UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDED FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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)
(270) 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
------- ------
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, 2000
----------- --------------------------------------
Common Stock 3,754,818 shares
This document is comprised of 20 pages.
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1 -Consolidated Financial Statements and Notes to Consolidated
Financial Statements 3-11
Item 2 -Management's Discussion and Analysis of the Consolidated
Statements of Financial Condition and Results of Operations 12-18
Item 3 -Quantitative and Qualitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION 19
SIGNATURES 20
2
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
ASSETS 2000 2000
---- ----
(DOLLARS IN THOUSANDS)
Cash and due from banks $ 12,018 $ 11,310
Interest bearing deposits 4,469 3,669
-------- --------
Total cash and cash equivalents 16,487 14,979
Securities available-for-sale 2,038 2,048
Securities held-to-maturity (fair value of $41,626
and $41,195 at September and June 2000) 43,115 43,134
Loans receivable, less allowance for loan losses
of $2,311 (Sept.) and $2,252 (June) 490,278 471,231
Federal Home Loan Bank stock 4,849 4,081
Premises and equipment 11,960 11,709
Real estate owned:
Acquired through foreclosure 80 -
Held for development 446 446
Repossessed assets 93 -
Excess of cost over net assets acquired 9,839 10,047
Accrued interest receivable ,687 2,032
Other assets 1,827 1,078
-------- --------
TOTAL ASSETS $582,699 $560,785
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 17,573 $ 16,822
Interest bearing 412,037 406,937
------- -------
Total Deposits 429,610 423,759
Advances from Federal Home Loan Bank 95,142 80,339
Accrued interest payable 1,031 1,129
Accounts payable and other liabilities 2,669 1,962
Deferred income taxes 1,900 1,915
------- -------
TOTAL LIABILITIES 530,352 509,104
------- -------
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, 3,756,000 shares in June and
3,755,000 shares in September 3,755 3,756
Additional paid-in capital - -
Retained earnings 48,171 47,481
Accumulated other comprehensive
income, net of tax 421 444
-------- --------
TOTAL STOCKHOLDERS' EQUITY 52,347 51,681
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $582,699 $560,785
======== ========
See notes to consolidated financial statements.
3
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
INTEREST INCOME:
Interest and fees on loans $ 9,977 $ 8,286
Interest and dividends on investments and deposits 841 814
------- -------
Total interest income 10,818 9,100
------- -------
INTEREST EXPENSE:
Deposits 5,198 4,241
Federal Home Loan Bank advances 1,405 392
------- -------
Total interest expense 6,603 4,633
------- -------
Net interest income 4,215 4,467
Provision for loan losses 195 89
------- -------
Net interest income after provision for loan losses 4,020 4,378
------- -------
NON-INTEREST INCOME:
Customer service fees on deposit accounts 578 450
Secondary mortgage market closing fees 111 134
Gain on sale of investments 345 153
Brokerage and insurance commissions 126 109
Other income 153 116
------- ------
Total non-interest income 1,313 962
------- ------
NON-INTEREST EXPENSE:
Employee compensation and benefits 1,499 1,286
Office occupancy expense and equipment 367 351
FDIC insurance premium 22 57
Marketing and advertising 125 128
Outside services and data processing 322 301
State franchise tax 103 100
Amortization of intangibles 208 208
Other expense 610 567
------ ------
Total non-interest expense 3,256 2,998
------ ------
Income before income taxes 2,077 2,342
Income taxes 688 769
------ ------
NET INCOME $1,389 $1,573
====== ======
Earnings per share:
Basic $ 0.37 $ 0.39
Diluted $ 0.37 $ 0.38
See notes to consolidated financial statements.
4
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
NET INCOME $1,389 $1,573
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss)
on securities 205 (129)
Reclassification of realized amount (228) (101)
------ ------
Net unrealized gain (loss) recognized in
Comprehensive income (23) (230)
------ ------
COMPREHENSIVE INCOME $1,366 $1,343
====== ======
See notes to consolidated financial statements.
