<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ________________
Commission file number 0-17194
F.F.O. FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2899802
- ---------------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2013 Live Oak Boulevard, St. Cloud, Florida 34771-8462
- ------------------------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (407) 892-1200
----------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes_____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common stock, par value 8,430,000 shares outstanding at
$.10 per share May 1, 1996
- -------------------------------- ---------------------------------
CONFORMED COPY
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 (unaudited) and December 31, 1995............................2
Condensed Consolidated Statements of Earnings -
Three months ended March 31, 1996 and 1995 (unaudited)......................3
Condensed Consolidated Statement of Stockholders' Equity -
For the Three-month period ended March 31, 1996 (unaudited).................4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995 (unaudited)....................5-6
Notes to Condensed Consolidated Financial Statements (unaudited)...........7-9
Review by Independent Certified Public Accountants..........................10
Report on Review by Independent Certified Public Accountants................11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................12-18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................19
Item 6. Exhibits and Reports on Form 8-K.....................................19
SIGNATURES....................................................................19
1
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
1996 1995
---- ----
Assets (unaudited)
[S] [C] [C]
Cash and due from banks $ 6,238 6,989
Interest-bearing deposits in other banks 16,183 2,768
Federal funds sold 1,595 669
--------- -------
Cash and cash equivalents 24,016 10,426
Investment securities available-for-sale,
at market value 8,008 10,019
Investment trading securities, at market value 2,954 9,401
Mortgage-backed securities held-to-maturity,
at cost (market value of $17,046 and $17,840) 17,087 17,636
Mortgage-backed securities available-for-sale,
at market value 38,221 39,813
Mortgage-backed trading securities,
at market value 12,938 13,675
Loans receivable, net 180,192 161,190
Loans held for sale, at market value 4,923 22,765
Real estate owned, net 3,500 3,358
Premises and equipment, net 5,664 5,700
Federal Home Loan Bank stock 2,514 2,514
Accrued interest receivable 1,757 1,821
Deferred income tax asset 2,490 2,249
Prepaid expenses and other assets 1,419 918
--------- -------
Total $ 305,683 301,485
========= =======
Liabilities and Stockholders' Equity
Deposit accounts 268,722 248,936
Accrued interest on deposit accounts 208 282
Due to bank 1,159 1,120
Advances from Federal Home Loan Bank 14,000 30,000
Advance payments by borrowers for taxes
and insurance 1,432 819
Other liabilities 1,754 1,548
------- -------
Total liabilities 287,275 282,705
------- -------
Stockholders' equity:
Preferred stock - -
Common stock 843 843
Additional paid-in capital 17,599 17,599
Retained earnings, substantially restricted 300 244
Unrealized gain (loss) on securities
available-for-sale (334) 94
---- --
Total stockholders' equity 18,408 18,780
------ ------
Total $ 305,683 301,485
========= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Statements of Earnings
(Dollars in thousands, except per share figures)
Three Months Ended
March 31
------------------
1996 1995
--------- ---------
(unaudited)
Interest income:
Interest and fees on loans $ 4,018 3,994
Interest on mortgage-backed securities 1,078 595
Interest and dividends on investment securities 276 328
Other interest-earning assets 94 61
--------- ---------
Total interest income 5,466 4,978
--------- ---------
Interest expense:
Deposit accounts 2,897 2,155
Borrowed funds 243 104
--------- ---------
Total interest expense 3,140 2,259
--------- ---------
Net interest income 2,326 2,719
Provision for loan losses 150 141
--------- ---------
Net interest income after provision for loan losses 2,176 2,578
--------- ---------
Noninterest income:
Fees and service charges 508 503
Net trading account profit (loss) (178) 105
Unrealized loss on loans held-for-sale (111) -
Gain on sale of loans 43 6
Other 42 49
--------- ---------
Total noninterest income 304 663
--------- ---------
Noninterest expenses:
Employee compensation and benefits 1,016 1,071
Occupancy and equipment 467 446
FDIC insurance premiums 173 158
Marketing and advertising 132 92
Data processing 151 144
Legal and professional fees 72 54
Printing and office supplies 78 103
Telephone expense 71 78
Loss on real estate operations 33 212
Other 198 172
--------- ---------
Total noninterest expenses 2,391 2,530
