<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No.: 0-26242
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FORT THOMAS FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 61-1278396
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
25 NORTH FORT THOMAS AVENUE
FORT THOMAS, KENTUCKY 41075
--------------------------------- ----------------------
(Address) (Zip Code)
Registrant's telephone number, including area code: (606) 441-3302
Securities registered pursuant to Section 12(b) of the Act:
NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act
COMMON STOCK (PAR VALUE $.01 PER SHARE)
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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As of December 16, 1999, the aggregate value of the 1,342,658 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
131,663 shares held by all directors and officers of the Registrant as a group,
was approximately $20.1 million. This figure is based on the last sales price of
$15.00 per share of the Registrant's Common Stock on December 15, 1999.
Number of shares of Common Stock outstanding as of December 16, 1999: 1,474,321
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and
the Part of the Form 10-K into which the document is incorporated.
(1) Portions of the Annual Report to Stockholders for the year ended September
30, 1999 are incorporated into Part II, Items 5 through 8 of this Form 10-K.
(2) Portions of the definitive proxy statement for the 1998 Annual Meeting of
Stockholders are incorporated into Part III, Items 9 through 13 of this Form
10-K.
<PAGE> 3
PART I
ITEM 1. BUSINESS
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GENERAL
FORT THOMAS FINANCIAL CORPORATION
Fort Thomas Financial Corporation (the "Company") is an Ohio
corporation organized in March 1995 by Fort Thomas Savings Bank, F.S.B. (the
"Bank") for the purpose of becoming a unitary holding company of the Bank. The
only significant assets of the Company are the capital stock of the Bank, the
Company's loan to the Employee Stock Ownership Plan ("ESOP"), and the portion of
the net proceeds retained by the Company in connection with the Bank's
conversion to stock form (the "Conversion"). The business and management of the
Company consists of the business and management of the Bank. The Company does
not own or lease any property, but instead uses the premises, equipment and
furniture of the Bank. At the present time, the Company does not employ any
persons other than officers of the Bank, and the Company utilizes the support
staff of the Bank from time to time. Additional employees will be hired as
appropriate to the extent the Company expands or changes its business in the
future.
The Company's executive office is located at the home office of the
Bank at 25 North Fort Thomas Avenue, Fort Thomas, Kentucky 41075, and its
telephone number is (606) 441-3302.
FORT THOMAS SAVINGS BANK, F.S.B.
The Bank is a federally chartered stock savings bank which conducts
business through two full service offices located in Campbell County, Kentucky.
The Bank was originally chartered under Kentucky law in 1910 as a building and
loan association and, as of September 29, 1994, converted itself into a
federally chartered mutual savings and loan association known as "Fort Thomas
Federal Savings and Loan Association." In connection with the Conversion, the
Bank became known as "Fort Thomas Savings Bank, F.S.B."
The Bank is primarily engaged in attracting deposits from the general
public through its branch offices and using such deposits primarily to originate
loans secured by first liens on single-family (one-to-four units) residential
properties and to a significantly lesser extent, multi-family (over four units)
residential properties, construction loans on primarily residential properties
and consumer loans. To a limited extent, the Bank also invests in securities
issued by the United States ("U.S.") Government and agencies thereof. The Bank
derives its income principally from interest earned on loans and investments
and, to a lesser extent, from fees received in connection with the origination
of loans and for other services. The Bank's primary expenses are interest
expense on deposits and general operating expenses. Funds for activities are
provided primarily by deposits, borrowing, amortization and prepayments of
outstanding loans and other sources.
The Bank is subject to regulation by the Office of Thrift Supervision
(the "OTS"), as its chartering authority and primary regulator, and by the
Federal Deposit Insurance Corporation (the
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"FDIC"), which insures the Bank's deposits up to applicable limits. The Bank
also is subject to certain reserve requirements established by the Federal
Reserve Board and is a member of the Federal Home Loan Bank ("FHLB") of
Cincinnati, which is one of the 12 banks which comprise the FHLB System.
The Bank's executive offices are located at 25 North Fort Thomas
Avenue, Fort Thomas, Kentucky 41075, and its telephone number is (606) 441-3302.
LENDING ACTIVITIES
GENERAL. At September 30, 1999, the Bank's total portfolio of loans
receivable ("total loan portfolio"), amounted to $93.3 million or 93.5% of the
Bank's $99.8 million of total assets at such time. The Bank has traditionally
concentrated its lending activities on conventional first mortgage loans secured
by single-family residential property. At September 30, 1999, $76.5 million or
81.9% of the Bank's total loan portfolio consisted of one-to-four family
residential loans, including second mortgage loans. To a much lesser extent, the
Bank also originates multi-family residential loans, land and construction loans
and consumer loans. At September 30, 1999, such loan categories amounted to $5.6
million, $10.1 million and $1.1 million, respectively, or 6.0%, 10.9% and 1.2%
of the total loan portfolio, respectively. The Bank does not offer loans which
are insured by the Federal Housing Administration ("FHA") nor partially
guaranteed by the Office of Veterans Affairs ("VA").
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LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Bank's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family residential $76,468 81.90% $78,969 81.68% $74,471 82.20%
Multi-family residential 5,600 6.00 11,070 11.46 11,015 12.16
Land and construction:
Residential 6,215 6.66 5,531 5.72 3,885 4.29
Commercial 3,969 4.25 -- -- -- --
------ ----- ------ ----- ------ -----
Total real estate loans 92,252 98.81 95,570 98.85 89,371 98.64
------ ----- ------ ----- ------ -----
Consumer:
Savings account 721 0.77 665 0.69 702 0.77
Other 392 0.42 449 0.47 528 0.58
------ ----- ------ ----- ------ -----
Total consumer loans 1,113 1.19 1,114 1.16 1,230 1.36
------ ----- ------ ----- ------ -----
Total loans 93,365 100.00% 96,684 100.00% 90,601 100.00%
------ ====== ------ ====== ----- ======
Less:
Loans in process 3,489 2,572 1,048
Deferred loan fees 553 613 625
Allowance for loan losses 614 704 476
------- ------- -------
Loans receivable, net $88,709 $92,795 $88,452
======= ======= =======
</TABLE>
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CONTRACTUAL MATURITIES. The following table sets forth the scheduled
contractual maturities of the Bank's loans at September 30, 1999. Demand loans,
loans having no stated schedule of repayments and no stated maturity and
overdraft loans are reported as due in one year or less. Adjustable-rate loans
are reported on a repricing basis rather than on a contractual basis. The
amounts shown for each period do not take into account loan prepayments and
normal amortization of the Bank's loan portfolio.