5
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
ADDITIONAL COMPREHENSIVE
PAID - IN RETAINED INCOME,
SHARES AMOUNT CAPITAL EARNINGS NET OF TAX TOTAL
------ ------ ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 2000 3,756 $ 3,756 $ - $47,481 $ 444 $51,681
Net income - - - 1,389 - 1,389
Exercise of stock options 1 1 5 - - 6
Net change in unrealized
gains (losses) on
securities available-
for-sale, net of tax - - - - (23) (23)
Cash dividends declared
($.18 per share) - - - (676) - (676)
Stock repurchased (2) (2) (5) (23) - (30)
----- ------- ------ ------- ------ -------
BALANCE, SEPTEMBER 30, 2000 3,755 $ 3,755 $ - $48,171 $ 421 $52,347
===== ======= ====== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income $ 1,389 $ 1,573
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 195 89
Depreciation of premises and equipment 279 248
Net change in deferred loan fees and costs 97 84
Federal Home Loan Bank stock dividends (82) (58)
Amortization of acquired intangible assets 208 208
Amortization and accretion on securities (15) (16)
Gain on sale of investments available-for-sale (345) (153)
Gain on sale of real estate held for development (3) -
Deferred taxes (3) 173
Changes in:
Interest receivable 345 443
Other assets (749) (12)
Interest payable (98) (66)
Accounts payable and other liabilities 710 1,175
------ ------
Net cash provided by operating activities 1,928 3,688
------ ------
INVESTING ACTIVITIES:
Sales of securities available-for-sale 351 156
Purchases of securities available-for-sale (31) -
Maturities of securities held-to-maturity 34 6,090
Net increase in loans (19,512) (14,754)
Purchase of Federal Home Loan Bank stock (686) -
Net purchases of premises and equipment (530) (61)
------- ------
Net cash used in investing activities (20,374) (8,569)
------- ------
FINANCING ACTIVITIES:
Net increase in deposits 5,851 1,552
Advances from Federal Home Loan Bank 14,803 11,576
Dividends paid (676) (730)
Proceeds from stock options exercised 6 -
Common stock repurchased (30) (3,635)
------ ------
Net cash provided by financing activities 19,954 8,763
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,508 3,882
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,979 11,892
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $16,487 $15,774
======= =======
See notes to consolidated financial statements.
7
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of First Federal Financial Corporation of Kentucky (the
Corporation) and its wholly owned subsidiary, First Federal Savings
Bank of Elizabethtown (the Bank), and its wholly owned subsidiaries,
First Service Corp. of Elizabethtown and First Heartland Mortgage. All
significant intercompany transactions and balances have been
eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ending September
30, 2000 are not necessarily indicative of the results that may be
expected for the year ended June 30, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto
included in First Federal's annual report on Form 10-K for the year
ended June 30, 2000.
NEW ACCOUNTING PRONOUNCEMENTS - On July 1, 2000, the Corporation
adopted a new accounting standard that will require all derivatives to
be recorded at fair value. Unless designated as hedges, changes in
these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains
and losses on the hedge and on the hedged item, even if the fair value
of the hedged item is not otherwise recorded. The adoption of this new
standard did not have a material effect on the Corporation's financial
statements.
RECLASSIFICATIONS - Certain amounts have been reclassified in the prior
financial statements to conform to the current period classifications.
The reclassifications have no effect on net income or stockholders'
equity as previously reported.
