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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 December 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.
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(Exact name of registrant as specified in its charter)
Delaware 61-1271129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
216 West Main Street, Frankfort, Kentucky 40602
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(Address of principal executive offices) (Zip Code)
(502) 223-1638
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(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 February 7, 1997: 3,385,000
Page 1 of 12 pages
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CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----------------------------------------------------------
Item 1 Consolidated Statements of Financial Condition at
December 31, 1996 and June 30, 1996 3
Consolidated Statements of Earnings for the three
months and six months ended December 31,
1996 and 1995 4
Consolidated Statements of Cash Flows for the six
months ended December 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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Frankfort First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 146 $ 144
Interest-bearing deposits in other financial institutions 5,065 5,673
----- -----
Cash and cash equivalents 5,211 5,817
Certificates of deposit in other financial institutions 200 200
Investment securities - at amortized cost, approximate
fair market value of $5,832 and $8,811 as of
December 31, 1996 and June 30, 1996 5,861 8,872
Loans receivable - net 115,428 110,331
Office premises and equipment - at depreciated cost 1,613 1,606
Federal Home Loan Bank stock - at cost 1,097 1,078
Accrued interest receivable on loans 255 264
Accrued interest receivable on investments and
interest-bearing deposits 134 156
Prepaid expenses and other assets 41 126
Prepaid federal income taxes -- 21
Deferred federal income taxes 71 42
-- --
Total assets $ 129,911 $ 128,513
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 87,695 $ 87,777
Advances from the Federal Home Loan Bank 7,322 4,998
Other borrowed money -- 500
Advances by borrowers for taxes and insurance 73 267
Accrued interest payable 132 138
Accrued federal Income Taxes 42 --
Other liabilities 844 568
--- ---
Total liabilities 96,108 94,248
Commitments -- --
Shareholders' equity
Preferred stock, 5,000,000 shares authorized, $.01 par
value: no shares issued -- --
Common stock, 7,500,000 shares authorized, $.01 par
value: 3,450,000 shares issued 35 35
Additional paid-in capital 19,595 19,595
Retained earnings - restricted 18,657 19,120
Shares acquired by employee stock benefit plans (4,381) (4,485)
Less 10,000 shares of treasury stock - at cost (103) --
--- ---
Total shareholders' equity 33,803 34,265
------ ------
Total liabilities and shareholders' equity $ 129,911 $ 128,513
============ ============
</TABLE>
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Frankfort First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income
Loans $ 4,158 $ 3,889 $ 2,104 $ 1,967
Investment securities 364 975 169 474
Interest-bearing deposits and other 41 35 22 18
-- -- -- --
Total interest income 4,563 4,899 2,295 2,459
Interest expense
Deposits 2,160 2,192 1,085 1,097
Borrowings 203 136 112 67
--- --- --- --
Total interest expense 2,363 2,328 1,197 1,164
----- ----- ----- -----
Net interest income 2,200 2,571 1,098 1,295
Provision for losses on loans 5 6 2 3
- - - -
Net interest income after provision for
losses on loans 2,195 2,565 1,096 1,292
Other operating income 33 35 10 9
General, administrative, and other expense
Employee compensation and benefits 901 678 460 337
Occupancy and equipment 81 84 41 44
Federal deposit insurance premiums 676 113 39 46
Franchise and other taxes 74 59 37 34
Data processing 62 61 30 31
Other operating 199 245 107 142
--- --- --- ---
Total general, administrative,
and other expense 1,993 1,240 714 634
----- ----- --- ---
Earnings before income taxes 235 1,360 392 667
Federal income taxes
Current 108 437 165 212
Deferred (29) (13) (32) 11
-- -- -- --
Total federal income taxes 79 424 133 223
-- --- --- ---
NET EARNINGS $ 156 $ 936 $ 259 $ 444
=========== ============ =========== ==========
EARNINGS PER SHARE $ 0.05 $ 0.29 $ 0.08 $ 0.14
=========== ============ =========== ==========
</TABLE>
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Frankfort First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 156 $ 936
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments, and mortgage backed securities, net 11 --
Amortization of deferred loan origination fees (10) (21)
Depreciation and amortization 54 45
Provision for losses on loans 5 6
Amortization of expense related to employee
stock benefit plans 104 --
