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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, 1999
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 May 10, 1999: 1,519,688
Page 1 of 14 pages
page 1<PAGE>
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CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------------------------------------------
Item 1 Consolidated Statements of Financial Condition at
March 31, 1999 and June 30, 1998 3
Consolidated Statements of Earnings for the three
months and nine months ended March 31,
1999 and 1998 4
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1999 and 1998 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 13
Item 2 Changes in Securities 13
Item 3 Defaults upon Senior Securities 13
Item 4 Submission of Matters to a
Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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page 2<PAGE>
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
ASSETS
<S> <C> <C>
Cash and due from banks $ 343 $ 201
Interest-bearing deposits in other financial
institutions 624 1,120
-------- --------
Cash and cash equivalents 967 1,321
Certificates of deposit in other financial
institutions 200 200
Investment securities held to maturity - at
amortized cost, approximate fair market
value of $2,004 and $2,996 as of March 31,
1999 and June 30, 1998 2,005 2,996
Loans receivable - net 131,321 126,328
Loans held for sale - at lower of cost or market 80 --
Office premises and equipment - at depreciated
cost 1,492 1,503
Federal Home Loan Bank stock - at cost 1,548 1,494
Accrued interest receivable on loans 345 342
Accrued interest receivable on investments
and interest-bearing deposits 60 58
Prepaid expenses and other assets 39 90
Prepaid federal income taxes 154 97
Deferred federal income taxes 86 56
-------- --------
Total assets $138,297 $134,485
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 84,083 $ 81,891
Advances from the Federal Home Loan Bank 30,872 28,260
Advances by borrowers for taxes and insurance 178 305
Accrued interest payable 70 85
Other liabilities 1,256 1,238
-------- --------
Total liabilities 116,459 111,779
Shareholders' equity
Preferred stock, 500,000 shares authorized
$.01 par value; no shares issued -- --
Common stock, 3,750,000 shares authorized,
$.01 par value; 1,672,451 shares
issued 17 17
Additional paid-in capital 5,876 5,876
Retained earnings - restricted 18,087 17,846
Less 130,203 and 53,303 shares of treasury
stock - at cost (2,142) (1,033)
-------- --------
Total shareholders' equity 21,838 22,706
-------- --------
Total liabilities and shareholders' equity $138,297 $134,485
======== ========
Book value per share $ 14.16 $ 14.02
======== ========
</TABLE>
page 3
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $7,039 $6,975 $2,343 $2,336
Investment securities 156 173 36 47
Interest-bearing deposits and
other 83 151 22 57
------ ------ ------ ------
Total interest income 7,278 7,299 2,401 2,440
Interest expense
Deposits 2,953 3,028 969 970
Borrowings 1,253 1,252 411 416
------ ------ ------ ------
Total interest expense 4,206 4,280 1,380 1,386
------ ------ ------ ------
Net interest income 3,072 3,019 1,021 1,054
Provision for losses on loans -- -- -- --
------ ------ ------ ------
Net interest income after
provision for losses on
loans 3,072 3,019 1,021 1,054
Other operating income 31 38 11 13
General, administrative and other
expense
Employee compensation and benefits 634 685 221 221
Occupancy and equipment 113 114 37 41
Federal deposit insurance premiums 37 41 13 14
Franchise and other taxes 89 60 26 32
Data processing 119 97 37 34
Other operating 231 295 77 107
------ ------ ------ ------
Total general, administrative
and other expense 1,223 1,292 411 449
------ ------ ------ ------
Earnings before income taxes 1,880 1,765 621 618
Federal income taxes
Current 669 531 225 228
Deferred (30) 75 (7) (12)
------ ------ ------ ------
Total federal income taxes 639 606 218 216
------ ------ ------ ------
NET EARNINGS $1,241 $1,159 $ 403 $ 402
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ 0.79 $ 0.74 $ 0.26 $ 0.25
====== ====== ====== ======
Diluted $ 0.78 $ 0.72 $ 0.26 $ 0.24
====== ====== ====== ======
</TABLE>
page 4
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,241 $ 1,159
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 (3) 5
Amortization of deferred loan origination fees (39) (6)
Depreciation and amortization 54 54
Loans originated for sale (80) --
Amortization of expense related to stock
benefit plans -- 47
Federal Home Loan Bank stock dividends (54) (43)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (5) --
Prepaid expenses and other assets 51 64
Other liabilities 3 2
Federal income taxes
Current (57) (310)
