FORM 10-Q/A
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: March 31, 1999
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 April 30, 1999
----------- ------------------------------------
Common Stock 4,127,112 shares
This document is comprised of 15 pages.
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
First Federal Financial Corporation of Kentucky is amending Items 1 and 2 of its
10-Q for the fiscal quarter ended March 31, 1999 to reflect the restatement of
its financial statements for the period. The restatement adjusts gains
recognized on the sale of real estate during the period to reflect proper
accounting principles under Statement of Financial Accounting Standards No. 66.
Accordingly, approximately $200,0000, net of tax, of net income has been
deferred to future years.
INDEX
PART I - Financial Information Page Number
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as
of March 31, 1999 (Unaudited) and June 30, 1998. 3
Consolidated Statements of Income for the Three Months
and Nine Months Ended March 31, 1999 and 1998
(Unaudited). 4
Consolidated Statements of Comprehensive Income for the
Three Months and Nine Months Ended March 31, 1999 and
1998 (Unaudited). 5
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1999 and 1998 (Unaudited). 6
Notes to Consolidated Financial Statements. 7
Item 2 - Management's Discussion and Analysis of the Consolidated
Statements of Financial Condition and Results of Operations. 8
PART II - Other Information 13
SIGNATURES 15
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, June 30,
ASSETS 1999 1998
------ ---------- --------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 9,367,233 $ 4,992,588
Interest bearing deposits 6,131,324 4,157,124
Securities:
Securities held-to-maturity (fair value approximates
$44,220,035 and $24,935,000 at March 31, 1999
and June 30, 1998, respectively.) 44,506,060 24,639,484
Securities available-for-sale 3,099,456 1,934,412
Loans receivable, net 391,589,777 355,306,342
Real estate owned:
Acquired through foreclosure 255,667 133,584
Held for development 533,638 642,491
Investment in Federal Home Loan Bank stock 3,140,900 2,983,800
Premises and equipment 11,317,501 10,747,145
Other assets 624,183 1,329,890
Excess of cost over net assets of affiliate purchased 11,086,922 2,784,409
----------- -----------
TOTAL ASSETS $481,652,661 $409,651,269
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
LIABILITIES:
Savings deposits $396,239,762 $306,702,649
Advances from Federal Home Loan Bank 22,997,767 43,248,855
Accrued interest payable 832,700 358,435
Accounts payable and other liabilities 2,455,518 2,576,839
Deferred income taxes 2,178,140 2,076,104
----------- -----------
TOTAL LIABILITIES 424,703,887 354,962,882
----------- -----------
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 4,127,112
shares on March 31, 1999 and 4,129,612 shares
on June 30, 1998 4,127,112 4,129,612
Additional paid-in capital 3,185,372 3,253,664
Retained earnings - substantially restricted 48,432,152 46,208,807
Net unrealized holding gain on securities available-for-sale,
Net of tax 1,204,138 1,096,304
---------- ----------
Total Stockholders' Equity 56,948,774 54,688,387
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $481,652,661 $409,651,269
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $8,107,831 $7,451,143 $23,884,427 $21,811,011
Interest and dividends
on investments and deposits 859,225 438,094 2,757,814 1,292,910
--------- --------- ----------- ----------
Total interest income 8,967,056 7,889,237 26,642,241 23,103,921
--------- --------- ---------- ----------
INTEREST EXPENSE:
Savings deposits 4,264,242 3,434,597 12,972,532 10,071,475
Federal Home Loan Bank advances 291,491 612,639 1,000,216 1,796,851
--------- --------- ---------- ----------
Total interest expense 4,555,733 4,047,236 13,972,748 11,868,326
--------- --------- ---------- ----------
Net interest income 4,411,323 3,842,001 12,669,493 11,235,595
Provision for loan losses 60,000 30,000 180,000 120,000
--------- --------- ---------- ----------
Net interest income after
provision for loan losses 4,351,323 3,812,001 12,489,493 11,115,595
--------- --------- ---------- ----------
OTHER INCOME:
Customer service fees on
deposit accounts 431,810 306,635 1,267,713 943,583
Other income 437,788 278,008 1,201,108 878,930
Gain on sale of investment 0 125,622 203,200 242,567
------- ------- --------- -------
Total other income 869,598 710,265 2,672,021 2,065,080
--------- ------- --------- ---------
OTHER EXPENSE:
Employee compensation