<TABLE>
<CAPTION>
Real Estate Loans
----------------------------------
One-to-four Multi- Land and Consumer
family(1) family Construction loans Total
--------- ------ ------------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due in:
One year or less $49,438 $3,005 $ 7,041 $ 841 $60,325
After one year through three years 15,385 828 3,143 111 19,467
After three years through five years 1,263 117 -- 91 1,471
After five years through ten years 2,428 401 -- 51 2,880
After ten years through fifteen years 6,942 1,103 -- 19 8,064
Over fifteen years 1,012 146 -- -- 1,158
------- ------ ------- ------ -------
Total $76,468 $5,600 $10,184 $1,113 $93,365
======= ====== ======= ====== =======
Interest rate terms on amounts due after one year:
Fixed $12,378 $1,228 $ 3,143 $ 272 $17,021
Adjustable 14,652 1,367 -- -- 16,019
------- ------ ------- ------ -------
Total $27,030 $2,595 $ 3,143 $ 272 $33,040
======= ====== ======= ====== =======
</TABLE>
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(1) Includes second mortgages on one-to-four family residential loans.
ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of the
Bank are subject to the written, non-discriminatory, underwriting standards and
loan origination procedures established by the Bank's Board of Directors and
management. Loan originations are obtained by a variety of sources, including
builders, existing customers, and walk-in customers. Property valuations are
always performed by independent outside appraisers approved by the Bank's Board
of Directors. Hazard insurance is required on all security property. The loan
committee meets on a weekly basis to approve all new loans.
Historically, the Bank has not been an active purchaser of loans. The
Bank did not purchase any loans during fiscal 1999, 1998 or 1997. Although the
Bank emphasizes the origination of ARMs, the Bank also offers fixed rate loans
with terms up to 15 years. The Bank does not originate 30 year fixed rate loans.
With the exception of certain loans sold in 1993 which have an aggregate
outstanding principal balance at September 30, 1999 of $164,900, all fixed rate
loans sold by the Bank have been sold without any recourse to the Bank by the
purchaser in the event of default on the loan by the borrower. Loans are sold by
the Bank primarily to the Federal Home Loan Mortgage Corporation ("FHLMC").
Loans are sold to the FHLMC pursuant to forward sales commitments and,
therefore, an increase or decrease in interest rates after loan origination and
prior to sale does not adversely affect the Bank's income at the time of sale.
The Bank did not sell any loans during fiscal 1999, 1998 or fiscal 1997.
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The following table shows origination and sale activity of the Bank
with respect to its loans during the periods indicated. The Bank has not
purchased any loans during the periods reported.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Real estate loan originations:
One-to-four family residential $22,429 $20,976 $17,528
Multi-family residential 2,880 1,813 1,495
Land and construction:
Residential 659 5,094 5,125
Commercial 768 2,486 1,136
-------- ------- -------
Total real estate loan originations 26,736 30,369 25,284
-------- ------- -------
Total consumer loan originations 463 731 470
-------- ------- -------
Total loan originations 27,199 31,100 25,754
-------- ------- -------
Less:
Principal loan repayments 29,850 24,734 15,814
Transferred to other real estate
owned 936 283 64
Loans in process (917) 1,524 (836)
Other, net(1) 376 216 247
-------- ------- -------
Net increase (decrease) $(3,046) $ 4,343 $10,465
======= ======= =======
</TABLE>
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(1) Includes changes related to amortization of deferred loan fees, the
allowance for loan losses and other miscellaneous adjustments.
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<PAGE> 8
LOANS-TO-ONE BORROWER. A savings institution generally may not make
loans to one borrower and related entities in an amount which exceeds 15% of its
unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities. At September 30,
1999, the Bank's limit on loans-to-one borrower was approximately $2.4 million.
ONE-TO-FOUR FAMILY RESIDENTIAL REAL ESTATE LOANS. The Bank has
historically concentrated its lending activities on the origination of loans
secured by first mortgage liens on existing one-to-four family residences, a
portion of which are non-owner occupied. At September 30, 1999, $76.5 million or
81.9% of the Bank's total loan portfolio consisted of one-to-four family
residential real estate loans. The Bank originated $22.4 million, $24.3 million
and $17.5 million of one-to-four family residential loans in fiscal 1999, 1998
and 1997, respectively, and intends to continue to emphasize the origination of
permanent loans secured by first mortgage liens on one-to-four family
residential properties in the future. Of the $76.5 million of such loans at
September 30, 1999, $55.0 million or 71.9% had adjustable-rates of interest and
$21.5 million or 28.1% had fixed-rates of interest. At September 30, 1999,
non-performing one-to-four family loans amounted to $1.4 million or 1.9% of the
one-to-four family loan portfolio. See "Asset Quality."
The Bank currently originates for its portfolio one-to-four family
residential mortgage loans which typically provide for an interest rate which
adjusts every year in accordance with a designated index (the weekly average
yield on U.S. Treasury securities adjusted to a constant comparable maturity of
one year) plus a margin. Such loans are typically based on a 25 or 30-year
amortization schedule. The Bank does not offer "teaser" rates, and the amount of
any increase or decrease in the interest rate after the initial one year period
is presently limited to 1% per year, with a limit of 5% over the life of the
loan. The Bank also originates residential mortgage loans with an interest rate
which is fixed for three years and adjusts every year after the initial
three-year period. The amount of any increase or decrease in the interest rate
after the initial three-year period is presently limited to 2% per year, with a
limit of 5% over the life of the loan. The Bank's adjustable-rate loans
currently being originated are not assumable and do not contain prepayment
penalties. The Bank underwrites its adjustable rate loans on the basis of the
borrowers ability to pay at the initial rate or at the rate after the first
adjustment.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. The Bank believes that these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in an increasing interest rate
environment.
The Bank's fixed rate loans are originated primarily with terms of 15
years and the Bank does not originate fixed rate loans with a term exceeding 20
years. The Bank also offers, but does not emphasize, second mortgage loans with
fixed rates of interest and terms of one to 15 years. The Bank does not require
that it hold the first mortgage on the secured property, however, the balance on
all mortgages on the secured property generally cannot exceed 80% of the value
of the secured property. At September 30, 1999, second mortgage loans amounted
to $5.9 million or 6.4% of the total loan portfolio.
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<PAGE> 9
The Bank is permitted to lend up to 100% of the appraised value of the
real property securing a residential loan. Pursuant to underwriting guidelines
adopted by the Board of Directors, the Bank will lend up to 95% of the appraised
value of the property securing a one-to-four family residential loan, and
generally requires borrowers to obtain private mortgage insurance on the portion
of the principal amount of the loan that exceeds 80% of the appraised value of
the security property. However, the Bank's residential mortgage loans typically
do not exceed 80% of the appraised value of the security property. At September
30, 1999, the Bank had $3.4 million of loans with a loan-to-value ratio in
excess of 80% of appraised value.
MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. The Bank originates
mortgage loans for the acquisition and refinancing of existing multi-family
residential properties. At September 30, 1999, $5.6 million or 6.0% of the
Bank's total loan portfolio consisted of loans secured by existing multi-family
residential real estate properties. The majority of the Bank's multi-family
residential loans are secured by apartment buildings. All of the Bank's
multi-family real estate loans are secured by property located in the Bank's
primary market area.
Multi-family loans are made on terms up to 25 years. Although the Bank
will originate these loans with fixed interest rates, the majority of these
loans have interest rates which adjust in accordance with a designated index
(the weekly average yield on U.S. Treasury securities adjusted to a constant
comparable maturity of one year). Loan to value ratios on the Bank's
multi-family real estate loans are currently limited to 75%. It is also the
Bank's general policy to obtain corporate or personal guarantees, as applicable,
supported by financial statements, on its multi-family residential real estate
loans from the principals of the borrower.
Multi-family real estate lending entails significant additional risks
as compared with one-to-four family residential property lending. Such loans
typically involve large loan balances to single borrowers or groups of related
borrowers. The payment experience on such loans is typically dependent on the
successful operation of the real estate project. The success of such projects is
sensitive to changes in supply and demand conditions in the market for
multi-family real estate as well as economic conditions generally. At September
30, 1999, the Bank had $482,000 of nonperforming multi-family real estate loans.
See "- Asset Quality."
LAND AND CONSTRUCTION LENDING. The Bank also originates residential
land and construction loans, although the Bank has originated multi-family
construction and land acquisition and development loans to a limited degree.
Land and construction loans are classified as either residential or multi-family
at the time of origination, depending on the nature of the property securing the
loan. The Bank's construction lending activities are limited to the Bank's
primary market area. At September 30, 1999, land and construction loans amounted
to $10.2 million or 10.9% of the Bank's total loan portfolio, all of which
consisted of residential construction loans. The Bank's residential and
multi-family construction loans generally have fixed interest rates for a term
of one year, with payments being made monthly on an interest-only basis.
Construction loans are made with a maximum loan to value ratio of 80%.
With limited exceptions, the Bank's construction loans are made to
individual homeowners and a limited number of local real estate builders and
developers for the purpose of constructing primarily one-to-four family
residential homes. Upon application, credit review and analysis of personal and
corporate financial statements, the Bank will make loans to local builders.
These loans may be used for the purpose of
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<PAGE> 10
construction of speculative (or unsold) residential properties. Once approved
for a construction loan, draws are granted on a percentage of completion basis.
The Bank also inspects construction projects as draws are requested.
Construction lending is generally considered to involve a higher level
of risk as compared to one-to-four family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on developers and builders. Moreover, a
construction loan can involve additional risks because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost (including interest) of the project. The nature of these
loans is such that they are generally more difficult to evaluate and monitor. In
addition, speculative construction loans to a builder involve projects which are
not pre-sold and thus pose a greater potential risk to the Bank than
construction loans to individuals on their personal residences.
The Bank has attempted to minimize the foregoing risks by, among other
things, limiting the extent of its construction lending generally and by
limiting its construction lending to primarily residential properties. In
addition, the Bank has adopted underwriting guidelines which impose stringent
loan-to-value, debt service and other requirements for loans which are believed
to involve higher elements of credit risk, by limiting the geographic area in
which the Bank will do business and by working with builders with whom it has
established relationships. At September 30, 1999, the Bank had $361,000 of
nonperforming land and construction loans. See "- Asset Quality."
CONSUMER LOANS. The Bank offers consumer loans in order to provide a
full range of financial services to its customers. The consumer loans offered by
the Bank include deposit account secured loans and unsecured loans. Consumer
loans amounted to $1.1 million or 1.2% of the total loan portfolio at September
30, 1999, $721,000 of which consisted of loans secured by deposit accounts. Such
loans are originated for up to 90% of the account balance, with a hold placed on
the account restricting the withdrawal of the account balance.
LOAN FEE INCOME. In addition to interest earned on loans, the Bank
receives income from fees in connection with loan originations, loan
modifications, late payments, prepayments and for miscellaneous services related
to its loans. Income from these activities varies from period to period
depending upon the volume and type of loans made and competitive conditions.
The Bank charges loan origination fees which are calculated as a
percentage of the amount borrowed. Loan origination and commitment fees and all
incremental direct loan origination costs are deferred and recognized over the
contractual remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are accreted and amortized in the same
manner. In accordance with FASB No. 91, the Bank recognized approximately
$223,000 during fiscal 1999 in connection with loan refinancing, payoffs and
ongoing amortization of outstanding loans.
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<PAGE> 11
ASSET QUALITY
Loans are placed on non-accrual 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 non-accrual
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 expensed 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.
The Bank is required to account for certain loan modifications or
restructurings 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 restructurings, however, and troubled debt
restructurings do not necessarily result in non-accrual loans. The Bank did not
have any troubled debt restructurings as of September 30, 1999.
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DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at September 30, 1999 in dollar amounts and as a percentage of
each category of the Bank's loan portfolio at such date. 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>
One-to-Four Family
Residential Multi-Family Land and Construction Consumer Total
----------- ------------ --------------------- -------- -----
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30 - 89 days $2,399 3.14 $ 79 1.41 $351 3.45 $2 0.18 $2,831 3.0
90 days and over 1,420 1.86 482 8.61 361 3.54 -- -- 2,263 2.4
------ ---- ---- -- ------
Total delinquent loans $3,819 $561 $712 $2 $5,094
====== ==== ==== == ======
</TABLE>
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<PAGE> 13
The following table sets forth the amounts and categories of the Bank's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
September 30,
--------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Nonaccruing loans:
One-to-four family residential $1,420 $2,905 $1,266
Multi-family residential 482 343 360
Land and construction 361 335 309
Consumer -- -- --
Accruing consumer loans 90 days or
more delinquent: -- -- 2
----- ----- -----
Total nonperforming loans 2,263 3,583 1,937
----- ----- -----
Real estate acquired through
foreclosure 248 -- --
----- ----- -----
Total nonperforming assets $2,511 $3,583 $1,937
====== ====== ======
Total nonperforming loans as a
percentage of total net loans 2.42% 3.86% 2.19%
====== ====== ======
Total nonperforming assets as a
percentage of total assets 2.51% 3.46% 1.98%
====== ====== ======
</TABLE>
The $1.4 million of nonaccruing one-to-four family residential loans at
September 30, 1999 consisted of 28 loans secured by one-to-four family
residential property located in the Bank's market area. The largest of such
loans at such date amounted to approximately $124,000 and the average loan
balance was approximately $51,000. Substantially all of such 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 September 30, 1999, the Bank had $2.8 million of classified
assets, $2.6 million as substandard, and $133,000 as special mention.
