SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
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 No.: 0-26242
-------
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/A or any
amendment to this Form 10-K/A. [X]
Exhibit Index
-------------
<TABLE>
<CAPTION>
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 1998 Annual Report to Stockholders ****
22.0 Subsidiaries of the Registrant - Reference is made to
"Item 1 Business - Subsidiaries" for the required information
- --------------------
<F*> Incorporated herein by reference from the Company's Registration
Statement on Form S-1 filed with the SEC on March 7, 1995.
<F**> Incorporated herein by reference from the Company's Registration
Statement on Form 8-A filed with the SEC on June 14, 1995.
<F***> Incorporated herein by reference from the Company's Form 10-K for
fiscal 1995.
<F****> Filed with this Form 10-K/A, mistakenly omitted from original 10-K
filing.
</TABLE>
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 February 3, 1999
- ---------------------------
Larry N. Hatfield
President and Chief
Executive Officer
/s/ Robert L. Grimm February 3, 1999
- ---------------------------
Robert L. Grimm
Chairman of the Board
/s/ Harold A. Luersen February 3, 1999
- ---------------------------
Harold A. Luersen
Director
/s/ Don J. Beckmeyer February 3, 1999
- ---------------------------
Don J. Beckmeyer
Director
/s/ J. Steven McLane February 3, 1999
- ---------------------------
J. Steven McLane
Director
/s/ J. Michael Lonnemann February 3, 1999
- ---------------------------
J. Michael Lonnemann
Vice President and Secretary
(Principal accounting officer)
FORT THOMAS FINANCIAL CORPORATION
1998 ANNUAL REPORT
TABLE OF CONTENTS
Page
President's Letter to Stockholders 1
Corporate Profile 2
Selected Consolidated Financial Highlights 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations 4
Stock Information 15
Report of Independent Certified Public Accountants 17
Consolidated Financial Statements 18-47
Directors and Officers 48
Banking Locations 48
Stockholder Information 49
Dear Stockholders:
Our third annual report covers the year ended September 30, 1998, a
period of time which was highlighted by high net income, strong asset growth
and continued quarterly dividend payments. Our fiscal 1998 results reflect
management's efforts in leveraging our capital in order to maximize
stockholder value.
FISCAL 1998 RESULTS
Net income for fiscal 1998 amounted to $989,000 or $.70 per share
compared to $1.1 million or $.79 per share for fiscal 1997. The $150,000 or
13.2% decrease was primarily due to increased operating expenses as a result
of increased compensation and employee benefit costs associated with
additional ESOP shares released because of the $3.05 in dividends paid in
fiscal 1998, $1.43 of which will be treated as a tax-deferred return of
capital. In addition, net interest income, the Company's primary
determinant of net income, increased due to an increase in the average
interest-earning assets of $8.2 million or 9.0% to $99.7 million in 1998
from $91.5 million in 1997. The increase in average interest-earning assets
was partially offset by a decrease in the average interest rate spread to
3.28% in fiscal 1998 from 3.31% in fiscal 1997. We are also pleased to
report that total assets increased during fiscal 1998 to $103.6 million at
September 30, 1998 from $97.9 million at September 30, 1997. In addition,
our strong capital base allowed us to repurchase 1.4% of our outstanding
common stock during 1998.
OUTLOOK
Since our conversion, we have taken actions to increase the value of
your investment. In fiscal 1996 and fiscal 1998 we paid special
distributions of $4.00 and $2.75 per share, respectively. In fiscal 1997 and
fiscal 1998 we repurchased 5.0% and 1.4% of our outstanding common shares,
respectively. We intend to continue to explore other means to enhance your
value as a stockholder. We were pleased with loan demand in fiscal 1998 and
look forward to further growth in our loan portfolio in 1999. Overall, we
are encouraged by our progress to date and look forward to building on this
success in the future.
I would like to thank our directors, officers and employees for their
continued service and dedication to the Company. I would also like to thank
you as a stockholder for your confidence in Fort Thomas Financial
Corporation.
Sincerely,
Larry N. Hatfield
President
CORPORATE PROFILE
Fort Thomas Financial Corporation (the "Company") was incorporated in
March 1995 under Ohio law for the purpose of acquiring all of the capital
stock issued by Fort Thomas Federal Savings and Loan Association in
connection with its conversion from a federally chartered mutual savings and
loan association to a federally chartered stock savings bank (the
"Conversion"). The Conversion was consummated on June 27, 1995 and, as a
result, the Company became a unitary savings and loan holding company for
its wholly owned subsidiary, Fort Thomas Savings Bank, F.S.B. (the "Savings
Bank"). The Company has no significant assets other than the shares of the
Savings Bank's common stock acquired in the Conversion, the loan to the
Employee Stock Ownership Plan ("ESOP") and that portion of the net proceeds
of the Conversion retained by the Company.
The Savings Bank is a federally chartered stock savings bank
conducting business from two full-service offices located in Campbell
County, Kentucky. The Savings Bank is a community oriented savings bank
which has traditionally offered a wide variety of savings products to its
retail customers while concentrating its lending activities on real estate
loans secured by one-to-four family residential properties located in
Campbell County, Kentucky and surrounding counties in northern Kentucky. To
a lesser extent, the Savings Bank also focuses its lending activities on
multi-family, residential real estate loans, and land and construction
loans. The Savings Bank also invests in securities, which are issued by
United States government and agency securities.
The Company's and the Savings Bank's principal offices are located at
25 North Fort Thomas Avenue, Fort Thomas, Kentucky 41075, and their
telephone number is (606) 441-3302.
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
At or for the Year Ended September 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $103,611 $97,873 $88,013 $86,214 $70,577
Loans receivable, net 92,795 88,452 77,987 71,156 64,585
Investment and mortgage-backed securities 3,754 3,788 4,813 5,973 2,606
Deposits 76,851 71,858 63,731 59,998 55,127
Borrowed funds 12,526 8,846 6,754 3,651 7,587
Stockholders' equity 12,713 15,786 15,921 21,790 7,178
Selected Operating Data:
Interest income 8,502 7,970 7,285 6,251 5,502
Interest expense 4,459 4,138 3,517 3,182 2,587
Net interest income 4,043 3,832 3,768 3,069 2,915
Provision for loan losses 285 137 125 25 135
Net interest income after provision
for loan losses 3,758 3,695 3,643 3,044 2,780
Other income 279 268 177 161 177
Other expenses 2,505 2,237 3,028 1,784 1,620
Income before income taxes 1,532 1,726 792 1,421 1,337
Income tax 543 587 275 460 456
------------------------------------------------------------
Net income $ 989 $ 1,139 $ 517 $ 961 $ 881
============================================================
Selected Operating Ratios(1):
Average interest rate spread(2) 3.28% 3.31% 3.13% 3.49% 3.97%
Net interest margin(2) 4.10 4.19 4.39 4.11 4.33
Ratio of average interest-earning assets to
average interest-bearing liabilities 118.06 119.34 130.80 114.53 109.38
Return on average assets .95 1.21 .59 1.25 1.28
Return on average equity 5.96 7.26 2.54 9.55 14.29
Asset Quality Ratios(3):
Nonperforming assets as a percent of
total assets(4) 3.46% 1.98% 1.34% 1.44% 2.01%
Allowance for loan losses as a
percent of total loans .73 .53 .45 .32 .35
Allowance for loan losses as a
percent of nonperforming loans 19.65 24.57 31.02 19.20 16.43
Capital Ratios(3):
Tangible capital ratio 15.35% 16.94% 19.04% 19.38% 10.19%
Core capital ratio 15.35 16.94 19.04 19.38 10.19
Risk-based capital ratio 24.90 24.32 29.90 31.64 17.71
<FN>
<F1> With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods.
<F2> Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities, and net interest margin represents
net interest income as a percent of average interest-earning assets.
<F3> Asset Quality Ratios and Capital Ratios are end of period ratios.
Capital Ratios reflect the Savings Bank's capital ratios calculated
under regulations of the Office of Thrift Supervision ("OTS").
<F4> Nonperforming assets consist of nonperforming loans and real estate
owned ("REO"). Nonperforming loans consist of non-accrual loans and
accruing loans 90 days or more overdue, while REO consists of real
estate acquired through foreclosure.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis is intended to assist in
understanding the financial condition and results of operations of the
Company. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements and the accompanying
Notes to Consolidated Financial Statements and the other sections contained
in this Annual Report.
The Company's results of operations depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing
liabilities. The Company's results of operations also are affected by the
provision for loan losses, resulting from management's assessment of the
adequacy of the allowance for loan losses; the level of its other income;
the level of its other expenses; and income tax expense.
Net income for fiscal 1998, 1997 and 1996 amounted to $989,000, $1.1
million and $517,000, respectively. Net income during such periods
primarily resulted from net interest income, which amounted to $4.0 million,
$3.8 million and $3.8 million, respectively, for fiscal 1998, 1997 and 1996.
The interest rate spread and the amount of interest-earning assets and
interest-bearing liabilities determine net interest income. During fiscal
1998, 1997 and 1996, the Company's average interest rate spread was 3.28%,
3.31%, and 3.13%, respectively. In addition, at September 30, 1998, 1997
and 1996, the ratio of average interest-earning assets to average interest-
bearing liabilities amounted to 118.06%, 119.34% and 130.80%, respectively.
In addition to the historical information contained herein, the
following discussion contains forward-looking statements that involve risks
and uncertainties. Economic circumstances, the Company's operations and
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include changes
in the economy and market interest rates generally and in the Company's
market area. The forward-looking statements contained herein include, but
are not limited to, those with respect to the following matters:
1. Management's determination of the amount of and adequacy of the
allowance for loan losses;
2. The effect of changes in interest rates; and
3. Management's opinion as to the effects of recent accounting
pronouncements on the Company's consolidated financial statements.
Asset and Liability Management
The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained
during fluctuations in prevailing interest rates. Interest rate sensitivity
is a measure of the difference between amounts of interest-earning assets
and interest-bearing liabilities that either re-price or mature within a
given period of time. The difference, or the interest rate re-pricing
"gap," provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A gap
is considered positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities, and is considered
negative when the amount of interest-rate sensitive liabilities exceeds the
amount of interest-rate sensitive assets. Generally, during a period of
rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income. A positive gap within shorter
maturities would result in an increase in net interest income. During a
period of falling interest rates, a negative gap within shorter maturities
would result in an increase in net interest income while a positive gap
within shorter maturities would have the opposite effect.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the Company's results of
operations, the Savings Bank's management has implemented and continues to
monitor asset and liability management policies. These policies are
intended to better match the maturities and re-pricing terms of the Savings
Bank's interest-earning assets and interest-bearing liabilities. Such
policies have consisted primarily of emphasizing investment in adjustable-
rate mortgage loans ("ARMs").
