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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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.
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1271129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
216 West Main Street, Frankfort, Kentucky 40602
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(Address of principal executive offices) (Zip Code)
(502) 223-1638
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13,
or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
_____ _____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of February 9, 2000:
1,320,108
Page 1 of 13 pages
page 1
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CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------------------------------------------
Item 1 Consolidated Statements of Financial Condition at
December 31, 1999 and June 30, 1999 3
Consolidated Statements of Earnings for the three
months and six months ended December 31, 1999 and
1998 4
Consolidated Statements of Cash Flows for the six
months ended December 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 12
Item 2 Changes in Securities 12
Item 3 Defaults upon Senior Securities 12
Item 4 Submission of Matters to a
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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page 2
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 836 $ 991
Interest-bearing deposits in other financial
institutions 93 1,600
-------- --------
Cash and cash equivalents 929 2,591
Certificates of deposit in other financial
institutions 200 200
Investment securities held to maturity - at
amortized cost, approximate fair market
value of $1,981 and $1,999 as of December
31, 1999 and June 30, 1999 1,985 2,004
Loans receivable - net 135,346 131,639
Office premises and equipment - at depreciated
cost 1,491 1,477
Federal Home Loan Bank stock - at cost 1,911 1,621
Accrued interest receivable on loans 361 367
Accrued interest receivable on investments
and interest-bearing deposits 46 39
Prepaid expenses and other assets 50 127
Prepaid federal income taxes 227 170
Deferred federal income taxes 51 87
-------- --------
Total assets $142,597 $140,322
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 83,675 $ 86,254
Advances from the Federal Home Loan Bank 36,980 30,878
Other borrowed money -- 284
Advances by borrowers for taxes and insurance 20 308
Accrued interest payable 69 79
Other liabilities 1,302 1,253
-------- --------
Total liabilities 122,046 119,056
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 18,259 18,166
Less 227,540 and 173,940 shares of treasury
stock - at cost (3,601) (2,793)
-------- --------
Total shareholders' equity 20,551 21,266
-------- --------
Total liabilities and shareholders' equity $142,597 $140,322
======== ========
Book value per share $ 14.22 $ 14.19
======== ========
</TABLE>
page 3
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
--------------------- --------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $4,795 $4,696 $2,426 $2,344
Investment securities 46 120 19 50
Interest-bearing deposits and other 90 61 50 34
------ ------ ------ ------
Total interest income 4,931 4,877 2,495 2,428
Interest expense
Deposits 1,920 1,984 958 995
Borrowings 985 842 524 410
------ ------ ------ ------
Total interest expense 2,905 2,826 1,482 1,405
------ ------ ------ ------
Net interest income 2,026 2,051 1,013 1,023
Provision for losses on loans -- -- -- --
------ ------ ------ ------
Net interest income after
provision for losses
on loans 2,026 2,051 1,013 1,023
Other operating income 23 20 13 10
General, administrative and other
expense
Employee compensation and benefits 460 413 231 198
Occupancy and equipment 80 76 42 39
Federal deposit insurance premiums 25 24 13 11
Franchise and other taxes 50 63 29 31
Data processing 66 82 32 42
Other operating 162 154 80 84
------ ------ ------ ------
Total general, administrative
and other expense 843 812 427 405
------ ------ ------ ------
Earnings before income taxes 1,206 1,259 599 628
Federal income taxes
Current 374 444 173 213
Deferred 36 (23) 31 (5)
------ ------ ------ ------
Total federal income taxes 410 421 204 208
------ ------ ------ ------
NET EARNINGS $ 796 $ 838 $ 395 $ 420
====== ====== ====== ======
Basic Earnings Per Share $ 0.54 $ 0.53 $ 0.27 $ 0.27
====== ====== ====== ======
Diluted Earnings Per Share $ 0.53 $ 0.52 $ 0.27 $ 0.27
====== ====== ====== ======
</TABLE>
page 4
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FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 796 $ 838
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 (4)
Amortization of deferred loan origination fees (7) (24)
Depreciation and amortization 40 36
Federal Home Loan Bank stock dividends (62) (27)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (1) 40
Prepaid expenses and other assets 77 55
Accrued interest payable (10) --
Other liabilities
Federal income taxes 49 5
Current (57) (81)
Deferred 36 (23)
------- --------
Net cash provided by operating activities 864 815
Cash flows provided by (used in) investing activities:
Purchase of investment securities designated as
held to maturity (984) (2,000)
Proceeds from maturity of investment securities 1,000 3,000
Purchase of Federal Home Loan Bank stock (228) --
Loan principal repayments 13,436 19,382
Loan disbursements (17,136) (22,472)
Purchase of office premises and equipment (54) (35)
------- --------
Net cash used in investing activities (3,966) (2,125)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (2,579) 2,249
Proceeds from Federal Home Loan Bank advances 18,550 11,500
Repayment of Federal Home Loan Bank advances (12,448) (10,442)
Proceeds from other borrowed money 932 --
Repayment of other borrowed money (1,216) --
Advances by borrowers for taxes and insurance (288) (275)
Capital distributions paid on common stock (703) (660)
Acquisition of treasury stock (808) (888)
------- --------
Net cash provided by financing activities 1,440 1,484
------- --------
Net increase (decrease) in cash and cash equivalents (1,662) 174
Cash and cash equivalents at beginning of period 2,591 1,321
------- --------
Cash and cash equivalents at end of period $ 929 $ 1,495
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 430 $ 525
======= ========
Interest on deposits and borrowings $ 2,915 $ 2,842
======= ========
</TABLE>
page 5
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FRANKFORT FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 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 six and three month periods ended December 31, 1999 and 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, 1999.