Federal Home Loan Bank stock dividends (19) (34)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 31 (303)
Prepaid expenses and other assets 85 648
Other liabilities 270 232
Federal income taxes
Current 63 111
Deferred (29) (13)
---- ----
Net cash provided by operating activities 721 1,607
Cash flows provided by (used in) investing activities:
Purchase of investments securities designated as held to maturity -- (11,778)
Proceeds from maturity of investment securities 3,000 --
Loan principal repayments 12,630 12,517
Loan disbursements (17,722) (15,878)
Purchase of office premises and equipment (61) (52)
---- ----
Net cash used in investing activities (2,153) (15,191)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (82) (35,037)
Net proceeds from the issuance of common stock -- 30,680
Purchase of treasury stock (103) --
Proceeds from Federal Home Loan Bank advances 2,500 --
Repayment of Federal Home Loan Bank advances (176) (190)
Repayment of other borrowed money (500) --
Advances by borrowers for taxes and insurance (194) (251)
Dividends on common stock (619) (596)
----- -----
Net cash provided by (used in) financing activities 826 (5,394)
--- -------
Net decrease in cash and cash equivalents (606) (18,978)
----- --------
Cash and cash equivalents at beginning of period 5,817 38,617
----- ------
Cash and cash equivalents at end of period $ 5,211 $ 19,639
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ -- $ 380
======== ========
Interest on deposits and borrowings $ 2,369 $ 2,354
======== ========
</TABLE>
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Frankfort First Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1996 and 1995
(1) BASIS OF PRESENTATIONS
On July 7, 1995, First Federal Savings Bank of Frankfort 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 or "the
Company") formed in connection with the conversion. Pursuant to the Plan,
shares of capital stock of the Company were offered initially for subscription
to eligible account holders, the tax-qualified employee stock ownership plan
(ESOP) of the Company, 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 Bank's plan of conversion, the Bancorp has loaned to the
Frankfort First Bancorp, Inc. Employee Stock Ownership Plan Trust $2,710,000 for
purchase of stock by the Employee 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 were 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.
The accompanying unaudited consolidated 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 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 results of operations for the six and three month
periods ended December 31, 1996 are 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, 1996.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Frankfort First Bancorp, Inc. (the Company) and First Federal Savings Bank of
Frankfort (the Bank). All significant intercompany items have been eliminated.
(3) EARNINGS PER SHARE
Primary and fully diluted earnings per share for the six and three months ended
December 31, 1996 and 1995 are based upon the weighted average shares
outstanding during the periods plus those stock options that are dilutive, less
shares in the ESOP that are unallocated and not committed to be released.
Weighted average common shares deemed outstanding totaled 3,193,827 and
3,179,000 for the six months ended December 31, 1996 and 1995, respectively.
Weighted average common shares deemed outstanding totaled 3,189,262 and
3,179,000 for the three months ended December 31, 1996 and 1995, respectively.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Mortgage Servicing Rights. In May, 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights." SFAS No.
122 requires that the Company recognizes as separate assets rights to service
mortgage loans for others, regardless of how those servicing rights were
acquired. An institution that acquires mortgage servicing rights through either
the purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to the
mortgage servicing rights. SFAS No. 122 also requires that an enterprise
allocate the cost of purchasing or originating the mortgage loans between the
mortgage servicing rights and
page 6
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the loans when mortgage loans are securitized, if it is practicable to estimate
the fair value of mortgage servicing rights. Additionally, SFAS No. 122
requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment would be measured
based on fair value. SFAS No. 122 is to be applied prospectively to the
Company's fiscal year beginning July 1, 1996, to transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited.
Management adopted SFAS No. 122 on July 1, 1996, as required, without material
effect on the Company's consolidated financial position or results of
operations.
