<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM 10-QSB
MARK ONE
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________.
Commission File Number: 0-25704
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 office) (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 March 31, 1999
- ----- -----------------------------
Common Stock, $.01 par value 980,275<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements Page
----
Consolidated Balance Sheets at
March 31, 1999 and September 30, 1998 3
Consolidated Statements of Earnings for
the Three Months and Six Months Ended
March 31, 1999 and 1998 5
Consolidated Statement of Stockholders'
Equity for the Six Months Ended
March 31, 1999 6
Consolidated Statements of Cash Flows for
the Six Months Ended March 31, 1999
and 1998 7
Notes to Consolidated Financial Statements 9
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 2: Changes in Securities 16
Item 3: Defaults Upon Senior Securities 16
Item 4: Submission of Matters to a Vote of
Security Holders 16
Item 5: Other Materially Important Events 17
Item 6: Exhibits and Reports on Form 8-K 17
Signatures 18
2<PAGE>
<PAGE>
PART 1 - FINANCIAL STATEMENTS
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---------- ------------
ASSETS
<S> <C> <C>
Cash $ 1,796,299 $ 2,056,775
Interest-bearing deposits with banks 2,804,941 2,233,413
------------ ------------
Cash and cash equivalents 4,601,240 4,290,188
Securities available for sale:
Mortgage-backed and related
securities (amortized cost of
$16,126,332 and $16,866,562) 16,162,415 17,101,174
Other securities (amortized cost of
$15,557,641 and $19,593,156) 15,490,220 19,732,385
------------ ------------
Total securities available for sale 31,652,635 36,833,559
------------ ------------
Securities held to maturity:
Mortgage-backed and related
securities (estimated market value
of $266,946 and $309,944) 266,520 306,957
Other securities (estimated market
value of $33,026,562 and
$23,135,818) 33,573,506 22,992,251
------------ ------------
Total securities held to maturity 33,840,026 23,299,208
------------ ------------
Loans receivable, net 54,340,918 56,063,951
Federal Home Loan Bank stock, at cost 1,219,300 1,148,000
Foreclosed real estate, net 257,744 152,754
Accrued interest receivable 1,102,527 991,507
Premises and equipment, net 2,112,534 2,098,531
Other assets 696,280 372,930
------------ ------------
Total assets $129,823,204 $125,250,628
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 85,873,776 $ 85,866,264
Repurchase Agreements 5,500,000 3,135,488
Federal Home Loan Bank Advances 23,347,173 20,457,185
Federal funds purchased 600,000 1,300,000
Advance payments by borrowers for
taxes and insurance 199,376 163,022
Accrued interest payable 525,887 543,886
Accrued expenses and other liabilities 598,919 702,335
------------ ------------
Total liabilities 116,645,131 112,168,180
</TABLE>
(continued)
3<PAGE>
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30
1999 1998
---------- ------------
<S> <C> <C>
Stockholders' Equity:
Common stock ($.01 par value):
authorized 4,000,000 shares;
issued 980,275 shares and 993,275
shares $ 9,803 $ 9,933
Additional paid-in-capital 6,121,218 6,173,130
Retained earnings, subject to certain
restrictions 8,996,094 8,691,092
Other comprehensive income,
unrealized (loss) gain on securities
available for sale, net of tax effect (18,490) 220,566
Unearned employee stock ownership plan
shares (379,500) (414,000)
Unearned shares management recognition
plan (141,666) (188,887)
Treasury stock, at cost, 192,505 and
191,534 shares (1,969,810) (1,939,384)
Deferred compensation payable in
common stock 560,424 529,998
------------ ------------
Total stockholders' equity 13,178,073 13,082,448
------------ ------------
Total liabilities and
stockholders' equity $129,823,204 $125,250,628
============ ============
</TABLE>
4<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- --------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,101,702 $1,208,727 $2,305,608 $2,456,047
Mortgage-backed and related
securities 258,640 297,339 524,099 603,183
Other securities 751,975 578,904 1,429,479 1,103,325
Interest-bearing deposits with banks 12,976 20,785 25,728 22,794
Other 18,790 13,641 38,068 26,560
---------- ---------- ---------- ----------
2,144,083 2,119,396 4,322,982 4,211,909
---------- ---------- ---------- ----------
