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 September 30, 2000
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 November 10, 2000: 1,246,108
Page 1 of 12 pages
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CONTENTS
PART I. FINANCIAL INFORMATION PAGE
-----------------------------------------------------------------------
Item 1 Consolidated Statements of Financial Condition at
September 30, 2000 and June 30, 2000 3
Consolidated Statements of Earnings for the three
months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three
months ended September 30, 2000 and 1999 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 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, except per share data)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
<S> <C> <C>
ASSETS
Cash and due from banks $ 175 $ 133
Interest-bearing deposits in other financial institutions 1,458 845
--------- ---------
Cash and cash equivalents 1,633 978
Certificates of deposit in other financial institutions 100 100
Investment securities held to maturity- at amortized cost,
approximate fair market value of $1,976 and $1,965 as of
September 30, 2000 and June 30, 2000 1,983 1,979
Loans receivable - net 138,441 137,792
Office premises and equipment - at depreciated cost 1,437 1,453
Federal Home Loan Bank stock - at cost 2,395 2,351
Accrued interest receivable on loans 426 413
Accrued interest receivable on investments and
interest-bearing deposits 14 41
Prepaid expenses and other assets 61 77
Prepaid federal income taxes 90 251
Deferred federal income taxes -- 19
--------- ---------
Total assets $ 146,580 $ 145,454
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 80,824 $ 82,502
Advances from the Federal Home Loan Bank 45,745 42,108
Other borrowed money 80 373
Advances by borrowers for taxes and insurance 467 337
Accrued interest payable 49 59
Deferred federal income taxes 7 --
Other liabilities 1,279 1,251
--------- ---------
Total liabilities 128,451 126,630
Shareholders' equity
Preferred stock, 500,000 shares authorized, $.01 par
value; no shares issued -- --
Common stock, 3,750,000 shares authorized, $.01
par value; 1,672,443 shares issued 17 17
Additional paid-in capital 5,876 5,876
Retained earnings - restricted 18,476 18,412
Less 411,335 and 352,335 shares of treasury stock-at cost (6,240) (5,481)
--------- ---------
Total shareholders' equity 18,129 18,824
--------- ---------
Total liabilities and shareholders' equity $ 146,580 $ 145,454
========= =========
Book value per share $ 14.38 $ 14.26
========= =========
</TABLE>
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Threee months ended
September 30,
2000 1999
<S> <C> <C>
Interest income
Loans $2,594 $2,369
Investment securities 33 27
Interest-bearing deposits and other 57 40
------ ------
Total interest income 2,684 2,436
Interest expense
Deposits 1,014 961
Borrowings 668 462
------ ------
Total interest expense 1,682 1,423
------ ------
Net interest income 1,002 1,013
Provision for losses on loans -- --
------ ------
Net interest income after provision for
losses on loans 1,002 1,013
Other operating income 14 9
General, administrative and other expense
Employee compensation and benefits 237 229
Occupancy and equipment 37 38
Federal deposit insurance premiums 4 12
Franchise and other taxes 28 21
Data processing 32 34
Other operating 84 81
------ ------
Total general, administrative
and other expense 422 415
------ ------
Earnings before income taxes 594 607
Federal income taxes
Current 176 201
Deferred 26 5
------ ------
Total federal income taxes 202 206
------ ------
NET EARNINGS $ 392 $ 401
====== ======
Basic Earnings Per Share $ 0.30 $ 0.27
====== ======
Diluted Earnings Per Share $ 0.30 $ 0.26
====== ======
</TABLE>
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 392 $ 401
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 (4) 2
Amortization of deferred loan origination (fees) costs 13 (6)
Depreciation and amortization 19 19
Federal Home Loan Bank stock dividends (44) --
Increase (decrease) in cash due to changes in:
Accrued interest receivable 14 (32)
Prepaid expenses and other assets 16 55
Accrued interest payable (10) (5)
Other liabilities 28 338
Federal income taxes
Current 161 60
Deferred 26 5
------- -------
Net cash provided by operating activities 611 837
Cash flows provided by (used in) investing activities:
Purchase of Federal Home Loan Bank stock -- (115)
Loan principal repayments 4,920 6,660
Loan disbursements (5,582) (9,755)
Purchase of office premises and equipment (3) (49)
------- -------
Net cash used in investing activities (665) (3,259)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (1,678) (2,799)
Proceeds from Federal Home Loan Bank advances 8,900 7,550
Repayment of Federal Home Loan Bank advances (5,263) (4,013)
Proceeds from other borrowed money 145 483
Repayment of other borrowed money (438) (767)
Advances by borrowers for taxes and insurance 130 127
Dividends paid on common stock (328) (356)
Acquisition of treasury stock (759) (226)
------- -------
Net cash provided by (used in) by financing
activities 709 (1)
------- -------
Net increase (decrease) in cash and cash equivalents 655 (2,423)
Cash and cash equivalents at beginning of period 978 2,591
------- -------
Cash and cash equivalents at end of period $ 1,633 $ 168
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 15 $ 140
======= =======
Interest on deposits and borrowings $ 1,692 $ 1,428
======= =======
</TABLE>
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FRANKFORT FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
(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 three month periods
ended September 30, 2000 and 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 consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 2000.
