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, 1998
[ ] 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
FIRST FEDERAL BANCORP, INC.
(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
(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 [ ]
As of January 31, 1999, the latest practicable date, 3,150,532 shares
of the registrant's common stock, no par value, were issued and outstanding.
Page 1 of 13 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 13
PART I
FINANCIAL INFORMATION
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At Dec. 31 At September 30
1998 1998
---------- ---------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository
institutions $ 6,974,777 $ 4,957,155
Overnight deposits 18,150,000 13,375,000
------------------------------
Cash and cash equivalents $ 25,124,777 $ 18,332,155
Investment securities held to maturity
(Fair value - $13,863,000 in 12/98 and
$12,105,000 in 9/98) 13,868,431 12,092,484
Mortgage-backed securities held to
maturity (Fair value - $1,188,000
in 12/98 and $1,252,000 in 9/98) 1,185,935 1,256,327
Loans receivable, net 167,188,849 169,622,791
Premises and equipment, net 7,231,133 7,347,715
Accrued interest receivable and other
assets 5,100,251 4,850,905
------------------------------
Total Assets $219,699,376 $213,502,377
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $153,199,854 $147,688,662
Borrowed funds 47,992,926 47,995,988
Advances from borrowers for taxes and
insurance 518,682 295,463
Accrued expenses and other liabilities 1,233,161 1,022,450
------------------------------
Total Liabilities $202,944,623 $197,002,563
------------------------------
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, 3,303,400 shares
issued $ 3,656,323 $ 3,656,323
Retained earnings 13,589,528 13,334,589
Treasury shares, 152,868 shares (491,098) (491,098)
------------------------------
Total Stockholders' Equity $ 16,754,753 $ 16,499,814
------------------------------
Total Liabilities and
Stockholders' Equity $219,699,376 $213,502,377
==============================
</TABLE>
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------------
1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,513,653 $3,795,570
Interest on mortgage-backed securities 22,803 26,025
Interest on investment securities 156,643 98,687
Interest on other interest earning
investments 205,801 33,090
--------------------------
Total Interest Income 3,898,900 3,953,372
--------------------------
INTEREST EXPENSE
Interest on deposits 1,577,408 1,335,241
Interest on borrowed money 753,266 945,337
--------------------------
Total Interest Expense 2,330,674 2,280,578
--------------------------
Net Interest Income 1,568,226 1,672,794
Provision for Loan Losses (71,509) 228,956
--------------------------
Net Interest Income After Provision
for Loan Losses 1,639,735 1,443,838
--------------------------
NONINTEREST INCOME
Service charges on deposit accounts 79,576 81,791
Gain on sale of loans 26,922 24,462
Dividends on FHLB stock 62,353 56,390
Other operating income 137,027 115,535
--------------------------
Total Noninterest Income 305,878 278,178
--------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 571,496 452,729
Occupancy and equipment expense 226,403 196,002
Deposit insurance expense 35,772 34,287
Data processing expense 130,188 83,269
Advertising 52,256 63,985
Ohio franchise taxes 54,334 48,859
Other operating expenses 290,873 278,815
--------------------------
Total Noninterest Expenses 1,361,322 1,157,946
--------------------------
Income Before Income Taxes 584,291 564,070
Provision for Income Taxes 203,329 191,516
--------------------------
Net Income $ 380,962 $ 372,554
==========================
EARNINGS PER SHARE
Basic $ .12 $ .120
--------------------------
Diluted $ .11 $ .105
--------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,150,532 3,150,232
--------------------------
Diluted 3,467,516 3,463,326
--------------------------
DIVIDENDS DECLARED PER SHARE $ .04 $ .035
--------------------------
</TABLE>
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
December 31
----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 380,962 $ 372,554
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses (71,509) 228,956
Depreciation 144,199 130,393
Federal Home Loan Bank stock dividends (62,300) (56,300)
Amortization of net premiums (discounts)
on investment securities (97,868) (8,828)
Mortgage loans originated for sale (3,019,849) (2,052,456)
Proceeds from sale of mortgage loans 2,994,449 1,746,837
Change in other assets and other
liabilities 23,661 (41,961)
----------------------------
Net Cash Provided by Operating
Activities 291,745 319,195
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 5,505,690 2,005,295
Purchases of investment securities/FHLB stock (7,183,769) (2,176,614)
Loans originated, net of principal repayments 2,485,703 (5,922,204)
Principal collected on mortgage-backed securities 70,392 39,204
Sale of real estate owned 45,150 18,990
Purchases of premises and equipment (27,617) (73,132)
----------------------------
Net Cash Provided (Used) for Investing
Activities 895,549 (6,108,461)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts 5,511,192 97,724
Net change in advance payments by borrowers for
taxes and insurance 223,219 207,229
Net change in borrowed funds with original
maturities of less than three months (3,062) 4,570,000
Dividends paid (126,021) (94,507)
Proceeds from exercise of options 0 0
----------------------------
Net Cash Provided by Financing Activities 5,605,328 4,780,446
----------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,792,622 (1,008,820)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,332,155 8,837,127
----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,124,777 $ 7,828,307
============================
</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,
1998, and September 30, 1998, and the results of its operations for the
three months ended December 31, 1998, and 1997, and its cash flow for the
three months ended December, 1998 and 1997. 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 $1,436,400 and $79,100 respectively, at December 31, 1998, and
$1,846,409 and $53,700 respectively at September 30, 1998.