Interest expense:
Deposits 929,521 933,366 1,901,399 1,900,138
Borrowings 347,447 263,899 670,274 497,619
---------- ---------- ---------- ----------
1,276,968 1,197,265 2,571,673 2,397,757
---------- ---------- ---------- ----------
Net interest income 867,115 922,131 1,751,309 1,814,152
Provision for loan losses 47,086 30,500 5,794 60,500
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 820,029 891,631 1,745,515 1,753,652
---------- ---------- ---------- ----------
Noninterest income:
Fees and service charges 133,629 139,736 278,757 303,914
(Loss) gain on sales of
foreclosed real estate (7,143) 508 (7,011) (34,605)
Other 11,476 9,189 19,625 30,296
---------- ---------- ---------- ----------
Total noninterest income 137,962 149,433 291,371 299,605
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and employee benefits 394,713 432,117 790,323 817,018
Occupancy 129,221 123,659 251,265 258,793
Federal deposit insurance premiums 13,162 13,098 25,686 26,141
Data processing 18,276 20,616 41,471 39,685
Advertising 35,065 28,224 57,838 48,890
Other 146,614 157,942 257,766 254,940
---------- ---------- ---------- ----------
Total noninterest expense 737,051 775,656 1,424,349 1,445,467
---------- ---------- ---------- ----------
Earnings before income tax
expense 220,940 265,408 612,537 607,790
Income tax expense 78,903 97,190 237,669 225,824
---------- ---------- ---------- ----------
Net earnings $ 142,037 $ 168,218 $ 374,868 $ 381,966
========== ========== ========== ==========
Earnings per share:
Basic $ 0.18 $ 0.22 $ 0.48 $ 0.50
---------- ---------- ---------- ----------
Diluted $ 0.17 $ 0.20 $ 0.46 $ 0.46
---------- ---------- ---------- ----------
Comprehensive income $ 56,487 $ 175,724 $ 135,812 $ 441,648
========== ========== ========== ==========
</TABLE>
5<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
gain (loss)
Additional on securities
Common Paid-in Retained available for
Stock Capital Earnings sale, net
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
September 30, 1998 $9,933 6,173,130 8,691,092 220,566
Net earnings 374,868
Change in unrealized gain (loss)
on securities available for
sale, net of tax effect (239,056)
Purchase and retirement of
common stock (130) (86,628) (69,866)
Amortization of management
recognition plan shares
Earned employee stock ownership
plan shares 34,716
Purchase of treasury stock
Increase in Deferred Comp
Payable in Common Stock
------ ---------- ---------- ---------
March 31, 1999 $9,803 6,121,218 8,996,094 (18,490)
====== ========== ========== =========
<CAPTION>
Unearned
shares Unearned Deferred
Employee shares Comp
Stock Management Payable in Total
Ownership Recognition Treasury Common Stockholders'
Plan Plan Stock Stock Equity
--------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
September 30, 1998 $(414,000) (188,887) (1,939,384) 529,998 13,082,448
Net earnings 374,868
Change in unrealized gain (loss)
on securities available for
sale, net of tax effect (239,056)
Purchase and retirement of
common stock (156,624)
Amortization of management
recognition plan shares 47,221 47,221
Earned employee stock ownership
plan shares 34,500 69,216
Purchase of treasury stock (30,426) (30,426)
Increase in Deferred Comp
Payable in Common Stock 30,426 30,426
--------- -------- ---------- ------- ----------
March 31, 1999 $(379,500) (141,666) (1,969,810) 560,424 13,178,073
========= ======== ========== ======= ==========
</TABLE>
6<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 374,868 $ 381,966
Adjustments to reconcile net earnings to net
cash provided (used) by operations:
Provision for loan losses 5,794 60,500
Depreciation 132,024 164,509
Amortization of premium and discount, net (30,965) (52,130)
(Increase) decrease in accrued interest
receivable (111,020) 52,735
Decrease in accrued interest payable (17,999) (4,627)
Loss on sales of foreclosed real estate 7,014 34,605
Earned ESOP shares priced above original cost 34,716 39,567
Decrease in Unearned ESOP Shares 34,500 34,500
Decrease in Unamortized Restricted Stock 47,221 47,222
Increase in Deferred Comp Payable in Common Stock 30,426 42,658
Increase in other assets (164,241) (622,561)
(Decrease) increase in accrued expenses
and other liabilities (103,416) 111,491
----------- -----------
Net cash provided by operating activities 238,922 290,435
----------- -----------
Investing activities:
Net decrease (increase) in loans receivable 1,717,239 (125,339)
Purchases of:
Other securities - available for sale (7,527,790) (4,761,685)
Other securities - held to maturity (24,081,719) (14,997,813)
Mortgage-backed & related securities -
available for sale (3,997,095) (3,296,117)
FHLB stock (71,300) (150,600)
Premises and equipment (146,027) (143,056)
Proceeds from maturities or calls of:
Other securities - available for sale 11,585,457 14,717,664
Other securities - held to maturity 13,500,000 4,500,000
Principal payments on:
Mortgage-backed & related securities
- available for sale 4,746,842 2,887,703
Mortgage-backed & related securities
- held to maturity 40,197 58,779
Net (increase) decrease in foreclosed real
estate (104,990) 227,938
----------- -----------
Net cash used by investing activities (4,339,186) (1,082,526)
----------- -----------
</TABLE>
(continued)
7<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended March 31,
----------------------------
1999 1998
---------- -----------
<S> <C> <C>
Financing activities:
Net increase in deposits $ 7,512 $ 31,719
Purchase and retirement of common stock (156,624) (173,065)
Purchase of treasury stock (30,426) (42,658)
Purchase of fractional shares on stock split 0 (837)
Increase (decrease) in advance payments by borrowers
for taxes and insurance 36,354 (10,895)
Net increase in Federal Home Loan Bank advances 2,889,988 3,462,592
Increase (decrease) in other borrowed money 1,664,512 (2,311,875)
----------- -----------
Net cash provided by financing activities 4,411,316 954,981
----------- -----------
Increase in cash and cash equivalents 311,052 162,890
Cash and cash equivalents, beginning of period 4,290,188 4,599,403
----------- -----------
Cash and cash equivalents, end of period $ 4,601,240 $ 4,762,293
=========== ===========
Supplemental cash flow disclosures:
Cash paid for interest on deposits $ 1,935,188 $ 1,922,884
Cash paid for interest on borrowings 654,484 479,500
Cash paid for income taxes 437,500 573,200
Supplemental noncash flow disclosures:
Transfer of loans to real estate $ 174,271 $ 0
</TABLE>
8<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 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 six month period
ended March 31, 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 March
31,1999 and 1998:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 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 $142,037 783,924 $0.18 $168,218 769,568 $0.22
===== =====
Effect of dilutive securities:
MRP shares 5,687 16,856
Stock options 25,253 54,101
-------- ------- -------- -------
Diluted earnings per share,
income available to common
stockholders $142,037 814,864 $0.17 $168,218 840,525 $0.20
======== ======= ===== ======== ======= =====
</TABLE>
Following is information about the computation of the
earnings per share data for the six months ended March
31,1999 and 1998:
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six months ended Six months ended
March 31, 1999 March 31, 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 $374,868 783,300 $0.48 $381,966 770,002 $0.50
===== =====
Effect of dilutive securities:
MRP shares 6,622 16,064
Stock options 30,099 51,309
-------- ------- -------- -------
Diluted earnings per share,
income available to common
stockholders $374,868 820,021 $0.46 $381,966 837,375 $0.46
======== ======= ===== ======== ======= =====
</TABLE>
(4) Regulatory Capital Requirements
At March 31, 1999, the Bank met each of the current
minimum regulatory capital requirements. The following table
summarizes the Bank's regulatory capital position at March 31,
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 8.32% $10,643
Tangible capital,
and ratio to adjusted total assets 8.35% $10,674 2.00% $2,558
Tier 1 (core) capital,
and ratio to adjusted total assets 8.35% $10,674 4.00% $5,116 5.00% $6,395
Tier 1 capital,
and ratio to risk-weighted assets 17.76% $10,674 4.00% $2,405 6.00% $3,607
Total risk-based capital,
and ratio to risk-weighted assets 18.56% $11,155 8.00% $4,809 10.00% $6,011
Total assets $127,845
Adjusted total assets $127,898
Risk-weighted assets $ 60,113
</TABLE>
(5) During the three months ended March 31, 1999, the Company
repurchased 13,000 shares under the Company's repurchase program
which was approved on September 3, 1998. The repurchased shares
were retired by the Company.