Deferred (30) 75
------- --------
Net cash provided by operating activities 1,081 1,047
Cash flows provided by (used in) investing activities:
Purchase of investment securities designated as
held to maturity (3,006) --
Proceeds from maturity of investment securities 4,000 1,850
Purchase of Federal Home Loan Bank stock -- (159)
Loan principal repayments 27,928 21,516
Loan disbursements (32,882) (26,351)
Purchase of office premises and equipment (43) (7)
------- --------
Net cash used in investing activities (4,003) (3,151)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 2,192 (3,605)
Proceeds from Federal Home Loan Bank advances 15,250 30,000
Repayment of Federal Home Loan Bank advances (12,638) (12,145)
Repayment of other borrowed money -- (13,000)
Advances by borrowers for taxes and insurance (127) (108)
Capital distributions paid on common stock (1,000) (943)
Acquisition of treasury stock (1,109) --
------- --------
Net cash provided by financing activities 2,568 199
------- --------
Net decrease in cash and cash equivalents (354) (1,905)
Cash and cash equivalents at beginning of period 1,321 2,751
------- --------
Cash and cash equivalents at end of period $ 967 $ 846
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 200 $ 650
======= ========
Interest on deposits and borrowings $ 4,221 $ 4,231
======= ========
</TABLE>
page 5
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FRANKFORT FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999 AND 1998
(1) BASIS OF PRESENTATIONS
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, 1999 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, 1998.
(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 1,577,096 and
1,553,081 for the nine and three month periods ended March 31,
1999, respectively, and 1,556,688 and 1,619,111 for the nine and
three month periods ended March 31, 1998, 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 1,593,812 and
1,567,887 for the nine and three month periods ended March 31,
1999, respectively, and 1,618,968 and 1,668,795 for the nine and
three month periods ended March 31, 1998, respectively.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Reporting Comprehensive Income. 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.
page 6
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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. 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. Management
adopted SFAS No. 130 effective July 1, 1998, as required,
without material impact on the Company's financial statements.
The Company has no items of other comprehensive income as
defined, therefore net earnings are equal to other comprehensive
income for the periods ended March 31, 1999 and 1998.
Disclosure about Segments of an Enterprise. 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. Management adopted SFAS No. 131 effective July 1,
1998, as required, without material impact on the Company's
financial statements.
Accounting for Derivative Instruments and Hedging
Activities. In June, 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
which requires entities to recognize all derivatives in their
financial statements as either assets or liabilities measured at
fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and
transactions that may be hedged, and specifies detailed criteria
to be met to qualify for hedge accounting.
The definition of a derivative financial instrument is
complex, but in general, it is an instrument with one or more
underlyings, such as an interest rate or foreign exchange rate,
that is applied to a notional amount, such as an amount of
currency, to determine the settlement amount(s). It generally
requires no significant initial investment and can be settled
net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other
contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or
trading category without calling into question their intent to
hold other debt securities to maturity in the future. SFAS No.
133 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 READINESS DISCLOSURE
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 Bank is particularly dependent upon BISYS , Inc.,
("BISYS"), a provider of information processing systems to
banks. Through BISYS, the Bank processes all of its daily
transactions and keeps records of all loan and deposit accounts,
as well as other functions. The Bank's management has been
working closely with BISYS to monitor their efforts to renovate
their systems. The Bank has completed a comprehensive testing
program of the BISYS system. During the test, the Bank used the
same hardware and software that it will use on and after January
1, 2000. Test data was extracted from the Bank's data files.