The Savings Bank focuses its lending activities on the origination of
one and three-year ARMs. Although adjustable-rate loans involve certain
risks, such loans decrease the risks associated with changes in interest
rates. As a result of the Savings Bank's efforts, as of September 30, 1998,
$56 million or 74% of the Savings Bank's portfolio of one-to-four family
residential mortgage loans consisted of ARMs.
With respect to liabilities, the Savings Bank prices deposit accounts
based upon competitive factors. Pursuant to this policy, the Savings Bank
has generally neither engaged in sporadic increases or decreases in interest
rates paid nor offered the highest rates available in its deposit market
except upon specific occasions to control deposit flow or when market
conditions have created opportunities to attract longer-term deposits. In
addition, the Savings Bank does not pursue an aggressive growth strategy
that would force the Savings Bank to focus exclusively on competitors' rates
rather than affordability. This policy has assisted the Savings Bank in
controlling its cost of funds.
Net Portfolio Value
Management also presently monitors and evaluates the potential impact
of interest rate changes upon the market value of the Savings Bank's
portfolio equity and the level of net interest income on a quarterly basis.
The OTS adopted a final rule in August 1993 incorporating an interest rate
risk component into the risk-based capital rules. Although the Savings Bank
is not presently subject to the interest rate risk component of the risk-
based capital rules, the maturity/rate data is voluntarily submitted to the
OTS so that management remains aware of the potential impact of interest
rate changes as reported quarterly by the OTS in its interest rate risk
exposure report. Utilizing this measurement concept, at September 30, 1998,
there would have been a slight increase in the Savings Bank's NPV of
approximately 0.5% of the present value of its assets, assuming a 200 basis
point increase in interest rates.
The following table presents the Savings Bank's net portfolio value
("NPV") and the ratio of NPV to the present value ("PV") of assets as of
September 30, 1998, as calculated by the OTS, based on information provided
to the OTS by the Savings Bank.
Net Portfolio Value
<TABLE>
<CAPTION>
Change in Estimated NPV
Interest Rates As A % $ Change % Change
(basis points) Estimated NPV of PV of Assets in NPV in NPV
- -------------- ------------- --------------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 $16,790 16.69% $(1,281) (7.0)%
+300 17,668 17.29% (403) (2.0)%
+200 18,160 17.55% 89 .0%
+100 18,212 17.45% 141 1.0%
- 18,071 17.20% - .0%
-100 18,052 17.04% (19) .0%
-200 18,311 17.09% 240 1.0%
-300 18,831 17.34% 760 4.0%
-400 19,469 17.66% 1,398 8.0%
</TABLE>
Changes in Financial Condition
General. The Company's assets increased from $97.9 million at
September 30, 1997 to $103.6 million at September 30, 1998, an increase of
$5.7 million or 5.8%. Loans receivable, net increased $4.3 million or 4.9%
from $88.5 million at September 30,1997 to $92.8 million at September 30,
1998. Such increase, which was primarily funded by an $8.7 million increase
in deposits and borrowed funds, resulted primarily from an increase in
single-family loans.
Total liabilities increased $8.8 million or 10.7% between September
30, 1997 and September 30, 1998 due primarily to an increase in deposits of
$5.0 million or 7.0% and an increase in borrowed funds of $3.7 million or
42.0%.
Stockholders' equity decreased $3.1 million from $15.8 million, or
16.1% of total assets, at September 30, 1997 to $12.7 million, or 12.3% of
total assets, at September 30, 1998. This decrease was primarily due to the
$2.75 per share special distribution paid in fiscal 1998 and $280,000 of
stock repurchases. These decreases were partially offset by net income of
$989,000.
Average Balances, Net Interest Income and Yields Earned and Rates Paid
The following average balance sheet table sets forth for the periods
indicated, information on the Company regarding: (i) the total dollar
amounts of interest income on interest-earning assets and the resulting
average yields; (ii) the total dollar amounts of interest expense on
interest-bearing liabilities and the resulting average costs; (iii) net
interest income; (iv) interest rate spread; (v) net interest-earning assets
(interest-bearing liabilities); (vi) the net yield earned on interest-
earning assets; and (vii) the ratio of average interest-earning assets to
average interest-bearing liabilities. Information is based on average
monthly balances during the periods presented.
<TABLE>
<CAPTION>
At
September 30, Year Ended September 30,
------------ -----------------------------------------------------------------------------------
1998 1998 1997 1996
------- ---------------------------- --------------------------- ---------------------------
Average Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- ------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total loans, net(1) 8.76% $ 91,487 $8,079 8.83% $83,912 $7,499 8.94% $73,875 $6,576 8.90%
Mortgage-backed securities - 13 1 - 795 50 6.29 910 54 5.94
Investment securities 6.00 3,365 210 6.24 3,898 254 6.52 5,293 342 6.46
Other interest-earning assets 5.92 3,852 212 5.50 2,932 167 5.70 5,829 313 5.37
--------------------------------------------------------------------------------------------
Total interest-earning assets 8.53 98,716 8,502 8.61 91,537 7,970 8.71 85,907 7,285 8.48
--------------------------------------------------------------------------------------------
Noninterest-earning assets 3,232 2,269 1,782
-------- ------- -------
Total assets 102,659 93,806 87,689
-------- ------- -------
Interest-bearing liabilities:
Savings deposits 2.56 13,762 366 2.66 13,451 352 2.62 13,391 349 2.61
Other time deposits 5.98 60,278 3,572 5.93 54,312 3,263 6.01 48,096 2,939 6.11
Borrowed funds 6.18 9,577 521 5.44 8,937 523 5.85 4,191 229 5.46
--------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 5.39 83,618 4,459 5.33 76,699 4,138 5.40 65,678 3,517 5.35
--------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 2,458 1,428 1,642
-------- ------- -------
Total liabilities 86,076 78,127 67,320
-------- ------- -------
Stockholders' equity 16,583 15,679 20,369
-------- ------- -------
Total liabilities and equity 102,659 93,806 87,689
-------- ------- -------
Net interest-earning assets $ 15,098 $14,837 $20,229
======== ======= =======
Net interest income/interest rate
spread $4,043 3.28% $3,832 3.31% $3,768 3.13%
====== ====== ====== ====== ====== ======
Net interest margin(2) 4.10% 4.19% 4.39%
====== ====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 118.06% 119.34% 130.80%
====== ====== ======
<FN>
<F1> Total loans, net includes non-accruing loans.
<F2> Net interest margin is net interest income divided by interest-earning
assets.
</FN>
</TABLE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected the Savings Bank's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (i)
changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
total change in rate and volume. The combined effect of changes in both
rate and volume has been allocated proportionately to the change due to rate
and the change due to volume.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
----------------------------- -----------------------------
Increase Increase
(Decrease) Due To (Decrease) Due to
----------------- -----------------
Total Total
Increase Increase
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Total loans receivable, net $ (97) $677 $580 $31 $892 $923
Mortgage-backed securities - (49) (49) 2 (6) (4)
Investment securities (9) (35) (44) 6 (94) (88)
Other interest-earning assets (7) 52 45 10 (156) (146)
-------------------------------------------------------
Total interest-earning assets (113) 645 532 49 636 685
-------------------------------------------------------
Interest-bearing liabilities:
Savings deposits $ (6) $ 8 $ 14 $ 2 $ 1 $ 3
Other time deposits (49) 358 309 (25) 349 324
Borrowed funds (39) 37 (2) 81 213 294
-------------------------------------------------------
Total interest-bearing
liabilities (83) 404 321 58 563 621
-------------------------------------------------------
Increase (decrease) in net interest
income $ (30) $241 $211 $(9) $ 73 $ 64
=======================================================
</TABLE>
Comparison of Results of Operations for the Years Ended
September 30, 1998 and 1997
General. The Company's net income amounted to $989,000 or $.70 per
share for fiscal 1998 compared to $1.1 million or $.79 per share for fiscal
1997. The decrease of $150,000 or 13.2% in net income for fiscal 1998 was
primarily due to an increase in general and administrative expenses and
partially offset by an increase in net interest income.
Net Interest Income. Net interest income is determined by the
Company'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 Company's net interest income increased
$211,000 or 5.5% to $4.0 million for fiscal 1998 compared to fiscal 1997.
The decrease in the average interest rate spread to 3.28% for fiscal 1998
compared to 3.31% for fiscal 1997 was offset by an increase in average net
interest-earning assets of $300,000 or 1.3% to $15.1 million for fiscal 1998
from $14.8 million for fiscal 1997. The net interest margin for fiscal 1998
was 4.10% compared to 4.19% for fiscal 1997.
Interest Income. Interest income amounted to $8.5 million for fiscal
1998, an increase of $532,000 or 6.7% compared to interest income of $8.0
million for fiscal 1997. Such increase was primarily due to an increase in
interest income on loans as a result of an increase in the average balance
of loans and partially offset by a decrease in the average yield earned on
such assets. The average balance of loans receivable increased $7.6 million
or 9.1% to $91.5 million for fiscal 1998 compared to $83.9 million for
fiscal 1997. The average yield earned on such assets decreased to 8.83% for
fiscal 1998 compared to 8.94% for fiscal 1997. The increase in the average
balance of loans receivable was primarily due to the origination of single-
family mortgage loans.
Interest Expense. Interest expense increased $321,000 or 7.8% to $4.5
million for fiscal 1998 compared to $4.1 million for fiscal 1997. The
increase was primarily due to an increase in the average balance of time
deposits of $6.0 million or 11.0% to $60.3 million for fiscal 1998 compared
to $54.3 million for fiscal 1997. This was offset by a decrease in overall
cost of funds of seven basis points from 5.40% in fiscal year 1997 to 5.33%
in fiscal year 1998.
Provision for Loan Losses. The provision for loan losses amounted to
$285,000 and $137,000 for fiscal 1998 and 1997, respectively. The allowance
for loan losses as a percent of total loans and as a percent of non-
performing loans was .73% and 19.65%, respectively, for fiscal 1998 compared
to .53% and 24.57%, respectively, for fiscal 1997. The increase in the
provision in 1998 was primarily due to the increase in the Savings Bank's
non-performing loans.
