FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: September 30, 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 0-18832
First Federal Financial Corporation of Kentucky
-----------------------------------------------
(Exact Name of Registrant as specified in its charter)
Kentucky 61-1168311
--------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2323 Ring Road
Elizabethtown, Kentucky 42701
-----------------------------
(Address of principal executive offices)
(Zip Code)
(502)765-2131
-------------
(Registrant's telephone number, including area code)
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.
Class Outstanding as of October 31, 1996
----------- ------------------------------------
Common Stock 4,185,826 shares
This document is comprised of 12 pages.
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
INDEX
PART I - Financial Information Page Number
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as
of September 30, 1996 (Unaudited) and June 30, 1996. 3
Consolidated Statements of Income for the Three Months
Ended September 30, 1996 and 1995
(Unaudited). 4
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1996 and 1995 (Unaudited). 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of the
Consolidated Statements of Financial Condition
and Results of Operations 7
PART II - Other Information 11
SIGNATURES 12
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
ASSETS 1996 1996
-------- --------------- ----------
(unaudited)
<S> <C> <C>
Cash $ 5,638,065 $ 8,407,735
Interest bearing deposits 1,463,940 7,752,537
Securities:
Securities held-to-maturity 17,828,911 11,993,796
Securities available-for-sale 4,664,119 4,748,417
(Total securities fair value: $22,881,544 at
September 30, 1996; $17,086,603 at June 30, 1996)
Loans receivable, net 310,096,728 302,363,297
Real estate owned:
Acquired through foreclosure 240,549 375,392
Held for development 505,261 505,261
Investment in Federal Home Loan Bank stock 2,635,400 2,589,900
Premises and equipment 9,847,726 9,684,167
Other assets 1,155,400 986,260
Excess of cost over net assets of affiliate purchased 3,204,535 3,264,553
--------- ---------
Total Assets $ 352,671,315 $ 357,280,634
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $ 264,197,524 $ 264,945,744
Advances from Federal Home Loan Bank 39,774,858 34,979,079
Accrued interest payable 272,152 218,284
Accounts payable and other liabilities 2,911,738 1,099,293
Deferred income taxes 817,338 1,482,470
------- ---------
Total Liabilities 307,973,610 302,724,870
Stockholders' Equity:
Serial preferred stock 5,000,000 shares authorized --- ---
and unissued
Common stock, $1 par value per share; authorized
10,000,000 shares; issued and outstanding 4,196,569
shares on September 30, 1996 and 4,208,490 shares
on June 30, 1996 4,196,569 4,208,490
Additional paid-in capital 5,095,013 5,466,700
Retained earnings - substantially restricted 39,344,332 39,509,189
Net unrealized holding gain on securities available-for-sale,
net of tax 671,110 762,066
------- -------
Total Stockholders' Equity 49,307,024 49,946,445
---------- ----------
Total Liabilities & Stockholders' Equity $ 357,280,634 $ 352,671,315
============= ==============
See notes to consolidated financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Interest income:
Interest on loans $6,508,349 $ 6,084,222
Interest and dividends on
investments and deposits 444,401 454,185
------- -------
Total interest income 6,952,750 6,538,407
--------- ---------
Interest expense:
Savings deposits 2,973,028 2,972,198
Federal Home Loan Bank advances 510,564 361,591
------- -------
Total interest expense 3,483,592 3,333,789
--------- ---------
Net interest income 3,469,158 3,204,618
Provision for loan losses 200,000 0
------- -
Net interest income after
provision for loan losses 3,269,158 3,204,618
--------- ---------
Other income:
Customer service fees on deposit accounts 320,905 230,654
Other income 223,067 208,942
Gain on sale of investment 322,927 311,097
------- -------
Total other income 866,899 750,693
------- -------
Other expense:
Employee compensation and benefits 886,513 770,785
Office occupancy and equipment expense 230,559 212,621
Federal insurance premiums (Note 2) 1,808,839 145,120
Marketing and advertising 98,311 71,221
Outside services and data processing 154,901 156,070
State franchise tax 70,794 68,540
Other expense 443,379 379,562
------- -------
Total other expense 3,693,296 1,803,919
--------- ---------
Income before taxes 442,761 2,151,392
Income taxes 155,650 718,090
----------- -----------
Net income $ 287,111 $ 1,433,302
=========== ============
Net income per share of common stock $ 0.07 $ 0.34
======= =======
Dividends per share of common stock $ 0.12 $ 0.11
======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 287,111 $ 1,433,302