10
<PAGE>
<PAGE>
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 is continuing to renovate 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. A review and analysis of the test results is
currently in process and will be completed by June 30, 1999.
Testing for other mission-critical systems (communication
software) should be completed by June 30, 1999. 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 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 transations completed in subsequent days
will be reflected in an addendum to the trial balances on a
daily basis.
11<PAGE>
<PAGE>
Financial Condition:
Total assets increased by $4.57 million, or 3.65%, from
$125.25 million at September 30, 1998, to $129.82 million at
March 31, 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 $4.60 million at
March 31, 1999, an increase of $311,000, or 7.25%, from
September 30, 1998. The Company's securities portfolio
increased $5.36 million, or 8.91%, from $60.13 million at
September 30, 1998, to $65.49 million at March 31, 1999.
Securities held-to-maturity increased $10.54 million, or 45.24%,
from $23.30 million at September 1998, to $33.84 million at
March 31, 1999. Other assets increased by $625,000, or 13.11%
from $4.76 million at September 30, 1998 to $5.39 million at
March 31, 1999. Due to a decrease in loan demand, loans
receivable, net, decreased $1.72 million, or 3.07%, from $56.06
million at September 30, 1998 to $54.34 million at March 31,
1999.
Deposits remained virtually unchanged from September 30,
1998, to March 31, 1999. The balance of deposits remained at
$85.87 million at the end of each period.
Borrowings increased $4.56 million, or 18.29%, from $24.89
million at September 30, 1998, to $29.45 million at March 31,
1999. Federal Home Loan Bank advances increased $2.89 million,
or 14.12%, from $20.46 million at September 30, 1998, to $23.35
million at March 31, 1999. Borrowings in the form of repurchase
agreements increased $2.36 million, or 75.41%, from $3.14
million at September 30, 1998 to $5.50 million at March 31,
1999. Repurchase agreements are primarily issued to local
government units. Federal funds purchased decreased $700,000,
or 53.84%, from $1.30 million at September 30, 1998 to $600,000
at March 31, 1999.
Stockholders' equity increased during the six months ended
March 31, 1999 by $96,000, or 0.73%, from $13.08 million at
September 30, 1998, to $13.18 million at March 31, 1999. The
increase was primarily a result of net earnings of $375,000, and
an increase of $117,000 in the earned management recognition
plan shares and the employee stock ownership plan shares. This
increase was partially offset by a $239,000 decrease in the net
unrealized gain on securities available for sale, net of tax
effect, and $157,000 in the purchase and retirement of common
stock.
Net Earnings:
Net earnings for the three months ended March 31, 1999,
decreased $26,000, or 15.56%, from the three months ended March
31, 1998, from $168,000 to $142,000, respectively. This
decrease was primarily the result of a decrease in net interest
income, noninterest income and an increase in the provision for
loan loss, partially offset by a decrease in noninterest
expenses during the period. Net earnings for the six months
ended March 31, 1999, decreased $7,000, or 1.85%, from the six
months ended March 31, 1998, from $382,000 to $375,000,
respectively. This decrease was primarily the result of a
decrease in net interest income and noninterest income,
partially offset by a decrease in noninterest expenses and
provisions for loan loss during the period.
Net Interest Income:
Net interest income decreased by $55,000, or 5.96%, for
the three months ended March 31, 1999, compared to the three
months ended March 31, 1998. The Company increased its average
interest earning assets by $13.48 million, or 12.25%, while the
net interest margin decreased from 3.40% for the three months
ended March 31, 1998, to 2.85% for the three months ended March
31, 1999. The primary reason for the decrease in the net
interest income during the periods, was a 78 basis point
decrease in the average yield on interest earning assets, which
was partially offset by a 27 basis point decrease in the average
cost of interest bearing liabilities. Net interest income
decreased by $63,000, or 3.46%, for the six months ended March
31, 1999, compared to the six months ended March 31, 1998. The
Company increased its average interest earning assets by $12.73
million, or 11.68%, while the net interest margin decreased
from 3.34% for the six months ended March 31, 1998, to 2.89% for
the six months ended March 31, 1999. The primary reason for the
decrease in the net interest income during the periods, was a
12<PAGE>
<PAGE>
63 basis point decrease in the average yield on interest earning
assets, which was partially offset by a 20 basis point decrease
in the average cost of interest bearing liabilities.
