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, 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 0-18832
-------
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
--------------
(Registrants'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, 1997
----------- ------------------------------------
Common Stock 4,146,105 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, 1997 (Unaudited) and June 30, 1997. 3
Consolidated Statements of Income for the Three Months
Ended September 30, 1997 and 1996 (Unaudited). 4
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1997 and 1996 (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>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
-------- September 30, June 30,
1997 1997
------------- ------------
(unaudited)
<S> <C> <C>
Cash $ 8,770,119 $ 8,694,283
Interest bearing deposits 3,799,854 481,430
Securities:
Securities held-to-maturity 16,469,318 17,484,427
Securities available-for-sale 1,756,294 5,192,323
(Total securities fair value: $18,258,965 at
September 30, 1997; $22,992,346 at June 30, 1997)
Loans receivable, net 333,932,279 327,791,495
Real estate owned:
Acquired through foreclosure 300,776 183,569
Held for development 687,261 687,261
Investment in Federal Home Loan Bank stock 2,827,900 2,777,200
Premises and equipment 10,534,828 10,221,228
Other assets 541,971 842,656
Excess of cost over net assets of affiliate purchased 2,964,463 3,024,481
------------ ------------
Total Assets $382,585,063 $377,380,353
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Liabilities:
Savings deposits $284,953,288 $281,342,174
Advances from Federal Home Loan Bank 41,487,90 41,514,194
Accrued interest payable 402,672 202,982
Accounts payable and other liabilities 1,353,088 706,892
Deferred income taxes 1,967,245 1,949,361
------------- -------------
Total Liabilities 330,164,193 325,715,603
------------ ------------
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 4,159,196
shares on September 30, 1997 and 4,170,003 shares
on June 30, 1997 4,159,196 4,170,003
Additional paid-in capital 4,071,355 4,330,548
Retained earnings - substantially restricted 43,215,090 42,193,609
Net unrealized holding gain on securities
available-for-sale, net of tax 975,229 970,590
------------- ------------
Total Stockholders' Equity 52,420,870 51,664,750
------------- ------------
Total Liabilities & Stockholders' Equity $382,585,063 $377,380,353
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
--------- ----------
<S> <C> <C>
Interest income:
Interest on loans $7,089,484 $6,508,349
Interest and dividends on
investments and deposits 432,242 444,401
---------- ----------
Total interest income 7,521,726 6,952,750
---------- ----------
Interest expense:
Savings deposits 3,247,563 2,973,028
Federal Home Loan Bank advances 580,991 510,564
---------- ----------
Total interest expense 3,828,554 3,483,592
---------- ----------
Net interest income 3,693,172 3,469,158
Provision for loan losses 60,000 200,000
---------- ----------
Net interest income after
provision for loan losses 3,633,172 3,269,158
---------- ----------
Other income:
Customer service fees on deposit accounts 313,244 320,905
Other income 309,936 223,067
Gain on sale of investment 116,945 322,927
---------- ----------
Total other income 740,125 866,899
---------- ----------
Other expense:
Employee compensation and benefits 888,135 886,513
Office occupancy and equipment expense 237,533 230,559
Federal insurance premiums (Note 2) 44,226 1,808,839
Marketing and advertising 86,395 98,311
Outside services and data processing 151,927 154,901
State franchise tax 74,039 70,794
Other expense 428,014 443,379
---------- ----------
Total other expense 1,910,269 3,693,296
---------- ----------
Income before taxes 2,463,028 442,761
Income taxes 859,260 155,650
---------- ----------
Net income $1,603,768 $ 287,111
========== ==========
Net income per share of common stock $0.38 $ 0.07
===== ======
Dividends per share of common stock $0.14 $ 0.12
===== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1997 1996
Operating Activities: ---------- ----------
<S> <C> <C>
Net income $1,603,768 $ 287,111
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses and real estate owned 60,000 200,000
Provision for depreciation 140,278 113,950
Net change in deferred loan fees and costs 46,987 41,801
Federal Home Loan Bank stock dividends (50,700) (45,500)
Amortization of discounts on securities held-to-
maturity (32,322) (32,376)
Amortization of acquired intangible assets 60,018 60,018
Net gain on sale of investments available-for-sale (116,945) (322,927)
Increase in interest payable 199,690 53,868
Decrease (increase) in other assets 300,685 (169,140)
Increase in accounts payable and other liabilities 664,080 1,147,313
--------- ---------
Net cash provided by operating activities 2,875,539 1,334,118
--------- ---------
Investing Activities:
Sale of securities available-for-sale 3,479,138 335,111
Purchases of securities available-for-sale (38,332) (17,463)
Purchases of securities held-to-maturity (5,000,000) (6,000,000)
Principal collections on securities held-to-
maturity 6,047,431 197,261
Net increase in loans to customers (6,394,242) (7,925,086)
Purchases of premises and equipment (453,878) (277,509)
Sales of real estate acquired in settlement of
loans 129,000 134,938
--------- ----------
Net cash used in investing activities (2,230,883) (13,552,748)
--------- ----------
Financing Activities:
Advances from (repayments to) Federal Home Loan
Bank (26,294) 4,795,779
Net (decrease) increase in customer savings
deposits 3,611,114 (748,220)
Dividends paid (582,287) (503,588)
Proceeds from stock options exercised 2,386 60,543
Common stock repurchased (270,000) (444,151)
Collection on advance to ESOP 14,685 --
---------- ----------
Net cash provided by financing activities 2,749,604 3,160,363
---------- ----------
(Decrease) increase in cash and cash equivalents 3,394,260 (9,058,267)
Cash and cash equivalents, beginning of year 9,175,713 16,160,272
---------- ----------
Cash and cash equivalents, end of period $12,569,973 $ 7,102,005
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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, 1997 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,
1997 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 1997 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 were 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 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: 4,167,600 shares and 4,206,130 shares issued and outstanding
for the three month periods ended September 30, 1997 and 1996,
respectively. Common stock equivalents have not been used in computing net
income per share because their effect is not material.
4. Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement Nos. 128 and
130 that the Bank will be required to adopt in future periods. See "New
Accounting Pronouncements" for further discussion.
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, 1997 and any material changes in the results
of operations for the three month period ending, September 30, 1997. This
discussion and analysis should be read in conjunction with "Managements
Discussion and Analysis of Financial Condition and Results of Operations"
included in the 1997 Annual Report to Shareholders.
Results of Operations
Net income was $1.6 million or $.38 per share for the three months ended
September 30, 1997, as compared to net income of $1.4 million or $.33 per share
for the same period in 1996. During the quarter ended September 30, 1996, net
income was affected by a one-time special assessment of $1.7 million ($1.1
million, net of tax) paid to the FDIC. Due to this payment, actual net income
was $287,000 or $.07 per share during the 1996 quarter. See further discussion
under "Regulatory Matters".
In addition to the higher net income the 15% increase in net income per share
was also attributable to the Corporation's stock repurchase plans which have
reduced the weighted average number of shares outstanding form 4,206,130 for the
1996 period to 4,167,600 for 1997. The following discussion outlines the
material differences in income and expenses for the three month period ended
September 30, 1997, as compared to 1996.
Net interest income increased by $224,014 in 1997 as compared to 1996. This
increase was due to the strong growth of the Bank's loan portfolio and a 7 basis
point improvement in the net interest margin. The Bank's net interest margin for
the 1997 period increased to 4.13% as compared to 4.06% for the 1996 quarter.
The Corporation's cost of funds increased by 13 basis points in 1997 compared to
1996, due to higher rates paid on short-term customer deposits and Federal Home
Loan Bank advances.
Average interest-earning assets increased by $20 million from $335 million for
the 1996 period to $355 million for the 1997 period. Average loans were $23
million higher and averaged $331 million during 1997, while the average yield on
loans increased by 10 basis points to 8.49% during 1997 compared to 8.39% during
the 1996 period.
Average interest-bearing liabilities increased by $20 million to an average
balance of $322 million for the 1997 period. Customer deposits averaged $283
million during 1997, an increase of $19 million compared to the 1996 quarter.
The remaining $1 million increase in interest-bearing liabilities was due to
borrowings from the Federal Home Loan Bank to help finance the Bank's loan
growth.
7
<PAGE>
Total other income was $740,125 for the three months ended September 30, 1997,
as compared to $866,899 for the 1996 period, a decrease of $126,774. The
decrease in income is due to reduced sales of available-for-sale securities. For
the 1997 quarter, the Bank reported gains from investment sales of $116,945 as
compared to $322,927 in 1996, a decrease of $205,982. Other sources of
non-interest income, such as brokerage commissions, checking account fees, and
other customer transaction fees increased by $79,209, or 15% in 1997 versus
1996.
Total other expense was $1,910,269 for the three month period ended September
30, 1997, as compared to $3,693,296 for the 1996 period. The decrease in expense
is due to the resolution of the FDIC insurance fund disparity on September 30,
1996, resulting in a $1,685,000 charge against earnings during the 1996 quarter.
Federal insurance premium expense decreased $79,613 during the 1997 period,
reflecting lower assessment rates while other expenses remained relatively
constant.
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, 1997, management chose
to add $60,000 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, 1997.