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses and real estate owned 200,000 0
Provision for depreciation 113,950 113,424
Net change in deferred loan fees and costs 41,801 38,653
Federal Home Loan Bank stock dividends (45,500) (42,600)
Amortization of discounts on securities held-to-
maturity (32,376) (35,871)
Amortization of acquired intangible assets 60,018 60,018
Gain on sale of investments available-for-sale (322,927) (311,097)
Increase in interest payable 53,868 61,189
Increase in other assets (169,140) (502,371)
Increase in accounts payable and other
liabilities 1,147,313 1,147,895
--------- ---------
Net cash provided by operating activities 1,334,118 1,962,542
----------- ----------
Investing Activities:
Sale of securities available-for-sale 335,111 328,160
Purchases of securities available-for-sale (17,463) (49,727)
Purchases of securities held-to-maturity (6,000,000) 0
Principal collections on securities held-to-
maturity 197,261 47,081
Net increase in loans to customers (7,925,086) (6,366,071)
Purchases of premises and equipment (277,509) (59,564)
Sales of real estate acquired in settlement of
loans 134,938 0
------------ -----------
Net cash used in investing activities (13,552,748) (6,100,121)
------------- -----------
Financing Activities:
Advances from Federal Home Loan Bank 4,795,779 5,971,598
Net decrease in customer savings
deposits (748,220) (2,712,416)
Dividends paid (503,588) (465,704)
Proceeds from stock options exercised 60,543 12,749
Common stock repurchased (444,151) (58,500)
Advances to ESOP 0 (148,492)
----------- -----------
Net cash provided by financing activities 3,160,363 2,599,235
----------- -----------
Decrease in cash and cash equivalents (9,058,267) (1,538,344)
Cash and cash equivalents, beginning of year 16,160,272 13,864,501
---------- ----------
Cash and cash equivalents, end of period $ 7,102,005 $ 12,326,157
============= =============
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Notes to Consolidated Financial Statements
1. Interim Financial Statements
First Federal Financial Corporation of Kentucky ("Corporation") is the
parent to its wholly owned subsidiary, First Federal Savings Bank of
Elizabethtown ("Bank"). The Corporation has no material income, other than
that generated by the Bank.
In the opinion of management , these unaudited consolidated financial
statements include all adjustments necessary for a fair presentation of
its financial position as of September 30, 1996 and the results of its
operations and its cash flows for the three month period then ended. All
such adjustments were of a normal recurring nature.
The results of operations for the three month period ended September 30,
1996 are not necessarily indicative of the results for the full year.
It is suggested that these financial statements be read in conjunction
with the financial statements, accounting policies and financial notes
thereto included in the Appendix to the Company's 1996 Proxy Statement
which has been previously filed with the Commission.
2. Federal Deposit Insurance Corporation (FDIC) legislation was signed into
law on September 30, 1996, to recapitalize the Savings Association
Insurance Fund (SAIF). All SAIF-insured savings institutions will be
required to pay a one-time special assessment of $.657 for every $100 of
customer deposits. This has resulted in a charge to earnings of $1,658,000
($1,094,000, net of tax) during the Bank's first quarter ended September
30, 1996.
3. Net income per share of common stock is computed by dividing net income by
the weighted average number of shares on common stock issued and
outstanding: 4,206,130 shares and 4,238,160 shares issued and outstanding
for the three month periods ended September 30, 1996 and 1995,
respectively. Common stock equivalents have not been used in computing net
income per share because their effect is not material. Net income and
dividends paid per share reflect a 2-for-1 common stock split in the
form of a 100% stock dividend distributed on June 10, 1996.
6
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
First Federal Financial Corporation of Kentucky ("Corporation") is the
parent to its wholly owned subsidiary, First Federal Savings Bank of
Elizabethtown ("Bank"). The Bank has operations in the central Kentucky
communities of Elizabethtown, Radcliff, Bardstown, Munfordville, Shepherdsville,
and Mt. Washington.
The following discussion and analysis covers any material changes in the
financial condition since June 30, 1996 and any material changes in the results
of operations for the three month period ending, September 30, 1996. This
discussion and analysis should be read in conjunction with "Managements
Discussion and Analysis of Financial Condition and Results of Operations"
included in the 1996 Annual Report to Shareholders.