Accounting for Stock-Based Compensation. In October, 1994, the FASB
issued SFAS No. 123 entitled "Accounting for Stock Based Compensation." SFAS
No. 123 established a fair value based method of accounting for stock-based
compensation paid to employees. SFAS No. 123 recognizes the fair value of an
award of stock or stock options on the grant date and is effective for
transactions occurring after December 1995. Companies are allowed to continue
to measure compensation cost for those plans using the intrinsic value based
method of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting are required to disclose in a footnote to the financial statements
pro forma net earnings and, if presented, earnings per share, as if SFAS No. 123
had been adopted. Management has determined that the Company will continue to
account for stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25 and therefore adoption of SFAS No. 123 will not have a material
effect on the Company's consolidated financial condition or results of
operations.
Accounting for Transfers of Financial Assets. In June 1996, the FASB
issued SFAS No. 125. "Accounting for Transfers of Financial Assets, Servicing
Rights, and Extinguishment of Liabilities," that provides accounting guidance on
transfers of financial assets, servicing of financial assets, and extinguishment
of liabilities. SFAS No. 125 introduces an approach to accounting for transfers
of financial assets that provides a means of dealing with more complex
transactions in which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special purpose entities in
the transaction, or otherwise has continuing involvement with the transferred
assets. The new accounting method, the financial components approach, provides
that the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. SFAS No. 125
provides criteria for determining whether control of assets has been
relinquished and whether a sale has occurred. If the transfer does not qualify
as a sale, it is accounted for as a secured borrowing. Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers involving
repurchase agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or
liability that is purchased or assumed is initially recognized at its fair
value. Servicing assets and liabilities are amortized in proportion to and over
the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of its
obligation for the liability or is legally released from being the primary
obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1997 and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Management does not believe that adoption of SFAS No. 125 will have
a material adverse effect on the Company's consolidated financial position or
results of operations.
Management's Discussion and Analysis
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, the Company's operations, and the
Company'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 the Company's market area generally.
page 7
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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.
Comparison of Financial Condition at December 31, 1996 and June 30, 1996
Assets: The Company's total assets increased slightly from $128.5
million at June 30, 1996 to $129.9 million at December 31, 1996, an increase of
$1.4 million or 1.1%. The Company's net loans receivable increased from $110.3
million at June 30, 1996 to $115.4 million at December 31, 1996, an increase of
$5.1 million or 4.6%. Cash used to fund this increase in loans was in part
drawn from investment securities (which decreased by $3.0 million or 33.9%) and
cash and cash equivalents (which decreased by $606,000 or 10.4%). Federal Home
Loan Bank Advances were also used to fund a portion of these loan originations.
Liabilities: Deposits decreased slightly from $87.8 million at June
30, 1996 to $87.7 million at December 31, 1996, a decrease of $82,000 or 0.1%.
Advances from the Federal Home Loan Bank increased from $5.0 million at June 30,
1996 to $7.3 million at December 31, 1996, an increase of $2.3 million or 46.5%.
Generally, the rates paid on advances from the Federal Home Loan Bank are higher
than rates paid on consumer deposits. However, these advances are being used to
fund fixed rate mortgages which generally provide a higher yield than adjustable
rate mortgages, which is the Company's primary loan product. Also, by matching
long term advances from the Federal Home Loan Bank with fixed rate mortgages,
the Company can reduce its exposure to interest rate risk.
Shareholders' Equity: Shareholders' equity decreased from $34.3
million at June 30, 1996 to $33.8 million at December 31, 1996, a net decrease
of $462,000 or 1.3%. This decrease was primarily caused by the Company's
payment of a dividend of $310,000 on October 15, 1996 and the Company's accrual
for its regular dividend of $310,000 to be paid to shareholders on January 15,
1997. The Company's book value per share was $9.83 at December 31, 1996
compared to $9.93 at June 30, 1996.
Comparison of Results of Operations for the Six Months Ended December 31, 1996
and December 31, 1995
Net Earnings: The Company's net earnings decreased from $936,000 for
the six months ended December 31, 1995 to $156,000 for the six months ended
December 31, 1996, a decrease of $780,000 or 83.3%. The decrease is primarily
attributable to an increase in general, administrative, and other expenses of
$753,000 coupled with a $371,000 decrease in net interest income. The
Company's earnings per share fell from $0.29 per share for the six months ended
December 31, 1995 to $0.05 per share for the six months ended December 31, 1996.