Interest Income:
Interest income increased by $25,000, or 1.16%, from $2.12
million for the three months ended March 31, 1998, to $2.14
million for the three months ended March 31, 1999. The increase
in interest income is primarily a result of a $13.48 million
increase in average interest earning assets, partially offset by
a decrease in the average yield on interest earning assets from
7.82% for the three months ended March 31, 1998, to 7.04% for
the three months ended March 31, 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 74 basis point decrease in the average yield on loans. In
addition, the low rate environment has resulted in a 63 basis
point decrease in the average yield on the security portfolio.
Interest income increased by $111,000, or 2.63%, from $4.21
million for the six months ended March 31, 1998, to $4.32
million for the six months ended March 31, 1999. The increase
in interest income is primarily a result of a $12.73 million
increase in average interest earning assets, partially offset by
a decrease in the average yield on interest earning assets from
7.75% for the six months ended March 31, 1998, to 7.12% for the
six months ended March 31, 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 58
basis point decrease in the average yield on loans. In
addition, the low rate environment has resulted in a 44 basis
point decrease in the average yield on the security portfolio.
Interest Expense:
Interest expense increased by $80,000, or 6.65%, from
$1.20 million for the three months ended March 31, 1998, to
$1.28 million for the three months ended March 31, 1999. The
increase in interest expense is primarily a result of a $13.16
million increase in average interest bearing liabilities,
partially offset by a decrease in the average cost of interest
bearing liabilities from 4.79% for the three months ended March
31, 1998, to 4.52% for the three months ended March 31, 1999.
The low rate environment has resulted in a 24 basis point
decrease in the average cost of deposits, while the average cost
of other borrowings decreased 64 basis points. Interest expense
increased by $174,000, or 7.25%, from $2.40 million for the six
months ended March 31, 1998, to $2.57 million for the six months
ended March 31, 1999. The increase in interest expense is
primarily a result of a $12.09 million increase in average
interest bearing liabilities, partially offset by a decrease in
the average cost of interest bearing liabilities from 4.78% for
the six months ended March 31, 1998, to 4.58% for the six months
ended March 31, 1999. The low rate environment has resulted in
a 18 basis point decrease in the average cost of deposits, while
the average cost of other borrowings decreased 59 basis points.
Provision for Loan Losses:
The Bank's provision for loan losses increased $17,000,
from $30,000 for the three months ended March 31, 1998, to
$47,000 for the three months ended March 31, 1999. The Bank's
provision for loan losses decreased $55,000, from $61,000 for
the six months ended March 31, 1998, to $6,000 for the six
months ended March 31, 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:
Total non-interest income decreased by $11,000, or 7.67%,
from $149,000 for the three months ended March 31, 1998, to
$138,000 for the three months ended March 31, 1999. This
decrease was primarily due to a $6,000 decrease in fees and
service charges, primarily loan related fees and an $8,000
increase in the loss incurred on the sale of foreclosed real
estate. This was partially offset by a $3,000 increase in other
non-interest income categories. Total non-interest income
decreased by $8,000, or 2.74%, from $300,000 for the six months
ended March 31, 1998, to $292,000 for the six months ended March
31, 1999. This decrease was primarily due
13<PAGE>
<PAGE>
to a $25,000 decrease in fees and service charges, primarily
deposit and loan related fees, ATM access fees, a change in the
billing of safe deposit box fees and the elimination of certain
IRA related fees; and a $13,000 increase in real estate owned
expenses. This was partially offset by a $26,000 decrease in
the loss incurred on the sale of real estate owned and a $4,000
increase in other non-interest income categories.
