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, 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)
(270) 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, 2000
----- ------------------------------------
Common Stock 3,853,919 shares
This document is comprised of 16 pages.
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
INDEX
PART I - Financial Information Page Number
Item 1 -Consolidated Financial Statements
Consolidated Statement of Financial Condition as
of December 31, 1999 (Unaudited) and June 30, 1999. 3
Consolidated Statement of Income for the Three Months
and Six Months Ended December 31, 1999 and 1998(Unaudited). 4
Consolidated Statement of Comprehensive Income for
the Three Months and Six Months Ended December 31, 1999
and 1998 (Unaudited). 5
Consolidated Statement of Cash Flows for the Six
Months Ended December 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 9
Item 3 -Market Disclosure 13
PART II - Other Information 14
SIGNATURES 16
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1999 1999
---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks $ 10,508,679 $ 10,257,162
Interest bearing deposits 3,244,901 1,634,475
------------ -----------
Total cash and cash equivalents 13,753,580 11,891,637
Securities available-for-sale 2,278,838 2,935,979
Securities held-to-maturity 43,288,396 44,404,392
Loans receivable, less allowance for loan losses
of $2,241,292 (December) and $2,107,994 (June) 431,046,589 400,360,402
Federal Home Loan Bank stock 3,258,400 3,200,000
Premises and equipment 11,414,875 11,594,369
Real estate owned:
Acquired through foreclosure 206,127 108,610
Held for development 445,683 445,683
Excess of cost over net assets acquired 10,463,072 10,878,972
Accrued interest 1,791,576 1,603,514
Other assets 796,577 880,216
------------ ------------
TOTAL ASSETS $518,743,713 $488,303,774
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 16,964,142 $ 15,223,267
Interest bearing 389,875,303 384,220,172
----------- -----------
Total Deposits 406,839,445 399,443,439
Advances from Federal Home Loan Bank 54,469,553 25,894,127
Accrued interest payable 890,481 868,840
Accounts payable and other liabilities 1,204,668 2,336,503
Deferred income taxes 1,864,778 1,898,703
----------- -----------
TOTAL LIABILITIES 465,268,925 430,441,612
----------- -----------
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, 4,121,112 shares in June and
3,893,405 shares in September 3,893,405 4,121,112
Additional paid-in capital 1,110 3,055,644
Retained earnings 48,915,008 49,587,422
Accumulated other comprehensive
Income, net of tax 665,265 1,097,984
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 53,474,788 57,862,162
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $518,743,713 $488,303,774
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $8,639,821 $8,069,729 $16,930,547 $15,776,543
Interest and dividends on
investments and deposits 796,788 894,713 1,610,947 1,898,589
Total interest income 9,436,609 8,964,442 18,541,494 17,675,132
---------- ---------- ----------- -----------
Interest expense:
Deposits 4,333,318 4,480,944 8,574,360 8,708,291
Federal Home Loan Bank
advances 659,198 309,921 1,051,326 708,725
---------- ---------- ----------- -----------
Total interest expense 4,992,516 4,790,865 9,625,686 9,417,016
---------- ---------- ----------- -----------
Net interest income 4,444,093 4,173,577 8,915,808 8,258,116
Provision for loan losses 90,470 60,000 179,995 120,000
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses 4,353,623 4,113,577 8,735,813 8,138,116
---------- ---------- ----------- -----------
Noninterest Income:
Customer service fees on
deposit accounts 491,912 448,408 942,416 835,903
Secondary mortgage market
closing fees 95,191 199,870 224,476 314,784
Gain on sale of investments 152,026 94,933 305,161 203,200
Brokerage and insurance
commissions 124,205 79,122 232,905 165,086
Other income 137,675 156,970 268,701 271,450
---------- --------- ----------- -----------
Total other noninterest
income 1,001,009 979,303 1,973,659 1,790,423
