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: December 31, 1998
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 January 31, 1999
----------- -------------------------------------
Common Stock 4,127,112 shares
This document is comprised of 15 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 December 31, 1998 (Unaudited) and June 30, 1998. 3
Consolidated Statements of Income for the Three Months
and Six Months Ended December 31, 1998 and 1997
(Unaudited). 4
Consolidated Statements of Comprehensive Income for the
Three Months and Six Months Ended December 31, 1998 and
1997 (Unaudited). 5
Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1998 and 1997 (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
December 31, June 30,
ASSETS 1998 1998
----------- --------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $19,361,128 $4,992,588
Interest bearing deposits 517,078 4,157,124
Securities:
Securities held-to-maturity (fair value approximates
$41,749,000 and $24,935,000 at December 31, 1998
and June 30, 1998, respectively.) 41,564,654 24,639,484
Securities available-for-sale, at fair value 3,344,467 1,934,412
Loans receivable, net 386,886,843 355,306,342
Real estate owned:
Acquired through foreclosure 228,323 133,584
Held for development 618,851 642,491
Investment in Federal Home Loan Bank stock 3,091,900 2,983,800
Premises and equipment 11,477,308 10,747,145
Other assets 552,394 1,329,890
Excess of cost over net assets of affiliate purchased 11,294,872 2,784,409
---------- -----------
Total Assets $478,937,818 $409,651,269
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Liabilities:
Savings deposits $393,252,742 $306,702,649
Advances from Federal Home Loan Bank 23,159,559 43,248,855
Accrued interest payable 1,078,691 358,435
Accounts payable and other liabilities 2,536,329 2,576,839
Deferred income taxes 2,351,562 2,076,104
--------- ---------
Total Liabilities 422,378,883 354,962,882
----------- -----------
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 December 31, 1998 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 47,880,631 46,208,807
Net unrealized holding gain on securities available-for-sale,
net of tax 1,365,820 1,096,304
---------- ----------
Total Stockholders' Equity 56,558,935 54,688,387
---------- ----------
Total Liabilities & Stockholders' Equity $478,937,818 $409,651,269
============ ============
</TABLE>
See notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $8,069,729 $7,270,383 $15,776,543 $14,359,868
Interest and dividends
on investments and deposits 894,713 422,576 1,898,589 854,817
------- ------- --------- ----------
Total interest income 8,964,442 7,692,959 17,675,132 15,214,685
--------- --------- ---------- ----------
Interest expense:
Savings deposits 4,480,944 3,389,315 8,708,291 6,636,878
Federal Home Loan Bank advances 309,921 603,222 708,725 1,184,213
--------- --------- --------- ---------
Total interest expense 4,790,865 3,992,537 9,417,016 7,821,091
--------- --------- --------- ---------
Net interest income 4,173,577 3,700,422 8,258,116 7,393,594
Provision for loan losses 60,000 30,000 120,000 90,000
--------- --------- --------- ---------
Net interest income after
provision for loan losses 4,113,577 3,670,422 8,138,116 7,303,594
--------- --------- --------- ---------
Other income:
Customer service fees on
deposit accounts 448,408 323,703 835,903 636,948
Other income 471,963 290,987 823,320 600,922
Gain on sale of investment 94,933 0 203,200 116,945
------- ------- ------- -------
Total other income 1,015,304 614,690 1,862,423 1,354,815
--------- ------- --------- ---------
Other expense:
Employee compensation
and benefits 1,146,482 925,429 2,238,429 1,813,564
Office occupancy and
equipment expense 323,535 232,525 631,140 470,058
Federal insurance premiums 44,363 44,387 92,623 88,613
Marketing and advertising 98,751 98,226 200,776 184,622
Outside services and data
processing 234,082 151,899 412,756 295,413
State franchise tax 79,357 75,939 158,714 149,978
Other expense 845,965 539,385 1,810,232 975,812
--------- --------- --------- ---------
Total other expense 2,772,535 2,067,790 5,544,670 3,978,060
--------- --------- --------- ---------
Income before taxes 2,356,346 2,217,322 4,455,869 4,680,349
Income taxes 818,253 764,921 1,545,468 1,624,181
---------- ---------- ---------- ----------
Net Income $1,538,093 $1,452,401 $2,910,401 $3,056,168
========== ========== ========== ==========
Weighted average common
shares outstanding 4,128,987 4,148,785 4,129,255 4,158,049
Net income per share of
common stock (Note 2) $0.37 $0.35 $0.70 $0.74
===== ===== ===== =====
Dividends per share of common stock $0.15 $0.14 $0.30 $0.28
