<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number: 0-26360
Frankfort First Bancorp, Inc.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1271129
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
216 West Main Street, Frankfort, Kentucky 40602
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(502) 223-1638
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 10, 1996: 3,450,000
---------
Page 1 of 16 pages
1
<PAGE>
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
---------------------
Item 1 Consolidated Statements of Financial Condition at
March 31, 1996 and June 30, 1995 3
Consolidated Statements of Income for the nine months
ended March 31, 1996 and 1995 4
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 31, 1996 5
Statements of Cash Flows for the nine months ended
March 31, 1996 and 1995 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12
PART II. OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of Matters to a
Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
- - ----------
2
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
MARCH 31, JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents $ 18,064,819 $ 38,016,923
Interest-bearing deposits 800,000 800,000
Investment securities (estimated market
value of $ 9,899,615 at March 31, 1996
and $100,000 at June 30, 1995) 9,875,941 100,765
Loans receivable (net) 106,802,278 100,601,917
Federal Home Loan Bank stock 1,041,700 989,700
Accrued interest and dividends receivable 507,676 211,932
Property and equipment, at cost, less
accumulated depreciation 1,441,404 1,321,186
Conversion cost -0- 580,662
Other assets 82,575 114,070
----------- -----------
TOTAL ASSETS $138,616,393 $142,737,155
------------ ------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Deposits $ 85,359,307 $119,040,605
Escrows 181,727 320,058
Borrowed funds 4,547,035 4,416,353
Accrued federal income taxes
Current 1,460 ( 21,933)
Deferred ( 39,241) ( 11,766)
Accrued expense 327,746 312,413
Accrued dividends payable 310,500 -0-
Other liabilities 91,172 77,539
----------- -----------
TOTAL LIABILITIES 90,779,706 124,133,269
Stockholders' equity:
Common stock ($ .01 par value,
7,500,000 shares authorized; 3,450,000
shares issued and outstanding) 34,500 -0-
Additional paid-in capital 33,355,452 -0-
Unallocated ESOP shares ($ .01 par value;
270,910 shares unallocated) ( 2,709,100) -0-
Management recognition plan ($.01 par
value; 136,920 shares) ( 1,884,707) -0-
Retained earnings
(substantially restricted) 19,040,542 18,603,886
----------- -----------
Total stockholders' equity 47,836,687 18,603,886
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $138,616,393 $142,737,155
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
MARCH 31, MARCH 31,
--------- ---------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable:
First mortgage loans $1,901,550 $1,790,823 $5,602,283 $5,253,705
Equity and other loans 94,082 85,084 285,168 232,563
Deposits 247,114 66,818 1,075,155 233,766
Investment securities 236,600 1,594 408,733 4,781
--------- --------- --------- ---------
TOTAL INTEREST INCOME 2,479,346 1,944,319 7,371,339 5,724,815
INTEREST EXPENSE
Deposits 1,042,285 1,001,213 3,233,748 2,843,204
Borrowed funds 70,027 72,259 206,354 216,895
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 1,112,312 1,073,472 3,440,102 3,060,099
--------- --------- --------- ---------
NET INTEREST INCOME 1,367,034 870,847 3,931,237 2,664,716
PROVISION FOR LOAN LOSSES 3,000 3,000 9,000 9,000
--------- --------- --------- ---------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES 1,364,034 867,847 3,922,237 2,655,716
NONINTEREST INCOME 32,643 26,210 102,627 92,590
NONINTEREST EXPENSE
General and administrative:
Compensation and benefits 286,880 268,173 935,415 754,665
Occupancy and equipment 46,025 43,313 135,147 123,488
Deposit insurance premium 69,242 67,356 182,734 186,236
Other 303,495 149,630 686,888 459,008
--------- --------- --------- ---------
TOTAL NONINTEREST
EXPENSE 705,642 528,472 1,940,184 1,523,397
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAXES 691,035 365,585 2,084,680 1,224,909
PROVISION FOR INCOME TAXES 283,890 124,114 716,524 416,059
--------- --------- --------- ---------
NET INCOME $ 407,145 $241,471 $1,368,156 $ 808,850
--------- --------- --------- ---------
EARNINGS PER SHARE $ .13 N/A $ .43 N/A