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<PAGE> 14
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.
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<PAGE> 15
The following table summarizes changes in the allowance for loan losses
and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average loans receivable, net $88,954 $91,487 $83,912
======= ======= =======
Allowance for possible loan losses,
beginning of year $ 704 $ 476 $ 366
Charge-offs(1) (158) (57) (27)
Recoveries(1) -- -- --
Provision for loan losses 68 285 137
------- ------- -------
Allowance for loan losses, end of
period $ 614 $ 704 $ 476
======= ======= =======
Net loans (charged-off) recovered
to average loans, net (0.18)% (0.06)% (0.03)%
===== =====
Allowance for loan losses to total
loans 0.66% 0.73% 0.53%
==== ==== ====
Allowance for loan losses to total
nonperforming loans 27.13% 19.65% 24.57%
===== ===== =====
Net loans (charged-off) recovered
to allowance for loan losses (25.73)% (8.10)% (5.67)%
====== ===== =====
</TABLE>
- --------------------
(1) All charge-offs and recoveries relate to single-family loans.
-13-
<PAGE> 16
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>
September 30,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------- --------------------------
% of Loans % of Loans % of Loans
in Each in Each in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One-to-four family $386 81.9 % $522 74.3 % $316 82.2%
Residential
Multi-family real estate 100 10.3 106 15.0 100 12.2
Land and construction 100 6.7 68 9.6 50 4.3
Consumer 28 1.1 8 1.1 10 1.4
---- ----- ---- ----- ---- -----
Total $614 100.0% $704 100.0% $476 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
INVESTMENT SECURITIES. The investment policy of the Bank, as established
by the Board of Directors, is designed primarily to provide and maintain
liquidity and to generate a favorable return on investments without incurring
undue interest rate risk, credit risk, and investment portfolio asset
concentrations. The Bank's investment policy is currently implemented by Larry
N. Hatfield, the Bank's President and reviewed and evaluated by the Board of
Directors.
The Bank is authorized to invest in obligations issued or fully
guaranteed by the U.S. Government, certain federal agency obligations, certain
time deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt securities
and other specified investments.
The following table sets forth certain information relating to the
Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency securities $5,500 $5,340 $3,754 $3,762 $2,990 2,984
Corporate Notes 741 741 -- -- -- --
Mortgage-backed
securities -- -- -- -- 797 798
FHLB stock 934 934 871 871 785 785
------ ------ ------ ------ ------ ------
Total $7,175 $7,015 $4,625 $4,633 $4,572 $4,567
====== ====== ====== ====== ====== ======
</TABLE>
-14-
<PAGE> 17
Information regarding the contractual maturities and weighted average
yield of the Company's investment securities portfolio at September 30, 1999 is
presented below. The actual maturity of the Company's investment securities may
differ from contractual maturity since certain of the Company's investment
securities are subject to call provisions which allow the issuer to accelerate
the maturity date of the security.
<TABLE>
<CAPTION>
At September 30, 1999
------------------------------------------------------------------
After Five
One Year After One to To Over 10
of Less Five Years 10 Years Years Total
------- ---------- -------- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
U.S. Government and
agency securities,
excluding FHLB stock $-- $5,500 $-- $741 $6,241
--- ------ --- ---- ------
Total $-- $5,500 $-- $741 $6,241
=== ====== === ==== ======
Weighted average
yield --% 5.73% --% 5.62% 5.71%
=== ==== === ==== ====
</TABLE>
The Company generally holds its investments to maturity. The Bank
acquires investment securities with the intent and has the ability to hold such
investment securities to maturity. Investment securities are carried at cost (as
adjusted for amortization of premiums and discounts) because it is management's
intention to hold them to maturity. The Bank to date has not engaged and does
not intend to engage in the immediate future in trading investment securities.
As of September 30, 1999, the Company had no investment securities classified as
available for sale and no mortgage-backed securities classified as available for
sale. At September 30, 1999, investments in the debt and/or equity securities of
any one issuer did not exceed more than 10% of the Company's stockholders'
equity.
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from loan principal repayments, prepayments and advances from the FHLB of
Cincinnati. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources.
They may also be used on a longer term basis for general business purposes.
DEPOSITS. The Bank's deposit products include a broad selection of
deposit instruments, including NOW accounts, money market accounts, regular
savings accounts and term certificate accounts. Deposit account terms vary, with
the principal differences being the minimum balance required, the time periods
the funds must remain on deposit and the interest rate.
-15-
<PAGE> 18
The Bank considers its primary market area to be Campbell County,
Kentucky. The Bank utilizes traditional marketing methods to attract new
customers and savings deposits. The Bank does not advertise for deposits outside
of its primary market area or utilize the services of deposit brokers, and
management believes that an insignificant number of deposit accounts were held
by non-residents of Kentucky at September 30, 1999.
The Bank has been competitive in the types of accounts and in interest
rates it has offered on its deposit products but does not necessarily seek to
match the highest rates paid by competing institutions. Although market demand
generally dictates which deposit maturities and rates will be accepted by the
public, the Bank intends to continue to promote longer term deposits to the
extent possible and consistent with its asset and liability management goals.
The following table shows the distribution of, and certain other
information relating to, the Bank's deposits by type of deposit as of the dates
indicated.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------
1999 1998 1997
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook and statement
savings accounts $ 8,499 11.99% $ 8,239 10.72% $ 7,563 10.52%
Money market accounts 2,120 2.99 2,311 3.01 2,685 3.74
Certificates of deposit 56,028 79.06 62,327 81.11 58,660 81.63
NOW and Super NOW
accounts 4,223 5.96 3,974 5.16 2,950 4.11
------- ------ ------- ------ ------- ------
Total deposits at end of
period $70,870 100.00% $76,851 100.00% $71,858 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
-16-
<PAGE> 19
The following table sets forth the net savings flows of the Bank during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
(Decrease) Increase before
interest credited $(8,780) $2,105 $4,919
Interest credited 2,799 2,888 3,208
------ ----- -----
Net savings increase $(5,981) $4,993 $8,127
====== ===== =====
</TABLE>
The following table sets forth maturities of the Bank's certificates of
deposit of $100,000 or more at September 30, 1999 by time remaining to maturity.
<TABLE>
<CAPTION>
Amounts in
Thousands
---------
<S> <C>
Three months or less $1,892
Over three months through six months 1,147
Over six months through 12 months 1,943
Over 12 months 2,427
-----
Total $7,409
=====
</TABLE>
The following table presents, by various interest rate categories, the
amount of certificates of deposit at September 30, 1999 and 1998, and the
amounts at September 30, 1999 which mature during the periods indicated.
