
Transitional Small Business Disclosure Format (check one):
Yes _____ No__X__
<PAGE>
FIRST SECURITY BANCORP, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.................................................4
Item 2. Management's Discussion and Analysis or Plan of Operation............10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................18
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
First Security Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
June 30 December 31
Assets 2000 1999
Cash & due from banks $ 3,006 $2,219
Federal funds sold 11,688 9,053
------ ------
Total cash & cash equivalents 14,694 11,272
Securities available for sale 3,738 4,331
Loans 95,678 78,197
Less allowance for loan losses (997) (819)
------ ------
Net loans 94,681 77,378
FHLB stock 216 117
Leasehold improvements & equipment net 793 758
Accrued interest receivable 714 528
Other assets 130 131
------- ------
$114,966 $94,515
======= =======
Liabilities & Shareholder's Equity
Liabilities
Deposits
Non-interest bearing $ 6,941 $ 5,157
Time deposits $100,000 and over 19,245 14,397
Other interest bearing 76,494 63,858
------- ------
Total Deposits 102,680 83,412
Other borrowings 3,158 2,382
Accrued interest payable 516 387
Other liabilities 79 119
------- ------
Total Liabilities 106,433 86,300
Shareholders equity
Common stock no par value 4,901 4,901
Paid-in Capital 4,901 4,901
Accumulated defecit (1,157) (1,492)
Accumulated other comprehensive (112) (95)
------- ------
Income (loss)
Total Shareholder equity 8533 8215
------- ------
$114,966 $94,515
======= ======
<TABLE>
First Security Bancorp, Inc.
Consolidated Statement of Changes In Stockholders Equity
(in thousands, except for share data) (unaudited)
<CAPTION>
Accumulated
Additional Other Total
--Common Stock-- Paid-In Retained Comprehensive Stockholders
Shares Amount Capital Earnings Income (Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 2000 1,000 $4,901 $4,901 $(1,492) $(95) $8,215
Net change in Accumulated (17) (17)
Other comprehensive income
(Loss)
Net Income 335 335
----- ----- ------ ------ ----- -----
Balance June 30, 2000 1,000 $4,901 $4,901 $(1,157) $(112) $8,533
===== ===== ====== ======= ====== ======
</TABLE>
<PAGE>
First Security Bancorp, Inc.
Consolidated Statements of
Income and Comprehensive Income (Unaudited)
Three Months Ended and
Six Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
Interest Income
Loans, including fees $2,063 $1,024 $3,920 $1,867
Securities - taxable 52 44 115 82
Federal funds sold 162 196 233 237
Other 4 1 6 1
----- ----- ----- -----
2,281 1,265 4,274 2,187
Interest Expense
Deposits 1,377 748 2,469 1,215
Other Borrowings 13 - 26 -
----- --- ----- -----
1,390 748 2,495 1,215
----- --- ----- -----
Net Interest Income 891 517 1,779 972
Provision for loan losses 101 96 201 221
----- --- ----- ----
Net interest income after
Provision for loan loss 790 421 1,578 751
Noninterest Income
Service charges and
Fees on deposits 30 18 59 31
Other 15 17 27 20
-- -- -- --
45 35 86 51
Noninterest expense
Salaries and
employee benefits 323 271 625 541
Occupancy 58 54 114 101
Equipment 25 27 50 55
Advertising 24 24 57 32
Professional Fees 99 15 139 30
Bank franchise tax 19 18 37 35
Other 170 86 307 168
--- --- ---- ---
718 495 1,329 962
--- --- ---- ---
Net Income (loss) $117 $(39) $335 $(160)
=== ==== === ===
Other Comprehensive Income (Loss)
Other comprehensive income (5) (42) (17) (59)
---- ---- ---- ----
Comprehensive income $112 $(81) $318 $(219)
=== ==== === =====
Weighted average shares common outstanding:
Basic 1,000 1,000 1,000 1,000
Diluted 1,028 1,019 1,026 1,019
Earnings per share:
Basic .12 (.04) .34 (.16)
Diluted .11 (.04) .33 (.16)
<PAGE>
First Security Bancorp, Inc.