8
<PAGE>
2. SECURITIES
The amortized cost basis and fair values of securities at September 30,
are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available-for-sale:
September 30, 2000:
Equity securities $ 390 $ 739 $ (52) $ 1,077
Obligation of states and political
subdivisions 1,010 - (49) 961
------ ----- ----- -------
Total available-for-sale $1,400 $ 739 $(101) $ 2,038
====== ===== ===== =======
Securities held-to-maturity:
September 30, 2000:
U.S. Treasury and agencies $41,872 $ 70 $(1,545) $40,397
Mortgage-backed securities 1,243 5 (19) 1,229
------- ----- ------- -------
Total held-to-maturity $43,115 $ 75 $(1,564) $41,626
======= ===== ======= =======
</TABLE>
3. LOANS RECEIVABLE
Loans receivable are summarized as follows:
SEPTEMBER 30, JUNE 30,
2000 2000
---- ----
(DOLLARS IN THOUSANDS)
Commercial $ 12,787 $ 15,769
Real estate commercial 75,271 65,244
Real estate construction 13,692 15,257
Real estate mortgage 316,840 311,756
Consumer and home equity 63,191 59,744
Indirect consumer 19,297 15,186
------- ------
Total loans 501,078 482,956
------- -------
Less:
Undisbursed construction loans (6,093) (6,890)
Net deferred loan origination fees (2,396) (2,583)
Allowance for loan losses (2,311) (2,252)
-------- ------
(10,800) (11,725)
-------- -------
Loans, net $490,278 $471,231
======== ========
9
<PAGE>
The following table sets forth the changes in the allowance for loan
losses:
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
---- ----
(DOLLARS IN THOUSANDS)
Allowance for loan losses:
Balance, beginning of period $ 2,252 $ 2,108
Provision for loan losses 195 89
Charge-offs (143) (44)
Recoveries 7 4
------- -------
Balance, end of period $ 2,311 $ 2,157
======= =======
Investment in impaired loans is summarized below. There were no impaired
loans for the periods presented without an allowance allocation.
SEPTEMBER 30, JUNE 30,
2000 2000
---- ----
(DOLLARS IN THOUSANDS)
End of period impaired loans $1,900 $1,562
Amount of allowance for loan
loss allocated 122 117
Average impaired loans outstanding 2,067 2,764
4. BORROWINGS
Deposits are the primary source of funds for First Federal's lending and
investment activities and for its general business purposes. The Bank can
also use advances (borrowings) from the FHLB of Cincinnati to supplement
its supply of lendable funds, meet deposit withdrawal requirements and to
extend the term of its liabilities. Advances from the FHLB are typically
secured by the Bank's stock in the FHLB and a portion of the Bank's first
mortgage loans. At September 30, 2000 First Federal had $95.1 million in
advances outstanding from the FHLB and the capacity to increase its
borrowings an additinal $196 million.
The FHLB of Cincinnati functions as a central reserve bank providing credit
for savings banks and certain other member financial institutions. As a
member, First Federal is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain
of its home mortgages and other assets (principally, securities which are
obligations of, or guaranteed by, the United States) provided certain
standards related to credit-worthiness have been met.
10
<PAGE>
5. EARNINGS PER SHARE
Earnings Per Common Share - Basic earnings per common share is net income
divided by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share include the dilutive effect
of additional potential common shares issuable under stock options. A
reconciliation of the numerators and denominators of the basic and diluted
EPS is as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
(IN THOUSANDS)
Net income available
to common shareholders $1,389 $1,573
====== ======
Basic EPS:
Weighted average common shares 3,756 4,069
===== ======
Diluted EPS:
Weighted average common shares 3,756 4,069
Dilutive effect of stock options 9 19
----- -----
Weighted average common and
incremental shares 3,765 4,088
===== =====
Earnings Per Share:
Basic $0.37 $0.39
===== =====
Diluted $0.37 $0.38
===== =====
11
<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 Hillview. The Bank's activities include the acceptance of deposits
for checking, savings and time deposit accounts, making secured and unsecured
loans, investing in securities and trust services. The Bank's lending services
include the origination of real estate, commercial and consumer loans. Operating
revenues are derived primarily from interest and fees on domestic real estate,
commercial and consumer loans, and from interest on securities of the United
States Government and Agencies, states, and municipalities. The primary
regulator for First Federal is the Office of Thrift Supervision (OTS).