The Savings Bank establishes provisions for loan losses in order to
maintain the allowance for loan losses at a level deemed to be appropriate.
This level is based upon management's assessment of prior loss experience,
the volume and type of lending conducted by the Savings Bank, industry
standards, past due loans, economic conditions in the Savings Bank's market
area and generally and other factors related to the collectibility of the
Savings Bank's loan portfolio. A significant majority of the Savings Bank's
non-performing loans has historically consisted of one-to-four family loans.
Due to the stability of the local economy, the lower level of risk involved
with such loans and the minimal level of charge-offs, the Savings Bank has
maintained its allowance for loan losses at a level deemed adequate by
management. However, this level is lower than most industry standards with
respect to the allowance as a percent of both total non-performing loans and
total loans.
Other Income. Other income amounted to $279,000 for fiscal 1998
compared to $268,000 for fiscal 1997, an increase of $11,000 or 4.1%. Such
increase was primarily due to an increase in fees and charges.
General and Administrative Expenses. General and administrative
expenses increased $300,000 or 13.6% to $2.5 million for fiscal 1998
compared to $2.2 million for fiscal 1997. Such increase was primarily due
to an increase of $233,000 or 19.9% in compensation and employee benefits
and an increase of $35,000 or 30.2% in franchise and other taxes. The
increase in compensation and employee benefits was primarily due to benefits
related to the Company's Employee Stock Ownership Plan ("ESOP") as well as
normal salary and merit increases. The increase related to the ESOP was
primarily attributable to the release of additional shares of Common Stock
in 1998 as a result of the special distribution of $2.75 per share paid in
fiscal 1998. Accordingly, the Company believes such costs will decrease in
fiscal 1999.
Income Taxes. Total income taxes amounted to $543,000 and $587,000
for fiscal 1998 and 1997, respectively. The effective tax rate was 35.4%
and 34.0%, respectively.
Comparison of Results of Operations for the Years Ended
September 30, 1997 and 1996
General. The Company's net income amounted to $1.1 million or $.79
per share for fiscal 1997 compared to $517,000 or $.35 per share for fiscal
1996. The increase of $622,000 or 120.3% in net income for fiscal 1997 was
primarily due to a decrease in federal insurance premiums as well as an
increase in net interest income and other income.
Net Interest Income. Net interest income is determined by the
Company'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 Company's net interest income increased
$64,000 or 1.7% to $3.8 million for fiscal 1997 compared to fiscal 1996.
The increase in the average interest rate spread to 3.31% for fiscal 1997
compared to 3.13% for fiscal 1996 was substantially offset by a decrease in
the ratio of average interest-earning assets to average interest-bearing
liabilities to 119.34% for fiscal 1997 from 130.80% for fiscal 1996. The
net interest margin for fiscal 1997 was 4.19% compared to 4.39% for fiscal
1996.
Interest Income. Interest income amounted to $8.0 million for fiscal
1997, an increase of $685,000 or 9.4% compared to interest income of $7.3
million for fiscal 1996. Such increase was primarily due to an increase in
interest income on loans as a result of an increase in the average balance
of loans and, to a lesser extent, an increase in the average yield earned on
such assets. The average balance of loans receivable increased $10.0
million or 13.6% to $83.9 million for fiscal 1997 compared to $73.9 million
for fiscal 1996. In addition, the average yield earned on such assets
increased to 8.94% for fiscal 1997 compared to 8.90% for fiscal 1996. The
increase in the average balance of loans receivable was primarily due to
increased originations of single-family mortgage loans.
Interest Expense. Interest expense increased $621,000 or 17.7% to
$4.1 million for fiscal 1997 compared to $3.5 million for fiscal 1996. Such
increase was primarily due to an increase in the average balance of time
deposits as well as an increase in the average balance of and rates paid on
FHLB advances. The average balance of time deposits and FHLB advances
increased to $54.3 million and $8.9 million, respectively, for fiscal 1997
compared to $48.1 million and $4.2 million, respectively, for fiscal 1996.
The increase in the average balance of time deposits and FHLB advances was
primarily due to increased funding needs as a result of increased loan
origination activity. The average rate paid on FHLB advances increased to
5.85% for fiscal 1997 compared to 5.46% for fiscal 1996.
Provision for Loan Losses. The provision for loan losses amounted to
$137,000 and $125,000 for fiscal 1997 and 1996, respectively. The allowance
for loan losses as a percent of total loans and as a percent of
nonperforming loans was .53% and 24.57%, respectively, for fiscal 1997
compared to .45% and 31.02%, respectively, for fiscal 1996.
Other Income. Other income amounted to $268,000 for fiscal 1997
compared to $177,000 for fiscal 1996, an increase of $91,000 or 51.4%. Such
increase was primarily due to an increase in fees and charges.
General and Administrative Expenses. General and administrative
expenses decreased $791,000 or 26.1% to $2.2 million for fiscal 1997
compared to $3.0 million for fiscal 1996. Such decrease was primarily due
to a decrease of $393,000 or 26.1% in compensation and employee benefits and
a decrease of $449,000 or 86.3% in federal insurance premiums. The decrease
in compensation and employee benefits was primarily due to decreased
employee benefit costs. This decrease was due to a decrease in ESOP expense
related to the number of shares released. In fiscal year 1996, this expense
was higher because the special $4.00 dividend casued more ESOP shares to be
released. The decrease in federal deposit insurance premiums was due to
federal legislation passed in 1996 which authorized a one-time assessment on
all savings institutions to recapitalize the Savings Association Insurance
Fund ("SAIF"). The Savings Bank's assessment amounted to $375,000 (pre-tax)
in fiscal 1996. The recapitalization of the SAIF has resulted in lower
deposit premiums which has benefited the Savings Bank's earnings.
Income Taxes. Total income taxes amounted to $587,000 and $275,000
for fiscal 1997 and 1996, respectively. The effective tax rate was 34.0%
and 34.7%, respectively.
Liquidity and Capital Resources
The Company's liquidity, represented by cash and cash equivalents, is
a product of its operating, investing and financing activities. The Savings
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 Company manages
the pricing of its deposits to maintain a steady deposit balance. In
addition, the Company invests excess funds in overnight deposits and other
short-term interest-earning assets, which provide liquidity to meet lending
requirements. The Company 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 Company can borrow funds as needed. At September 30, 1998, the
Company had $12.5 million of borrowed funds.
Liquidity management is both a daily and long-term function of
business management. Excess liquidity is generally invested in short-term
investments such as overnight deposits. On a longer-term basis, the Company
maintains a strategy of investing in various lending products. The Company
uses its sources of funds primarily to meet its ongoing commitments, to pay
maturing savings certificates and savings withdrawals and fund loan
commitments. At September 30, 1998, the total approved loan commitments
outstanding, excluding construction loans, amounted to $1.7 million. At the
same date, the unadvanced portion of construction loans approximated $2.6
million. Certificates of deposit scheduled to mature in one year or less at
September 30, 1998 totaled $36.2 million. The Company did not have any
investment securities scheduled to mature in one year or less at September
30, 1998. Management believes that a significant portion of maturing
deposits will remain with the Company. The Company anticipates that it will
continue to have sufficient funds to meet its current commitments.
The Savings Bank is required by the OTS to maintain average daily
balances of liquid assets and short-term liquid assets (as defined) in
amounts equal to 5% and 1%, respectively, of net withdrawable deposits and
borrowings payable in one year or less to assure its ability to meet demand
for withdrawals and repayment of short-term borrowings. The liquidity
requirements may vary from time to time at the direction of the OTS
depending upon economic conditions and deposit flows. The Savings Bank
generally maintains a liquidity ratio of between 5% and 10% of its net
withdrawable deposits and borrowings payable in one year or less. The
Savings Bank's average monthly liquidity ratio and short-term liquid assets
ratio for September 1998 was 6.3% and 2.6%, respectively.
Federally insured savings institutions are required to satisfy three
different OTS 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% of adjusted total
assets and "total" capital (a combination of core and "supplementary"
capital) equal to at least 8% of "risk-weighted" assets. For purposes of
the regulation, core capital is defined as 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. Core capital is generally
reduced by the amount of a savings institution's intangible assets, although
limited exceptions to the deduction of intangible assets are provided for
purchased mortgage servicing rights, qualifying supervisory goodwill and
certain other intangibles, all of which are currently not relevant to the
calculation of Savings Bank's regulatory capital. Tangible capital is core
capital less all intangible assets, with a limited exception for purchased
mortgage servicing rights. Under the "prompt corrective actions"
regulations of the OTS, a savings bank that has not received the highest
possible examination rating may become subject to corrective action if its
core capital is less than 4% of its adjusted total assets.
The Savings Bank substantially exceeded each of the above-described
regulatory capital requirements at September 30, 1998.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and related notes
presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position
and operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time due to
inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
released Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly
held common stock or potential common stock. SFAS No. 128 simplifies the
standards for computing earnings per share previously found in APB Opinion
No. 15, Earnings Per Share and makes them comparable to international EPS
standards.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires restatement of all
prior-period EPS data presented. This pronouncement had no material effects
on the disclosures or accounting principles of the Company.
In March 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." Statement No. 129 continues the
existing requirements to disclose the pertinent rights and privileges of all
securities other than ordinary common stock but expands the number of
companies subject to portions of its requirements. Specifically, the
Statement requires all entities to provide the capital structure disclosures
previously required by Opinion 15. Companies that were exempt from the
provisions of Opinion 15 will now need to make those disclosures. This
pronouncement had no material effects on the disclosures or accounting
principles of the Company.
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. The objective of the Statement is to report a measure
of all changes in equity of an enterprise that result from transactions and
other economic events during the period other than transactions with owners
("Comprehensive income"). Comprehensive income is the total of net income
and all other nonowner changes in equity. The Statement is effective for
fiscal years beginning after December 15, 1997 with earlier application
permitted. This pronouncement will have no material effects on the
disclosures or accounting principles of the Company.
In July 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 131
requires disclosures for each segment that are similar to those required
under current standards with the addition of quarterly disclosure
requirements and a finer partitioning of geographic disclosures. It
requires limited segment data on a quarterly basis. It also requires
geographic data by country, as opposed to broader geographic regions as
permitted under current standards. The Statement is effective for fiscal
years beginning after December 15, 1997 with earlier application permitted.
This pronouncement will have no material effects on the disclosures or
accounting principles of the Company.
