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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 March 31, 1998
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: No. 0-26360
FRANKFORT FIRST BANCORP, INC.
_______________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 61-1271129
____________________ ______________________
(State or other jurisdiction (I.R.S. Employer
of 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 (1) has filed all
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 4, 1998:
1,619,111
Page 1 of 13 pages
page 1<PAGE>
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CONTENTS
PART I - FINANCIAL INFORMATION PAGE
-----------------------------------------------------
Item 1. Consolidated Statements of Financial Condition
at March 31, 1998 and June 30, 1997 3
Consolidated Statements of Earnings for the
three months and nine months ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
nine months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults upon Senior Securities 12
Item 4 Submission of Matters to a Vote
Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 32 $ 161
Interest-bearing deposits in other financial
institutions 814 2,590
-------- --------
Cash and cash equivalents 846 2,751
Certificates of deposit in other financial
institutions 200 200
Investment securities - at amortized cost,
approximate fair market value of $2,995 and
$4,819 as of March 31, 1998 and June 30, 1997 2,995 4,850
Loans receivable-net 125,729 120,888
Office premises and equipment - at depreciated
cost 1,526 1,573
Federal Home Loan Bank stock - at cost 1,358 1,156
Accrued interest receivable on loans 333 316
Accrued interest receivable on investments
and interest-bearing deposits 62 79
Prepaid expenses and other assets 31 95
Prepaid federal income taxes 169 --
Deferred federal income taxes 55 130
-------- --------
Total assets $133,304 $132,038
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 82,352 $ 85,957
Advances from the Federal Home Loan Bank 26,861 9,006
Other borrowed money -- 13,000
Advances by borrowers for taxes and insurance 190 298
Accrued interest payable 80 129
Accrued federal income taxes -- 141
Other liabilities 1,213 1,162
-------- --------
Total liabilities 110,696 109,693
Shareholders' equity
Preferred stock, 500,000 shares authorized
$.01 par value: no shares issued -- --
Common stock, 3,750,000 shares authorized, at
aggregate stated value: 1,672,476 shares
issued 35 35
Additional paid-in capital 5,858 5,858
Retained earnings - restricted 17,748 17,532
Shares acquired by stock benefit plans -- (414)
Less 53,291 and 32,500 shares of treasury
stock - at cost (1,033) (666)
-------- --------
Total shareholders' equity 22,608 22,345
-------- --------
Total liabilities and shareholders' equity $133,304 $132,038
======== ========
Book value per share $ 13.96 $ 13.88
======== ========
</TABLE>
page 3<PAGE>
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
--------------------- --------------------
1998 1997 1998 1997
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $6,975 $6,331 $2,336 $2,173
Investment securities 173 475 47 111
Interest-bearing deposits and
other 151 58 57 17
------ ------ ------ ------
Total interest income 7,299 6,864 2,440 2,301
Interest expense
Deposits 3,028 3,175 970 1,015
Borrowings 1,252 325 416 122
------ ------ ------ ------
Total interest expense 4,280 3,500 1,386 1,137
------ ------ ------ ------
Net interest income 3,019 3,364 1,054 1,164
Provision for losses on loans -- 5 -- --
------ ------ ------ ------
Net interest income after
provision for losses on
loans 3,019 3,359 1,054 1,164
Other operating income 38 48 13 15
General, administrative and other
expense
Employee compensation and benefits 685 1,361 221 466
Occupancy and equipment 114 125 41 44
Federal deposit insurance premiums 41 710 14 34
Franchise and other taxes 60 112 32 38
Data processing 97 95 34 33
Other operating 295 304 107 105
------ ------ ------ ------
Total general, administrative
and other expense 1,292 2,707 449 714
------ ------ ------ ------
Earnings before income taxes 1,765 700 618 465
Federal income taxes
Current 531 277 228 169
Deferred 75 (40) (12) (11)
------ ------ ------ ------
Total federal income taxes 606 237 216 158
------ ------ ------ ------
NET EARNINGS $1,159 $ 463 $ 402 $ 307
====== ====== ====== ======
Basic Earnings Per Share $ 0.74 $ 0.29 $ 0.25 $ 0.19
====== ====== ====== ======
Diluted Earnings Per Share $ 0.72 $ 0.29 $ 0.24 $ 0.19
====== ====== ====== ======
</TABLE>
page 4<PAGE>
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,159 $ 463
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 5 19
Amortization of deferred loan origination fees (6) (15)
Depreciation and amortization 54 67
Provision for losses on loans -- 5
Amortization of expense related to stock benefit
plans 47 472
Federal Home Loan Bank stock dividends (43) (38)
Increase (decrease) in cash due to changes in:
Accrued interest receivable -- 55
Prepaid expenses and other assets 64 102
Other liabilities 2 76
Federal income taxes
Current (310) 116
Deferred 75 (40)
------- --------
Net cash provided by operating activities 1,047 1,282
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,850 4,000
Loan principal repayments 21,516 17,379
Loan disbursements (26,351) (25,543)
Purchase of office premises and equipment (7) (52)
Purchase of Federal Home Loan Bank stock (159) --
------- --------
Net cash used in investing activities (3,151) (4,216)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (3,605) (1,769)
Purchase of treasury stock -- (666)