Earnings before provision for income taxes 89 711
--------- ---------
Provision for income taxes 33 250
--------- ---------
Net earnings $ 56 461
========= =========
Net earnings per share of common stock $ .01 .05
========= =========
Dividends per share $ - -
========= =========
Weighted average number of shares outstanding 8,430,000 8,430,000
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1996
(Dollars in thousands)
<TABLE>
Unrealized
Retained Gain (Loss)
Additional Earnings, on Securities Total
Common Paid-in Substantially Available- Stockholders'
Stock Capital Restricted For-Sale Equity
----- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 843 17,599 244 94 18,780
Change in unrealized gain (loss) on
securities available-for-sale
for the three months ended
March 31, 1996 net of income
taxes of $257 (unaudited) - - - (428) (428)
Net earnings for the three months
ended March 31, 1996 (unaudited) - - 56 - 56
------- ------ --- ---- ------
Balance, March 31, 1996
(unaudited) $ 843 17,599 300 (334) 18,408
======= ====== === ==== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Three Months Ended
March 31,
------------------
1996 1995
--------- ---------
(unaudited)
Operating activities:
Net earnings $ 56 461
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of premises and equipment 137 144
Provision for loan losses 150 141
Provision for losses on real estate owned - 120
Net amortization of deferred loan fees 39 9
Net decrease in trading securities 7,184 992
Proceeds from sales of loans held for sale, net 7,171 984
Gain on sale of loans (43) (6)
Unrealized loss on loans held for sale 111 -
Gain on sale of real estate owned - (20)
Increase in other assets (501) (38)
Provision for deferred income taxes 16 175
(Increase) decrease in accrued interest receivable 64 (110)
Increase (decrease) in accrued interest payable (74) 53
Increase (decrease) in other liabilities and
due to bank 245 (619)
--- ----
Net cash provided by operating activities 14,555 2,286
------ -----
Investing activities:
Proceeds from maturities of investment securities 2,000 7,502
Principal repayments on mortgage-backed securities 1,467 499
Net increase in loans receivable (8,787) (7,676)
Proceeds from sales of real estate owned 112 813
Payments capitalized to real estate owned (55) (18)
Purchases of premises and equipment (101) (63)
---- ---
Net cash provided by (used in)
investing activities (5,364) 1,057
------ -----
Financing activities:
Net increase in deposit accounts 19,786 12,122
Net increase in advance payments by borrowers
for taxes and insurance 613 741
Proceeds from Federal Home Loan Bank advances 84,000 83,300
Repayments of Federal Home Loan Bank advances (100,000) (93,700)
-------- -------
Net cash provided by financing activities 4,399 2,463
----- -----
Net increase in cash and cash equivalents 13,590 5,806
Cash and cash equivalents at beginning of period 10,426 8,566
------ -----
Cash and cash equivalents at end of period $ 24,016 14,372
======== ======
(continued)
5
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows, Continued
(Dollars in thousands)
Three Months Ended
March 31
------------------
1996 1995
--------- ---------
(unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 18 275
======== ===
Interest $ 3,214 2,206
======== =====
Noncash investing and financing activities:
Transfers of loans to real estate owned $ 199 556
======== ===
Transfer of loans held for sale to loans
receivable, at market $ 10,603 1,295
======== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. GENERAL. In the opinion of the management of f.F.O. Financial group, inc.
(the "Company"), the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position at March 31,
1996, and the results of operations and cash flows for the three-month
periods ended March 31, 1996 and 1995. These financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. The results of operations for the three months
ended March 31, 1996, are not necessarily indicative of the operating
results to be anticipated for the full year.
F.F.O. Financial group, inc. Is a florida corporation organized in 1988 as
a unitary savings and loan holding company. The accompanying unaudited
condensed consolidated financial statements include the accounts of the
company and its wholly-owned subsidiary, first federal savings and loan
association of osceola county (the "association"), and the association's
wholly-owned subsidiary, gulf american financial corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. EARNINGS PER SHARE. Earnings per share are computed by dividing net
earnings by the weighted average number of shares outstanding during the
period. No adjustment has been made to give effect to the shares that would
be outstanding, assuming the exercise of outstanding stock options, since
the impact is deemed immaterial.