STOCK INFORMATION
The Conversion was completed effective June 27, 1995. In connection
with the Conversion, the Company issued 1,573,775 shares of common stock to
certain depositors and borrowers of the Savings Bank, an employee benefit
plan of the Company and certain other depositors and borrowers.
At December 17, 1998, the Company had 1,474,321 shares of common stock
outstanding which were held by approximately 651 stockholders. Such figure
does not reflect the number of beneficial owners of common stock.
The Company's common stock is quoted on the Nasdaq SmallCap Market
under the symbol "FTSB." The high and low bid quotations for the common
stock for each of the quarters in fiscal 1997 and 1998 as well as cash
dividends declared during these periods were:
<TABLE>
<CAPTION>
Quotations Dividends
-------------------- --------------------------
High Bid Low Bid Amount Payment Date
-------- ------- ------ ------------
<C> <C> <C> <C> <C>
December 31, 1996 $15.00 $13.13 .0625 January 16, 1997
March 31, 1997 14.31 10.75 .0625 April 16, 1997
June 30, 1997 11.63 9.25 .0625 July 15, 1997
September 30, 1997 13.13 10.38 .1125 October 14, 1997
December 31, 1997 15.50 12.63 .0625 January 14, 1998
March 31, 1998 15.63 14.13 .0625 April 15, 1998
June 30, 1998 15.75 14.00 .0625 July 15, 1998
September 30, 1998 16.00 11.50 2.7500 September 15, 1998
September 30, 1998 .0625 October 15, 1998
</TABLE>
The bid prices of the Company's common stock reflect inter-dealer
quotations and do not include markups, markdowns or commissions and may not
necessarily represent actual transactions.
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
Independent Auditors' Report 17
Consolidated Financial Statements
Consolidated Statements of Financial Condition 18
Consolidated Statements of Income 19
Consolidated Statements of Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to the Consolidated Financial Statements 22-47
250 Grandview Drive, Suite 300
Fort Mitchell, KY 41017-5610
VonLehman & Company Inc.
- --------------------------------------------------------------------------
Certified Public Accountants and Business Advisors
4221 Malsbary Road, Suite 102
Cincinnati, Ohio 45242-5502
INDEPENDENT AUDITORS' REPORT
Board of Directors
Fort Thomas Financial Corporation
and Subsidiary
Fort Thomas, Kentucky
We have audited the accompanying consolidated statements of financial
condition of Fort Thomas Financial Corporation and Subsidiary as of
September 30, 1998 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended September
30, 1998, 1997 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fort Thomas
Financial Corporation and Subsidiary at September 30, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years
ended September 30, 1998, 1997 and 1996 in conformity with generally
accepted accounting principles.
/s/ VonLehman & Company, Inc.
Fort Mitchell, Kentucky
November 24, 1998
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share Data)
ASSETS
<TABLE>
<CAPTION>
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 3,135 $ 2,186
Investment Securities
Held to Maturity - at Amortized Cost
(Market Value of $3,009 and
$2,984 for 1998 and 1997, Respectively) 3,001 2,990
Available for Sale - at Market 753 -
Mortgage-Backed Securities
Available for Sale - at Market - 798
Loans Receivable, Net 92,795 88,452
Office Properties and Equipment - at
Depreciated Cost 493 570
Federal Home Loan Bank Stock 871 785
Cash Surrender Value of Life Insurance 1,159 1,114
Accrued Interest Receivable 856 770
Prepaid and Other Assets 112 93
Deferred Federal Income Tax Asset 436 86
Prepaid Federal Income Tax Asset - 29
---------------------
Total Assets $103,611 $97,873
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 76,851 $71,858
Borrowed Funds 12,526 8,846
Advances from Borrowers for Taxes and
Insurance 270 229
Deferred Compensation 552 504
Accrued Interest Payable 72 59
Accrued Federal Income Tax Liability 6 -
Other Liabilities 621 591
---------------------
Total Liabilities 90,898 82,087
---------------------
Stockholders' Equity
Common Stock of $.01 Par Value; 4,000,000
Shares Authorized; 1,573,775 Shares Issued;
1,474,321 and 1,495,086 Shares Outstanding as
of September 30, 1998 and 1997, Respectively 16 16
Additional Paid-In Capital 7,594 9,436
Shares Acquired by Employee Stock Ownership
Plan (498) (744)
Shares Acquired by MRP Trust (550) (672)
Retained Earnings - Substantially Restricted 7,531 8,852
Treasury Stock (1,380) (1,103)
Unrealized Gain on Available for Sale
Securities, Net of Related Tax Effects - 1
---------------------
Total Stockholders' Equity 12,713 15,786
---------------------
Total Liabilities and Stockholders' Equity $103,611 $97,873
=====================
</TABLE>
See auditors' report and accompanying notes.
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest Income
Interest on Loans $8,079 $7,499 $6,576
Interest on Investment Securities 210 254 342
Interest on Mortgage-Backed Securities 1 50 54
Other Interest and Dividends 212 167 313
------------------------------
Total Interest Income 8,502 7,970 7,285
------------------------------
Interest Expense
Deposits 3,938 3,615 3,288
Borrowed Funds 521 523 229
------------------------------
Total Interest Expense 4,459 4,138 3,517
------------------------------
Net Interest Income 4,043 3,832 3,768
Provision for Losses on Loans 285 137 125
------------------------------
Net Interest Income After
Provision for Losses on Loans 3,758 3,695 3,643
------------------------------
Other Income
Fees and Charges 143 133 64
Other 136 135 113
------------------------------
Total Other Income 279 268 177
------------------------------
General and Administrative Expenses
Compensation and Employee Benefits 1,401 1,168 1,546
Franchise and Other Taxes 151 116 128
Federal Insurance Premium 44 71 520
Expenses of Premises and Equipment 210 175 163
Professional Services, Fees 227 258 246
Data Processing and Related Contract
Services 154 137 127
Other Operating Expenses 318 312 298
------------------------------
Total General and Administrative
Expenses 2,505 2,237 3,028
------------------------------
Income Before Income Tax 1,532 1,726 792
Federal Income Tax Expense 543 587 275
------------------------------
Net Income $ 989 $1,139 $ 517
==============================
Basic EPS $ .70 .79 .36
==============================
Fully Diluted EPS $ .66 $ .75 $ .35
==============================
</TABLE>
See auditors' report and accompanying notes.
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
Gains
Additional Shares Shares (Losses) Total
Common Paid-In Acquired Acquired By Retained Treasury on AFS Stockholders'
Stock Capital By ESOP MRP Trust Earnings Stock Securities Equity
------ ---------- -------- ----------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $16 $14,981 $(1,249) $ - $ 8,042 $ - $ - $21,790
Net Income - - - - 517 - - 517
Unrealized Loss on AFS
Securities, Net of Tax Effect - - - - - - (7) (7)
ESOP Common Stock Released
for Allocation - 161 402 - - - - 563
Amortization of Stock
Compensation Plans - 14 - 80 - - - 94
Common Stock Acquired for MRP - - - (873) - - - (873)
Dividends Declared - (5,769) - - (394) - - (6,163)
------------------------------------------------------------------------------------------
Balance at September 30, 1996 16 9,387 (847) (793) 8,165 - (7) 15,921
Net Income - - - - 1,139 - - 1,139
ESOP Common Stock Released
for Allocation - 25 103 - - - - 128
Unrealized Loss on AFS Sescurities,
Net of Tax Effect - - - - - - 8 8
Treasury Stock Acquired - - - - - (1,103) - (1,103)
Amortization of Stock Compensation
Plans - 24 - 121 - - - 145
Dividends Declared - - - - (452) - - (452)
------------------------------------------------------------------------------------------
Balance at September 30, 1997 16 9,436 (744) (672) 8,852 (1,103) 1 15,786
Net Income - - - - 989 - - 989
Unrealized Gain on AFS Securities
Net of Tax Effect - - - - - - (1) (1)
ESOP Common Stock Released
for Allocation - 61 246 - - - - 307
Treasury Stock Acquired - - - - - (277) - (277)
Amortization of Stock Compensation
Plans - (13) - 122 - - - 109
Dividends Declared - (1,890) - - (2,310) - - (4,200)
------------------------------------------------------------------------------------------
Balance at September 30, 1998 $16 $ 7,594 $ (498) $(550) $ 7,531 $(1,380) $ - $12,713
==========================================================================================
</TABLE>
See auditors' report and accompanying notes.
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 989 $ 1,139 $ 517
Reconciliation of Net Income
with Cash Flows from Operations
Allowance for Losses on Loans 285 137 125
Depreciation 106 77 87
Deferred Federal Income Taxes (350) 171 (258)
Amortization (266) (292) (85)
FHLB Stock Dividends (60) (52) (49)
(Gain) Loss on Disposal of Real
Estate Owned - 4 (1)
Amortization of Stock Compensation Plans 109 145 94
Changes In
Accrued Interest Receivable (86) (128) (67)
Prepaid and Other Assets (19) 25 (19)
Cash Surrender Value of Life Insurance (45) (46) (56)
Deferred Compensation 48 128 113
Accrued Interest Payable 13 (1) 30
Prepaid/Accrued Federal Income Tax
Liability 35 (114) 52
Other Liabilities 30 (307) 631
------------------------------------
Net Cash Provided by Operating Activities 789 886 1,114
------------------------------------
Cash Flows From Investing Activities
Proceeds from Maturity of Investment Securities 2,891 3,000 3,496
Purchase of Investment Securities (2,860) (1,988) (2,502)
Loan Originations and Repayments, Net (4,643) (10,375) (7,157)
Purchase of FHLB Stock (26) (33) -
Principal Received on Mortgage-Backed
Securities - 18 151
Proceeds from the Sale of Real Estate
Acquired Through Foreclosure 283 64 295
Purchase of Office Equipment (29) (4) (12)
------------------------------------
Net Cash Used In Investing Activities (4,384) (9,318) (5,729)
------------------------------------
Cash Flows From Financing Activities
Net Change in Deposits 4,993 8,127 3,733
Dividends Paid (4,200) (452) (6,163)
ESOP Shares Released 307 128 563
Common Stock Purchased for Treasury / MRP Trust (277) (1,103) (873)
Advance from Borrowers for Taxes and Insurance 41 41 5
Repayments of Borrowings (11,020) (4,558) (197)
Proceeds from Borrowings 14,700 6,650 3,300
------------------------------------
Net Cash Provided by Financing Activities 4,544 8,833 368
------------------------------------
Changes in Cash and Cash Equivalents 949 401 (4,247)
Cash and Cash Equivalents, Beginning of Year 2,186 1,785 6,032
------------------------------------
Cash and Cash Equivalents, End of Year $ 3,135 $ 2,186 $ 1,785
====================================
</TABLE>
See auditors' report and accompanying notes.
