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 March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _____________
Commission File No. 0-20380
-------
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) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 April 30, 1997, the latest practicable date, 1,571,716 shares of
the registrant's common stock, no par value, were issued and outstanding.
Page 1 of 14 Pages
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 14
PART I
------
FINANCIAL INFORMATION
---------------------
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At March 31 At September 30
1997 1996
------------ ---------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 5,355,849 $ 4,986,988
Overnight deposits 3,300,000 3,175,000
-----------------------------
Cash and cash equivalents $ 8,655,849 $ 8,161,988
Investment securities held to maturity (Fair value - $4,545,000
in 3/97 and $4,546,000 in 9/96) 4,549,684 4,548,069
Mortgage-backed securities held to maturity (Fair value - $1,547,000
in 3/97 and $1,658,000 in 9/96) 1,542,254 1,661,018
Loans receivable, net 165,865,158 160,297,702
Premises and equipment, net 7,330,357 6,553,874
Accrued interest receivable and other assets 3,742,921 3,244,605
-----------------------------
Total Assets $191,686,223 $184,467,256
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $128,519,607 $130,071,616
Borrowed funds 46,690,000 37,970,000
Advances from borrowers for taxes and insurance 373,898 540,734
Accrued expenses and other liabilities 1,424,445 1,887,057
-----------------------------
Total Liabilities $177,007,950 $170,469,407
-----------------------------
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, 1,653,300 shares issued $ 3,656,323 $ 3,656,323
Retained earnings 11,536,345 10,876,921
Treasury shares, 78,384 shares (514,395) (535,395)
-----------------------------
Total Stockholders' Equity $ 14,678,273 $ 13,997,849
-----------------------------
Total Liabilities and Stockholders' Equity $191,686,223 $184,467,256
=============================
</TABLE>
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,443,385 $3,224,315 $6,876,189 $6,441,336
Interest on mortgage-backed securities 28,773 33,266 58,972 65,587
Interest on investment securities 56,728 62,802 120,670 133,424
Interest on other interest earning investments 42,578 30,659 85,120 64,160
----------------------------------------------------
Total Interest Income 3,571,464 3,351,042 7,140,951 6,704,507
----------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,244,427 1,353,276 2,541,963 2,727,586
Interest on borrowed money 683,289 400,830 1,283,173 822,228
----------------------------------------------------
Total Interest Expense 1,927,716 1,754,106 3,825,136 3,549,814
----------------------------------------------------
Net Interest Income 1,643,748 1,596,936 3,315,815 3,154,693
----------------------------------------------------
Provision for Loan Losses 12,427 2,123 160,090 46,021
Net Interest Income After Provision for Loan Losses 1,631,321 1,594,813 3,155,725 3,108,672
----------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 74,787 76,157 150,635 154,903
Gain on sale of loans 9,552 11,289 24,912 25,420
Dividends on FHLB stock 41,673 28,952 79,297 57,794
Other operating income 100,604 89,100 203,736 188,678
----------------------------------------------------
Total Noninterest Income 226,616 205,498 458,580 426,795
----------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 553,533 509,042 1,010,625 993,746
Occupancy and equipment expense 175,872 122,661 348,548 240,668
Deposit insurance expense 18,253 87,547 105,855 171,475
Data processing expense 88,516 76,886 167,608 146,616
Advertising 66,671 46,344 124,285 86,747
Ohio franchise taxes 49,209 45,874 94,147 87,702
Other operating expenses 250,700 199,250 475,161 401,684
----------------------------------------------------
Total Noninterest Expenses 1,202,754 1,087,604 2,326,229 2,128,638
----------------------------------------------------
Income Before Income Taxes 655,183 712,707 1,288,076 1,406,829
----------------------------------------------------
Provision for Income Taxes 219,413 239,254 428,348 468,048
----------------------------------------------------
Net Income $ 435,770 $ 473,453 $ 859,728 $ 938,781
====================================================
EARNINGS PER COMMON & COMMON
EQUIVALENT SHARES
Primary $ .25 $ .28 $ .49 $ .56
----------------------------------------------------
Fully diluted $ .25 $ .28 $ .49 $ .55
----------------------------------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Primary 1,721,139 1,695,282 1,740,022 1,687,332
----------------------------------------------------
Fully diluted 1,726,654 1,697,280 1,751,309 1,697,189
----------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ .06 $ .05 $ .12 $ .10
----------------------------------------------------
</TABLE>
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31
---------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 859,728 $ 938,781
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 160,090 46,021
Depreciation 210,096 112,942
Federal Home Loan Bank stock dividends (79,200) (57,700)
Amortization of net premiums (discounts) on investment securities (39,808) 20,601
