<PAGE> 1
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, 1997
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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<S> <C>
Common stock, par value $.10 per share 8,446,266 shares outstanding at May 5, 1997
- -------------------------------------- -------------------------------------------
</TABLE>
<PAGE> 2
F.F.O. FINANCIAL GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets -
March 31, 1997 (unaudited) and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
1
<PAGE> 3
F.F.O. FINANCIAL GROUP, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 6,491 $ 6,300
Interest-bearing deposits with banks 7,688 11,665
Federal funds sold 764 -
--------- ---------
Cash and cash equivalents 14,943 17,965
Trading securities 13,169 9,580
Securities available for sale 43,713 41,445
Securities held to maturity, at cost 14,702 15,343
Loans held for sale, at lower of cost or market value 4,573 10,462
Loans receivable, net 215,926 209,005
Accrued interest receivable 1,972 1,710
Premises and equipment 5,268 5,324
Restricted securities - Federal Home Loan Bank stock, at cost 2,378 2,378
Foreclosed real estate, net 1,425 799
Deferred tax asset 1,576 1,490
Other assets 386 1,448
--------- ---------
Total assets $ 320,031 316,949
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits 16,597 14,303
Savings and NOW deposits 58,060 57,981
Time deposits 211,015 214,643
--------- ---------
Total deposits 285,672 286,927
Accrued interest on deposits 217 256
Due to bank 988 424
Current income tax liability 351 -
Advances from Federal Home Loan Bank 9,000 7,000
Advance payments by borrowers for taxes and insurance 1,419 608
Other liabilities 1,624 1,454
--------- ---------
Total liabilities 299,271 296,669
--------- ---------
Stockholders' equity:
Preferred stock - -
Common stock 845 843
Additional paid-in capital 17,633 17,599
Retained income 2,431 1,844
Net unrealized depreciation on securities available for sale (149) (6)
--------- ---------
Total stockholders' equity 20,760 20,280
--------- ---------
Total liabilities and stockholders' equity $ 320,031 316,949
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 4
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable $ 4,591 4,018
Securities available for sale 619 593
Securities held to maturity 237 251
Trading securities 269 510
Federal funds sold 27 19
Deposits with banks 64 75
------------ ---------
Total interest income 5,807 5,466
------------ ---------
Interest expense:
Deposits 3,163 2,897
Other borrowed funds 10 243
------------ ---------
Total interest expense 3,173 3,140
------------ ---------
Net interest income 2,634 2,326
Provision for loan losses - 150
------------ ---------
Net interest income after provision for loan losses 2,634 2,176
------------ ---------
Noninterest income:
Service charges on deposits 328 323
Loan related fees and service charges 122 117
Loan servicing fees 83 68
Net trading account losses (138) (178)
Unrealized gain (loss) on loans held for sale 84 (111)
Net gain on sale of loans 54 43
Other income 68 42
------------ ---------
Total noninterest income 601 304
------------ ---------
Noninterest expenses:
Salaries and employee benefits 1,021 1,016
Occupancy expense 478 467
Loss on foreclosed real estate 34 33
Deposit insurance premium 63 173
Marketing and advertising 111 132
Data processing 179 151
Printing and office supplies 73 78
Telephone expense 66 71
Other expense 272 270
------------ ---------
Total noninterest expenses 2,297 2,391
------------ ---------
Income before income taxes 938 89
Income tax expense 351 33
------------ ---------
Net income $ 587 56
============ =========
Net income per share of common stock $ .07 .01
============ =========
Dividends per share $ - -
============ =========
Weighted average number of shares outstanding 8,430,181 8,430,000
============ =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 5
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
DEPRECIATION
ADDITIONAL ON SECURITIES TOTAL
COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
STOCK CAPITAL INCOME FOR SALE EQUITY
--------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 843 17,599 1,844 (6) 20,280
Net proceeds from the issuance
of 16,266 shares of common
stock (unaudited) 2 34 - - 36
Net change in unrealized depreciation
on securities available for
sale net of income taxes
of $86 (unaudited) - - - (143) (143)
Net income for the three months
ended March 31, 1997
(unaudited) - - 587 - 587
----- ------ ----- ---- ------
Balance at March 31, 1997
(unaudited) $ 845 17,633 2,431 (149) 20,760
===== ====== ===== ==== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 587 56
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses - 150
Net amortization of deferred loan fees (3) 39
Depreciation of premises and equipment 137 137
Net (increase) decrease in trading securities (3,589) 7,184
Provision for deferred income taxes - 16
Proceeds from sales of loans held for sale 6,027 7,171
Gain on sale of loans (54) (43)
Unrealized (gain) loss on loans held for sale (84) 111
(Increase) decrease in accrued interest receivable (262) 64
Decrease (increase) in other assets 1,062 (501)
Decrease in accrued interest payable (39) (74)
Increase in current income tax liability 351 -
