FORM 10-QSB
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, 1997
[ ] 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.
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(Exact name of registrant 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
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(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (740) 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
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As of January 31, 1998, the latest practicable date, 1,575,116 shares
of the registrant's common stock, no par value, were issued and outstanding.
FIRST FEDERAL BANCORP, INC.
INDEX
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
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<S> <C>
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
</TABLE>
PART I
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FINANCIAL INFORMATION
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First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At Dec. 31 At September 30
1997 1997
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<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 6,378,307 $ 7,237,127
Overnight deposits 1,450,000 1,600,000
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Cash and cash equivalents $ 7,828,307 $ 8,837,127
Investment securities held to maturity (Fair value
- $7,505,000 in 12/97 and $7,504,000 in 9/97) 7,506,108 7,503,561
Mortgage-backed securities held to maturity (Fair
value - $1,403,000 in 12/97 and $1,477,000 in 9/97) 1,398,477 1,437,681
Loans receivable, net 179,990,757 174,026,629
Premises and equipment, net 7,444,436 7,501,696
Accrued interest receivable and other assets 4,672,063 4,396,375
---------------------------
Total Assets $208,840,148 $203,703,069
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $126,732,294 $126,634,570
Borrowed funds 64,375,000 59,805,000
Advances from borrowers for taxes and insurance 583,506 376,276
Accrued expenses and other liabilities 1,261,190 1,261,362
---------------------------
Total Liabilities $192,951,990 $188,077,208
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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, 1,651,700 shares issued $ 3,656,323 $ 3,656,323
Retained earnings 12,723,917 12,461,620
Treasury shares, 76,584 shares (492,082) (492,082)
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Total Stockholders' Equity $ 15,888,158 $ 15,625,861
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Total Liabilities and Stockholders' Equity $208,840,148 $203,703,069
===========================
</TABLE>
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
December 31
-----------------------
1997 1996
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,795,570 $3,432,804
Interest on mortgage-backed securities 26,025 30,199
Interest on investment securities 98,687 63,942
Interest on other interest earning investments 33,090 42,542
-----------------------
Total Interest Income 3,953,372 3,569,487
-----------------------
INTEREST EXPENSE
Interest on deposits 1,335,241 1,297,536
Interest on borrowed money 945,337 599,884
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Total Interest Expense 2,280,578 1,897,420
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Net Interest Income 1,672,794 1,672,067
-----------------------
Provision for Loan Losses 228,956 147,663
Net Interest Income After Provision for Loan Losses 1,443,838 1,524,404
-----------------------
NONINTEREST INCOME
Service charges on deposit accounts 81,791 75,848
Gain on sale of loans 24,462 15,360
Dividends on FHLB stock 56,390 37,624
Other operating income 115,535 103,131
-----------------------
Total Noninterest Income 278,178 231,963
-----------------------
NONINTEREST EXPENSE
Salaries and employee benefits 452,729 457,092
Occupancy and equipment expense 196,002 172,676
Deposit insurance expense 34,287 87,602
Data processing expense 83,269 79,092
Advertising 63,985 57,614
Ohio franchise taxes 48,859 44,938
Other operating expenses 278,815 224,460
-----------------------
Total Noninterest Expenses 1,157,946 1,123,474
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Income Before Income Taxes 564,070 632,893
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Provision for Income Taxes 191,516 208,935
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Net Income $ 372,554 $ 423,958
=======================
EARNINGS PER SHARE
Basic $ .24 $ .27
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Diluted $ .21 $ .25
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 1,575,116 1,571,716
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Diluted 1,731,663 1,713,068
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DIVIDENDS DECLARED PER SHARE $ .07 $ .06
-----------------------
</TABLE>
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 372,554 $ 423,958
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 228,956 147,663
Depreciation 130,393 92,983
Federal Home Loan Bank stock dividends (56,300) (37,600)
Amortization of net premiums (discounts) on
