<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 June 30, 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)
Ohio 61-1278396
- --------------------------------------------------- --------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
- --------------------------------------------- --------------------------
(Address of principal executive office) (Zip Code)
(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 August 2,
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>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of September 30, 1995 and June 30, 1996 (unaudited)) 1
Consolidated Statements of Income for the three and nine months
ended June 30, 1996 (unaudited) and 1995 (unaudited) 2
Consolidated Statements of Cash Flows for the nine
months ended June 30, 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
</TABLE>
SIGNATURES
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
-------------------- -------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash $ 2,860 $ 6,032
Investment Securities:
Held to maturity - at amortized cost 3,504 5,001
Available for sale - at market value 2,491 --
Mortgage-backed securities - available
for sale 866 972
Loans Receivable, net 75,938 71,156
Office Properties and equipment - at
depreciated cost 663 718
Federal Home Loan Bank Stock
(FHLB) - at cost 678 651
Cash Surrender Value of Life Insurance 1,055 1,012
Accrued Interest Receivable 677 575
Prepaid and Other Assets 110 97
Deferred Federal Income Tax Asset 32 --
------ ------
TOTAL ASSETS $88,874 $86,214
====== ======
LIABILITIES
Savings Accounts $61,946 $59,998
Federal Home Loan Bank Advances 4,504 3,651
Advances from Borrowers for Taxes and
Insurance 184 183
Deferred Compensation 346 263
Accrued Interest Payable 31 30
Accrued Federal Income Taxes 3 33
Deferred Federal Income Taxes -- 1
Other Liabilities 211 253
Deferred Income 11 11
------ ------
TOTAL LIABILITIES 67,236 64,423
------ ------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value;
4,000,000 shares authorized;
1,573,775 shares issued and
outstanding 16 16
Additional Paid-in Capital 15,015 14,982
Unearned ESOP Shares (1,150) (1,249)
MRP Trust (820) --
Retained Earnings, Substantially
Restricted 8,585 8,042
Unrealized Loss on Investment
Securities (8) --
------ ------
TOTAL STOCKHOLDERS' EQUITY 21,638 21,791
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,874 $86,214
====== ======
</TABLE>
1
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------------
1996 1995 1996 1995
------------ ---------- -------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest Income
Interest on loans $1,593 1,457 $4,721 $4,129
Interest on held to maturity
securities 93 41 274 100
Interest on mortgage-backed
securities 13 -- 41 --
Other interest and dividends 66 82 254 147
------- ----- -------- -----
Total interest income 1,765 1,580 5,290 4,376
------- ----- -------- -----
Interest Expense
Deposits 809 751 2,466 1,959
FHLB advances 48 122 146 377
------- ----- -------- -----
Total interest expense 857 873 2,612 2,336
------- ----- -------- -----
Net interest income 908 707 2,678 2,040
Provision for loan losses 12 6 78 18
------- ----- -------- -----
Net interest income after
provision for loan losses 896 701 2,600 2,022
------- ----- -------- -----
Other Income
Fees and charges 59 84 200 182
Gain on sale of REO 11 -- 11 --
Other 18 25 61 69
------- ----- -------- -----
Total other income 88 109 272 251
------- ----- -------- -----
Other Expenses
Salaries and employee
benefits 323 226 832 655
Franchise and other taxes 18 15 52 45
Federal insurance premium 33 35 98 98
Expenses of premises and
fixed assets 40 47 123 131
Data processing and other
related contract services 30 23 95 78
Other operating expense 130 102 461 311
------- ----- -------- -----
Total other expenses 574 448 1,661 1,318
------- ----- -------- -----
Income before income tax 410 362 1,211 955
Federal income tax expense 126 139 373 325
------- ----- -------- -----
Net income $ 284 $ 223 $ 838 $ 630
======= ===== ======== =====
Earnings per share $ 0.20 N/A $ 0.58 N/A
======= ========
</TABLE>
2
<PAGE> 5
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------------------------------------------------
1996 1995
----------------------------------- --------------------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $838 $630
Reconciliation of net income
with cash flows from
operations:
Allowance for losses on
mortgages 78 18
Depreciation 67 71
Deferred income taxes (33) --
Amortization (38) (139)
FHLB stock dividends (27) (30)
ESOP and stock compensation 186 --
REO donated to charity 11 --
Loss on REO (11) (1)
Changes in
Accrued interest receivable (102) (112)
Prepaid and other assets (13) 10
Cash surrender value of life insurance (44) (33)
Deferred compensation 84 75
Accrued interest payable 1 1
Accrued income tax (30) 179
Other liabilities (43) 6
----- ----
NET CASH PROVIDED BY OPERATING
ACTIVITIES 826 675
----- -----
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 --
Loan originations and repayments, net (5,040) (4,169)
Principal received on mortgage-backed
security 102 --
Proceeds from sale of REO 221 --
Purchase of office properties and
equipment (12) (8)
------ ------
NET CASH USED BY INVESTING
ACTIVITIES (5,731) (4,682)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of sale of stock -- 13,748
Net increase in savings
accounts 1,948 1,819
Dividends paid (295) --
Common Stock shares purchased for
MRP Trust (873) --
Advance from borrowers for taxes and
insurance 2 (72)
Repayments of FHLB advances (147)
Proceeds from FHLB advances 1,000 (139)
----- ------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,635 15,356
----- ------
CHANGES IN CASH AND CASH EQUIVALENTS (3,172) 11,349
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 6,032 872
----- ------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $2,860 $12,221
===== ======
</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 nine months ended June 30,
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 nine months ended June
30, 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 1,456,596 and 1,454,002, respectively.