Proceeds from Federal Home Loan Bank advances 30,000 3,000
Repayment of Federal Home Loan Bank advances (12,145) (370)
Repayment of other borrowed money (13,000) (500)
Advances by borrowers for taxes and insurance (108) (63)
Dividends on common stock (943) (923)
------- --------
Net cash provided by (used in) financing
activities 199 (1,291)
------- --------
Net decrease in cash and cash equivalents (1,905) (4,225)
Cash and cash equivalents at beginning of period 2,751 5,817
------- --------
Cash and cash equivalents at end of period $ 846 $ 1,592
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 650 $ 130
======= ========
Interest on deposits and borrowings $ 4,231 $ 3,527
======= ========
</TABLE>
page 5
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Frankfort First Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998 and 1997
(1) BASIS OF PRESENTATION
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 nine and three month periods ended March 31, 1998 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 included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(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
Basic earnings per share is computed based upon the weighted
average common shares outstanding less shares in the ESOP that
were unallocated and not committed to be released. Weighted
average common shares deemed outstanding for purposes of
computing basic earnings per share totaled 1,556,688 and
1,619,111 for the nine and three month periods ended March 31,
1998, respectively, and 1,596,109 and 1,575,353 for the nine and
three month periods ended March 31, 1997, respectively.
Diluted earnings per share is computed taking into consideration
common shares outstanding and dilutive potential common shares,
i.e. the Company's stock option plan. Weighted-average common
shares deemed outstanding for purposes of computing diluted
earnings per share totaled 1,618,968 and 1,668,795 for the nine
and three month periods ended March 31, 1998, respectively, and
1,618,237 and 1,591,178 for the nine and three month periods
ended March 31, 1997, respectively. Weighted-average common
shares outstanding for the nine month periods ended March 31,
1998 and 1997, and the three month period ended March 31, 1997,
have been restated to give effect to the Company's two-for-one
reverse stock split effected on December 1, 1997.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Transfers of Financial Assets. In June
1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
125. "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments 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.
page 6<PAGE>
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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. The
Company adopted SFAS No. 125 effective January 1, 1998, as
required, without material effect on the consolidated financial
position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements. It does not
require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for
comparative purposes is required. SFAS No. 130 is not expected
to have a material impact on the Company's financial statements.
In June , 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS
No. 131 significantly changes the way that public business
enterprises report information about operating segments in
annual financial statements and requires that those enterprises
report selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive
information about the way that management organizes the segments
within the enterprise for making operating decisions and
assessing performance. For many enterprises, the management
approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information
to be disclosed for each reportable segment than is presently
being reported in annual financial statements and also requires
that selected information be reported in interim financial
statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected
to have a material impact on the Company's financial statements.
page 7<PAGE>
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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.
GENERAL
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, U.S. Government Agency-issued bonds,
and other investments.
OTHER MATTERS -- YEAR 2000 COMPLIANCE
As with all providers of financial services, the Bank's
operations are heavily dependent on information technology
systems. The Bank is addressing the potential problems
associated with the possibility that the computers that control
or operate the Bank's information technology system and
infrastructure may not be programmed to read four-digit date
codes and, upon arrival of the year 2000, may recognize the two-
digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data. The Bank is working
with the companies that supply or service its information
technology systems to identify and remedy any year 2000 related
problems.
The Company expects that there will be some expense
incurred as a result of preparing for the year 2000.
Management, in connection with the Bank's primary data service
provider, is currently assessing the impact of such cost on the
Company's net earnings in future periods. Management currently
does not expect such cost to be substantial; however, if the
Bank is ultimately required to purchase replacement computer
systems, programs, and equipment or incur substantial expense to
make the Bank's current systems, programs, and equipment year
2000 compliant, the Company's net earnings and financial
condition could be adversely affected.