Increase in other liabilities and due to bank 734 245
-------- -------
Net cash provided by operating activities 4,867 14,555
-------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (2,988) -
Proceeds from maturities of available-for-sale securities - 2,000
Principal repayments on available-for-sale securities 479 899
Principal repayments on held-to-maturity securities 653 568
Net increase in loans receivable (7,544) (8,787)
Proceeds from sales of foreclosed real estate - 112
Payments capitalized to foreclosed real estate - (55)
Net purchases of premises and equipment (81) (101)
-------- -------
Net cash used in investing activities (9,481) (5,364)
-------- -------
Cash flows from financing activities:
Net increase in demand, savings and NOW deposits 2,373 54
Net (decrease) increase in time deposits (3,628) 19,732
Net proceeds from the sale of common stock 36 -
Net proceeds from (repayment of) Federal Home Loan Bank advances 2,000 (16,000)
Net increase in advance payments by borrowers for taxes
and insurance 811 613
-------- -------
Net cash provided by financing activities 1,592 4,399
-------- -------
Net (decrease) increase in cash and cash equivalents (3,022) 13,590
Cash and cash equivalents at beginning of period 17,965 10,426
-------- -------
Cash and cash equivalents at end of period $ 14,943 24,016
======== =======
(continued)
</TABLE>
5
<PAGE> 7
F.F.O. FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ - 18
======= =======
Interest $ 3,212 3,214
======= =======
Noncash investing and financing activities:
Transfers of loans to foreclosed real estate $ 626 199
======= =======
Transfer of loans held for sale to loans receivable, at market $ - 10,603
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 8
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" or "F.F.O."), the accompanying condensed consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
at March 31, 1997, and the results of operations and cash flows for the
three-month periods ended March 31, 1997 and 1996. 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, 1996. The results
of operations for the three months ended March 31, 1997, 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, which is currently inactive. All significant intercompany
transactions and accounts have been eliminated in consolidation.
2. NET INCOME PER SHARE. Net income per share has been computed by dividing
net income 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. The following summarizes the amounts of
impaired loans, as defined by Statements of Financial Accounting
Standards No. 114 and 118 ("SFAS No. 114 and 118"), all of which were
collateral-dependent, at March 31, 1997 and December 31, 1996, 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, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Loans identified as impaired:
Gross loans with related allowance for credit
losses recorded $ 7,989 8,256
Less: Allowances on these loans (1,848) (1,766)
------- -------
Net investment in impaired loans $ 6,141 6,490
======= =======
(continued)
</TABLE>
7
<PAGE> 9
F.F.O. FINANCIAL GROUP, INC.
3. LOAN IMPAIRMENT AND LOSSES, CONTINUED.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Average investment in impaired loans $ 6,316 4,697
======= =====
Interest income recognized on impaired loans $ 130 118
======= =====
Interest income received on impaired loans $ 130 118
======= =====
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Balance at January 1 $ 5,613 5,138
Provision for loan losses - 150
Loans charged-off, net of recoveries (34) (78)
------- -----
Balance at March 31 $ 5,579 5,210
======= =====
</TABLE>
4. FORECLOSED REAL ESTATE. Activity in the allowance for losses on foreclosed
real estate was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Balance at January 1 $ 158 1,124
Recoveries, net of charge-offs 5 51
----- -----
Balance at March 31 $ 163 1,175
===== =====
(continued)
</TABLE>
8
<PAGE> 10
F.F.O. FINANCIAL GROUP, INC.
5. IMPACT OF NEW ACCOUNTING STANDARDS. In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). That Statement
provides accounting and reporting standards for transfers and servicing
of financial assets as well as extinguishments of liabilities. The
Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The adoption of SFAS No. 125 had no
significant effect on the Company's financial position at March 31,
1997 or results of operations for the three months then ended.
6. PENDING MERGER. On April 14, 1997, the Company executed a definitive
agreement to merge with Republic Bancshares, Inc. ("Republic"). Under
the terms of the definitive agreement, Republic will exchange shares of
its common stock for all of the outstanding shares of F.F.O.'s common
stock at an exchange ratio of .29 share of Republic common stock for
each share of F.F.O. common stock. The exchange ratio may be adjusted
for decreases in Republic's stock price, but in no event will the
exchange ratio exceed .30 share of Republic common stock for each share
of F.F.O. common stock. F.F.O. has the right to terminate the
transaction if Republic's stock price is less than $13.50 shortly
before closing. Outstanding options for F.F.O.'s common stock will be
converted into options for Republic common stock on the same terms.