--------- --------- --------- ---------
DIVIDENDS PER SHARE $ .09 N/A $ .18 N/A
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNALLOCATED MANAGEMENT TOTAL
COMMON PAID IN ESOP RECOGNITION RETAINED STOCKHOLDER'S
STOCK CAPITAL SHARES PLAN EARNINGS EQUITY
----- ------- ------ ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1995 $ -0- $ -0- $ -0- $ -0- $18,603,886 $18,603,886
Initial stock
issue 34,500 33,355,452 (2,710,000) -0- -0- 30,679,952
Allocated
ESOP shares -0- -0- 900 -0- -0- 900
Stock acquired
for management
recognition plan -0- -0- -0- (1,884,707) -0- (1,884,707)
Net income
for the nine
months ended
March 31,1996 -0- -0- -0- -0- 1,368,156 1,368,156
Less:
dividends
declared -0- -0- -0- -0- ( 931,500) ( 931,500)
------- ----------- ------------ ------------ ------------ ------------
Balance,
March 31,
1996 $34,500 $33,355,452 ($2,709,100) ($ 1,884,707) $19,040,542 $47,836,687
------- ----------- ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,368,156 $ 808,850
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 69,256 71,487
Deferred income taxes ( 27,475) ( 1,689)
(Increase) decrease in other assets 612,157 ( 416,802)
(Increase) decrease in accrued interest
receivable-investments ( 236,629) -0-
Increase (decrease) in accrued expenses 349,226 39,813
Increase (decrease) in other liabilities 13,633 ( 3,345)
----------- ----------
Net cash provided by operating activities 2,148,324 498,314
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and building ( 189,474) ( 65,808)
(Purchase) sale of FHLB stock ( 52,000) 21,200
Purchase of investment securities ( 9,775,423) -0-
(Increase) decrease in certificates of deposit -0- 1,400,000
Investment accretion 247 247
Loan originations and principal payments on
loans including accrued interest ( 6,259,476) (3,104,426)
Principal payments on loan participations -0- 45,088
Net cash (used) provided in investing ----------- ----------
activities (16,276,126) (1,703,699)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
(net of unallocated ESOP shares) 30,679,952 -0-
Purchase of stock for management recognition
plan ( 1,883,807) -0-
Net increase (decrease) in time and demand
deposits (33,681,298) (2,327,563)
Net increase (decrease) in FHLB advances 130,682 ( 175,489)
Net increase (decrease) in mortgage escrow
funds ( 138,331) ( 61,158)
Dividends declared ( 931,500) -0-
----------- ----------
Net cash generated (used) by financing
activities ( 5,824,302) (2,564,210)
----------- ----------
Increase (decrease) in cash and cash
equivalents (19,952,104) (3,769,595)
Cash and cash equivalents at beginning of
period 38,016,923 8,739,372
----------- ----------
Cash and cash equivalents at end of period $18,064,819 $4,969,777
----------- ----------
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits $ 3,275,605 $2,816,179
----------- ----------
Interest paid on borrowed funds $ 206,354 $ 216,895
----------- ----------
Income taxes paid $ 628,446 $ 409,000
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
March 31, 1996 and 1995
(1) FRANKFORT FIRST BANCORP, INC.-CONVERSION TO STOCK FORM OF
OWNERSHIP
On July 7, 1995, the Bank converted from a Federal mutual savings bank to a
Federal stock savings bank. The stock of the Bank was issued to the holding
company (Frankfort First Bancorp, Inc.) formed in connection with the
conversion. Pursuant to the Plan, shares of capital stock of the holding
company were offered initially for subscription to eligible account
holders, the tax-qualified employee stock benefit plan, supplemental
eligible account holders, other members of the Bank, and members of the
public pursuant to priorities established by applicable regulations.
The number of shares sold was 3,450,000, at $10 per share resulting in
gross proceeds of $34,500,000.
Pursuant to the plan of conversion, Frankfort First Bancorp, Inc. (Bancorp)
has loaned to the Frankfort First Bancorp, Inc. Employee Stock Ownership
Plan Trust $2,710,000 for purchase of stock by the employees' stock
ownership plan. In addition, the Bancorp has reimbursed the Bank for
conversion costs incurred by the Bank. The total conversion cost was
$1,110,048. The Bancorp invested one half of the remainder, $16,694,976 to
purchase 100% of the ownership of the Bank. The remaining proceeds have
been invested or used for general corporate purposes.