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Fort Thomas Financial Corporation (the Company) provides financial services
to individuals and corporate customers, and is subject to competition from
other financial institutions. The Company is also subject to the
regulations of certain Federal agencies and undergoes periodic examinations
by those regulatory authorities.
The Company is a holding company whose activities are primarily limited to
holding the stock of Fort Thomas Savings Bank (the Bank). The Bank conducts
a general banking business in Northern Kentucky, which consists of
attracting deposits from the general public and primarily applying those
funds to the origination of loans for residential, consumer and
nonresidential purposes. The Bank's profitability is significantly
dependent on net interest income, which is the difference between interest
income generated from interest earning assets (i.e., loans and investments)
and the interest expense paid on interest-bearing liabilities (i.e.,
customer deposits and borrowed funds). Net interest income is affected by
the relative amount of interest-earning assets and interest-bearing
liabilities and the interest received or paid on these balances. The level
of interest rates paid or received by the Bank can be significantly
influenced by a number of environmental factors, such as governmental
monetary policy, that are outside management's control.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Fort Thomas
Financial Corporation and its subsidiary, Fort Thomas Savings Bank, FSB.
All material intercompany balances and transactions have been eliminated in
consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the statement of financial condition and revenues and expenses
for the year. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management
obtains appraisals for significant properties.
A substantial portion of the Bank's loans are secured by real estate in
local markets. In addition, foreclosed real estate is located in this same
market. Accordingly, the ultimate collectibility of a substantial portion
of the Bank's loan portfolio and the recovery of a substantial portion of
the carrying amount of foreclosed real estate are susceptible to changes in
local market conditions.
While management uses available information to recognize losses on
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowances for losses on loans and foreclosed real estate.
Such agencies may require the Bank to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination.
FHLB Stock
The Bank, as a member of the Federal Home Loan Bank System, is required by
law to maintain an investment in capital stock of the Federal Home Loan Bank
of Cincinnati (FHLB). The stock is recorded at cost, which represents
anticipated redemption value.
Investment Securities and Mortgage-Backed Securities
The Company's investments and mortgage-backed securities are classified in
three categories and accounted for as follows:
Trading Securities
Investment securities held principally for resale in the near term and
mortgage-backed securities held for sale in conjunction with the
Company's mortgage banking activities are classified as trading
securities and recorded at their fair values. Unrealized gains and
losses on trading securities are included in other income. The
Company currently has no investments in this category.
Securities Held to Maturity
Investment securities and mortgage-backed securities for which the
Company has the positive intent and ability to hold until maturity are
reported at cost, adjusted for amortization of premiums and accretion
of discounts which are recognized in interest income using the
interest method over the period to maturity.
Available for Sale Securities
Securities available for sale consist of bonds, notes, debentures and
certain equity securities not classified as trading securities or as
securities to be held to maturity. Unrealized holding gains and
losses, net of tax, on securities available for sale are reported as a
net amount in a separate component of stockholders' equity until
realized. Gains and losses on the sale of securities available for
sale are determined using the specific-identification method.
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Premiums and discounts are amortized using methods
approximating the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments.
Financial Instruments with Off Balance Sheet Risk
The Company does not participate in interest-rate exchange agreements,
hedging or other similar financial instruments.
Loans Receivable
Loans receivable are stated at unpaid principal balances less the allowance
for loan losses, loans in process and deferred loan-origination fees.
Interest is accrued as earned unless the collectibility of the loan is in
doubt.
Loans are placed on nonaccrual when principal or interest is delinquent for
90 days or more. Any unpaid interest previously accrued on those loans is
reversed from income, and thereafter interest is recognized only to the
extent of payments received.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of
the related loans using the interest method. Amortization of deferred loan
fees is discontinued when a loan is placed on a nonaccrual status.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb potential losses inherent in
the loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. The allowance
is increased by a provision for loan losses, which is charged to expense,
and reduced by charge-offs, net of recoveries. Changes in the allowance
relating to impaired loans are charged or credited to the provision for loan
losses.
In June 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114, which was subsequently amended by SFAS
No. 118 as to certain income recognition and financial statement disclosure
provisions, requires that impaired loans be measured based upon the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as an alternative, at the loan's observable market price
or fair value of the collateral. The Company's current procedures for
evaluating impaired loans result in carrying such loans at the lower of cost
or fair value.
The Company adopted SFAS No. 114, as subsequently amended, on October 1,
1995, without material effect on consolidated financial condition or results
of operations.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Company
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and, therefore, excluded from
separate identification for evaluation of impairment. Investment in
impaired nonresidential and multifamily residential real estate loans are
generally collateral dependent and are carried at the lower of cost or fair
value. Collateral dependent loans which are more than ninety days
delinquent are considered to constitute more than a minimum delay in
repayment and are evaluated for impairment under SFAS No. 114 at this time.
At September 30, 1998 and 1997, the Company had no loans that would be
defined as impaired under SFAS No. 114.
Provision for Losses
Provision for losses includes charges to reduce the recorded balances of
mortgage loans receivable, uncollected interest and real estate to their
estimated net realizable value or fair value, as applicable. Such
provisions are based on management's estimate of net realizable value or
fair value of the collateral, as applicable, considering the current and
currently anticipated future operating or sales conditions, thereby causing
these estimates to be particularly susceptible to changes that could result
in a material adjustment to results of operations in the near term.
Recovery of the carrying value of such loans and real estate is dependent to
a great extent on economic, operating and other conditions that may be
beyond the Bank's control. It is the opinion of management, however, that
adequate provisions have been made for losses on loans and real estate.
Loan Origination Fees
Loan origination fees net of direct loan origination costs are offset and
the resulting net amount is deferred and amortized over the life of the
related loans as an adjustment to the yield. In addition, commitment fees
are required to be offset against certain related direct loan origination
costs and generally recognized over the contractual life of the related
loans as an adjustment of yield if the commitment is exercised. If the
commitment expires unexercised, the fee is recognized as income upon
expiration of the commitment.
Office Properties and Equipment
The cost of office properties and equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is computed on
the straight-line and accelerated methods.
Maintenance and repairs are charged to operations when incurred.
Significant betterments and renewals are capitalized. When office
properties and equipment is sold or otherwise disposed of, the asset account
and related accumulated depreciation account are relieved, and any gain or
loss is included in operations.
The useful lives of office properties and equipment for purposes of
computing depreciation are:
Office Properties 15-35 Years
Equipment 5-10 Years
Real Estate Owned
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the
amount determined at the recording date. In determining the lower of cost
or fair value at acquisition, costs relating to development and improvement
of property are capitalized. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
Federal Income Taxes
The Company accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109
established financial accounting and reporting standards for the effects of
income taxes that result from the Company's activities within the current
and previous years. Pursuant to the provisions of SFAS No. 109, a deferred
tax liability or deferred tax asset is computed by applying the current
statutory tax rates to net taxable or deductible differences between the tax
basis of an asset or liability and its reported amount in the consolidated
financial statements that will result in taxable or deductible amounts in
future periods. Deferred tax assets are recorded only to the extent that
the amount of net deductible temporary differences or carryforward
attributes may be utilized against current period earnings, carried back
against prior years earnings, offset against taxable temporary differences
reversing in future periods or utilized to the extent of management's
estimate of future taxable income. A valuation allowance is provided for
deferred tax assets to the extent that the value of net deductible temporary
differences and carryforward attributes exceeds management's estimates of
taxes payable on future taxable income. Deferred tax liabilities are
provided on the total amount of net temporary differences taxable in the
future.
Stock Benefit Plans
In conjunction with its common stock offering, the Company implemented an
Employee Stock Ownership Plan (ESOP). The ESOP provides retirement benefits
for all full-time employees who have completed one year of service. The
Company accounts for the ESOP in accordance with Statement of Position (SOP)
93-6, "Employer's Accounting for Employee Stock Ownership Plans". SOP 93-6
changed the measure of compensation expense recorded by employers from the
cost of allocated ESOP shares to the fair value of ESOP shares allocated to
participants during a fiscal year. Expense recognized related to the plan
totaled approximately $307,000, $128,000 and $563,000 for the years ended
September 30, 1998, 1997, and 1996, respectively.
The Company also has a Management Recognition Plan (MRP). Subsequent to the
offering, the MRP purchased 62,951 shares of common stock in the open
market. During fiscal year 1998, 8,560 shares were granted to executive
officers and members of the Board of Directors of the Company. Common stock
granted under the MRP vests ratably over a five year period, commencing in
December 1996. Provisions of $119,000 related to the MRP were charged to
expense for each of the fiscal years ended September 30, 1998 and 1997. No
provision was charged to expense for the fiscal year ended September 30,
1996, because the plan began in fiscal year 1996.
Also, the Board of Directors adopted a Stock Option Plan that provided for
the issuance of 157,377 shares of common stock at fair market value at the
date of grant. The Company has granted 107,000 options to purchase shares
to members of the Board of Directors and executive officers at fair value of
$6.91 per share. As of September 30, 1998, none of the stock options
granted have been exercised.
Advertising
Advertising costs are expensed as incurred. Advertising costs totaled
$44,719, $45,447 and $44,523 for the years ended September 30, 1998, 1997
and 1996, respectively.
Treasury Stock
Treasury stock is shown at cost, and in 1998 and 1997 consists of 99,454 and
78,689 shares of common stock, respectively.
Reclassifications
Certain amounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current-year financial statements.
NOTE 2 - CASH FLOWS INFORMATION
For purposes of the cash flows statement, cash includes cash and cash
equivalents on hand and in demand and time accounts and certificates of
deposit with three months or less maturity.
