<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-25704
FIRST FEDERAL BANCORPORATION
----------------------------
(Exact name of Registrant as specified in its Charter)
Minnesota 41-1796238
- -------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
214 5th Street, Bemidji, Minnesota 56601-9983
- ----------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(218) 751-5120
--------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 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 the latest practicable
date.
Class Outstanding at June 30, 1999
- ---------------------------- ----------------------------
Common Stock, $.01 par value 1,450,849
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FIRST FEDERAL BANCORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements Page
----
Consolidated Balance Sheets at
June 30, 1999 and September 30, 1998 3
Consolidated Statements of Earnings for
the Three Months and Nine Months
Ended June 30, 1999 and 1998 5
Consolidated Statement of Stockholders'
Equity for the Nine Months Ended
June 30, 1999 6
Consolidated Statements of Cash Flows for
the Nine Months Ended June 30, 1999
and 1998 7
Notes to Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 17
Item 2: Changes in Securities 17
Item 3: Defaults Upon Senior Securities 17
Item 4: Submission of Matters to a Vote of
Security Holders 17
Item 5: Other Materially Important Events 17
Item 6: Exhibits and Reports on Form 8-K 17
Signatures 18
2
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<PAGE>
PART 1 - FINANCIAL STATEMENTS
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 September 30
1999 1998
---------- ------------
Assets
<S> <C> <C>
Cash $ 1,744,218 $ 2,056,775
Interest-bearing deposits with banks 3,762,003 2,233,413
------------ ------------
Cash and cash equivalents 5,506,221 4,290,188
Securities available for sale:
Mortgage-backed and related
securities (amortized cost of
$16,394,904 and $16,866,562) 16,214,837 17,101,174
Other securities (amortized cost of
$14,678,250 and $19,593,156) 14,405,489 19,732,385
------------ ------------
Total securities available for sale 30,620,326 36,833,559
------------ ------------
Securities held to maturity:
Mortgage-backed and related
securities (estimated market value
of $256,894 and $309,944) 257,018 306,957
Other securities (estimated market
value of $32,254,759 and
$23,135,818) 33,573,917 22,992,251
------------ ------------
Total securities held to maturity 33,830,935 23,299,208
------------ ------------
Loans receivable, net 55,130,832 56,063,951
Federal Home Loan Bank stock, at cost 1,219,300 1,148,000
Foreclosed real estate, net 186,994 152,754
Accrued interest receivable 1,142,820 991,507
Premises and equipment, net 2,097,664 2,098,531
Other assets 763,766 372,930
------------ ------------
Total assets $130,498,858 $125,250,628
============ ============
Liabilities and Stockholders' Equity
Deposits $ 87,743,805 $ 85,866,264
Repurchase Agreements 5,400,000 3,135,488
Federal Home Loan Bank Advances 22,982,049 20,457,185
Federal funds purchased 20,000 1,300,000
Advance payments by borrowers for
taxes and insurance 111,722 163,022
Accrued interest payable 547,257 543,886
Accrued expenses and other liabilities 628,759 702,335
------------ ------------
Total liabilities 117,433,592 112,168,180
</TABLE>
(continued)
3
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<PAGE>
<TABLE>
<CAPTION>
June 30 September 30
1999 1998
---------- ------------
<S> <C> <C>
Stockholders' Equity:
Common stock ($.01 par value):
authorized 4,000,000 shares;
issued 1,450,849 and 1,489,912
shares 14,508 9,933
Additional paid-in-capital 6,046,716 6,173,130
Retained earnings, subject to certain
restrictions 9,111,856 8,691,092
Accumulated other comprehensive income,
unrealized (loss) gain on securities
available for sale, net of tax effect (218,123) 220,566
Unearned employee stock ownership plan
shares (362,250) (414,000)
Unearned shares management recognition
plan (118,055) (188,887)
Treasury stock, at cost, 289,373 and
287,301 shares (1,981,268) (1,939,384)
Deferred compensation payable in
common stock 571,882 529,998
------------ ------------
Total stockholders' equity 13,065,266 13,082,448
------------ ------------
Total liabilities and
