<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-QSB/A*
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 March 31, 2000
- ---------------------------- -----------------------------
Common Stock, $.01 par value 1,396,519
* Amendment No. 1 to Form 10QSB is being filed to correct an
incorrect number in the Consolidated Balance Sheets included
in the previous filing.
<PAGE>
<PAGE>
PART 1 - FINANCIAL STATEMENTS
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31 September 30
2000 1999
---------- ------------
Assets
<S> <C> <C>
Cash $ 1,402,385 $ 2,194,436
Interest-bearing deposits with banks 6,683,310 2,344,936
------------ ------------
Cash and cash equivalents 8,085,695 4,539,372
Securities available for sale:
Mortgage-backed and related
securities (amortized cost of
$13,701,178 and $15,485,677) 13,229,361 15,201,045
Other securities (amortized cost of
$15,564,374 and $16,438,806) 15,087,211 16,071,076
------------ ------------
Total securities available for sale 28,316,572 31,272,121
------------ ------------
Securities held to maturity:
Mortgage-backed and related
securities (estimated market value
of $178,889 and $232,128) 183,404 234,297
Other securities (estimated market
value of $31,149,536 and
$31,940,310) 33,575,191 33,574,335
------------ ------------
Total securities held to maturity 33,758,595 33,808,632
------------ ------------
Loans receivable, net 60,518,847 57,256,941
Federal Home Loan Bank stock, at cost 1,470,300 1,248,000
Foreclosed real estate, net 44,759 188,300
Accrued interest receivable 1,061,375 1,075,399
Premises and equipment, net 2,196,018 2,123,863
Other assets 1,138,857 777,687
------------ ------------
Total assets $136,591,018 $132,290,315
============ ============
Liabilities and Stockholders' Equity
Deposits $ 88,650,099 $ 88,110,758
Repurchase Agreements 8,583,229 4,701,492
Federal Home Loan Bank Advances 24,901,190 24,956,845
Advance payments by borrowers for
taxes and insurance 203,854 186,123
Accrued interest payable 512,247 577,585
Accrued expenses and other liabilities 598,128 696,151
------------ ------------
Total liabilities 123,448,747 119,228,954
</TABLE>
(continued)
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30
2000 1999
---------- ------------
<S> <C> <C>
Stockholders' Equity:
Common stock ($.01 par value):
authorized 4,000,000 shares;
issued 1,396,519 and 1,431,069
shares 13,965 14,311
Additional paid-in-capital 5,835,768 5,971,251
Retained earnings, subject to certain
restrictions 9,619,544 9,260,477
Accumulated other comprehensive income,
unrealized loss on securities
available for sale, net of tax effect (559,898) (335,848)
Unearned employee stock ownership plan
shares (310,500) (345,000)
Unearned management recognition plan
shares (47,222) (94,444)
Treasury stock, at cost, 292,103 and
289,605 shares (2,013,902) (1,989,226)
Deferred compensation payable in
common stock 604,516 579,840
------------ ------------
Total stockholders' equity 13,142,271 13,061,361
------------ ------------
Total liabilities and
stockholders' equity $136,591,018 $132,290,315
============ ============
</TABLE>
3
<PAGE>
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- --------------------
2000 1999 2000 1999
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,251,653 $1,101,702 $2,465,965 $2,305,608
Mortgage-backed and related
securities 224,961 258,640 456,508 524,099
Other securities 789,225 751,975 1,584,166 1,429,479
Interest-bearing deposits with
banks 58,174 12,976 86,869 25,728
Other 23,625 18,790 44,365 38,068
----------------------------------------------
2,347,638 2,144,083 4,637,873 4,322,982
----------------------------------------------
Interest expense:
Deposits 915,439 929,521 1,826,306 1,901,399
Borrowings 491,373 347,447 922,869 670,274
----------------------------------------------
1,406,812 1,276,968 2,749,175 2,571,673
----------------------------------------------
Net interest income 940,826 867,115 1,888,698 1,751,309
Provision for loan losses 0 47,086 2,835 5,794
----------------------------------------------
Net interest income after
provision for loan losses 940,826 820,029 1,885,863 1,745,515
----------------------------------------------
Noninterest income:
Fees and service charges 158,809 133,629 317,572 278,757
Gain (loss) on sales of