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
Years Ended
September 30,
----------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Interest $4,446 $4,139 $3,487
==============================
Income Taxes $ 858 $ 530 $ 481
==============================
</TABLE>
The Company had noncash investing or financing activities as follows:
<TABLE>
<S> <C> <C> <C>
Real Estate Acquired through
Foreclosure of Mortgage Loans $ 283 $ 64 $ 269
==============================
FHLB Stock Dividend Received $ 60 $ 52 $ 49
==============================
</TABLE>
The balance in cash and cash equivalents as of and September 30, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Cash on Hand $ 194 $ 167
Cash in Demand Accounts:
Interest Bearing 2,498 1,947
Non-Interest Bearing 443 72
------------------
Totals $3,135 $2,186
==================
</TABLE>
NOTE 3 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Investment securities held to maturity as of September 30, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
1998
U.S. Government and
Federal Agencies $3,001 $ 9 $ 1 $3,009
==============================================
1997
U.S. Government and
Federal Agencies $2,990 $ 3 $ 9 $2,984
==============================================
</TABLE>
The following is a summary of maturities of securities held-to-maturity as
of September 30, 1998:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
(In Thousands)
<S> <C> <C>
Over One Year Through Five Years $3,001 $3,009
=======================
</TABLE>
Investment securities and mortgage-backed securities available for sale as
of September 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
1998 - Available for Sale
Corporate Notes $753 $ - $ - $753
=============================================
1997 - Available for Sale
Federal Home Loan Mortgage
Corporation Participations $797 $ 1 $ - $798
=============================================
</TABLE>
The following is a summary of maturities of securities available for sale as
of September 30, 1998:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
<S> <C> <C>
Over Ten Years $753 $753
====================
</TABLE>
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The balances in loans receivable as of September 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
September 30,
-----------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Real Estate Mortgage Loans:
One to Four Family $78,969 $74,471
Multi-Family Residential 11,070 11,015
Land and Construction:
Residential 5,531 3,885
Commercial - -
Consumer Loans:
Savings Accounts Loans 665 702
Other Consumer Loans 449 528
--------------------
Total 96,684 90,601
Less:
Loans in Process 2,572 1,048
Deferred Loan Origination Fees 613 625
Allowances for Losses 704 476
--------------------
Loans Receivable - Net $92,795 $88,452
====================
</TABLE>
A summary of activity in the allowance for loan losses at September 30,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Balance at Beginning of the Year $476 $366 $239
Additions to Allowance 285 137 125
Recoveries (Charge Offs) During the Year (57) (27) 2
------------------------
Balance at End of the Year $704 $476 $366
========================
</TABLE>
At September 30, 1998 and 1997 the Bank had non-accrual loans of
approximately $3,519,000 and $1,937,000, respectively. Had interest been
recognized on these loans at the original rates, interest income would have
increased approximately $102,000, $76,900 and $41,000 in fiscal 1998, 1997
and 1996, respectively. The Bank has no commitments to loan additional
funds to the borrowers of non-accrual loans.
The Bank has sold participating interests in loans in the secondary market,
retaining servicing on the loans sold. Loans sold and serviced for others
totaled approximately $1,656,000 and $2,380,000 at September 30, 1998 and
1997, respectively.
NOTE 5 - ACCRUED INTEREST RECEIVABLE
A breakdown of accrued interest receivable is as follows:
<TABLE>
<CAPTION>
September 30,
--------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Loans Receivable $793 $683
Mortgage-Backed Securities - 20
Investments 63 67
--------------
Total $856 $770
==============
</TABLE>
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
The balance in office properties and equipment as of September 30, 1998 and
1997 consists of the following:
<TABLE>
<S> <C> <C>
Land $ 98 $ 98
Buildings and Improvements 807 792
Furniture and Equipment 651 637
------------------
1,556 1,527
Accumulated Depreciation (1,063) (957)
------------------
Office Properties and Equipment at
Depreciated Cost $ 493 $ 570
==================
</TABLE>
NOTE 7 - BORROWED FUNDS
The Bank had short-term advances from the FHLB for $2,600,000 with interest
at 5.9% at September 30, 1997. These loans were paid in March, 1998.
The Bank has two long-term advances from the FHLB in the amount of $1.5
million each at September 30, 1998. These two advances accrue interest at
5.30% and 5.55%, respectively. Monthly principal and interest payments on
these loans are approximately $16,000 each. These loans mature October,
2008.
The Bank has another long-term advance from the FHLB for $5,500,000 as of
September 30, 1998. This loan accrues interest at 5.1%. Interest only
payments are due each month. This loan matures in March, 2008.
These advances are collateralized by the Bank's Federal Home Loan Bank stock
and first mortgage loans. Payment of these loans prior to their due date
could result in a prepayment penalty.
The Company has a short-term loan from Fifth Third Bank for $4,000,000 as of
September 30, 1998, with interest at the prime rate (8.25% at September 30,
1998). This loan matures in December 1998.
Maturities for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
Maturing in Years Long-Term Short-Term
Ending September 30, Borrowings Borrowings Total
- -------------------- ---------- ---------- -----
(In Thousands)
<S> <C> <C> <C>
1999 $ 232 $4,000 $ 4,232
2000 245 - 245
2001 258 - 258
2002 273 - 273
2003 288 - 288
Thereafter 7,230 - 7,230
---------------------------------------
$8,526 $4,000 $12,526
=======================================
</TABLE>
NOTE 8 - DEPOSITS
A breakdown of deposit balances by interest rate and major type as of
September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------------------------
1998 1997
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(In Thousands, Except Percents)
<S> <C> <C> <C> <C>
Deposit Type and Weighted
Average Interest Rate
Passbooks - 2.75 $ 8,239 10.7% $ 7,563 10.5%
Money Market Deposit
Accounts - 2.74% 2,311 3.0 2,685 3.7
Now Accounts - 2.16% 3,974 5.2 2,950 4.1
-------------------------------------------
Total Demand, Transaction
and Passbook Deposits 14,524 18.9 13,198 18.3
-------------------------------------------
Certificates of Deposit
4.01% - 5.00% 1,506 2.0 1,434 2.0
5.01% - 6.00% 30,346 39.5 27,298 38.0
6.01% - 7.00% 30,475 39.6 29,928 41.7
-------------------------------------------
Total Certificates of
Deposits 62,327 81.1 58,660 81.7
-------------------------------------------
Totals $76,851 100.0% $71,858 100.0%
===========================================
</TABLE>
The aggregate amount of deposits with a minimum denomination of $100,000 was
approximately $8.2 million and $8.3 million at September 30, 1998 and 1997,
respectively. Deposits of $100,000 or less are insured by the FDIC. Non-
interest bearing deposit accounts totaled approximately $316,000 and
$247,000 for September 30, 1998 and 1997, respectively.
Savings deposit customers are primarily Northern Kentucky area individuals
and businesses.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Passbook Savings Accounts $ 223 $ 217 $ 219
Money Market Deposit Accounts 74 72 79
Certificates of Deposit 3,572 3,263 2,932
Now Accounts 69 63 58
------------------------------
Interest Expense on Deposits $3,938 $3,615 $3,288
==============================
</TABLE>
At September 30,1998, the scheduled maturities of certificates of deposits
are as follows:
<TABLE>
<CAPTION>
Weighted
Certificates Maturing In Average Interest
September 30, Amount Rate
------------------------ ------ ----------------
(In Thousands, Except Percents)
<S> <C> <C>
1999 $36,150 5.9%
2000 18,046 6.1
2001 4,616 6.0
2002 1,791 6.0
2003 1,724 6.0
---------------------------
Total Certificates of Deposit $62,327 5.9%
===========================
</TABLE>
NOTE 9 - RETAINED EARNINGS
The Bank was allowed (until fiscal 1996) a special bad debt deduction for
federal income tax purposes limited to a certain percentage of otherwise
taxable income. This deduction is subject to certain limitations based on
aggregate loans and savings account balances. If the amounts that qualified
for this deduction are later used for purposes other than for bad debt
losses, they will be subject to federal income tax at the then current
corporate rate. Retained earnings include approximately $1.7 million for
which federal income tax has not been provided.
Under new legislation passed 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 debt reserves added since 1988.
As the Bank has provided for a deferred tax liability for special bad debt
deductions since 1988, the legislation did not have a material effect on the
results of its operations.
NOTE 10 - RETIREMENT PLANS
The Company provides for death benefits (prior to retirement) or pensions
for eligible employees through its participation in a multi-employer savings
and loan industry noncontributory defined benefit retirement plan. This
multi-employer plan does not provide information on funding by employer, but
as of September 30, 1998 and 1997, the plan was fully funded. Pension
expense was $11,492, $11,304 and $52,801 for the years ended September 30,
1998, 1997 and 1996, respectively. The Company's policy is to fund pension
costs when accrued.
The Company participates in a Profit Sharing and 401(k) Plan. Employees are
eligible to participate in the 401(k) Plan after completing one year of
service with the Company and attaining age 21. The 401(k) Plan permits
participants to make voluntary tax deferred contributions in an amount up to
15% of their annual base compensation. The Company makes matching
contributions in an amount equal to 50% of each participant's contributions
that do not exceed 4% of compensation.
In addition, the Company may make discretionary contributions to the 401(k)
Plan which would be allocated to the accounts of plan participants in
proportion to each participant's compensation for the plan year. All
amounts deferred by employees are 100% vested. Vesting of matching and
discretionary contributions is 100% vested after five years of service. The
Company contributed $10,658, $10,563 and $10,797 to the 401(k) plan during
the years ended September 30, 1998, 1997 and 1996, respectively.
NOTE 11 - DEFERRED COMPENSATION PLANS
The Company has entered into a non-qualified deferred compensation plan with
certain of its officers. Under the plan, in return for the officers
relinquishing the right to a portion of their current earnings, the Company
will pay them a retirement benefit in the form of a monthly payment to be
drawn over a period of 180 months upon normal retirement. The retirement
benefit is calculated based upon the amount of compensation deferred by the
officers over a ten year period, together with a corresponding match by the
association of one-third of the deferral. Both the deferral and the match
accrue interest at 12% per year compounded monthly. Assuming normal
retirement, these payments will be paid in varying amounts between 2005 and
2033.
The Company also entered into a non-qualified deferred compensation plan
with certain of its directors. Under the plan, in return for the directors
relinquishing the right to a portion of their current fees, the Company will
pay them a retirement benefit in the form of a monthly payment to be drawn
upon retirement over a period of 60 to 120 months. The retirement benefit
is calculated based upon the amount of fees deferred by the directors over a
five year period together with interest accrued on this deferral of 12% per
year compounded monthly. Assuming normal retirement, these payments will be
paid in varying amounts between 1998 and 2029.
During the years ended September 30, 1998, 1997 and 1996, the net periodic
costs, including accrued interest and company match, under these plans were
as follows:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Deferred Compensation -
Officers and Directors $13 $ 73 $ 73
Company Match - Officers 2 2 2
Interest Accrued on Balance 64 53 38
Benefit Payments (31) - -
------------------------
Net Periodic Costs $48 $128 $113
========================
</TABLE>
The total accrued liability for these plans at September 30, 1998 and 1997
was $522,000 and $504,000, respectively. This liability is included in
these financial statements. The funding of these plans is to come from the
general assets of the Company.