The Bancorp charged the deferred conversion costs against the gross
proceeds and accounts for its investment in the Bank under the equity
method.
As required by the plan of conversion, the Bancorp established a
liquidation account of approximately $18,524,000. This account was
established to provide to each eligible account holder (a person with a
qualifying deposit account in the Bank on June 30, 1993) and to each
supplemental eligible account holder (a person with a qualifying deposit in
the Bank on March 31, 1995) an interest in the liquidation account in the
unlikely event of complete liquidation. The creation and maintenance of the
liquidation account does not restrict the use or application of any of the
capital accounts of Frankfort First Bancorp, Inc., except that Frankfort
First Bancorp, Inc. may not declare or pay a cash dividend on, or
repurchase any of its capital stock if the effect of such dividend or
repurchase would be to cause its retained earnings to be redeemed below the
aggregate minimum amount of the account.
(continued)
7
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
March 31, 1996 and 1995
(2) BASIS OF PREPARATION
The accompanying unaudited financial statements were prepared in accordance
with instructions for Form 10-Q and therefore do not include all
disclosures necessary for a complete presentation of the statements of
financial condition, statements of income, statement of retained earnings
and statements of cash flows in conformity with generally accepted
accounting principles. However, all adjustments which are, in the opinion
of management, necessary for the fair presentation of the interim financial
statements have been included and all such adjustments are of a normal
recurring nature. The statement of income for the nine month period ended
March 31, 1996 is not necessarily indicative of the results which may be
expected for the entire year. These financial statements should be read in
conjunction with the audited financial statements and the notes thereto for
the year ended June 30, 1995. The balance sheet at June 30, 1995 and the
statement of income and statement of cash flows for the nine months ended
March 31, 1995 are for periods prior to the conversion to a stock savings
bank and only include operations of First Federal Savings Bank of
Frankfort. The financial statements at March 31, 1996 reflect the
consolidated operations of Frankfort First Bancorp, Inc. and First Federal
Savings Bank of Frankfort.
(3) REGULATORY CAPITAL REQUIREMENTS
At March 31, 1996, the wholly owned subsidiary, First Federal Savings Bank
of Frankfort, met each of the three current minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at March 31, 1996:
<TABLE>
<CAPTION>
AMOUNT PER CENT (1)
------ --------
<S> <C> <C>
Tangible Capital:
Actual $36,502,053 25.98%
Required 2,107,805 1.50
----------- -----
Excess $34,394,248 24.48%
----------- -----
Core Capital:
Actual $36,502,053 25.98%
Required 4,215,610 3.00
----------- -----
Excess $32,286,443 22.98%
----------- -----
</TABLE>
(continued)
8
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
March 31, 1996 and 1995
<TABLE>
<S> <C> <C>
Risk-Based Capital:
Actual $36,594,333 55.69%
Required 5,257,662 8.00
----------- ----
Excess $31,336,671 47.69%
----------- ------
</TABLE>
(1) Tangible and core capital levels are shown as a percentage of
total adjusted assets; risk-based capital levels are shown as a
percentage of risk-weighted assets.
(4) EARNINGS AND DIVIDENDS PER SHARE
Earnings per share for the nine months ended March 31, 1996 were $ .43.
They were determined based upon the weighted average shares outstanding of
3,179,083 for the quarter ended March 31, 1996 and 3,179,039 for the nine
months ended March 31, 1996.
Dividends per share represent the dividends declared at September 30, 1995,
December 31, 1995 and March 31, 1996 in the amount of $ .09 per share on
the total issued and outstanding shares of 3,450,000 resulting in dividends
of $931,500 and a total of $ .27 per share for the nine months ended
March 31, 1996.
