<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 0-26242
FORT THOMAS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Ohio 61-1278396
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
- --------------------------------------------- -----------------------
(Address of principal executive office) (Zip Code)
</TABLE>
(606) 441-3302
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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: As of May 10,
1996, there were issued and outstanding 1,573,775 shares of the Registrant's
Common Stock, par value $.01 per share.
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Consolidated Financial Statements
Consolidated Statement of Financial Condition
(As of September 30, 1995 and March 31, 1996 (unaudited)) 1
Consolidated Statements of Income for the three and six months
ended March 31, 1996 (unaudited) and 1995 (unaudited) 2
Consolidated Statements of Cash Flows for the six
months ended March 31, 1996 (unaudited) and 1995 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
-------------------- -------------------------
<S> <C> <C>
ASSETS
Cash $4,659 $ 6,032
Investment Securities:
Held to maturity - at amortized cost 3,504 5,001
Available for sale - at market value 2,470 --
Mortgage-backed securities - available
for sale 939 972
Loans Receivable, net 73,194 71,156
Office Properties and equipment - at
depreciated cost 678 718
Real Estate Owned 33 --
Federal Home Loan Bank Stock
(FHLB) - at cost 678 651
Cash Surrender Value of Life Insurance 1,042 1,012
Accrued Interest Receivable 638 575
Prepaid and Other Assets 103 98
Federal Income Tax Receivable 21 --
------ ------
TOTAL ASSETS 87,960 86,214
====== ======
LIABILITIES
Savings Accounts 62,385 $59,998
Federal Home Loan Bank Advances 3,554 3,651
Advances from Borrowers for Taxes and
Insurance 73 183
Deferred Compensation 318 263
Accrued Interest Payable 32 30
Accrued Federal Income Taxes (17) 33
Deferred Federal Income Taxes -- 1
Other Liabilities 237 253
Deferred Income 11 11
------ ------
TOTAL LIABILITIES 66,592 64,423
------ ------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value;
4,000,000 shares authorized;
1,573,775 shares issued and 1,498,884
outstanding 16 16
Additional Paid-in Capital 14,989 14,982
Unearned ESOP Shares (1,198) (1,249)
MRP Trust (846) --
Retained Earnings, Substantially
Restricted 8,399 8,042
Unrealized Gain on Investment
Securities 8 --
------ ------
TOTAL STOCKHOLDERS' EQUITY 21,368 21,790
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $87,960 $86,214
====== ======
</TABLE>
1
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ---------------------------------
1996 1995 1996 1995
--------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Interest Income
Interest on loans $1,595 1,348 $3,128 $2,672
Interest on held to maturity
securities 91 11 180 59
Interest on mortgage-backed
securities 14 -- 28 --
Other interest and dividends 90 54 188 65
----- ----- ----- -----
Total interest income 1,790 1,413 3,525 2,796
----- ----- ----- -----
Interest Expense
Deposits 820 624 1,657 1,208
FHLB advances 48 136 98 255
----- ----- ----- -----
Total interest expense 869 760 1,755 1,463
----- ----- ----- -----
Net interest income 921 653 1,770 1,333
Provision for loan losses 61 6 66 12
----- ----- ----- -----
Net interest income after
provision for loan losses 860 647 1,704 1,321
----- ----- ----- -----
Other Income
Fees and charges 74 46 142 98
Other 23 20 43 43
----- ----- ----- -----
Total other income 97 65 185 141
----- ----- ----- -----
Other Expenses
Salaries and employee
benefits 297 208 509 418
Franchise and other taxes 18 26 33 41
Federal insurance premium 33 31 66 63
Expenses of premises and
fixed assets 48 38 83 84
Data processing and other
related contract services 41 39 66 55
Other operating expense 203 79 331 209
----- ----- ----- -----
Total expenses 639 421 1,088 870
----- ----- ----- -----
Income before income tax 319 292 801 592
Federal income tax expense 91 88 247 186
----- ----- ----- -----
Net income $ 228 $ 204 $ 554 $ 406
===== ===== ===== =====
Earnings per share $ .16 NA $ .38 NA
===== =====
</TABLE>
2
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------------------------
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 554 406
Reconciliation of net income
with cash flows from
operations: 66 6
Allowance for losses on
mortgages 48 42
Depreciation (22) 171
Deferred income taxes 4 (69)
Amortization (27) (17)