===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ----- ---- ----
<S> <C> <C> <C> <C>
Net Income $1,538,093 $1,452,401 $2,910,401 $3,056,168
---------- ---------- ---------- ----------
Other comprehensive income, net of tax:
Unrealized gains on securities arising during period 271,574 4,639 269,516 169,323
Less: reclassification adjustment for accumulated
gains included in net income (94,933) 0 (203,200) (116,945)
-------- ----- --------- ---------
Unrealized gains on securities 176,641 4,639 66,316 52,378
-------- ----- --------- ---------
Total Comprehensive Income $1,714,734 $1,457,040 $2,976,717 $3,108,546
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
5
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<TABLE>
<CAPTION>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended
December 31,
1998 1997
<S> <C> <C>
Operating Activities:
Net income $ 2,910,401 $3,056,168
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses and real estate owned 120,000 90,000
Provision for depreciation 376,297 292,290
Net change in deferred loan fees and costs 111,867 94,043
Federal Home Loan Bank stock dividends (108,100) (102,300)
Amortization of discounts on securities held-to-maturity (36,611) (61,806)
Amortization of acquired intangible assets 365,447 120,036
Gain on sale of investments available-for-sale (203,200) (116,945)
Increase (Decrease) in interest payable 720,256 (4,340)
Decrease in other assets 777,496 82,786
Increase in accounts payable and other liabilities 234,948 543,100
--------- ---------
Net cash provided by operating activities 5,268,801 3,993,032
--------- ---------
Investing Activities:
Sale of securities available-for-sale 211,237 3,479,138
Purchases of securities available-for-sale (1,010,000) (36,082)
Purchases of securities held-to-maturity (46,855,000) (5,000,000)
Principal collections on securities held-to-maturity 30,026,461 6,101,993
Net increase in loans to customers (20,543,389) (16,866,565)
Purchases of premises and equipment (1,106,460) (742,477)
Sales of real estate acquired in settlement of loans 92,000 382,948
Decrease in real estate held for development 23,640 --
---------- -----------
Net cash used in investing activities (39,161,511) (12,681,045)
----------- -----------
Financing Activities:
Advances from (repayments to) Federal Home Loan Bank (20,089,296) (51,239)
Net increase in customer savings deposits 14,055,347 9,025,646
Dividends paid (1,238,509) (1,164,663)
Proceeds from stock options exercised -- --
Common stock repurchased (70,792) (625,275)
Collection on advance to ESOP -- 14,685
Cash proceeds from acquisition 51,964,454 --
---------- ---------
Net cash provided by financing activities 44,621,204 7,199,154
---------- ---------
Increase (Decrease) in cash and cash equivalents 10,728,49 (1,488,859)
Cash and cash equivalents, beginning of year 9,149,712 9,175,713
---------- ----------
Cash and cash equivalents, end of period $19,878,206 $7,686,854
=========== ==========
</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 December 31, 1998 and the results of its
operations and its cash flows for the three month and six month periods
then ended. All such adjustments were of a normal recurring nature.
The results of operations for the three month and six month periods
ended December 31, 1998 and 1997 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," establishes 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:
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands)
Net income available
to common shareholders $1,538 $1,452 $2,910 $3,056
====== ====== ====== ======
Basic EPS:
Weighted average common
shares 4,128,987 4,148,785 4,129,255 4,158,049
========= ========= ========= =========
Diluted EPS:
Weighted average common
shares 4,128,987 4,148,785 4,129,255 4,158,049
Dilutive effect of stock
options 22,131 30,237 21,446 28,739
Weighted average common --------- --------- --------- ---------
and incremental shares 4,151,118 4,179,022 4,150,701 4,186,788
========= ========= ========= =========
Earnings Per Share:
Basic $0.37 $0.35 $0.70 $0.74
===== ===== ===== =====
Diluted $0.37 $0.35 $0.70 $0.73
===== ===== ===== =====
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 six month periods ending, December 31,
1998. 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 December 1998 vs. 1997 - Net income was $1,538,000 or
$0.37 per share for the three month period ended December 31, 1998, as compared
to $1,452,000 or $0.35 per share for the same period in 1997. The following
discussion outlines the material differences in income and expenses for the
three month period ended December 31, 1998, as compared to 1997.