stockholders' $130,498,858 $125,250,628
============ ============
</TABLE>
4
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<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
-------------- ---------------
1999 1998 1999 1998
---------------------- --------------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,151,650 $1,225,252 $3,457,258 $3,681,299
Mortgage-backed and related
securities 244,934 301,326 769,033 904,509
Other securities 775,011 529,070 2,204,490 1,632,395
Interest-bearing deposits with banks 16,395 19,394 42,123 42,188
Other 19,000 13,095 57,068 39,655
----------------------------------------------
2,206,990 2,088,137 6,529,972 6,300,046
----------------------------------------------
Interest expense:
Deposits 905,421 960,521 2,806,820 2,860,659
Borrowings 376,216 234,441 1,046,490 732,060
----------------------------------------------
1,281,637 1,194,962 3,853,310 3,592,719
----------------------------------------------
Net interest income 925,353 893,175 2,676,662 2,707,327
Provision for loan losses 13,549 35,000 19,343 95,500
----------------------------------------------
Net interest income after
provision for loan losses 911,804 858,175 2,657,319 2,611,827
----------------------------------------------
Noninterest income:
Fees and service charges 149,913 155,797 428,670 459,711
(Loss) gain on sales of
foreclosed real estate 536 518 (6,475) (34,087)
Provision for loss on investment
securities (83,129) 0 (83,129) 0
Other 16,177 19,849 35,802 50,145
----------------------------------------------
Total noninterest income 83,497 176,164 374,868 475,769
----------------------------------------------
Noninterest expense:
Compensation and employee benefits 402,940 374,999 1,193,263 1,192,017
Occupancy 129,123 112,864 380,388 371,657
Federal deposit insurance premiums 13,019 13,289 38,705 39,430
Data processing 17,541 17,088 59,012 56,773
Advertising 20,667 38,280 78,505 87,170
Other 117,563 103,002 375,329 357,942
----------------------------------------------
Total noninterest expense 700,853 659,522 2,125,202 2,104,989
----------------------------------------------
Earnings before income tax
expense 294,448 374,817 906,985 982,607
Income tax expense 108,974 141,926 346,643 367,750
----------------------------------------------
Net earnings $ 185,474 $ 232,891 $ 560,342 $ 614,857
========== ========== ========== ==========
Earnings per share:
Basic $ 0.16 $ 0.20 $ 0.48 $ 0.53
---------- ---------- ---------- ----------
Diluted $ 0.16 $ 0.18 $ 0.46 $ 0.49
---------- ---------- ---------- ----------
Comprehensive income $ (14,159) $ 251,104 $ 121,653 $ 692,752
========== ========== ========== ==========
</TABLE>
5
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FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Unrealized Unearned
gain(loss) shares Unearned Deferred Comp
securities Employee shares Payable
Additional available Stock Management in Total
Common Paid-in Retained for sale, Ownership Recognition Treasury Common Stockholders'
Stock Capital earnings net Plan Plan Stock Stock Equity
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1998 $9,933 6,173,130 8,691,092 220,566 (414,000) (188,887) (1,939,384) 529,998 13,082,448
Net earnings 560,342 560,342
Change in
unrealized gain (loss)
on securities
available for sale,
net of tax effect (438,689) (438,689)
Stock split, in
form of a 50%
stock dividend 4,835 (5,633) (798)
Purchase and
retirement of
common stock (260) (173,286) (139,578) (313,124)
Amortization of
management
recognition plan
shares 70,832 70,832
Earned employee
stock ownership
plan shares 52,505 51,750 104,255
Purchase of treasury
stock (41,884) (41,884)
Increase in Deferred
Comp Payable in
Common Stock 41,884 41,884
--------------------------------------------------------------------------------------------
June 30, 1998 $14,508 6,046,716 9,111,856 (218,123) (362,250) (118,055) (1,981,268) 571,882 13,065,266
============================================================================================
</TABLE>
6
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FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
---------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 560,342 $ 614,857