<TABLE>
<CAPTION>
Amounts at September 30, 1999
September 30, Maturing Within
-------------------- ---------------------------------------------------------
Certificates of
Deposit 1999 1998 One Year Two Years Three Years Thereafter
------- ---- ---- -------- --------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
4.01% to 6.0% $46,846 $31,852 $32,151 $ 9,649 $2,758 $2,288
6.01% to 8.0% 9,182 30,475 4,927 1,516 1,157 1,582
------- ------- ------- ------- ------ ------
Total certificate
accounts $56,028 $62,327 $37,078 $11,165 $3,915 $3,870
======= ======= ======= ======= ====== ======
</TABLE>
-17-
<PAGE> 20
The following table presents the average balance of each deposit type and
the average rate paid on each deposit type for the periods indicated.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------
1999 1998 1997
---- ---- ----
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
------- ---- ------- ---- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook and
statement savings
accounts $ 8,753 2.75% $ 7,370 2.75% $ 7,888 2.73%
Money market
accounts 2,397 2.74 2,498 2.74 2,638 2.74
Certificates of deposit 60,709 5.69 60,278 5.86 54,312 6.01
NOW and Super NOW
accounts 3,915 2.08 3,347 2.15 2,732 2.27
Noninterest-bearing
deposits 302 -- 282 -- 193 --
------- ---- ------- ---- ------- ----
Total deposits $76,076 5.05% $75,096 5.24% $67,763 5.40%
======= ==== ======= ==== ======= ====
</TABLE>
BORROWING. The Bank may obtain advances from the FHLB upon the security
of the common stock it owns in that bank and certain of its residential mortgage
loans, provided certain standards related to creditworthiness have been met.
Such advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Such advances are generally
available to meet seasonal and other withdrawals of deposit accounts and to
permit increased lending. At September 30, 1999, the Bank had $13.7 million of
advances from the FHLB of Cincinnati.
The following table sets forth-certain information regarding borrowed
funds at or for the dates indicated:
<TABLE>
<CAPTION>
At or for the Year Ended September 30,
--------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding ...... $12,404 $ 9,327 $8,937
Maximum amount outstanding at any
month-end during the period .... $13,739 $11,292 $9,701
Balance outstanding at end of period $13,739 $ 8,526 $8,846
Weighted average interest rate
during the period .............. 5.15% 5.81% 5.85%
Weighted average interest rate at
end of period .................. 5.14% 5.22% 5.76%
</TABLE>
-18-
<PAGE> 21
<TABLE>
<CAPTION>
At or for the Year Ended September 30,
--------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Other borrowings:
Average balance outstanding...................... $ 308 $ 250 $192
Maximum amount outstanding at any
month-end during the period.................... $4,000 $4,000 $ --
Balance outstanding at end of period............. -- $4,000 $ --
Weighted average interest rate
during the period.............................. 8.25% 8.25% 8.25%
Weighted average interest rate at
end of period.................................. -- 8.25% --%
</TABLE>
EMPLOYEES
The Bank had 19 full-time employees and 3 part-time employees at
September 30, 1999. None of these employees is represented by a collective
bargaining agent, and the Bank believes that it enjoys good relations with its
personnel.
SUBSIDIARIES
The Bank had no subsidiaries as of September 30, 1999.
COMPETITION
The Bank faces strong competition both in attracting deposits and making
real estate loans. Its most direct competition for deposits has historically
come from other savings associations, credit unions and commercial banks located
in northern Kentucky, including many large financial institutions which have
greater financial and marketing resources available to them. In addition, during
times of high interest rates, the Bank has faced additional significant
competition for investors' funds from short-term money market securities, mutual
funds and other corporate and government securities. The ability of the Bank to
attract and retain savings deposits depends on its ability to generally provide
a rate of return, liquidity and risk comparable to that offered by competing
investment opportunities.
The Bank experiences strong competition for real estate loans principally
from other savings associations, commercial banks and mortgage banking
companies. The Bank competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions
-19-
<PAGE> 22
YEAR 2000 READINESS
Because the Bank's operations rely extensively on computer systems, the
Bank is addressing problems associated with the possibility that computer
systems will not recognize the year 2000 ("Y2K") correctly. The Bank has
developed a Year 2000 Plan, which was presented to the Board of Directors in
1997. The Board of Directors appointed a Year 2000 Coordinator, which reports to
the Board of Directors quarterly.
The Bank relies primarily on third-party vendors for its computer output
and processing, as well as other significant functions and services, such as
securities safekeeping services, ATM service, and wire transfers. The Year 2000
Coordinator worked with the vendors to assess their Y2K readiness. Based upon
this assessment, the Board of Directors believes that with modifications to
existing software and hardware and conversions to new software and hardware, the
third-party vendors have taken the appropriate steps to ensure that critical
systems will function properly. The modifications and conversions are now
complete.
All date-dependent equipment and related software throughout the Bank
have been inventoried and tested for Y2K capabilities. Equipment identified as
not being Y2K compatible has been replaced. The Bank has estimated that the cost
for new hardware and software was approximately $35,000.
If the modifications and conversions by both third-party vendors and the
Bank are not completed on a timely basis or if they fail to function properly,
the operations and financial condition of the Company could be materially
adversely affected. The Bank is developing contingency plans for continued
operations in the event of system failure.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare properly for
Y2K, and higher funding costs could result if consumers react to publicity about
the issue by withdrawing deposits. The Bank is assessing such risks among its
customers. The Company could also be materially adversely affected if other
third parties, such as governmental agencies, clearinghouses, telephone
companies, utilities and other service providers fail to prepare properly. The
Bank is therefore attempting to assess these risks and has taken action to
minimize their effects.
-20-
<PAGE> 23
REGULATION
Set forth below is a brief description of those laws and regulations
which, together with the descriptions of laws and regulations contained
elsewhere herein, are deemed material to an investor's understanding of the
extent to which the Company and the Bank are regulated. The description of the
laws and regulations hereunder and elsewhere herein does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
THE COMPANY
GENERAL. The Company, as a savings and loan holding company within the
meaning of the HOLA, has registered with the OTS and is subject to OTS
regulations, examinations, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Bank is subject to certain
restrictions in its dealings with the Company and affiliates thereof.
ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings institution. Such financial institution holding companies are the only
such companies which may engage in any commercial, securities and insurance
activities. However, Congressional legislative proposals, which have been
introduced and are under consideration, would either limit unitary savings and
loan holding companies to the same activity limits as are imposed on other
financial institution holding companies or would permit certain bank holding
companies to engage in commercial activities and expanded securities and
insurance activities. The Company cannot predict if, and in what form, these
proposals might become law. However, the broad latitude to engage in activities
under current law is restricted if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution. If this is
the case, the Director may impose such restrictions as deemed necessary to
address such risk, including limiting (i) payment of dividends by the savings
institution; (ii) transactions between the savings institution and its
affiliates; and (iii) any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution. Notwithstanding the above
rules as to permissible business activities of unitary savings and loan holding
companies, if the savings institution subsidiary of such a holding company fails
to meet the QTL test, as discussed under "- The Bank - Qualified Thrift Lender
Test," then such unitary holding company also shall become subject to the
activities restrictions applicable to multiple savings and loan holding
companies and, unless the savings institution requalifies as a QTL within one
year thereafter, shall register as, and become subject to the restrictions
applicable to, a bank holding company. See "- The Bank - Qualified Thrift Lender
Test."
-21-
<PAGE> 24
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, as set forth below, the activities of the Company and any of its
subsidiaries (other than the Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. Among other things, no
multiple savings and loan holding company or subsidiary thereof which is not a
savings institution shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary thereof
any business activity, upon prior notice to, and no objection by the OTS, other
than: (i) furnishing or performing management services for a subsidiary savings
institution; (ii) conducting an insurance agency or escrow business; (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings institution; (iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi)
those activities authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies; or (vii) unless the Director of
the OTS by regulation prohibits or limits such activities for savings and loan
holding companies, those activities authorized by the FRB as permissible for
bank holding companies. Those activities described in (vii) above also must be
approved by the Director of the OTS prior to being engaged in by a multiple
savings and loan holding company.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all affiliate transactions be on terms substantially the same,
or at least as favorable, to the institution or subsidiary as those provided to
a non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.
-22-
<PAGE> 25
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders of savings institutions and their holding companies. Under Section
22(h), loans to a director, an executive officer and to a greater than 10%
stockholder of a savings institution, and certain affiliated interests of
either, may not exceed, together with all other outstanding loans to such person
and affiliated interests, the savings institution's loans to one borrower limit.
Section 22(h) also requires that loans to directors, executive officers and
principal stockholders be made on terms substantially the same as offered in
comparable transactions to other persons and also requires prior board approval
for certain loans. In addition, the aggregate amount of extensions of credit by
a savings institution to all insiders cannot exceed the institution's unimpaired
capital and surplus. Furthermore, Section 22(g) places additional restrictions
on loans to executive officers. At September 30, 1999, the Bank was in
compliance with the above restrictions.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings institution or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a subsidiary savings institution, or of any other savings and loan holding
company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquirer is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, the FRB is authorized to
approve an application by a bank holding company to acquire control of a savings
institution. In addition, a bank holding company that controls a savings
institution to merge or consolidate the assets and liabilities of the savings
institution with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the BIF with the approval of the appropriate federal
banking agency and the FRB. As a result of these provisions, there have been a
number of acquisitions of savings institutions by bank holding companies in
recent years.
-23-
<PAGE> 26
THE BANK
GENERAL. The OTS has extensive authority over the operations of federally
chartered savings institutions. As part of this authority, savings institutions
are required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC. The investment and lending authority of
savings institutions are prescribed by federal laws and regulations, and such
institutions are prohibited from engaging in any activities not permitted by
such laws and regulations. Those laws and regulations generally are applicable
to all federally chartered savings institutions and may also apply to
state-chartered savings institutions. Such regulation and supervision is
primarily intended for the protection of depositors.
The OTS' enforcement authority over all savings institutions and their
holding companies was substantially enhanced by FIRREA. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and for engaging in unsafe or unsound
practices. Other actions or inactions may provide the basis for an enforcement
action, including misleading or untimely reports filed with the OTS. FIRREA
significantly increased the amount of and grounds for civil money penalties.
INSURANCE OF ACCOUNTS. The deposits of the Bank are insured to the
maximum extent permitted by the SAIF, which is administered by the FDIC, and are
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings institutions, after giving the OTS an
opportunity to take such action.
The deposits of the Bank are currently insured by the SAIF. Both the SAIF
and the BIF, the federal deposit insurance fund that covers commercial bank
deposits, are required by law to attain and thereafter maintain a reserve ration
of 1.25% of insured deposits. The BIF had achieved a fully funded status in
contrast to the SAIF and, therefore, the FDIC substantially reduced the average
deposit insurance premium paid by commercial banks to a level significantly
below the average premium paid by savings institutions.
The underfunded status of the SAIF resulted in the introduction of
federal legislation intended to, among other things, recapitalize the SAIF and
address the resulting premium disparity. On September 30, 1997, The Omnibus
Appropriations Act was signed into law. The legislation authorized a one-time
charge on SAIF insured deposits at a rate of 65.7 basis points per $100.00 of
March 31, 1995 deposits. As a result, the Bank's assessment amounted to $375,000
($248,000 net of tax). Additional provisions of the Act include new
-24-
<PAGE> 27
BIF and SAIF premiums and the merger of BIF and SAIF. The new BIF and SAIF
premiums will include a premium for repayment of the Financing
Corporation("FICO") bonds plus any regular insurance assessment, currently
nothing for the lowest risk category institutions. Until full pro-rata FICO
sharing is in effect, the FICO premiums for BIF and SAIF will be 1.3 and 6.4
basis points, respectively, beginning January 1, 1997. Full pro-rata FICO
sharing is to begin no later than January 1, 2000. The BIF and SAIF are to be
merged on January 1, 1999, provided the bank and savings association charters
are merged by that date. While the one-time special assessment had a significant
impact on the fiscal 1996 earnings, the resulting lower annual premiums will
benefit future earnings.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals,
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings institutions
are required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual institutions on a
case-by-case basis.
Current OTS capital standards require savings institutions to satisfy
three different capital requirements. Under these standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 4.0% of adjusted total assets and
"total" capital (a combination of core and "supplementary" capital) equal to at
least 8.0% of "risk-weighted" assets. For purposes of the regulation, core
capital generally consists of common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Tangible capital is given the same definition as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all the savings institution's intangible assets, with a limited exception for
purchased mortgage servicing rights. The Bank had no goodwill or other
intangible assets at September 30, 1999. Both core and tangible capital are
further reduced by an amount equal to a savings institution's debt and equity
investments in subsidiaries engaged in activities not permissible for national
banks (other than subsidiaries engaged in
-25-
<PAGE> 28
activities undertaken as agent for customers or in mortgage banking activities
and subsidiary depository institutions or their holding companies). These
adjustments do not affect the Bank's regulatory capital.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of hybrid capital instruments; perpetual preferred
stock which is not eligible to be included as core capital; subordinated debt
and intermediate-term preferred stock; and general allowances for loan losses up
to a maximum of 1.25% of risk-weighted assets. In determining the required
amount of risk-based capital, total assets, including certain off-balance sheet
items, are multiplied by a risk weight based on the risks inherent in the type
of assets. The risk weights assigned by the OTS for principal categories of
assets are (i) 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S. Government; (ii)
20% for securities (other than equity securities) issued by U.S.