While it is possible that the Bank could incur losses if
loan payments are delayed due to year 2000 problems affecting
its borrowers, management believes that such losses are unlikely
given the composition of the Bank's loan portfolio, which is
primarily made up of 1-4 family residential mortgages.
Likewise, it is possible that the Bank could incur losses if its
level of deposits decreased due to withdrawals from depositors
in anticipation of or in response to problems with their access
to funds from other sources, such as the delay or incapacity of
their employers' payroll processing systems.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND JUNE 30,
1997
ASSETS: The Company's total assets increased slightly
from $132.0 million at June 30, 1997 to $133.3 million at March
31, 1998, an increase of $1.3 million or 1.0%. The Company's
net loans receivable increased from $120.9 million at June 30,
1997 to $125.7 million at March 31, 1998, an increase of $4.8
million or 4.0%.
LIABILITIES: Deposits decreased from $86.0 million at
June 30, 1997 to $82.4 million at March 31, 1998, a decrease of
$3.6 million or 4.2%. Advances from the Federal Home Loan Bank
increased from $9.0 million at June 30, 1997 to $26.9 million at
March 31, 1998, an increase
page 8<PAGE>
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of $17.9 million or 198.3%. At June 30, 1997, the Company had
borrowed $13.0 million from a commercial bank to fund the $4 per
share return of capital paid to shareholders on June 24, 1997.
After June 30, 1997, the Company paid off the loan with proceeds
from various advances from the Federal Home Loan Bank.
Management believes that, when compared to loans from commercial
banks, FHLB advances offer plans and terms that can be more
easily matched to the characteristics of the Company's assets.
All borrowings increased from $22.0 million at June 30, 1997 to
$26.9 million at March 31, 1998, an increase of $4.9 million or
22.1%. The increase in overall borrowings was used to fund new
loan originations and to replace some deposits.
SHAREHOLDERS' EQUITY: Shareholders' equity increased from
$22.3 million at June 30, 1997 to $22.6 million at March 31,
1998, an increase of $263,000 or 1.2%. This increase was caused
by the Company's net earnings of $1.2 million less the Company's
dividends accrued or paid during the period of $943,000. The
Company's book value per share was $13.96 at March 31, 1998
compared to $13.88 at June 30, 1997 (adjusted for the two-for-
one reverse stock split effected on December 1, 1997).
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997
NET EARNINGS: The Company's net earnings increased from
$463,000 for the nine months ended March 31, 1997 to $1.2
million for the nine months ended March 31, 1998, an increase of
$696,000 or 150.3%. This increase is primarily attributable to
a decrease in general, administrative, and other expense of
$1.4 million which was partially offset by a $345,000 decrease
in net interest income and an increase in provision for federal
income taxes of $369,000. The Company's basic earnings per
share rose from $0.29 per share for the nine months ended March
31, 1997 to $0.74 per share for the nine months ended March 31,
1998 (adjusted for the two-for-one reverse stock split effected
on December 1, 1997). The Company's diluted earnings per share
rose from $.29 per share for the nine months ended March 31,
1997 to $.72 per share for the nine months ended March 31, 1998
(adjusted for the two-for-one reverse stock split effected on
December 1, 1997).
NET INTEREST INCOME: Net interest income decreased from
$3.4 million for the nine-month period ended March 31, 1997 to
$3.0 million for the nine-month period ended March 31, 1998, a
decrease of $345,000 or 10.3%. This decrease was primarily due
to an increase in interest expense, discussed below.
INTEREST INCOME: Interest income increased from $6.9
million for the nine-month period ended March 31, 1997 to
$7.3million for the nine-month period ended March 31, 1998, an
increase of $435,000 or 6.3%. This increase was primarily due
to an increase in the Company's level of loans receivable and a
higher percentage of fixed rate mortgage originations compared
to adjustable rate mortgage originations in the Company's
mortgage loan portfolio. Initially, fixed rate mortgages
generally pay a higher rate of interest than adjustable rate
mortgages.
INTEREST EXPENSE: Interest expense increased from $3.5
million for the nine-month period ended March 31, 1997 to $4.3
million for the nine-month period ended March 31, 1998, an
increase of $780,000 or 22.3%. This increase is primarily
attributable to an increase of $927,000 in the Bank's expense on
borrowings while the expense on deposits has decreased by
$147,000. The increase in interest expense on borrowings is
due to the increase in the balance of Federal Home Loan Bank
advances and other borrowed money. These funds were used to
fund the $4.00 special distribution to shareholders paid on June
24, 1997 and to fund the Company's loan growth. Management
expects that the proportion of interest expense attributable to
FHLB advances will continue to grow as FHLB advances are used to
fund loan growth. In general, rates paid on FHLB advances are
greater than rates paid on deposits (see "Comparison of Financial
Condition--Liabilities").