3. LOAN IMPAIRMENT AND LOSSES. On January 1, 1995, the Company adopted
Statements of Financial Accounting Standards No. 114 and 118 ("SFAS No. 114
and 118"). These Statements address the accounting by creditors for
impairment of certain loans. The Statements generally require the Company
to identify loans for which the Company probably will not receive full
repayment of principal and interest, as impaired loans. The Statements
require that impaired loans be valued at the present value of expected
future cash flows, discounted at the loan's effective interest rate, or at
the observable market price of the loan, or the fair value of the
underlying collateral if the loan is collateral dependent. The Company has
implemented the Statements by modifying its quarterly review of the
adequacy of the allowance for loan losses to also identify and value
impaired loans in accordance with guidance in the Statements. The adoption
of the Statements did not have any material effect on the results of
operations for the three months ended March 31, 1996 or 1995.
The following summarizes the amounts of impaired loans, all of which were
collateral-dependent, at March 31, 1996 and December 31, 1995, and the
average net investment in impaired loans and interest income recognized and
received on impaired loans during the three-month periods ended March 31,
1996 and 1995 (in thousands):
March 31, December 31,
1996 1995
---- ----
(unaudited)
Loans identified as impaired:
Gross loans with no related allowance
for credit losses - -
Gross loans with related allowance for
credit losses recorded 7,924 6,380
Less: Allowances on these loans (1,658) (1,537)
------ ------
Net investment in impaired loans $ 6,266 4,843
======= =====
(continued)
7
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
3. LOAN IMPAIRMENT AND LOSSES, Continued.
For the three Months Ended
March 31,
------------------
1996 1995
--------- ---------
(unaudited)
Average investment in impaired loans $ 4,697 8,268
======= =====
Interest income recognized on impaired loans - 72
== ==
Interest income received on impaired loans - 72
== ==
Changes in the allowance for loan losses are as follows (in thousands):
Three Months Ended
March 31,
------------------
1996 1995
--------- ---------
(unaudited)
Beginning balance $ 5,138 8,207
Provision for loan losses 150 141
Charge-offs (85) (42)
Recoveries 7 34
------- -----
Ending balance $ 5,210 8,340
======= =====
4. REAL ESTATE OWNED. The following is a summary of the transactions in the
allowance for losses on real estate owned (in thousands):
Three Months Ended
March 31
------------------
1996 1995
--------- ---------
(unaudited)
Beginning balance $ 1,124 2,873
Provision charged to operations - 120
Net (charge-offs) recoveries 51 (19)
-- ---
Ending balance $ 1,175 2,974
======= =====
(continued)
8
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
4. REAL ESTATE OWNED, Continued. Loss on real estate operations consists of
the following ( in thousands):
Three Months Ended
March 31
------------------
1996 1995
--------- ---------
(unaudited)
Net gain on sales $ - (20)
Operating costs 33 112
Provision charged to operations - 120
--- ---
Loss on real estate operations $ 33 212
===== ===
5. IMPACT OF NEW ACCOUNTING STANDARDS. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which establishes financial
accounting and reporting standards for stock- based employee compensation
plans. The Statement requires certain disclosures about stock- based
compensation arrangements, regardless of the method used to account for
them, and defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to
adopt that method of accounting for all of their employee stock
compensation plans. However, SFAS No. 123 also allows an entity to continue
to measure compensation cost for stock-based compensation plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to continue
using the accounting method in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value
method of accounting defined in SFAS No. 123 had been applied. Under the
fair value method, compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period, which is
usually the vesting period. Under the intrinsic value method, compensation
cost is the excess, if any, of the quoted market price of the stock at
grant date or other measurement date over the amount an employee must pay
to acquire the stock. The Company elected to continue to utilize the
intrinsic value method of accounting defined in APB Opinion No. 25. The
adoption of SFAS No. 123 had no effect on the Company's financial position
at March 31, 1996 or results of operations for the three months then ended.
The pro forma disclosures required under SFAS No. 123, for stock options
granted during 1995 and thereafter, are not required for interim condensed
financial statements.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 122 "Accounting for Mortgage Servicing Rights, an amendment
of FASB Statement No. 65" ("SFAS No. 122"), which requires mortgage banking
enterprises that acquire mortgage servicing through either the purchase or
origination of mortgage loans and sell or securitize those loans with
servicing retained to allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans based on their relative fair
values. Mortgage banking enterprises include commercial banks and thrift
institutions that conduct operations substantially similar to the primary
operations of a mortgage banking enterprise. The adoption of SFAS No. 122
had no material effect on the Company's financial position at March 31,
1996 or results of operations for the three months then ended.