The following discussion and analysis covers any significant changes in the
financial condition since June 30, 2000 and any material changes in the results
of operations for the three-month period ending, September 30, 2000. This
discussion and analysis should be read in conjunction with "Managements
Discussion and Analysis of Financial Condition and Results of Operations"
included in the 2000 Annual Report to Shareholders.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not statements of
historical fact constitute forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
forward-looking statements may be made in future filings by the Company with the
Securities and Exchange Commission, in press releases, and in oral and written
statements made by or with the approval of the Company. Forward-looking
statements include, but are not limited to: (1) projections of revenues, income
or loss, earnings or loss per share, capital structure and other financial
items; (2) statements of plans and objectives of the Company or its management
or Board of Directors; (3) statements regarding future events, actions or
economic performance; and (4) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"plans," "targeted," and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements.
Forward-looking statements involve risks and uncertainties that may cause actual
results to differ materially from those indicated by such statements. Some of
the events or circumstances that could cause actual results to differ from those
indicated by forward-looking statements include, but are not limited to, changes
in economic conditions in the markets served by the Corporation, in Kentucky and
the surrounding region, or in the nation as a whole; changes in interest rates;
the impact of legislation and regulation; the Corporation's ability to offer
competitive banking products and services; competition from other providers of
financial services, the continued growth of the markets in which the Corporation
operates; and the Corporation's ability to expand into new markets and to
maintain profit margins in the face of pricing pressure. All of these events and
circumstances are difficult to predict and many of them are beyond the
Corporation's control. Forward-looking statements speak only on the date they
are made, and the Corporation undertakes no obligation to update any
forward-looking statements to reflect subsequent events or developments.
All dollar amounts (except per share data) are presented in thousands unless
otherwise noted.
12
<PAGE>
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 2000 was $1.4 million or $0.37
per share diluted down from $1.6 million or $0.38 per share diluted for the same
period in 1999. Lower net interest income caused by rapidly rising interest
rates during the previous fiscal year resulted in the decrease in earnings. The
following discussion outlines the significant differences in income and expenses
for the quarter ended September 30, 2000, as compared to 1999.
NET INTEREST INCOME-Net interest income decreased by $252 in 2000 to $4.2
million compared to $4.5 million in 1999. Rising interest rates resulted in a
decline in the net interest margin of 70 basis points from 3.82% for 1999 to
3.12% for 2000. This decline in net interest margin can be largely attributed to
the rise in certificate of deposit rates on specials offered by the Bank over
the past eight months. To maintain our customer base in the midst of fierce rate
competition, the Bank offered both short and long term certificate specials to
retain maturing accounts renewing at much lower rates. These promotions were
also necessary to assist in funding the loan growth in the Bank driven by the
transition to a sales culture for retail associates.
A commercial loan program composed of shorter-term fixed and variable rate loans
is responsible for much of the Bank's loan growth and management's ability to
manage rate risk during the rising rate environment. A dealer loan program was
also developed to produce a large volume of consumer loans at higher yields than
our mortgage portfolio. Realizing that both these programs represent products
with added credit risk, the Bank has also developed loan processing review
procedures to monitor loan underwriting and documentation. A formal process of
application presentation to the Executive Loan Committee has been developed to
assure compliance with lending policies. Monthly reporting requirements have
been developed to provide additional control over delinquencies and
foreclosures.
Loan demand continued to be strong during the quarter ended September 30, 2000,
as net loans increased by $19.1 million from $471.2 million at June 30, 2000, to
$490.3 million at September 30, 2000, a 16% annualized growth rate. The increase
in loans was primarily attributable to the Bank's commercial real estate loan
portfolio, which increased $10.0 million for the quarter, and its secured real
estate loan portfolio, which increased $5.1 million. This increase is a result
of the Bank's continued emphasis on the active pursuit of lending opportunities.
The Bank's dealer loan program increased $4.1 million while consumer and home
equity loans increased $3.5 million for the quarter ended September 30, 2000.
Average interest earning assets increased by $72.2 million from $464.5 million
for the 1999 quarter to $536.7 million for the 2000 period due to the Bank's
strong loan growth. Average loans, which comprise 90% of the total interest
earning assets, were $70.5 million higher and averaged $482.6 million during
quarter ended September 30, 2000, while the average yield on loans increased by
22 basis points to 8.20%.