Testing involved aging the test data to certain key dates
associated with the new millennium and running various
transactions against the aged data. No substantive processing
difficulties were identified. Under its contingency plan of
operation, the Bank also has procedures in place to address
short-term unavailability of the BISYS system.
The Company expects that there will be some expense
incurred as a result of preparing for the year 2000. The Bank
has decided to replace some older computer hardware which is at
or near the end of its useful life. The new equipment will be
year 2000 compliant and will have sufficient capacity to run
BISYS's year 2000 compliant software. Management has assessed
the impact of such cost on the Company's net earnings.
Generally, management expects that the Bank will spend
approximately $80,000 on hardware, software, the testing
program, and other year 2000 related expenses. Of this amount,
approximately $10,000 was incurred during the year ended June
30, 1998. Management expects to incur a cost of $30,000 to
$40,000 in the fiscal year ending June 30, 1999, and $20,000 to
$30,000 in the fiscal year ending June 30, 2000, with the
remainder to be incurred in subsequent fiscal years as hardware
is depreciated--at a cost of $6,000 to $10,000 per year. These
totals do not include time devoted by staff for planning,
testing, and implementing year 2000 related activities. At the
present time, management believes that these costs are an
accurate reflection of the Bank's needs in order to establish
year 2000 readiness; however, if the Bank is ultimately required
to purchase replacement computer systems, programs, and
equipment or incur substantial unforeseen 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.
page 8
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In addition to BISYS, the Bank is dependent on numerous
other providers of services ranging from specific bank-related
services (such as check processing and ATM operations) to
general environmental and administrative support services such
as electrical power and telephone service. The Bank has
attempted to identify such services on which it is most
dependent and to contact each provider to determine their level
of year 2000 readiness. In most cases, the Bank is unable to
independently verify that such services are or will be year 2000
compliant. The Bank may or may not have the option of switching
to other service providers. The Bank's management is working to
establish contingency plans as to how it may best respond to the
inability to utilize these services. In most cases, management
does not foresee a substantial impact on its financial condition
and future earnings. However, it is possible that situations
could occur that are beyond the Bank's control that would have
significant impact on its financial condition and earnings--such
as widespread electrical power failure.
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 one- to four-family residential mortgages.
Likewise, it is possible that the Bank could incur losses if its
level of deposits decreases 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. The Bank has taken
steps to ensure that it has adequate liquidity and cash on hand
to meet unusually high demand. These steps, as they are outside
the Bank's normal operations, will result in some cost to the
Bank. Management expects such costs to total less than $20,000,
but the cost is highly dependant on market conditions and could
fluctuate.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND JUNE 30,
1998
ASSETS: The Company's total assets increased from $134.5
million at June 30, 1998 to $138.3 million at March 31, 1999, an
increase of $3.8 million or 2.8%. The increase in total assets
is primarily attributable to an increase in the Company's net
loans receivable which increased from $126.3 million at June 30,
1998 to $131.3 million at March 31, 1999, an increase of $5.0
million or 4.0%.
LIABILITIES: The Company's total liabilities increased
from $111.8 million at June 30, 1998 to $116.5 million at March
31, 1999, an increase of $4.7 million or 4.2%. The increase in
total liabilities is primarily attributable to increases in the
Company's sources of funds: Deposits and Advances from the
Federal Home Loan Bank ("Advances"). Deposits increased from
$81.9 million at June 30, 1998 to $84.1 million at March 31,
1999, an increase of $2.2 million or 2.7%. Advances increased
from $28.3 million at June 30, 1998 to $30.9 million at March
31, 1999, an increase of $2.6 million or 9.2%.
