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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-25704
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, 2000
---------------------------- ----------------------------
Common Stock, $.01 par value 1,280,152
<PAGE>
FIRST FEDERAL BANCORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements Page
----
Consolidated Balance Sheets at
June 30, 2000 and September 30, 1999 3
Consolidated Statements of Income for
the Three Months and Nine Months
Ended June 30, 2000 and 1999 5
Consolidated Statement of Stockholders'
Equity for the Nine Months Ended
June 30, 2000 6
Consolidated Statements of Cash Flows for
the Nine Months Ended June 30, 2000
and 1999 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 18
Item 2: Changes in Securities 18
Item 3: Defaults Upon Senior Securities 18
Item 4: Submission of Matters to a Vote of
Security Holders 18
Item 5: Other Materially Important Events 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
<TABLE>
<CAPTION>
June 30 September 30
2000 1999
---------- ------------
Assets
<S> <C> <C>
Cash $ 1,703,314 $ 2,914,436
Interest-bearing deposits with banks 3,517,211 2,344,936
------------ ------------
Cash and cash equivalents 5,220,525 4,539,372
Securities available for sale:
Mortgage-backed and related
securities (amortized cost of
$12,656,592 and $15,485,677) 12,163,231 15,201,045
Other securities (amortized cost of
$13,827,251 and $16,438,806) 13,367,188 16,071,076
------------ ------------
Total securities available for sale 25,530,419 31,272,121
------------ ------------
Securities held to maturity:
Mortgage-backed and related
securities (estimated market value
of $169,516 and $232,128) 172,449 234,297
Other securities (estimated market
value of $31,170,313 and
$31,940,310) 33,575,629 33,574,335
------------ ------------
Total securities held to maturity 33,748,078 33,808,632
------------ ------------
Loans receivable, net 66,601,900 57,256,941
Federal Home Loan Bank stock, at cost 1,470,300 1,248,000
Foreclosed real estate, net 282,818 188,300
Accrued interest receivable 1,184,009 1,075,399
Premises and equipment, net 2,181,674 2,123,863
Other assets 1,093,290 777,687
------------ ------------
Total assets $137,313,013 $132,290,315
============ ============
Liabilities and Stockholders' Equity
Deposits $ 87,952,619 $ 88,110,758
Repurchase Agreements 8,547,950 4,701,492
Federal Home Loan Bank Advances 26,870,737 24,956,845
Advance payments by borrowers for
taxes and insurance 131,323 186,123
Accrued interest payable 586,412 577,585
Accrued expenses and other liabilities 707,845 696,151
------------ ------------
Total liabilities 124,796,886 119,228,954
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<CAPTION>
Stockholders' Equity:
<S> <C> <C>
Common stock ($.01 par value):
authorized 4,000,000 shares;
issued 1,280,152 and 1,431,069
shares 12,802 14,311
Additional paid-in-capital 5,330,747 5,971,251
Retained earnings, subject to certain
restrictions 9,461,345 9,260,477
Accumulated other comprehensive income,
unrealized loss on securities
available for sale, net of tax effect (562,520) (335,848)
Unearned employee stock ownership plan
shares (293,250) (345,000)
Unearned management recognition plan
shares (23,611) (94,444)
Treasury stock, at cost, 292,768 and
289,605 shares (2,016,640) (1,989,226)
Deferred compensation payable in
common stock 607,254 579,840
------------ ------------
Total stockholders' equity 12,516,127 13,061,361
------------ ------------
Total liabilities and
stockholders' equity $137,313,013 $132,290,315
============ ============
</TABLE>
4
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ----------------------
2000 1999 2000 1999
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,367,195 $1,151,650 $3,833,160 $3,457,258
Mortgage-backed and related
securities 208,344 244,934 664,852 769,033
Other securities 768,421 775,011 2,352,587 2,204,490
Interest-bearing deposits
with banks 20,264 16,395 107,133 42,123
Other 25,078 19,000 69,443 57,068
-----------------------------------------------
2,389,302 2,206,990 7,027,175 6,529,972
-----------------------------------------------
Interest expense:
Deposits 951,833 905,421 2,778,139 2,806,820
Borrowings 515,680 376,216 1,438,549 1,046,490
-----------------------------------------------
1,467,513 1,281,637 4,216,688 3,853,310
-----------------------------------------------
Net interest income 921,789 925,353 2,810,487 2,676,662
Provision for loan losses 1,565 13,549 4,400 19,343
-----------------------------------------------
Net interest income after
provision for loan losses 920,224 911,804 2,806,087 2,657,319