Adjustments to reconcile net earnings to net
cash provided (used) by operations:
Provision for loan losses 102,472 95,500
Depreciation 199,493 217,466
Amortization of premium and discount, net (50,535) (65,856)
Increase in accrued interest receivable (151,313) (94,950)
(Increase) decrease in accrued interest
payable 3,371 (35,202)
Loss on sales of foreclosed real estate 6,475 34,087
Earned ESOP shares priced above original cost 52,505 98,290
Decrease in Unearned ESOP Shares 51,750 51,750
Decrease in Unamortized Restricted Stock 70,832 70,833
Increase in Deferred Comp Payable in Common Stock 41,884 33,330
Increase in other assets (9,335) (330,699)
(Decrease) increase in accrued expenses
and other liabilities (73,576) 82,709
----------- -----------
Net cash provided by operating activities 804,365 772,115
----------- -----------
Investing activities:
Net decrease (increase) in loans receivable 830,647 (2,506,044)
Purchases of:
Other securities - available for sale (12,508,823) (10,507,620)
Other securities - held to maturity (24,081,719) (22,497,188)
Mortgage-backed & related securities -
available for sale (6,180,162) (3,774,158)
FHLB stock (71,300) (198,300)
Premises and equipment (198,626) (247,342)
Proceeds from maturities or calls of:
Other securities - available for sale 17,463,050 16,500,028
Other securities - held to maturity 13,500,000 10,000,000
Principal payments on:
Mortgage-backed & related securities
- available for sale 6,663,495 4,853,108
Mortgage-backed & related securities
- held to maturity 49,535 174,087
Net (increase) decrease in foreclosed real
estate (34,240) 86,233
----------- -----------
Net cash used in investing activities (4,568,143) (8,117,196)
----------- -----------
</TABLE>
(continued)
7
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<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
---------------
1999 1998
------------ ------------
<S> <C> <C>
Financing activities:
Net increase in deposits $ 1,877,541 $ 1,849,342
Purchase and retirement of common stock (313,124) (173,065)
Purchase of treasury stock (41,884) (33,330)
Purchase of fractional shares on stock split (798) (837)
Decrease in advance payments by borrowers
for taxes and insurance (51,300) (49,327)
Net increase in Federal Home Loan Bank advances 2,524,864 8,439,777
Increase (decrease) in other borrowed money 984,512 (1,203,945)
----------- -----------
Net cash provided by financing activities 4,979,811 8,828,615
----------- -----------
Increase in cash and cash equivalents 1,216,033 1,483,534
Cash and cash equivalents, beginning of period 4,290,188 4,599,403
----------- -----------
Cash and cash equivalents, end of period $ 5,506,221 $ 6,082,937
=========== ===========
Supplemental cash flow disclosures:
Cash paid for interest on deposits $ 2,851,507 $ 2,860,846
Cash paid for interest on borrowings 998,431 767,073
Cash paid for income taxes 532,250 432,000
Supplemental noncash flow disclosures:
Transfer of loans to real estate $ 238,412 $ 140,869
Loans receivable on other real estate sold $ 67,000 $ 131,250
</TABLE>
8
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FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
(1) The accompanying unaudited consolidated financial
statements, which are for interim periods, do not
include all disclosures provided in the annual
consolidated financial statements. These unaudited
consolidated financial statements should be read in
conjunction with the consolidated financial statements
and the footnotes thereto contained in the Annual
Report on Form 10-KSB for the year ended September 30,
1998 of First Federal Bancorporation (the "Company"),
as filed with the Securities and Exchange Commission.
The September 30, 1998 balance sheet was derived from
audited consolidated financial statements, but does not
include all disclosures required by generally accepted
accounting principles.
(2) Basis of Preparation
In the opinion of the Company, the accompanying
unaudited consolidated financial statements contain
all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the
financial statements. The statements of earnings for
the three and nine month period ended June 30, 1999 are
not necessarily indicative of the results which may
be expected for the entire year.