---------- --------- ----------- ------------
Noninterest Expense:
Employee compensation
and benefits 1,446,137 1,146,482 2,732,401 2,238,429
Office occupancy expense
and equipment 327,605 317,535 678,836 619,140
FDIC insurance premium 58,966 44,363 115,981 92,623
Marketing and advertising 113,995 83,751 257,209 170,776
Outside services and data
processing 304,835 333,322 605,569 602,154
State franchise tax 99,531 79,357 199,063 158,714
Acquisition related expense 0 0 0 291,869
Amortization of intangibles 207,950 207,950 415,900 365,447
Other expense 632,781 523,774 1,200,040 933,518
---------- ---------- ----------- ----------
Total other noninterest
expense 3,191,800 2,736,534 6,204,999 5,472,670
---------- ---------- ----------- ----------
Income before income taxes 2,162,832 2,356,346 4,504,473 4,455,869
Income taxes 698,195 818,253 1,466,690 1,545,468
---------- ---------- ----------- ----------
Net income $1,464,637 $1,538,093 $3,037,783 $2,910,401
========== ========== ========== ==========
Earnings per share:
Basic $ 0.37 $ 0.37 $ 0.76 $ 0.70
Diluted $ 0.37 $ 0.37 $ 0.76 $ 0.70
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income
Other comprehensive income
(loss), net of tax: $1,464,637 $1,538,093 $3,037,783 $2,910,401
Change in unrealized gain
(loss) on securities (102,595) 332,171 (231,313) 405,685
Reclassification of realized
amount (100,337) (62,656) (201,406) (134,112)
---------- ---------- ---------- -----------
Net unrealized gain
recognized in comprehensive
income (202,932) 269,515 (432,719) 271,573
Comprehensive Income $1,261,705 $1,807,608 $2,605,064 $3,181,974
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 3,037,783 $ 2,910,401
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 179,995 120,000
Depreciation of premises and equipment 499,440 376,297
Net change in deferred loan fees and costs 173,325 111,867
Federal Home Loan Bank stock dividends (58,400) (108,100)
Amortization of acquired intangible assets 415,900 365,447
Amortization and accretion on securities (30,944) (36,611)
Gain on sale of investments available-for-sale (305,161) (203,200)
Interest receivable (188,062) 624,737
Other assets 86,947 121,769
Interest payable 21,641 720,256
Accounts payable and other liabilities (1,131,836) 234,948
Deferred taxes 188,990 30,990
----------- ----------
Net cash provided by operating activities 2,889,618 5,268,801
----------- ----------
Investing Activities:
Sales of securities available-for-sale 305,989 211,237
Purchases of securities available-for-sale - (1,010,000)
Purchases of securities held-to-maturity (5,000,000) (46,855,000)
Maturities of securities held-to-maturity 6,147,619 30,142,101
Net increase in loans (31,137,025) (21,035,689)
Net purchases of premises and equipment (319,946) (1,106,460)
Net cash received in acquisition - 52,456,754
----------- -----------
Net cash used in investing activities (30,003,363) 12,802,943
----------- -----------
Financing Activities:
Net increase in deposits 7,396,006 14,055,347
Net advances from (repayments to)
Federal Home Loan Bank 28,575,426 (20,089,296)
Dividends paid (1,433,391) (1,238,509)
Common stock repurchased (5,562,353) (70,792)
----------- -------------
Net cash provided by financing activities 28,975,688 (7,343,250)
----------- -------------
Increase (decrease) in cash and cash equivalents 1,861,943 10,728,494
Cash and cash equivalents, beginning of year 11,891,637 9,149,712
Cash and cash equivalents, end of period $13,753,580 $19,878,206
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
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.
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 and six-month periods
ending December 31, 1999 are not necessarily indicative of the results
that may be expected for the year ended June 30, 2000. 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, 1999 and Form 10-Q for the quarter
ended September 30, 1999.
New Accounting Pronouncements-In June 1998, the FASB issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities".