SHAREHOLDERS' EQUITY: Shareholders' equity decreased from
$22.7 million at June 30, 1998 to $21.8 million at March 31,
1999, a decrease of $868,000 or 3.8%. This decrease is a result
of Company's net earnings of $1.2 million less the Company's
dividends accrued or paid during the period of $1.0 million less
the acquisition of the Company's own stock at a cost of $1.1
million (see "Dividends" and "Stock Repurchase"). The Company's
book value per share was $14.16 at March 31, 1999 compared to
$14.02 at June 30, 1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
NET EARNINGS: The Company's net earnings increased $82,000
or 7.1% to $1.2 million for the nine months ended March 31, 1999
compared to the nine months ended March 31, 1998. This increase
is primarily attributable to both an increase in net interest
income of $53,000 and a decrease in the Company's general,
administrative and other expense of $69,000. The Company's
basic earnings per share rose from $0.74 per share for the nine
months ended March 31, 1998 to $0.79 per share for the nine
months ended March 31, 1999. The Company's diluted earnings per
share rose from $0.72 per share for the nine months ended March
31, 1998 to $0.78 per share for the nine months ended March 31,
1999.
page 9
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NET INTEREST INCOME: Net interest income increased from
$3.0 million for the nine month period ended March 31, 1998 to
$3.1 million for the nine month period ended March 31, 1999, an
increase of $53,000 or 1.8%. The increase was primarily due to
a decrease in total interest expense. Although net interest
income increased in this period, management believes that the
current low interest rate environment could have a negative
impact on net interest income in future periods. Generally, in
a declining interest rate environment some existing borrowers
choose to refinance their mortgages, interest rates on
adjustable rate loans decrease, and the coupon rate on new loans
declines. While average rates paid on deposits and advances
have also decreased during the period, at this point they have
decreased to a lesser degree than the decline in average rates
earned on the portfolio.
INTEREST INCOME: Interest income remained relatively
constant at $7.3 million for the nine month periods ended March
31, 1999 and 1998, decreasing $21,000 or 0.3%. This decrease
was primarily due to a reduction in interest income on
investment securities and interest-bearing deposits. Offsetting
this decrease was an increase in interest income from loans.
Interest income from investment securities decreased from
$173,000 for the nine month period ended March 31, 1998 to
$156,000 for the nine month period ended March 31, 1999, a
decrease of $17,000 or 9.8%. Interest income from
interest-bearing deposits and other decreased from $151,000 for
the nine months ended March 31, 1998 to $83,000 for the nine
months ended March 31, 1999, a decrease of $68,000 or 45.0%.
Management believes that generally rates paid on short-term
investments and deposits are less than the rates that can be
earned on mortgage loans, and prefers to use excess funds to
either make new loans or reduce advances. Interest income from
loans increased by $64,000 or 0.9% to $7.0 million for the nine
month period ended March 31, 1999 compared to $7.0 million for
the nine month period ended March 31, 1998. The increase in
interest income is attributable to the increase in volume of the
Company's loan portfolio rather than the average rate earned on
the portfolio. The Company's weighted average interest rate has
decreased as a result of refinancing of mortgages and the
downward adjustment of adjustable rate mortgages.
INTEREST EXPENSE: Interest expense decreased from $4.3
million for the nine month period ended March 31, 1998 to $4.2
million for the nine month period ended March 31, 1999, a
decrease of $74,000 or 1.7%. This decrease was primarily due to
a decrease in interest expense on deposits which decreased
$75,000 or 2.5% from $3.0 million for the nine month period
ended March 31, 1998 to $2.9 million for the nine month period
ended March 31, 1999, chiefly as a result of a lower weighted
average rate paid on deposits.
