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, 1999
[ ] 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, 2000, the latest practicable date, 3,196,171 shares of the
registrant's common stock, no par value, were issued and outstanding.
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 11
SIGNATURES 12
PART I
------
FINANCIAL INFORMATION
---------------------
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At Dec. 31 At Sept. 30
1999 1999
---- ----
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 4,931,543 $ 5,355,233
Overnight deposits 0 25,000
----------------------------
Cash and cash equivalents $ 4,931,543 $ 5,380,233
Interest-bearing deposits in other financial institutions 1,897,000 2,497,030
Investment securities held to maturity (Fair value - $8,501,000
in 12/99 and $9,693,000 in 9/99) 8,676,016 9,705,812
Mortgage-backed securities held to maturity (Fair value - $876,000
in 12/99 and $980,000 in 9/99) 880,801 969,044
Loans receivable, net 190,501,098 178,949,202
Federal Home Loan Bank stock 3,856,900 3,790,100
Premises and equipment, net 6,869,574 6,978,793
Accrued interest receivable and other assets 1,705,752 1,589,594
----------------------------
Total Assets $219,318,684 $209,859,808
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $139,538,028 $145,120,096
Borrowed funds 60,245,209 45,568,460
Advances from borrowers for taxes and insurance 561,129 411,326
Accrued expenses and other liabilities 1,145,394 1,107,658
----------------------------
Total Liabilities $201,489,760 $192,207,540
----------------------------
Stockholders' Equity
Preferred stock: $100 par value; 1,000,000 shares
authorized; no shares issued and outstanding
Common stock: no par value; 9,000,000 shares authorized;
3,303,400 shares issued; 3,196,171 shares outstanding in
both 12/99 and 9/99 $ 3,736,076 $ 3,736,076
Retained earnings 14,444,713 14,268,057
Treasury shares, 107,229 shares in both 12/99 and 9/99, at cost (351,865) (351,865)
----------------------------
Total Stockholders' Equity $ 17,828,924 $ 17,652,268
----------------------------
Total Liabilities and Stockholders' Equity $219,318,684 $209,859,808
============================
</TABLE>
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
December 31
------------------------
1999 1998
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,628,251 $3,513,653
Interest on mortgage-backed securities 16,127 22,803
Interest on investment securities 108,792 156,643
Interest on other interest earning investments 32,582 205,801
------------------------
Total Interest Income 3,785,752 3,898,900
------------------------
INTEREST EXPENSE
Interest on deposits 1,372,611 1,577,408
Interest on borrowed funds 773,961 753,266
------------------------
Total Interest Expense 2,146,572 2,330,674
------------------------
Net Interest Income 1,639,180 1,568,226
Provision for Loan Losses 31,290 (71,509)
------------------------
Net Interest Income After Provision
for Loan Losses 1,607,890 1,639,735
------------------------
NONINTEREST INCOME
Service charges on deposit accounts 101,267 79,576
Gain on sale of loans 1,256 26,922
Dividends on FHLB stock 66,872 62,353
Other operating income 171,693 137,027
------------------------
Total Noninterest Income 341,088 305,878
------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 632,915 571,496
Occupancy and equipment expense 240,587 226,403
Deposit insurance expense 35,026 35,772
Data processing expense 118,270 130,188
Advertising 80,427 52,256
Ohio franchise taxes 52,765 54,334
Other operating expenses 302,063 290,873
------------------------
Total Noninterest Expenses 1,462,053 1,361,322
------------------------
Income Before Income Taxes 486,925 584,291
Provision for Income Taxes 182,422 203,329
------------------------
Net Income $ 304,503 $ 380,962
========================
EARNINGS PER SHARE
Basic $ .10 $ .12
------------------------
Diluted $ .09 $ .11
------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,196,171 3,150,532
------------------------
Diluted 3,406,188 3,467,516
------------------------
DIVIDENDS DECLARED PER SHARE $ .04 $ .04
------------------------
</TABLE>
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
Net Income $ 304,503 $ 380,962
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 31,290 (71,509)
Depreciation 150,369 144,199
Federal Home Loan Bank stock dividends (66,800) (62,300)
Amortization of net premiums (discounts) on investment securities (27,217) (97,868)