The transaction is expected to be completed in 1997, and is to be
accounted for as a corporate reorganization under which the controlling
shareholder's interest in F.F.O. will be carried forward at its
historical cost while the minority interest in F.F.O. will be recorded
at fair value. The proposed merger is subject to approval by the
respective shareholders of F.F.O. and Republic, and approval by
applicable regulatory authorities.
9
<PAGE> 11
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,
1997, and for the three-month periods ended March 31, 1997 and 1996 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> 12
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors
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, 1997,
and the related condensed consolidated statements of income and cash flows for
the three-month periods ended March 31, 1997 and 1996, and the condensed
consolidated statement of stockholders' equity for the three-month period ended
March 31, 1997. 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, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein), and in our report dated
February 11, 1997, except for Note 21, as to which the date was March 11, 1997,
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, 1996 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 17, 1997
11
<PAGE> 13
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, 1997 AND DECEMBER 31, 1996
LIQUIDITY
The Company's primary sources of cash are from principal repayments on loans
and securities, proceeds from sales of loans and proceeds from Federal Home
Loan Bank advances. During the three-month period ended March 31, 1997,
proceeds from loan sales were $6.0 million, proceeds from principal repayments
on securities were $1.1 million and proceeds from Federal Home Loan Bank
advances were $14.0 million. Cash was used primarily to fund net loan
disbursements of $7.5 million, repay Federal Home Loan Bank advances of $12.0
million, fund net deposit outflows of $1.3 million and purchase securities of
$3.0 million. At March 31, 1997, the Company had approved commitments to fund
$11.7 million of the undisbursed portion of existing first mortgage loans, and
to originate real estate loans of $5.2 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 assets, 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 deposits 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 5.4% and
its short-term liquidity ratio was 4.0% at March 31, 1997.
(continued)
12
<PAGE> 14
F.F.O. FINANCIAL GROUP, INC.
REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possibly additional
discretionary- actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Association's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts (set forth in the following
table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of March 31, 1997,
that the Association meets all capital adequacy requirements to which it is
subject.
As of March 31, 1997, the most recent notification from the OTS categorized the
Association as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Association must
maintain minimum Tier I (core), Tier I (risk-based) and total risk-based
capital ratios as set forth below. There are no conditions or events since
that notification that management believes have changed the Association's
category.
13
<PAGE> 15
F.F.O. FINANCIAL GROUP, INC.
REGULATORY MATTERS, CONTINUED
The Association's actual capital amounts and ratios at March 31, 1997 were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED
FOR CAPITAL FOR PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
----------------- ----------------- ------------------
RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, and
ratio to total assets 6.4% $ 20,608
Less - nonincludable portion
of deferred tax asset
and mortgage
servicing rights (1,136)
Add back - unrealized
depreciation on
securities available
for sale 149
---------
Tangible capital, and ratio
to adjusted total assets 6.2% $ 19,621 1.5% $ 4,784
========= ========
Tier 1 (core) capital, and
ratio to adjusted total
assets 6.2% $ 19,621 3.0% $ 9,569 5.0% $ 15,948
========= ======== ========
Tier 1 capital, and ratio
to risk-weighted assets 11.3% 19,621 4.0% $ 6,924 6.0% $ 10,387
--------- ======== ========
Tier 2 capital (excess allowance
for loan losses) 2,193
---------
Total risk-based capital,
and ratio to risk-
weighted assets 12.6% $ 21,814 8.0% $ 13,849 10.0% $ 17,311
========= ====== ========
Total assets $ 319,949
=========
Adjusted total assets $ 318,962
=========
Risk-weighted assets $ 173,112
=========
</TABLE>
14
<PAGE> 16
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 OTS examiners. Management of the
Company reviews its loan, foreclosed real estate and securities portfolios on a
monthly 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 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 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 valuation allowances 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 December 31, 1996. The examination was
part of the OTS' routine supervision of the Association and included
evaluations of the Association's loan and foreclosed real estate loss
allowances. Based upon the results of the OTS examination, management believes
the Association's policies and procedures for determination of loan and
foreclosed real estate loss 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 sets forth the Company's classified assets (dollars in
thousands):
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ ---------------
CLASSIFICATION OF ASSETS 1997 1996
------------------------ ---- ----
<S> <C> <C>
Substandard $ 6,800 6,747
Doubtful 493 145
Loss 800 800
------- -----
Total classified assets $ 8,093 7,692
======= =====
</TABLE>
(continued)
15
<PAGE> 17
F.F.O. FINANCIAL GROUP, INC.