Statements of Cash Flows (unaudited)
Six Months Ended June 30, 2000 and 1999
(in thousands)
2000 1999
Cash flows from Operating Activities:
Net income (loss) $335 $(160)
Adjustments to reconcile net income (loss) to net
Cash from operating activities
Depreciation 62 57
Amortization and accretion on available
for sale securities, net 2 4
Provision for loan losses 201 221
Federal Home Loan Bank Stock dividends (6) (1)
Change in assets and liabilities:
Accrued interest receivable (186) (186)
Other assets 1 (16)
Accrued Interest payable 129 121
Other liabilities (40) (17)
--- ----
Net cash from operating activities 498 23
Cash flows from investing activities
Net change in loans (17,504)(17,385)
Activity in available for sale securities
Prepayments 54 27
Maturities 1,500 2,500
Purchases (980) (2002)
Leasehold improvements and net purchases of equipment (97) (42)
Purchases Federal Home Loan Bank stock (93) (57)
------ ------
Net cash from investing activities (17,120)(16,959)
Cash flows from financing activities
Net change in deposits 19,268 26,690
Proceeds from issuance of short term debt 600 -
Net changes in repurchase agreements 176 -
----- -----
Net cash from financing activities 20,044 26,690
====== ======
Net change in cash and cash equivalents 3,422 9,754
Cash and cash equivalents at beginning of period 11,272 6,917
------ ------
Cash and cash equivalents at end of period $14,694 $16,671
====== ======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $2,366 $ 1,161
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The accounting and reporting policies of First Security Bancorp, Inc. (the
"Company") and its wholly-owned subsidiary First Security Bank of Lexington
(the"Bank") conform to generally accepted accounting principles and to
predominant practices within the banking industry. The significant policies are
described below.
The Company was formed on February 11, 2000 and on May 31, 2000 became a
bank holding company by acquiring all of the outstanding shares of the Bank.
Each outstanding share of the Bank was converted into two shares of Company
stock. The financial statements are presented as if the Company had existed and
owned the Bank for all periods presented.
The Bank is a Kentucky corporation incorporated to operate as a commercial
bank under a state bank charter. The Bank generates commercial, mortgage, and
installment loans, and receives deposits from customers located primarily in the
Fayette County, Kentucky area. The majority of the Bank's income is derived from
lending activities. The majority of the Bank's loans are secured by specific
items of collateral including business assets, real estate, and consumer assets,
although borrower cash flow may also be a primary source of repayment. All of
the Bank's operations are considered by management to be aggregated into one
reportable operating segment.
Recent Accounting Pronouncements: Beginning January 1, 2001, a new standard
will require all derivatives to be recorded at fair value. Unless designated as
hedges, change in these fair values will be recorded in the income statment.
Fair value changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the fair value of
the hedged item is not otherwise recorded. This is not expected to have a
material effect, but the effect will depend on derivative holdings when this
standard applies.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ending June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto, included in the Company's
Form S-4 Registration Statement, No.333-33350.
NOTE 2 - SECURITIES
Securities were as follows: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Gains Value
--------- ---------- ---------- -----
(in thousands)
Available for Sale
June 30, 2000
U.S. Treasury securities $ 250 $ - $ (2) $ 248
U.S. Government agency securities 2,498 - (76) 2,422
Mortgage-backed 1,082 - (34) 1,048
----- --- ---- -----
Total debt securities 3,830 - (112) 3,718
Equity securities 20 - - 20
------ --- ------ ------
Total $3,850 $ - $(112) $3,738
===== === ====== ======
December 31, 1999
U.S. Treasury securities $ 250 $ - $ (2) $ 248
U.S. Government agency securities 3,501 - (67) 3,434
Mortgage-backed 655 - (26) 629
----- --- ---- -----
Total debt securities 4,406 - (95) 4,311
Equity securities 20 - - 20
----- --- ---- -----
Total $4,426 $ - $(95) $4,331
===== === ==== =====
Securities pledged at June 30, 2000 and year-end 1999 had carrying amounts of
$3.7 million, and $3.6 million, and were pledged to secure customer repurchase
agreements. There were no securities sales during the first six months of 2000
or during 1999.
