FORM 10-QSB
U.S. 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 June 30, 1996
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 No. 0-20380
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FIRST FEDERAL BANCORP, INC.
-------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1341110
----------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
505 Market Street
Zanesville, Ohio 43701
----------------------------------- -----------------------------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (614) 453-0606
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act 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 [ ]
As of July 31, 1996, the latest practicable date, 784,658 shares of
the registrant's common stock, no par value, were issued and outstanding.
Page 1 of 13 Pages
<PAGE> 1
FIRST FEDERAL BANCORP, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
----
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION 12
SIGNATURES 13
<PAGE> 2
PART I
FINANCIAL INFORMATION
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At June 30 At September 30
1996 1995
------------ ---------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 4,951,648 $ 5,360,583
Federal funds sold and other short-term investments 1,750,000 975,000
------------------------------
Cash and cash equivalents $ 6,701,648 $ 6,335,583
Investment securities (market value - $4,559,000 in
6/96 and $4,869,000 in 9/95) 4,561,375 4,867,174
Mortgage-backed securities (market value - $1,722,000
in 6/96 and $1,892,000 in 9/95) 1,715,400 1,889,418
Loans receivable, net 155,885,672 151,744,328
Accrued interest receivable 989,156 896,211
Premises and equipment, net 5,740,280 3,687,681
Prepaid expenses and other assets 2,184,073 2,203,811
------------------------------
Total Assets $177,777,604 $171,624,206
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $130,546,975 $129,387,436
Borrowed funds 31,540,000 27,600,000
Advances from borrowers for taxes and insurance 166,640 190,864
Accrued expenses and other liabilities 1,502,160 1,700,869
------------------------------
Total Liabilities $163,755,775 $158,879,169
==============================
Stockholders' Equity
Preferred stock, $100 par value, 1,000,000 shares
authorized, no shares issued and outstanding
Common stock, no par value, 4,000,000 shares
authorized, 825,850 shares issued $ 3,656,323 $ 3,656,323
Retained earnings 11,049,307 9,773,827
Minimum additional pension liability (143,155) (143,155)
Treasury shares, 41,192 shares (540,646) (541,958)
------------------------------
Total Stockholders' Equity $ 14,021,829 $ 12,745,037
------------------------------
Total Liabilities and Stockholders' Equity $177,777,604 $171,624,206
==============================
</TABLE>
See Notes to the Consolidated Financial Statements.
<PAGE> 3
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $3,300,185 $3,053,204 $ 9,741,523 $8,602,010
Mortgage-backed securities 8,063 33,884 73,649 100,204
Investment securities 58,698 69,298 192,121 217,171
Other interest income 23,499 6,527 87,659 21,532
-----------------------------------------------------
Total Interest Income 3,390,445 3,162,913 10,094,952 8,940,917
-----------------------------------------------------
INTEREST EXPENSE
Deposits 1,355,745 1,219,495 4,083,331 3,465,307
Borrowed money 383,333 477,167 1,205,561 1,206,057
-----------------------------------------------------
Total Interest Expense 1,739,078 1,696,662 5,288,892 4,671,364
-----------------------------------------------------
Net Interest Income 1,651,367 1,466,251 4,806,060 4,269,553
-----------------------------------------------------
Provision for Loan Losses (17,305) 2,131 28,716 72,165
Net Interest Income After Provision
for Loan Losses 1,668,672 1,464,120 4,777,344 4,197,388
-----------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 81,494 72,586 236,397 218,992
Gain on sale of loans 13,883 28,512 39,304 29,196
Dividends on FHLB stock 29,507 25,488 87,302 63,291
Other operating income 115,113 88,796 303,789 245,841
-----------------------------------------------------
Total Other Income 239,997 215,382 666,792 557,320
-----------------------------------------------------
OTHER EXPENSES
Salaries & employee benefits 436,779 426,381 1,430,525 1,337,624
Occupancy & equipment expense 135,335 112,008 376,002 331,859
Federal deposit insurance expense 87,855 83,468 259,331 252,170
Data processing 75,065 47,878 221,681 229,390
Advertising 52,953 47,998 139,700 125,289
Ohio franchise tax 46,116 41,828 133,818 125,379