The Company had nonperforming assets as follows (dollars in thousands):
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ ---------------
1997 1996
---- ----
<S> <C> <C>
Nonaccrual loans $ 3,861 4,058
Troubled debt restructured 4,854 4,862
Foreclosed real estate 1,588 957
-------- ------
Total nonperforming assets $ 10,303 9,877
======== ======
Nonperforming assets to total assets 3.22% 3.12%
======== ======
Allowance for loan losses 5,579 5,613
Allowance for foreclosed real estate losses 163 158
-------- ------
Total allowance for losses $ 5,742 5,771
======== ======
</TABLE>
16
<PAGE> 18
F.F.O. FINANCIAL GROUP, INC.
COMPARISON OF RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
GENERAL
Net income for the three-month period ended March 31, 1997 was $587,000
compared to $56,000 for the 1996 period. The increase in net income for the
1997 period was primarily attributable to an increase of $341,000 in interest
income and an increase in noninterest income of $297,000.
The following table shows selected ratios for the periods ended or at the dates
indicated:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
------------ --------------- ---------------
<S> <C> <C> <C>
Average equity as a percentage of
average assets 6.50% 6.57% 6.18%
Equity to assets at end of period 6.49% 6.40% 6.02%
Return on average assets .74% .54% .07%
Return on average equity 11.45% 8.18% 1.21%
Noninterest expenses to average assets 2.91% 3.08% 3.20%
Nonperforming assets to total assets at
end of period 3.22% 3.12% 4.16%
</TABLE>
The following table shows weighted average interest rates at the dates
indicated:
<TABLE>
<CAPTION>
AT AT AT
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
------------ --------------- ------------
<S> <C> <C> <C>
Interest-earning assets:
Loans 8.29% 8.15% 8.30%
Securities 6.40% 6.35% 6.58%
Other interest-earning assets 6.57% 6.70% 5.33%
Total interest-earning assets 7.79% 7.72% 7.63%
Interest-bearing liabilities:
Deposits 4.41% 4.57% 4.55%
Borrowed funds 6.85% 6.95% 5.60%
Total interest-bearing liabilities 4.48% 4.63% 4.60%
Interest-rate spread 3.31% 3.09% 3.03%
</TABLE>
(continued)
17
<PAGE> 19
F.F.O FINANCIAL GROUP, INC.
The following table sets forth information regarding (i) the average balance
of the Company's interest-earning assets and interest-bearing liabilities; (ii)
the total dollar amount of interest and dividend income from interest-earning
assets and the resultant average yields; (iii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average
cost; (iv) net interest/dividend income; (v) interest-rate spread; and (vi) net
interest margin.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------
1997 1996
---------------------------------- ------------------------------
AVERAGE AVERAGE
AVERAGE INTEREST/ YIELD/ AVERAGE INTEREST/ YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- -------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 220,045 4,591 8.35% $ 186,210 4,018 8.63%
Securities 71,506 1,125 6.29% 88,237 1,354 6.14%
Other interest-earning assets 5,442 91 6.69% 5,793 94 6.49%
--------- ------- --------- ------
Total interest-earning assets 296,993 5,807 7.82% 280,240 5,466 7.80%
------- ------
Noninterest-earning assets 18,464 18,996
--------- ---------
Total assets $ 315,457 $ 299,236
========= =========
Interest-bearing liabilities:
Deposits 288,979 3,163 4.38% 259,290 2,897 4.47%
Borrowed funds 744 10 5.38% 17,099 243 5.69%
--------- ------- --------- ------
Total interest-bearing liabilities 289,723 3,173 4.38% 276,389 3,140 4.54%
------- ------
Noninterest-bearing liabilities 5,225 4,347
Stockholders' equity 20,509 18,500
--------- ---------
Total liabilities and
stockholders' equity $ 315,457 $ 299,236
========= =========
Net interest/dividend income $ 2,634 $2,326
======= ======
Interest rate spread (2) 3.44% 3.26%
==== ====
Net average interest-earning assets, net
interest margin (3) $ 7,270 3.55% $ 3,851 3.32%
========= ==== ========= ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.02 1.01
========= =========
</TABLE>
___________________________________________
(1) Includes nonaccrual loans.
(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.