This new standard requires companies to record derivatives on the
balance sheet as assets or liabilities at fair value. Depending on the
use of the derivative and whether it qualifies for hedge accounting,
gains or losses resulting from changes in the values of those
derivatives would either be recorded as a component of net income or as
a change in stockholders' equity. First Federal is required to adopt
this new standard July 1, 2000. Management has not yet determined the
impact of this standard.
Reclassifications - Certain amounts have been reclassified in the prior
financial statements to conform with the current period
classifications. The reclassifications have no effect on net income or
stockholders' equity as previously reported.
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 1999 Proxy Statement
which has been previously filed with the Commission.
2. 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. The reconciliation of the numerators and
denominators of the basic and diluted EPS is as follows:
7
<PAGE>
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Net income available
to common shareholders $ 1,465 $ 1,538 $ 3,038 $ 2,910
======= ======= ======= =======
Basic EPS:
Weighted average common shares 3,922,581 4,128,987 3,999,477 4,129,255
========= ========= ========= =========
Diluted EPS:
Weighted average common shares 3,922,581 4,128,987 3,999,477 4,129,255
Dilutive effect of stock options 17,248 22,131 18,701 21,446
---------- ---------- --------- ---------
Weighted average common and
Earnings Per Share:
Basic $0.37 $0.37 $0.76 $0.70
===== ===== ===== =====
Diluted $0.37 $0.37 $0.76 $0.70
===== ===== ===== =====
8
<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 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. Regulators for First
Federal include the Federal Deposit Insurance Corporation (FDIC), the Board of
Governors of the Federal Reserve System (and the Federal Reserve Bank of St.
Louis) and the Kentucky Department of Fiunancial Institutions.
The following discussion and analysis covers any significant changes in the
financial condition since June 30, 1999 and any material changes in the results
of operations for the three month and six month periods ending, December 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 1999 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 approximately $11,000,000 of loans and
$72,000,000 of deposits. The net deposits assumed exceeded the cash received by
$8,670,000. Any ratios or analysis comparing years before acquisition will not
be comparable.
9
<PAGE>
Results of Operations
Three Month Period Ended December 1999 vs. 1998 - Net income was $1,465,000 or
$0.37 per share for the three month period ended December 31, 1999, as compared
to $1,538,000 or $0.37 per share for the same period in 1998. The following
discussion outlines the significant differences in income and expenses for the
quarter ended December 31, 1999, as compared to 1998.
Net interest income increased by $270,000 in 1999 to $4,444,000 compared to
$4,174,000 in 1998. The increase is due to a higher volume of interest earning
assets. Rising interest rates resulted in a decline in the net interest margin
of .11% from 3.83% for 1998 to 3.72% for 1999. However, a robust growth in loans
outstanding had a greater impact on net interest income than the Bank's decline
in net interest margin. Average interest-earning assets increased by $46 million
from $435 million for the 1998 quarter to $481 million for the 1999 quarter due
primarily to the growth in loans outstanding. The Bank began an indirect auto
dealer loan program in April 1999 within its existing market areas. Loans
outstanding under this program were $8.4 million at December 31, 1999. Mortgage
and consumer loans increased by $8.6 million, during the quarter ended December
31, 1999. The Bank's increased emphasis on commercial loans resulted in a growth
of $7.5 million, in outstanding commercial loan balances. The yield on interest
earning assets declined by 34 basis points for the 1999 quarter as compared to
the 1998 quarter. During the 1998 quarter, the Bank's yield inflated due to the
record levels of home mortgage refinancing activity which resulted in $154,000
of additional interest income from the unamortized portion of unearned loan fees
on the loans paid off.
Average interest-bearing liabilities increased by $25 million to an average
balance of $438 million for the 1999 quarter compared to $413 million during the
1998 quarter. Customer deposits averaged $386 million during 1999, a decline of
$5 million compared to the 1998 quarter. Federal Home Loan Bank advances
increased $30 million for the period ending December 1999 to fund the Bank's
increased lending activity that exceeded the quarter's deposit growth. The
Bank's cost of funds declined by 22 basis points for the 1999 quarter as
compared to the 1998 quarter as CD rates repriced to the lower market rates
during the 1999 year.