Average interest-bearing liabilities increased by $78.9 million to an average
balance of $496.1 million for the 2000 quarter. Customer deposits averaged
$408.6 million during the quarter ended September 30, 2000, a $25.4 million
increase from the 1999 average balance of $383.2 million. Average Federal Home
Loan Bank advances increased $53.5 million for the 2000 period to fund the
Bank's increased lending activity that exceeded its deposit growth. Should loan
demand continue to outpace deposit growth, as an alternative to FHLB advances,
the Bank may choose to use maturing investments to fund this growth which will
result in a decline in the Banks average balance of investment securities.
13
<PAGE>
AVERAGE BALANCE SHEET
The following table provides detailed information as to average balance,
interest income/expense, and rates by major balance sheet categories for the
three months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
2000 1999
---- ----
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Equity securities $ 1,098 $ 8 2.89% $ 1,836 $ 5 1.08%
State and political subdivision
securities (1) 947 17 7.12 983 17 6.86
U.S. Treasury and agencies 41,876 678 6.42 39,982 673 6.68
Mortgage-backed securities 1,251 22 6.98 1,524 25 6.51
Loans receivable (2) (3) 482,627 9,977 8.20 412,134 8,286 7.98
FHLB stock 4,427 82 7.35 3,219 58 7.15
Interest bearing deposits 4,523 40 3.51 4,814 42 3.46
------- ------ ---- -------- ----- ----
TOTAL INTEREST EARNING ASSETS 536,749 10,824 8.00 464,492 9,106 7.78
Less: Allowance for loan losses (2,285) (2,134)
Non-interest earning assets 37,305 35,452
-------- --------
TOTAL ASSETS $571,769 $497,810
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts $35,199 $ 267 3.01% $ 36,494 $ 205 2.23%
NOW and money market
accounts 78,480 499 2.52 78,690 429 2.16
Certificates of deposit and
other time deposits 294,904 4,432 5.96 268,061 3,607 5.34
FHLB Advances 87,490 1,405 6.37 33,977 392 4.58
------- ----- ---- ------- ----- ----
TOTAL INTEREST BEARING LIABILITIES 496,073 6,603 5.28 417,222 4,633 4.41
Non-interest bearing liabilities:
Non-interest bearing deposits 17,569 17,181
Other liabilities 5,999 6,524
------- -------
TOTAL LIABILITIES 519,641 440,927
Stockholders' equity 52,128 56,883
------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $571,769 $497,810
======== ========
NET INTEREST INCOME $4,221 $4,473
====== ======
NET INTEREST SPREAD 2.72% 3.37%
===== =====
NET INTEREST MARGIN 3.12% 3.82%
===== =====
</TABLE>
-----------------------------------------------------
(1) Taxable equivalent yields are calculated assuming a 34% federal income tax
rate.
(2) Includes loan fees, immaterial in amount, in both interest income and the
calculation of yield on loans. (3) Calculations include non-accruing loans
in the average loan amounts outstanding.
14
<PAGE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by old volume); (2) changes in volume (change in volume
multiplied by old rate); and (3) changes in rate-volume (change in rate
multiplied by change in volume). Changes in rate-volume are proportionately
allocated between rate and volume variance.
THREE MONTHS ENDED
SEPTEMBER 30,
2000 VS. 1999
INCREASE (DECREASE)
DUE TO CHANGE IN
(Dollars in thousands)
NET
RATE VOLUME CHANGE
INTEREST INCOME: ---- ------ ------
Loans $201 $1,490 $1,691
Equity securities 2 1 3
State and political subdivision
securities 0 0 0
U.S. Treasury and agencies 6 (1) 5
Mortgage-backed securities 5 (8) (3)
FHLB stock 2 22 24
Interest bearing deposits 1 (3) (2)
--- ----- -----
TOTAL INTEREST EARNING ASSETS 217 1,501 1,718
--- ----- -----
INTEREST EXPENSE:
Savings accounts 33 29 62
NOW and money market accounts 35 35 70
Certificates of deposit and other
time deposits 278 547 825
FHLB advances 133 880 1,013
---- ------ ------
TOTAL INTEREST BEARING LIABILITIES 479 1,491 1,970
---- ------ ------
NET CHANGE IN NET INTEREST INCOME $(262) $ 10 $ (252)
===== ====== ======
NON-INTEREST INCOME AND EXPENSE-Non-interest income was $1.3 million for the
quarter ended September 30, 2000, as compared to $962 for the 1999 period, an
increase of $351. Gains on investment sales were $345 during the 2000 period
compared to $153 for the 1999 quarter, and increase of $192. Fee income from
secondary market lending operations decreased by $23 or 17% during the 2000
period compared to 1999 due to rising mortgage rates that slowed the new
originations and refinancing activity in home loans. Customer service fees
charged on deposit accounts increased by $128 or 28% during the 2000 quarter due
to growth in accounts and deposit relationships with existing customers. Other
sources of income such as brokerage commissions, loan fees, and other customer
transaction fees also increased during the 2000 period as compared to the 1999
period.