-----------------------------------------------
Noninterest income:
Fees and service charges 174,208 149,913 491,780 428,670
Gain (loss) on sales of securities (235) 0 (235) 0
Gain (loss) on sales of
foreclosed real estate 637 536 41,809 (6,475)
Provision for loss on
investment securities 0 (83,129) 0 (83,129)
Other 20,097 16,177 64,670 35,802
-----------------------------------------------
Total noninterest income 194,707 83,497 598,024 374,868
-----------------------------------------------
Noninterest expense:
Compensation and employee benefits 406,185 402,940 1,233,215 1,193,263
Occupancy 156,264 129,123 433,917 380,388
Federal deposit insurance premiums 4,498 13,019 22,166 38,705
Data processing 17,568 17,541 55,188 59,012
Advertising 35,736 20,667 124,685 78,505
Other 129,890 117,563 452,103 375,329
-----------------------------------------------
Total noninterest expense 750,141 700,853 2,321,274 2,125,202
-----------------------------------------------
Income before income tax
expense 364,790 294,448 1,082,837 906,985
Income tax expense 137,814 108,974 409,115 346,643
-----------------------------------------------
Net income $ 226,976 $ 185,474 $ 673,722 $ 560,342
========== ========== ========== ==========
Earnings per common share:
Basic $ 0.23 $ 0.16 $ 0.62 $ 0.48
---------- ---------- ---------- ----------
Diluted $ 0.22 $ 0.16 $ 0.61 $ 0.46
---------- ---------- ---------- ----------
Comprehensive income $ 224,354 $ (14,159) $ 447,050 $ 121,653
===============================================
</TABLE>
5
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Comprehensive Common Paid-in Retained Comprehensive
Income Stock Capital earnings Income (Loss)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30,
1999 $14,311 5,971,251 9,260,477 (335,848)
Comprehensive income:
Net income $ 673,722 673,722
Change in net
unrealized gain (loss)
on securities
available for sale,
net of tax effect (226,672) (226,672)
---------
Comprehensive Income $ 447,050
=========
Increase in deferred
compensation payable
in common stock
Purchase and
retirement of
common stock (1,509) (668,562) (472,854)
Amortization of
management
recognition plan
shares
Earned employee
stock ownership
plan shares 28,058
----------------------------------------
Balance, June
30, 2000 $12,802 5,330,747 9,461,345 (562,520)
========================================
<CAPTION>
Unearned Deferred
Employee Unearned Comp
Stock Management Payable in Total
Ownership Recognition Treasury Common Stockholders'
Plan Shares Plan Shares Stock Stock Equity
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30,
1999 (345,000) (94,444) (1,989,226) 579,840 13,061,361
Comprehensive income:
Net income 673,722
Change in
unrealized gain (loss)
on securities
available for sale,
net of tax effect (226,672)
Comprehensive Income
Increase in deferred
compensation payable
in common stock (27,414) 27,414 0
Purchase and
retirement of
common stock (1,142,925)
Amortization of
management
recognition plan
shares 70,833 70,833
Earned employee
stock ownership
plan shares 51,750 79,808
--------------------------------------------------------------
Balance, June
30, 2000 $(293,250) (23,611) (2,016,640) 607,254 12,516,127
==============================================================
</TABLE>
6
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
-------------------
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 673,722 $ 560,342
Adjustments to reconcile net earnings to net
cash provided by operations:
Provision for loan losses 4,400 102,472
Depreciation 215,775 199,493
Amortization of premium and discount, net (61,446) (50,535)
Increase in accrued interest receivable (108,610) (151,313)
Increase in accrued interest payable 8,827 3,371
Loss on sales of investment securities 235 0
(Gain) loss on sales of foreclosed real estate (41,809) 6,475
Earned ESOP shares priced above original cost 28,058 52,505
Decrease in Unearned ESOP Shares 51,750 51,750
Decrease in Unamortized Restricted Stock 70,833 70,832
Increase in Deferred Comp Payable in Common Stock 27,414 41,884
Increase in other assets (158,086) (9,335)
Increase (decrease) in accrued expenses
and other liabilities 11,694 (73,576)
----------- -----------
Net cash provided by operating activities 722,757 804,365
----------- -----------
Investing activities:
Net (increase) decrease in loans receivable (9,349,359) 830,647
Purchases of:
Other securities - available for sale (10,773,893) (12,508,823)
Other securities - held to maturity 0 (24,081,719)
Mortgage-backed & related securities -
available for sale 0 (6,180,162)
FHLB stock (222,300) (71,300)
Premises and equipment (273,586) (198,626)
Proceeds from sales of:
Other securites - available for sale 498,465 0
Proceeds from maturities or calls of:
Other securities - available for sale 12,863,222 17,463,050
Other securities - held to maturity 0 13,500,000
Principal payments on:
Mortgage-backed & related securities
- available for sale 2,829,429 6,663,495
Mortgage-backed & related securities
- held to maturity 62,055 49,535
Net increase in foreclosed real estate (52,709) (34,240)
----------- -----------
Net cash used in investing activities (4,418,676) (4,568,143)
----------- -----------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
---------------
2000 1999
------------ ------------
<S> <C> <C>
Financing activities:
Net (decrease) increase in deposits $ (158,139) $ 1,877,541
Purchase and retirement of common stock (1,142,925) (313,124)
Purchase of treasury stock (27,414) (41,884)
Purchase of fractional shares on stock split 0 (798)
Decrease in advance payments by borrowers
for taxes and insurance (54,800) (51,300)
Net increase in FHLB short-term advances 19,913,892 524,864
Purchase of FHLB long-term advances 0 2,000,000
Repayment of FHLB long-term advances (18,000,000) 0
Increase in other borrowed money 3,846,458 984,512
----------- -----------
Net cash provided by financing activities 4,377,072 4,979,811
----------- -----------
Increase in cash and cash equivalents 681,153 1,216,033
Cash and cash equivalents, beginning of period 4,539,372 4,290,188
----------- -----------
Cash and cash equivalents, end of period $ 5,220,525 $ 5,506,221
=========== ===========
Supplemental cash flow disclosures:
Cash paid for interest on deposits $ 2,760,069 $ 2,851,507
Cash paid for interest on borrowings 1,447,792 998,431
Cash paid for income taxes 436,798 532,250
Supplemental noncash flow disclosures:
Transfer of loans to real estate $ 256,319 $ 238,412
Loans receivable on other real estate sold $ 175,300 $ 67,000
</TABLE>
8
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
(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, 1999 of First Federal
Bancorporation (the "Company"), as filed with the Securities and Exchange
Commission. The September 30, 1999 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 statement of income for the nine month period ended June
30, 2000 is 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, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 2000 June 30, 1999
-------------------------------- --------------------------------
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 $226,976 1,008,194 $0.23 $185,474 1,144,870 $0.16
===== =====
Effect of dilutive securities:
MRP shares 2,712 9,183
Stock options 22,703 40,655
------------------- -------------------
Diluted earnings per share,
income available to common
stockholders $226,976 1,033,609 $0.22 $185,474 1,194,708 $0.16
=============================== ===============================
</TABLE>
Following is information about the computation of the earnings per share
data for the nine months ended June 30, 2000 and 1999:
9
<PAGE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, 1999 June 30, 1999
-------------------------------- --------------------------------
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 $673,722 1,093,148 $0.62 $560,342 1,164,923 $0.48
===== =====
Effect of dilutive securities:
MRP shares 2,146 9,683
Stock options 17,918 43,665
-------------------- --------------------
Diluted earnings per share,
income available to common
stockholders $673,722 1,113,212 $0.61 $560,342 1,218,271 $0.46
============================== ==============================
</TABLE>
(4) Regulatory Capital Requirements
At June 30, 2000, the Bank met each of the current minimum regulatory
capital requirements. The following table summarizes the Bank's regulatory
capital position at June 30, 2000:
<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 7.99% $10,864
Tangible capital,
and ratio to adjusted total assets 8.36% $11,432 2.00% $2,734
Tier 1 (core) capital,
and ratio to adjusted total assets 8.36% $11,432 4.00% $5,469 5.00% $6,836
Tier 1 capital,
and ratio to risk-weighted assets 16.42% $11,432 4.00% $2,785 6.00% $4,178
Total risk-based capital,
and ratio to risk-weighted assets 17.04% $11,868 8.00% $5,570 10.00% $6,963
Total assets $135,911
Adjusted total assets $136,723
Risk-weighted assets $ 69,628
</TABLE>
(5) Stockholders' Equity
During the three months ended December 31, 1999, the Company
repurchased 7,800 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 December 31, 1999, the Company approved a
stock repurchase program to acquire up to 142,326 shares of the Company's common
stock which represented 10.0% of the outstanding common stock.