Mortgage loans originated for sale (199,200) (3,019,849)
Proceeds from sale of mortgage loans 105,200 2,994,449
Change in other assets and other liabilities (78,423) 23,661
--------------------------
Net Cash Provided by Operating Activities 219,722 291,745
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 6,706,099 5,505,690
Purchases of investment securities/FHLB stock (5,049,057) (7,183,769)
Loans originated, net of principal repayments (11,514,985) 2,485,703
Principal collected on mortgage-backed securities 88,243 70,392
Sale of real estate owned / repossessed assets 25,800 45,150
Purchases of premises and equipment (41,150) (27,617)
--------------------------
Net Cash Used for Investing Activities (9,785,050) 895,549
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts (5,582,068) 5,511,192
Net change in advance payments by borrowers for taxes and insurance 149,804 223,219
Net change in borrowed funds with original maturities of less than three
months 15,676,749 (3,062)
Repayment of long-term FHLB advances (1,000,000) 0
Cash dividends paid (127,847) (126,021)
Proceeds from exercise of options 0 0
--------------------------
Net Cash Provided by Financing Activities 9,116,638 5,605,328
--------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (448,690) 6,792,622
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,380,233 18,332,155
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,931,543 $25,124,777
==========================
</TABLE>
See Notes to the Consolidated Financial Statements.
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,
1999, and September 30, 1999, and the results of its operations for the
three months ended December 31, 1999, and 1998, and its cash flow for the
three months ended December, 1999 and 1998. 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 $1,112,600 and $94,000 respectively, at December 31, 1999, and
$3,327,100 and $0 respectively at September 30, 1999.
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.
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 probable
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, 1999, and the year ended
September 30, 1999.
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 99.2 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 increase slightly during fiscal
year 2000;
3. Management's anticipation that loan demand will remain stable but that
the mortgage loan portfolio will increase as higher interest rates make
adjustable mortgages, which are held in portfolio, more attractive;
4. Management's anticipation that advances from the FHLB will increase to
fund loan originations;
5. Management's anticipation that adjustable-rate loans will reprice
higher in fiscal year 2000 if interest rates remain relatively stable;
and
6. Legislative changes with respect to the activities of financial
institutions.
Changes in Financial Condition from September 30, 1999 to December 31, 1999
- ---------------------------------------------------------------------------
Total consolidated assets of Bancorp increased by $9.5 million, or 4.51%,
from $209.9 million at September 30, 1999, to $219.3 million at December 31,
1999. The increase is due primarily to an increase of $11.6 million in
loans receivable offset by a decrease of $.4 million in cash and cash
equivalents and a decrease of $1.6 million in investments held to maturity.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $15.5 million at December 31, 1999, which is a decrease of
$2.1 million from September 30, 1999. The regulatory liquidity of the
Savings Bank was 5.51% at December 31, 1999 and 6.49% at September 30, 1999,
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 $11.6 million for the three-month
period. As rates increased, consumer demand for adjustable-rate mortgages
has increased. The Savings Bank has retained these adjustable-rate
mortgages in its portfolio as they meet the requirement of its Strategic
Plan. Management anticipates that loan demand will remain stable but that
the mortgage loan portfolio will increase as higher interest rates make
adjustable mortgages, which are held in portfolio, more attractive. No
assurance can be provided, however, that the loan portfolio will increase or
that loan demand will remain stable.
As of December 31, 1999, the Savings Bank had borrowed funds from the FHLB
in the amount of $60.2 million at a weighted average rate of 6.24%. FHLB
advances increased $14.7 million from $45.6 million at September 30, 1999.