In conjunction with the formation of these plans, the Company purchased life
insurance on the participants. The contracts are owned by the Company and
the officers and directors have no ownership rights to them. As of
September 30, 1998 and 1997, the cash surrender value of these insurance
contracts was $1,159,000 and $1,114,000, respectively. The increase in the
cash surrender value of the life insurance for the years ended September 30,
1998, 1997 and 1996 was $45,000, $46,000 and $56,000, respectively. This
increase is recorded as income by the Company.
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an ESOP for its employees. As part of the
Conversion, the ESOP borrowed funds from the Company. The loan was equal to
100% of the aggregate purchase price of the Common Stock acquired by the
ESOP. The loan to the ESOP is being repaid principally from the Company's
and the Bank's contributions to the ESOP over a period of fifteen years, and
the collateral for the loan is the Common Stock purchased by the ESOP. The
interest rate for the ESOP loan is a fixed rate of 9.0%. The Company may,
in any plan year, make additional discretionary contributions for the
benefit of the plan participants in either cash or shares of Common Stock,
which may be acquired through the purchase of outstanding shares in the
market or from individual stockholders, upon the original issuance of
additional shares by the Company or upon the sale of treasury shares by the
Company.
Such purchases, if made, would be funded through additional borrowings by
the ESOP or additional contributions from the Company. The timing, amount
and manner of future contributions to the ESOP will be affected by various
factors, including prevailing regulatory policies, the requirements of
applicable laws and regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan are held in a
suspense account and released on a pro rata basis as debt service payments
are made. Discretionary contributions to the ESOP and shares released from
the suspense account are allocated among participants on the basis of
compensation. Forfeitures are reallocated among remaining participating
employees and may reduce any amount the Company might otherwise have
contributed to the ESOP. Participants vest in their right to receive their
account balances within the ESOP at the rate of 20% per year starting with
the completion of three years of service and will be 100% vested upon the
completion of seven years of service. Credit is given for years of service
with the Bank prior to adoption of the ESOP.
Accounting principles requires that any third party borrowing by the ESOP be
reflected as a liability on the Company's statement of financial condition.
Since the ESOP borrowed from the Company, such obligation is not treated as
a liability, but is excluded from stockholders' equity. If the ESOP
purchases newly issued shares from the Company, total stockholders' equity
would neither increase nor decrease, but per share stockholders' equity and
per share net earnings would decrease as the newly issued shares are
allocated to the ESOP participants.
The ESOP is subject to the requirements of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA"), and the regulations of the IRS
and the Department of Labor thereunder.
The fair value of the 49,818 unearned ESOP shares at September 30, 1998 was
approximately $622,725. Shares committed to be released during 1998 were
24,569. Shares allocated during the current year were 10,289.
The fair value of the 74,387 unearned ESOP shares at September 30, 1997 was
approximately $976,329. Shares committed to be released during 1997 were
10,289. Shares allocated during 1997 were 39,128.
NOTE 13 - INCOME TAXES
A reconciliation of income tax expense at the statutory rate (34% for all
periods) to income tax expense at the Company's effective rate is as
follows:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Computed Tax at the Expected
Statutory Rate $521 $587 $269
Nondeductible Expenses 3 2 3
Other Differences 19 (2) 3
------------------------
Income Tax Expense $543 $587 $275
========================
Effective Income Tax Rate 35.4% 34.0% 34.7%
========================
</TABLE>
The components of income tax expense are summarized as follows:
<TABLE>
<S> <C> <C> <C>
Current Tax Expense $ 893 $416 $ 533
Deferred Tax (Benefit) Expense (350) 171 (258)
--------------------------
Income Tax Expense $ 543 $587 $ 275
==========================
</TABLE>
Deferred income taxes arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that give rise to
the deferred tax asset at September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
September 30,
--------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Deferred Compensation Agreements (Deductible When
Paid for Taxes) $188 $171
Loan Fees Deferred for Financial Reporting Purposes - 26
Allowance for Loan Losses 239 162
Holding Company Loss Carryforward 350 173
Accumulated Amortization of Stock Compensation Plans 40 19
Other 72 -
--------------
Deferred Tax Asset 889 551
--------------
Federal Home Loan Bank Stock (Income Tax Payable
When Shares Received as Stock Dividends are Sold) 187 166
Special Tax Bad Debt Deduction 160 192
Real Estate and Equipment (Depreciation Method
Differences) 5 8
Book Value of CSV of Life Insurance in Excess of
Tax Basis 101 86
Other - 13
--------------
Deferred Tax Liability 453 465
--------------
Net Deferred Income Tax Asset $436 $ 86
==============
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
The Bank has mortgage loans outstanding with various officers, directors and
employees. Loans are granted at interest rates and fees which are 1% below
the Bank's normal lending rate, but are above its cost of funds. All these
loans require board approval and will be repaid with regular monthly
payments in the ordinary course of business until the loans are paid off.
Activity for the year is as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Balance at September 30, 1997 $ 940
New Loans Made 232
Payments Made (244)
-----
Balance at September 30, 1998 $ 928
=====
</TABLE>
The Company had deposits from various officers, directors, and employees
totaling $978,000 and $699,000 as of September 30, 1998 and 1997,
respectively.
The Company's attorney and legal counsel serves on the Board of Directors of
the Company and is paid approximately $160,000 annually for services
rendered. The majority of these fees are reimbursed to the Bank as part of
loan costs passed through to the Bank's customers. A member of the Board of
the Directors of the Company is an insurance agent and presently assists in
placing the Bank's insurance coverage. Another member of the Board provides
appraisal services and is paid approximately $20,000 annually.
NOTE 15 - LOAN COMMITMENTS
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers
including commitments to extend credit. Such commitments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated statement of financial condition. The
contract amounts of the commitments reflect the extent of the Bank's
involvement in such financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as those utilized for on-balance-sheet instruments.
Management believes that all loan commitments are able to be funded through
cash flow from operations and existing excess liquidity. Fees received in
connection with these commitments have not been recognized in earnings.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral on loans may vary but the preponderance of loans granted
generally include a mortgage interest in real estate as security.
As of September 30, 1998, the Bank had fixed and adjustable rate loan
commitments as follows:
<TABLE>
<CAPTION>
Fixed Adjustable Total
----- ---------- -----
(In Thousands, Except Percents)
<S> <C> <C> <C>
First Mortgage Loans on
One to Four Family Residential
Property $442 $1,017 $1,459
Commercial Loans - 285 285
------------------------------
Total Loan Commitments $442 $1,302 $1,744
==============================
Weighted Average Interest Rates 9.27% 8.21% 8.48%
==============================
</TABLE>
NOTE 16 - INTEREST RATE RISK
The Bank is engaged principally in providing first mortgage loans to
individuals and commercial enterprises. At September 30, 1998, the Bank's
assets consist of significant amounts that earn interest at fixed interest
rates. Those assets were funded primarily with short-term liabilities that
have interest rates that vary with market rates over time.
At September 30, 1998, the Bank had interest earning assets of approximately
$101.1 million having a weighted average effective yield of 8.53% and with
durations of up to 30 years, and interest bearing liabilities of
approximately $85.4 million having a weighted average effective interest
rate of 5.39% and with durations of up to 12 years.
At September 30, 1997, the Bank had interest earning assets of approximately
$94.9 million having a weighted average effective yield of 8.42% and with
durations of up to 30 years, and interest bearing liabilities of
approximately $80.7 million having a weighted average effective interest
rate of 5.44% and with durations of up to 13 years. The shorter duration of
the interest-sensitive liabilities indicates that the Bank is exposed to
interest rate risk because, in a rising rate environment, liabilities will
be repriced faster at higher interest rates, thereby reducing the market
value of long-term assets and net interest income.
NOTE 17 - RECONCILIATION OF NET INCOME AND RETAINED EARNINGS
A reconciliation of the amounts reported to the Office of Thrift Supervision
(OTS) for the Bank and amounts in these audited financial statements is as
follows:
<TABLE>
<CAPTION>
September 30,
----------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net Income Per OTS Report $1,227 $1,200 $ 825
Adjustments Made
Federal Income Tax 4 (17) -
Depreciation (37) - -
1,194 1,183 825
------------------------------
Net Loss of Holding Company
After Eliminating Entries (205) (44) (308)
------------------------------
Net Income Per Consolidated
Statements of Income $ 989 $1,139 $ 517
==============================
<CAPTION>
September 30,
----------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Retained Earnings
Per OTS Report $8,119 $7,009 $8,808
Adjustments Made
Federal Income Tax 4 (17) -
Depreciation (37) - -
------------------------------
8,086 6,992 8,808
Retained Earnings (Accumulated
Deficit) of Holding Company
After Eliminating Entries (555) 1,860 (643)
------------------------------
Retained Earnings Per Consolidated
Statements of Financial Condition $7,531 $8,852 $8,165
==============================
</TABLE>
NOTE 18 - REGULATORY CAPITAL REQUIREMENTS
Savings banks are required to maintain capital at least sufficient to meet
three separate requirements: (i) tangible capital equal to 1.5% of adjusted
total assets, (ii) core capital equal to an amount between 4% and 5% of
adjusted total assets, depending on the examination rating and overall risk,
and (iii) risk-based capital equal to 8.0% of risk-weighted assets. The
Bank's management does not anticipate any adverse financial effect of the
core capital requirement regulation is amended as proposed.
Any savings bank that is not in compliance with the capital standards may
have growth restrictions placed on it by the OTS. Additionally, the OTS has
discretion to treat the failure of any savings bank to maintain capital at
or above the minimum required level as an "unsafe and unsound practice"
subject to a number of enforcement actions.
At September 30, 1998 information with respect to the Bank's capital ratios
is summarized as follows:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
-------- ------- ----------
(In Thousands)
<S> <C> <C> <C>
Capital under Generally Accepted
Accounting Principles $15,686 $15,686 $15,686
Capital Reconciling Items:
General Valuation Allowances - - 704
---------------------------------
Regulatory Capital 15,686 15,686 16,390
Minimum Capital Requirements 1,533 4,089 5,267
---------------------------------
Capital in Excess of
Minimum Requirements $14,153 $11,597 $11,123
=================================
Regulatory Capital as a Percentage 15.35% 15.35% 24.90%
Minimum Capital as a Percentage 1.50% 3.00% 8.00%
---------------------------------
Regulatory Capital as a Percent in
Excess of Requirements 13.85% 12.35% 16.90%
=================================
</TABLE>
The Bank's management believes that, under the current regulations, the Bank
will continue to meet its minimum capital requirements in the foreseeable
future. However, events beyond the control of the Bank, such as increased
interest rates or a downturn in the economy in areas where the Bank has most
of its loans, could adversely affect future earnings and, consequently, the
ability of the Bank to meet its future minimum capital requirements.