Net interest income increased by $473,155 in 1998 as compared to 1997 in spite
of the declining net interest margin which was 3.78% for the 1998 period, as
compared to 3.97% for the 1997 period. The purchase of three banking centers
during the quarter ended September 30, 1998, contributed approximately $380,000
to the total increase in net interest income for the 1998 quarter. The
Corporation's cost of funds decreased by 26 basis points in 1998 compared to
1997, due to lower rates paid on short-term customer deposits.
8
<PAGE>
Average interest-earning assets increased by $68 million from $366 million for
the 1997 period to $434 million for the 1998 period due to the interest-earning
assets acquired from the three Meade County banking centers. Average loans were
$43 million higher and averaged $385 million during 1998, while the average
yield on loans decreased by 12 basis points to 8.32%.
Average interest-bearing liabilities increased by $84 million to an average
balance of $414 million for the 1998 period due to the interest-earning
liabilities acquired from the three banking centers. Customer deposits averaged
$391 million during 1998, an increase of $102 million compared to the 1997
quarter. The acquisition contributed approximately $72.5 million to the total
deposit growth.
Total other income was $1,015,304 for the three months ended December 31, 1998,
as compared to $614,690 for the 1997 period, an increase of $400,614. Gains on
investment sales were $94,933 for 1998 period while no sales of securities were
recorded during the 1997 period. Customer service fees charged on deposit
accounts increased by $124,705 during 1998 due to a growth in customer accounts.
Income from government lending operations increased by $108,942 from $90,928 in
1997 to $199,870 in 1998 due to a growth in VA and FHA loans. Other sources of
income such as brokerage commissions, loan fees, and other customer transaction
fees increased by $72,034 due to growth in deposit relationships with existing
customers and new customers as a result of the acquisition.
Total other expense was $2,772,535 for the three month period ended December 31,
1998, as compared to $2,067,790 for the 1997 period, an increase of 704,745.
Compensation and benefits increased by $221,000 in 1998 as compared to 1997,
$133,000 of the increase is due to the additional associates gained in the three
branch acquisition while the other $88,000 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 $91,000 in 1998 as compare to 1997. Approximately $66,000 of the
increase is due to the acquisition of the three banking centers while the
remaining $25,000 is due to inflationary increases in other occupancy and
equipment related expenses. Expenses directly related to data processing costs
and outside service fees increased by $82,183 in 1998 as compared to 1997 due to
asset growth and new services provided by the Bank. All other expenses increased
by $310,562 in 1998 compared to 1997. Expenses directly related to customer
checking accounts increased due to a higher volume of accounts. Expenses
directly related to telephone, marketing, postage, and supplies increased due to
expanded services and products offered to customers.
Six Month Period Ended December 31, 1998 vs. 1997 - Net income was $2,910,000 or
$0.70 per share for the six month period ended December 31, 1998.
Acquisition-related costs in connection with the purchase of three banking
centers during the quarter ended September 30, 1998, in the amount of $193,000
(net of tax) were charged against earnings for that quarter. Excluding these
costs, net earnings for the six month period ended December 31, 1998, would have
been $3,099,000 or 0.75 per share compared to $3,056,000 or $0.74 per share for
the same period in 1997.
Net interest income increased by $864,522 in 1998 as compared to 1997 in spite
of the declining net interest margin which was 3.77% for the 1998 period as
compared to 4.04% for the 1997 period. The purchase of the three banking centers
contributed approximately $647,171 to the total increase in net interest income
for the 1998 period. The Corporation's cost of funds decreased by 21 basis
points in 1998 compared to 1997, due to lower rates paid on short-term customer
deposits.
Average interest-earning assets increased by $72 million from $360 million for
the 1997 period to $433 million for the 1998 period due to the interest-earning
assets acquired from the three Meade County banking centers. Average loans were
$41 million higher and averaged $378 million during 1998, while the average
yield on loans decreased by 18 basis points to 8.28%.
Average interest-bearing liabilities increased by $83 million to an average
balance of $409 million for 1998 due to the purchase of the three banking
centers. Customer deposits averaged $386 million during 1998, an increase of
$100 million compared to the 1997 period. The acquisition contributed
approximately $72.5 million to the total deposit growth.