and benefits 1,260,228 944,057 3,500,529 2,757,621
Office occupancy and
equipment expense 310,644 226,179 941,783 696,237
Federal insurance premiums 47,544 44,777 140,167 133,390
Marketing and advertising 225,009 91,850 395,784 276,472
Outside services and data
processing 249,134 188,277 661,980 497,539
State franchise tax 99,531 74,039 258,245 224,016
Goodwill amortization 207,950 60,018 573,397 180,054
Other expense 631,387 402,919 1,752,398 1,244,846
Acquisition related expense 0 0 291,869 0
Data and equipment conversion
expense 290,934 0 290,934 0
--------- ------- --------- ---------
Total other expense 3,322,361 2,032,116 8,807,086 6,010,175
--------- --------- --------- ---------
Income before taxes 1,898,560 2,490,150 6,354,428 7,170,500
Income taxes 624,146 840,645 2,169,614 2,464,827
--------- --------- --------- ---------
NET INCOME $1,274,414 $1,649,505 $4,184,814 $4,705,673
========== ========== ========== ==========
Weighted average common
shares outstanding 4,127,112 4,133,516 4,128,476 4,149,667
Net income per share of
common stock (Note 2) $0.31 $0.40 $1.01 $1.13
===== ===== ===== =====
Dividends per share of common stock $0.15 $0.14 $0.45 $0.42
===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ----- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $1,274,414 $1,649,505 $4,184,814 $4,705,673
---------- ---------- ---------- ----------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities arising
during period (161,682) 56,847 107,834 226,170
Less: reclassification adjustment for accumulated
gains included in net income 0 (82,911) (134,112) (160,094)
--------- -------- --------- ---------
Other comprehensive income (161,682) (26,064) (26,278) 66,076
--------- -------- --------- ---------
TOTAL COMPREHENSIVE INCOME $1,112,732 $1,623,441 $4,158,536 $4,771,749
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Nine Months Ended
March 31,
-----------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,184,814 $ 4,705,673
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses and real estate owned 180,000 120,000
Provision for depreciation 590,072 446,565
Net change in deferred loan fees and costs 167,336 143,768
Federal Home Loan Bank stock dividends (161,400) (153,700)
Amortization of discounts on securities held-to-maturity (50,538) (81,968)
Amortization of acquired intangible assets 573,397 180,054
Gain on sale of investments available-for-sale (203,200) (242,567)
Increase in interest payable 474,265 397,105
(Increase) Decrease in other assets 705,707 (48,288)
Increase (Decrease) in accounts payable and other liabilities (19,285) 1,101,676
-------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,441,168 6,568,318
--------- ---------
INVESTING ACTIVITIES:
Sale of securities available-for-sale 211,237 3,615,708
Purchases of securities available-for-sale (1,010,000) (36,082)
Purchases of securities held-to-maturity (59,855,000) (10,000,000)
Principal collections on securities held-to-maturity 40,109,865 6,150,699
Net increase in loans to customers (25,497,402) (22,858,245)
Purchases of premises and equipment (1,160,428) (827,178)
Sales of real estate acquired in settlement of loans 173,131 593,448
Sales of real estate held for development 108,853 44,770
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (46,919,744) (23,316,880)
----------- -----------
FINANCING ACTIVITIES:
Advances from (repayments to) Federal Home Loan Bank (20,251,088) 1,882,101
Net increase in customer savings deposits 17,042,367 24,552,576
Dividends paid (1,857,520) (1,742,689)
Proceeds from stock options exercised -- --
Common stock repurchased (70,792) (1,046,131)
Cash proceeds from acquisition 51,964,454 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 46,827,421 23,585,857
----------- -----------
Increase (Decrease) in cash and cash equivalents 6,348,845 6,837,295
Cash and cash equivalents, beginning of year 9,149,712 9,175,713
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $15,498,557 $16,013,008
============ ==========
</TABLE>
See notes to consolidated financial statements.
6
<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 March 31, 1999 and the results of its
operations and its cash flows for the three month and nine month
periods then ended. All such adjustments were of a normal recurring
nature.
The results of operations for the three month and nine month periods
ended March 31, 1999 and 1998 are not necessarily indicative of the
results for the full years.
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 1998 Proxy Statement
which has been previously filed with the Commission.