No earnings per share is reported for the three or nine months ended
June 30, 1995 since the Corporation was not a public company during
such periods.
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 1996, the Corporation's assets amounted to $88.9 million
as compared to $86.2 million at September 30, 1995. The $2.7 million increase
was primarily due to an increase of $4.8 million in loans receivable, net.
Such increase was funded primarily by an increase of $1.9 million or 3.2% in
savings accounts and a $3.2 million or 52.5% decrease in cash and cash
equivalents. Stockholders' equity decreased $152,000 to $21.6 million or 24.3%
of total assets at June 30, 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 (together, the "Plans") and dividends of $295,000 paid
during the nine month period ended June 30, 1996. The Plans were approved by
the Corporation's stockholders on January 29, 1996. The reduction in
stockholders' equity resulting from the funding of the Plans and the
distribution of dividends was partially offset by net income of $838,000 during
the nine months ended June 30, 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
5
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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
restructurings, however, and troubled debt restructurings do not necessarily
result in nonaccrual loans. The Bank did not have any troubled debt
restructurings as of June 30, 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 June 30, 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 $2,228 $1,012 $3,240 3.68% 1.67% 5.35%
Multi-family and non-
residential real estate -- -- -- -- -- --
Construction and land 381 119 500 6.40 2.00 8.40
Consumer -- -- -- -- -- --
----- ----- -----
Total delinquent loans $2,609 $1,131 $3,740
===== ===== =====
</TABLE>
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>
June 30, September 30,
------------------------------------------ ------------------
1996 1995 1995
--------------------- ------------------ ------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family
residential (1) $1,012 $ 738 $ 911
Multi-family and non-
residential real estate -- 57 --
Construction and land 119 334 334
Consumer -- -- --
Accruing consumer loans
greater than 90 days
delinquent: -- 1 --
----- ----- -----
Total non-performing loans 1,131 1,130 1,245
----- ----- -----
Real estate acquired through
foreclosure -- -- --
----- ----- -----
Total non-performing assets $1,131 $1,130 $1,245
===== ===== =====
Total non-performing
assets as a percentage of
total net loans 1.49% 1.64% 1.75%
==== ==== ====
Total non-performing
assets as a percentage of
total assets 1.27% 1.30% 1.44%
==== ==== ====
</TABLE>
- ---------------------------
(1) Includes second mortgage loans.
The $1.1 million of nonaccruing loans at June 30, 1996 consisted of 37
loans with an average balance of approximately $31,000. Interest that would
have been earned on these loans, if they had been accounted for on an accruing
basis during the nine month period
7
<PAGE> 10
ended June 30, 1996 would have been approximately $70,000. 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 June 30,
1996, the Bank had $1.1 million of classified loans, all of which were
classified as substandard.