Mortgage loans originated for sale (2,271,476) (2,588,790)
Proceeds from sale of mortgage loans 2,272,142 2,570,288
Change in other assets and other liabilities (425,928) (32,172)
---------------------------
Net Cash Provided by Operating Activities 685,644 1,009,971
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 3,255,074 1,509,427
Purchases of investment securities/FHLB stock (3,672,681) (1,249,500)
Loans originated, net of principal repayments (5,819,385) (202,622)
Principal collected on mortgage-backed securities 118,764 97,867
Purchases of premises and equipment (986,579) (1,621,874)
Proceeds from sales of real estate and other chattel owned 83,228 24,975
---------------------------
Net Cash Used for Investing Activities (7,021,579) (1,441,727)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts (1,552,009) 2,982,303
Net change in advance payments by borrowers for taxes and insurance (166,836) 51,714
Net change in borrowed funds 8,720,000 (2,150,000)
Dividends paid (180,659) (156,912)
Proceeds from exercise of options 9,300 --
---------------------------
Net Cash Provided by Financing Activities 6,829,796 727,105
---------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 493,861 295,349
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,161,988 6,335,583
---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,655,849 $ 6,630,932
===========================
</TABLE>
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 March 31, 1997,
and September 30, 1996, and the results of its operations for the three and
six months ended March 31, 1997, and 1996, and its cash flow for the six
months ended March, 1997 and 1996. 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 $876,310 and $191,435 respectively, at March 31, 1997.
3. Earnings and Dividends Per Common Share
---------------------------------------
Earnings per share (EPS) is based upon the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
The common stock equivalents that result from the outstanding stock options
granted are based on the average market price of the Company's stock for
primary EPS and on the ending market price for the fully diluted EPS. On
November 6, 1996, and on October 26, 1994, the Board of Directors declared
two-for-one stock splits in the form of 100% stock dividends. All earnings
and dividends per share disclosures have been restated to reflect these
stock splits.
4. Allowance for Losses on Loans
-----------------------------
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, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, became
effective October 1, 1995, and requires 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.
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. Mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of
borrower operating results and financial condition indicates that underlying
cash flows of the borrower's business are not adequate to meet its debt
service requirements, the loan is evaluated for impairment. Loans are
generally moved to nonaccrual status when 90 days or more past due. 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 March 31, 1997.
5. Interest Income on Loans
------------------------
Interest on loans is accrued over the term of the loans based upon the
principal outstanding. Management reviews loans delinquent 90 days or more
to determine if the interest accrual should be discontinued. The carrying
value of impaired loans reflects 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.
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, First Federal's operations and First
Federal'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 First Federal's market
area generally. See Exhibit 99.2 hereto, which is incorporated herein by
reference.
Some of the forward-looking statements included herein are the statements
regarding the following:
1. Management's determination of the amount of loan loss allowance;
2. Management's belief that deposits will grow slightly during fiscal year
1997; and
3. Legislative changes with respect to the federal thrift charter.
Changes in Financial Condition from September 30, 1996, to March 31, 1997
- -------------------------------------------------------------------------
Total consolidated assets of Bancorp increased by $7.2 million, or 3.90%,
from $184.5 million at September 30, 1996, to $191.7 million at March 31,
1997. The increase is due primarily to an increase in loans receivable of
$5.6 million, a $535,000 increase in FHLB stock, and a $776,000 increase in
premises and equipment due to the $4.0 million renovation and construction
project at the Main Office, which was completed in November 1996.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $13.2 million at March 31, 1997, which is an increase of
$495,000 from September 30, 1996. The regulatory liquidity of the Savings
Bank was 5.58% at March 31, 1997, which was in excess of the minimum
regulatory requirement of 5%. Funds are available through FHLB advances to
meet the Savings Bank's liquidity requirement if necessary.
The loans receivable balance increased $5.6 million for the six-month period
as the anticipated steady mortgage and consumer loan volume in the Savings
Bank's market area continued.