PROVISION FOR LOSSES ON LOANS: The provision for losses on
loans remained constant with no provision for either of the nine
month periods ended March 31, 1999 or 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, a level which had been
reached previously. 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 $38,000 for the nine month period ended March 31, 1998 to
$31,000 for the nine month period ended March 31, 1999. Other
operating income is not a significant component of the Company's
statement of operations.
page 10
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GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES: General,
administrative, and other expense decreased from $1.3 million
for the nine month period ended March 31, 1998 to $1.2 million
for the nine month period ended March 31, 1999, a decrease of
$69,000, or 5.3%. The decrease was due primarily to a $64,000,
or 21.7%, decrease in other operating expense and a $51,000, or
7.4%, decrease in employee compensation and benefits. The
decreases in other operating expense and employee compensation
and benefits were partially offset by a $29,000, or 48.3%,
increase in franchise taxes and a $22,000, or 22.7%, increase in
data processing expense. The decrease in other operating
expense resulted from various improvements in efficiency, while
the decrease in employee compensation and benefits was due to
various factors including the retirement from full-time service
of two of the Bank's officers. The increase in franchise tax
expense resulted from a nonrecurring refund of taxes in the 1998
period. The increase in data processing expense was due
primarily to efforts regarding year 2000 preparedness (see
"Other Matters--Year 2000 Readiness Disclosure").
INCOME TAX: The Company's provision for federal income
taxes increased from $606,000 for the nine month period ended
March 31, 1998 to $639,000 for the nine month period ended March
31, 1999. The increase was a result of the increase in the
Company's pretax earnings. The Company's effective tax rate was
34.0% for the nine month period ended March 31, 1999 and 34.3%
for the nine month period ended March 31, 1998.
NON-PERFORMING ASSETS: At March 31, 1999, the Bank had
approximately $387,000 in loans 90 days or more past due but
still accruing. These delinquent loans represent 0.3% of the
Bank's net loans. The Bank had no 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 9, 1998, the Company announced a
dividend policy whereby it will pay a quarterly cash dividend of
$0.22 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. This
represented an increase from the previous quarterly dividend of
$0.20 per share. 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, 1999. At March 31, 1999 the Company had
recorded dividends payable of $339,000 for the payment of a
dividend on April 15, 1999.
STOCK REPURCHASE: On August 12, 1998, the Company
announced a plan to purchase up to 81,000 shares of the
Company's common stock, which represented approximately 5% of
the outstanding common stock at that time. This specific
program was concluded on March 24, 1999 when the Company
announced that it had acquired 76,900 shares at an average price
of $14.42 per share. At the same time it was announced that the
Company's Board of Directors had authorized a new program for
the purchase of up to 5% of the remaining outstanding shares of
common stock. The program is dependent upon market conditions
and there is no guarantee as to the exact number of shares to be
repurchased by the Company. Management believes that the
repurchase should be completed within nine months of
commencement. The Board of Directors considers the Company's
common stock to be an attractive investment, and the repurchase
program may improve liquidity in the market for the common stock
and result in increased per share earnings and book value. At
May 10, 1999, 22,560 shares had been repurchased at an average
price of $14.78 per share.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 and MARCH 31, 1998
NET EARNINGS: The Company's net earnings increased
slightly from $402,000 for the three months ended March 31, 1998
to $403,000 for the three months ended March 31, 1999, an
increase of $1,000 or 0.2%. The Company's basic earnings per
share rose from $0.25 per share for the three months ended March
31, 1998 to $0.26 per share for the three months ended March 31,
1999. The Company's diluted earnings per share rose from $.24
per share for the three months ended March 31, 1998 to $.26 per
share for the three months ended March 31, 1999.
page 11
<PAGE>
<PAGE>
NET INTEREST INCOME: Net interest income decreased $33,000
or 3.1% to $1.0 million for the three month period ended March
31, 1999 compared to the three month period ended March 31,
1998. This decrease was primarily due to a decrease in interest
income. Management believes that the current low interest rate
environment has had a negative impact on net interest income and
could have a continued impact on net interest income in future
periods.