<PAGE>
NOTE 3 - LOANS
Loans were as follows:
June 30 December 31
2000 1999
---- ----
(in thousands)
Commercial $29,336 $26,596
Mortgage loans on real estate:
Commercial 46,668 35,855
Residential 10,166 7,450
Consumer 9,508 8,296
------ -----
$95,678 $78,197
====== ======
Changes in the allowance for loan losses were as follows:
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Beginning balance $ 918 $ 458 $ 819 $ 335
Loans charged off (22) - (23) (2)
Recoveries - - - -
Provision for loan losses 101 96 201 221
---- ---- ---- ----
Ending Balance $ 997 $ 554 $ 997 $ 554
==== ==== ===== =====
Other than $21,000 of loans past due, 90 or more days at June 30, 1999, the Bank
did not have any impaired or non-performing loans during any of the periods
presented.
NOTE 4 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except per share data)
Basic
Net Income $ 117 $(39) $ 335 $(160)
Weighted average common shares 1,000 1,000 1,000 1,000
Basic earnings per common share .12 (.04) $ .34 $(.16)
Diluted
Net income 117 (39) $ 335 $(160)
Weighted average common shares outstanding 1,000 1,000 1,000 1,000
for basic earnings per common share
Add: Dilutive effects of assumed exercises
of stock warrents 28 19 26 19
----- ----- ----- -----
Average shares and dilutive potential
common shares 1,028 1,019 1,026 1,019
===== ===== ===== =====
Diluted earnings per common share 11 (.04) $ .33 $(.16)
NOTE 5 - STOCK OPTIONS
On March 1, 2000 the Bank hired a new President/Chief Executive Officer. In
addition to salary, bonus, and other benefits, the five year employment
agreement includes annual grants of 4,000 options (at market) to purchase
Company stock and severance of 125% of salary upon change in control.
Additionally, on July 27, 2000, the Company granted 4,000 options (at market) to
purchase stock to an executive officer.
<PAGE>
Part I
Item 2.
Management's Discussion and Analysis or Plan of Operation
General.
First Security Bancorp Inc. (the "Company"), headquartered in Lexington,
Kentucky was formed on February 11, 2000 and on May 31, 2000 became a bank
holding company by acquiring all of the outstanding shares of common stock of
First Security Bank of Lexington, Inc.)(the "Bank") through a 2 for 1
conversion. The transaction, approved by the Board of Governors of the Federal
Reserve System, will permit us to offer a broader range of financial products
and services than would otherwise be available.
The Bank is a commercial banking organization organized under the laws of
the Commonwealth of Kentucky, and is a wholly owned subsidiary of the Company.
The Bank offers a variety of products and services through two full service
offices including the acceptance of deposits for checking, savings and time
deposit accounts; extension of secured and unsecured loans to corporations,
individuals and others; issuance of letters of credit; and rental of safe
deposit boxes. The Bank's lending activities include commercial and industrial
loans, real estate, installment, and other consumer loans and revolving credit
plans. Operating revenues are derived primarily from interest and fees on loans
and from interest on investment securities.
We have made, and may continue to make, various forward-looking statements
with respect to credit quality (including delinquency trends and the allowance
for loan losses), corporate objectives and other financial and business matters.
When used in this discussion the words "anticipate," "project," "expect,"
"believe," and similar expressions are intended to identify forward-looking
statements. In addition to factors disclosed by the Company, the following
factors, among others, could cause actual results to differ materially from such
forward-looking statements: pricing pressures on loan and deposit products;
competition; changes in economic conditions both nationally and in our market;
the extent and timing of actions of the Federal Reserve Board; customers'
acceptance of our products and services; and the extent and timing of
legislative and regulatory actions and reforms.