Government-sponsored agencies and mortgage-backed securities issued by, or fully
guaranteed as to principal and interest by, the FNMA or the FHLMC, except for
those classes with residual characteristics or stripped mortgage-related
securities; (iii) 50% for prudently underwritten permanent one- to four-family
first lien mortgage loans not more than 90 days delinquent and having a
loan-to-value ratio of not more than 80% at origination unless insured to such
ratio by an insurer approved by the FNMA or the FHLMC, qualifying residential
bridge loans made directly for the construction of one- to four-family
residences and qualifying multi-family residential loans; and (iv) 100% for all
other loans and investments, including consumer loans, commercial loans, and
one- to four-family residential real estate loans more than 90 days delinquent,
and for repossessed assets.
-26-
<PAGE> 29
At September 30, 1999, the Bank exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 12.78%,
12.78% and 19.89%, respectively. The following table sets forth the Bank's
compliance with each of the above-described capital requirements as of September
30, 1999.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital(1)
------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Regulatory capital $12,608 $12,608 $12,608
Additional Capital Items: -- -- 614
A regulatory capital ------- ------- -------
Regulatory Capital 12,608 12,608 13,222
Minimum required 1,480 3,946 5,317
regulatory capital ------- ------- -------
Excess regulatory capital $11,128 $ 8,662 $ 7,905
======= ======= =======
Regulatory capital as a
percentage 12.78% 12.78% 19.89%
Minimum capital required
as a percentage 1.50 4.00 8.00
---- ---- ----
Regulatory capital as a
percentage in excess of 11.28% 8.78% 11.89%
requirements ===== ==== =====
</TABLE>
LIQUIDITY REQUIREMENTS. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 5%. At September 30, 1999, the Bank's liquidity ratio was
8.36%.
CAPITAL DISTRIBUTIONS. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other transactions charged to the capital account of a savings institution to
make capital distributions. Generally, the regulation creates a safe harbor for
specified levels of capital distributions from institutions meeting at least
their
-27-
<PAGE> 30
minimum capital requirements, so long as such institutions notify the OTS and
receive no objection to the distribution from the OTS. Savings institutions and
distributions that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.
Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements (Tier 1
institutions) may make capital distributions during any calendar year equal to
the higher of (i) 100% of net income for the calendar year-to-date plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of
net income over the most recent four-quarter period. The "surplus capital ratio"
is defined to mean the percentage by which the institution's ratio of total
capital to assets exceeds the ratio of its fully phased-in capital requirement
to assets. "Fully phased-in capital requirement" is defined to mean an
institution's capital requirement under the statutory and regulatory standards
applicable on September 30, 1996, as modified to reflect any applicable
individual minimum capital requirement imposed upon the institution. Failure to
meet fully phased-in or minimum capital requirements will result in further
restrictions on capital distributions, including possible prohibition without
explicit OTS approval. At September 30, 1999, the Bank was a Tier 1 institution
for purposes of this regulation. See "- Regulatory Capital Requirements."
In order to make distributions under these safe harbors, Tier 1 and Tier
2 institutions must submit written notice to the OTS 30 days prior to making the
distribution. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. In addition, a Tier 1 institution deemed
to be in need of more than normal supervision by the OTS may be downgraded to a
Tier 2 or Tier 3 institution as a result of such a determination.
QUALIFIED THRIFT LENDER TEST. In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets). A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.
Recent legislation permits a savings association to qualify as a
qualified thrift lender not only by maintaining 65% of portfolio assets in
qualified thrift investments (the "QTL test") but also in the alternative, by
qualifying under the Code as a "domestic building and loan association." The
Bank is a domestic building and loan association as defined in the Code.
Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and educational loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10 percent of total assets, plus an
additionally 10 percent for small business loans. Loans for personal, family and
household purposes (other than credit card, small business and educational
loans) are now included without limit with other
-28-
<PAGE> 31
assets that, in the aggregate, may account for up to 20% of total assets. At
September 30, 1999, under the expanded QTL test, approximately 92.8% of the
Bank's portfolio assets were qualified thrift investments.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs that administers the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. At
September 30, 1999, the Bank had $13.7 million of FHLB advances.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Cincinnati in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1999, the Bank had $934,000 in FHLB
stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future.
TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank are subject to the generally applicable
corporate tax provisions of the Code, and the Bank is subject to certain
additional provisions of the Code which apply to thrift and other types of
financial institutions. The following discussion of federal taxation is intended
only to summarize certain pertinent federal income tax matters material to the
taxation of the Company and the Bank and is not a comprehensive discussion of
the tax rules applicable to the Company and the Bank.
FISCAL YEAR. The Company and the Bank file a federal income tax return
on the basis of a fiscal year ending on September 30.
BAD DEBT RESERVES. Savings institutions, such as the Bank, which meet
certain definitional tests primarily relating to their assets and the nature of
their businesses, historically were permitted to establish a reserve for bad
debts and to make annual additions to the reserve. Under new legislation passed
in August 1996, the special bad debt deduction was repealed for thrift
institutions. The legislation also requires thrifts to recapture, over a
six-year period, bad
-29-
<PAGE> 32
debt reserves added since 1988. As the Bank has provided for a deferred tax
liability for special bad debt deductions since 1988, the legislation is not
expected to have a material effect on the results of its operations.
DISTRIBUTIONS. If the Bank were to distribute cash or property to its
sole stockholder, and the distribution was treated as being from its accumulated
bad debt reserves, the distribution will cause the Bank to have additional
taxable income. A distribution is deemed to have been made from accumulated bad
debt reserves to the extent that (a) the reserves exceed the amount that would
have been accumulated on the basis of actual loss experience, and (b) the
distribution is a "non-qualified distribution." A distribution with respect to
stock is a non-qualified distribution to the extent that, for federal income tax
purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, it exceeds
the institution's current and post-1951 accumulated earnings and profits. The
amount of additional taxable income created by a non-qualified distribution is
an amount that when reduced by the tax attributable to it is equal to the amount
of the distribution.
MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method.
Other items of tax preference that constitute AMTI include (a) tax-exempt
interest on newly issued (generally, issued on or after August 8, 1986) private
activity bonds other than certain qualified bonds and (b) 75% of the excess (if
any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI
(determined without regard to this preference and prior to reduction by net
operating losses).
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At September 30, 1999, the Bank had no NOL
carryforwards for federal income tax purposes.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net
capital gains are taxed at a maximum rate of 34%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.