FHLB stock dividends 85 --
Loss on REO -- (1)
Changes in
Accrued interest receivable (63) (63)
Prepaid and other assets (6) (311)
Cash surrender value of life insurance (31) (22)
Deferred compensation 55 50
Accrued interest payable 2 13
Accrued income tax (50) (104)
Other liabilities (114) (29)
----- -----
NET CASH PROVIDED BY OPERATING
ACTIVITIES 483 73
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity securities (1,502) --
Purchase of available for sale (1,000) (505)
securities
Maturity of investment securities 1,500 (2,496)
Loan originations and repayments, net (2,208) --
Principal received on mortgage-backed
security 65 --
Proceeds from sale of REO 71 --
Purchase of office properties and
equipment (8) (2)
NET CASH USED BY INVESTING
ACTIVITIES (3,082) (3,002)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in savings
accounts 2,386 2,303
Dividends paid (98) --
Common Stock shares purchased for
MRP Trust (873) --
Advance from borrowers for taxes and
insurance (110) (166)
Repayments of FHLB advances (97) --
Proceeds from FHLB advances -- 1,908
----- -----
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,226 4,044
----- -----
CHANGES IN CASH AND CASH EQUIVALENTS (1,373) 1,116
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 6,032 872
----- -----
CASH AND CASH EQUIVALENTS, END OF
PERIOD $4,659 $1,987
===== =====
</TABLE>
3
<PAGE> 6
FORT THOMAS FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
Fort Thomas Financial Corporation (the "Corporation") was incorporated
under Ohio law in March 1995 by Fort Thomas Federal Savings and Loan
Association (the "Association") in connection with the conversion of
the Association from a federally chartered mutual savings and loan
association to a federally chartered stock savings bank, known as Fort
Thomas Savings Bank, F.S.B. (the "Bank"), the issuance of the Bank's
stock to the Corporation and the offer and sale of the Corporation's
common stock by the Corporation (the "Conversion"). Upon consummation
of the Conversion on June 27, 1995, the Corporation became the unitary
holding company for the Bank.
The accompanying unaudited consolidated financial statements of the
Corporation have been prepared in accordance with instructions to Form
10-Q. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
The results of operations for the three and six months ended March 31,
1996 are not necessarily indicative of the results to be expected for
the year ending September 30, 1996. The unaudited consolidated
financial statements and notes thereto should be read in conjunction
with the audited financial statements and notes thereto for the year
ended September 30, 1995 contained in the Corporation's 1995 Annual
Report.
Note 2 - Earnings Per Share
The earnings per share amount for the three and six months ended March
31, 1996 is based upon the average outstanding shares of the
Corporation reduced by the unreleased shares of the Corporation's
Employee Stock Ownership Plan. The number of shares used in this
calculation was 1,456,052 and 1,454,025, respectively.
No earnings per share is reported for the three or six months ended
March 31, 1995 since the Corporation was not formed during such
periods.
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At March 31, 1996, the Corporation's assets amounted to $88.0 million
as compared to $86.2 million at September 30, 1995. The $1.8 million increase
was primarily due to an increase in investment securities and loans receivable,
net. Such increases were funded primarily by an increase of $2.4 million or
4.0% in savings accounts and a $1.4 million or 22.8% decrease in cash and cash
equivalents. Stockholders' equity decreased $422,000 to $21.4 million or 24.3%
of total assets at March 31, 1996 compared to $21.8 million at September 30,
1995. The decrease in stockholders' was due to the funding of the 1996
Management Recognition Plan for Officers and the 1996 Management Recognition
Plan for Directors. Such Plans were approved by stockholders on January 29,
1996.
ASSET QUALITY
Loans are placed on nonaccrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on nonaccrual
status, previously accrued but unpaid interest is deducted from interest
income. The Bank does not accrue interest on real estate loans past due 90
days or more. Loans may be reinstated to accrual status when all payments are
brought current and, in the opinion of management, collection of the remaining
balance can be reasonably expected.