9
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Review by Independent Certified Public Accountants
Hacker, Johnson, Cohen & Grieb, the Company's independent certified public
accountants, have made a limited review of the financial data as of March 31,
1996, and for the three-month periods ended March 31, 1996 and 1995 presented in
this document, in accordance with standards established by the American
Institute of Certified Public Accountants.
Their report, furnished pursuant to Article 10 of Regulation S-X, is included
herein.
10
<PAGE>
Report on Review by Independent Certified Public Accountants
The Audit Committee of the Board of Directors
of F.F.O. Financial Group, Inc.
St. Cloud, Florida:
We have reviewed the condensed consolidated balance sheet of F.F.O.
Financial Group, Inc. and Subsidiaries (the "Company") as of March 31, 1996, and
the related condensed consolidated statements of earnings and cash flows for the
three-month periods ended March 31, 1996 and 1995, and the condensed
consolidated statement of stockholders' equity for the three-month period ended
March 31, 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended (not presented herein), and in our report dated February
2, 1996, except for Note 12, as to which the date was February 29, 1996,
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
HACKER, JOHNSON, COHEN & GRIEB
Orlando, Florida
April 24, 1996
11
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTRODUCTION
F.F.O. Financial Group, Inc. (the "Holding Company") was incorporated in the
State of Florida on June 6, 1988. On October 20, 1988, the Holding Company
became the unitary savings and loan holding Company for First Federal Savings
and Loan Association of Osceola County (the "Association") (together, the
"Company"). The Holding Company's operations are limited to ownership of its
subsidiary.
The Association is a federally chartered savings and loan association which
conducts business from its headquarters and main office in Kissimmee, Florida
and ten branch offices located in Central Florida. It was founded in 1934 as a
mutual savings and loan association. On October 20, 1988, the Association
converted to a federally chartered stock association. The Association's deposits
are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
applicable limits through the Savings Association Insurance Fund ("SAIF").
The Association has one wholly-owned subsidiary, Gulf American Financial
Corporation, which is currently inactive.
Comparison of March 31, 1996 and December 31, 1995
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are from loan principal repayments,
proceeds from sales of loans and maturities of investment securities, net
deposit account inflows and proceeds from Federal Home Bank advances. During the
three-month period ended March 31, 1996, proceeds from loan sales were $7.2
million, proceeds from maturities of investment securities were $2.0 million,
net deposit account inflows were $19.8 million and proceeds from Federal Home
Loan Bank advances were $84.0 million. Cash was used primarily to fund net loan
disbursements of $8.7 million and repay Federal Home Loan Bank advances of
$100.0 million. At March 31, 1996, the Company had approved commitments to
originate real estate loans of $5.9 million. It is expected that these
commitments will be funded from the sources described above.
The Association is required under federal regulations to maintain specified
levels of liquid investments, which include qualifying types of U.S. government
and federal agency securities, cash and other investments. Current regulations
require the Association to maintain liquid assets of not less than 5% of its
average daily balance of net withdrawable deposit accounts plus short term
borrowings during the preceding calendar month; short-term liquid assets must
consist of not less than 1% of that amount. These levels are established by the
Office of Thrift Supervision ("OTS") and are adjusted periodically to reflect
current conditions. The Association has generally maintained liquidity in excess
of required levels. The Association's average daily liquidity ratio was 9.1% and
its short-term liquidity ratio was 7.0% at March 31, 1996.
(continued)
12
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
REGULATORY MATTERS
In accordance with applicable laws, the Association is required to maintain
certain minimum regulatory capital requirements. The following is a summary of
the regulatory capital requirements, the Association's capital, and the amounts
in excess of such required capital as of March 31, 1996:
<TABLE>
Tangible Core Risk-Based
-------- ---- ----------
($ in thousands) % of
Risk-
% of % of Weighted
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital $ 16,564 5.4% $ 16,564 5.4% $ 18,431 12.5%
Requirement 4,565 1.5 9,129 3.0 11,776 8.0
----- --- ----- --- ------ ---
Excess $ 11,999 3.9% $ 7,435 2.4% $ 6,655 4.7%
======== === ======= === ======= ===
</TABLE>
If an association is unable to comply with all of its regulatory capital
requirements, the OTS may take such actions as it deems appropriate to protect
the deposit insurance funds, the Association, and its depositors. Such actions
may include various operating restrictions, limitations on liability growth,
limitations on deposit account interest rates, and investment restrictions. As a
means of limiting regulatory discretion to allow undercapitalized depository
institutions to remain in operation and thereby minimizing insurance fund
losses, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires the OTS and the other federal banking agencies to establish
a prompt regulatory action system pursuant to which banks and thrifts will be
classified, according to their capital levels, into five categories: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
Under regulations adopted by the federal banking agencies to implement these
requirements, the Association met the capital requirements of a "well
capitalized" institution as of March 31, 1996.