Net Interest Income: Net interest income decreased from $2.6 million
for the six-month period ended December 31, 1995 to $2.2 million for the six-
month period ended December 31, 1996, a decrease of $370,000 or 14.4%. This
decrease was primarily due to a decrease in interest income.
Interest Income: Interest income decreased from $4.9 million for the
six-month period ended December 31, 1995 to $4.6 million for the six-month
period ended December 31, 1996, a decrease of $336,000 or 6.9%. This decrease
was primarily due to the decrease in the Company's average interest-earning
assets which fell from $137.0 million for the six months ended December 31, 1995
to $126.1 million for the six-month period ended December 31, 1996. This
decrease in average interest earning assets is primarily the result of the
Company's one-time return of capital paid to shareholders on June 3, 1996 in the
amount of $13.8 million.
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Interest Expense: Interest expense increased slightly from $2.3
million for the six-month period ended December 31, 1995 to $2.4 million for the
six-month period ended December 31, 1996, an increase of $35,000 or 1.5%. This
increase is primarily attributable to an increase of $67,000 in the Bank's
expense on borrowings, while the expense on deposits has decreased by $32,000.
The increase in interest expense on borrowings is due to the increase in the
balance of Federal Home Loan Bank advances, which have primarily been used to
fund fixed rate mortgages.
Provision for Losses on Loans: The provision for losses on loans
decreased from $6,000 for the six months ended December 31, 1995 to $5,000 for
the six months ended December 31, 1996. Management believed, on the basis of
its analysis of the risk profile of the Company's assets, that it was
appropriate to maintain the allowance for loan losses at $100,000, which was
reached during this six month period. 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. There can be no assurance
that the allowance will be adequate to cover losses on nonperforming assets in
the future.
Other Operating Income: Other operating income decreased from $35,000
for the six months ended December 31, 1995 to $33,000 for the six months ended
December 31, 1996. Other operating income is not a significant component of the
Company's statement of operations.
General, Administrative, and Other Expenses: General, administrative,
and other expense increased from $1.2 million for the six-month period ended
December 31, 1995 to $2.0 million for the six-month period ended December 31,
1996, an increase of $753,000 or 60.7%. This increase was primarily caused by
the one-time special assessment of $567,000 to recapitalize the Savings
Association Insurance Fund. Commencing in 1997, the premium that the Company
pays for FDIC Insurance will be reduced from 23 basis points to 6.5 basis. This
lower premium will reduce the Company's expense for FDIC insurance in future
periods. In addition, the Company's expense for employee compensation and
benefits increased by $223,000 or 32.9%, which is primarily the result of
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.
Income Tax: The Company's provision for federal income taxes declined
from $424,000 for the six months ended December 31, 1995 to $79,000 for the six
months ended December 31, 1996. This decline resulted primarily from the
decline in pretax earnings of $1.1 million. The Company's effective tax rates
were 33.6% and 31.2% for the six months ended December 31, 1996 and 1995,
respectively.
Non-Performing Assets: At December 31, 1996, the Bank had
approximately $202,000 in loans 90 days or more past due but still accruing.
The Bank had approximately $26,000 in loans internally classified as Substandard
and no loans classified as Doubtful, or Loss. These delinquent loans represent
0.02% 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 shareholders 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
last paid a dividend on October 15, 1996. At December 31, 1996 the Company had
recorded dividends payable of $310,000 for the payment of a dividend on January
15, 1997.
In addition to this regular dividend policy, on June 3, 1996 the
Company also paid a one-time return of capital in the amount of $4 per share to
shareholders of record on May 15, 1996. Based on a Private Letter Ruling from
the I.R.S., the Company has determined that $3.96 of this dividend and $0.08 of
each of the first and second regular quarterly cash dividends paid in fiscal
1996 will not be considered taxable dividends, but will be applied against and
will reduce the shareholders' adjusted basis in the Company's common stock.