REO expense (income) 16,139 (4,904) 21,840 15,407
Other operating expenses 190,578 193,945 586,562 613,945
-----------------------------------------------------
Total Other Expenses 1,040,820 948,602 3,169,459 3,031,063
-----------------------------------------------------
Income Before Federal Income Tax 867,849 730,900 2,274,677 1,723,645
-----------------------------------------------------
Federal Income Tax Provision 287,925 241,177 755,972 574,445
-----------------------------------------------------
Net Income $ 579,924 $ 489,723 $ 1,518,705 $1,149,200
=====================================================
EARNINGS PER COMMON & COMMON EQUIVALENT
SHARES
Primary $ .74 $ .62 $ 1.94 $ 1.46
Fully diluted $ .68 $ .59 $ 1.79 $ 1.39
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES
Primary 784,658 784,558 784,658 784,558
Fully diluted 848,692 827,131 848,650 825,740
DIVIDENDS DECLARED PER SHARE $ .11 $ .09 $ .31 $ .27
-----------------------------------------------------
</TABLE>
<PAGE> 4
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
--------------------------
1996 1995
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $1,518,705 $ 1,149,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loss on loans 28,715 72,165
Depreciation 177,945 138,170
Amortization of covenant not to compete and other
intangible 5,434 22,935
Federal Home Loan Bank stock dividends (87,100) (63,100)
Amortization of net premiums on investment securities 15,597 66,003
Gain (or loss) on real estate owned & other chattel 7,230 (5,430)
Mortgage loans originated for sale (5,575,692) (2,202,339)
Gain on sale of Student Loans -- 18,884
Proceeds from sale of mortgage loans 5,198,647 1,567,976
Net change in accrued interest receivable & other
assets 22,379 (238,380)
Net change in other liabilities (198,709) 489,960
--------------------------
Net Cash Provided by Operating Activities 1,113,151 1,016,044
--------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 3,014,249 1,004,487
Purchases of investment securities/FHLB stock (2,724,048) (1,237,687)
Proceeds from sale of Student Loans -- 1,258,946
Loans originated, net of principal collected (3,872,138) (13,368,914)
Principal collected on mortgage-backed securities 174,018 128,284
Purchases of premises and equipment (2,230,543) (273,410)
Proceeds from sales of real estate and other chattel
owned 57,975 47,400
--------------------------
Net Cash Used by Investing Activities (5,580,487) (12,440,894)
--------------------------
FINANCING ACTIVITIES:
Net change in deposits 1,159,538 (4,693,388)
Net change in advance payments by borrowers for taxes
and insurance (24,224) (64,245)
Net change in borrowed funds 3,940,000 16,056,000
Payment of cash dividends (243,213) (211,832)
Options exercised 1,300 --
--------------------------
Net Cash Provided by Financing Activities 4,833,401 11,086,535
--------------------------
NET CHANGE IN CASH AND EQUIVALENTS 366,065 (338,315)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,335,583 5,593,031
--------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $6,701,648 $ 5,254,716
==========================
</TABLE>
<PAGE> 5
FIRST FEDERAL BANCORP, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
- - ---------------------------
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-QSB. The
Form 10-QSB does not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Only material changes in financial condition and results of
operations are discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
In the opinion of management, the condensed Consolidated Financial
Statements contain all adjustments necessary to present fairly the
financial condition of First Federal Bancorp, Inc. ("Bancorp"), as of June
30, 1996, and September 30, 1995, and the results of its operations for
the three and nine months ended June 30, 1996, and 1995, and its cash flow
for the nine months ended June, 1996 and 1995. The results of operations
for the interim periods reported herein are not necessarily indicative of
results of operations to be expected for the entire year.
2. Commitments
- - -----------------
Outstanding commitments to originate mortgage loans and to sell mortgage
loans were $1,896,832 and $404,641 respectively, at June 30, 1996.
3. Earnings Per Common Share
- - -------------------------------
Earnings per common share is computed by dividing net earnings for the
period by the weighted average number of common shares and common share
equivalents outstanding during the three- and nine-month periods ended
June 30, 1996, and 1995.