(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 which totaled 1,306,423 and 1,492,837 for the three month
periods ended September 30, 2000 and 1999, 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 1,306,423 and 1,511,954
for the three-month periods ended September 30, 2000 and 1999, respectively.
Incremental shares related to the assumed exercise of stock options included in
the calculation of diluted earnings per share totaled 19,117 for the three-month
period ended September 30, 1999. For the three month period ended September 30,
2000, there were no incremental shares related to the assumed exercise of stock
options due to the non-dilutive nature of the options during that period. The
Company has 239,492 stock options outstanding of which 234,745 have an exercise
price of $13.80 per share and 4,747 have an exercise price of $14.91 per share.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedging Activities. In June,
1998, the Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards ("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.
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SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. 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. Management adopted SFAS No. 133 effective July 1, 2000,
as required, without material impact on the Company's financial statements.
In September 2000 the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", which
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but carries
over most of the provisions of SFAS No. 125 without reconsideration. SFAS No.
140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The Statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. SFAS No. 140 is not expected to have a material effect
on the Company's financial position or results of operations.
page 7
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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.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND JUNE 30, 2000
ASSETS: The Company's total assets increased from $145.5 million at June
30, 2000 to $146.6 million at September 30, 2000, an increase of $1.1 million or
0.8%. The increase in total assets is primarily attributable to an increase in
the Company's cash and cash equivalents and an increase in net loans receivable.
Cash and cash equivalents increased from $978,000 at June 30, 2000 to $1.6
million at September 30, 2000, an increase of $655,000 or 67.0%. Net loans
receivable increased from $137.8 million at June 30, 2000 to $138.4 million at
September 30, 2000, an increase of $649,000 or 0.5%.
LIABILITIES: The Company's total liabilities increased from $126.6 million
at June 30, 2000 to $128.5 million at September 30, 2000, an increase of $1.8
million or 1.4%. The increase in total liabilities is primarily attributable to
an increase in Advances from the Federal Home Loan Bank ("Advances"). Advances
increased from $42.1 million at June 30, 2000 to $45.7 million at September 30,
2000, an increase of $3.6 million or 8.6%. The increase has been utilized to
fund new loans, replace lost deposits and to make dividends to the Company. The
Company, in turn, has repurchased some of its common stock (see "Stock
Repurchase"). Deposits decreased $1.7 million or 2.0% to $80.8 million at
September 30, 2000.
SHAREHOLDERS' EQUITY: Shareholders' equity decreased from $18.8 million at
June 30, 2000 to $18.1 million at September 30, 2000, a decrease of $695,000 or
3.7%. This decrease is a result of the Company's net earnings of $392,000 less
the Company's dividends accrued or paid during the period of $328,000 less the
acquisition of the Company's own stock at a cost of $759,000 (see "Dividends"
and "Stock Repurchase"). The Company's book value per share was $14.38 at
September 30, 2000 compared to $14.26 at June 30, 2000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 AND SEPTEMBER 30, 1999
NET EARNINGS: The Company's net earnings decreased $9,000 or 2.2% to
$392,000 for the three months ended September 30, 2000 compared to $401,000 for
the three months ended September 30, 1999. This decrease is primarily
attributable to a decrease in net interest income of $11,000. The Company's
basic earnings per share rose $0.03 or 11.1% from $0.27 per share for the three
month period ended September 30, 1999 to $0.30 per share for the three month
period ended September 30, 2000. The Company's diluted earnings per share rose
$0.04 or 15.4% from $0.26 per share for the three month period ended September
30, 1999 to $0.30 per share for the three month period ended September 30, 2000.
NET INTEREST INCOME: Net interest income totaled $1.0 million for the three
months ended September 30, 2000, a decrease of $11,000 or 1.1% from the same
period in 1999. The decrease was primarily due to an increase in total interest
expense.