The Association may not declare or pay cash dividends on its shares of Common
Stock (all of which are held by the Holding Company) without prior approval of
the OTS.
The FDIC has proposed a one-time assessment on all SAIF-insured deposits, in the
range of 85 cents to 90 cents per $100 of domestic deposits held as of March 31,
1995. This one-time assessment is intended to recapitalize the SAIF to the
required level of 125% of insured deposits, and could be payable in 1996. If the
assessment is made at the proposed rate, the effect on the Association would be
a pretax charge of approximately $1,897,000 (0.85% on deposits of $223.2 million
at March 31, 1995), or $1,186,000 after tax (37.5% assumed tax rate). Should
this occur, the Holding Company does not expect to have to contribute capital to
the Association for it to remain a well capitalized institution.
(continued)
13
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
ASSET QUALITY
The Company is required by the OTS to classify its own assets and to establish
valuation allowances based in part on such classifications. These
classifications are subject to review by the OTS examiners. Management of the
Company reviews its loan, real estate owned and investment portfolios on a
quarterly basis, classifying those assets deemed appropriate and establishing
valuation allowances as appropriate. In addition, the Company continues to
establish general loss allowances for unclassified loans based on its historical
loss experience. An asset is classified substandard if it is determined to
involve a distinct possibility that the Company could sustain some loss if
deficiencies associated with the asset are not corrected. An asset is classified
as doubtful if full collection is highly questionable or improbable. An asset is
classified loss if it is considered uncollectible, even if a partial recovery
could be expected in the future. If an asset is classified substandard or
doubtful pursuant to the Company's policies, or by regulatory examiners, general
allowances for losses may be established. If an asset is classified as loss, the
Company is required to establish a specific allowance in an amount equal to 100%
of the portion of the asset classified loss or it must charge off that amount.
Pursuant to applicable regulations, the OTS and the FDIC have the authority to
require the Association to increase its loss allowance if either agency
determines that the allowances are inadequate. The estimation of appropriate
levels of loss allowances is a process that involves a high degree of
subjectivity, and the regulatory authorities may arrive at conclusions that
differ from management's regarding allowance levels. The OTS last performed an
examination of the Association as of September 30, 1995. The examination was
part of the OTS' routine supervision of the Association and included evaluations
of the Association's loan and real estate owned loss allowances. Based upon the
results of the OTS examination, management believes the Association's policies
and procedures for determination of loan and real estate owned allowances are
generally consistent with those used by the OTS in determining the adequacy of
the loss allowances maintained by thrift institutions. However, there is no
assurance that the OTS will concur with this assessment in future examinations.
The following table illustrates the Company's classified assets (in thousands):
At March 31, At December 31,
Classification of Assets 1996 1995
------------------------ ---- ----
Substandard $ 11,682 10,914
Doubtful 522 596
Loss 855 920
--- ---
Total Classified Assets $ 13,059 12,430
======== ======
14
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
The Company had nonperforming assets as follows, all of which are included in
the foregoing classified assets table, as of each of the dates indicated
(dollars in thousands):
At March 31, At December 31,
1996 1995
---- ----
Nonaccrual loans $ 3,150 2,675
Troubled debt restructured 4,884 4,890
Real estate owned 4,675 4,482
------ ------
Total Nonperforming Assets $ 12,709 12,047
====== ======
Nonperforming Assets to Total Assets 4.16% 4.00%
==== ====
Allowance for loan losses 5,210 5,138
Allowance for REO losses 1,175 1,124
------ ------
Total Allowance for Losses $ 6,385 6,262
====== ======
15
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Comparison of Results of Operations for the Three-Month Periods
Ended March 31, 1996 and 1995
General
Net earnings for the three-month period ended March 31, 1995 were $56,000, or
$.01 per share, compared to $461,000, or $.05 per share, for the 1995 period.
The decrease in net earnings for the 1996 period is primarily attributable to a
decrease of $402,000 in net interest income and $359,000 in noninterest income
partially offset by a decrease of $139,000 in noninterest expenses.