INTEREST INCOME: Interest income remained relatively
constant at $2.4 million for the three month periods ended
March 31, 1999 and 1998, decreasing $39,000 or 1.6%.
Contributing to the decrease in interest income was a reduction
in interest income on investment securities and interest income
on interest-bearing deposits and other. Interest income on
investment securities decreased from $47,000 for the three month
period ended March 31, 1998 to $36,000 for the three month
period ended March 31, 1999, a decrease of $11,000 or 23.4%.
Interest income from interest-bearing deposits and other
decreased from $57,000 for the three month period ended March
31, 1998 to $22,000 for the three month period ended March 31,
1999, a decrease of $35,000 or 61.4%. Management believes that
generally rates paid on short-term investments and deposits are
less than the rates that can be earned on mortgage loans, and
prefers to use excess funds to either make new loans or reduce
FHLB advances. Interest income from loans increased $7,000 or
0.3% to $2.3 million for the three month period ended March 31,
1999 compared to the three month period ended March 31, 1998.
The increase in interest income is attributable to the increase
in volume of the Company's loan portfolio rather than the
average rate earned on the portfolio. The Company's weighted
average interest rate decreased as a result of refinancing of
mortgages and the downward adjustment of adjustable rate
mortgages.
INTEREST EXPENSE: Interest expense remained relatively
constant at $1.4 million for the three months ended March 31,
1999 and 1998, decreasing $6,000 or 0.4%.
PROVISION FOR LOSSES ON LOANS: The provision for losses on
loans remained constant with no provision for either of the
three month periods ended March 31, 1999 or 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, a level which had been
reached previously. 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 $13,000 for the three month period ended March 31, 1998 to
$11,000 for the three month period ended March 31, 1999. 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 decreased from $449,000 for
the three month period ended March 31, 1998 to $411,000 for the
three month period ended March 31, 1999, a decrease of $38,000
or 8.5%. The decrease was caused by various reductions in the
Company's expenses.
INCOME TAX: The Company's provision for federal income
taxes increased slightly from $216,000 for the three month
period ended March 31, 1998 to $218,000 for the three month
period ended March 31, 1999. The increase was a result of the
increase in the Company's pretax earnings. The Company's
effective tax rate was 35.1% for the three month period ended
March 31, 1999 and 35.0% for the three month period ended March
31, 1998.
page 12
<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
Exhibits: Financial Data Schedule as of March 31, 1999.
Reports on Form 8-K:
On March 24, 1999, the Company filed a
Current Statement on Form 8-K with the Securities
and Exchange Commission to disclose the Company's
program to repurchase up to 77,000 shares of the
Company's common stock.
page 13
<PAGE>
<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, 1999 /S/ William C. Jennings
------------------------------
William C. Jennings
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
/S/ Don D. Jennings
-----------------------------
Don D. Jennings
Vice President
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
All information is at March 31, 1999 or for the nine months
ended March 31, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 343
<INT-BEARING-DEPOSITS> 624
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 2,205
<INVESTMENTS-MARKET> 2,204
<LOANS> 131,421
<ALLOWANCE> 100
<TOTAL-ASSETS> 138,297
<DEPOSITS> 84,083
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,504
<LONG-TERM> 30,872
<COMMON> 17
0
0
<OTHER-SE> 21,821
<TOTAL-LIABILITIES-AND-EQUITY> 138,297
<INTEREST-LOAN> 7,039
<INTEREST-INVEST> 156
<INTEREST-OTHER> 83
<INTEREST-TOTAL> 7,278
<INTEREST-DEPOSIT> 2,953
<INTEREST-EXPENSE> 4,206
<INTEREST-INCOME-NET> 3,072
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,223
<INCOME-PRETAX> 1,880
<INCOME-PRE-EXTRAORDINARY> 1,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,241
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.78
<YIELD-ACTUAL> 3.09
<LOANS-NON> 0
<LOANS-PAST> 387
<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> 100
</TABLE>