Total other income was $1,001,000 for the three months ended December 31, 1999,
as compared to $979,000 for the 1998 period, an increase of $22,000. Gains on
investment sales were $152,000 compared to gains of $95,000 for the 1998
quarter. Other sources of income such as brokerage commissions, loan fees, and
other customer transaction fees increased by $70,000 or 10% due to growth in
deposit relationships. Fee income relating to loans originated for the secondary
market declined $105,000 or 52% due to rising mortgage rates that slowed the new
originations and refinancing activity in home loans.
Total other expense was $3,192,000 for the three month period ended December 31,
1999, as compared to $2,737,000 for the 1998 period, an increase of $455,000.
Compensation and benefits increased by $300,000 in 1999 as compared to 1998. The
increase includes inflationary salary adjustments and reflects growth in the
number of full time equivalent employees to 161 on December 31, 1999 from 121 on
December 31, 1998. Two new offices required additional staffing that included an
in-store banking center in Hillview, Kentucky just South of the Louisville,
Jefferson County area. A second office in the downtown Bardstown, Kentucky area
of Nelson County was also opened as a transaction facility. 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.
In addition to compensation and benefits, marketing and advertising expense
increased $30,000 or 36% in 1999 compared to 1998. The increase is due to the
development of new products and services. All other expenses increased $125,000,
which included expenses directly related to customers' accounts, postage,
telephone, supplies, and the growth of services provided by the Bank.
10
<PAGE>
Six Month Period Ended December 31, 1999 vs. 1998 - Net income was $3,038,000 or
$0.76 per share for the six month period ended December 31, 1999 compared to
$2,910,000, or $.705 for 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 $3,103,000 or $0.75 per share.
The following discussion outlines the significant differences in income and
expenses for six months ending December 31, 1999, as compared to 1998.
Net interest income increased by $658,000 in 1999 as compared to 1998 in spite
of the declining net interest margin which was 3.78% for the 1999 period as
compared to 3.83% for the 1998 period. The positive growth in net interest
income resulted from loan growth that can be attributed to a combination of more
aggressive commercial real estate lending practices, indirect auto lending, and
a strong retail loan demand.
Average interest-earning assets increased by $39 million from $434 million for
the 1998 period to $473 million for the 1999 period. Loans averaged $420 million
during 1999, an increase of $41 million, while the average yield on loans
decreased by .37% to 7.86%
Average interest-bearing liabilities increased by $19 million to an average
balance of $428 million for 1999. Customer deposits averaged $385 million during
1999 compare to $386 million for 1998. Federal Home Loan Bank Advance increased
$20 million for the period ending December 1999. This increase funded the Bank's
outstanding loan growth during the period that exceeded a nominal deposit
growth.
Total other income was $1,973,000 for the six months ended December 31, 1999, as
compared to $1,790,000 for the 1998 period, an increase of $183,000. Gains on
investment sales were $305,000 for 1999 period as compared to gains of $203,000
for the 1998 period. Customer service fees charged on deposit accounts increased
by $107,000 or 13% 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 $64,000 due to growth in deposit relationships with
existing and new customers. Income from secondary market lending operations
declined by $90,000, or 29% due to an increase in interest rates that slowed
activity in home mortgages.
Total other expense was $6,205,000 for the six months ended December 31, 1999.
In the first quarter of 1998 the Bank had a one time expense $193,000 (net of
tax) for the acquisition of three branches in Meade County. Excluding the above
expenses, the total other expense was $5,181,000, representing an increase of
$1,024,000. Compensation and benefits increased by $494,000 or 22% as compared
to 1998. The increase includes inflationary salary increases and reflects an
increase in number of full time equivalent employees to 161 at December 31, 1999
from 121 at December 31, 1998. The increased staffing is a result of the Bank
adopting a strategic plan to develop a Sales and Service culture to promote
retail growth.