As of March 31, 1997, the Savings Bank had borrowed funds from the FHLB in
the amount of $46.7 million at a weighted average rate of 6.20%. FHLB
advances increased $8.7 million, or 23%, from $38 million at September 30,
1996. Deposits decreased by $1.6 million, or 1.23%, from $130.1 million at
September 30, 1996, to $128.5 million at March 31, 1997. Management
believes that the Savings Bank will experience a slight increase in deposits
during the current fiscal year in spite of the decrease during the six
months. As the result of the decrease in the SAIF premium cost, the Savings
Bank can afford to pay depositors a slightly higher rate while managing the
cost of funds. FHLB advances have increased in cost compared to deposits of
a similar term. The Savings Bank therefore plans to become more aggressive
in promoting deposit products. No assurance can be provided, however, that
deposits will grow. Deposit levels 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 March 31, 1997.
<TABLE>
<CAPTION>
Amount Percent of
(In Thousands) Assets
-------------- ----------
<S> <C> <C>
Actual Tangible Capital $13,124 6.88%
Required Tangible Capital 2,863 1.50%
----------------------
Excess Tangible Capital $10,261 5.38%
Actual Core Capital $13,124 6.88%
Required Core Capital 5,726 3.00%
----------------------
Excess Core Capital $ 7,398 3.88%
Actual Risk Based Capital $14,428 11.64%
Required Risk Based Capital 9,913 8.00%
----------------------
Excess Risk Based Capital $ 4,515 3.64%
</TABLE>
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 deposits of First Federal and other savings associations are insured by
the FDIC in the SAIF. The deposit accounts of commercial banks are insured
by the FDIC in the Bank Insurance Fund (the "BIF"), except to the extent
such banks have acquired SAIF deposits.
Legislation to recapitalize the SAIF and to eliminate the significant
premium disparity between the BIF and the SAIF became effective September
30, 1996. Pursuant to the recapitalization plan, First Federal paid, on
November 27, 1996, an additional pre-tax assessment of $800,100. Such
payment was recorded as an expense and accounted for by First Federal as of
September 30, 1996. Earnings and capital were, therefore, negatively
affected for the quarter ended September 30, 1996, by an after-tax amount of
approximately $528,000.
The recapitalization plan also provides that the cost of prior thrift
failures will be shared by both the SAIF and the BIF, which has increased
BIF assessments for healthy banks to $.013 per $100 of deposits in 1997.
SAIF assessments for healthy savings associations in 1997 are $.064 per $100
in deposits and may never be reduced below the level set for healthy BIF
institutions.
The recapitalization plan also provides for the merger of the SAIF and the
BIF effective January 1, 1999, assuming there are no savings associations
under federal law. Under separate proposed legislation, Congress is
considering the elimination of the federal thrift charter and the separate
federal regulation of thrifts. As a result, First Federal would have to
convert to a different financial institution charter and would be regulated
under federal law as a bank, including being subject to the more restrictive
activity limitations imposed on national banks.
In addition, Bancorp might become subject to more restrictive holding
company requirements, including activity limits and capital requirements
similar to those imposed on First Federal. Bancorp cannot predict the
impact of the conversion of First Federal to, or regulation of First Federal
as, a bank until the legislation requiring such change is enacted.
In August 1996, Congress passed legislation repealing the reserve method of
accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes and requiring any bad debt reserves taken after
1987, using the percentage of taxable income method, be included in future
taxable income of the association over a six-year period. A two-year delay
is permitted for institutions meeting a residential mortgage loan
origination test. At September 30, 1996, First Federal had approximately
$1.1 million in bad debt reserves subject to recapture for federal income
tax purposes. The deferred tax liability related to the recapture was
established in prior years, so First Federal's net income will not be
negatively affected by this legislation.
Comparison of Operating Results for the Three- and Six-Month
- ------------------------------------------------------------
Periods Ended March 31, 1997, and 1996
- --------------------------------------
Net interest income before provision for loan losses increased $47,000 for
the three-month period and $161,000 for the six-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
$220,000 for the three-month period and $436,000 for the six-month period
ended March 31, 1997, compared to the same period in 1996. 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 $174,000 for the three-month period and
$275,000 for the six-month period ended March 31, 1997, as the result of the
increases in borrowings at the Federal Home Loan Bank due to a decline in
savings deposits and the increased rate paid for funds. The weighted
average rate on the FHLB borrowings is 6.20%, which is higher than the
weighted average rate of 4.05% that was paid on savings deposits.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
- ----------------------------------------------------------------
Total nonaccrual loans and accruing loans that are 90 days past due were
$613,000 at March 31, 1997, which represents .37% of total loans. This was
an increase of $107,000 from March 31, 1996.