Non-interest expense increased by $258 or 8.6% during the quarter ended
September 30, 2000 as compared to the 1999 quarter. The increase is primarily
attributable to costs associated with salaries, employee benefits and occupancy
and equipment.
Compensation and employee benefit expenses increased $213 in 2000 as compared to
1999. The increase includes inflationary salary adjustments and reflects growth
in the overall staffing level from 160 full-time equivalent employees at
September 30, 1999 to 192 full-time equivalent employees at September 30, 2000.
Additional staffing was required to establish a bank-wide service and sales
culture and to staff the re-opening of a banking center located in Bardstown,
Kentucky. During 1999, management adopted a new strategic plan for growing the
Bank. This plan includes the development of a bank-wide service and sales
culture. The Bank now takes a more proactive approach in expanding account
relationships with existing and new customers. A prerequisite to the success of
this transition is the need to expand the number of retail associates at many of
the banking centers, such as relationship bankers, business development
officers, stock brokers and loan officers. Further, a Senior Vice President and
Retail Banking Officer has been hired to implement management's strategic
transition to the bank-wide service and sales culture. The transition has been
responsible for much of the renewed growth in the lending area of the Bank and
has made the certificate special promotions a success in all offices.
15
<PAGE>
Occupancy and equipment expense increased $16 during the 2000 quarter compared
to the 1999 quarter. The increase is attributable to additional computer
equipment needed to service the Bank's transition to a service and sales
culture. All other expenses increased $29 during the quarter ended September 30,
1999 compared to the 1999 period including postage, telephone, data processing
and customer account expenses.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses is regularly evaluated by management and
maintained at a level believed to be adequate to absorb loan losses in the
Bank's lending portfolios. Periodic provisions to the allowance are made as
needed. An appropriate level of the general allowance is determined based on the
application of projected risk percentages to graded loans by categories. In
addition, specific reserves are established for individual loans when deemed
necessary by management. The amount of the provision for loan losses necessary
to maintain an adequate allowance is based upon an assessment of loan quality,
changes in the size and character of the loan portfolio, consultation with
regulatory authorities, delinquency trends, economic conditions and industry
trends. Management believes, based on information presently available, that it
has adequately provided for loan losses at September 30, 2000. Although
management believes it uses the best information available to make allowance
provisions, future adjustments, which could be material, may be necessary if
management's assumptions differ significantly from the loan portfolio's actual
performance.
Net loan charge-offs increased $95 to $136 for the three months ended September
30, 2000 compared to $40 for the same period in 1999. The increase is primarily
related to charge-offs of indirect consumer loans during the 2000 quarter. The
Bank recorded provision for loan losses of $195 for the three months ended
September 30, 2000 compared to $89 for 1999, as a result of the increase in
charge-offs for the period.
The following table sets forth an analysis of the Bank's loan loss experience
for the three months ended September 30, 2000 and 1999.