3. Earnings and Dividends Per Common Share
Basic earnings per share is based on net income 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. On June 3, 1998, the Board of Directors declared a
two-for-one stock split in the form of a 100% stock dividend. All earnings
and dividends per share disclosures have been restated to reflect this stock
split.
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, 1998, and September 30, 1998.
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 deposit
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 increase slightly during fiscal
year 1999;
3. Management's anticipation that no additional advances from the FHLB will
be necessary to fund loan originations;
4. Management's anticipation that some adjustable-rate loans will reprice
higher in fiscal year 1999 and the remainder will not reprice
substantially lower if interest rates remain relatively stable; and
5. Legislative changes with respect to the federal thrift charter.
Changes in Financial Condition from
September 30, 1998 to December 31, 1998
Total consolidated assets of Bancorp increased by $6.2 million, or
2.90%, from $213.5 million at September 30, 1998, to $219.7 million at
December 31, 1998. The increase is due primarily to an increase of $6.8
million in cash and cash equivalents and an increase of $1.8 million in
investments held to maturity, offset by a decrease in loans receivable of
$2.4 million.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $39.0 million at December 31, 1998, which is an increase of
$8.6 million from September 30, 1998. The regulatory liquidity of the
Savings Bank was 16.39% at December 31, 1998 and 14.13% at September 30,
1998, 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 decreased $2.4 million for the three-month
period as the current trend of refinancing of mortgage loans resulted in a
decrease of outstanding loans.
As of December 31, 1998, the Savings Bank had borrowed funds from the FHLB
in the amount of $48.0 million at a weighted average rate of 6.34%. FHLB
advances remained stable from $48.0 million at September 30, 1998. Deposits
increased by $5.5 million, or 3.73%, from $147.7 million at September 30,
1998, to $153.2 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, 1998.
<TABLE>
<CAPTION>
Amount Percent of
(In Thousands) Assets
-------------- ----------
<S> <C> <C>
Actual Tangible Capital $14,947 6.83%
Required Tangible Capital 3,284 1.50%
----------------------
Excess Tangible Capital $11,663 5.33%
Actual Core Capital $14,947 6.83%
Required Core Capital 6,568 3.00%
----------------------
Excess Core Capital $ 8,379 3.83%
Actual Risk Based Capital $16,185 12.15%
Required Risk Based Capital 10,772 8.00%
----------------------
Excess Risk Based Capital $ 5,413 4.15%
</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.
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, 1998, First Federal had approximately
$1.6 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. The Board of
Directors appointed a Year 2000 Committee, which reports to the Board of
Directors monthly.
First Federal has been upgrading its technology as part of a planned
performance quality commitment and for maintaining a competitive position.
As a result, much of the Bank's internal systems now incorporates technology
which has been year 2000 ("Y2K") tested and certified. Beginning in fiscal
year 1996, the Bank's capital budget included replacement of all personal
computers ("PCs") throughout the Company over a 3-to-4-year period. This
will bring most PCs into compliance. First Federal believes that any
additional Y2K costs will be immaterial.
First Federal relies primarily on third-party vendors for its computer
output and processing, as well as other significant functions and services,
such as securities safekeeping services, securities pricing information and
wire transfers. The Year 2000 Committee is working with the vendors to
assess their Y2K readiness. Based upon an initial assessment, the Board of
Directors believes that with planned modifications to existing software and
hardware and planned conversions to new software and hardware, the third-
party vendors are taking the appropriate steps to ensure that critical
systems will function properly. The planned modifications and conversions
should be completed and tested by June 30, 1999.
If the modifications and conversions by both third-party vendors and First
Federal are not completed on a timely basis or if they fail to function
properly, the operations and financial condition of First Federal could be
materially adversely affected. First Federal is developing contingency
plans for continued operations in the event of system failure.
In addition to possible expense related to its own systems, First Federal
may experience increases in problem loans and credit losses in the event
that borrowers fail to prepare properly for Y2K, and higher funding costs
could result if consumers react to publicity about the issue by withdrawing
deposits. First Federal is assessing such risks among its customers. First
Federal could also be materially adversely affected if other third parties,
such as governmental agencies, clearinghouses, telephone companies,
utilities and other service providers fail to prepare properly. First
Federal is therefore attempting to assess these risks and take action to
minimize their effect.
Comparison of Operating Results for the Three-Month
Periods Ended December 31, 1998, and 1997
Net interest income before provision for loan losses decreased $105,000 for
the comparative three-month periods. Total interest income decreased by
$54,500 for the three-month period ended December 31, 1998, compared to the
same period in 1997. The decrease is primarily due to a decrease in the
interest rate earned on mortgage loans and a decrease in loans receivable as
the result of the refinancing trend in the 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.