9
<PAGE>
Total other income was $1,862,423 for the six months ended December 31, 1998, as
compared to $1,354,815 for the 1997 period, an increase of $507,608. Gains on
investment sales were $203,200 for 1998 period as compared to gains of $116,945
for the 1997 period. Customer service fees charged on deposit accounts increased
by $198,955 during 1998 due to growth in customer accounts. Income from
government lending operations increased by $98,258 from $216,526 in 1997 to
$314,784 in 1998 due to a growth in VA and FHA loans. Other sources of income
such as loan fees, other customer transaction fees, and trust account
commissions increased by $124,140 due to growth in deposit relationships with
existing customers and new customers as a result of the three branch
acquisition.
Total other expense was $5,544,670 for the six months ended December 31, 1998,
as compared to $3,978,060 for the 1997 period, an increase of $1,566,610.
Compensation and benefits increased by $424,865 in 1998 as compared to 1997,
$320,143 of the increase is due to the acquisition while the other $104,722
increase is due to new associate positions required to service the normal
customer growth of the Bank. Office occupancy and equipment expenses increased
by $161,082 in 1998 as compared to 1997. Approximately $116,315 of the increase
is due to the purchase of the three banking centers while the remaining $44,767
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
other expense of $291,869. Also, due to the acquisition, the amortization of
goodwill increased by $245,411 from $120,036 in 1997 to $365,447 in 1998. All
other expenses increased by $443,383 in 1998 compared to 1997. 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 six month period ended December 31, 1998,
management chose to add $120,000 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 38% of the Bank's
non-performing assets are secured by one-to-four-family residences at December
31, 1998.
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands)
Allowance for loan losses:
Balance, beginning of period $2,123 $1,766 $1,853 $1,715
Balance acquired in merger -- -- 205 --
Provision for loan losses 60 30 120 90
Charge-offs (190) (10) (197) (25)
Recoveries 9 9 21 15
------ ------ ------ ------
Balance, end of period $2,002 $1,795 $2,002 $1,795
====== ====== ====== ======
Net loans outstanding at period end $386,887 $344,029
Non-performing loans at quarter end:
Collateralized by one-to-four family homes $ 713 $ 1,066
Other non-performing loans $ 926 $ 526
Ratios:
Non-performing loans to total loans .42% .46%
Allowance for loan losses to non-performing
loans 122% 113%
Allowance for loan losses to net loans .52% .52%
Non-performing assets to total assets .52% .48%
Liquidity & Capital Resources
Loan demand continued to be strong during the six months ended December 31,
1998, as net loans increased from $355 million at June 30, 1998, to $387 million
at December 31. The acquisition of the Meade County banking centers contributed
$11 million to the total loan growth of $32 million, while the Bank achieved a
11.4% growth rate in its existing loan customer base, or $21 million in net new
loans. The Meade County acquisition also contributed $72.5 million in new
customer deposits. The acquisition coupled with a $14.1 million growth in the
Bank's customer deposits resulted in a total deposit increase of $86.6 million
during the six month period ended December 31, 1998.
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 December 31, 1998, the Bank's liquid assets were 11.92% of its liquidity
base. The Bank intends to continue to fund loan growth (outstanding loan
commitments were $9.5 million at December 31, 1998) and any declines in customer
deposits through additional advances from the FHLB. At December 31, 1998, the
Bank has an unused approved line of credit in the amount of $13.2 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 December 31, 1998.
(Dollars in thousands)
Tangible Core Risk-Weighted
Actual capital $42,668 $42,668 $44,670
Regulatory requirement 9,299 18,597 25,986
-------- -------- ---------
Excess $33,369 $24,071 $18,684
======= ======= =======
Year 2000
Recognizing the need to ensure its operations will not be adversely impacted by
Y2K failures, the Bank has developed a proactive plan for minimizing its risk
and updating a majority of its computer hardware and software systems in the
process. Upon completion of the plan, management believes that the consequences
of Y2K issues will not have a material effect on the Bank's business, results of
operations and financial condition. The Bank has entered into agreements with
hardware and software vendors to systematically replace and verify that all
hardware and software is Y2K compliant. An equally important objective of the
complete overhaul of the systems is to enhance the Bank's technological
capabilities. The anticipated benefits of the new systems include faster
customer service, the flexibility to offer a wider range of new products and
services and the capability to offer electronic banking services in the future.