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
(Dollars in thousands)
Balance-beginning of period $2,252 $2,108
------ ------
Loans charged-off:
Real estate mortgage (2) (35)
Consumer (141) (8)
Commercial 0 0
------ ------
Total charge-offs (143) (43)
------ ------
Recoveries:
Real estate mortgage 0 0
Consumer 7 3
Commercial 0 0
------ ------
Total recoveries 7 3
------ ------
Net loans charged-off (136) (40)
------ ------
Provision for loan losses 195 89
------ ------
Balance-end of period $2,311 $2,157
------ ------
Net charge-offs to average
loans outstanding .028% .010%
Allowance for loan losses to
total non-performing loans 122% 88%
Allowance for loan losses to
to net loans outstanding .47% .52%
16
<PAGE>
NON-PERFORMING ASSETS
The Bank's non-performing assets consist of loans on which interest is no longer
accrued, real estate acquired through foreclosure and repossessed assets. The
Bank does not have any loans greater than 90 days past due still on accrual. All
loans considered impaired under SFAS 114 are included in non-performing loans.
Loans are considered impaired if full principal or interest payments are not
anticipated in accordance with the contractual loan terms. Impaired loans are
carried at the present value of expected future cash flows discounted at the
loans effective interest rate or at the fair value of the collateral if the loan
is collateral dependent. A portion of the allowance for loan losses is allocated
to impaired loans if the value of such loans is less than the unpaid balance. If
these allocations cause the allowance for loan losses to require increase, such
increase is reported in the provision for loan losses. Loans are reviewed on a
regular basis and normal collection procedures are implemented when a borrower
fails to make a required payment on a loan. If the delinquency on a mortgage
loan exceeds 90 days and is not cured through normal collection procedures or an
acceptable arrangement is not worked out with the borrower, the Bank institutes
measures to remedy the default, including commencing a foreclosure action.
Consumer loans generally are charged off when a loan is deemed uncollectible by
management and any available collateral has been disposed of. Commercial
business and real estate loan delinquencies are handled on an individual basis
by management with the advice of the Bank's legal counsel. The Bank anticipates
that the increase in non-performing real estate loans will continue due to the
growth of the Bank's loan portfolio.
The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated.
SEPTEMBER 30, JUNE 30,
2000 2000
---- ----
(Dollars in thousands)
Loans on non-accrual status (1)(2) $1,900 $1,562
Real estate acquired
through foreclosure 80 -
Repossessed assets 93 -
------ ------
Total non-performing
assets $2,073 $1,562
====== ======
Ratios: Non-performing loans
to total loans .39% .33%
Non-performing assets
to total assets .36% .28%
--------------------------------------
(1) Loans on non-accrual status include impaired loans.
(2) The interest income that would have been earned and
received on non-accrual loans was not material.
LIQUIDITY
The Bank is required to maintain minimum specific levels of liquid assets as
defined by the Office of Thrift Supervision's regulations. This requirement is
based on a percentage of cash and eligible investments to deposits and
short-term borrowings and is currently 4%. At September 30, 2000, the Bank's
liquid assets were 5.84% of its liquidity base. The Bank's primary source of
funds for meeting its liquidity needs are customer deposits, borrowings from the
Federal Home Loan Bank, principal and interest payments from loans and
mortgage-backed securities, and earnings from operations retained by the Bank.
17
<PAGE>
The Bank intends to continue to fund loan growth (outstanding loan commitments
were $3.9 million at September 30, 2000) with customer deposits and additional
advances from the FHLB. At September 30, 2000, the Bank had an unused approved
line of credit in the amount of $33.5 million and sufficient collateral to
borrow an additional $196 million in advances from the FHLB.