(5) DEPOSITS
Deposits at March 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
Demand and NOW accounts
(including noninterest bearing
deposits of $180,594) $ 3,731,934
Money Market 5,425,056
Passbook Savings 11,508,745
Certificates of Deposit 64,693,572
-----------
Total $85,359,307
-----------
</TABLE>
(continued)
9
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(6) LOANS RECEIVABLE
Loans receivable at March 31, 1996 and June 30, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
<S> <C> <C>
First mortgage loans
(principally conventional):
Principal balances:
Secured by one-to-four-
family residences $100,864,426 $ 94,816,099
Secured by other properties 1,512,666 1,683,058
Construction loans 166,924 146,790
------------ ------------
102,544,016 96,645,947
Net deferred loan-
origination fees ( 94,447) ( 28,407)
------------ ------------
Total first mortgage loans 102,449,569 96,617,540
Consumer and other loans:
Principal balances:
Share loans 484,605 618,415
Home equity and second
mortgage 3,960,384 3,449,242
------------ ------------
Total consumer and
other loans 4,444,989 4,067,657
------------ ------------
Allowance for loan losses ( 92,280) ( 83,280)
------------ ------------
$106,802,278 $100,601,917
------------ ------------
</TABLE>
Mortgage loans included approximately $87,186,930 and $90,298,573 of
adjustable rate mortgage loans at March 31, 1996 and June 30, 1995,
respectively.
(continued)
10
<PAGE>
FRANKFORT FIRST BANCORP, INC.
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
(7) MANAGEMENT RECOGNITION PLAN
At the Annual Shareholders meeting on January 16, 1996, approval was given
to a management recognition plan to reward and retain personnel of
experience and ability in key positions of responsibility by providing
employees and directors of the Company with a proprietary interest in the
Company. The Plan provides for the acquisition of a maximum of 138,000
shares of the Company's stock. Plan Share Awards shall become non-
forfeitable upon the participant's completion of each of five years of
service. During the quarter ended March 31, 1996, the Company acquired
136,920 shares at a total cost of $1,973,705. Also during this quarter, the
Company accrued additional compensation expense of $88,998 as a result of
this plan. The unamortized cost of these shares of $1,884,707 is reflected
as a reduction in stockholder's equity.
(8) SUBSEQUENT EVENTS
On April 24, 1996, the Company announced the authorization of the payment
of a special distribution of $4.00 per share payable on June 3, 1996 to
stockholders of record as of May 15, 1996. Based on a ruling received by
the Internal Revenue Service, the Company estimates that all of this
special distribution and possibly the dividends paid January 15, 1996 and
April 15, 1996 will not be considered taxable dividends, but will be
applied against and will reduce the shareholders' adjusted basis in the
Company's stock.
11
<PAGE>
Management's Discussion and Analysis
General
The principal business of Frankfort First Bancorp, Inc. (the Company) is
that of First Federal Savings Bank of Frankfort (the Bank). On July 7, 1995 in
connection with the Bank's conversion to stock form, the Company issued
3,450,000 shares of common stock to the public and the Bank issued all of its
issued and outstanding common stock to the Company. Financial information for
periods prior to July 7, 1995, reflects the Bank only. The principal business
of the Bank consists of accepting deposits from the general public and investing
these funds in loans secured by one-to-four-family owner-occupied residential
properties in the Bank's primary market area. The Bank also invests in loans
secured by non-owner occupied one-to-four family residential properties and some
churches located in the Bank's primary market area. The Bank also maintains an
investment portfolio which includes FHLB stock, FHLB certificates of deposit,
Government Agency-issued bonds, and other investments.
Pending Assessment to Remove BIF-SAIF Premium Disparity
As a result of a recent reduction by the FDIC of deposit insurance rates
applicable to commercial banks, there is a significant disparity in the rates
paid by commercial banks and savings associations. Generally, commercial banks
are insured by and pay their premiums to the Bank Insurance Fund ("BIF"), and
savings associations are insured by and pay their premiums to the Savings
Association Insurance Fund ("SAIF"), with both the BIF and the SAIF administered
by the FDIC. To the extent a commercial bank has deposits acquired from a
savings association, premiums on such deposits are assessed by the SAIF rather
than the BIF. Commercial banks and savings associations both previously paid a
deposit insurance premium to the FDIC based upon the same rate schedule, which
ranged, in 1995, from 0.23% to 0.31%. On August 8, 1995, the FDIC voted to lower
the minimum insurance premiums charged to the best rated BIF-insured
institutions from 0.23% to 0.04% while leaving the level of premiums intact for
SAIF-insured institutions. Under this new rate structure, the best-rated SAIF-
insured institutions will pay assessments at 0.23% of insured deposits. This new
rate structure is effective for the quarter ended September 30, 1995.