(3) Earnings Per Common Share and Common Share Equivalents
Following is information about the computation of the
earnings per share data for the three months ended June
30,1999 and 1998:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1999 June 30, 1998
-------------------------------- --------------------------------
Per share Per share
Numerator Denominator Amount Numerator Denominator Amount
---------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share, income
available to common stockholders $185,474 1,144,870 $0.16 $232,891 1,158,240 $0.20
===== =====
Effect of dilutive securities:
MRP shares 9,183 24,342
Stock options 40,655 77,782
------------------- -------------------
Diluted earnings per share,
income available to common
stockholders $185,474 1,194,708 $0.16 $232,891 1,260,364 $0.18
============================== =============================
</TABLE>
Following is information about the computation of the
earnings per share data for the nine months ended June
30, 1999 and 1998:
9
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<PAGE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, 1999 June 30, 1998
-------------------------------- --------------------------------
Per share Per share
Numerator Denominator Amount Numerator Denominator Amount
---------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share, income
available to common stockholders $560,342 1,164,923 $0.48 $614,857 1,156,082 $0.53
===== =====
Effect of dilutive securities:
MRP shares 9,683 24,179
Stock options 43,665 77,235
-------------------- ------------------
Diluted earnings per share,
income available to common
stockholders $560,342 1,218,271 $0.46 $614,857 1,257,496 $0.49
============================== ============================
</TABLE>
(4) Regulatory Capital Requirements
At June 30, 1999, the Bank met each of the current
minimum regulatory capital requirements. The following
table summarizes the Bank's regulatory capital position
at June 30, 1999:
<TABLE>
<CAPTION>
Minimum for Capital Minimum to be
Actual Adequacy Purposes Well Capitalized
Ratio Amount Ratio Amount Ratio Amount
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
and ratio to total assets 8.09% $10,367
Tangible capital,
and ratio to adjusted total assets 8.25% $10,594 2.00% $2,569
Tier 1 (core) capital,
and ratio to adjusted total assets 8.25% $10,594 4.00% $5,138 5.00% $6,423
Tier 1 capital,
and ratio to risk-weighted assets 17.21% $10,594 4.00% $2,462 6.00% $3,693
Total risk-based capital,
and ratio to risk-weighted assets 17.95% $11,046 8.00% $4,924 10.00% $6,155
Total assets $128,069
Adjusted total assets $128,453
Risk-weighted assets $ 61,551
</TABLE>
(5) Stockholders' Equity
During the three months ended March 31, 1999, the Company
repurchased 19,500 shares under the Company's repurchase program
which was approved on September 3, 1998. The repurchased shares
were retired by the Company.
During the three months ended June 30, 1999, the Company
repurchased 19,500 shares under the Company's repurchase program
which was approved on September 3, 1998. The repurchased shares
were retired by the Company.
10
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<PAGE>
On May 20, 1999, the Company paid a three for two stock
split in the form of a 50% stock dividend to stockholders of
record as of May 5, 1999. Share and per share amounts in this
Form 10-QSB have been adjusted to give effect to the three for
two stock split as of October 1, 1997.
11
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FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATIONS
General:
The Company's net earnings are dependent primarily on its
net interest income, which is the difference between interest
earned on loans and investments, and the interest paid on
interest-bearing liabilities, primarily deposits. Net interest
income is determined by (i) the difference between the yield
earned on interest earning assets and rates paid on interest-
bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest earning assets and interest-bearing
liabilities. The Company's interest rate spread is also
affected by regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. The
Company's net earnings are also affected by the generation of
non-interest income, which primarily consists of fees and
service charges. In addition, net earnings are affected by the
level of operating expenses and provisions for loan losses.
The operations of financial institutions, including the
Bank, are significantly affected by prevailing economic
conditions, competition, regulatory policies, and the monetary
and fiscal policies of the U.S. Government and government
agencies. Lending activities are influenced by the demand for,
and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and
costs of funds are influenced by prevailing market rates of
interest primarily on competing investments, account maturities
and the levels of personal income and savings in the market area
of the Bank.