During the three months ended March 31, 2000, the Company repurchased
791 shares under the Company's repurchase program which was approved on
September 3, 1998. The repurchased shares were retired by the Company. This
buyback completed this repurchase program.
10
<PAGE>
During the three months ended March 31, 2000, the Company repurchased
25,959 shares under the Company's repurchase program which was approved on
October 26, 1999. The repurchased shares were retired by the Company.
During the three months ended June 30, 2000, the Company repurchased
116,367 shares under the Company's repurchase program which was approved on
October 26, 1999. The repurchased shares were retired by the Company. This
buyback completed this repurchase program.
(6) Comprehensive Income
Financial Accounting Standards Board Statement No. 130 requires that
all items that are components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income is defined as the change in equity (net assets)
of a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners.
11
<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.
Financial Condition:
Total assets increased by $5.02 million, or 3.80%, from $132.29 million
at September 30, 1999, to $137.31 million at March 31, 2000. The increase was
primarily due to an increase in cash and cash equivalents, loans receivable, and
other assets, partially offset by a decrease in the securities portfolio of the
Bank, including mortgage-backed and related securities. Cash and cash
equivalents totaled $5.22 million at June 30, 2000, an increase of $681,000, or
15.00%, from September 30, 1999. This increase was primarily due to an increase
in cash liquidity to fund the increase in loan demand. Due to an increase in
loan demand, loans receivable, net, increased $9.34 million, or 16.32%, from
$57.26 million at September 30, 1999 to $66.60 million at June 30, 2000. This
increase in loan demand was primarily in the area of automobile financing.
Automobile loans increased $5.80 million, or 74.76%, from $7.76 million at
September 30, 1999 to $13.56 million at June 30, 2000. Other assets increased by
$799,000, or 14.76% from $5.41 million at September 30, 1999 to $6.21 million at
June 30, 2000. The Company's securities portfolio decreased $5.80 million, or
8.92%, from $65.08 million at September 30, 1999, to $59.28 million at June 30,
2000. Securities available-for-sale decreased $5.74 million, or 18.36%, from
$31.27 million at September 30, 1999, to $25.53 million at June 30, 2000.
Securities held-to-maturity remained virtually unchanged. The funds generated in
the reduction of the securities portfolio was used to partially fund the
increase in the loan demand.
Deposits decreased by $158,000, or 0.18%, from $88.11 million at
September 30, 1999, to $87.95 million at June 30, 2000.
Borrowings increased $5.76 million, or 19.42%, from $29.66 million at
September 30, 1999, to $35.42 million at June 30, 2000. Federal Home Loan Bank
advances increased $1.91 million, or 7.67%, from $24.96 million at September 30,
1999, to $26.87 million at June 30, 2000. The Company continues to use leveraged
borrowings to generate additional income from the spread between the borrowing
rate and the rate on the loans funded and securities purchased with the borrowed
funds. Borrowings in the form of repurchase agreements increased $3.85 million,
or
12
<PAGE>
81.81%, from $4.70 million at September 30, 1999 to $8.55 million at June 30,
2000. Repurchase agreements are primarily issued to local government units.
Stockholders' equity decreased during the nine months ended June 30,
2000 by $545,000, or 4.17%, from $13.06 million at September 30, 1999, to $12.52
million at June 30, 2000. The decrease was primarily a result of a $1.14 million
purchase and retirement of common stock, along with a $227,000 decrease in the
net unrealized loss on securities available-for-sale, net of tax effect. This
decrease was partially offset by net income of $674,000 and an increase of
$151,000 in the earned management recognition plan shares and the employee stock
ownership plan shares.