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as other real estate owned until
sold. Pursuant to a statement of position ("SOP 92-3") issued by the American
Institute of Certified Public Accountants in April 1992, which provides
guidance on determining the balance sheet treatment of foreclosed assets in
annual financial statements for periods ending on or after December 15, 1992,
there is a rebuttable presumption that foreclosed assets are held for sale and
such assets are recommended to be carried at the lower of fair value minus
estimated costs to sell the property, or cost (generally the balance of the
loan on the property at the date of acquisition). After the date of
acquisition, all costs incurred in maintaining the property are expenses and
costs incurred for the improvement or development of such property are
capitalized up to the extent of their net realizable value. The Bank's
accounting for its real estate acquired by foreclosure complies with the
guidance set forth in SOP 92-3.
Under general accepted accounting principles, the Bank is required to
account for certain loan modifications or restructuring as "troubled debt
restructurings." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Bank for economic or legal
reasons related to the borrower's financial difficulties grants a concession to
the borrower that the Bank would not otherwise consider. Debt restructurings
or loan modifications for a borrower do not necessarily always constitute
troubled debt
5
<PAGE> 8
restructurings, however, and troubled debt restructurings do not necessarily
result in nonaccrual loans. The Bank did not have any troubled debt
restructurings as of March 31, 1996.
DELINQUENT LOANS
The following table sets forth information concerning delinquent loans
in dollar amounts and as a percentage of each category of the Bank's loan
portfolio at March 31, 1996. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.
<TABLE>
<CAPTION>
Percent of Corresponding
Loans Delinquent For Loan Categories
-------------------------------- --------------------------------
30-89 90 Days 30-89 90 Days
Days and Over Total Days and Over Total
-------- ---------- --------- ------- ----------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family residential $2,114 $1,215 $3,329 3.59% 2.07% 5.66%
Multi-family and non-
residential -- 113 113 -- 1.15 1.15
Construction and land 502 203 705 8.37 3.38 11.75
Consumer -- 3 3 -- 0.28 0.28
----- ----- -----
Total delinquent loans $2,616 $1,534 $4,150
===== ===== =====
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6
<PAGE> 9
The following table sets forth the amounts and categories of the
Bank's non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
March 31, September 30,
----------------------------------- --------------
1996 1995 1995
---------- --------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family
residential (1) $1,215 $ 546 $ 911
Multi-family and non-
residential real estate 113 57 --
Construction and land 203 261 334
Consumer 3 -- --
Accruing consumer loans
greater than 90 days
delinquent: -- 57 --
----- ----- -----
Total non-performing loans 1,534 921 1,245
----- ----- -----
Real estate acquired through
foreclosure 33 -- --
----- ----- -----
Total non-performing assets $1,567 $ 921 $1,245
===== ===== =====
Total non-performing
assets as a percentage of
total net loans 2.10% 1.37% 1.75%
==== ==== ====
Total non-performing
assets as a percentage of
total assets 1.73% 1.27% 1.44%
==== ==== ====
</TABLE>
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(1) Includes second mortgage loans.
The $1.5 million of nonaccruing loans at March 31, 1996 consisted of
45 loans with an average balance of approximately $34,000. Interest that would
have been earned on these loans, if they had been accounted for on an accruing
basis during the six month period
7
<PAGE> 10
would have been approximately $51,000. Substantially all of the loans are
extended to separate borrowers.
CLASSIFIED ASSETS
Federal regulations require that each insured savings association
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard", "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss.
An asset classified loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. At March 31,
1996, the Bank had $1.6 million of loans which were classified as substandard
and $14,000 of loans classified as loss.
ALLOWANCE FOR LOAN LOSSES
It is management's policy to maintain an allowance for estimated
losses based on the perceived risk of loss in the loan portfolio. In assessing
risk, management considers historical loss experience, the volume and type of
lending conducted by the Bank, industry standards, past due loans, general
economic conditions and other factors related to the collectibility of the loan
portfolio. The allowance is increased by provisions for loan losses which are
charged against income.