Year 2000 Readiness Disclosure:
The Year 2000 ("Y2K") issue is the result of computer
programs using a two-digit format, as opposed to four digits, to
indicate the year. Such computer systems will be unable to
intrepret dates beyond the year 1999, which could cause a system
failure or other computer errors, leading to disruptions in
operations. The Company's Year 2000 Action Plan was presented
to the Board of Directors in September 1997. The year 2000
Action Plan includes the following phases: awareness,
assessment, renovation, validation and implementation. During
the assessment phase, the Year 2000 Project Team identified
those areas which could be affected by the year 2000 date
change. During August 1998, the Company completed the
renovation of both the hardware and software for its operating
and teller systems. The Company has renovated some of its
ancillary systems (i.e. check processing, ATM network, etc.)
The Company has participated in user group testing of its
operating and teller system. This testing has now been
completed and a review and analysis of the test results has been
done. The review did not disclose any items of concern as a
result of changing the dates into the Year 2000. Testing for
other mission-critical systems (communication software) has also
been completed. The Company has incurred $412,000 for capital
expenditures relating to Year 2000 hardware and software issues.
Progress reports are presented to the Board of Directors at
least quarterly. The Company's subsidiary, First Federal Bank
(the 'Bank') is monitoring the status of its commercial
customers to determine the potential for loss in relation to
these customers not being ready for the year 2000.
The most likely, worst case scenario for the transition to
the Year 2000 would be the failure of the application software
and teller software. Due to the complexity and time needed to
convert to an alternative system in the event that the Bank's
application and teller system do not operate in the Year 2000,
it will be necessary to manually update information until such
time that the programs and applications are corrected to
accomodate the year 2000. When data processing functions are
completed on December 31, 1999, a detailed trial balance of all
the applications will be generated. Authorization for
withdrawals will be based on the information contained in these
trial balances. Any transactions completed in subsequent days
will be reflected in an addendum to the trial balances on a
daily basis.
12
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<PAGE>
Financial Condition:
Total assets increased by $5.25 million, or 4.19%, from
$125.25 million at September 30, 1998, to $130.50 million at
June 30, 1999. The increase was primarily due to an increase in
cash and cash equivalents, the securities portfolio of the Bank,
including mortgaged-backed and related securities, and other
assets, partially offset by a decrease in loans receivable.
Cash and cash equivalents totaled $5.51 million at June 30,
1999, an increase of $1.22 million, or 28.34%, from September
30, 1998. The Company's securities portfolio increased $4.32
million, or 7.18%, from $60.13 million at September 30, 1998, to
$64.45 million at June 30, 1999. Securities held-to-maturity
increased $10.53 million, or 45.20%, from $23.30 million at
September 1998, to $33.83 million at June 30, 1999. Other
assets increased by $647,000, or 13.58% from $4.76 million at
September 30, 1998 to $5.41 million at June 30, 1999. Due to a
decrease in loan demand, loans receivable, net, decreased
$933,000, or 1.67%, from $56.06 million at September 30, 1998 to
$55.13 million at June 30, 1999.
Deposits increased by $1.87 million, or 2.19%, from $85.87
million at September 30, 1998, to $87.74 million at June 30,
1999. This increase was primarily a result of the introduction
of a premier money market account.
Borrowings increased $3.51 million, or 14.10%, from $24.89
million at September 30, 1998, to $28.40 million at June 30,
1999. Federal Home Loan Bank advances increased $2.52 million,
or 12.34%, from $20.46 million at September 30, 1998, to $22.98
million at June 30, 1999. The Company continues to use
leveraged borrowings to generate additional income from the
spread between the borrowing rate and the rate on the
investments purchased with the borrowed funds. Borrowings in
the form of repurchase agreements increased $2.26 million, or
72.22%, from $3.14 million at September 30, 1998 to $5.40
million at June 30, 1999. Repurchase agreements are primarily
issued to local government units. Federal funds purchased
decreased $1.28 million, or 98.46%, from $1.30 million at
September 30, 1998 to $20,000 at June 30, 1999.