Subsequently, the FDIC reduced the premium rate for the most highly-rated BIF-
insured institutions to 0.0%. The actual premium rate charged depends upon that
institution's assigned assessment risk classification, which in turn is based
upon its capital levels and supervisory evaluation.
As a result of this premium disparity, BIF-insured institutions could have
a significant competitive advantage over SAIF-insured institutions in attracting
and retaining deposits. For instance, SAIF-insured institutions could lose
deposits to BIF-insured institutions that, because of the premium disparity, are
able to pay higher rates of interest on deposits with little or no impact on
their net interest income. In contrast, SAIF-insured institutions that attempt
to compete by similarly raising their interest rates in order to maintain their
existing deposit base would increase their overall cost of funds and thus
possibly reduce their net interest income. Further, while other sources of
funds are generally available to savings associations, they usually bear a
higher rate than the average cost of funds of a savings association's deposit
base. The Company believes that this premium disparity could have a material
adverse effect on the results of operations and financial condition of First
Federal in future periods.
In April 1996, there was an attempt to attach legislation that would have
provided for a special one-time assessment to recapitalize the SAIF and would
have spread the interest payments on obligations issued by the Financing
Corporation ("FICO") on all FDIC-insured institutions. Such attempt was
unsuccessful. The Company cannot predict whether this proposed legislation will
be enacted in the future or, if enacted, what its final form will be. The
following summarizes the major provisions of the legislation as most recently
considered by Congress. As part of a continuing resolution, Congress proposed
to authorize the FDIC to assess a one-time fee on institutions, like the Bank,
with deposits insured by the SAIF in order to increase the SAIF's reserves to
the 1.25% of insured deposits required by the Federal Deposit Insurance Act
("FDIA"). The amount of such assessment would be determined by the FDIC based
on the amount of reserves in the SAIF, the amount of insured deposits and such
other factors as the FDIC deemed appropriate. The amount of such assessment for
an individual institution would have been based on its SAIF-assessable deposits
as of March 31, 1995 and was expected to range between 0.85% and 0.90% of such
deposits. The special assessment would have been due on such date as the FDIC
prescribed within 60 days of enactment of the legislation. The proposed
legislation provided for the merger of the SAIF and BIF into a single Deposit
Insurance Fund effective January 1, 1998 if no insured depository institution
was a savings association on that date. Based on its deposits as of March 31,
1995, the Bank would have been required to pay a special assessment of
approximately $500,000 on a pre-tax basis if it is assessed at the rate of 0.85%
of SAIF-assessable deposits. Assuming a special assessment were made and, as a
result, the SAIF were fully recapitalized, it would have the effect of reducing
the Bank's deposit insurance premiums to the SAIF, thereby increasing net income
in future periods.
12
<PAGE>
A number of other related proposals are also under consideration in
Congress, including those relating to merger of the SAIF and BIF, elimination of
the thrift charter, and the federal tax consequences of thrifts' conversion to
national banks. The Bank is unable to accurately predict whether these
proposals will be adopted in their current form or the impact of such proposals
on the Bank.
Comparison of Financial Condition at March 31, 1996 and June 30, 1995
Assets: The Company's total assets decreased from $142.7 million at June
30, 1995 to $138.6 million at March 31, 1996 for a decrease of $4.1 million or
2.9%. This was primarily caused by the decrease in the Company's cash and cash
equivalents from $38.0 million at June 30, 1995 to $18.1 million at March 31,
1996. This decrease is partially attributable to the fact that at June 30, 1995,
the Company held $36.7 million in orders for the purchase of stock in the
impending conversion. Orders were filled in the amount of $34.5 million--$31.7
million of which was disbursed from these funds and $2.8 million of which was
purchased by the Company's ESOP Plan. Approximately $5.0 million was returned to
the subscribers. Also, at March 31, 1996, the Company had used cash to purchase
$9.8 million in investment securities. The securities purchased are all bonds
issued by U.S. government agencies, most of which have maturities of three years
or less. In addition, during the quarter ended March 31, 1996, the company
acquired stock for its Management Recognition Plan at a cost of $1.9 million.
Also, at June 30, 1995, "Conversion Costs," an asset, was reported at $600,000.
At conversion, this asset was eliminated and the cost was deducted from capital.