<PAGE>
Overview
Net income for the six months ending June 30, 2000 was $335,000, up from a
net loss of $160,000 for the same period in 1999. Net income for the quarter
ending June 30, 2000 was $117,000 versus a net loss of $39,000 for the same
period in 1999. The increase in earnings during 2000 reflects the excellent
level of growth in earning assets, increasing from $90.9 million at December 31,
1999 to $110.3 million at June 30, 2000. The mix of earning assets also changed
resulting in a greater proportion of higher yielding loans. Net loans grew $17.3
million increasing from $77.4 million at Decmeber 31, 1999 to $94.7 million at
June 30, 2000. The largest gains came in the real estate portfolio reflecting
total growth of $12.9 million increasing from $43.3 million at December 31,
1999, to $56.2 million at June 30, 2000. Funding for loan growth was primarily
derived from deposits which increased to $102.7 million at June 30, 2000, versus
$83.4 million at December 31, 1999, an increase of $19.3 million. We desire to
expand our presence in the community. A third location, scheduled to open during
the fourth quarter of 2000, should significantly expand deposits, establish a
broader market area within the community, and support the building of a larger
earning asset base.
Results of Operations Net interest income.
Year-to-date net interest income increased from $972,000 as of June 30,
1999, to approximately $1.8 million as of June 30, 2000. This represents an
increase of $807,000 or 83.1%. Net interest income increased from $517,000 for
the quarter ending June 30, 1999, to $891,000 for the quarter ending June 30,
2000. The increases in net interest income resulted in part, from a volume
increase in loans and, to a lesser degree, an upward movement in interest rates.
Net loans increased $17.3 million from December 31, 1999 to June 30, 2000. Total
average loan yields for the same period increased by 46 basis points from 8.33%
to 8.79%. The net interest spread increased from 2.53% to 2.86% and the net
interest margin increased from 3.35% to 3.52%, both for the same period. Return
on average assets improved from (.53) as of June 30, 1999, to .64 as of June 30,
2000. Quarterly return on average assets was (.21%) for the quarter ending June
30, 1999 and .42% for the quarter ending June 30, 2000. Return on average
shareholder's equity improved from (3.92) to 7.98 for the six month periods
ending June 30, 1999, and June 30, 2000, respectively.
Non-interest Income and Expenses.
Non-interest income is comprised primarily of service charges on deposit
accounts. Total noninterest income increased from $51,000 to $86,000 for the six
months ending June 30, 1999 and 2000, respectively. Amounts were $45,000 and
$35,000 for the quarters ending June 30, 2000 and 1999, respectively. The
largest component of noninterest income is deposit service charges. We
anticipate that service charge income will continue to grow commensurate with
our deposit base.
Non interest expense.
Total non-interest expense was $1.3 million for the six months ended June
30, 2000, versus $962,000 for the six months ending June 30, 1999. Total
non-interest expense for the quarter ending June 30, 2000, was $718,000 versus
$495,000 for the quarter ending June 30, 1999. The primary components of
non-interest expense are salaries and benefits and costs associated with
occupancy and equipment.
Salaries and employee benefits were $625,000 and $541,000 for the six
months ended June 30, 2000, and 1999 respectively. The quarterly amounts were
$323,000 and $271,000, respectively. The number of full time equivalent
employees increased from 22 at June 30, 1999, to 24 at June 30, 2000.
Occupancy and equipment expenses increased $6,000 for the six month period
ended June 30, 2000 versus the six month period ended June 30, 1999, at $164,000
and $156,000, respectively. These expenses were relatively stable for the
quarter ending June 30, 2000, and June 30, 1999, at $83,000 and $81,000,
respectively.
Securities Available For Sale.
Our investment portfolio consists primarily of U.S. Government agency
securities. The amortized cost of investment securities decreased from $4.3
million as of December 31, 1999 to $3.7 million as of June 30, 2000. The
decrease in investment securities was the result of funding loan growth which
over time will have a favorable impact on earnings as loans typically earn
higher yields than investment securities. The weighted average maturity of our
investment portfolio was 4.5 years at June 30,2000 and 2.7 years at December 31,
1999.
Loans.
Net loans increased $17.3 million from December 31, 1999 to June 30, 2000.