Results of Operations
Net income was $287,111 or $.07 per share for the three months ended September
30, 1996, as compared to $1,433,302 or $.34 per share for the same period in
1995. The decrease in earnings is primarily attributable to the one-time special
assessment of $1.7 million ($1.1 million, net of tax) to recapitalize the
Savings Association Insurance Fund (" SAIF"). Beginning January 1, 1997 the Bank
will benefit from reduced premiums to the FDIC of approximately $430,000,
annually ($285,000, net of tax). See further discussion under "Regulatory
Matters".
Net interest income increased by $264,540 in 1996 as compared to 1995. This
increase was due to the strong growth of the Bank's loan portfolio and a 3 basis
point improvement in the net interest margin. The Bank's net interest margin for
the 1996 period increased to 4.06% as compared to 4.03% for the 1995 quarter.
The Corporation's cost of funds decreased by 10 basis points in 1996 compared to
1995, due to lower rates paid on short-term customer deposits.
Average interest-earning assets increased by $20 million from $315 million for
the 1995 period to $335 million for the 1996 period. Average loans were $21
million higher and averaged $308 million during 1996, while the average yield on
loans stayed the same at 8.39%.
Average interest-bearing liabilities increased by $20 million to an average
balance of $302 million for the 1996 period. Customer deposits averaged $264
million during 1996, an increase of $7 million compared to the 1995 quarter. The
remaining $13 million increase in interest-bearing liabilities was due to
borrowings from the Federal Home Loan Bank to help finance the Bank's loan
growth.
Total other income was $866,899 for the three months ended September 30, 1996,
as compared to $750,693 for the 1995 period, an increase of $116,206. Customer
service fees charged on deposit accounts increased by $90,251 during 1996 due to
a growth in customer checking accounts and an increase in customer service fees.
Gains from the sale of available-for-sale securities were $322,927 in 1996
versus $311,097 in 1995, an increase of $11,830. Other sources of miscellaneous
income, such as safety deposit box rental, loan fees, and other customer
transaction fees increased by $14,125 due to growth in deposit relationships
with existing customers.
7
<PAGE>
Total other expense was $3,693,296 for the three month period ended September
30, 1996, as compared to $1,803,919 for the 1995 period. The increase of
$1,889,377 was primarily due to the one-time expense of $1.7 million to
recapitalize the SAIF. Also, during July, 1996, the Bank opened a new branch in
the Elizabethtown Wal-Mart Supercenter, resulting in an increase in operating
expenses of $62,000 for the 1996 quarter. The rest of the increase was
attributable to expanded services and products offered to customers.
Non-Performing Assets
Management periodically evaluates the adequacy of the allowance for loan losses
based on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may effect the borrower's ability to repay
and other factors. During the quarter ended September 30, 1996, management chose
to add $200,000 to the reserve for loan losses. Although current loan
charge-offs and delinquencies are consistent with previous years, the reserve
was increased to compensate for the Bank's continued strong loan growth. The
Bank experienced an insignificant amount of uncollectible loans during the
periods indicated in the table below. Approximately 65% of the Bank's
non-performing assets are collateralized by one-to-four family residences at
September 30, 1996.
Three Months Ended
September 30,
-------------
1996 1995
---- ----
(Dollars in thousands)
Allowance for loan losses:
Balance, July 1 $ 1,613 $ 1,662
Provision for loan losses 200 0
Charge-offs (28) (6)
-------- ---------
Balance, June 30 $ 1,785 $ 1,556
========== ==========
Net loans outstanding at quarter end $ 310,097 $ 288,672
Non-performing loans at quarter end:
Collaterized by one-to-four family homes 1,101 548
Other non-performing loans 358 230
Ratios:
Non performing loans to total loans .47% .27%
Allowance for loan losses to non-performing loans 122% 200%
Allowance for loan losses to net loans .58% .54%
Non-performing assets to total assets .48% .29%
8
<PAGE>
Liquidity & Capital Resources
Loan demand continued to be strong during the quarter ended September 30, 1996,
as net loans grew by $7.7 million to $310 million, a 10% annualized growth.
Deposits declined by $748,220 during the 1996 quarter, primarily in passbook
savings accounts as customers continue to seek alternative investments yielding
higher rates of return. The loan growth and decline in deposits was funded by
additional borrowings of $5 million from the Federal Home Loan Bank during the
1996 quarter.