foreclosed real estate 2,737 (7,143) 41,172 (7,011)
Other 17,663 11,476 44,573 19,625
----------------------------------------------
Total noninterest income 179,209 137,962 403,317 291,371
----------------------------------------------
Noninterest expense:
Compensation and employee benefits 424,198 394,713 827,030 790,323
Occupancy 146,305 129,221 277,653 251,265
Federal deposit insurance premiums 4,687 13,162 17,668 25,686
Data processing 18,155 18,276 37,620 41,471
Advertising 55,413 35,065 88,949 57,838
Other 204,273 146,614 322,213 257,766
----------------------------------------------
Total noninterest expense 853,031 737,051 1,571,133 1,424,349
----------------------------------------------
Income before income tax
expense 267,004 220,940 718,047 612,537
Income tax expense 98,123 78,903 271,301 237,669
----------------------------------------------
Net income $ 168,881 $ 142,037 $ 446,746 $ 374,868
==============================================
Earnings per common share:
Basic $ 0.15 $ 0.12 $ 0.39 $ 0.32
----------------------------------------------
Diluted $ 0.15 $ 0.12 $ 0.39 $ 0.30
----------------------------------------------
Comprehensive income $ 110,656 $ 56,487 $ 222,696 $ 135,812
==============================================
</TABLE>
4
<PAGE>
<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 $ 446,746 446,746
Change in net
unrealized gain (loss)
on securities
available for sale,
net of tax effect (224,050) (224,050)
---------
Comprehensive Income $ 222,696
=========
Increase in deferred
compensation payable
in common stock
Purchase and
retirement of
common stock (346) (153,056) (87,679)
Amortization of
management
recognition plan
shares
Earned employee
stock ownership
plan shares 17,573
----------------------------------------
Balance, March
31, 2000 $13,965 5,835,768 9,619,544 (559,898)
========================================
<PAGE>
<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 446,746
Change in
unrealized gain (loss)
on securities
available for sale,
net of tax effect (224,050)
Comprehensive Income
Increase in deferred
compensation payable
in common stock (24,676) 24,676 0
Purchase and
retirement of
common stock (241,081)
Amortization of
management
recognition plan
shares 47,222 47,222
Earned employee
stock ownership
plan shares 34,500 52,073
--------------------------------------------------------------
Balance, March
31, 2000 $(310,500) (47,222) (2,013,902) 604,516 13,142,271
==============================================================
</TABLE>
5
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<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-------------------
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 446,746 $ 374,868
Adjustments to reconcile net earnings to net
cash provided by operations:
Provision for loan losses 2,835 5,794
Depreciation 139,384 132,024
Amortization of premium and discount, net (52,602) (30,965)
Decrease (increase) in accrued interest
receivable 14,024 (111,020)
Decrease in accrued interest payable (65,338) (17,999)
(Gain)loss on sales of foreclosed real estate (41,172) 7,014
Earned ESOP shares priced above original cost 17,573 34,716
Decrease in Unearned ESOP Shares 34,500 34,500
Decrease in Unamortized Restricted Stock 47,222 47,221
Increase in Deferred Comp Payable in Common Stock 24,676 30,426
Increase in other assets (205,475) (164,241)
Decrease in accrued expenses and other
liabilities (98,023) (103,416)
----------- -----------
Net cash provided by operating activities 264,350 238,922
----------- -----------
Investing activities:
Net (increase) decrease in loans receivable (3,264,741) 1,717,239
Purchases of:
Other securities - available for sale (9,581,216) (7,527,790)
Other securities - held to maturity 0 (24,081,719)
Mortgage-backed & related securities -
available for sale 0 (3,997,095)
FHLB stock (222,300) (71,300)
Premises and equipment (211,539) (146,027)
Proceeds from maturities or calls of:
Other securities - available for sale 10,422,117 11,585,457
Other securities - held to maturity 0 13,500,000
Principal payments on:
Mortgage-backed & related securities
- available for sale 1,786,437 4,746,842
Mortgage-backed & related securities
- held to maturity 51,105 40,197
Net decrease (increase) in foreclosed real
estate 184,713 (104,990)