Although management uses the best information available to make
determinations with respect to the provisions for loan losses, additional
provisions for loan losses may be required to be established in the future
should economic or other conditions change substantially. In addition, the OTS
and the FDIC, as an integral part of their examination process, periodically
review the Bank's allowance for possible loan losses. Such agencies may
require the Bank to recognize additions to such allowance based on their
judgments about information available to them at the time of their examination.
8
<PAGE> 11
The following table summarizes changes in the allowance for loan
losses and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
----------------------------------- -----------------
1996 1995 1995
------------ ------------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Average loans receivable, net $73,029 $66,603 $67,248
====== ====== ======
Allowance for loan losses
Balance at beginning of period $ 245 $ 233 $ 233
Net (charge-offs) recoveries -- -- (19)
Provision for loan losses 61 6 25
------ ------ ------
Balance at end of period $ 306 $ 239 $ 239
====== ====== ======
Net loans (charged-off)
recovered to average loans -- -- (0.03)%
====== ====== ======
Allowance for loan losses to
total non-performing loans 19.95% 25.95% 19.20%
===== ===== =====
Allowance for loan losses to
total loans 0.42% 0.36% 0.34%
===== ===== =====
Net loans (charged-off)
recovered to allowance for
loan losses -- -- (7.95)%
===== ===== ======
</TABLE>
The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------
Percent of Loans in Each
Amount Category to Total Loans
--------------- --------------------------
(Dollars in Thousands)
<S> <C> <C>
One- to four-family residential $206 77.72%
Multi-family residential 75 12.95
Land and construction 15 7.92
Consumer loans 10 1.41
--- ------
Total $306 100.00%
=== ======
</TABLE>
9
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
GENERAL. The Corporation reported net income of $228,000 during the
three months ended March 31, 1996 compared to $204,000 during the three months
ended March 31, 1995. The increase in net income during the three months ended
March 31, 1996 compared to the same period ended March 31, 1995 was due
primarily to an increase in net interest income. Net interest income is
determined by the Corporation's interest rate spread (i.e., the difference
between the yields earned on its interest-earning assets and the rates paid on
its interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities. The increase in net interest income
was due to an increase in the ratio of interest-earning assets to
interest-bearing liabilities to 131.1% for the 1996 period compared to 107.1%
for the 1995 period. This increase more than offset the decrease in the
interest rate spread to 2.74% for the 1996 period compared to 3.44% for the
1995 period. The increase in the ratio of interest-earning assets to
interest-bearing liabilities was primarily due to the investment of net
proceeds from the Conversion. The decrease in the interest rate spread was
primarily due to an increase in the rate paid on the Corporation's deposits.
INTEREST INCOME. Interest income increased $377,000 or 26.7% to $1.8
million for the three months ended March 31, 1996 compared to the same period
in 1995. The increase during the 1996 period was due to an increase in the
average outstanding balance of the Corporation's interest-earning assets and,
to a lesser extent, the average yield earned thereon. The increase in the
average balance was due to continued loan demand and portfolio growth as well
as the investment of Conversion proceeds in investment securities and other
interest-earning assets. The increase in the average yield was primarily due
to an increase in the average yield earned on loans to 8.74% for the three
months ended March 31, 1996 compared to 8.27% for the comparable period in
1995. The increase in the average yield reflects the upward repricing of
certain of the Corporation's adjustable-rate mortgage loans.
INTEREST EXPENSE. Interest expense increased $109,000 or 17.5% to
$869,000 for the three months ended March 31, 1996 compared to the same period
in 1995. Such increase was primarily due to an increase in the average
outstanding balance of and rates paid on the Corporation's time deposits. Such
increases reflect the shift in deposits from passbook accounts to higher rate
certificate of deposit accounts. Such increase in interest expense was
partially offset by a decrease in interest expense resulting from a decrease in
the average balance of FHLB advances. A portion of such advances were repaid
with net proceeds from the Conversion.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
amounted to $61,000 and $6,000 for the three months ended March 31, 1996 and
1995, respectively. The increase in the provision for losses on loans was due
to an increase in the level of non-performing loans and also reflects
managements desire to increase the allowance for loan losses to a level which
is consistent with industry norms.