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 $1,711,000 at March 31, 1997, compared to $1,550,000 at March 31, 1996.
During the six-month period ended March 31, 1997, the Savings Bank recorded
charge offs of $60,000 and no net recoveries, compared to zero charge offs
and net recoveries of $4,700 during the same period of 1996. The provisions
for loan losses during the six-month periods ended March 31, 1997, and 1996,
were $160,000 and $46,000 respectively.
The Savings Bank classified no loans meeting the definition of impaired
during the quarter ended March 31, 1997.
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 decreased $20,000 for the three-month
period and $40,000 for the six-month period ended March 31, 1997, due to
lower net income for the period.
Total noninterest income increased $21,000 for the comparative three-month
periods and $32,000 for the comparative six-month periods ended March 31,
1997, and 1996. The increase for the comparative three- and six-month
periods was due to an increase in dividends on FHLB stock of $13,000 for the
comparative three-month periods and $22,000 for the comparative six-month
periods, due to the increase in FHLB stock held, and an increase in other
income of $12,000 for the comparative three-month periods and $15,000 for
the comparative six-month periods ended March 31, 1997, and 1996.
Total noninterest expenses increased $115,000 for the comparative three-
month periods and $198,000 for the comparative six-month periods ended March
31, 1997, and 1996. Salaries and benefits increased $44,000 for the three-
month comparative periods and $17,000 for the comparative six-month periods.
The salaries and benefits increase is due to the increase in staff for the
comparative three- and six-month periods ended March 31, 1997. Losses on
real estate owned increased $32,000 for the three-month comparative period
and $30,000 for the comparative six-month period. The data processing
expense increased $12,000 and $21,000 for the three- and six-month periods
due to increased use of the service bureau products. Occupancy expenses
increased $53,000 for the comparative three-month periods and $108,000 for
the comparative six-month periods ended March 31, 1997, and 1996, due to
increased depreciation of $52,000 for the three-month comparative period and
$92,000 for the comparative 6-month period as a result of the completion of
the Main Office construction project. FDIC insurance premiums decreased
$69,000 for the comparative three-month periods and $66,000 for the
comparative six-month periods ended March 31, 1997, due to the reduction in
the SAIF premium and a reduction in the total deposit balances.
Advertising increased $20,000 for the comparative three-month periods and
$38,000 for the comparative six-month periods ended March 31, 1997, and
1996, due to the promotion of the new Main Office construction.
Impact of New Accounting Standards
- ----------------------------------
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 was adopted by First Federal on October 1, 1996,
and will be applied prospectively to rights arising from loans sold by First
Federal after adoption of the Statement. The adoption of SFAS No. 122 did
not have a significant impact on First Federal's financial statements.
On October 1, 1996, First Federal adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages but does not require
entities to use a fair value based method to account for stock-based
compensation plans such as the First Federal stock option plans. If the
fair value accounting encouraged by SFAS No. 123 is not adopted, entities
must disclose the pro forma effect on net income and earnings per share had
the accounting been adopted. Fair value of a stock option is to be
estimated using an option-pricing model that considers exercise price,
expected life of the option, current price of the stock, expected price
volatility, expected dividends on the stock, and the risk-free interest
rate. First Federal will disclose the pro forma impact of this
pronouncement in 1997.
On March 3, 1997, FASB issued SFAS No. 128, "Earnings Per Share," which is
effective for financial statements issued after December 15, 1997. SFAS No.
128 simplifies the calculation of earnings per share by replacing primary
EPS with basis EPS. First Federal expects SFAS No. 128 to have little
impact on its earnings per share calculations in future years. The
Statement will not apply to First Federal until the first quarter of fiscal
year 1998.
PART II
-------
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting was held February 19, 1997. The following
directors were elected to terms expiring in 1999.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Ward D. Coffman, III 1,482,676 1,400
Robert D. Goodrich, II 1,482,676 1,400
Patrick L. Hennessey 1,482,676 1,400
Connie Ayres LaPlante 1,482,676 1,400
</TABLE>
Those directors continuing their term were John C. Matesich, III;
Don R. Parkhill and J. William Plummer.