----------- -----------
Net cash used in investing activities (835,424) (4,339,186)
----------- -----------
</TABLE>
(continued)
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Financing activities:
Net increase in deposits $ 539,341 $ 7,512
Purchase and retirement of common stock (241,081) (156,624)
Purchase of treasury stock (24,676) (30,426)
Increase in advance payments by borrowers
for taxes and insurance 17,731 36,354
Net increase (decrease) in FHLB short-term
advances 17,944,345 889,988
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 3,881,737 1,664,512
----------- -----------
Net cash provided by financing activities 4,117,397 4,411,316
----------- -----------
Increase in cash and cash equivalents 3,546,323 311,052
Cash and cash equivalents, beginning of period 4,539,372 4,290,188
----------- -----------
Cash and cash equivalents, end of period $ 8,085,695 $ 4,601,240
=========== ===========
Supplemental cash flow disclosures:
Cash paid for interest on deposits $ 1,829,061 $ 1,935,188
Cash paid for interest on borrowings 985,452 654,484
Cash paid for income taxes 367,298 437,500
Supplemental noncash flow disclosures:
Transfer of loans to real estate $ 0 $ 153,648
Loans receivable on other real estate sold $ 135,500 $ 0
</TABLE>
7
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<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 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 six month period ended March
31, 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 March
31, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 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 $168,881 1,131,969 $0.15 $142,037 1,175,886 $0.12
===== =====
Effect of dilutive securities:
MRP shares 2,009 8,530
Stock options 16,759 37,880
------------------- --------------------
Diluted earnings per share,
income available to common
stockholders $168,881 1,150,737 $0.15 $142,037 1,222,296 $0.12
============================= ============================
</TABLE>
Following is information about the computation of the
earnings per share data for the six months ended March 31,
2000 and 1999:
8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six months ended Six months ended
March 31, 2000 March 31, 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 $446,746 1,135,393 $0.39 $374,868 1,174,950 $0.32
===== =====
Effect of dilutive securities:
MRP shares 1,865 9,933
Stock options 15,537 45,149
------------------- --------------------
Diluted earnings per share,
income available to common
stockholders $446,746 1,152,795 $0.39 $374,868 1,230,032 $0.30
============================= ============================
</TABLE>
(4) Regulatory Capital Requirements
At March 31, 2000, the Bank met each of the current
minimum regulatory capital requirements. The following table
summarizes the Bank's regulatory capital position at March 31,
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 7.93% $10,653
Tangible capital,
and ratio to adjusted total assets 8.30% $11,220 2.00% $2,704
Tier 1 (core) capital,
and ratio to adjusted total assets 8.30% $11,220 4.00% $5,409 5.00% $6,761
Tier 1 capital,
and ratio to risk-weighted assets 16.95% $11,220 4.00% $2,648 5.00% $3,972
Total risk-based capital,
and ratio to risk-weighted assets 17.64% $11,675 8.00% $5,296 10.00% $6,620
Total assets $134,262
Adjusted total assets $135,223
Risk-weighted assets $ 66,200
</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.
9
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<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.
(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.
(7) Subsequent Event
On April 5, 2000, the Company repurchased 116,367 shares
for $901,844 under the Company's repurchase program which was
approved on October 26, 1999, authorizing the repurchase of
142,326 shares. The repurchased shares were retired by the
Company. This purchase completed this repurchase program.
10
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<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. It was anticipated that such computer
systems would 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 and its
subsidiary, First Federal Bank (the 'Bank') has not experienced
any problems as a result of the date change to the year 2000.