2. SFAS "Earnings Per Share," established new standards for computing and
presenting earnings per share. The reconciliation of the numerators and
denominators of the basic and diluted EPS computations is as follows:
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income available
to common shareholders $1,274 $1,650 $4,185 $4,706
====== ====== ====== ======
Basic EPS:
Weighted average common shares 4,127,112 4,133,516 4,128,476 4,149,667
========= ========= ========= =========
Diluted EPS:
Weighted average common shares 4,127,112 4,133,516 4,128,476 4,149,667
Dilutive effect of stock options 20,503 28,433 21,141 29,055
Weighted average common --------- --------- --------- ---------
and incremental shares 4,147,615 4,161,949 4,149,617 4,178,722
========= ========= ========= =========
Earnings Per Share:
Basic $0.31 $0.40 $1.01 $1.13
===== ===== ===== =====
Diluted $0.31 $0.40 $1.01 $1.13
===== ===== ===== =====
</TABLE>
7
<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 Kentucky communities of Elizabethtown,
Radcliff, Bardstown, Munfordville, Shepherdsville, Mt. Washington, Brandenburg,
Flaherty, and Paducah.
The following discussion and analysis covers any material changes in the
financial condition since June 30, 1998 and any material changes in the results
of operations for the three month and nine month periods ending, March 31, 1999.
This discussion and analysis should be read in conjunction with "Managements
Discussion and Analysis of Financial Condition and Results of Operations"
included in the 1998 Annual Report to Shareholders.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in this report includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. For
this purpose, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements.
Although the Corporation believes that the forward-looking statements are based
upon reasonable assumptions, the statements are subject to certain risks and
uncertainties that could cause the Corporation's actual results to differ
materially from those indicated by the forward-looking statements. Among the key
factors that may have a direct bearing on the Corporation's operating results
are fluctuations in the economy; the relative strengths and weakness in the
consumer and commercial credit sectors and in the real estate market; the
actions taken by the Federal Reserve for the purpose of managing the economy;
the Corporation's success in assimilating acquired branches and operations into
the Bank's existing operations; the Bank's success in converting its systems to
integrate new hardware and software without material disruption; the
Corporation's ability to offer competitive banking products and services; the
continued growth of the markets in which the Corporation operates consistent
with recent historical experience; the enactment of federal legislation
affecting the operations of the Corporation; and the Corporation's ability to
expand into new markets and to maintain profit margins in the face of pricing
pressure.
ACQUISITION
On July 24, 1998, the Bank completed its acquisition of three bank branches
located in Meade County, Kentucky from Bank One, Kentucky, N.A. Two of the
branches are located in Brandenburg, Kentucky and the third branch is in
Flaherty, Kentucky.
In the transaction, the Bank acquired certain assets and assumed certain
liabilities associated with the acquisition of the Meade County banking centers.
The transaction resulted in recording of assets of $11,870,000, liabilities of
$72,500,000 and core deposit intangibles of approximately $8,670,000. The
consideration paid for the assets totaled approximately $20,500,000, which was
determined based on a premium for the core deposits of the acquired banking
centers plus the book or cash value of certain other transferred assets. The
acquisition was funded by reducing proceeds due for the net liability amount
assumed.
RESULTS OF OPERATIONS
Three Month Period Ended March 1999 vs. 1998 - During the quarter ended March
31, 1999, the Corporation took a pre-tax adjustment of $291,000 in connection
with its computer conversion resulting in net income for the quarter in the
amount of $1,274,000 or $.31 per share. Excluding this adjustment, net earnings
for the three month period ended March 31, 1999 would have been $1,466,000 or
$.36 per share compared to $1,650,000 or $.40 per share for the same period in
1998.
Net interest income increased by $569,322 in 1999 as compared to 1998 in spite
of the declining net interest margin which was 4.00% for the 1999 period, as
compared to 4.11% for the 1998 period. The purchase of three banking centers
during the quarter ended September 30, 1998, contributed approximately $375,000
to the total increase in net interest income for the 1999 quarter. The
Corporation's cost of funds decreased by 37 basis points in 1999 compared to
1998, due to lower rates paid on short-term customer deposits.
8
<PAGE>
Average interest-earning assets increased by $71 million from $376 million for
the 1998 period to $447 million for the 1999 period due to the interest-earning
assets acquired from the three Meade County banking centers. Average loans were
$44 million higher and averaged $391 million during 1999, while the average
yield on loans decreased by 30 basis points to 8.40% due to a decrease in loan
rates.
Average interest-bearing liabilities increased by $75.5 million to an average
balance of $418 million for the 1999 period due to the interest-bearing
liabilities acquired from the three banking centers. Customer deposits averaged
$395 million during 1999, an increase of $95.8 million compared to the 1998
quarter. The acquisition contributed approximately $72.5 million to the total
deposit growth.