Somewhat offsetting these decreases is the fact that loans receivable increased
from $100.6 million at June 30, 1995 to $106.8 million at March 31, 1996 for an
increase of $6.2 million or 6.2%. Management expects that the Company's Assets
and Cash and cash equivalents will decrease by $13.8 million on June 3, 1996 as
a result of a one-time distribution of capital of $4 per outstanding share. See
Number 8 of Notes to Consolidated Financial Statements.
Liabilities: Deposits decreased from $119.0 million at June 30, 1995 to
$85.4 million at March 31, 1996 for a decrease of $33.6 million or 28.2%. This
decrease was caused by the fact that at June 30, 1995 funds for the purchase of
stock were held in deposit accounts at the Bank. When the conversion was
completed on July 7, 1995, approximately $31.7 million was withdrawn from the
deposit accounts for the purchase of stock. Approximately $5.0 million was
withdrawn and returned to subscribers whose orders were not filled.
Stockholder's Equity: Stockholder's equity increased from $18.6 million at
June 30, 1995 to $47.8 million at March 31, 1996 for a net increase of $29.2
million or 157.0%. This increase was primarily due to the net proceeds from the
sale of stock of $30.7 million. Equity was also increased by approximately $1.4
million from net income for the nine-months ended March 31, 1996, but was offset
by dividends paid or payable of approximately $900,000 and the acquisition of
stock for the Management Recognition Plan at a cost of $1.9 million. At March
31, 1996, Stockholder's Equity per Share was $13.87. Management expects that
Stockholders' Equity will decrease by $13.8 million on June 3, 1996 as a result
of a one-time distribution of capital of $4 per outstanding share. See Number
8 of Notes to Consolidated Financial Statements.
Comparison of Results of Operations for the Nine Months Ended March 31, 1996 and
March 31, 1995
Interest Income: Total Interest Income increased from $5.7 million for the
nine-month period ended March 31, 1995 to $7.4 million for the nine-month period
ended March 31, 1996 for an increase of $1.7 million or 29.8%. This increase
was primarily due to the increase in the Company's interest-earning assets which
were purchased with the proceeds from the sale of stock. Interest received from
mortgage loans also increased by approximately $350,000 due to 1) the upward
adjustment of the interest rates for many of the adjustable rate loans in the
portfolio, 2) the increase in net loans receivable generally, and 3) the Bank's
initiation in November, 1995, of a 25-year fixed-rate home mortgage lending
program. Fixed-rate mortgage loans generally provide a higher yield than
adjustable rate loans. However, fixed-rate mortgages place the Company at some
risk since the cost of the funds used to make these loans could increase during
the term of the loan. The Company has borrowed some funds from the Federal Home
Loan Bank of Cincinnati at a fixed-rate and with a term similar to that of the
loan in an effort to partially offset this interest rate risk. Management
expects Interest Income to decrease in the quarter ending June 30, 1996 and in
subsequent quarters due to a reduction in interest-earning assets as a result of
the one-time distribution of capital scheduled to be paid on June 3, 1996.
See Number 8 of Notes to Consolidated Financial Statements.
13
<PAGE>
Interest Expense: Total Interest Expense increased from $3.1 million for
the nine-month period ended March 31, 1995 to $3.5 million for the nine-month
period ended March 31, 1996 for an increase of $400,000 or 12.9%. This was
primarily the result of higher prevailing interest rates during and prior to the
nine-month period ended March 31, 1996.
Net Interest Income: Net Interest Income increased from $2.7 million for
the nine-month period ended March 31, 1995 to $3.9 million for the nine-month
period ended March 31, 1996 for an increase of $1.2 million or 44.4%. This
increase was primarily due to the increase in Interest Income.
Provision for Loan Losses: Provision for loan losses remained constant at
$9,000 for both periods. Management believed, on the basis of its analysis of
the risk profile of the Company's assets, that it was appropriate to maintain a
constant provision for loan losses for the nine-month period ended March 31,
1996. In determining the appropriate provision, management considers a number
of factors, including specific loans in the Company's portfolio, real estate
market trends in the Company's market area, economic conditions, interest rates,
and other conditions that may affect a borrower's ability to comply with
repayment terms.
Noninterest Income: Noninterest Income increased from $93,000 to $103,000.
Noninterest income is not a significant component of the Company's statement of
income.