(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
1,474,587 and 1,456,338 for the six and three month periods
ended December 31, 1999, respectively, and 1,589,104 and
1,565,148 for the six and three month periods ended December 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 1,494,915 and
1,477,878 for the six and three month periods ended December 31,
1999, respectively, and 1,606,759 and 1,585,170 for the six and
three month periods ended December 31, 1998, respectively.
Incremental shares related to the assumed exercise of stock
options included in the calculation of diluted earnings per
share totaled 20,328 and 21,540 for the six and three month
periods ended December 31, 1999, and 17,655 and 20,022 for the
six and three month periods ended December 31, 1998,
respectively.
(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.
<PAGE>
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.
page 6
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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. SFAS No. 133 is not expected to have
a material impact on the Company's financial statements.
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.
Other Matters -- Year 2000
In previous filings, the Company has reported on efforts
to ensure a smooth transition of its computer systems to the
Year 2000. As of the date of this report, no malfunctions have
been detected and the Bank has not experienced any problems or
delays in its ability to serve its customers. Likewise, there
has been no detectable interruption in service from the Bank's
primary vendors or utilities. As reported, the Bank has spent
approximately $80,000 on the project but has obtained computer
equipment that will be useful for some years to come. As
mentioned, some cost in the three month period ended December
31, 1999 reflects the appropriation of extra funds held in the
Bank's vault and guarantees that the Bank could borrow emergency
funds. Some additional cost for these reasons (approximately
$3,000) will be reflected in the three month period ending March
31, 2000.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND JUNE
30, 1999
ASSETS: The Company's total assets increased from $140.3
million at June 30, 1999 to $142.6 million at December 31, 1999,
an increase of $2.3 million or 1.6%. The increase in total
assets is primarily attributable to an increase in the Company's
net loans receivable which increased from $131.6 million at June
30, 1999 to $135.3 million at December 31, 1999, an increase of
$3.7 million or 2.8%.
LIABILITIES: The Company's total liabilities increased
from $119.1 million at June 30, 1999 to $122.0 million at
December 31, 1999, an increase of $2.9 million or 2.5%. The
increase in total liabilities is primarily attributable to an
increase in Advances from the Federal Home Loan Bank
("Advances"). Advances increased from $30.9 million at June 30,
1999 to $37.0 million at December 31, 1999, an increase of $6.1
million or 19.8%. 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"). Partially offsetting the
increase in Advances was a decrease in deposits, which decreased
from $86.3 million at June 30, 1999 to $83.7 million at December
31, 1999, a decrease of $2.6 million or 3.0%. The balance of
deposits at June 30, 1999 had been inflated somewhat by a $2.2
million deposit of very short duration.
SHAREHOLDERS' EQUITY: Shareholders' equity decreased from
$21.3 million at June 30, 1999 to $20.6 million at December 31,
1999, a decrease of $715,000 or 3.4%. This decrease is a result
of the Company's net earnings of $796,000 less the Company's
dividends accrued or paid during the period of $703,000 less the
acquisition of the Company's own stock at a cost of $808,000
(see "Dividends" and "Stock Repurchase"). The Company's book
value per share was $14.22 at December 31, 1999 compared to
$14.19 at June 30, 1999.
page 8
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COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1998
NET EARNINGS: The Company's net earnings decreased
$42,000 or 5.0% to $796,000 for the six months ended December
31, 1999 compared to the six months ended December 31, 1998.
This decrease is primarily attributable to an increase in
general, administrative and other expense of $31,000 and a
decrease in net interest income of $25,000. The Company's basic
earnings per share rose from $0.53 per share for the six month
period ended December 31, 1998 to $0.54 per share for the six
month period ended December 31, 1999. The Company's diluted
earnings per share rose from $0.52 per share for the six month
period ended December 31, 1998 to $0.53 per share for the six
month period ended December 31, 1999.