Net Income:
Net income for the three months ended June 30, 2000, increased $42,000,
or 22.38%, from the three months ended June 30, 1999, from $185,000 to $227,000,
respectively. This increase was primarily the result of an increase in
noninterest income and a decrease in the provision for loan losses, partially
offset by a decrease in the net interest income and an increase in noninterest
expenses between periods. Net income for the nine months ended June 30, 2000,
increased $114,000, or 20.23%, from the nine months ended June 30, 1999, from
$560,000 to $674,000, respectively. This increase was primarily the result of an
increase in net interest income and noninterest income and a decrease in the
provision for loan losses, partially offset by an increase in noninterest
expenses.
Net Interest Income:
Net interest income decreased by $4,000, or 0.39%, for the three months
ended June 30, 2000, compared to the three months ended June 30, 1999. The
Company increased its average interest earning assets by $4.46 million, or
3.57%, while the net interest margin decreased from 2.97% for the three months
ended June 30, 1999, to 2.86% for the three months ended June 30, 2000. The
primary reason for this decrease in net interest income during the periods was a
43 basis point increase in the average cost of interest bearing liabilities,
which was partially offset by a 34 basis point increase in the average yield on
interest earning assets. Net interest income increased by $134,000, or 5.00%,
for the nine months ended June 30, 2000, compared to the nine months ended June
30, 1999. The primary reason for this increase in net interest income was the
result of the Company increasing its average interest earning assets by $6.12
million, or 4.98%, while the net interest margin decreased from 2.91% for the
nine months ended June 30, 1999, to 2.90% for the nine months ended June 30,
2000.
Interest Income:
Interest income increased by $182,000, or 8.26%, from $2.21 million for
the three months ended June 30, 1999, to $2.39 million for the three months
ended June 30, 2000. The increase in interest income is primarily a result of a
$4.46 million increase in average interest earning assets, along with an
increase in the average yield on interest earning assets from 7.08% for the
three months ended June 30, 1999, to 7.42% for the three months ended June 30,
2000. The primary reason for the increase in the average yield on interest
earning assets was a 26 basis point increase in the average yield on loans.
Interest income increased by $497,000, or 7.61%, from $6.53 million for the nine
months ended June 30, 1999, to $7.03 million for the nine months ended June 30,
2000. The primary reason for this increase in net interest income was the result
of the Company increasing its average interest earning assets by $6.12 million,
or 4.98%, along with an increase in the average yield on interest earning assets
from 7.11% for the nine months ended June 30, 1999, to 7.26% for the nine months
ended June 30, 2000.
Interest Expense:
13
<PAGE>
Interest expense increased by $186,000, or 14.50%, from $1.28 million
for the three months ended June 30, 1999, to $1.47 million for the three months
ended June 30, 2000. The increase in interest expense is primarily a result of a
$5.48 million increase in average interest bearing liabilities, along with an
increase in the average cost of interest bearing liabilities from 4.43% for the
three months ended June 30, 1999, to 4.86% for the three months ended June 30,
2000. A change in the deposit mix of the Bank, from certificates of deposits to
money market accounts has resulted in a 14 basis point decrease in the average
cost of deposits, while the average cost of other borrowings increased 113 basis
points. Interest expense increased by $363,000, or 9.43%, from $3.85 million for
the nine months ended June 30, 1999, to $4.22 million for the nine months ended
June 30, 2000. The increase in interest expense is primarily a result of a $7.08
million increase in average interest bearing liabilities, along with an increase
in the average cost of interest bearing liabilities from 4.53% for the nine
months ended June 30, 1999, to 4.65% for the nine months ended June 30, 2000. A
change in the deposit mix of the Bank, from certificates of deposits to money
market accounts has resulted in a 10 basis point decrease in the average cost of
deposits, while the average cost of other borrowings increased 64 basis points.