The largest growth, $12.8 million, occurred in the real estate portfolios.
Please refer to note 3 of the financial statements to see the outstanding
loans, by type, at June 30, 2000 and December 31, 1999.
We have a significant amount of our loans to commercial and commercial real
estate borrowers. At June 30, 2000, approximately 79% of our loan portfolio was
in loans to commercial businesses and commercial real estate borrowers. The
growth of commercial loans and commercial real estate loans is a result of
increased marketing and competitive pricing in our primary market. We expect to
continue attracting new commercial and commercial real estate borrowers, but
future loan growth in these areas of our portfolio will likely not be at a pace
consistant with past increases. Our loan portfolio is primarily to customers
within the Fayette County area. We wish to increase our penetration in the
consumer loan market and believe that our third location will build new consumer
relationships.
Allowance Provision for Loan Losses.
Comparing six months ended June 30, 2000 and 1999, the provision for loan
losses declined slightly from $221,000 to $201,000. The decline in the
provision for loan losses resulted primarily from the lower rate in commercial
loan growth in 2000 over 1999 and the continued low level of delinquent and
non-accrual loans. Additionally, net loan charge-offs remained low at $23,000.
The allowance for loan losses increased to $997,000 at June 30, 2000, from
$819,000 at December 31, 1999. Please refer to Note 3 of the financial
statements for a summary of the changes in the allowance for loan losses account
for the six months and three months ended June 30, 2000 and 1999.
The allowance for loan losses is regularly evaluated by management and
reported quarterly to our board of directors. Our management and board of
directors maintain the allowance for loan losses at a level believed to be
sufficient to absorb inherent losses in the portfolio at a point in time.
Management's allowance for loan loss estimate consists of specific and general
reserve allocations as influenced by various factors. Such factors include
changes in lending policies and procedures; underwriting standards; collection,
charge-off and recovery history; changes in national and local economic and
business conditions and developments; changes in the characteristics of the
portfolio; ability and depth of lending management and staff; changes in the
trend of the volume and severity of past due, non-accrual and classified loans;
troubled debt restructuring and other loan modifications; and results of
regulatory examinations. To evaluate the loan portfolio, management has also
established loan grading procedures. These procedures establish a grade for each
loan upon origination which is periodically reassessed throughout the term of
the loan. Grading categories include prime, good, satisfactory, fair, watch,
substandard, doubtful, and loss. Specific reserve allocations are calculated for
individual loans having been graded watch or worse based on the specific
collectability of each loan. Loans graded watch or worse also include loans
severely past-due and those not accruing interest. Loss estimates are assigned
to each loan, which results in a portion of the allowance for loan losses to be
specifically allocated to that loan.
The general reserve allocation is computed by loan category reduced by loans
with specific reserve allocations and loans fully secured by certificates of
deposit with us. Loss factors are applied to each category for which the
cumulative product represents the general reserve. These loss factors are
typically developed over time using actual loss experience adjusted for the
various factors discussed above. As we are a newly organized bank, our
historical loss experience is less reliable as a future predictor of inherent
losses than that of a bank with a mature loss history. Until our own experience
becomes fully developed, we have computed these factors utilizing local and
Kentucky peer data from the Uniform Bank Performance Reports which we believe is
representative of our loan customer base and is therefore a reasonable predictor
of inherent losses in our portfolio.
We believe the allowance for loan losses at June 30, 2000 and December 31, 1999
was adequate. The relationship between the allowance for loan losses and loans
did not change signficiantly during the periods presented as, based on the best
information available, the overall credit quality of our loan portfolio has not
changed. Although we believe we use the best information available to make
allowance provisions, future adjustments which could be material may be
necessary if the assumptions used to determine the allowance differ from future
loan portfolio performance.
Asset Quality.
As of June 30, 2000 and December 31, 1999, there were no loans 90 or more days
past due. The level of loans 30 to 89 days past due increased from .01% at
December 31, 1999, to .02% at June 30, 2000. We consider the delinquency levels
to be of nominal level and not reflective of any adverse trends in overall asset
quality.