NET INTEREST INCOME: Net interest income decreased
$25,000 or 1.2% to $2.0 million for the six month period ended
December 31, 1999. The decrease was primarily due to an
increase in total interest expense.
INTEREST INCOME: Interest income remained relatively
constant at $4.9 million for the six month periods ended
December 31, 1999, and 1998, increasing $54,000 or 1.1%. This
increase was primarily due to an increase in interest income
from loans and interest-bearing deposits and other. Offsetting
these increases was a decrease in interest income from
investment securities. Interest income from loans increased
from $4.7 million for the six month period ended December 31,
1998 to $4.8 million for the six month period ended December 31,
1999, an increase of $99,000 or 2.1%. The increase in interest
income from loans is attributable to the increase in volume of
the Company's loan portfolio. Interest income from interest-
bearing deposits and other increased from $61,000 for the six
month period ended December 31, 1998 to $90,000 for the six
month period ended December 31, 1999, an increase of $29,000 or
47.5%. Interest income from investment securities decreased
from $120,000 for the six month period ended December 31, 1998
to $46,000 for the six month period ended December 31, 1999, a
decrease of $74,000 or 61.7%. 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 Company's weighted average interest rate earned
on its loan portfolio has decreased as a result of refinancing
of mortgages and the downward adjustment of adjustable rate
mortgages that have occurred over the intervening period.
However, beginning in the three month period ended December 31,
1999, interest rates on new mortgages have tended to be higher
and adjustable rate mortgage adjustments have tended to be
upward.
INTEREST EXPENSE: Interest expense increased from $2.8
million for the six month period ended December 31, 1998, to
$2.9 million for the six month period ended December 31, 1999,
an increase of $79,000 or 2.8%. This increase was primarily
due to an increase in interest expense on advances which
increased $143,000 or 17.0% from $842,000 for the six month
period ended December 31, 1998 to $985,000 for the six month
period ended December 31, 1999. The increase is chiefly a
result of an increase in the average amount of advances
outstanding. Partially offsetting this increase was a decrease
in interest expense on deposits from $2.0 million for the six
month period ended December 31, 1998 to $1.9 million for the six
month period ended December 31, 1999, a decrease of $64,000 or
3.2%. Included in interest expense are charges of approximately
$5,000 to provide the Bank with additional liquidity for the
Year 2000 event period.
PROVISION FOR LOSSES ON LOANS: The provision for losses
on loans remained constant with no provision for either of the
six month periods ended December 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 increased
from $20,000 for the six month period ended December 31, 1998 to
$23,000 for the six month period ended December 31, 1999. Other
operating income is not a significant component of the Company's
statement of operations.
page 9
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GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES: General,
administrative, and other expense increased from $812,000 for
the six month period ended December 31, 1998 to $843,000 for the
six month period ended December 31, 1999, an increase of
$31,000, or 3.8%. The increase was due to a $47,000, or 11.4%,
increase in employee compensation and benefits and an $8,000 or
5.2% increase in other operating expense. Offsetting these
increases were decreases in franchise and other taxes of
$13,000, or 20.6%, and data processing expense of $16,000 or
19.5%. The increase in employee compensation and benefits is
primarily related to normal increases in salaries and wages, a
reduction in the level of deferred loan costs and increased
costs of health insurance provided for employees. The decrease
in data processing expense is attributed primarily to year 2000
costs which were charged to expense in earlier periods and which
are nonrecurring.
INCOME TAX: The Company's provision for federal income
taxes decreased from $421,000 for the six month period ended
December 31, 1998 to $410,000 for the six month period ended
December 31, 1999. 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 six month period ended December 31, 1999 and
33.4% for the six month period ended December 31, 1998.
NON-PERFORMING ASSETS: At December 31, 1999, the Bank had
approximately $253,000 in loans 90 days or more past due but
still accruing. These delinquent loans represent 0.2% of the
Bank's net loans. The Bank had $134,000 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 September 15, 1999 the Company announced a
dividend policy whereby it will pay a quarterly cash dividend of
$0.24 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 9.1% from the previous
quarterly dividend of $0.22 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 October 15, 1999. At December 31, 1999
the Company had recorded dividends payable of $347,000 for the
payment of a dividend on January 14, 2000.
STOCK REPURCHASES: On October 6, 1999 the Company
announced a plan to purchase up to 73,295 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 January 13, 2000 when the Company
announced that it had acquired that number of shares at an
average price of $15.15 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. That specific program was
concluded on January 26, 2000 when the Company announced that it
had acquired 72,500 shares at an average price of $15.00 per
share. The Company's Board believes that the repurchase
programs enacted to date have been successful in its goals of
increasing the Company's earnings per share, increasing its
return on equity, and in improving the liquidity for the
Company's stock. 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.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1998
NET EARNINGS: The Company's net earnings decreased
$25,000 or 6.0% to $395,000 for the three months ended December
31, 1999 compared to the three months ended December 31, 1998.