4. Allowance for Loan Losses
- - -------------------------------
Because some loans may not be repaid in full, an allowance for loan losses
is recorded. Increases to the allowance are recorded by a provision for
loan losses charged to expense. Estimating the risk of loss and the
amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to
cover possible losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific
borrower situations, including their financial position and collateral
values, and other factors and estimates which are subject to change over
time. While management may periodically allocate portions of the
allowance for specific problem loan situations, the whole allowance is
available for any loan charge-offs that occur. A loan is charged-off by
management as a loss when deemed uncollectible, although collection
efforts continue and future recoveries may occur.
Statement of Financial Accounting Standards ("SFAS") No. 114 and No. 118
are effective October 1, 1995, and require recognition of loan impairment.
Loans are considered impaired if full principal or interest payments are
not anticipated. Impaired loans are carried at the present value of
expected cash flows discounted at the loan's 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.
The effect of adopting these standards is included in bad debt expense,
and was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one-to-four
family residences, residential construction loans, and automobile, home
equity and second mortgage loans. Commercial real estate loans and multi-
family mortgage loans are evaluated individually for impairment. When
analysis of borrower operating results and financial condition indicates
that underlying cash flows of the borrower are not adequate to meet debt
service requirements, the loan is evaluated for impairment. Often this is
associated with a delay or shortfall in payments of 30 days or more. The
Savings Bank ceases to accrue interest on each consumer loan that is
delinquent 90 days or more. Each real estate loan that is delinquent 120
days or more is reviewed by one of the Savings Bank's Loan Officers to
assess the collectability of the loan. If the loan is deemed to be
uncollectible, the Savings Bank ceases to accrue interest on the loan.
These loans are often also considered impaired. Impaired loans, or
portions thereof, are charged-off when deemed uncollectible. The nature
of disclosures for impaired loans is considered generally comparable to
prior nonaccrual and renegotiated loans and nonperforming and past-due
asset disclosures. The Savings Bank had no loans meeting the definition
of impaired during the quarter ended June 30, 1996.
<PAGE> 6
5. Interest Income on Loans
- - ------------------------------
Interest on loans is accrued over the term of the loans based upon the
principal outstanding. Under SFAS No. 114, as amended by SFAS No. 118,
the carrying value of impaired loans is periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in
the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such and other cash
payments are reported as reductions in carrying value. Increases or
decreases in carrying value due to changes in estimates of future payments
or the passage of time are reported as reductions or increases in bad debt
expense.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- - -------
First Federal Bancorp, Inc. ("Bancorp"), is a savings and loan holding
company that wholly owns First Federal Savings Bank of Eastern Ohio (the
"Savings Bank"). The Savings Bank is engaged in the savings and loan
business primarily in Central and Eastern Ohio. The Savings Bank is a
member of the Federal Home Loan Bank ("FHLB") of Cincinnati, and the
accounts in the Savings Bank are insured up to the applicable limits by
the Federal Deposit Insurance Corporation in the Savings Association
Insurance Fund ("SAIF").
Note Regarding Forward-Looking Statements
- - -----------------------------------------
In addition to historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, Bancorp's operations and Bancorp's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include
changes in the economy and interest rates in the nation and Bancorp's
market area generally.
Changes in Financial Condition from September 30, 1995, to June 30, 1996
- - ------------------------------------------------------------------------
Total consolidated assets of Bancorp increased by $6.2 million, or 3.61%,
from $171.6 million at September 30, 1995, to $177.8 million at June 30,
1996. The increase is due primarily to an increase in loans receivable of
$4.1 million and a $2.1 million increase in premises and equipment due to
construction beginning on the $3.2 million renovation and construction
project at the Main Office.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $11.3 million at June 30, 1996, which is an increase of
$.1 million from September 30, 1995. The regulatory liquidity of the
Savings Bank was 5.62% at June 30, 1996, which was in excess of the
minimum regulatory requirement of 5%. Funds are available at the FHLB
through advances to meet the Savings Bank's liquidity requirement if
necessary.
The loans receivable balance increased $4.1 million for the nine-month
period as the anticipated stable mortgage and consumer loan volume in our
market area continued.
As of June 30, 1996, the Savings Bank had borrowed funds consisting of
advances from the FHLB in the amount of $31.5 million, at a weighted
average rate of 6.07%. FHLB advances increased $3.9 million, or 14.13%,
from $27.6 million at September 30, 1995. Deposits increased by $1.2
million, or .93%, from $129.4 million at September 30, 1995, to $130.5
million at June 30, 1996. Management believes that deposits will remain
stable during fiscal year 1996, and that it will be necessary to fund the
anticipated steady loan demand with further advances from the FHLB, whose
rates are less expensive than current market savings rates and their
associated SAIF premiums. No assurance can be provided, however, that
deposits will remain stable or that loan demand will remain steady.