Communication systems will be converted to fully integrated wide area network,
thereby connecting all banking centers electronically to one another. Management
anticipates that all remaining Y2K issues will be resolved and all related
contingency costs will be reliably estimable by March 1999. Management currently
anticipates that implementation costs will approximate $140,000, net of tax, and
that equipment upgrade costs, including both technological enhancements and Y2K
related costs, will approximate $260,000, net of tax.
12
<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
The Corporation's 1998 Annual Meeting of Shareholders was held
on November 11, 1998.
At the meeting, the directors listed below were elected as
directors of the Corporation for terms expiring at the annual
meeting in the year set forth to each of their names.
Name Term Expires
Robert M. Brown 2001
Burlyn Pike 2001
J. Alton Rider 2001
J. Stephen Mouser 1999
Michael L. Thomas 1999
In addition, the following directors will continue in office
until the annual meeting of the year set forth beside each of
their names.
Name Term Expires
Wreno M. Hall 1999
Walter D. Huddleston 1999
B. Keith Johnson 2000
Irene B. Lewis 2000
Kennard Peden 2000
13
<PAGE>
The voting results for the matters brought before the 1998 Annual
Meeting are as follows:
1. Election of Directors.Cumulative voting applied in the election of directors.
Name Votes For Abstentions Broker Nonvotes
Robert M. Brown 3,292,923.677 0 29,504
Stephen Mouser 3,252,090.677 0 29,504
Burlyn Pike 3,253,061.569 0 29,504
J. Alton Rider 3,253,423.677 0 29,504
Michael L. Thomas 3,244,725.677 0 29,504
M. Dennis Young 3,197,994.555 0 29,504
2. Proposal to Approve the 1998 Stock Option and Incentive Compensation Plan.
For Against Abstentions Broker Nonvotes
2,889,713 876,960 161,175 500
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: February 11, 1999 BY: (S) B. Keith Johnson
-----------------------------------------
President and Chief Executive Officer
DATE: February 11, 1999 BY: (S) 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 six months
ended December 31, 1998 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> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1.000 1.000
<CASH> 19,361,128 6,007,803
<INT-BEARING-DEPOSITS> 517,078 1,679,051
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,344,467 2,005,816
<INVESTMENTS-CARRYING> 41,564,654 16,444,240
<INVESTMENTS-MARKET> 45,093,467 18,559,135
<LOANS> 386,886,843 344,029,240
<ALLOWANCE> 2,002,000 1,794,751
<TOTAL-ASSETS> 478,937,818 388,329,079
<DEPOSITS> 393,252,742 290,367,820
<SHORT-TERM> 23,159,559 41,462,955
<LIABILITIES-OTHER> 5,966,582 3,397,995
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 4,127,112 4,143,732
<OTHER-SE> 52,431,823 48,956,577
<TOTAL-LIABILITIES-AND-EQUITY> 478,937,818 388,329,079
<INTEREST-LOAN> 15,776,543 14,359,868
<INTEREST-INVEST> 1,898,589 854,817
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 17,675,132 15,214,685
<INTEREST-DEPOSIT> 8,708,291 6,636,878
<INTEREST-EXPENSE> 9,417,016 7,821,091
<INTEREST-INCOME-NET> 8,258,116 7,393,594
<LOAN-LOSSES> 120,000 90,000
<SECURITIES-GAINS> 203,200 116,945
<EXPENSE-OTHER> 5,544,670 3,978,060
<INCOME-PRETAX> 4,455,869 4,680,349
<INCOME-PRE-EXTRAORDINARY> 4,455,869 4,680,349
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,910,401 3,056,168
<EPS-PRIMARY> 0.70 0.74
<EPS-DILUTED> 0.70 0.73
<YIELD-ACTUAL> 8.06 8.35
<LOANS-NON> 0 0
<LOANS-PAST> 1,639,000 1,592,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1,850,000 2,217,000
<ALLOWANCE-OPEN> 1,853,000 1,715,000
<CHARGE-OFFS> 197,000 25,000
<RECOVERIES> 21,000 15,000
<ALLOWANCE-CLOSE> 2,002,000 1,795,000
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 2,002,000 1,795,000
</TABLE>