Current regulations require the Corporation's subsidiary, First Federal Savings
Bank, to maintain minimum specific levels of liquid assets, (currently 5%) of
cash and eligible investments to the savings deposits and short-term borrowings.
At September 30, 1996, the Bank's liquid assets were 7.23% of its liquidity
base. The Bank intends to continue to fund loan growth (outstanding loan
commitments were $3.9 million at September 30, 1996) and any declines in
customer deposits through additional advances from the FHLB. At September 30,
1996, the Bank had an unused approved line of credit in the amount of $6.3
million, and the potential to significantly increase its indebtedness with the
FHLB, if necessary, due to its strong financial condition.
The Office of Thrift Supervision's capital regulations requires the Bank to meet
three capital standards. As indicated below, the Bank substantially exceeded the
regulatory requirements for each category at September 30, 1996.
(Dollars in thousands)
Tangible Core Risk-weighted
-------- ---- -------------
Actual capital $ 44,291 $ 44,291 $ 46,060
Regulatory requirement 5,298 10,596 17,322
---------- --------- ---------
Excess $ 38,993 $ 33,695 $ 28,738
========= ========= =========
Regulatory Matters
The Bank insures its customers' deposits through the Savings Association
Insurance Fund ("SAIF"). On September 30, 1996, Federal Deposit Insurance
Corporation ("FDIC") legislation was signed into law to recapitalize the SAIF.
As was anticipated, all SAIF-insured savings institutions will be required to
pay a one-time special assessment of $.657 for every $100 of customer deposits.
This has resulted in a charge to earnings of $1,095,000, net of tax during the
quarter ended September 30, 1996. Future earnings accruing from a reduced rate
in the deposit insurance premium should more than offset the special assessment
over a period of time. On January 1, 1997, the Bank will begin paying insurance
premiums of $.064 per $100 of deposits as compared to a previous premium of $.23
per $100 of deposits. The reduced premium will contribute approximately
$285,000, net of tax to future annual earnings.
9
<PAGE>
Recent legislation will require the Bank to change its method of computing bad
debt deductions for income tax purposes, effective July 1, 1996. Formerly, the
Bank was permitted a bad debt deduction in the amount of 8% pre-tax income. The
annual deductions created a bad debt reserve for income tax purposes. Conversion
from a thrift charter to a commercial bank charter would have triggered the
recapture of the reserve, resulting in approximately $4 million of income taxes.
The new law has eliminated this income tax cost upon conversion to a commercial
bank charter. Although recapture of the post-1987 reserve will occur, the Bank
has previously deferred the related tax consequences and therefore will have no
material effect on future earnings of the Bank.
10
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of
Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits: Not Applicable
Reports on Form 8-K:
Not Applicable
11
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: November 12, 1996 BY: (S) B. Keith Johnson
----------------------
B. Keith Johnson
Executive Vice President
DATE: November 12, 1996 BY: (S) M. Dennis Young
----------------------
M. Dennis Young
Senior Vice President,
Chief Financial Officer & Comptroller
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 5,638,065
<INT-BEARING-DEPOSITS> 1,463,940
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,664,119
<INVESTMENTS-CARRYING> 17,828,911
<INVESTMENTS-MARKET> 18,217,425
<LOANS> 310,096,728
<ALLOWANCE> 1,785,000
<TOTAL-ASSETS> 357,280,634
<DEPOSITS> 264,197,524
<SHORT-TERM> 39,774,858
<LIABILITIES-OTHER> 3,183,890
<LONG-TERM> 0
0
0
<COMMON> 4,196,569
<OTHER-SE> 45,110,455
<TOTAL-LIABILITIES-AND-EQUITY> 357,280,634
<INTEREST-LOAN> 6,508,349
<INTEREST-INVEST> 444,401
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,952,750
<INTEREST-DEPOSIT> 2,973,028
<INTEREST-EXPENSE> 3,483,592
<INTEREST-INCOME-NET> 3,469,158
<LOAN-LOSSES> 200,000
<SECURITIES-GAINS> 322,927
<EXPENSE-OTHER> 3,693,296
<INCOME-PRETAX> 442,761
<INCOME-PRE-EXTRAORDINARY> 442,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,111
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 8.23
<LOANS-NON> 0
<LOANS-PAST> 1,459,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,247,520
<ALLOWANCE-OPEN> 1,613,000
<CHARGE-OFFS> 28,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,785,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,785,000
</TABLE>