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Stock Repurchase: On September 18, 1996, the Company announced a plan
to purchase up to 172,500 shares of the Company's common stock, which represents
approximately 5% of the outstanding common stock. The program will be dependent
upon market conditions and there is no guarantee as to the exact number of
shares to be repurchased by the Company. The repurchase should be completed
within nine months of commencement. Management considers the Company's common
stock to be an attractive investment, and the repurchase program is expected to
improve liquidity in the market for the common stock and result in increased per
share earnings and book value. At February 7, 1997, 65,000 shares had been
repurchased at an average price of $10.25 per share.
Comparison of Results of Operations for the Three Months Ended December 31, 1996
and December 31, 1995
Net Earnings: The Company's net earnings decreased from $444,000 for
the three months ended December 31, 1995 to $259,000 for the three months ended
December 31, 1996, a decrease of $185,000 or 41.7%. The decrease is primarily
attributable to a $197,000 decrease in net interest income. The Company's
earnings per share fell from $0.14 per share for the three months ended December
31, 1995 to $0.08 per share for the three months ended December 31, 1996.
Net Interest Income: Net interest income decreased from $1.3 million
for the three months ended December 31, 1995 to $1.1 million for the three
months ended December 31, 1996 for a decrease of $197,000 or 15.2%. This
decrease was primarily due to the decrease in interest income.
Interest Income: Interest income decreased from $2.5 million for the
three months ended December 31, 1995 to $2.3 million for the three months ended
December 31, 1996, a decrease of $164,000 or 6.7%. This decrease was primarily
due to the decrease in the Company's average interest-earning assets which fell
from $136.7 million for the three months ended December 31, 1995 to $125.8
million for the three months ended December 31, 1996. This decrease in average
interest earning assets is primarily the result of the Company's one-time return
of capital paid to stockholders on June 3, 1996 in the amount of $13.8 million.
Interest Expense: Interest expense increased only slightly from
$1.164 million for the three months ended December 31, 1995 to $1.197 million
for the three months ended December 31, 1996, an increase of $33,000 or 2.8%.
This increase is primarily attributable to an increase of $45,000 in the Bank's
expense on borrowings, while the expense on deposits has decreased by $12,000.
The increase in interest expense on borrowings is due to the increase in the
balance of Federal Home Loan Bank advances, which have primarily been used to
fund fixed rate mortgages.
Provision for Losses on Loans: The provision for losses on loans
decreased from $3,000 for the three months ended December 31, 1995 to $2,000
for the three months ended December 31, 1996. Management believed, on the basis
of its analysis of the risk profile of the Company's assets, that it was
appropriate to maintain this provision at $100,000, which was reached during
this three month period. 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. There can be no assurance that the
allowance will be adequate to cover losses on nonperforming assets in the
future.
Other Operating Income: Other operating income increased from $9,000
for the three months ended December 31, 1995 to $10,000 for the three months
ended December 31, 1996. Other operating income is not a significant component
of the Company's statement of operations.
General, Administrative, and Other Expenses: General, administrative,
and other expense increased from $634,000 for the three months ended December
31, 1995 to $714,000 for the three months ended December 31, 1996, an increase
of $80,000 or 12.6%. This increase was primarily caused by the increase in the
expense for employee compensation and benefits of $123,000 or 36.5%. This
increase is primarily the result of 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.
Income Tax: The Company's provision for federal income taxes declined
from $223,000 for the three months ended December 31, 1995 to $133,000 for the
three months ended December 31, 1996. This decline resulted primarily from the
decline in pretax earnings of $275,000. The Company's effective tax rates were
33.9% and 33.4% for the three months ended December 31, 1996 and 1995,
respectively.
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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 its Annual Meeting of Stockholders on
November 12, 1996
(b) Not applicable
(c) The only matter to be voted upon at the Annual Meeting was the
election of three individuals as directors.
Nominee Votes For Votes Withheld
-------- --------- --------------
William C. Jennings 2,843,571 658
David G. Eddins 2,842,581 1,648
C. Michael Davenport 2,819,796 24,433
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None.
page 11
<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: February 7, 1997
/S/ William C. Jennings
------------------------------------------
William C. Jennings
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
page 12
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