investment securities (8,828) (32,124)
Mortgage loans originated for sale (2,052,456) (1,234,585)
Proceeds from sale of mortgage loans 1,746,837 1,241,977
Change in other assets and other liabilities (41,961) (663,916)
--------------------------
Net Cash Provided by Operating Activities 319,195 (61,644)
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 2,005,295 1,499,956
Purchases of investment securities/FHLB stock (2,176,614) (1,901,647)
Loans originated, net of principal repayments (5,922,204) (3,013,309)
Principal collected on mortgage-backed securities 39,204 70,306
Sale of real estate owned 18,990 0
Purchases of premises and equipment (73,132) (655,386)
--------------------------
Net Cash Used for Investing Activities (6,108,461) (4,000,080)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts 97,724 (3,756,212)
Net change in advance payments by borrowers for
taxes and insurance 207,229 52,280
Net change in borrowed funds with original
maturities of less than three months 4,570,000 8,700,000
Dividends paid (94,507) (86,356)
Proceeds from exercise of options 0 9,300
--------------------------
Net Cash Provided by Financing Activities 4,780,446 4,919,012
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NET CHANGE IN CASH AND CASH EQUIVALENTS (1,008,820) 857,288
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,837,127 8,161,988
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,828,307 $ 9,019,276
==========================
</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 December 31,
1997, and September 30, 1997, and the results of its operations for the
three months ended December 31, 1997, and 1996, and its cash flow for the
three months ended December, 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 $1,544,950 and $444,394 respectively, at December 31, 1997, and
$591,000 and $139,000 respectively at September 30, 1997.
3. Earnings and Dividends Per Common Share
---------------------------------------
Basic and diluted earnings per share are computed under a new accounting
standard effective in the quarter ended December 31, 1997. All prior
amounts have been restated to be comparable. Basic earnings per share is
based on net income (less preferred dividends) divided by the weighted
average number of shares outstanding during the period. Diluted earnings
per share shows the dilutive effect of additional common shares issuable
under stock options (and convertible securities). 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.
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 December 31, 1997, and September 30, 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
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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 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 1998, and plans to become more aggressive in promoting deposit
products;
3. Management's anticipation that loan demand will increase slightly;
4. Management's anticipation that additional advances from the FHLB will
be necessary to fund loan originations;
5. Management's anticipation that adjustable-rate loans will reprice
higher in fiscal year 1998 if interest rates remain relatively stable;
6. Management's anticipation to add up to $7.5 million in fixed-rate
residential loans to the loan portfolio;
7. Legislative changes with respect to the federal thrift charter; and
8. Management's expectation that the amount of its consumer loans will
increase.
Changes in Financial Condition from September 30, 1997, to December 31, 1997
- ----------------------------------------------------------------------------
Total consolidated assets of Bancorp increased by $5.1 million, or
2.52%, from $203.7 million at September 30, 1997, to $208.8 million at
December 31, 1997. The increase is due primarily to an increase in loans
receivable of $6.0 million, and a $234,000 increase in FHLB stock, offset by
a $1.0 million decrease in cash and cash equivalents.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $6.4 million at December 31, 1997, which is a decrease of
$859,000 from September 30, 1997. The regulatory liquidity of the Savings
Bank was 6.91% at December 31, 1997, and 7.53% at September 30, 1997, which
was in excess of the minimum regulatory requirement of 4%. Funds are
available through FHLB advances to meet the Savings Bank's liquidity
requirement if necessary.
The loans receivable balance increased $6.0 million for the three-month
period as the anticipated steady mortgage and consumer loan volume in the
Savings Bank's market area continued.
As of December 31, 1997, the Savings Bank had borrowed funds from
the FHLB in the amount of $64.4 million at a weighted average rate of 6.08%.
FHLB advances increased $4.6 million, or 7.64%, from $59.8 million at
September 30, 1997. Deposits increased by $100,000, or .08%, from $126.6
million at September 30, 1997, to $126.7 million at December 31, 1997.
Management believes that the Savings Bank will experience a slight increase
in deposits during the current fiscal year. 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 December 31, 1997.