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<PAGE> 13
OTHER INCOME. Other income increased $32,000 or 49.2% during the
three months ended March 31, 1996 compared to the same period in 1995 due
primarily to an increase in fees and charges relating to loans.
OTHER EXPENSES. Operating expenses increased $218,000 or 51.8% for
the three months ended March 31, 1996 compared to the same period in 1995.
Such increase was primarily due to an increase of $89,000 or 42.8% in salaries
and employee benefits and an increase of $124,000 or 157.0% in other
miscellaneous operating expenses. The increase in salaries and employee
benefits was due to normal merit increases and expenses of the Employee Stock
Ownership Plan adopted in connection with the Conversion. The increase in
miscellaneous other expenses was primarily due to increased costs associated
with the Corporation as a public company (i.e., professional fees and reporting
and annual meeting fees).
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
GENERAL. The Corporation reported net income of $554,000 for the six
months ended March 31, 1996 compared to $406,000 during the six months ended
March 31, 1995. Such increase in net income was due primarily to an increase
in net interest income as a result of an increase in the ratio of
interest-earning assets to interest-bearing liabilities to 132.2% for the
fiscal 1996 period compared to 109.0% for the fiscal 1995 period. This
increase more than offset the decrease in the interest rate spread to 2.81% for
the six months ended March 31, 1996 from 3.43% for the comparable period in
fiscal 1995. The increase in the ratio of interest-earning assets to
interest-bearing liabilities was primarily due to the investment of net
proceeds from the Conversion. The decrease in the interest rate spread was
primarily due to an increase in the rate paid on the Corporation's deposits.
INTEREST INCOME. Interest income increased $729,000 or 26.1% to $3.5
million for the six months ended March 31, 1996 compared to the same period in
fiscal 1995. The increase during the fiscal 1996 period was due to an increase
in the average outstanding balance of the Corporation's interest-earning assets
and, to a lesser extent, the average yield earned thereon. The increase in the
average balance was due to continued loan demand and portfolio growth as well
as the investment of Conversion proceeds in investment securities and other
interest-earning assets. The increase in the average yield was primarily due
to an increase in the average yield earned on loans to 8.64% during the fiscal
1996 period compared to 8.10% during the fiscal 1995 period. The increase in
the average yield reflects the upward repricing of certain of the Corporation's
adjustable-rate mortgage loans.
INTEREST EXPENSE. Interest expense increased $292,000 or 20.0% to
$1.8 million for the six months ended March 31, 1996 compared to $1.5 million
for the six months ended March 31, 1995. Such increase was primarily due to an
increase in the average outstanding balance of and rate paid on the
Corporation's time deposits. Such increases reflect the shift in deposits from
passbook accounts to higher rate certificate of deposit accounts. Such
increase in interest expense was partially offset by a decrease in interest
expense resulting
11
<PAGE> 14
from a decrease in the average balance of FHLB advances. A portion of such
advances were repaid with net proceeds from the Conversion.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
amounted to $66,000 and $12,000 for the six months ended March 31, 1996 and
1995, respectively. The increase in the provision for losses on loans was due
to an increase in the level of non-performing loans and also reflects
managements desire to increase the allowance for loan losses to a level which
is consistent with industry norms.
OTHER INCOME. Other income increased $44,000 or 31.2% during the six
months ended March 31, 1996 compared to the six months ended March 31, 1995 due
to an increase in fees and charges relating to loans.
OTHER EXPENSES. Operating expenses increased $218,000 or 25.1% to
$1.1 million for the six months ended March 31, 1996 compared to the same
period in fiscal 1995. Such increase was primarily due to an increase of
$91,000 or 21.8% in salaries and employee benefits and an increase of $122,000
or 58.3% in other miscellaneous operating expenses. The increase in salaries
and employee benefits was due to normal merit increases and expenses of the
Employee Stock Ownership Plan adopted in connection with the Conversion. The
increase in miscellaneous other expenses was primarily due to increased costs
associated with the Corporation as a public company (i.e., professional fees
and reporting and annual meeting fees).