CAPITAL
Savings institutions insured by the FDIC must meet various regulatory capital
requirements. As of September 30, 2000, the Bank was categorized as well
capitalized. The Bank's actual and required capital amounts and ratios are
presented below:
<TABLE>
<CAPTION>
TO BE CONSIDERED
WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTION
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------------------------------------------
AS OF SEPTEMBER 30, 2000: AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (to risk-
weighted assets) $44,147 10.6% $33,449 8.0% $41,812 10.0%
Tier I capital (to risk-weighted
assets) 41,837 10.0 16,725 4.0 25,087 6.0
Tier I capital (to average assets) 41,837 7.3 22,871 4.0 28,588 5.0
</TABLE>
STOCK REPURCHASE PLAN-In October 1999 the Corporation's Board of Directors
authorized the establishment of an additional stock repurchase program pursuant
to which 10% of the Corporation's outstanding stock may be repurchased from time
to time in the open market. The programs, which began in 1995, have repurchased
a total of 613,681 shares. The Board will continue to evaluate earnings per
share and monitor the success of the repurchase plan to maintain an attractive
return to stockholders. The current plan expires in April 2001, at which time
the Board will reanalyze the Bank's capital position and future earnings
potential and if appropriate, initiate a new repurchase plan.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank currently does not engage in any derivative or hedging activity. Refer
to the Bank's 2000 10-K for analysis of the interest rate sensitivity.
18
<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
On November 9, 2000, the Corporation announced that Diane E. Logsdon and
John L. Newcomb, Jr. have joined its board of directors following the
Corporation's annual meeting of shareholders on November 8, 2000. B. Keith
Johnson, the Corporation's President and Chief Executive Officer, was also
re-elected to a three-year term on the board of directors of the
Corporation, First Federal Savings Bank, and its subsidiaries.
John L. "Jack" Newcomb, Jr., a lifelong resident of Nelson County, is
President and Financial Manager of Newcomb Oil Company. Newcomb Oil, a
family-owned business that employs 750 people in its operations, owns and
operates Five Star Food Marts and supplies wholesale gasoline, distillate
and lubricants throughout Central Kentucky and Southern Indiana. Mr.
Newcomb attended Eliazbethtown Community College and Western Michigan
University. He and his wife, Jackie, have four teenage children and make
their home in Bardstown, Kentucky. Mr. Newcomb has served on the board of
directors of the Bank and its subsidiaries since April 1999.
Diane E. Logsdon is Vice President of Planning and Development for Hardin
Memorial Hospital. She is the current Chair of the Board of the
Elizabethtown-Hardin County Chamber of Commerce, where she is beginning her
third term on the Board. Ms. Logsdon is a graduate of the first nursing
class of Elizabethtown Community College and holds a Bachelor of Science
Degree in Health Care Administration from St. Joseph's College and a Master
of Science Degree in Systems Science (with concentration in Health Systems)
from the University of Louisville. She was married to the late Charles
Logsdon, former Hardin County Sheriff and well-known Hardin County
historian. She resides in Elizabethtown and has two daughters.
At the shareholders meeting, Irene B. Lewis and Kennard T. Peden retired
from the board of directors. Ms. Lewis, the Bank's first female employee,
held various positions with the Bank from 1947 through 1985, and has served
as member of the board of directors since 1983. Mr. Peden, who has served
on the board since 1967, is a retired farmer and a director of the North
Central Kentucky Education Foundation. He will remain on the board of the
Bank and its subsidiaries.
In his remarks at the meeting, President and Chief Executive Officer B.
Keith Johnson outlined the Corporation's ongoing plan to address the impact
of recent increases in interest rates by transitioning from a traditional
thrift institution to a commercial bank. "Our plan is to increase our
emphasis on consumer and commercial lending. To effectively compete for
loan and deposit share, we are developing a service and sales culture that
emphasizes quality service and proactively seeks new business from
customers. An important element of our strategy is to build long-term
relationships with small business owners by having a wide variety of
products to meet their deposit and lending needs as well as capturing their
individual banking relationships."
In response to a shareholder question, Mr. Johnson stated that the
Corporation presently had not received and was not considering any offers
from larger financial institutions. He also stated that the board's duty
always would be to consider whether any such offer it received would be in
the best interests of its shareholders.
Item 6. Exhibits: Not Applicable
Reports on Form 8-K: Not Applicable
19
<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 14, 2000 BY: (S) B. Keith Johnson
----------------------
B. Keith Johnson
President and Chief Executive Officer
DATE: November 14, 2000 BY: (S) Charles E. Chaney
-----------------------
Charles E. Chaney
Senior Vice President
Chief Operating Officer
20