Stockholders' equity decreased during the nine months
ended June 30, 1999 by $17,000, or 0.13%, from $13.08 million at
September 30, 1998, to $13.07 million at June 30, 1999. The
decrease was primarily a result of a $439,000 decrease in the
net unrealized gain on securities available for sale, net of tax
effect, and $313,000 in the purchase and retirement of common
stock. This decrease was partially offset by net earnings of
$560,000, and an increase of $175,000 in the earned management
recognition plan shares and the employee stock ownership plan
shares.
Net Earnings:
Net earnings for the three months ended June 30, 1999,
decreased $47,000, or 20.36%, from the three months ended June
30, 1998, from $233,000 to $186,000, respectively. This
decrease was primarily the result of a decrease in noninterest
income and an increase in noninterest expense, partially offset
by an increase in net interest income and a decrease in the
provision for loan loss. Net earnings for the nine months ended
June 30, 1999, decreased $55,000, or 8.87%, from the nine months
ended June 30, 1998, from $615,000 to $560,000, respectively.
This decrease was primarily the result of a decrease in net
interest income, noninterest income, and by an increase in
noninterest expense. This decrease was partially offset by a
decrease in the provision for loan loss.
Net Interest Income:
Net interest income increased by $32,000, or 3.60%, for
the three months ended June 30, 1999, compared to the three
months ended June 30, 1998. The Company increased its average
interest earning assets by $14.60 million, or 13.22%, while the
net interest margin decreased from 3.24% for the three months
ended June 30, 1998, to 2.97% for the three months ended June
30, 1999. The primary reason for the decrease in the net
interest income during the periods, was a 51 basis point
decrease in the average yield on interest earning assets, which
was partially offset by a 28 basis point decrease in the average
cost of interest bearing
13
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<PAGE>
liabilities. Net interest income decreased by $31,000, or
1.13%, for the nine months ended June 30, 1999, compared to the
nine months ended June 30, 1998. The Company increased its
average interest earning assets by $13.35 million, or 12.20%,
while the net interest margin decreased from 3.31% for the nine
months ended June 30, 1998, to 2.91% for the nine months ended
June 30, 1999. The primary reason for the decrease in the net
interest income during the periods, was a 59 basis point
decrease in the average yield on interest earning assets, which
was partially offset by a 23 basis point decrease in the average
cost of interest bearing liabilities.
Interest Income:
Interest income increased by $119,000, or 5.69%, from
$2.09 million for the three months ended June 30, 1998, to $2.21
million for the three months ended June 30, 1999. The increase
in interest income is primarily a result of a $14.60 million
increase in average interest earning assets, partially offset by
a decrease in the average yield on interest earning assets from
7.59% for the three months ended June 30, 1998, to 7.08% for the
three months ended June 30, 1999. The primary reason for the
decrease in the average yield on interest earning assets was the
refinancing activity in the lending area, which resulted in a 50
basis point decrease in the average yield on loans. In
addition, the relatively low interest rate environment has
resulted in a 29 basis point decrease in the average yield on
the security portfolio. Interest income increased by $230,000,
or 3.65%, from $6.30 million for the nine months ended June 30,
1998, to $6.53 million for the nine months ended June 30, 1999.
The increase in interest income is primarily a result of a
$13.35 million increase in average interest earning assets,
partially offset by a decrease in the average yield on interest
earning assets from 7.70% for the nine months ended June 30,
1998, to 7.11% for the nine months ended June 30, 1999. The
primary reason for the decrease in the average yield on interest
earning assets was the refinancing activity in the lending area,
which resulted in a 56 basis point decrease in the average yield
on loans. In addition, the low rate environment has resulted in
a 39 basis point decrease in the average yield on the security
portfolio.
Interest Expense:
Interest expense increased by $87,000, or 7.25%, from
$1.19 million for the three months ended June 30, 1998, to $1.28
million for the three months ended June 30, 1999. The increase
in interest expense is primarily a result of a $14.28 million
increase in average interest bearing liabilities, partially
offset by a decrease in the average cost of interest bearing
liabilities from 4.71% for the three months ended June 30, 1998,
to 4.43% for the three months ended June 30, 1999. The low rate
environment has resulted in a 35 basis point decrease in the
average cost of deposits, while the average cost of other
borrowings decreased 46 basis points. Interest expense
increased by $261,000, or 7.25%, from $3.59 million for the nine
months ended June 30, 1998, to $3.85 million for the nine months
ended June 30, 1999. The increase in interest expense is
primarily a result of a $12.82 million increase in average
interest bearing liabilities, partially offset by a decrease in
the average cost of interest bearing liabilities from 4.76% for
the nine months ended June 30, 1998, to 4.53% for the nine
months ended June 30, 1999. The relatively low interest rate
environment has resulted in a 23 basis point decrease in the
average cost of deposits, while the average cost of other
borrowings decreased 55 basis points.