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Bank's
primary sources of funds are deposits, borrowings, amortization, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled loan amortization and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. The Bank manages the pricing of its
deposits to maintain a steady deposit balance. In addition, the Bank invests
excess funds in overnight deposits and other short-term interest-earning assets
which provide liquidity to meet lending requirements. The Bank has generally
been able to generate enough cash through the retail deposit market, its
traditional funding source, to offset the cash utilized in investing
activities. As an additional source of funds, the Bank may borrow from the
FHLB of Cincinnati and has access to the Federal Reserve discount window. At
March 31, 1996, the Bank had $3.6 million of outstanding advances from the FHLB
of Cincinnati.
As of March 31, 1996, the Bank's regulatory capital was well in excess
of all applicable regulatory requirements. At March 31, 1996, the Bank's
tangible, core and risk-based
12
<PAGE> 15
capital ratios amounted to 19.4%, 19.4% and 31.0%, respectively, compared to
regulatory requirements of 1.5%, 3.0% and 8.0%, respectively.
RECAPITALIZATION OF SAIF AND RELATED LEGISLATIVE PROPOSALS
The deposits of the Bank are currently insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). Both the SAIF and the Bank Insurance Fund ("BIF"), the
federal deposit insurance fund that covers commercial bank deposits, are
required by law to attain and thereafter maintain a reserve ratio of 1.25% of
insured deposits. The BIF has achieved a fully funded status in contrast to
the SAIF and the FDIC recently reduced the average deposit insurance premium
paid by BIF-insured commercial banks to a level substantially below the average
premium paid by SAIF-insured institutions.
In late 1995, the FDIC approved a final rule regarding deposit
insurance premiums which, effective with the semiannual premium assessment on
January 1, 1996, reduced deposit insurance premiums for BIF member institutions
to zero (subject to an annual minimum of $2,000) for institutions in the lowest
risk category. Deposit insurance premiums for SAIF members were maintained at
their existing levels (23 basis points for institutions in the lowest risk
category). Accordingly, in the absence of further legislative action, until
the SAIF attains a reserve ratio of 1.25% of insured deposits, SAIF members
such as the Bank will be competitively disadvantaged as compared to commercial
banks due to this premium differential. It is anticipated that, under present
conditions, it will be at least several years before the SAIF reaches a reserve
ratio of 1.25% of insured deposits.
The U.S. House of Representatives and Senate had actively considered
legislation which would have eliminated the premium differential between
SAIF-insured institutions and BIF-insured institutions by recapitalizing the
SAIF's reserves to the required ratio. The legislation had been, for some
time, included as part of a fiscal 1996 federal budget bill, but was eliminated
prior to the bill being enacted on April 26, 1996. In light of the
legislation's elimination and the uncertainty of the legislative process
generally, management cannot predict whether legislation reducing SAIF premiums
and/or imposing a special one-time assessment will be adopted, or, if adopted,
the amount of the assessment, if any, that would be imposed on the Bank.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Statement Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," affecting the accounting
for investments in all debt and equity securities, which are to be classified
in one of three categories for fiscal years beginning after December 15, 1993.
Securities that an institution has the positive intent and ability to hold to
maturity are to be reported at amortized cost. Securities that are bought and
held principally for the purpose of selling them in the near term are to be
classified as
13
<PAGE> 16
trading securities and reported at fair value, with unrealized gains and losses
included in earnings. Other securities are to be classified as securities
available for sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity. The Corporation adopted SFAS No. 115 effective October 1, 1994. At
March 31, 1996, the Corporation had $3.5 million of investment securities
classified as held to maturity and $2.5 million classified as available for
sale. At such date, the Corporation's stockholders' equity included $8,000 of
unrealized gains on investment securities.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." In October 1994, the FASB issued SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," which amended income recognition methods and certain disclosures
required by SFAS No. 114. The Corporation implemented SFAS No. 114, as
amended, on October 1, 1995. The statement establishes accounting measurement,
recognition and reporting standards for impaired loans. SFAS No. 114 provides
that a loan is impaired when, based on current information and events, it is
probable that the creditor will be unable to collect all amounts due according
to the contractual terms (both principal and interest). SFAS No. 114 requires
that when a loan is impaired, impairment should be measured based on the
present value of the expected cash flows, discounted at the loan's effective
interest rate. If the loan is collateral dependent, as a practical expedient,
impairment can be based on a loan's observable market price or the fair value
of the collateral. The value of the loan is adjusted through a valuation
allowance created through a charge against income. Residential mortgages,
consumer installment obligations and credit cards are excluded. Loans that
were treated as in-substance foreclosures under previous accounting
pronouncements are considered to be impaired loans and remain in the loan
portfolio under SFAS No. 114. The adoption of SFAS No. 114, as amended, has
not had a material effect on the Corporation's financial condition or results
of operations.