Noninterest Expense: Noninterest Expense increased from $1.5 million for
the nine-month period ended March 31, 1995 to $1.9 million for the nine-month
period ended March 31, 1996 for an increase of $400,000 or 26.7%. This increase
was primarily due to an increase in compensation and benefits of $180,000--most
of which is attributable to the Company's accrued contribution to the Employee
Stock Option Plan approved in the converison and to the accrued expense for the
Company's Management Recognition Plan which was approved by stockholders at the
annual meeting of the company held January 16, 1996. Other Expenses also
increased by $228,000 which was primarily due to increased expenses involved
with operating a stock-owned company.
Income Tax: The Company's income tax rate was approximately 34.4% for the
nine-month period ended March 31, 1996, and 34.0% for the nine-month period
ended March 31, 1995. The Company paid approximately $300,000 more in income
taxes in the nine-month period ended March 31, 1996 due to the increase in
income.
Net Income: The Company's net income increased from $809,000 for the nine-
month period ended March 31, 1995 to $1.4 million for the nine-month period
ended March 31, 1996, an increase of $600,000 or 75.0%. The increase is
primarily due to the increase in the amount of the Company's interest-earning
assets purchased with proceeds from the conversion, despite smaller increases in
interest expense and non-interest expense. The Company's earnings per share for
the nine-month period ended March 31, 1996 was $0.43 per share. Earnings per
share data is not applicable to the nine-month period ended March 31, 1995.
Management expects Net Income to decrease in the quarter ending June 30, 1996
and in subsequent quarters due to a reduction in interest-earning assets as a
result of the one-time distribution of capital scheduled to be paid on June 3,
1996.
Non-Performing Assets: At March 31, 1996, the Bank had approximately
$138,000 in loans 90 days or more past due but still accruing. The Bank had no
loans classified as Substandard, Doubtful, or Loss. These delinquent loans
represent 0.13% of the Bank's net loans.
Dividends: On September 14, 1995, the Company announced a dividend policy
whereby it will pay a quarterly cash dividend of $0.09 per share, per quarter,
payable on the 15th day of the month following the end of each quarter, to
stockholders of record as of the last business day of each quarter. The Board
of Directors determined that the payment of a dividend was appropriate in light
of the Company's capital position and financial condition. Although the Board
of Directors has adopted this policy, the future payment of dividends is
dependent upon the Company's financial condition, earnings, equity structure,
capital needs, regulatory requirements, and economic conditions. The Company
has paid dividends on October 15, 1995 and January 15, 1996. At March 31, 1996,
the Company had accrued $310,500 for the payment of a dividend on April 15,
1996. The Company has also announced a one-time distribution of capital
scheduled to be paid on June 3, 1996. See Number 8 of Notes to Consolidated
Financial Statements.
14
<PAGE>
PART II.
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The registrant held is Annual Meeting of Stockholders on
January 16, 1996
(b) Not applicable
(c) The following matters were voted upon at the Annual Meeting: (1)
the election of two individuals as directors; (ii) approval of
the Frankfort First Bancorp, Inc. 1995 Stock Option and
Incentive Plan; and (iii) approval of the Frankfort First
Bancorp, Inc. Management Recognition Plan.
Proposal 1 -- Election of Directors
Nominee Votes For
------- ---------
Danny A. Garland 2,997,827
Charles A. Cotton III 2,994,432
Proposal 2 -- Stock Option and Incentive Plan
Votes For Votes Against Abstentions (1)
--------- ------------- ---------------
2,213,098 386,817 15,448
Proposal 3 -- Management Recognition Plan
Votes For Votes Against Abstentions (1)
--------- ------------- ---------------
2,535,602 103,350 13,448
(1) Includes broker non-votes
(d) Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
On April 2, 1996, the Company filed an 8-K (amended on April 9, 1996)
which announced a change in the Company's independent auditor from
Harold Butler and Associates, P.S.C. to Grant Thornton, L.L.P.
On April 25, 1996, the Company filed an 8-K announcing a one-time
special distribution of capital of $4 per share to shareholders of
record on May 15, 1996 to be paid on June 3, 1996.
15
<PAGE>
Signature
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.
Frankfort First Bancorp, Inc.
Date: May 10, 1996
/s/ William C. Jennings
----------------------------------
William C. Jennings
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
16
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,064,819
<INT-BEARING-DEPOSITS> 800,000
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<INCOME-PRE-EXTRAORDINARY> 407,145
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