The following table shows selected ratios for the periods ended or at the dates
indicated:
Three Months Three Months
Ended Year Ended Ended
March 31, December 31, March 31,
1996 1995 1995
------------- ------------ ----------
Average equity as a percentage of
average assets 6.18% 5.98% 6.74%
Equity to total assets at end
of period 6.02% 6.23% 6.78%
Return on average assets .07% .64% .74%
Return on average equity 1.21% 9.17% 11.04%
Noninterest expenses to average
assets 3.20% 3.67% 4.08%
Nonperforming loans and real estate
owned to total assets at end of
period 4.16% 4.00% 8.09%
The following table shows weighted average interest rates at the dates
indicated:
At At At
March 31, December 31, March 31,
1996 1995 1995
----------- ------------ ---------
Weighted average interest rates:
Interest-earning assets:
Loans 8.30% 8.44% 8.30%
Mortgage-backed securities 6.60% 6.59% 6.37%
Investment securities 6.47% 6.58% 6.44%
Other interest-earning assets 5.33% 5.56% 6.35%
Total interest-earning assets 7.63% 7.80% 7.80%
Interest-bearing liabilities:
Deposit accounts 4.55% 4.50% 4.20%
Borrowed funds 5.60% 5.85% 6.73%
Total interest-bearing
liabilities 4.60% 4.65% 4.32%
Interest-rate spread 3.03% 3.15% 3.48%
(continued)
16
<PAGE>
F.F.O FINANCIAL GROUP, INC.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest/dividend income; (iv) interest-rate spread; and
(v) net interest margin.
<TABLE>
Three Months Ended March 31,
---------------------------------------------------------------
1996 1995
------------------------------- ------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 186,210 4,018 8.63% $ 173,379 3,994 9.21%
Mortgage-backed securities 70,265 1,078 6.14% 36,351 595 6.55%
Investment securities 17,972 276 6.14% 20,457 328 6.41%
Other interest-earning assets 5,793 94 6.49% 2,990 61 8.15%
----- -- ----- --
Total interest-earning assets 280,240 5,466 7.80% 233,177 4,978 8.54%
----- -----
Noninterest-earning assets 18,996 14,608
------ ------
Total assets $ 299,236 $ 247,785
========= =========
Interest-bearing liabilities:
Deposit accounts 259,290 2,897 4.47% 219,434 2,155 3.93%
Borrowed funds 17,099 243 5.69% 6,933 104 6.00%
------ --- ----- ---
Total interest-bearing liabilities 276,389 3,140 4.54% 226,367 2,259 3.99%
----- -----
Noninterest-bearing liabilities 4,347 4,716
Stockholders' equity 18,500 16,702
------ ------
Total liabilities and stockholders' equity $ 299,236 $ 247,785
========= =========
Net interest/dividend income $ 2,326 $ 2,719
======= =======
Interest rate spread (2) 3.26% 4.55%
==== ====
Net average interest-earning assets, net
interest margin (3) $ 3,851 3.32% $ 6,810 4.66%
======= ==== ======= ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.01 1.03
==== ====
</TABLE>
_____________________________________________
(1) Interest for three months ended March 31, 1995 includes $373,000 related to
previously unaccrued interest on a loan which was brought current during
the quarter.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
17
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
Interest Income
For the three months ended March 31, 1996, total interest income was $5.5
million, an increase of $488,000 from the same period in 1995, due primarily to
a $483,000 increase in interest income on mortgage-backed securities. Interest
income on loans increased due to an increase in the average balance of $12.8
million partially offset by the recognition of $373,000 of previously unaccrued
interest on a loan which was brought current during the 1995 quarter. The
increase in interest income on mortgage-backed securities is due to an increase
of $33.9 million in the average balance outstanding partially offset by a
decrease in the average yield earned. Interest and dividends on investment
securities for the three months ended March 31, 1996 decreased $52,000 to
$276,000 due to a decrease in the average balance and average yield earned in
1996 compared to 1995. Interest income on other interest-earning assets
increased from $61,000 to $94,000, due to a increase in the average balance
outstanding partially offset by a decrease in the average yields earned.
Interest Expense
Total interest expense for the three months ended March 31, 1996 was $3.1
million, an increase of $881,000 or 39.0% from the similar period in 1995.