18
<PAGE> 20
F.F.O. FINANCIAL GROUP, INC.
INTEREST INCOME
For the three months ended March 31, 1997, total interest income was $5.8
million, an increase of $341,000 from the same period in 1996, due primarily to
a $573,000 increase in interest income on loans. Interest income on loans
increased due to an increase in the average balance of $33.8 million partially
offset by a decrease in the average yield earned on such loans from 8.63% in
1996 compared to 8.35% in 1997. The decrease in interest income on securities
is due to a decrease of $16.7 million in the average balance outstanding
partially offset by an increase in the average yield earned from 6.14% in 1996
to 6.29% in 1997. Interest income on other interest-earning assets decreased
from $94,000 to $91,000, due to a decrease in the average balance outstanding
partially offset by an increase in the average yield earned.
INTEREST EXPENSE
Total interest expense for the three months ended March 31, 1997 was $3.2
million, an increase of $33,000 or 1.1% from the similar period in 1996.
Interest expense on deposits increased from $2.9 million in the first quarter
of 1996 to $3.2 million in the first quarter of 1997. The increase was
primarily attributable to an increase of $29.7 million in the average deposits
outstanding during 1997 compared to the 1996 period, partially offset by a
decrease in the average rate paid on those deposits from 4.47% in 1996 to 4.38%
in 1997. Interest expense on borrowed funds decreased $233,000 or 95.9%
compared to the 1996 period. The decrease was primarily attributable to the
$16.4 million decrease in the average borrowed funds from $17.1 million during
1996 to $744,000 during 1997.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses for the three months ended March 31,
1996 was $150,000. The Company did not record a provision for loan losses
during the three months ended March 31, 1997. 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, 1997 is adequate based on facts and circumstances known to it.
NONINTEREST INCOME
Noninterest income for the three-month period ended March 31, 1997 increased
$297,000 or 97.7%, compared to the same period in 1996, primarily due to an
unrealized gain on loans held for sale of $84,000 during the 1997 period
compared to an unrealized loss on loans held for sale of $111,000 during the
1996 period and a decrease in net trading account losses of $40,000.
NONINTEREST EXPENSES
Total noninterest expenses decreased by $94,000 or 3.9% for the three-month
period ended March 31, 1997, compared to the same period in 1996. The decrease
was due to a decrease in deposit insurance premiums of $110,000 as a result of
a decrease in the assessment rate on deposits from 29.0 cents per $100 in 1996
to 6.5 cents per $100 in 1997, partially offset by an increase in data
processing of $28,000.
INCOME TAXES
The income tax provision for the three months ended March 31, 1997, was
$351,000 (an effective rate of 37.4%) compared to $33,000 (an effective rate of
37.1%) for the 1996 period.
19
<PAGE> 21
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27 Financial Data Schedule (for SEC use only).
b. No reports on Form 8-K were filed by the Company during the quarter.
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, 1997 By: /s/James B. Davis
------------------- -------------------------------
James B. Davis, President and
Chief Executive Officer
Date: May 8, 1997 By: /s/Phyllis A. Elam
------------------- -------------------------------
Phyllis A. Elam, Senior
Vice President and Chief
Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,491
<INT-BEARING-DEPOSITS> 7,688
<FED-FUNDS-SOLD> 764
<TRADING-ASSETS> 13,169
<INVESTMENTS-HELD-FOR-SALE> 43,713
<INVESTMENTS-CARRYING> 14,702
<INVESTMENTS-MARKET> 14,768
<LOANS> 220,499
<ALLOWANCE> 5,579
<TOTAL-ASSETS> 320,031
<DEPOSITS> 285,672
<SHORT-TERM> 9,000
<LIABILITIES-OTHER> 4,599
<LONG-TERM> 0
0
0
<COMMON> 845
<OTHER-SE> 19,915
<TOTAL-LIABILITIES-AND-EQUITY> 320,031
<INTEREST-LOAN> 4,591
<INTEREST-INVEST> 1,125
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 5,807
<INTEREST-DEPOSIT> 3,163
<INTEREST-EXPENSE> 3,173
<INTEREST-INCOME-NET> 2,634
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (138)
<EXPENSE-OTHER> 2,297
<INCOME-PRETAX> 938
<INCOME-PRE-EXTRAORDINARY> 587
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<YIELD-ACTUAL> 7.82
<LOANS-NON> 3,861
<LOANS-PAST> 0
<LOANS-TROUBLED> 4,854
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,613
<CHARGE-OFFS> (37)
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 5,579
<ALLOWANCE-DOMESTIC> 5,579
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