-30-
<PAGE> 33
OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the Bank.
The Bank's federal income tax returns for the tax years ended September
30, 1992 forward are open under the statute of limitations and are subject to
review by the IRS.
STATE TAXATION
The State of Kentucky imposes no income or franchise taxes on savings
institutions. However, the Company (on an unconsolidated basis) must pay a
Kentucky State income tax, as well as a tax on capital. The tax on income is
4.0% for the first $25,000 of taxable income, 5.0% for the next $25,000, 6.0%
for the next $50,000, 7.0% for the next $150,000 and 8.25% for all income over
$250,000. The tax on capital is .0021 times the capital employed.
The Bank is subject to an annual Kentucky ad valorem tax. Assessed at the
beginning of each calendar year, this tax is 0.1% of the Bank's savings
accounts, common stock, capital and retained income with certain deductions
allowed for amounts borrowed by depositors and for securities guaranteed by the
U.S. government or certain of its agencies. During the year ended September 30,
1999, the amount of such expense for the Bank was $90,000.
The Company is subject to an Ohio franchise tax based on its net worth
plus certain reserve amounts. Total net worth for this purpose is reduced by
certain exempted assets. The resultant net worth is taxed at a rate of 1.5% for
the 1999 return, which is based on net worth as of December 31, 1999.
ITEM 2. PROPERTIES.
At September 30, 1999, the Bank conducted its business from its
executive offices in Fort Thomas, Kentucky and one full service branch
office, both of which are located in Campbell County, Kentucky.
-31-
<PAGE> 34
The following table sets forth certain information with respect to the
Bank's office properties at September 30, 1999.
<TABLE>
<CAPTION>
Net Book Assessed
Value of Value
Premises and for
Fixed Assets, Property Amount of
Description/Address Leased/Owned Net Taxes Deposits
------------------- ------------ ------------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Main Office
(2 Buildings)
Fort Thomas, KY Owned $317 $969 $48,098
Branch Office
Alexandria, KY Owned 285 347 22,772
--- --- ------
Totals $602 $1,316 $70,870
==== ====== =======
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any pending legal proceedings other than
nonmaterial legal proceedings occurring in the ordinary course of
business.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information required herein, to the extent applicable, is
incorporated by reference from page 49 of the Company's 1999 Annual Report
to Stockholders ("1999 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from page
3 of the 1999 Annual Report.
-32-
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required herein is incorporated by reference from pages
4 to 14 of the 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion contained under the heading "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Market Risk
Management" in the 1999 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages
18 to 47 of the 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein is incorporated by reference from pages
2-4 of the definitive proxy statement of the Company for the Annual
Meeting of Stockholders to be held on January 24, 2000 ("Definitive Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from page
6 of the Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from page
4 of the Definitive Proxy Statement.
-33-
<PAGE> 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from
pages 2 and 9 of the Definitive Proxy Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) The following financial statements are incorporated by reference
from Item 8 hereof (see Exhibit 13):
Independent Auditors' Report
Consolidated Statements of Financial Condition at September 30,
1999 and 1998
Consolidated Statements of Income for the years ended
September 30, 1999, September 30, 1998 and September 30,
1997
Consolidated Statements of Changes in Stockholders' Equity for
the years ended September 30, 1999, September 30, 1998 and
September 30, 1997.
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, September 30, 1998 and September 30,
1997.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable
accounting regulation of the SEC are omitted because of the absence of
conditions under which they are required or because the required
information is included in the financial statements and related notes
thereto.
(3) The following exhibits are filed as part of this Form 10-K and this
list includes the Exhibit Index.
-34-
<PAGE> 37
Exhibit Index
-------------
<TABLE>
Page
----
<S> <C> <C>
2.1 Plan of Conversion *
3.1 Amended and Restated Articles of Incorporation of Fort Thomas
Financial Corporation **
3.2 Code of Regulations of Fort Thomas Financial Corporation *
3.3 Bylaws of Fort Thomas Financial Corporation *
4.0 Stock Certificate of Fort Thomas Financial Corporation ***
10.5 Employment Agreement between Fort Thomas Financial Corporation and
Larry N. Hatfield *
10.6 Employment Agreement between Fort Thomas Financial Corporation and
J. Michael Lonnemann *
13.0 1999 Annual Report to Stockholders ****
22.0 Subsidiaries of the Registrant - Reference is made to
"Item 1 Business - Subsidiaries" for the required information
</TABLE>
-----------------
(*) Incorporated herein by reference from the Company's Registration
Statement on Form S-1 filed with the SEC on March 7, 1995.
(**) Incorporated herein by reference from the Company's Registration
Statement on Form 8-A filed with the SEC on June 14, 1995.
(***) Incorporated herein by reference from the Company's Form 10-K for
fiscal 1995.
(****)Filed with the Company's Definitive Proxy Statement.
-35-
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Larry N. Hatfield
---------------------------------------
Larry N. Hatfield
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Larry N. Hatfield December 27, 1999
- --------------------------------
Larry N. Hatfield
President and Chief
Executive Officer
/s/ Robert L. Grimm December 27, 1999
- -------------------------------
Robert L. Grimm
Chairman of the Board
/s/ Harold A. Luersen December 27, 1999
- -------------------------------
Harold A. Luersen
Director
<PAGE> 39
/s/ Don J. Beckmeyer December 27, 1999
- ------------------------------
Don J. Beckmeyer
Director
/s/ J. Steven McLane December 27, 1999
- ------------------------------
J. Steven McLane
Director
/s/ J. Michael Lonnemann December 27, 1999
- ------------------------------
J. Michael Lonnemann
Vice President and Secretary
(Principal accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 653
<INT-BEARING-DEPOSITS> 70
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 5,500
<INVESTMENTS-MARKET> 741
<LOANS> 89,380
<ALLOWANCE> 671
<TOTAL-ASSETS> 99,849
<DEPOSITS> 70,870
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,578
<LONG-TERM> 13,739
0
0
<COMMON> 16
<OTHER-SE> 13,646
<TOTAL-LIABILITIES-AND-EQUITY> 99,849
<INTEREST-LOAN> 7,762
<INTEREST-INVEST> 280
<INTEREST-OTHER> 271
<INTEREST-TOTAL> 8,313
<INTEREST-DEPOSIT> 3,843
<INTEREST-EXPENSE> 639
<INTEREST-INCOME-NET> 3,831
<LOAN-LOSSES> 68
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,449
<INCOME-PRETAX> 1,550
<INCOME-PRE-EXTRAORDINARY> 1,550
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 3.81
<LOANS-NON> 2,263
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 704
<CHARGE-OFFS> 158
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 614
<ALLOWANCE-DOMESTIC> 614
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