This decrease is primarily attributable to an increase in
general, administrative and other expense of $22,000 and a
decrease in net interest income of $10,000. The Company's basic
earnings per share remained constant at $0.27 per share for the
three month periods ended December 31, 1999 and 1998. The
Company's diluted earnings per share also remained constant at
$0.27 per share for the three month periods ended December 31,
1999 and 1998.
NET INTEREST INCOME: Net interest income decreased
$10,000 or 1.0% to $1.0 million for the three month period ended
December 31, 1999. The decrease was primarily due to an
increase in total interest expense.
page 10
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<PAGE>
INTEREST INCOME: Interest income increased from $2.4
million for the three month period ended December 31, 1998 to
$2.5 million for the three month period ended December 31, 1999,
an increase of $67,000 or 2.8%. This increase was primarily due
to an increase in interest income on loans and interest-bearing
deposits and other. Offsetting these increases was a decrease
in interest income from investment securities. Interest income
from loans increased from $2.3 million for the three month
period ended December 31, 1998 to $2.4 million for the three
month period ended December 31, 1999, an increase of $82,000 or
3.5%. Interest income from interest-bearing deposits and other
increased from $34,000 for the three month period ended December
31, 1998 to $50,000 for the three month period ended December
31, 1999, an increase of $16,000 or 47.1%. Interest income from
investment securities decreased from $50,000 for the three month
period ended December 31, 1998 to $19,000 for the three month
period ended December 31, 1999, a decrease of $31,000 or 62.0%.
The increase in interest income from loans is attributable to
the increase in volume of the Company's loan portfolio.
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 Company's
weighted average interest rate earned on its loan portfolio has
decreased as a result of refinancing of mortgages and the
downward adjustment of adjustable rate mortgages that have
occurred over the intervening period. However, beginning in the
three month period ended December 31, 1999, interest rates on
new mortgages have tended to be higher and adjustable rate
mortgage adjustments have tended to be upward.
INTEREST EXPENSE: Interest expense increased from $1.4
million for the three month period ended December 31, 1998, to
$1.5 million for the three month period ended December 31, 1999,
an increase of $77,000 or 5.5%. This increase was primarily due
to an increase in interest expense on advances which increased
$114,000 or 27.8% from $410,000 for the three month period ended
December 31, 1998 to $524,000 for the three month period ended
December 31, 1999. The increase is chiefly a result of an
increase in the average amount of advances outstanding.
Partially offsetting this increase was a decrease in interest
expense on deposits from $995,000 for the three month period
ended December 31, 1998 to $958,000 for the three month period
ended December 31, 1999, a decrease of $37,000 or 3.7%.
Included in interest expense are charges of approximately $5,000
to provide the Bank with additional liquidity for the Year 2000
event period.
PROVISION FOR LOSSES ON LOANS: The provision for losses
on loans remained constant with no provision for either of the
three month periods ended December 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 increased
from $10,000 for the three month period ended December 31, 1998
to $13,000 for the three month period ended December 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 increased from $405,000 for
the three month period ended December 31, 1998 to $427,000 for
the three month period ended December 31, 1999, an increase of
$22,000, or 5.4%. The increase was primarily due to a $33,000,
or 16.7%, increase in employee compensation and benefits.
Offsetting this increase was a decrease in data processing
expense of $10,000, or 23.8%. The increase in employee
compensation and benefits is primarily related to normal
increases in salaries and wages, a reduction in the level of
deferred loan costs and increased costs of health insurance
provided for employees. The decrease in data processing expense
is attributed primarily to year 2000 costs which were charged to
expense in earlier periods and which are nonrecurring.
INCOME TAX: The Company's provision for federal income
taxes decreased from $208,000 for the three month period ended
December 31, 1998 to $204,000 for the three month period ended
December 31, 1999. The decrease was a result of the decrease in
the Company's pretax earnings. The Company's effective tax rate
was 34.1% for the three month period ended December 31, 1999 and
33.1% for the three month period ended December 31, 1998.
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
(a) The registrant held its Annual Meeting of
Stockholders on November 9, 1999.
(b) Not applicable.
(c) The only matter to be voted upon at the Annual
Meeting was the election of three individuals
as directors.
Nominee Votes For Votes Withheld
------- --------- --------------
David G. Eddins 1,263,216 12,175
William C. Jennings 1,264,018 11,373
C. Michael Davenport 1,255,307 20,084
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: Financial Data Schedule as of December
31, 1999.
Reports on Form 8-K:
None
page 12
<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: February 9, 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)
page 13
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