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<PAGE>
INTEREST INCOME: Interest income increased $248,000 or 10.2% to $2.7
million for the three month period ended September 30, 2000. The increase in
interest income from loans was primarily responsible for the increased level of
interest income for the period. Interest income from loans increased $225,000 or
9.5% to $2.6 million for the three month period ended September 30, 2000.
Interest income from interest-bearing deposits and other increased from $40,000
for the three-month period ended September 30, 1999 to $57,000 for the three
month period ended September 30, 2000, an increase of $17,000 or 42.5%. Interest
income from investment securities increased from $27,000 for the three month
period ended September 30, 1999 to $33,000 for the three month period ended
September 30, 2000, an increase of $6,000 or 22.2%. 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. The increase in interest income from
loans is attributable to both an increase in volume of the Company's loan
portfolio as well as an increase in the rate earned on the portfolio.
INTEREST EXPENSE: Interest expense increased $259,000 or 18.2% to $1.7
million for the three month period ended September 30, 2000. This increase was
primarily due to an increase in interest expense on Advances which increased
$206,000 or 44.6% from $462,000 for the three month period ended September 30,
1999 to $668,000 for the three month period ended September 30, 2000. The
increase is a result of an increase in the average amount of Advances
outstanding as well as an increase in the average interest rate paid on those
borrowings. Supplementing the increase in interest expense on Advances was an
increase of $53,000 or 5.5% in interest expense on deposits, which increased
from $961,000 for the three month period ended September 30, 1999, to $1.0
million for the three month period ended September 30, 2000.
PROVISION FOR LOSSES ON LOANS: The provision for losses on loans remained
constant with no provision for the three month periods ended September 30, 2000
or 1999. Management believed, on the basis of its analysis of the risk profile
of the Company's assets, that the allowance for loan losses was appropriate at
September 30, 2000 and 1999, which was $101,000 and $100,000, respectively. 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 $5,000 or 55.6%
from $9,000 for the three month period ended September 30, 1999 to $14,000 for
the three month period ended September 30, 2000. 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 $7,000 or 1.7% from $415,000 for the three month period
ended September 30, 1999 to $422,000 for the three month period ended September
30, 2000. The increase was comprised of an $8,000, or 3.5%, increase in employee
compensation and benefits, due to normal increases, and a $7,000, or 33.3%
increase in franchise taxes, which were partially offset by an $8,000, or 66.7%,
decline in federal deposit insurance premiums, due to a reduction in premium
rates year to year.
INCOME TAX: The Company's provision for federal income taxes decreased from
$206,000 for the three month period ended September 30, 1999 to $202,000 for the
three month period ended September 30, 2000. The decrease was a result of the
decrease in the Company's pretax earnings. The Company's effective tax rate was
34.0% for the three month period ended September 30, 2000 and 33.9% for the
three month period ended September 30, 1999.
NON-PERFORMING ASSETS: At September 30, 2000, the Bank had approximately
$135,000 in loans 90 days or more past due but still accruing. These delinquent
loans represent 0.1% of the Bank's net loans. The Bank had $538,000 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.
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DIVIDENDS: On September 13, 2000, the Company announced a dividend
policy whereby it will pay a quarterly cash dividend of $0.26 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 of $0.02 or 8.3% from the previous quarterly dividend of
$0.24 per share, which was established on September 15, 1999. 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 July 14, 2000. At September 30, 2000, the Company had recorded
dividends payable of $328,000 for the payment of a dividend on October 13, 2000.
STOCK REPURCHASES: On June 27, 2000, the Company announced a plan to
purchase up to 66,000 shares of the Company's common stock, which represented
approximately 5% of the outstanding common stock at that time. That specific
program was concluded on September 13, 2000, when the Company announced that it
had repurchased 59,000 shares at an average price of $12.88 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 65,000 of the remaining outstanding
shares of common stock. Management believes that the repurchase program 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 per share. The Board will
continue to consider stock repurchases and in the future may enact similar
programs depending on market conditions, interest rates, and the availability of
funds.
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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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: Financial Data Schedule as of September 30, 2000.
Reports on Form 8-K: None
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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: November 10, 2000
/S/ Don D. Jennings
-----------------------------------
. Don D. Jennings
Vice President
(Authorized Officer)
/S/ R. Clay Hulette
-----------------------------------
R. Clay Hulette
Vice President
(Principal Financial and Accounting
Officer)
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