Deposit levels and loan demand are affected by national as well as local
interest rates and other national and local economic circumstances.
The Savings Bank is subject to regulatory capital requirements established
by the Office of Thrift Supervision ("OTS"). The Savings Bank's capital
ratios were as follows at June 30, 1996.
<TABLE>
<CAPTION>
Amount Percent of
(In Thousands) Assets
-------------- ----------
<S> <C> <C>
Actual Tangible Capital $12,529 7.04%
Required Tangible Capital 2,669 1.50%
Excess Tangible Capital $ 9,860 5.54%
Actual Core Capital $12,529 7.04%
Required Core Capital 5,338 3.00%
Excess Core Capital $ 7,191 4.04%
Actual Risk Based Capital $13,760 11.90%
Required Risk Based Capital 9,254 8.00%
Excess Risk Based Capital $ 4,506 3.90%
</TABLE>
<PAGE> 8
Management is not aware of any proposed regulations or recommendations by
the OTS that, if implemented, would have a material effect upon the
Savings Bank's capital.
The deposit accounts of First Federal and other savings associations are
insured by the FDIC in the SAIF. Because a significant portion of the
assessments paid into the fund by savings associations are used to pay the
cost of prior thrift failures, the reserves of the SAIF are below the
level required by law. The deposit accounts of commercial banks are
insured by the FDIC in the Bank Insurance Fund ("BIF"), except to the
extent such banks have acquired SAIF deposits. The reserves of the BIF
met the level required by law in May 1995. As a result of the respective
reserve levels of the funds, deposit insurance assessments paid by healthy
savings associations exceed those paid by healthy commercial banks by
approximately $.19 per $100 in deposits for 1995, and the FDIC has
announced that no BIF assessments will be required of healthy commercial
banks in 1996 except a $2,000 minimum fee. This premium disparity could
have a negative competitive impact on First Federal and other savings
associations.
Congress is considering legislation to recapitalize the SAIF and eliminate
the significant premium disparity. Currently, that recapitalization plan
provides for a special assessment currently expected to be approximately
$.69 to $.71 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. In addition, the
cost of prior thrift failures would be shared by both the SAIF and the
BIF, which would likely increase BIF assessments by $.02 to $.025 per $100
in deposits. SAIF assessments would initially be set at a significantly
lower level in 1996 but could never be reduced below the level set for
healthy BIF insured institutions. These projected assessment levels may
change if commercial banks holding SAIF deposits are provided some relief
from the special assessment or are allowed to transfer their SAIF deposits
to the BIF. The last part of the recapitalization plan provides for the
merger of the SAIF and the BIF on January 1, 1998. The SAIF
recapitalization legislation currently provides for an elimination of the
thrift charter or separate thrift regulation under federal law prior to
the merger of the deposit insurance funds. As a result, First Federal
would be regulated as a bank under federal law, which would subject it to
the more restrictive activity limits imposed on national banks, but it
would have a specified period of time to divest of any nonconforming
assets. In addition, Bancorp would become a bank holding company, which
would become subject to more restrictive activity limits and capital
requirements similar to those imposed on First Federal.
First Federal had $122.6 million in deposits at March 31, 1995. If a
special assessment of $.69 to $.71 per $100 in deposits is imposed, First
Federal will pay an additional assessment of $846,000 to $870,000. This
assessment should be tax-deductible, but it will reduce earnings and capital
for the quarter in which it is recorded. It is expected that quarterly
SAIF assessments for early 1996 would be reduced to approximately $.06 to
$.065 per $100 in deposits.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, Bancorp
can give no assurances that the disparity between BIF and SAIF assessments
will be eliminated and cannot be certain of the impact of First Federal's
being regulated as or converted to a bank until the legislation requiring
such change is enacted.
Under current tax laws, savings associations meeting certain requirements
have been able to deduct from income for tax purposes amounts designated
as reserved for bad debts. Currently, upon the conversion of a savings
association to a bank, certain amounts of the association's bad debt
reserve must be recaptured as taxable income over a six-year period if the
association has used the percentage of taxable income method to compute
its reserve.