Provision for Loan Losses:
The Bank's provision for loan losses decreased $21,000,
from $35,000 for the three months ended June 30, 1998, to
$14,000 for the three months ended June 30, 1999. The Bank's
provision for loan losses decreased $76,000, from $95,000 for
the nine months ended June 30, 1998, to $19,000 for the nine
months ended June 30, 1999. Adjustments to the Bank's provision
for loan losses is a result of management's ongoing evaluation
of the loan portfolio.
Non-Interest Income:
14
<PAGE>
<PAGE>
Total non-interest income decreased by $93,000, or 52.60%,
from $176,000 for the three months ended June 30, 1998, to
$83,000 for the three months ended June 30, 1999. This decrease
was primarily due to the establishment of a $83,000 provision
for loss on investment securities, a $6,000 decrease in fees and
service charges, consisting primarily of a $19,000 decrease in
loan related fees, partially offset by a $13,000 increase in
deposit account related fees and other service fees, and a
$4,000 decrease in other non-interest income categories. Total
non-interest income decreased by $101,000, or 21.21%, from
$476,000 for the nine months ended June 30, 1998, to $375,000
for the nine months ended June 30, 1999. This decrease was
primarily due to the establishment of a $83,000 provision for
loss on investment securities, a $31,000 decrease in fees and
service charges, primarily loan related fees, ATM access fees,
and the elimination of certain IRA related fees; a $9,000
decrease in the commssions earned on the sale of credit life
insurance; and, a $13,000 increase in real estate owned
expenses. This was partially offset by a $28,000 decrease in
the loss incurred on the sale of real estate owned and a $7,000
increase in other non-interest income categories.
Non-Interest Expense:
Total non-interest expense increased by $41,000, or 6.27%,
from $660,000 for the three months ended June 30, 1998, to
$701,000 for the three months ended June 30, 1999. This
increase was primarily for the following reasons: (i) a $28,000
increase in compensation and employee benefits; (ii) a $16,000
increase in occupancy expense; (iii) a $9,000 increase in
professional services; and (iv) a $6,000 increase in other non-
interest expenses. These increases were partially offset by a
$18,000 decrease in marketing expenses. Total non-interest
expense increased by $20,000, or 0.96%, from $2.10 million for
the nine months ended June 30, 1998, to $2.12 million for the
nine months ended June 30, 1999. This increase was primarily
for the following reasons: (i) a $9,000 increase in occupancy
expense; (ii) a $2,000 increase in data processing expense;
(iii) a $13,000 increase in professional services; and, (iv) a
$4,000 increase in other non-interest expenses. These increases
were partially offset by a $8,000 decrease in marketing expense.
Income Tax Expense:
Income tax expense decreased by $33,000, or 23.22%, from
$142,000 for the three months ended June 30, 1998, to $109,000
for the three months ended June 30, 1999. Income tax expense
decreased by $21,000, or 5.73%, from $368,000 for the nine
months ended June 30, 1998, to $347,000 for the nine months
ended June 30, 1999. The decreases in income tax expense were
due to a reduction in earnings before income tax expense for
each period in comparison to the same period in the prior year.
Liquidity and Capital Resources:
The Company's primary source of funds for operations are
deposits from its market area; principal and interest payments
on loans, securities available for sale and securities held to
maturity; proceeds from the sale or maturation of securities,
advances from the FHLB of Des Moines, and retail repurchase
agreements. While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, and competition.