NOTE 19 - EARNINGS PER SHARE
Basic earnings per share amount is based upon the average outstanding shares
of the Company reduced by the unreleased shares of the ESOP (see ESOP note).
Fully diluted earnings per share amount for the year ended September 30,
1998 is based upon the basic shares outstanding, plus stock options
outstanding.
The basic average number of shares outstanding was 1,405,456, 1,448,857, and
1,454,067 for the years ended September 30, 1998, 1997, and 1996,
respectively. The fully diluted average number of shares outstanding was
1,494,999, 1,521,003, and 1,494,936 for the years ended September 30, 1998,
1997 and 1996, respectively.
NOTE 20 - DIVIDENDS
During the years ended September 30, 1998, 1997 and 1996, the Company
declared dividends of $3.00, $.30 and $4.25 per common share, respectively.
Of the 1998 and 1996 amounts, $1.43 and $4.00 per share, respectively, was
paid from funds retained by the Company in the conversion and was deemed by
management to constitute a return of excess capital. Accordingly, the
Company charged the return of capital dividend to additional paid-in
capital. Management has obtained a Private Letter Ruling from the Internal
Revenue Service which states that the Company's dividend payments in excess
of accumulated earnings and profits are considered a tax-free return of
capital for federal income tax purposes. As a result, management believes
that approximately $1.43 and $4.00 of the 1998 and 1996 fiscal year
dividends constitute a tax-free return of capital.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value.
For financial instruments where quoted market prices are not available, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments at September 30, 1998:
Cash and cash equivalents: The carrying amounts presented in the
consolidated statement of financial condition for cash and cash
equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted
market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to four-family
residential, multi-family residential and nonresidential real estate.
These loan categories were further delineated into fixed-rate and
adjustable-rate loans. The fair values for the resultant loan
categories were computed via discounted cash flow analysis, using
current interest rates offered for loans with similar terms to
borrowers of similar credit quality. For loans on deposit accounts
and consumer and other loans, fair values were deemed to equal the
historic carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
Federal Home Loan Bank Stock: The carrying amount presented in the
consolidated statement of financial condition is deemed to approximate
fair value.
Deposits: The fair value of NOW accounts, passbook accounts, money
market demand and escrow deposits is deemed to approximate the amount
payable on demand. Fair values of fixed-rate certificates of deposit
have been estimated using a discounted cash flow calculation using the
interest rates currently offered for similar deposits.
Borrowed Funds: The fair value of these advances is estimated using
the rates currently offered for similar advances of similar remaining
maturities.
Cash Surrender Value of Life Insurance: The carrying amount presented
in the consolidated financial statements is deemed to approximate fair
value.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Company's financial instruments at September 30, 1998, are as
follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------- -----
(In Thousands)
<S> <C> <C>
Financial Assets
Cash and Cash Equivalents $ 3,135 $ 3,135
Investment Securities 3,754 3,762
Loans Receivable 92,795 96,082
Stock in Federal Home Loan Bank 871 871
Cash Surrender Value of Life Insurance 1,159 1,159
-----------------------
$101,714 $105,009
=======================
Financial Liabilities
Deposits $ 76,851 $ 77,274
Advances from FHLB and Other Borrowings 12,526 13,079
Advances from Borrowers
for Taxes and Insurance 270 270
-----------------------
$ 89,647 $ 90,623
=======================
</TABLE>
NOTE 23 - CONDENSED FINANCIAL STATEMENTS OF FORT THOMAS FINANCIAL
CORPORATION
The following condensed financial statements summarize the financial
position of Fort Thomas Financial Corporation as of September 30, 1998 and
1997, and the results of operations and cash flows for the years ended
September 30, 1998, 1997 and 1996.
FORT THOMAS FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
-----------------
1998 1997
---- ----
(In Thousands)
ASSETS
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 399 $ 725
Investment Securities Held to Maturity - at Cost 753 -
Mortgage-Backed Securities
Available for Sale - at Market Value - 799
Investment in Fort Thomas Savings Bank 11,722 10,428
Loan Receivable - ESOP 498 658
Other Assets 339 194
--------------------
Total Assets $13,711 $12,804
====================
</TABLE>
FORT THOMAS FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
-----------------
1998 1997
---- ----
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities
Borrowed Funds $ 4,000 $ -
Other Liabilities 463 424
--------------------
Total Liabilities 4,463 424
--------------------
Stockholders' Equity
Common Stock and Additional Paid-In Capital 7,247 8,781
Treasury Stock (1,380) (1,103)
Retained Earnings 3,381 4,702
--------------------
Total Stockholders' Equity 9,248 12,380
--------------------
Total Liabilities and Stockholders' Equity $13,711 $12,804
====================
</TABLE>
FORT THOMAS FINANCIAL CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenue
Interest Income $ 104 $ 190 $ 407
Equity in Earnings of Fort Thomas
Savings Bank 1,294 1,183 825
------------------------------
Total Revenue 1,398 1,373 1,232
General and Administrative Expenses 566 133 823
------------------------------
Net Income Before Income Taxes 832 1,240 409
Federal Income Tax (Benefit) Expense (157) (101) 108
------------------------------
Net Income Before Dividend Income 989 1,139 517
Dividend Income From Fort Thomas
Savings Bank - 3,000 -
------------------------------
Net Income $ 989 $4,139 $ 517
==============================
</TABLE>
FORT THOMAS FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income Before Dividend Income $ 989 $1,139 $ 517
Reconciliation of Net Income with
Cash Flows from Operations:
Undistributed Earnings of
Fort Thomas Savings Bank (1,294) (1,183) (825)
Deferred Federal Income Tax (155) (89) (84)
Amortization of Stock
Compensation Plans 109 145 94
Shares Released to ESOP 307 128 563
Changes In
Accrued Interest Receivable 10 (15) 23
Accrued Interest Payable - (22) 22
Accrued Federal Income Tax Liability - (97) (108)
Other Liabilities (39) 91 354
------------------------------
Net Cash Provided by Operating Activities (73) 97 556
------------------------------
Cash Flows from Investing Activities
Proceeds from Repayment of Loan to ESOP 178 127 -
Purchase of Investment Securities (753) - -
Maturity of Investment Securities - 494 1,503
Principal Received on Mortgage-Backed
Securities 799 (17) 156
------------------------------
Net Cash Provided (Used) by Investing
Activities 224 604 1,699
------------------------------
Cash Flows from Financing Activities
Dividends Paid (4,200) (452) (6,163)
Dividends Received - 3,000 -
Common Stock Shares Purchased for
MRP Trust - - (873)
Treasury Stock Purchased (277) (1,103) -
Repayment of Borrowings - (2,300) -
Proceeds from Borrowings 4,000 - 2,300
------------------------------
Net Cash (Used) Provided by Financing
Activities (477) (855) (4,736)
------------------------------
Changes in Cash and Cash Equivalents (326) (154) (2,481)
Cash and Cash Equivalents,
Beginning of Period 725 879 3,360
------------------------------
Cash and Cash Equivalents,
End of Period $ 399 $ 725 $ 879
==============================
</TABLE>
NOTE 24 - STOCK OPTION PLAN
The Company applies APB Opinion No. 25 in accounting for its stock option
plan. Accordingly, no compensation cost has been recognized for the plan.
Had compensation cost for this plan been determined based on the fair value
at the grant date for awards using SFAS No. 123, the Company's net income
and earnings per share (EPS) for the year ended September 30, 1996 for would
have been reduced to the proforma amounts indicated below. This SFAS would
have no effect on the years ending September 30, 1998 or 1997.
<TABLE>
<CAPTION>
Net Income EPS
---------- ---
<S> <C> <C>
As Reported - 1996 $517,000 $.35
Proforma - 1996 $452,000 $.31
</TABLE>
Assumptions used in determined fair value of the stock options include a
dividend yield of 3%, expected volatility of 20%, a risk free interest rate
of 6% and expected lives of ten years. No stock options has been exercised
or forfeited.
FORT THOMAS FINANCIAL CORPORATION
FORT THOMAS SAVINGS BANK, F.S.B.
DIRECTORS OFFICERS
Larry N. Hatfield Larry N. Hatfield
Director, President and Director, President and
Chief Executive Officer Chief Executive Officer
Robert L. Grimm J. Michael Lonnemann
Chairman of the Board Vice President and Secretary
Harold A. Luersen
Managing Partner
Luersen & Luersen
Fort Thomas, Kentucky
Don J. Beckmeyer
President
Beckmeyer Insurance Agency, Inc.
Newport, Kentucky
J. Steven McLane
President
Disney-McLane, Inc.
Cincinnati, Ohio
BANKING LOCATIONS
MAIN OFFICE:
25 North Fort Thomas Avenue
Fort Thomas, Kentucky
BRANCH OFFICE:
7612 Alexandria Pike
Alexandria, Kentucky
STOCKHOLDER INFORMATION
Fort Thomas Financial Corporation is a unitary savings and loan
holding company conducting business through its wholly-owned subsidiary,
Fort Thomas Savings Bank, F.S.B. The Savings Bank is a federally-chartered,
SAIF-insured savings institution operating through its two full-service
offices. The Company's headquarters is located at 25 North Fort Thomas
Avenue, Fort Thomas, Kentucky 41075.
TRANSFER AGENT/REGISTRAR:
Stockholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, The Fifth Third
Bank.
The Fifth Third Bank (800) 837-2755
Corporate Trust Services (513) 579-5320
Mail Drop 1090F5-4129
38 Fountain Square Plaza
Cincinnati, OH 45263
INDEPENDENT AUDITORS:
VonLehman & Company, Inc.
250 Grandview Drive
Fort Mitchell, Kentucky 41017
SPECIAL LEGAL COUNSEL:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
STOCKHOLDER REQUESTS:
Requests for annual reports, quarterly reports and related stockholder
literature should be directed to Secretary, Fort Thomas Financial
Corporation, 25 North Fort Thomas Avenue, Fort Thomas, Kentucky 41075.
Stockholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, The Fifth Third
Bank.