Deposit and Other Borrowings
The deposit base provides the major funding source for earning assets. The
following table shows that the deposit growth we have experienced has been
consistent across all categories of deposits. We operate in a highly competitive
market for deposits. As is often the case with newly chartered banks, in order
to attract depositors, we sometimes pay above market rates on a portion of
transaction deposit accounts, savings deposits and time deposits.
The table below illustrates our deposits by major categories as of June 30,
2000 and December 31, 1999;
DEPOSITS
June 30 December 31
2000 1999
--------- ------------
(in thousands)
Interest-bearing demand deposits $18,209 $17,499
Savings deposits 6,731 6,598
Time deposits 51,554 39,772
Time deposits $100,000 and over 19,245 14,397
-------- -----------
Total interest-bearing deposits 95,739 78,255
Total noninterest-bearing deposits 6,941 5,157
-------- -----------
Total $102,680 $83,412
======== ===========
<PAGE>
Liquidity.
The Company maintains sufficient liquidity in order to fund loan demand and
routine deposit withdrawal activity. Liquidity is managed by retaining
sufficient liquid assets in the form of investment securities and core deposits
to meet demand. Funding and cash flows can also be realized from the available-
for-sale portion of the securities portfolio and paydowns from the loan
portfolio. We have established a limited number of alternative or secondary
sources to provide additional liquidity and funding sources when needed to
support lending activity. These alternative funding sources currently include
unsecured federal funds lines of credit from two correspondent banks aggregating
approximately $5,500 million; secured repurchase agreement line of credit from a
correspondent bank based upon the market value of pledged securities; and a
secured line of credit in the amount of approximately $1 million from the
Federal Reserve Bank of Cleveland. Additionally, the Bank became a member of the
Federal Home Loan Bank of Cincinnati ("FHLB") in 1999. Although the Bank has
not, as yet, borrowed from the FHLB, the Bank has the ability to borrow
approximately $6.7 million based on the level of residential loans in the Bank's
portfolio as of June 30, 2000 which serve as collateral for this type of
borrowing. The only borrowings on our balance sheet at December 31, 1999 were in
the form of customer repurchase agreements totaling $2.4 million. Borrowings at
June 30, 2000, totaled approximately $3.2 million. Of this amount $2.6 million
was in the form of customer repurchase agreements. The remainder of the
borrowings consisted of a $600,000 unsecured note in the name of the Company
utilized to meet the Bank's short-term capital needs (See also "Capital"). These
repurchase agreements provide our customers cash management services. The need
for future borrowing arrangements above current levels will be evaluated by
management, with consideration given to the growth prospects of our loan
portfolio, liquidity needs, cost of deposits, market conditions and other
factors. Short term liquidity needs for periods of up to one year may be met
through federal funds lines of credit borrowings and short term Federal Home
Loan Bank advances. The Federal Home Loan Bank additionally offers advance
programs of varying maturities for terms beyond one year.
Capital.
Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. The Company's capital to assets ratio was 7.42% at June
30, 2000, compared to 8.69% at December 31, 1999.
The order of Federal Deposit Insurance Corporation, dated October 14, 1997
authorizing deposit issuance for the Bank, was approved subject to the capital
condition that beginning paid in capital funds of not less than $7.7 million be
provided, and that a ratio of "Tier 1" capital to "total assets" of not less
than 8 percent, in addition to a fully funded loan loss reserve, shall be
maintained during the first three years of operation. We have enjoyed
significant growth during our nearly three years of operation. Total assets have
grown over $20 million or 21.6% from December 31, 1999 to June 30, 2000. The
growth in deposits has provided the necessary volume to fund new loans. Loan
demand has remained consistently good over the past 6 months. In order for the
Bank to maintain the required "Tier i" Capital to total assets of 8% as
stipulated by this order, the Company borrowed $600,000 from a correspondent
bank and has injected these funds as a capital addition to the Bank. This
capital injection moved the the Bank Tier 1 capital ratio above the 8% level,
thus meeting the requirements of the FDIC order of insurance. The indebtedness
is evidenced by a note at the prime rate of interest, maturing December 30,
2000, and on an unsecured basis. We are currently seeking alternative and more
permanent sources of capital to retire the Company debt and to support the
continued growth in total assets of the Bank.