PROVISION FOR LOSSES ON LOANS: The provision for losses
on loans decreased from $5,000 for the nine months ended March
31, 1997 to no provision for the nine months ended March 31,
1998. 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 the prior year. 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 $48,000 for the nine months ended March 31, 1997 to $38,000
for the nine months ended March 31, 1998. Other operating
income is not a significant component of the Company's statement
of operations.
page 9<PAGE>
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GENERAL, ADMINISTRATIVE, AND OTHER EXPENSE: General,
administrative, and other expense decreased from $2.7 million
for the nine-month period ended March 31, 1997 to $1.3 million
for the nine-month period ended March 31, 1998, a decrease of
$1.4 million or 52.3%. The decrease is primarily attributable
to the Company's lower level of expense for employee
compensation and benefits which decreased by $676,000 or 49.7%.
This reduction was caused by the termination of the Company's
Employee Stock Ownership Plan and Management Recognition Plan in
June, 1997 which was a component of the Company's Restructuring
Plan announced June 5, 1997. The primary purpose of this plan
was to improve profitability by, among other things, reducing
compensation expense. Also contributing to the decrease are
lower FDIC premiums subsequent to the one-time special
assessment of $567,000 to recapitalize the Savings Association
Insurance Fund. FDIC deposit insurance premiums were $710,000
(including the $567,000 one-time assessment) for the nine-month
period ended March 31, 1997 compared to $41,000 for the nine-
month period ended March 31, 1998.
INCOME TAX: The Company's provision for federal income
taxes increased from $237,000 for the nine months ended March
31, 1997 to $606,000 for the nine months ended March 31, 1998.
The increase was a result of the increase in the Company's
pretax earnings. The Company's effective tax rate was 34.3% for
the nine months ended March 31, 1998 and 33.9% for the nine
months ended March 31, 1997.
NON-PERFORMING ASSETS: At March 31, 1998, the Bank had
approximately $158,000 in loans 90 days or more past due but
still accruing. These delinquent loans represent 0.13% of the
Bank's net loans. The Bank had $109,000 in loans internally
classified as Substandard and no loans classified as Doubtful,
or Loss. The Bank has not charged off any loans during the
period.
DIVIDENDS: On December 10, 1997, the Company announced a
dividend policy whereby it will pay a quarterly cash dividend of
$0.20 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
January 15, 1998. At March 31, 1998 the Company had recorded
dividends payable of $324,000 for the payment of a dividend on
April 15, 1998.
In addition to this regular dividend policy, on June 24,
1997 the Company also paid a return of capital in the amount of
$4.00 per share to shareholders of record on June 17, 1997. It
was subsequently determined that $3.60 of this $4.00
distribution was not taxable but would reduce the shareholders'
basis in the stock. The $0.40 portion of this return of
capital, as well as all other dividends paid during calendar
1997, are treated as ordinary dividends.
STOCK SPLIT: On December 1, 1997, the Company effected a
two-for-one reverse stock split, as approved by the shareholders
at the Company's 1997 Annual Meeting held November 11, 1997.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997
NET EARNINGS: The Company's net earnings increased from
$307,000 for the three months ended March 31, 1997 to $402,000
for the three months ended March 31, 1998, an increase of
$95,000 or 30.9%. The increase is primarily attributable to a
decrease in general, administrative, and other expense of
$265,000 partially offset by a $110,000 decrease in net interest
income. The Company's basic earnings per share rose from $0.19
per share for the three months ended March 31, 1997 to $0.25 per
share for the three months ended March 31, 1998 (adjusted for
two-for-one reverse stock split effected on December 1, 1997).
The Company's diluted earnings per share rose from $.19 per
share for the three months ended March 31, 1997 to $.24 per
share for the three months ended March 31, 1998 (adjusted for
two-for-one reverse stock split effected on December 1, 1997).