Provision for Loan Losses:
There was a $2,000 provision for loan losses for the three months ended
June 30, 2000, compared to $14,000 for the three months ended June 30, 1999. The
Bank's provision for loan losses was $4,000 for the nine months ended June 30,
2000 compared 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:
Total non-interest income increased by $111,000, or 133.19%, from
$84,000 for the three months ended June 30, 1999, to $195,000 for the three
months ended June 30, 2000. The reduced income for the three months ended June
30, 1999 was partially the result of the establishment of an $83,000 provision
for loss on investment securities. The additional $27,000 increase was primarily
due to a $24,000 increase in fees and service charges, primarily deposit related
fees; and a $12,000 increase in commissions on the sales of non-deposit related
products. These increases were partially offset by a $4,000 decrease in the
profit on the sale of loans, and a $5,000 increase in real estate owned
expenses. Total non-interest income increased by $223,000, or 59.53%, from
$375,000 for the nine months ended June 30, 1999, to $598,000 for the nine
months ended June 30, 2000. The reduced income for the nine months ended June
30, 1999 was partially the result of the establishment of an $83,000 provision
for loss on investment securities. The additional $140,000 increase was
primarily due to a $63,000 increase in fees and service charges, primarily
deposit related fees; a $13,000 increase in the commissions earned on the sale
of credit life and disability insurance; a $22,000 increase in the commissions
earned on the sales of non-deposit related products; and a $48,000 increase in
the net gains on the sales of foreclosed real estate. These increases were
partially offset by a $6,000 decrease in other noninterest income.
Non-Interest Expense:
Total non-interest expense increased by $49,000, or 7.03%, from $701,000
for the three months ended June 30, 1999, to $750,000 for the three months ended
June 30, 2000. This increase was primarily for the following reasons: (i) an
$9,000 increase in compensation; and, a $1,000 decrease due to an increase in
deferred loan fees as a result of more loans being originated; partially offset
by a $5,000 decrease in employee benefits; (ii) a $27,000 increase in occupancy
expense, primarily due to an increase in insurance expense and building,
software and equipment maintenance; (iii) a $15,000 increase in advertising,
primarily for the promotion of our internet banking product; and (iv) a $12,000
increase in other non-interest expenses, primarily
14
<PAGE>
due to postage expense and a decrease in income on the sale of foreign currency.
These increases were partially offset by an $8,000 decrease in federal deposit
insurance premiums. Total non-interest expense increased by $196,000, or 9.23%,
from $2.13 million for the nine months ended June 30, 1999, to $2.32 million for
the nine months ended June 30, 2000. This increase was primarily for the
following reasons: (i) a $32,000 increase in compensation; a $18,000 increase
due to a reduction in deferred loan fees as a result of fewer loans being
originated;and, partially offset by a $10,000 decrease in employee benefits;
(ii) a $54,000 increase in occupancy expense, primarily due to an increase in
insurance expense and building, software and equipment maintenance; (iii) a
$46,000 increase in advertising, primarily for the promotion of our internet
banking product; and (iv) a $77,000 increase in other non-interest expenses,
primarily due to postage expense, professional services and a decrease in income
on the sale of foreign currency. These increases were partially offset by an
$17,000 decrease in federal deposit insurance premiums, and a $4,000 decrease in
data processing expenses.
Income Tax Expense:
Income tax expense increased by $29,000, or 26.47%, from $109,000 for
the three months ended June 30, 1999, to $138,000 for the three months ended
June 30, 2000. Income tax expense increased by $62,000, or 18.02%, from $347,000
for the nine months ended June 30, 1999, to $409,000 for the nine months ended
June 30, 2000. The increases in income tax expense were due to an increase in
income before income tax expense for each period in comparison to the same
period in the prior year.
Asset and Liability Management:
The Bank seeks to maximize its net interest margin within an acceptable
level of interest rate risk. Interest rate risk can be defined as the change in
the Bank's net portfolio value resulting from favorable or unfavorable movements
in interest rates. Interest rate risk, or sensitivity, arises when the maturity
or repricing characteristics of assets differ significantly from the maturity or
repricing characteristics of liabilities.