The Bank continues to monitor the status of its commercial
customers to determine the potential for loss in relation to
these customers as the result of year 2000 problems.
Financial Condition:
Total assets increased by $4.30 million, or 3.25%, from
$132.29 million at September 30, 1999, to $136.59 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 $8.09 million at
March 31, 2000, an increase of $3.55 million, or 78.12%, from
September 30, 1999. This increase was primarily due to an
increase in short-term time certificates. Due to an increase in
loan demand, loans receivable, net, increased $3.26 million, or
5.70%, from $57.26 million at September 30, 1999 to $60.52
million at March 31, 2000. Other assets increased by $498,000,
or 9.20% from $5.41 million at September 30, 1999 to $5.91
million at March 31, 2000. The Company's securities portfolio
decreased $3.01 million, or 4.62%, from $65.08 million at
September 30, 1999, to $62.07 million at March 31, 2000.
Securities available-for-sale decreased $2.96 million, or 9.45%,
from $31.27 million at September 30, 1998, to $28.31 million at
March 31, 2000. Securities held-to-maturity remained virtually
unchanged.
Deposits increased by $539,000, or 0.61%, from $88.11
million at September 30, 1999, to $88.65 million at March 31,
2000.
11
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<PAGE>
Borrowings increased $3.83 million, or 12.90%, from $29.66
million at September 30, 1999, to $33.49 million at March 31,
2000. Federal Home Loan Bank advances decreased $56,000, or
0.22%, from $24.96 million at September 30, 1999, to $24.90
million at March 31, 2000. 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 $3.88 million, or
82.56%, from $4.70 million at September 30, 1999 to $8.58
million at March 31, 2000. Repurchase agreements are primarily
issued to local government units.
Stockholders' equity increased during the six months ended
March 31, 2000 by $81,000, or 0.62%, from $13.06 million at
September 30, 1999, to $13.14 million at March 31, 2000. The
increase was primarily a result of net income of $447,000 and an
increase of $99,000 in the earned management recognition plan
shares and the employee stock ownership plan shares. This
increase was partially offset by a $224,000 decrease in the net
unrealized loss on securities available-for-sale, net of tax
effect, and a $241,000 purchase and retirement of common stock.
Net Income:
Net income for the three months ended March 31, 2000,
increased $27,000, or 18.90%, from the three months ended March
31, 1999, from $142,000 to $169,000, 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 lossses, partially offset by an increase in noninterest
expenses between periods. Net income for the six months ended
March 31, 2000, increased $72,000, or 19.17%, from the six
months ended March 31, 1999, from $375,000 to $447,000,
respectively. This increase was primarily the result of an
increase in net interest income and noninterest income,
partially offset by an increase in noninterest expenses.
Net Interest Income:
Net interest income increased by $74,000, or 8.50%, for
the three months ended March 31, 2000, compared to the three
months ended March 31, 1999. The Company increased its average
interest earning assets by $6.50 million, or 5.27%, while the
net interest margin increased from 2.85% for the three months
ended March 31, 1999, to 2.90% for the three months ended March
31, 2000. The primary reason for this increase in net interest
income during the periods was a 21 basis point increase in the
average yield on interest earning assets, which was partially
offset by a 12 basis point increase in the average cost of
interest bearing liabilities. Net interest income increased by
$137,000, or 7.84%, for the six months ended March 31, 2000,
compared to the six months ended March 31, 1999. The Company
increased its average interest earning assets by $6.95 million,
or 5.71%, while the net interest margin increased from 2.89%
for the six months ended March 31, 1999, to 2.93% for the six
months ended March 31, 2000. The primary reason for this
increase in net interest income during the periods was a 7 basis
point increase in the average yield on interest earning assets,
along with a 3 basis point decrease in the average cost of
interest bearing liabilities.