Although not yet enacted into law, Congress has approved legislation
requiring, generally, that even if a savings association does not convert
to a bank, any bad debt reserves taken after 1987 using the percentage of
taxable income method must be included in future taxable income of the
association over a six-year period, although a two-year delay may be
permitted for institutions meeting a residential mortgage loan origination
test. Such tax legislation could have an adverse effect on Bancorp,
although until it is enacted, the extent of such effect is uncertain.
Since 1990, the Savings Bank has been the number one lender in mortgage
lending and a leader in auto financing for Muskingum County. This
increase in lending activity along with the increase in repairs and
maintenance to the Main Office resulted in the Savings Bank contracting
with KDA, Inc. of Marietta, Georgia, to aid in defining the Bank's
existing and projected space needs for the future. The Board of Directors
evaluated the options proposed by KDA, Inc. and chose to enter into a $3.2
million contract to expand and renovate the Main Office. The construction
project began in September 1995 and will take approximately one year to
complete.
The construction will also provide the Savings Bank with additional space
needed to expand customer services to include investment advisory and
financial planning services through a third party, Pinnacle Financial
Advisors, Inc. These services were offered beginning in December 1995.
<PAGE> 9
Comparison of Operating Results for the Three- and Nine-Month Periods Ended
June 30, 1996, and 1995
- - ---------------------------------------------------------------------------
Net interest income before provision for loan losses increased $185,000
for the three-month period and $537,000 for the nine-month period. The
net increase is a result of the increases in total interest income
exceeding increases in total interest expense. Total interest income
increased by $228,000 for the three-month period and $1,154,000 for the
nine-month period ended June 30, 1996, compared to the same period in
1995. The increases are primarily due to an increase in the interest rate
earned on mortgage loans and an increase in loans receivable as the result
of the stable loan market. The majority of the loans in the Savings
Bank's portfolio are adjustable-rate mortgage loans whose interest rates
fluctuate with market interest rates.
Interest expense increased by $42,000 for the three-month period and
$618,000 for the nine-month period ended June 30, 1996, as the result of
increases in interest rates in general and increases in the level of
savings deposits at First Federal and in the borrowing at the Federal Home
Loan Bank. It is anticipated that interest rates will remain relatively
stable during the remaining fiscal year 1996, and that the adjustable-rate
mortgage loan portfolio will reprice at slightly higher rates because most
loans originated during fiscal year 1995 were not initially priced at the
fully-indexed interest rate and will be repricing upward at their first
adjustment and because the balance of the adjustable-rate mortgage loan
portfolio will not reprice substantially lower during 1996. No assurance
can be provided, however, that interest rates will remain stable.
Interest rates are affected by general local and national economic
conditions, the policies of various regulatory authorities and other
factors beyond the control of Bancorp.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
- - ----------------------------------------------------------------
Total nonaccrual loans and accruing loans that are 90 days past due were
$455,000 at June 30, 1996, which represents .29% of total loans. This was
a decrease of $60,000 from June 30, 1995.
There were no loans that are not currently classified as nonaccrual, 90
days past due or restructured but which may be so classified in the near
future because management has concerns as to the ability of the borrowers
to comply with repayment terms.
The Savings Bank maintains an allowance for losses on loans and on real
estate owned. The allowance for losses on loans and on real estate owned
was $1,550,000 at June 30, 1996, compared to $1,513,000 at June 30, 1995.
During the nine-month period ended June 30, 1996, the Savings Bank
recorded net recoveries of $22,000, compared to net recoveries of $420,000
during the same period of 1995. The recovery of $431,000 during the March
31, 1995, six-month period was the result of a $428,000 recovery from the
sale of the Gates of Arlington property, which was retained in the
allowance for loan losses. The provisions for loan losses during the nine-
month periods ended June 30, 1996, and 1995, were $29,000 and $72,000
respectively.
The Savings Bank classified no loans meeting the definition of impaired
during the quarter ended June 30, 1996.
The Savings Bank reviews on a monthly basis the allowance for loan losses.