<TABLE>
<CAPTION>
Amount Percent of
(In Thousands) Assets
--------------------------
<S> <C> <C>
Actual Tangible Capital $14,083 6.75%
Required Tangible Capital 3,130 1.50%
-------------------
Excess Tangible Capital $10,953 5.25%
Actual Core Capital $14,083 6.75%
Required Core Capital 6,259 3.00%
-------------------
Excess Core Capital $ 7,824 3.75%
Actual Risk Based Capital $15,488 11.10%
Required Risk Based Capital 11,167 8.00%
-------------------
Excess Risk Based Capital $ 4,321 3.10%
</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.
The recapitalization plan also provides that the cost of prior thrift
failures will be shared by both the SAIF and the BIF, which increased BIF
assessments for healthy banks to $.013 per $100 of deposits in 1997 and
1998. SAIF assessments for healthy savings associations in 1997 were, and
remain in 1998, $.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, 1997, First Federal had approximately
$1.0 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.
Year 2000 Considerations
- ------------------------
As with all financial institutions, First Federal's operations depend almost
entirely on computer systems. First Federal is addressing the potential
problems associated with the possibility that the computers that control or
operate First Federal's operating systems, facilities and infrastructure may
not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. First Federal is
working with the companies that supply or service its computer-operated or -
dependent systems to identify and remedy any year 2000 related problems.
As of the date of this Form 10-QSB, First Federal has not identified any
specific expenses that are reasonably likely to be incurred by First Federal
in connection with this issue and does not expect to incur significant
expense to implement corrective measures. No assurance can be given,
however, that significant expense will not be incurred in future periods.
In the event that First Federal is ultimately required to purchase
replacement computer systems, programs and equipment, or that substantial
expense must be incurred to make First Federal's current systems, programs
and equipment year 2000 compliant, First Federal's net income and financial
condition could be adversely affected.
In addition to possible expense related to its own systems, First Federal
could incur losses if loan payments are delayed due to year 2000 problems
affecting any of First Federal's primary market area. Because First
Federal's loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and First Federal's primary market area is
not significantly dependent upon one employer or industry, First Federal
does not expect any significant or prolonged difficulties that will affect
net earnings or cash flow.
Comparison of Operating Results for the Three-Month
- ---------------------------------------------------
Periods Ended December 31, 1997, and 1996
- -----------------------------------------
Net interest income before provision for loan losses remained stable at $1.7
million for the comparative three-month periods. Total interest income
increased by $384,000 for the three-month period ended December 31, 1997,
compared to the same period in 1996. The increase is 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 $383,000 for the three-month period ended
December 31, 1997, as the result of increases in interest rates of savings
deposits at First Federal and an increase in the amount of borrowings at the
Federal Home Loan Bank. It is anticipated that the adjustable-rate mortgage
loan portfolio will reprice at slightly higher rates because most loans
originated during fiscal year 1997 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 1998. 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
$836,000 at December 31, 1997, which represents .46% of total loans. This
was an increase of $118,000 from December 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 $2,002,000 at December 31, 1997, compared to $1,723,000 at December 31,
1996. During the three-month periods ended December 31, 1997, and December
31, 1996, the Savings Bank recorded no recoveries. The provisions for loan
losses during the three-month periods ended December 31, 1997, and 1996,
were $229,000 and $148,000 respectively.
Noninterest Income and Expense
- ------------------------------
The federal income tax provision decreased $17,000 for the three-month
period ended December 31, 1997, compared to the same period in 1996 due to
lower net income for the period.
Total noninterest income increased $46,000 for the three-month period ended
December 31, 1997, compared to the same period in 1996. Dividends on FHLB
stock increased $19,000 due to an increase in FHLB stock held. Other income
increased $12,000 due to increased fees from the ATM and automatic transfer
services.
Total noninterest expenses increased $34,000 for the quarter ended December
31, 1997, compared to the same period in 1996. Salaries and benefits
decreased $4,000 as a result of a decrease of $68,000 in retirement plan
accrual costs, partially offset by an increase in salaries of $63,000.