Total other income was $869,598 for the three months ended March 31, 1999, as
compared to $710,265 for the 1998 period, an increase of $159,333. There were no
sales of securities recorded during the 1999 quarter while gains on investment
sales recorded during the 1998 quarter totaled $125,622. Customer service fees
charged on deposit accounts increased by $125,175 during 1999 due to a growth in
customer accounts. Miscellaneous other income increased by $159,780 during the
1999 period. Miscellaneous income such as brokerage commissions, loan fees, and
other customer transaction fees increased due to growth in deposit relationships
with existing customers and new customers as a result of the acquisition.
Total other expense was $3,322,361 for the three month period ended March 31,
1999, as compared to $2,032,116 for the 1998 period, an increase of $1,290,245.
Compensation and benefits increased by $316,171 in 1999 as compared to 1998,
$193,000 of the increase is due to the additional associates gained in the three
branch acquisition while the other $123,171 increase is due to routine
inflationary salary raises and new associate positions required to service the
normal customer growth of the Bank. Office occupancy and equipment expenses
increased by $84,465 in 1999 as compared to 1998. Approximately $69,000 of the
increase is due to the acquisition of the three banking centers while the
remaining $15,465 is due to inflationary increases in other occupancy and
equipment related expenses. Marketing and advertising expenses increased
$133,159 during the 1999 period. Approximately $31,118 of the increase is due to
increased marketing and advertising for the three new banking centers while the
remaining increase of $102,041 is related to the Bank's marketing efforts
associated with expanded services and products offered to customers. Also,
during the quarter ended March 31, 1999 the Bank incurred computer conversion
costs of $291,000 relating to its conversion to a new data processor. All other
expenses increased by $465,450 in 1999 compared to 1998. Expenses directly
related to customer checking accounts increased due to a higher volume of
accounts. Expenses directly related to postage, telephone, data processing
costs, and supplies increased due to expanded services and products offered to
customers.
Nine Month Period Ended March 31, 1999 vs. 1998 - Net income was $4,185,000 or
$1.01 per share for the nine month period ended March 31, 1999.
Acquisition-related costs in connection with the purchase of three banking
centers during the quarter ended September 30, 1998, in the amount of $292,000
were charged against earnings for that quarter. Also, during the quarter ended
March 31, 1999, the Corporation incurred computer conversion costs of $291,000.
Excluding these costs, net earnings for the nine month period ended March 31,
1999, would have been $4,570,000 or $1.11 per share compared to $4,706,000 or
$1.13 per share for the same period in 1998.
Net interest income increased by $1,433,898 in 1999 as compared to 1998 in spite
of the declining net interest margin which was 3.86% for the 1999 period as
compared to 4.06% for the 1998 period. The purchase of the three banking centers
contributed approximately $853,898 to the total increase in net interest income
for the 1999 period. The Corporation's cost of funds decreased by 26 basis
points in 1999 compared to 1998, due to lower rates paid on short-term customer
deposits.
Average interest-earning assets increased by $72 million from $365 million for
the 1998 period to $437 million for the 1999 period due to the interest-earning
assets acquired from the three Meade County banking centers. Average loans were
$42 million higher and averaged $382 million during 1999, while the average
yield on loans decreased by 22 basis points to 8.32%.
9
<PAGE>
Average interest-bearing liabilities increased by $81 million to an average
balance of $412 million for 1999 due to the purchase of the three banking
centers. Customer deposits averaged $389 million during 1999, an increase of $99
million compared to the 1998 period. The acquisition contributed approximately
$72.5 million to the total deposit growth.
Total other income was $2,672,021 for the nine months ended March 31, 1999, as
compared to $2,065,080 for the 1998 period, an increase of $606,941. Gains on
investment sales were $203,200 for 1999 period as compared to gains of $242,567
for the 1998 period. Customer service fees charged on deposit accounts increased
by $324,130 during 1999 due to growth in customer accounts. Other sources of
income such as loan fees, other customer transaction fees, and trust account
commissions increased by $322,178 due to growth in deposit relationships with
existing customers and new customers as a result of the three branch
acquisition.