The primary investing activities of the Company are the
origination and purchase of mortgage loans, the origination of
consumer loans and the purchase of securities. During the nine
months ended June 30, 1999, the Bank's loan originations and
purchases totaled $16.30 million. The Company purchased
investment securities and mortgage-backed and related securities
during the nine months ended June 30, 1999 of $42.77 million.
Securities held-to-maturity increased to $33.83 million at June
30, 1999 from $23.30 million at September 30, 1998.
15
<PAGE>
<PAGE>
The primary financing activity of the Bank is the attrac-
tion of deposits and secured borrowings. During the nine months
ended June 30,1999, deposits at the Bank increased $1.87
million, or 2.19%, from $85.87 million at September 30, 1998 to
$87.74 million at June 30, 1999. This increase was primarily a
result of the introduction of a premier money market account.
The Bank has utilized retail repurchase agreements as a
source of funding. At June 30, 1999, repurchase agreements
totaled $5.40 million compared to $3.14 million at September 30,
1998.
At June 30, 1999, the FHLB advances are secured by the
FHLB stock and a blanket pledge of residential loans, and
governmental agency securities. Under the agreement, the Bank
must maintain eligible collateral in amounts exceeding 125
percent of the outstanding advances. At June 30, 1999, the Bank
had $22.98 million in advances outstanding with the FHLB
compared to $20.46 million at September 30, 1998.
The Bank is required to maintain minimum levels of liquid
assets as defined by OTS regulations. This requirement, which
may be varied by the OTS depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-
term borrowings. The required minimum liquidity ratio is
currently 4.00%. The Bank's average daily liquidity ratio for
the month ended June 30, 1999 was 36.62%.
The Company's most liquid assets are cash and cash
equivalents, which consist of short-term highly liquid
investments with original maturities of less than three months
that are readily convertible to known amounts of cash and
interest-bearing deposits. The level of these assets is
dependent on the Company's operating, financing and investing
activities during any given period. At June 30, 1999, cash and
cash equivalents totaled $5.51 million.
The Bank anticipates that it will have sufficient funds
available to meet its current commitments. At June 30, 1999,
the Bank had commitments to originate or purchase loans of $1.72
million. Certificates of deposits which are scheduled to mature
in one year or less at June 30, 1999, totaled $34.16 million.
Management believes that a significant portion of such deposits
will remain with the Bank.
16
<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None.
ITEM 2: Changes in Securities
Not Applicable.
ITEM 3: Defaults Upon Senior Securities
Not Applicable.
ITEM 4: Submission of Matters to a Vote of Security Holders.
None.
ITEM 5: Other Information.
ITEM 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On April 20, 1999, the registrant's Board of
Directors approved a 3-for-2 common stock split in
the form of a 50% stock dividend. The common
stock split was distributed May 20, 1999, to
stockholders of record as of May 5, 1999.
17
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST FEDERAL BANCORPORATION
Registrant
Date: August 12, 1999 /s/ William R. Belford
_______________ _______________________________________
William R. Belford, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: August 12, 1999 /s/ Dennis M. Vorgert
_______________ _______________________________________
Dennis M. Vorgert, Vice President
(Principal Financial Officer)
18
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,744,218
<INT-BEARING-DEPOSITS> 3,417,003
<FED-FUNDS-SOLD> 345,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,621,326
<INVESTMENTS-CARRYING> 33,830,935
<INVESTMENTS-MARKET> 32,511,653
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<ALLOWANCE> 452,155
<TOTAL-ASSETS> 130,498,858
<DEPOSITS> 87,743,805
<SHORT-TERM> 28,402,049
<LIABILITIES-OTHER> 1,287,738
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0
0
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<INTEREST-TOTAL> 6,529,972
<INTEREST-DEPOSIT> 2,806,820
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<EXPENSE-OTHER> 2,125,202
<INCOME-PRETAX> 906,985
<INCOME-PRE-EXTRAORDINARY> 906,985
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 560,342
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 2.15
<LOANS-NON> 312,785
<LOANS-PAST> 76,097
<LOANS-TROUBLED> 186,994
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<ALLOWANCE-OPEN> 498,340
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