Salaries increased due to the increase in staff for the comparative three-
month periods. The SAIF premium decreased $53,000 due to the reduction in
the SAIF premium. Occupancy expense increased $23,000 due to the increased
depreciation on the new Main Office building. Other noninterest expenses
increased $54,000 due to several items; a change in our area code to 740
resulted in all business cards and stationary having to be reordered, a
Sales Tax assessment, a loss on checks of $25,000 due to a fraudulent act,
one-time debit card start-up costs, and increased training and seminar
costs.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in
relative purchasing power of money over time because of inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of First Federal are monetary in nature. As a result, interest
rates have a more significant impact on First Federal's performance than the
effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods
and services.
Effect of Accounting Changes
- ----------------------------
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.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinquishments of Liabilities," was issued by the FASB in 1996. SFAS
125 revises the accounting for transfers of financial assets, such as loans
and securities, and for distinguishing between sales and secured borrowings.
It was originally effective for some transactions in 1997 and others in
1998. SFAS No. 127, "Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125" was issued in December 1996. SFAS 127 defers,
for one year, the effective date of provisions related to securities
lending, repurchase agreements and other similar transactions. The
remaining portions of SFAS 125 continued to be effective January 1, 1997.
SFAS 125 did not have a material impact on First Federal's financial
statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which was
effective for financial statements for periods ending after December 15,
1997, including interim periods. SFAS 128 simplifies the calculation of
earnings per share ("EPS") by replacing primary EPS with basic EPS. It also
requires dual presentation of basic EPS and diluted EPS for entities with
complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common shareholders by the weighted-average
common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in earnings such as stock
options, warrants or other common stock equivalents. All prior period EPS
data will be restated to conform with the new presentation; however, First
Federal does not expect such restatement to be materially different from EPS
data previously reported.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information
about Capital Structure." SFAS 129 consolidated existing accounting
guidance relating to disclosure about a company's capital structure. Public
companies generally have always been required to make disclosures now
required by SFAS 129 and, therefore, SFAS 129 had no material impact on
First Federal. SFAS 129 was effective for financial statements for periods
ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
loses) in a full set of general-purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing
total comprehensive income for the period in that financial statement.
SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement significantly
changes the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS 131 uses a "management approach" to disclose financial and
descriptive information about an enterprise's reportable operating segments
which is based on reporting information the way management organizes the
segments within the enterprise for making operating decisions and assessing
performance. For many enterprises, the management approach will likely
result in more segments being reported. In addition, the Statement requires
significantly more information to be disclosed for each reportable segment
than is presently being reported in annual financial statements. The
Statement also requires that selected information be reported in interim
financial statements. SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997.
PART II
-------
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
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
--------------------------------
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: February 13, 1998 By: /s/ J. William Plummer
-----------------------------
J. William Plummer
President
Date: February 13, 1998 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,378
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 8,905
<INVESTMENTS-MARKET> 8,908
<LOANS> 179,990
<ALLOWANCE> 2,002
<TOTAL-ASSETS> 208,840
<DEPOSITS> 126,732
<SHORT-TERM> 37,375
<LIABILITIES-OTHER> 1,845
<LONG-TERM> 27,000
0
0
<COMMON> 3,656
<OTHER-SE> 12,232
<TOTAL-LIABILITIES-AND-EQUITY> 208,840
<INTEREST-LOAN> 3,796
<INTEREST-INVEST> 124
<INTEREST-OTHER> 33
<INTEREST-TOTAL> 3,953
<INTEREST-DEPOSIT> 1,335
<INTEREST-EXPENSE> 945
<INTEREST-INCOME-NET> 1,673
<LOAN-LOSSES> 229
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,158
<INCOME-PRETAX> 564
<INCOME-PRE-EXTRAORDINARY> 373
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373
<EPS-PRIMARY> .24
<EPS-DILUTED> .21
<YIELD-ACTUAL> 3.86
<LOANS-NON> 699
<LOANS-PAST> 137
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,816
<CHARGE-OFFS> 43
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,002
<ALLOWANCE-DOMESTIC> 1,552
<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
December 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 that 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.
Legislation enacted in 1996 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.