Total other expense was $8,807,086 for the nine months ended March 31, 1999, as
compared to $6,010,175 for the 1998 period, an increase of $2,796,911. Included
in this income are the costs related to three branch acquisition and those
related to the computer conversion as previously discussed. Compensation and
benefits increased by $742,908 in 1999 as compared to 1998, $513,143 of the
increase is result of the acquisition while the other $229,765 increase is due
to new associate positions required to service the normal customer growth of the
Bank. Office occupancy and equipment expenses increased by $245,546 in 1999 as
compared to 1998. Approximately $185,868 of the increase is due to the purchase
of the three banking centers while the remaining $59,678 is due to inflationary
increases in other occupancy and equipment related expenses. Operating costs
related to the acquisition such as supplies, marketing, data processing costs,
and legal expenses resulted in an increase to total other expense of $261,686.
Also, due to the acquisition, the amortization of goodwill increased by $393,343
from $180,054 in 1998 to $573,397 in 1999. All other expenses increased by
$570,428 in 1999 compared to 1998. Expenses directly related to customer
checking accounts increased due to a higher volume of accounts. Expenses
directly related to postage, telephone, data processing costs, marketing, and
supplies increased due to asset growth and new services provided by the Bank.
10
<PAGE>
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 nine month period ended March 31, 1999, management
chose to add $180,000 to the reserve for loan loss. 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 59% of the Bank's
non-performing assets are secured by one-to-four-family residences at March 31,
1999.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Allowance for loan losses:
Balance, beginning of period $2,002 $1,795 $1,853 $1,715
Balance acquired in merger -- -- 205 --
Provision for loan losses 60 30 180 120
Charge-offs (13) (7) (210) (32)
Recoveries 3 3 24 18
------ ------ ------ ------
Balance, end of period $2,052 $1,821 $2,052 $1,821
====== ====== ====== ======
Net loans outstanding at period end $391,590 $349,773
Non-performing loans at period end:
Collateralized by one-to-four family homes $1,379 $1,038
Other non-performing loans $713 $606
Ratios:
Non-performing loans to total loans .53% .47%
Allowance for loan losses to non-performing
loans 98% 111%
Allowance for loan losses to net loans .52% .52%
Non-performing assets to total assets .49% .45%
LIQUIDITY & CAPITAL RESOURCES
Loan demand continued to be strong during the nine months ended March 31, 1999,
as net loans increased from $355 million at June 30, 1998, to $392 million at
March 31, 1999. The acquisition of the Meade County banking centers contributed
$11 million to the total loan growth of $37 million, while the Bank achieved a
9.7% growth rate in its existing loan customer base, or $26 million in net new
loans. The Meade County acquisition also contributed $72.5 million in new
customer deposits. The acquisition coupled with a $17 million growth in the
Bank's customer deposits resulted in a total deposit increase of $89.5 million
during the nine month period ended March 31, 1999.
Current regulations require the Corporation's subsidiary, First Federal Savings
Bank, to maintain minimum specific levels of liquid assets, (currently 4%) of
cash and eligible investments to the savings deposits and short-term borrowings.
At March 31, 1999, the Bank's liquid assets were 11.55% of its liquidity base.
The Bank intends to continue to fund loan growth (outstanding loan commitments
were $8.9 million at March 31, 1999) and any declines in customer deposits
through additional advances from the FHLB. At March 31, 1999, the Bank has an
unused approved line of credit in the amount of $16.2 million, and the potential
to significantly increase its indebtedness with the FHLB, if necessary, due to
the Bank's strong financial condition.
11
<PAGE>
The Office of Thrift Supervision's capital regulations require the Bank to meet
three capital standards. As indicated below, the Bank substantially exceeded the
regulatory requirements for each category at March 31, 1999.
(Dollars in thousands)
Tangible Core Risk-Weighted
Actual capital $42,619 $42,619 $44,671
Regulatory requirement 7,029 18,743 23,879
------- -------- -------
Excess $35,590 $23,876 $20,792
======= ======= =======
YEAR 2000 COMPLIANCE
The Year 2000 issue involves the ability of computers to accurately process
dates in the new millennium. The Year 2000 date change can affect any system
that uses computer software programs or computer chips, including automated
equipment and machinery. Many programs or chips store calendar dates as
two-digit dates rather than four-digit numbers. These programs record the year
1998 as "98". This approach will work until the Year 2000 when the "00" may read
as 1900 instead of 2000. Therefore, our institution has been fixing our systems
to make sure they will operate properly on January 1, 2000.