Non-Interest Expense:
Total non-interest expense decreased by $39,000, or 4.97%,
from $776,000 for the three months ended March 31, 1998, to
$737,000 for the three months ended March 31, 1999. This
decrease was primarily for the following reasons: (i) a $37,000
decrease in compensation and employee benefits; (ii) a $2,000
decrease in data processing expense; (iii) an $8,000 decrease in
professional services; and (iv) a $3,000 decrease in other non-
interest expenses. These decreases were partially offset by a
$5,000 increase in occupancy expense and a $6,000 increase in
marketing expenses. Total non-interest expense decreased by
$21,000, or 1.46%, from $1.45 million for the six months ended
March 31, 1998, to $1.42 million for the six months ended March
31, 1999. This decrease was primarily for the following
reasons: (i) a $27,000 decrease in compensation and employee
benefits; (ii) a $7,000 decrease in occupancy expense; and (iii)
a $2,000 decrease in other non-interest expenses. These
decreases were partially offset by: (i) a $2,000 increase in
data processing expense; (ii) a $9,000 increase in marketing
expense; and, (iii) a $4,000 increase in professional services.
Income Tax Expense:
Income tax expense decreased by $26,000, or 15.56%, from
$168,000 for the three months ended March 31, 1998, to $142,000
for the three months ended March 31, 1999. Income tax expense
decreased by $7,000, or 1.85%, from $382,000 for the six months
ended March 31, 1998, to $375,000 for the six months ended March
31, 1999.
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 six
months ended March 31, 1999, the Bank's loan originations and
purchases totaled $9.97 million. The Company purchased
investment securities and mortgage-backed and related securities
during the six months ended March 31, 1999 of $35.61 million.
Securities held-to-maturity increased to $33.84 million at March
31, 1999 from $23.30 million at September 30, 1998.
The primary financing activity of the Bank is the
attraction of deposits and secured borrowings. During the six
months ended March 31,1999, deposits at the Bank remained
relatively stable at $85.87 million.
The Bank has utilized retail repurchase agreements as a
source of funding. At March 31, 1999, repurchase agreements
totaled $5.50 million compared to $3.14 million at September 30,
1998.
At March 31, 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
14<PAGE>
<PAGE>
March 31, 1999, the Bank had $23.35 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 March 31, 1999 was 37.47%.
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 March 31, 1999, cash and
cash equivalents totaled $4.60 million.
The Bank anticipates that it will have sufficient funds
available to meet its current commitments. At March 31, 1999,
the Bank had commitments to originate or purchase loans of
$24,000. Certificates of deposits which are scheduled to mature
in one year or less at March 31, 1999, totaled $39.48 million.
Management believes that a significant portion of such deposits
will remain with the Bank.
15<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.
On January 19, 1999, the Annual Meeting of the
Stockholders was held for the following two
proposals: (1) election of two directors of the
Company, and (2) approval of the Company's second
Stock Option and Incentive Plan. There were
outstanding and entitled to vote 993,275 shares of the
common stock of the Company.
Proposal (1): Election of Directors: There were
represented at the Annual Meeting in person or by
proxy the holders of 828,665 shares of the Company's
common stock, representing 83.42% of the total votes
eligible to be cast, constituting more than a
majority of the outstanding shares entitled to vote.
The following is a record of the votes cast:
Vote
------------------
Against or
For withheld
--- ----------
Election of directors:
Martin R. Sathre 827,571 1,094
Dean J. Thompson 828,471 194
Proposal (2): Approval of the Company's second
Stock Option and Incentive Plan: There were
represented at the Annual Meeting in person or by
proxy the holders of 678,997 shares of the Company's
common stock, representing 68.35% of the total votes
eligible to be cast, constituting more than a majority
of the outstanding shares entitled to vote.
The following is a record of the votes cast:
16<PAGE>
<PAGE>
Percentage of
Number of Votes Eligible
Votes to be cast
--------- --------------
For 622,861 62.71%
Against 50,001 5.03
Abstain 6,135 0.62
ITEM 5: Other Information.
ITEM 6: Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule
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:May 10, 1999 /s/ William R. Belford
------------ -------------------------------------------
William R. Belford, President and Chief
Executive Officer (Duly Authorized Officer)
Date:May 10, 1999 /s/ Dennis M.Vorgert
------------ -------------------------------------------
Dennis M. Vorgert, Vice President
(Principal Financial Officer)
18
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,796,299
<INT-BEARING-DEPOSITS> 2,804,941
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0
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<EXPENSE-OTHER> 1,424,349
<INCOME-PRETAX> 612,537
<INCOME-PRE-EXTRAORDINARY> 612,537
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<NET-INCOME> 374,868
<EPS-PRIMARY> 0.48
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<YIELD-ACTUAL> 1.41
<LOANS-NON> 348,194
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