In the banking industry, a traditional measurement of interest rate
sensitivity is known as "gap" analysis, which measures the cumulative
differences between the amounts of assets and liabilities maturing or repricing
at various time intervals. The following table sets forth the Bank's interest
rate repricing gaps for selected maturity periods at June 30, 2000 (in
thousands):
15
<PAGE>
<TABLE>
<CAPTION>
Rate Sensitive Period
-----------------------------------------------
1-180 181-365 1-2 Over 2
Days Days Years Years Total
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans
Fixed-rate 2,726 2,556 5,144 17,853 28,279
Variable-rate 22,829 6,075 1,147 8,254 38,305
Securities
Fixed-rate (1) 588 915 799 11,922 14,224
Variable-rate 46,107 100 1,000 --- 47,207
------------------------------------------------
Total earnings 72,250 9,646 8,090 38,029 128,015
------------------------------------------------
Interest-bearing liabilities:
Time deposits 20,211 11,908 10,898 10,304 53,321
NOW and money market deposits (2) 2,248 2,382 --- 21,813 26,443
Savings deposits (2) 552 551 --- 7,130 8,233
Borrowings 35,362 57 --- --- 35,419
------------------------------------------------
Total interest-bearing liabilities 58,373 14,898 10,898 39,247 123,416
------------------------------------------------
Incremental asset (liability) gap 13,877 (5,252) (2,808) (1,218) 4,599
------------------------------------------------
Cumulative asset (liability) gap 13,877 8,625 5,817 4,599 4,599
------------------------------------------------
</TABLE>
(1) Maturity of mortgage-backed and asset-backed securities are
presented based on the current estimated cash flows.
(2) Historically the Bank's NOW accounts and savings deposits have
been relatively insensitive to interest rate changes. However,
the Bank considers a portion of savings deposits to be rate
sensitive based on historical growth trends and management's
expectations.
While the gap analysis provides an indication of interest rate sensitivity,
experience has shown that it does not fully capture the true dynamics of
interest rate changes. Essentially, the analysis presents only a static
measurement of asset and liability volumes based on contractual maturity, cash
flow estimates or repricing opportunity. It fails to reflect the differences in
the timing and degree of repricing of assets and liabilities due to interest
rate changes. In analyzing interest rate sensitivity, management considers these
differences and incorporates other assumptions and factors, such as balance
sheet growth and prepayments, to better measure interest rate risk.
A principal objective of the Bank's asset/liability management effort is to
balance the various factors that generate interest rate risk, thereby
maintaining the interest rate sensitivity of the Bank within acceptable risk
levels. To manage interest rate risk, the Bank assesses its current risk
position in light of interest rate forecasts and develops and implements
specific lending, funding and investment strategies. The Bank may also use
derivative financial instruments, including interest rate swaps, caps, floors,
futures and options, to manage interest rate risk. To date such instruments have
not been utilized.
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.
16
<PAGE>
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, 2000, the Bank's loan
originations and purchases totaled $23.84 million. The Company purchased
investment securities and mortgage-backed and related securities during the nine
months ended June 30, 2000 of $10.77 million. Securities held-to-maturity
decreased to $33.75 million at June 30, 2000 from $33.81 million at September
30, 1999.
The primary financing activity of the Bank is the attraction of deposits
and secured borrowings. During the nine months ended June 30, 2000, deposits at
the Bank decreased $158,000, or 0.18%, from $88.11 million at September 30, 1999
to $87.95 million at June 30, 2000.
The Bank has utilized retail repurchase agreements as a source of funding.
At June 30, 2000, repurchase agreements totaled $8.55 million compared to $4.70
million at September 30, 1999.
At June 30, 2000, 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, 2000, the Bank had $26.87
million in advances outstanding with the FHLB compared to $24.96 million at
September 30, 1999.
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, 2000 was 17.70%.
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, 2000, cash and cash equivalents totaled $5.22 million compared to
$4.54 million at September 30, 1999.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At June 30, 2000, the Bank had commitments to originate
or purchase loans of $236,000. Certificates of deposits which are scheduled to
mature in one year or less at June 30, 2000, totaled $32.12 million. Management
believes that a significant portion of such deposits will remain with the Bank.
17
<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.
None
ITEM 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<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 10, 2000 /s/ William R. Belford
---------------------------------------
William R. Belford, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: August 10, 2000 /s/ Dennis M. Vorgert
---------------------------------------
Dennis M. Vorgert, Vice President
(Principal Financial Officer)