Deposits decreased by $5.6 million, or 3.85%, from $145.1 million at
September 30, 1999, to $139.5 million at December 31, 1999. The decrease in
savings was due to a $3.4 million reduction in jumbo certificates that
matured and a $1.7 million reduction in noncertificate accounts. Management
believes that deposits will increase slightly during fiscal year 2000 and
that it will be necessary to fund the anticipated steady loan demand with
further advances from the FHLB, whose rates are now in line with current
market savings rates and their SAIF premiums. No assurance can be provided,
however, that deposits will increase slightly and that the loan portfolio
will increase or that loan demand will remain stable. Deposit levels and
loan demand are affected by national, as well as local, interest rates, the
attractiveness of alternative investments 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, 1999.
<TABLE>
<CAPTION>
Amount Percent of
(In Thousands) Assets
-------------- ----------
<S> <C> <C>
Actual Tangible Capital $15,786 7.16%
Required Tangible Capital 3,307 1.50%
----------------------
Excess Tangible Capital $12,479 5.66%
----------------------
Actual Core Capital $15,786 7.16%
Required Core Capital 8,819 4.00%
----------------------
Excess Core Capital $ 6,967 3.16%
Actual Risk Based Capital $17,161 12.20%
Required Risk Based Capital 11,257 8.00%
----------------------
Excess Risk Based Capital $ 5,904 4.20%
</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, 1999, 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.
Comparison of Operating Results for the Three-Month Periods Ended
- -----------------------------------------------------------------
December 31, 1999, and 1998
- ---------------------------
Net interest income before provision for loan losses increased $71,000 for
the comparative three-month periods. Total interest expense decreased
$184,000 for the three-month period ended December 31, 1999, compared to the
same period in 1998, but was offset by a decrease of interest income of
$113,000. Total interest expense decreased due to the reduced balance of
savings deposits during the three-month period ended December 31, 1999,
compared to the same period in 1998. Total interest income decreased
primarily due to a reduction in the interest earned on other interest
earning investments. The balance of other earning investments decreased
$16.3 million to $1.9 million at December 1999, compared to December 1998.
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 2000,
the adjustable-rate mortgage loan portfolio will reprice at slightly higher
rates, as most loans originated during fiscal year 1999 were not initially
priced at the fully indexed interest rate. These loans will be repricing
upward at their first adjustment in fiscal year 2000 while the balance of
the adjustable-rate mortgage loan portfolio will not reprice substantially
lower during fiscal year 2000. 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.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
- ----------------------------------------------------------------
Total nonaccrual loans and accruing loans that are 90 days past due were
$326,000 at December 31, 1999, which represents .15% of total loans. This
was a decrease of $346,000 from December 31, 1998.
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 $1,770,000 at December 31, 1999, compared to
$1,904,000 at December 31, 1998. During the three-month periods ended
December 31, 1999, and December 31, 1998, the Savings Bank recorded
recoveries of $4,500 and $0 and charge-offs of $87,000 and $66,000
respectively. Charge-offs increased $21,000 due to the losses taken on
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, 1999, the
loan portfolio increased $11.6 million, which caused the provision for loan
losses for the period to increase. The provisions for loan losses during
the three-month periods ended December 31, 1999, and 1998, were $31,300 and
$(71,500) respectively.
Noninterest Income and Expense
- ------------------------------
The federal income tax provision decreased $21,000 for the three-month
period ended December 31, 1999, compared to the same period in 1998 due to a
decrease in pre-tax net income for the period.
Total noninterest income increased $35,000 for the three-month period ended
December 31, 1999, compared to the same period in 1998. Dividends on FHLB
stock increased $4,500 due to an increase in FHLB stock held. Other income
increased $35,000 due to a $16,000 increase on fees collected on savings
products, a $6,200 collection of dormant fees, and a $8,000 increase in ATM,
ACH and miscellaneous fees. Fees collected on checking accounts increased
$22,000. These increases are a result of implementing recommendations from
the independent study completed in the second quarter of fiscal 1999. These
increases were offset by a decrease in a gain on the sale of loans due to
keeping more of the loan production in portfolio.