In December 1991, the FASB issued SAFS No. 107, "Disclosures about
Fair Value of Financial Instruments," which became effective beginning October
1, 1995. SFAS No. 107 requires disclosure of the fair value of financial
instruments for both assets and liabilities recognized and not recognized in
the statements of financial position, for which it is practical to estimate the
fair value. The adoption of SFAS No. 107 has not had a material effect on the
Corporation's financial condition or results of operations.
14
<PAGE> 17
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank is involved in any
pending legal proceedings other than non-material legal
proceedings occurring in the ordinary course of business.
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
The Corporation held its first annual meeting of stockholders
on Monday, January 29, 1996. The following information sets
forth the matters considered at such annual meeting and the
voting with respect to such matters.
<TABLE>
<CAPTION>
1. Election of Directors For Withheld Not Voted
--- -------- ---------
<S> <C> <C> <C>
a. Larry N. Hatfield 1,146,269 111,664 315,842
b. Robert L. Grimm 1,214,769 43,164 315,842
c. Harold A. Luersen 1,216,239 41,694 315,842
d. Don J. Beckmeyer 1,216,269 41,664 315,842
e. J. Steven McLane 1,215,769 42,164 315,842
</TABLE>
2. 1996 Key Employee Stock Compensation Program
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C>
945,192 90,537 20,450 517,596
</TABLE>
15
<PAGE> 18
3. 1996 Directors' Stock Option Plan
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C>
931,178 115,345 19,175 508,077
</TABLE>
4. 1996 Management Recognition Plan for Officers
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C>
918,542 115,345 20,219 519,593
</TABLE>
5. 1996 Management Recognition Plan for Directors
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C>
912,394 121,466 22,419 517,496
</TABLE>
6. Ratification of Auditors
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C>
1,235,290 3,550 19,750 315,185
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
16
<PAGE> 19
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.
FORT THOMAS FINANCIAL CORPORATION
Date: May 15, 1996 By: /s/Larry N. Hatfield
----------------------------------------
Larry N. Hatfield
President and Chief Executive Officer
Date: May 15, 1996 By: /s/J. Michael Lonnemann
----------------------------------------
J. Michael Lonnemann
Vice President, Secretary and Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule Contains Summary Financial Information Extracted from Consolidated
Statements of Financial Condition (as of September 30, 1995 and March 31, 1996)
and Consolidated Statements of Income for the three and six months ended March
31, 1996 and 1995 and is Qualified in its Entirety by Reference to such Form
10-Q Quarter Ended March 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 376
<INT-BEARING-DEPOSITS> 4,283
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,409
<INVESTMENTS-CARRYING> 3,504
<INVESTMENTS-MARKET> 3,501
<LOANS> 73,194
<ALLOWANCE> 306
<TOTAL-ASSETS> 87,960
<DEPOSITS> 62,385
<SHORT-TERM> 0
<LIABILITIES-OTHER> 653
<LONG-TERM> 3,554
0
0
<COMMON> 16
<OTHER-SE> 21,352
<TOTAL-LIABILITIES-AND-EQUITY> 87,960
<INTEREST-LOAN> 1,595
<INTEREST-INVEST> 195
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,790
<INTEREST-DEPOSIT> 820
<INTEREST-EXPENSE> 869
<INTEREST-INCOME-NET> 921
<LOAN-LOSSES> 61
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 639
<INCOME-PRETAX> 319
<INCOME-PRE-EXTRAORDINARY> 319
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 3.02
<LOANS-NON> 1,567
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 245
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 306
<ALLOWANCE-DOMESTIC> 306
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