Beyond compensation and benefits, marketing and advertising expense increased
$87,000 or 51% in 1999 compared to 1998. Increase is due to the development of
new products and services. Office occupancy and equipment expenses increased by
$60,000 in 1999 as compared to 1998 due to inflationary increases in other
occupancy and equipment related expenses. These costs relate to the opening of
an additional in-store facility, remodeling an existing office, and installing
three new ATM's. All other expenses increased by $383,000 in 1999 compared to
1998. Expensed directly related to customer accounts increased due to a higher
volume. The cost of postage, telephone, data processing, and supplies increased
due to asset growth and new services provided by the Bank.
11
<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 quarter ended December 31, 1999 management chose
to add $90,000 to the reserve for loan losses. Although current loan charge-offs
and delinquencies are consistent with previous years, the reserve was increased
to compensate for the Bank's continued strong loan growth. The Bank experienced
an insignificant amount of uncollectible loans during the periods indicated in
the table below. Approximately 75% of the Bank's non-performing assets are
collateralized by one-to-four family residences at December 31, 1999.
Three Months Ended Six Months Ended
December 31, December 31,
------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Allowance for loan losses:
Balance, July 1 $ 2,157 $ 2,123 $ 2,108 $ 1,853
Balance acquired in merger - - - 205
Provision for loan losses 90 60 180
Charge-offs
Recoveries 1 21
------- ------- ------ -------
Balance, end of period $ 2,241 $ 2,002 $ 2,241 $ 2,002
======= ======= ======= =======
Loans outstanding at quarter
end -- Gross Loans $433,288 $388,890
Non-performing loans at quarter end:
Other non-performing loans 623 926
-------- --------
Total non-performing loans 2,509 1,639
Real estate acquired through foreclosure 206 228
-------- --------
Total non-performing assets $ 2,715 $ 1,867
======= =======
Ratios: Non performing loans to loans .62% .42%
Allowance for loans losses to
non-performing loans 89% 122%
Allowance for loan losses to
net loans .52% .51%
Non-performing assets to total assets .52% .39%
Liquidity & Capital Resources
Loan demand continued to be strong during the three months ended December 31,
1999, as net loans increased by $16.1 million to $431 million, a 15% annualized
growth. In spite of strong competition from new financial institutions, mutual
funds and the stock market, customer deposits increased by $5.8 million during
the period. The Bank's loan growth was funded by additional borrowings of $16.9
million from the Federal Home Loan Bank.
Current regulations require the Corporation's subsidiary, First Federal Savings
Bank, to maintain minimum specific levels of liquid assets, (currently 4%) of
cash and eligible investments to deposits and short-term borrowings. At December
31, 1999, the Bank's liquid assets were 9.06% of its liquidity base. The Bank
intends to continue to fund loan growth (outstanding loan commitments were $16.0
million at December 31, 1999) and any declines in customer deposits through
additional advances from the FHLB. At December 31, 1999, the Bank had an unused
approved line of credit in the amount of $16.7 million, and the potential to
significantly increase its indebtedness with the FHLB, if necessary, due to its
additional available collateral.
12
<PAGE>
The Office of Thrift Supervision's capital regulations require savings
institutions to meet three capital standards: a 3% Tier I leverage ratio; a 4%
Tier I capital ratio; and an 8% risk-based capital standard. As of September 30,
1999, the Bank's actual capital percentages for Tier I leverage of 7.77%, Tier I
capital of 12.10%, and current risk-based capital of 12.79%, significantly
exceed the regulatory requirement for each category.
Year 2000
The transition into a new century for the Bank's information and technology
systems experienced no problems on January 1, 2000. After months of preparation
and testing, the work of the Bank's staff in renovating computer systems with
guidance from regulators resulted in no impact to processing customer accounts.