Interest Income:
Interest income increased by $204,000, or 9.49%, from
$2.14 million for the three months ended March 31, 1999, to
$2.35 million for the three months ended March 31, 2000. The
increase in interest income is primarily a result of a $6.50
million increase in average interest earning assets, along with
an increase in the average yield on interest earning assets from
7.04% for the three months ended March 31, 1999, to 7.25% for
the three months ended March 31, 2000. The primary reason for
the increase in the average yield on interest earning assets was
a 30 basis point increase in the average yield on loans.
Interest income increased by $315,000, or 7.28%, from $4.32
million for the six months ended March 31, 1999, to $4.64
million for the six months
12
<PAGE>
<PAGE>
ended March 31, 2000. The increase in interest income is
primarily a result of a $6.95 million increase in average
interest earning assets, along with an increase in the average
yield on interest earning assets from 7.12% for the six months
ended March 31, 1999, to 7.19% for the six months ended March
31, 2000. The primary reason for the increase in the average
yield on interest earning assets was a 8 basis point increase in
the average yield on loans.
Interest Expense:
Interest expense increased by $130,000, or 10.17%, from
$1.28 million for the three months ended March 31, 1999, to
$1.41 million for the three months ended March 31, 2000. The
increase in interest expense is primarily a result of a $6.95
million increase in average interest bearing liabilities, along
with an increase in the average cost of interest bearing
liabilities from 4.52% for the three months ended March 31,
1999, to 4.64% for the three months ended March 31, 2000. A
change in the deposit mix of the Bank, from certificates of
deposits to money market accounts has resulted in a 12 basis
point decrease in the average cost of deposits, while the
average cost of other borrowings increased 69 basis points.
Interest expense increased by $178,000, or 6.90%, from $2.57
million for the six months ended March 31, 1999, to $2.75
million for the three months ended March 31, 2000. The increase
in interest expense is primarily a result of a $7.88 million
increase in average interest bearing liabilities, partially
offset by a decrease in the average cost of interest bearing
liabilities from 4.58% for the six months ended March 31, 1999,
to 4.55% for the six months ended March 31, 2000. A change in
the deposit mix of the Bank, from certificates of deposits to
money market accounts has resulted in a 22 basis point decrease
in the average cost of deposits, while the average cost of other
borrowings increased 40 basis points.
Provision for Loan Losses:
There was no provision for loan losses for the three
months ended March 31, 2000, compared to $47,000 for the three
months ended March 31, 1999. The Bank's provision for loan
losses was $3,000 for the six months ended March 31, 2000
compared 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 increased by $41,000, or 29.90%,
from $138,000 for the three months ended March 31, 1999, to
$179,000 for the three months ended March 31, 2000. This
increase was primarily due to a $25,000 increase in fees and
service charges, primarily due to a $20,000 increase in deposit
related fees, and a $5,000 increase in safe deposit rents; a
$10,000 increase in the gain on the sale of foreclosed real
estate; and a $6,000 increase in other non-interest income,
primarily due to an increase in credit life and disability
insurance commissions and commissions on the sales of non-
deposit related products, partially offset by a decrease in
profits on the sales of loans. Total non-interest income
increased by $112,000, or 38.42%, from $291,000 for the six
months ended March 31, 1999, to $403,000 for the six months
ended March 31, 2000. This increase was primarily due to a
$39,000 increase in fees and service charges, primarily due to a
$42,000 increase in deposit related fees, and a $5,000 increase
in safe deposit rents, partially offset by an $8,000 decrease in
loan related fees; a $48,000 increase in the gain on the sale of
foreclosed real estate; and a $25,000 increase in other non-
interest income, primarily due to an increase in credit life and
disability insurance commissions and commissions on the sales of
non-deposit related products, partially offset by a decrease in
profits on the sales of loans.