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>
Nine Months Ended Year Ended
June 30, September 30,
--------------------------------- -----------------
1996 1995 1995
---------------- -------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Average loans receivable, net $72,504 $66,494 $67,248
====== ====== ======
Allowance for loan losses
Balance at beginning of period $ 239 $ 233 $ 233
Net (charge-offs) recoveries 1 (18) (19)
Provision for loan losses 78 18 25
------ ------ ------
Balance at end of period $ 318 $ 233 $ 239
====== ====== ======
Net loans (charged-off)
recovered to average loans -- (0.03)% (0.03)%
===== ====== ======
Allowance for loan losses to
total non-performing loans 0.42% 0.34% 19.20%
===== ===== =====
Allowance for loan losses to
total loans 28.12% 20.62% 0.34%
===== ===== =====
Net loans (charged-off)
recovered to allowance for
loan losses -- (7.73)% (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>
June 30, 1996
----------------------------------------------------
Percent of Loans in Each
Amount Category to Total Loans
--------------------- -----------------------------
(Dollars in Thousands)
<S> <C> <C>
One- to four-family residential $213 77.11%
Multi-family residential 75 13.98
Land and construction 20 7.59
Consumer loans 10 1.33
--- ------
Total $318 100.00%
=== ======
</TABLE>
9
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL. The Corporation reported net income of $284,000 during the
three months ended June 30, 1996 compared to $223,000 during the three months
ended June 30, 1995. The increase in net income during the three months ended
June 30, 1996 compared to the period ended June 30, 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 132.6% for the 1996 period compared to 119.6%
for the 1995 period. In addition, the Bank's interest rate spread increased to
2.90% for the 1996 period compared to 2.73% 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.
INTEREST INCOME. Interest income increased $185,000 or 11.7% to $1.8
million for the three months ended June 30, 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 and mortgage-backed
securities and other interest-earning assets.
INTEREST EXPENSE. Interest expense decreased $16,000 or 1.8% to
$857,000 for the three months ended June 30, 1996 compared to the same period
in 1995. Such decrease was primarily due to a decrease in the average rate
paid on interest-bearing liabilities and, in particular, savings deposits.
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 was repaid with net proceeds from the
Conversion.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
amounted to $12,000 and $6,000 for the three months ended June 30, 1996 and
1995, respectively.
OTHER INCOME. Other income decreased $22,000 or 20.2% during the
three months ended June 30, 1996 compared to the same period in 1995 due
primarily to a $25,000 decrease in fees and charges relating to loans. The
decrease in fees and charges was due primarily to decreased loan origination
activity during the three months ended June 30, 1996.
OTHER EXPENSES. Operating expenses increased $126,000 or 28.1% for
the three months ended June 30, 1996 compared to the same period in 1995. Such
increase was primarily due to an increase of $97,000 or 42.9% in salaries and
employee benefits and an increase of $28,000 or 27.5% in other miscellaneous
operating expenses. The increase in
10
<PAGE> 13
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 NINE MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL. The Corporation reported net income of $838,000 for the nine
months ended June 30, 1996 compared to $630,000 during the nine months ended
June 30, 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 133.4% for the fiscal 1996 period
compared to 112.6% for the fiscal 1995 period. This increase more than offset
the decrease in the interest rate spread to 2.81% for the nine months ended
June 30, 1996 from 3.19% 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 time deposits.
INTEREST INCOME. Interest income increased $914,000 or 20.9% to $5.3
million for the nine months ended June 30, 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 and mortgage-backed
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
8.68% during the fiscal 1996 period compared to 8.28% 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 $275,000 or 11.8% to
$2.6 million for the nine months ended June 30, 1996 compared to $2.3 million
for the nine months ended June 30, 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 from a decrease in the average balance of FHLB advances. A
portion of such advances was repaid with net proceeds from the Conversion.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
amounted to $78,000 and $18,000 for the nine months ended June 30, 1996 and
1995, respectively. The increase in the provision for losses on loans reflects
management's desire to increase the allowance for loan losses to a level which
is consistent with industry norms.
11
<PAGE> 14
OTHER INCOME. Other income increased $21,000 or 8.4% during the nine
months ended June 30, 1996 compared to the nine months ended June 30, 1995 due
to an increase in fees and charges relating to loans.
OTHER EXPENSES. Operating expenses increased $343,000 or 26.0% to
$1.7 million for the nine months ended June 30, 1996 compared to the same
period in fiscal 1995. Such increase was primarily due to an increase of
$177,000 or 27.0% in salaries and employee benefits and an increase of $150,000
or 48.2% 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
June 30, 1996, the Bank had $4.5 million of outstanding advances from the FHLB
of Cincinnati.
As of June 30, 1996, the Bank's regulatory capital was well in excess
of all applicable regulatory requirements. At June 30, 1996, the Bank's
tangible, core and risk-based capital ratios amounted to 19.5%, 19.5% and
30.8%, 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
12
<PAGE> 15
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.
13
<PAGE> 16
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
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
14
<PAGE> 17
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: August 9, 1996 By: /s/Larry N. Hatfield
-------------------------------------
Larry N. Hatfield
President and Chief Executive Officer
Date: August 9, 1996 By: /s/J. Michael Lonnemann
-------------------------------------
J. Michael Lonnemann
Vice President, Secretary and Principal
Financial Officer
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