We have enjoyed significant growth during our nearly three years of
operation. Total assets have grown over $20 million or 21.6% from December 31,
1999 to June 30, 2000. The growth in deposits has provided the necessary volume
to fund new loans. Loan demand has remained consistently good over the past 6
months. Management anticipates that past growth trends will continue and be
intensified with the opening of a third location in the fourth quarter of 2000.
In addition, a contract has been signed for the purchase of a facility in
downtown Lexington at a cost of $3.5 million. This location will replace our
(and First Security Bank's) existing main office which is leased and
significantly improves our downtown presence through both increased office space
to support future growth and a drive through which we do not have at our current
main office location. The transaction is anticipated to close prior to December
13, 2000. Management anticipates additional expenditures of approximately
$350,000 to equip and prepare the building for use. Management believes we have
sufficient capital to support the third location and new main office. However,
growth caused First Security Bank's "Tier 1" capital ratio to fall slightly
below the 8% level stipulated by the order granting FDIC insurance. In order to
remedy the situation we have taken both short term and long term action. We
borrowed $600,000 from a correspondent bank and injected these funds as a
permanent capital addition to First Security Bank. This capital injection moved
First Security Bank's Tier 1 capital ratio above the 8% level, thus meeting the
requirements of the Federal Deposit Insurance Corporation. The indebtedness is
evidenced by a note at the prime rate of interest and matures December 30, 2000,
and on an unsecured basis. A contemporaneous stock offering will allow us to
retire the $600,000 in debt and to support the continued growth in total assets
of First Security Bank. Additionally, the requirement to maintain 8% in Tier 1
capital to total assets will expire in November 2000 after which First Security
Bank then is only required to maintain 5% to be classified as well capitalized.
<PAGE>
Asset/Liability Management and Market Risk
Asset liability management control is designed to insure safety and
soundness, maintain liquidity and regulatory capital standards and achieve
acceptable net interest income. We consider interest rate risk to be our most
significant market risk. Interest rate risk is the exposure to adverse changes
in the net interest income as a result of market fluctuations in interest rates.
Our interest rate sensitivity position is influenced by the distribution of
interest-earning assets and interest-bearing liabilities among the maturity
categories. Changes in interest rates can affect the rate at which pre-payments
occur. Should interest rates risem the rate of pre-payments, particularly on
fixed rate loans, may slow, whereas a falling rate environment could have the
opposite effect.
We regularly monitor interest rate risk in relation to prospective market
and business conditions. Our board of directors sets policy guidelines
establishing minimum limits on our interest rate risk exposure. The
Asset/Liability Management Committee of our board of directors monitors and
manages interest rate risk to maintain an acceptable level of change to net
interest income resulting from market interest rate changes. We monitor and
adjust exposure to interest rate fluctations as influenced by our loan and
deposit protfolios.
On a quarterly basis, we use an earnings simulation model to analyze net
interest income sensitivity and the resulting net interest margin. Net interest
margin ("NIM") expresses net interest income as a percentage of average earning
assets. This model projects the effect of instantaneous movements in interest
rates (rate shock) to the extent of a 400 basis point movement in either
direction. Rate shock is a method for stress testing the net interest spread and
NIM over the next four quarters using certain growth assumptions under several
rate change levels. These levels span four 100 basis point increments un either
direction from the current interest rates. Potential changes in market interest
rates and their subsequent effect on interest income are the evaluated. We use
these financial models to measure and interpret the degree of interest rate risl
rate environments. The reults of these analyses are reported to First Security
Bank's board of directors quarterly.
New Accounting Pronouncements
See NOTE 1 to financial statements for a discussion of recent accounting
pronouncements.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The Exhibits listed on the Exhibit Index of this Form 10-QSB are
filed as part of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Security Bancorp, Inc.