Quantitative and Qualitative Disclosures About Market Risk
The Bank currently does not engage in any derivative or hedging activity. Refer
to the Bank's 1999 10-K for analysis of the interest rate sensitivity.
13
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
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
The Corporation's 1999 Annual Meeting of Shareholders was held on
November 10, 1999.
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
Wreno M. Hall 2002
Walter P. Huddleston 2002
J. Stephen Mouser 2002
Michael L. Thomas 2002
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
Robert M. Brown 2001
Burlyn Pike 2001
J. Alton Rider 2001
B. Keith Johnson 2003
Irene B. Lewis 2003
Kennard Peden 2003
14
<PAGE>
The voting results for the matters brought before the 1999 Annual
Meeting are as follows:
1. Election of Directors. Cumulative voting applied in the
election of directors.
Name Votes For Abstentions Broker Nonvotes
Stephen Mouser 3,108,028.932 0 0
Michael L. Thomas 3,131,781.582 0 0
Wreno M. Hall 2,888,776.054 0 0
Walter D. Huddleston 3,097,787.364 0 0
Item 5. Other Information
Not Applicable
Item 6. Exhibits: Not Applicable
Reports on Form 8-K:
The Corporation filed Form 8-K
on October 20,1999 to report the
establishment of a stock repurchase
program to acquire up to 5% of the
Corporation's currently outstanding
shares of common stock.
15
<PAGE>
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY AND SUBSIDIARY
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, 2000 BY: (S) B. Keith Johnson
-------------------------
B. Keith Johnson
President and Chief Executive Officer
DATE: February 11, 2000 BY: (S) Charles E. Chaney
-----------------------
Charles E. Chaney
Senior Vice President
16
<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, 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> 6-MOS 6-MOS
<FISCAL-YEAR-END> Jun-30-2000 Jun-20-1999
<PERIOD-START> Jul-01-1999 Jul-01-1998
<PERIOD-END> Dec-31-1999 Dec-31-1998
<EXCHANGE-RATE> 1.000 1.000
<CASH> 10,508,679 19,361,128
<INT-BEARING-DEPOSITS> 3,244,901 517,078
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,278,838 3,344,467
<INVESTMENTS-CARRYING> 43,288,396 41,564,654
<INVESTMENTS-MARKET> 43,636,049 45,093,467
<LOANS> 431,046,589 386,886,843
<ALLOWANCE> 2,241,292 2,002,000
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<DEPOSITS> 406,839,445 393,252,742
<SHORT-TERM> 54,469,553 23,159,559
<LIABILITIES-OTHER> 3,959,927 5,966,582
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0 0
0 0
<COMMON> 3,893,405 4,127,112
<OTHER-SE> 49,581,383 52,431,823
<TOTAL-LIABILITIES-AND-EQUITY> 518,743,713 478,937,818
<INTEREST-LOAN> 16,930,547 15,776,543
<INTEREST-INVEST> 1,610,947 1,898,589
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 18,541,494 17,675,132
<INTEREST-DEPOSIT> 8,574,360 8,708,291
<INTEREST-EXPENSE> 9,625,686 9,417,016
<INTEREST-INCOME-NET> 8,915,808 8,258,116
<LOAN-LOSSES> 179,995 120,000
<SECURITIES-GAINS> 305,161 203,200
<EXPENSE-OTHER> 6,204,999 5,544,670
<INCOME-PRETAX> 4,504,473 4,455,869
<INCOME-PRE-EXTRAORDINARY> 4,504,473 4,455,869
<EXTRAORDINARY> 0 0
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<NET-INCOME> 3,037,783 2,910,401
<EPS-BASIC> 0.76 0.70
<EPS-DILUTED> 0.76 0.70
<YIELD-ACTUAL> 7.86 8.06
<LOANS-NON> 2,509,000 0
<LOANS-PAST> 0 1,639,000
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<LOANS-PROBLEM> 3,716,000 1,850,000
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<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 2,241,000 2,002,000
</TABLE>