Three Months Ended
September 30,
------------------
1997 1996
---- ----
(Dollars in Thousands)
Allowance for loan losses:
Balance, July 1 $ 1,715 $ 1,613
Provision for loan losses 60 200
Charge-offs (15) (28)
Recoveries 6 0
------- -------
Balance, end of period $ 1,766 $ 1,785
======= =======
Net loans outstanding at quarter end $333,932 $310,097
Non-performing loans at quarter end:
Collaterized by one-to-four family homes 1,247 1,101
Other non-performing loans 361 358
Ratios: Non performing loans to total loans .48% .47%
Allowance for loan losses to
non-performing loans 110% 122%
Allowance for loan losses to net loans .53% .58%
Non-performing assets to total assets .50% .48%
8
<PAGE>
Liquidity & Capital Resources
Loan demand continued to be strong during the quarter ended September 30, 1997,
as net loans grew by $6.1 million to $334 million, a 7.5% annualized growth
rate. In spite of strong competition from new financial institutions, mutual
funds, and the stock market, customer deposits grew by $3.6 million during the
quarter. The loan growth was funded by additional borrowings of $5 million from
the Federal Home Loan Bank.
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, 1997, the Bank's liquid assets were 7.01% of its liquidity
base. The Bank intends to continue to fund loan growth (outstanding loan
commitments were $6.3 million at September 30, 1997) and any declines in
customer deposits through additional advances from the FHLB. At September 30,
1997, the Bank had an unused approved line of credit in the amount of $11
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, 1997.
(Dollars in thousands)
Tangible Core Risk-weighted
-------- ------- -------------
Actual capital $47,378 $47,378 $49,144
Regulatory requirement 5,680 11,359 19,453
------ ------ ------
Excess $41,698 $36,019 $29,691
======= ======= =======
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 were 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. On January 1, 1997, the Bank began paying
insurance premiums of $.064 per $100 of deposits as compared to a previous
premium of $.23 per $100 of deposits.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share," was issued in February 1997 and is effective for both interim and annual
fiscal periods ending after December 15, 1997. Early adoption is not permitted.
SFAS 128 establishes new standards for computing and presenting earnings per
share ("EPS"). Specifically, SFAS 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of basic and
9
<PAGE>
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Management has determined that the adoption of SFAS 128
will not have a material effect on the consolidated financial statements.
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive
Income," was issued in June 1997 and becomes effective for fiscal periods
beginning after December 15, 1997. SFAS 130 requires reclassification of earlier
financial statements for comparative purposes. SFAS No. 130 requires that
changes in the amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities be shown in the financial
statements. SFAS No. 130 does not require a specific format for the financial
statement in which comprehensive income is reported, but does require that an
amount representing total comprehensive income be reported in that statement.
Management has determined that the adoption of SFAS 130 will not have a material
effect on the consolidated financial statements.
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:
The Corporation filed Form 8-K on September 18, 1997 to
report the establishment of a stock repurchase program to
acquire up to 5% of the Corporation's currently
outstanding shares of common stock.
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, 1997 BY: (S) B. Keith Johnson
------------------------------------------
B. Keith Johnson
President and Chief Executive Officer
DATE: November 12, 1997 BY: (S) Richard L. Muse
-----------------------------------
Richard L. Muse
Vice President and Comptroller
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements for the three months
ended September 30, 1997 and is qualified in its entirety by reference to such
financial statements.)
</LEGEND>
<CIK> 0000854395
<NAME> First Federal Financial Corp of Kentucky
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 8,770,119
<INT-BEARING-DEPOSITS> 3,799,854
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,756,294
<INVESTMENTS-CARRYING> 16,469,318
<INVESTMENTS-MARKET> 18,258,965
<LOANS> 335,698,477
<ALLOWANCE> 1,766,198
<TOTAL-ASSETS> 382,585,063
<DEPOSITS> 284,953,288
<SHORT-TERM> 41,487,900
<LIABILITIES-OTHER> 3,723,005
<LONG-TERM> 0
0
0
<COMMON> 4,159,196
<OTHER-SE> 48,261,674
<TOTAL-LIABILITIES-AND-EQUITY> 382,585,063
<INTEREST-LOAN> 7,089,484
<INTEREST-INVEST> 432,242
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,521,726
<INTEREST-DEPOSIT> 3,247,563
<INTEREST-EXPENSE> 3,828,554
<INTEREST-INCOME-NET> 3,633,172
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 116,945
<EXPENSE-OTHER> 1,910,269
<INCOME-PRETAX> 2,463,028
<INCOME-PRE-EXTRAORDINARY> 2,463,028
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,603,768
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 8.41
<LOANS-NON> 0
<LOANS-PAST> 1,608,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,868,000
<ALLOWANCE-OPEN> 1,715,000
<CHARGE-OFFS> 15,000
<RECOVERIES> 6,000
<ALLOWANCE-CLOSE> 1,766,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,766,000
</TABLE>