Two other matters were presented to the shareholders.
1. To approve the First Federal Bancorp, Inc., 1997 Performance
Stock Option Plan for Senior Executive Officers and Outside
Directors:
For 1,407,824 Against 60,456 Abstentions 15,796
--------- ------ ------
2. To ratify the selection of Crowe, Chizek and Company LLP as the
auditors of Bancorp for the current fiscal year:
For 1,482,376 Against 0 Abstentions 1,700
--------- ------ ------
ITEM 5. OTHER INFORMATION
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 3.1 Articles of Incorporation of First Federal Bancorp,
Inc. (The Articles of Incorporation of First Federal
Bancorp, Inc. ("Bancorp"), filed as Exhibit 3.1 to
Bancorp's Registration Statement on Form S-1 ("S-1")
filed with the Securities and Exchange Commission
("SEC") on March 16, 1992, are incorporated herein
by reference.)
Exhibit 3.2 Amendment to the Articles of Incorporation of First
Federal Bancorp, Inc. (The Amendment to the Articles
of Incorporation of Bancorp filed as Exhibit 3.2 to
Bancorp's 10-K for the fiscal year ended September
30, 1992, filed with the SEC on December 29, 1992
(the "1992 10-K") is incorporated herein by
reference.)
Exhibit 3.3 Code of Regulations of First Federal Bancorp, Inc.
(The Code of Regulations of Bancorp filed as Exhibit
3.2 to Bancorp's S-1 filed with the SEC on March 16,
1992, is incorporated herein by reference.)
Exhibit 3.4 Amendment to the Code of Regulations of First
Federal Bancorp, Inc. (The Amendment to the code of
Regulations of Bancorp filed as Exhibit 3.4 to the
1992 10-K is incorporated herein by reference.)
Exhibit 10.9 First Federal Bancorp, Inc., 1997 Performance Stock
Option Plan for Senior Executive Officers and
Outside Directors (Incorporated by reference to
Proxy Statement for 1997 Annual Meeting filed on
January 10, 1997.)
Exhibit 27: Financial Data Schedule
Exhibit 99.2: Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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: May 14, 1997 By: /s/ J. William Plummer
----------------------
J. William Plummer
President
Date: May 14, 1997 By: /s/ Connie Ayres LaPlante
-------------------------
Connie Ayres LaPlante
Chief Financial Officer
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,356
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 6,092
<INVESTMENTS-MARKET> 6,092
<LOANS> 165,865
<ALLOWANCE> 1,711
<TOTAL-ASSETS> 191,686
<DEPOSITS> 128,520
<SHORT-TERM> 16,690
<LIABILITIES-OTHER> 1,798
<LONG-TERM> 30,000
0
0
<COMMON> 3,656
<OTHER-SE> 11,022
<TOTAL-LIABILITIES-AND-EQUITY> 191,686
<INTEREST-LOAN> 6,876
<INTEREST-INVEST> 180
<INTEREST-OTHER> 85
<INTEREST-TOTAL> 7,141
<INTEREST-DEPOSIT> 2,542
<INTEREST-EXPENSE> 1,283
<INTEREST-INCOME-NET> 3,316
<LOAN-LOSSES> 160
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,326
<INCOME-PRETAX> 1,288
<INCOME-PRE-EXTRAORDINARY> 860
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
<YIELD-ACTUAL> 3.75
<LOANS-NON> 492
<LOANS-PAST> 121
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,611
<CHARGE-OFFS> 60
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,711
<ALLOWANCE-DOMESTIC> 1,261
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 450
</TABLE>
EXHIBIT 99.2
------------
Safe Harbor Under the Private Securities Litigation Reform Act of 1995
----------------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about their companies, so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the
statement. First Federal Bancorp, Inc. ("Bancorp") desires to take
advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances
and plans and objectives of management, contained or incorporated by
reference in Bancorp's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997, is forward-looking. In some cases, information regarding
certain important factors that could cause actual results of operations or
outcomes of other events to differ materially from any such forward-looking
statement appear together with such statement. In addition, forward-looking
statements are subject to other risks and uncertainties affecting the
financial institutions industry, including, but not limited to, the
following:
Interest Rate Risk
- ------------------
Bancorp's operating results are dependent to a significant degree on
its net interest income, which is the difference between interest income
from loans, investments and other interest-earning assets and interest
expense on deposits, borrowings and other interest-bearing liabilities. The
interest income and interest expense of Bancorp change as the interest rates
on interest-earning assets and interest-bearing liabilities change.