Interest expense on deposits increased from $2.2 million in the first quarter of
1995 to $2.9 million in the first quarter of 1996. The increase was attributable
primarily to an increase of $39.9 million in the average deposits outstanding
during 1996 compared to the 1995 period. The increase in interest expense on
deposits was also the result of an increase in the average rate paid on
deposits, from 3.93% to 4.47% for the three months ended March 31, 1995 and
1996, respectively. Interest expense on borrowed funds increased $139,000 or
133.7% during 1996. The increase was primarily attributable to an increase in
the average borrowed funds of $10.2 million partially offset by a decrease in
the average rate paid during 1996.
Provision for Loan Losses
The Company's provision for loan losses for the three months ended March 31,
1996 was $150,000, compared to $141,000 for the similar period in 1995.
Management of the Company monitors the loan portfolio on a regular basis and
evaluates the adequacy of the allowance for loan losses. Management believes
that the allowance as of March 31, 1996 is adequate based on facts and
circumstances known to it.
Noninterest Income
Noninterest income for the three-month period ended March 31, 1996 decreased
$359,000 or 54.1%, compared to the same period in 1995, primarily due to a net
trading account loss of $178,000 for the three-month period ended March 31, 1996
compared to a net trading account profit of $105,000 in 1995. The Company also
recorded an unrealized loss on loans held for sale of $111,000 during 1996, with
no corresponding unrealized loss in the 1995 period. These decreases were
partially offset by an increase of $37,000 in gain on sale of loans.
Noninterest Expenses
Total noninterest expenses decreased by $139,000 or 5.5% for the three-month
period ended March 31, 1996, compared to the same period in 1995. During the
three months ended March 31, 1996, employee compensation and benefits decreased
by $55,000 or 5.1%. Occupancy and equipment increased $21,000, or 4.7%. Loss on
real estate operations decreased $179,000 primarily due to a decrease in the
provision for losses on real estate owned of $120,000 and a decrease of
operating costs of $79,000. Partially offsetting these decreases in 1996 were
increases in marketing and advertising of $40,000 and other expenses of $26,000.
Income Taxes
The income tax provision for the three months ended March 31, 1996, was $33,000
(an effective rate of 37.1%) compared to $250,000 (an effective rate of 35.2%)
for the 1995 period.
18
<PAGE>
F.F.O. FINANCIAL GROUP, INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not engaged in any legal proceedings of a material nature
at the present time. From time to time, it is a party to legal
proceedings in the ordinary course of business wherein it enforces its
security interest in loans.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Report on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
F.F.O. FINANCIAL GROUP, INC.
(Registrant)
Date: May 8, 1996 By: /s/JAMES B. DAVIS
------------------------------ --------------------------------
James B. Davis,
President and Chief Executive
Officer
Date: May 8, 1996 By: /s/PHYLLIS A. ELAM
----------------------------- ---------------------------------
Phyllis A. Elam,
Senior Vice President and Chief
Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000836819
<NAME> F.F.O. FINANCIAL GROUP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 6,238
<INT-BEARING-DEPOSITS> 16,183
<FED-FUNDS-SOLD> 1,595
<TRADING-ASSETS> 15,892
<INVESTMENTS-HELD-FOR-SALE> 46,229
<INVESTMENTS-CARRYING> 17,087
<INVESTMENTS-MARKET> 17,046
<LOANS> 185,115
<ALLOWANCE> (5,210)
<TOTAL-ASSETS> 305,683
<DEPOSITS> 268,722
<SHORT-TERM> 14,000
<LIABILITIES-OTHER> 4,553
<LONG-TERM> 0
0
0
<COMMON> 843
<OTHER-SE> 17,565
<TOTAL-LIABILITIES-AND-EQUITY> 305,683
<INTEREST-LOAN> 4,018
<INTEREST-INVEST> 1,354
<INTEREST-OTHER> 94
<INTEREST-TOTAL> 5,466
<INTEREST-DEPOSIT> 2,897
<INTEREST-EXPENSE> 3,140
<INTEREST-INCOME-NET> 2,326
<LOAN-LOSSES> 150
<SECURITIES-GAINS> (178)
<EXPENSE-OTHER> 2,391
<INCOME-PRETAX> 89
<INCOME-PRE-EXTRAORDINARY> 89
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<YIELD-ACTUAL> 7.80
<LOANS-NON> 3,150
<LOANS-PAST> 0
<LOANS-TROUBLED> 4,884
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,138
<CHARGE-OFFS> (85)
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 5,210
<ALLOWANCE-DOMESTIC> 5,210
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