Total noninterest expenses increased $100,000 for the quarter ended December
31, 1999, compared to the same period in 1998. Salaries and benefits
increased $61,000 as a result of an additional pay period in the three-month
period ended December 1999 compared to the three-month period ended December
31, 1998. Occupancy expense increased $14,000 for the three-month period
ended December 31, 1999; $5,500 of the increase was due to increased
depreciation on furniture and fixtures, and $12,000 of the increase was due
to increased costs for ATM upgrades and maintenance agreements on equipment.
Data processing costs decreased $12,000 due to a refund of $45,000 for costs
associated with the utilization of a networking system. Advertising
increased $28,000 due to increased marketing and increased marketing 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
- ----------------------------
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. SFAS No. 133, as amended,
is effective for fiscal years beginning after June 15, 2000. 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
-----------------
Treasury Stock.
---------------
First Federal Bancorp, Inc. announced on November 17, 1999 that
its Board of Directors has authorized management to purchase up
to 100,000 shares of its common stock representing approximately
3.1% of the outstanding shares of the Bancorp. The Bancorp
currently anticipates that such purchases will occur over the
course of the next year. The shares will be purchased from time-
to-time in the open market or in privately negotiated
transactions at the discretion of management. Cash on hand will
be used to fund the purchases.
The Board of Directors determined that the repurchase program
would be wise to commence in light of the current market for the
shares of Bancorp and the strong capital position of First
Federal Savings Bank of Eastern Ohio, its wholly owned
subsidiary. The shares purchased will be added to the Bancorp's
Treasury and used for general corporate purposes, including stock
options.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 3.1 The Articles of Incorporation of First Federal
Bancorp, Inc. ("Bancorp"), filed as Exhibit 4a(1)
to Bancorp's Registration Statement on Form S-8
filed with the Securities and Exchange Commission
("SEC") on February 1, 1994 (the "1994 S-8"), are
incorporated herein by reference.
Exhibit 3.2 The Amendment to the Articles of Incorporation of
Bancorp, filed as Exhibit 4a(1) to the 1994 S-8, is
incorporated herein by reference.
Exhibit 3.3 The Code of Regulations of Bancorp filed as Exhibit
4b to Bancorp's Registration Statement on S-8,
filed with the SEC on February 1, 1994, is
incorporated herein by reference.
Exhibit 3.4 The Amendment to the Code of Regulations of Bancorp
filed as Exhibit 4b to Bancorp's Registration
Statement on S-8, filed with the SEC on February 1,
1994, is incorporated herein by reference.
Exhibit 27 Financial Data Schedule
Exhibit 99.2 Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
Form 8-K Filed Form 8-K on December 23, 1999 regarding the
dismissal of Crowe, Chizek and Company LLP as
certifying accountants and the engagement of Olive
LLP to serve as independent public accountants.
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 11, 2000 By: /s/ J. William Plummer
----------------------------
J. William Plummer
President
Date: February 11, 2000 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,932
<INT-BEARING-DEPOSITS> 1,897
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 8,676
<INVESTMENTS-MARKET> 8,501
<LOANS> 190,501
<ALLOWANCE> 1,770
<TOTAL-ASSETS> 219,319
<DEPOSITS> 139,538
<SHORT-TERM> 36,265
<LIABILITIES-OTHER> 1,706
<LONG-TERM> 23,980
0
0
<COMMON> 3,736
<OTHER-SE> 14,093
<TOTAL-LIABILITIES-AND-EQUITY> 219,319
<INTEREST-LOAN> 3,645
<INTEREST-INVEST> 141
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,786
<INTEREST-DEPOSIT> 1,373
<INTEREST-EXPENSE> 774
<INTEREST-INCOME-NET> 1,639
<LOAN-LOSSES> 31
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,462
<INCOME-PRETAX> 487
<INCOME-PRE-EXTRAORDINARY> 305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305
<EPS-BASIC> .10
<EPS-DILUTED> .09
<YIELD-ACTUAL> 3.37
<LOANS-NON> 326
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,821
<CHARGE-OFFS> 87,000
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,770
<ALLOWANCE-DOMESTIC> 1,420
<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, 1999, 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.