Status
First Federal Savings Bank's Board of Directors and senior management has placed
the Year 2000 issue as a top priority. Management created a Year 2000 team in
April 1997 to study the issue and to guide the Bank through the Year 2000
process. A formal Year 2000 Plan was established and filed with the bank's
federal regulators, the Office of Thrift Supervision. The Plan continues to be
updated with the primary focus on achieving compliance within established time
frames. The following phases are the main objective of the Plan: Awareness,
Assessment, Renovation, Validation, and Implementation. As of March 31, 1999,
the awareness and assessment phases are complete and the renovation phase is
substantially complete. Mission-critical systems and all hardware have been
tested and validating the material other third parties have begun. An
independent consultant assisted management during the validation phase of
mission-critical applications. Findings to date have not identified material
Year 2000 risks. By June 30, 1999, all mission-critical systems will be complete
and implementation will be in process.
The following table represents each phase and the estimated percentage
completion to date:
Description of Phase As of March 31, 1999 As of June 30, 1999
- -------------------- -------------------- -------------------
Awareness 100% 100%
Assessment 100% 100%
Renovation 80% 100%
Validation 80% 100%
Implementation 75% 90%
12
<PAGE>
Cost
Both internal and external resources are being utilized to renovate and validate
equipment for Year 2000 readiness. Expenses as of March 31, 1999 total $213,000,
net of tax. Total cost for Year 2000 is expected to be approximately $400,000,
net of tax.
Contingency Plan
Since there is always the possibility of failure in the institution's system at
critical future dates, a Contingency Plan was developed. The purpose of the Plan
is to give management direction on how to handle problems which will minimize
the impact on the customers. Critical business areas have been identified based
on the core business processes. Manual procedures have been documented and will
be validated. The Board of Directors will review the modified Contingency Plan
prior to the June 30, 1999 Board meeting. Management will continue to review and
validate the Contingency Plan throughout 1999.
Risk
First Federal Savings Bank relies upon numerous vendors and infrastructures to
provide complete service to our customers, any failure on their part to not
become Year 2000 compliant could have a material adverse effect on the bank.
Monitoring of their efforts will continue so any risk can be mitigated. In
addition, First Federal Savings Bank has established a process to manage the
Year 2000 risks posed by its customers. Management has identified material
customers and is evaluating their Year 2000 risk by sending questionnaires. Once
management has fully evaluated the magnitude of the risk, a system will be
implemented for controls if needed.
13
<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
14
<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: May 13, 1999 BY: (S) B. Keith Johnson
-----------------------------------------
B. Keith Johnson
President and Chief Executive Officer
DATE: May 13, 1999 BY: (S) Richard L. Muse
------------------------------------
Richard L. Muse
Vice President and Comptroller
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements for the nine months
ended March 31, 1999 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> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1998
<EXCHANGE-RATE> 1.000 1.000
<CASH> 9,367,233 11,549,166
<INT-BEARING-DEPOSITS> 6,131,324 4,463,842
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,099,456 2,080,709
<INVESTMENTS-CARRYING> 44,506,060 21,415,695
<INVESTMENTS-MARKET> 44,220,035 23,540,970
<LOANS> 391,589,777 349,773,379
<ALLOWANCE> 2,052,000 1,815,000
<TOTAL-ASSETS> 481,652,661 407,347,069
<DEPOSITS> 396,239,762 305,894,750
<SHORT-TERM> 22,997,767 43,336,295
<LIABILITIES-OTHER> 5,466,358 4,306,396
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 4,127,112 4,132,812
<OTHER-SE> 53,127,394 49,676,816
<TOTAL-LIABILITIES-AND-EQUITY> 481,652,661 407,347,069
<INTEREST-LOAN> 23,884,427 21,811,011
<INTEREST-INVEST> 2,757,814 1,292,911
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 26,642,241 23,103,921
<INTEREST-DEPOSIT> 12,972,532 10,071,475
<INTEREST-EXPENSE> 13,972,748 11,868,327
<INTEREST-INCOME-NET> 12,669,493 11,235,595
<LOAN-LOSSES> 180,000 120,000
<SECURITIES-GAINS> 203,200 242,567
<EXPENSE-OTHER> 8,807,086 6,010,175
<INCOME-PRETAX> 6,354,428 7,170,500
<INCOME-PRE-EXTRAORDINARY> 6,354,428 7,170,500
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,184,814 4,705,673
<EPS-BASIC> 1.01 1.13
<EPS-DILUTED> 1.01 1.13
<YIELD-ACTUAL> 8.11 8.39
<LOANS-NON> 0 0
<LOANS-PAST> 2,092,000 1,723,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 2,702,000 1,931,000
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<ALLOWANCE-CLOSE> 2,052,000 1,821,000
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<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 2,052,000 1,821,000
</TABLE>