/s/John S. Shropshire
Date: October 16, 2000 John S. Shropshire
President and CEO
(Principal Executive Officer)
/s/Ben A. New
Date: October 16, 2000 Ben A. New
Vice President/Controller
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBITS
1 Form of Sales Agency Agreement between First Security Bancorp,
Inc. and Winebrenner Capital Partners, LLC (incorporated by
reference to exhibit 1 of the corporation's registration statement
on Form SB-2 [333-43444])
3.1 Articles of Incorporation of First Security Bancorp, Inc.
(incorporated by reference to exhibit 3.1 of the corporation's
registration statement on Form SB-2 [333-43444])
3.2 Articles of Amendment to Articles of Incorporation of First
Security Bancorp, Inc (incorporated by reference to exhibit 3.2
of the corporation's registration statement on Form SB-2
[333-43444])
3.3 Bylaws of First Security Bancorp, Inc.(incorporated by
reference to exhibit 3.3 of the corporation's registration
statement on Form SB-2 [333-43444])
4.1 Articles of Incorporation of First Security Bancorp, Inc.
(included in Exhibit 3.1)(incorporated by reference to exhibit 4.1
of the corporation's registration statement on Form SB-2
[333-43444])
4.2 Articles of Amendment of Articles of Incorporation of First
Security Bancorp, Inc., (included in Exhibit 3.2)(incorporated by
reference to exhibit 4.2 of the corporation's registration
statement on Form SB-2 [333-43444])
10.1 Employment Agreement between First Security Bancorp, Inc. and
John S. Shropshire (incorporated by reference to exhibit 10.1 of
the corporation's registration statement on Form SB-2 [333-43444])
10.2 Contract for Electronic Data Processing Services between BSC, Inc.
and First Security Bank of Lexington, Inc. (incorporated by
reference to exhibit 10.2 of the corporation's registration
statement on Form SB-2 [333-43444])
10.3 Outsource Contract between BSC, Inc. and First Security Bank of
Lexington, Inc. (incorporated by reference to exhibit 10.3 of the
corporation's registration statement on Form SB-2 [333-43444])
10.4 Business/Manager(R)License Agreement between Private Business, Inc.
and First Security Bank of Lexington, Inc.(incorporated by
reference to exhibit 10.4 of the corporation's registration
statement on Form SB-2 [333-43444])
10.5 Agreement for Administration of Credit Card Program between
Crittson Financial, LLC and First Security Bank of Lexington, Inc.
(incorporated by reference to exhibit 10.5 of the corporation's
registration statement on Form SB-2 [333-43444])
10.6 Lease 400 East Main Street between Isaac and Teresa C. Lawrence
and First Security Bank of Lexington, Inc. (incorporated by
reference to exhibit 10.6 of the corporation's registration
statement on Form SB-2 [333-43444])
10.7 Lease between THOMCO, Inc.and First Security Bank of Lexington,Inc.
(incorporated by reference to exhibit 10.7 of the corporation's
registration statement on Form SB-2 [333-43444])
10.8 Ground lease between Cherrywood Development, LLC and First Security
Bank of Lexington, Inc.(incorporated by reference to exhibit 10.8
of the corporation's registration statement on Form SB-2
[No.333-43444])
10.9 First Security Bank of Lexington, Inc. Stock Award Plan
(incorporated by reference to exhibit 10.9 of the corporation's
registration statement on Form SB-2 [No.333-43444])
10.10 Form of Escrow Agreement between First Security Bancorp, Inc. and
Peoples Bank and Trust Company, Inc.(incorporated by reference to
exhibit 10.10 of the corporation's registration statement on Form
SB-2 [No.333-43444])
11 Statement regarding Earnings per shares (See Part 1 Item 1 Note 4
"Earnings Per Share" for calculations.)
21 Subsidiaries of First Security Bancorp, Inc.(incorporated by
reference to exhibit 21 of the corporation's registration statement
on Form SB-2 [No.333-43444])
27 Financial Data Schedule for the six months ended June 30, 2000
<PAGE>
Exhibit 11 Statment regarding Computation of Per Share Earnings
See Item 1, Note 7 "Earnings Per Share" for calculations