If interest rates remain relatively stable during fiscal year 1999, the
adjustable-rate mortgage loan portfolio will reprice at slightly higher
rates, as most loans originated during fiscal year 1998 were not initially
priced at the fully indexed interest rate. These loans will be repricing
upward at their first adjustment in fiscal year 1999 while the balance of
the adjustable-rate mortgage loan portfolio will not reprice substantially
lower during fiscal year 1999. 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 First Federal. Interest
expense increased by $50,000 for the three-month period ended December 31,
1998, as the result of increases in interest rates of savings deposits at
First Federal.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
Total nonaccrual loans and accruing loans that are 90 days past due were
$672,000 at December 31, 1998, which represents .40% of total loans. This
was a decrease of $164,000 from December 31, 1997.
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. The allowance
for losses on loans was $1,904,000 at December 31, 1998, compared to
$2,002,000 at December 31, 1997. During the three-month periods ended
December 31, 1998, and December 31, 1997, the Savings Bank recorded no
recoveries and charge-offs of $66,000 and $33,000 respectively. Charge-offs
increased $33,000 due to the losses taken on the sale of repossessed cars.
A percentage of the outstanding loan balances is added or deducted from the
provision for loan losses as the loan portfolio increases and decreases.
During the three-month period ended December 31, 1998, the loan portfolio
decreased $2.4 million, which caused the provision for loan losses for the
period to decrease. The provisions for loan losses during the three-month
periods ended December 31, 1998, and 1997, were $(71,500) and $229,000
respectively.
Noninterest Income and Expense
The federal income tax provision increased $8,000 for the three-month period
ended December 31, 1998, compared to the same period in 1997 due to an
increase in pre-tax net income for the period.
Total noninterest income increased $28,000 for the three-month period ended
December 31, 1998, compared to the same period in 1997. Dividends on FHLB
stock increased $6,000 due an increase in FHLB stock held. Other income
increased $21,000 due to a $15,000 increase in loan late charges and other
loan fees and an increase of $5,000 on ATM fees due to surcharging
noncustomer use of ATMs.
Total noninterest expenses increased $203,000 for the quarter ended December
31, 1998, compared to the same period in 1997. Salaries and benefits
increased $119,000 as a result of an increase of $68,000 in retirement plan
accrual costs for the three-month period ended December 31, 1998, and an
increase in salaries of $51,000. Salaries increased due to the increase in
staff for the comparative three-month periods. Occupancy expense increased
$30,000; $15,000 of the increase was due to increased depreciation on
furniture and fixtures, and $11,000 of the increase was due to increased
costs for routine repairs and maintenance at branch offices. Data
processing costs increased $47,000 due to the costs associated with the
utilization of a networking system and the new check-imaging product.
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
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. The Company does not anticipate
that any further disclosures will be necessary.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 amends the
disclosure requirements of SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination of
Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This Statement standardizes the disclosure
requirements of SFAS No. 87 and No. 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and
other postretirement benefits. The Statement does not change any of the
measurement or recognition provisions provided for in SFAS No. 87, No. 88 or
No. 106. This Statement is effective for fiscal years beginning after
December 15, 1997. First Federal adopted SFAS No. 132 on October 1, 1998,
and required disclosures will be included beginning with the Company's 1999
Annual Report.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities are
required to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e.
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. If certain conditions are met, entities may
elect to designate a derivative instrument as a hedge of exposures to
changes in fair value, cash flows, or foreign currencies. If the hedged
exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings)
and subsequently reclassified into earnings when the forecasted transaction
affects earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss are
reported in earnings immediately. Accounting for foreign currency hedges is
similar to accounting for fair value and cash flow hedges. If the
derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change. This Statement will not
have a material effect on the Company.
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 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: 2February 12, 1999 By: /s/ J. William Plummer
J. William Plummer
President
Date: February 12, 1999 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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,975
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 13,868
<INVESTMENTS-MARKET> 13,863
<LOANS> 167,189
<ALLOWANCE> 1,904
<TOTAL-ASSETS> 219,699
<DEPOSITS> 153,200
<SHORT-TERM> 24,000
<LIABILITIES-OTHER> 1,752
<LONG-TERM> 23,993
3,656
0
<COMMON> 0
<OTHER-SE> 13,098
<TOTAL-LIABILITIES-AND-EQUITY> 219,699
<INTEREST-LOAN> 3,514
<INTEREST-INVEST> 179
<INTEREST-OTHER> 206
<INTEREST-TOTAL> 3,899
<INTEREST-DEPOSIT> 1,577
<INTEREST-EXPENSE> 753
<INTEREST-INCOME-NET> 1,568
<LOAN-LOSSES> (72)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,361
<INCOME-PRETAX> 584
<INCOME-PRE-EXTRAORDINARY> 381
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
<YIELD-ACTUAL> 3.18
<LOANS-NON> 672
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,002
<CHARGE-OFFS> 66
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,904
<ALLOWANCE-DOMESTIC> 1,554
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 350
</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, 1998, 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.