Interest rates may change because of general economic conditions, the
policies of various regulatory authorities and other factors beyond
Bancorp's control. In a rising interest rate environment, loans tend to
prepay slowly and new loans at higher rates increase slowly, while interest
paid on deposits increases rapidly because the terms to maturity of deposits
tend to be shorter than the terms to maturity or prepayment of loans. Such
differences in the adjustment of interest rates on assets and liabilities
may negatively affect Bancorp's income.
Possible Inadequacy of the Allowance for Loan Losses
- ----------------------------------------------------
Bancorp maintains an allowance for loan losses based upon a number 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, possible
losses arising from specific problem loans and changes in the composition of
the loan portfolio. While the Board of Directors of Bancorp believes that
it uses the best information available to determine the allowance for loan
losses, unforeseen market conditions could result in material adjustments,
and net earnings could be significantly adversely affected if circumstances
differ substantially from the assumptions used in making the final
determination.
Loans not secured by one- to four-family residential real estate are
generally considered to involve greater risk of loss than loans secured by
one- to four-family residential real estate due, in part, to the effects of
general economic conditions. The repayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from
the operation of the property, which may be negatively affected by national
and local economic conditions. Construction loans may also be negatively
affected by such economic conditions, particularly loans made to developers
who do not have a buyer for a property before the loan is made. The risk of
default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions. When consumers have
trouble paying their bills, they are more likely to pay mortgage loans than
consumer loans. In addition, the collateral securing such loans, if any,
may decrease in value more rapidly than the outstanding balance of the loan.
Competition
- -----------
First Federal Savings Bank of Eastern Ohio ("First Federal") competes
for deposits with other savings associations, commercial banks and credit
unions and issuers of commercial paper and other securities, such as shares
in money market mutual funds. The primary factors in competing for deposits
are interest rates and convenience of office location. In making loans,
First Federal competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage
companies and other lenders. Competition is affected by, among other
things, the general availability of lendable funds, general and local
economic conditions, current interest rate levels and other factors which
are not readily predictable. The size of financial institutions competing
with First Federal is likely to increase as a result of changes in statutes
and regulations eliminating various restrictions on interstate and inter-
industry branching and acquisitions. Such increased competition may have an
adverse effect upon Bancorp.
Legislation and Regulation that may Adversely Affect Bancorp's Earnings
- -----------------------------------------------------------------------
First Federal is subject to extensive regulation by the Office of
Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
(the "FDIC") and is periodically examined by such regulatory agencies to
test compliance with various regulatory requirements. As a savings and loan
holding company, Bancorp is also subject to regulation and examination by
the OTS. Such supervision and regulation of First Federal and Bancorp are
intended primarily for the protection of depositors and not for the
maximization of shareholder value and may affect the ability of the company
to engage in various business activities. The assessments, filing fees and
other costs associated with reports, examinations and other regulatory
matters are significant and may have an adverse effect on Bancorp's net
earnings.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance of members of the Bank Insurance Fund (the "BIF") and
the Savings Association Insurance Fund (the "SAIF"). The FDIC has
established a risk-based assessment system for both SAIF and BIF members.
Under such system, assessments may vary depending on the risk the
institution poses to its deposit insurance fund. Such risk level is
determined by reference to the institution's capital level and the FDIC's
level of supervisory concern about the institution.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings associations
under federal law. Under separate proposed legislation, Congress is
considering the elimination of the federal thrift charter and the separate
federal regulation of thrifts. As a result, First Federal would have to
convert to a different financial institution charter. In addition, First
Federal would be regulated under federal law as a bank and would, therefore,
become subject to the more restrictive activity limitations imposed on
national banks. Moreover, Bancorp might become subject to more restrictive
holding company requirements, including activity limits and capital
requirements similar to those imposed on First Federal. Bancorp cannot
predict the impact of the conversion of First Federal to, or regulation of
Federal as, a bank until the legislation requiring such change is enacted.