The review of loans to determine the appropriate loan loss provision
includes consideration of relevant factors, including, but not limited to,
trends in the level of nonperforming assets and classified loans, current
and anticipated economic conditions in the primary lending area, past loss
experience and possible losses arising from specific problem assets. To a
lesser extent, management also considers loan concentrations to single
borrowers and changes in the composition of the loan portfolio. While
management believes that it uses the best information available to
determine the appropriate allowance for loan losses, unforeseen market
conditions could result in adjustments, and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in making the final determination.
Noninterest Income and Expense
- - ------------------------------
The federal income tax provision increased $47,000 for the three-month
period and $182,000 for the nine-month period ended June 30, 1996.
Total other income increased $25,000 for the comparative three-month
periods and $109,000 for the comparative nine-month periods ended June 30,
1996, and 1995. Dividends on FHLB stock increased $4,000 for the three-
month comparative periods and $24,000 for the nine-month comparative
periods, due to an increase in FHLB stock held. Fees collected on
products and services offered increased $26,000 for the three-month
comparative periods and $58,000 for the nine-month comparative periods.
The increase in other income for the comparative three-month periods was
offset by a decrease in the gain on sale of loans of $15,000, due to not
selling student loans in the three-month period ended June 30, 1996, as
was done in the three-month period ended June 30, 1995.
<PAGE> 10
Total other expenses increased $92,000 for the comparative three-month
periods and $138,000 for the comparative nine-month periods ended June 30,
1996, and 1995. Salaries and benefits increased $10,000 for the three-
month comparative periods and $93,000 for the comparative nine-month
periods. The salaries and benefits increase is due to the increase in
staff for the nine-month period ended June 30, 1996, from the comparative
nine-month period ended June 30, 1995, and normal pay increases. The data
processing expense increased $27,000 for the three-month comparative
periods due to the FHLB refunding in the June 1995 three-month comparative
period, a $15,000 penalty for discontinuing its check processing service
that proved to be too expensive and decreased $8,000 for the nine-month
comparative periods due to lower negotiated fees from the service bureau.
Impact of New Accounting Standards
- - ----------------------------------
The FASB issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," in December 1990 effective for fiscal years
beginning after December 15, 1994. This will change current accounting
for postretirement medical benefits from recognizing costs as benefits are
paid to accruing costs during an employee's working career. Both the
postretirement expense and the liability will be computed based on an
actuarial valuation. Bancorp is not currently providing postretirement
benefits. Therefore, there was no impact on the Bancorp's financial
statements as a result of adopting SFAS 106.
In May 1995, the FASB issued its SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires companies that engage in mortgage
banking activities to recognize as separate assets rights to service
mortgage loans for others. This Statement is required to be adopted by
First Federal by October 1, 1996, and will be applied prospectively to
rights arising from loans sold by First Federal after adoption of the
Statement. Management has not yet determined the potential impact of this
pronouncement on First Federal's financial statements.
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
<PAGE> 12
SIGNATURES
Pursuant to the requirements 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: August 12, 1996 By: /s/ J. William Plummer
---------------------------------
J. William Plummer
President
Date: August 12, 1996 By: /s/ Connie Ayres LaPlante
---------------------------------
Connie Ayres LaPlante
Chief Financial Officer
<PAGE> 13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,952
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 6,277
<INVESTMENTS-MARKET> 6,281
<LOANS> 155,886
<ALLOWANCE> 1,550
<TOTAL-ASSETS> 177,778
<DEPOSITS> 130,547
<SHORT-TERM> 17,540
<LIABILITIES-OTHER> 1,669
<LONG-TERM> 14,000
0
0
<COMMON> 3,656
<OTHER-SE> 10,366
<TOTAL-LIABILITIES-AND-EQUITY> 177,778
<INTEREST-LOAN> 9,742
<INTEREST-INVEST> 266
<INTEREST-OTHER> 87
<INTEREST-TOTAL> 10,095
<INTEREST-DEPOSIT> 4,083
<INTEREST-EXPENSE> 1,206
<INTEREST-INCOME-NET> 4,806
<LOAN-LOSSES> 29
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,169
<INCOME-PRETAX> 2,275
<INCOME-PRE-EXTRAORDINARY> 2,275
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,519
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.79
<YIELD-ACTUAL> 3.75
<LOANS-NON> 344
<LOANS-PAST> 111
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,550
<CHARGE-OFFS> 0
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,550
<ALLOWANCE-DOMESTIC> 332
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,218
</TABLE>