NET INTEREST INCOME: Net interest income decreased from
$1.2 million for the three months ended March 31, 1997 to $1.1
million for the three months ended March 31, 1998, a decrease of
$110,000 or 9.5%. This decrease was primarily due to an
increase in interest expense.
page 10<PAGE>
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INTEREST INCOME: Interest income increased from $2.3
million for the three months ended March 31, 1997 to $2.4million
for the three months ended March 31, 1998, an increase
of $139,000 or 6.0%. This increase was primarily due to an
increase in the Company's level of loans receivable and a higher
percentage of fixed rate mortgage originations compared to
adjustable rate mortgage originations in the Company's mortgage
loan portfolio. Initially, fixed rate mortgages generally pay a
higher rate of interest than adjustable rate mortgages.
INTEREST EXPENSE: Interest expense increased from $1.1
million for the three months ended March 31, 1997 to $1.4
million for the three months ended March 31, 1998, an increase
of $249,000 or 21.9%. This increase is primarily attributable
to an increase of $294,000 in the Bank's expense on borrowings,
while the expense on deposits decreased by $45,000. The
increase in interest expense on borrowings is due to the
increase in the balance of Federal Home Loan Bank advances and
other borrowed money. These funds were used to fund the $4.00
special distribution to shareholders paid on June 24, 1997 and
to fund the Company's loan growth. Management expects that the
proportion of interest expense attributable to FHLB advances
will continue to grow as FHLB advances are used to fund loan
growth. In general, rates paid on FHLB advances are greater
than rates paid on deposits (see "Comparison of Financial
Condition--Liabilities").
PROVISION FOR LOSSES ON LOANS: The provision for losses
on loans remained unchanged with no provision for either of the
three month periods ended March 31, 1997 or March 31, 1998.
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
the prior year. 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 $15,000 for the three months ended March 31, 1997 to
$13,000 for the three months ended March 31, 1998. Other
operating income is not a significant component of the Company's
statement of operations.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSE: General,
administrative, and other expense decreased from $714,000 for
the three months ended March 31, 1997 to $449,000 for the three
months ended March 31, 1998, a decrease of $265,000 or 37.1%.
The decrease was primarily attributed to lower expense for
employee compensation and benefits which decreased from $460,000
for the three months ended March 31, 1997, to $221,000 for the
three months ended March 31, 1998, a decrease of $239,000 or
52.0%. This reduction was caused by the termination of the
Company's Employee Stock Ownership Plan and Management
Recognition Plan in June, 1997 which was a component of the
Company's Restructuring Plan announced June 5, 1997. The
primary purpose of this plan was to improve profitability by,
among other things, reducing compensation expense. In addition,
FDIC deposit insurance premiums were $34,000 for the three-month
period ended March 31, 1997 compared to $14,000 for the three
month period ended March 31, 1998, a decrease of $20,000 which
is attributable to the reduction in premiums caused by the BIF-
SAIF resolution.
INCOME TAX: The Company's provision for federal income
taxes increased from $158,000 for the three months ended March
31, 1997 to $216,000 for the three months ended March 31, 1998.
The increase was a result of the increase in the Company's
pretax earnings. The Company's effective tax rates were 34.9%
and 34.0% the three months ended March 31, 1998 and 1997,
respectively.
page 11<PAGE>
<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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule for the six months
ended March 31, 1998
page 12<PAGE>
<PAGE>
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.
Frankfort First Bancorp, Inc.
Date: May 4, 1998 /s/ William C. Jennings
-------------------------------------
William C. Jennings
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
/s/ Don D. Jennings
-------------------------------------
Don D. Jennings
Vice President
(Principal Financial and
Accounting Officer)
page 13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
All information is at March 31, 1998 or for the three months
ended March 31, 1998
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 32
<INT-BEARING-DEPOSITS> 814
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 3,195
<INVESTMENTS-MARKET> 3,195
<LOANS> 125,729
<ALLOWANCE> 100
<TOTAL-ASSETS> 133,304
<DEPOSITS> 82,352
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,483
<LONG-TERM> 26,861
<COMMON> 35
0
0
<OTHER-SE> 22,573
<TOTAL-LIABILITIES-AND-EQUITY> 133,304
<INTEREST-LOAN> 2,336
<INTEREST-INVEST> 47
<INTEREST-OTHER> 57
<INTEREST-TOTAL> 2,440
<INTEREST-DEPOSIT> 970
<INTEREST-EXPENSE> 1,386
<INTEREST-INCOME-NET> 1,054
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 449
<INCOME-PRETAX> 618
<INCOME-PRE-EXTRAORDINARY> 402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 3.54
<LOANS-NON> 0
<LOANS-PAST> 158
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 100
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 100
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