13
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<PAGE>
Non-Interest Expense:
Total non-interest expense increased by $116,000, or
15.74%, from $737,000 for the three months ended March 31, 1999,
to $853,000 for the three months ended March 31, 2000. This
increase was primarily for the following reasons: (i) an
$11,000 increase in compensation; an $8,000 increase in employee
benefits; and, a $10,000 increase due to a reduction in deferred
loan fees as a result of fewer loans being originated; (ii) a
$17,000 increase in occupancy expense, primarily due to an
increase in insurance expense and software and equipment
maintenance; (iii) a $20,000 increase in advertising, primarily
for the promotion of our internet banking product; and (iv) a
$58,000 increase in other non-interest expenses, primarily due
to professional services 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 $147,000, or 10.31%,
from $1.42 million for the six months ended March 31, 1999, to
$1.57 million for the six months ended March 31, 2000. This
increase was primarily for the following reasons: (i) a $22,000
increase in compensation; a $20,000 increase due to a reduction
in deferred loan fees as a result of fewer loans being
originated;and, partially offset by a $5,000 decrease in
employee benefits; (ii) a $26,000 increase in occupancy expense,
primarily due to an increase in insurance expense and software
and equipment maintenance; (iii) a $31,000 increase in
advertising, primarily for the promotion of our internet banking
product; and (iv) a $64,000 increase in other non-interest
expenses, primarily due to professional services 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.
Income Tax Expense:
Income tax expense increased by $19,000, or 24.36%, from
$79,000 for the three months ended March 31, 1999, to $98,000
for the three months ended March 31, 2000. Income tax expense
increased by $34,000, or 14.15%, from $237,000 for the six
months ended March 31, 1999, to $271,000 for the six months
ended March 31, 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 March 31,
2000 (in thousands):
14
<PAGE>
<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 2,344 2,386 4,367 15,651 24,748
Variable-rate 19,895 8,630 1,213 5,990 35,728
Securities
Fixed-rate (1) 3,192 743 918 12,921 17,774
Variable-rate 47,703 27 1,000 48,730
------------------------------------------------
Total earnings 73,134 11,786 7,498 34,562 126,980
------------------------------------------------
Interest-bearing liabilities:
Time deposits 21,611 10,084 12,354 9,567 53,616
NOW and money market deposits (2) 2,215 2,337 22,122 26,674
Savings deposits (2) 558 558 7,249 8,365
Borrowings 32,723 736 26 33,485
------------------------------------------------
Total interest-bearing liabilities 57,107 13,715 12,380 38,938 122,140
------------------------------------------------
Incremental asset (liability) gap 16,027 (1,929) (4,882) (4,376) 4,840
------------------------------------------------
Cumulative asset (liability) gap 16,027 14,098 9,216 4,840 4,840
------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
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.
15
<PAGE>
<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 six
months ended March 31, 2000, the Bank's loan originations and
purchases totaled $13.41 million. The Company purchased
investment securities and mortgage-backed and related securities
during the six months ended March 31, 2000 of $9.58 million.
Securities held-to-maturity decreased to $33.76 million at March
31, 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 six
months ended March 31, 2000, deposits at the Bank increased
$539,000, or 0.61%, from $88.11 million at September 30, 1999 to
$88.65 million at March 31, 2000.
The Bank has utilized retail repurchase agreements as a
source of funding. At March 31, 2000, repurchase agreements
totaled $8.58 million compared to $4.70 million at September 30,
1999.
At March 31, 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 March 31, 2000, the
Bank had $24.90 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 March 31, 2000 was 29.43%.
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, 2000, cash and
cash equivalents totaled $8.09 million compared to $4.54 million
at September 30, 1999. This increase was primarily due to an
increase in short-term time certificates.
The Bank anticipates that it will have sufficient funds
available to meet its current commitments. At March 31, 2000,
the Bank had commitments to originate or purchase loans of
$591,000. Certificates of deposits which are scheduled to
mature in one year or less at March 31, 2000, totaled $31.70
million. Management believes that a significant portion of such
deposits will remain with the Bank.
16
<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 12, 2000 /s/ William R. Belford
_______________________________________
William R. Belford, President and Chief
Executive Officer (Duly Authorized
Officer)
Date: May 12, 2000 /s/ Dennis M. Vorgert
_______________________________________
Dennis M. Vorgert, Vice President
(Principal Financial Officer)
17
