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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______
Commission File Number: No. 1-13904
KENTUCKY FIRST BANCORP, INC.
________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 61-1281483
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
306 N. Main Street
Cynthiana, Kentucky 41031
- ----------------------------------------- -----------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code:(606)234-1440
-------------
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
----- -----
As of May 6, 1999, the latest practicable date, 1,188,914 shares
of the registrant's common stock, $.01 par value, were issued
and outstanding.
Transitional small business disclosure format (check one):
Yes No X
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Page 1 of 19 pages<PAGE>
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INDEX
Page
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PART I
ITEM 1 - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS 11
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
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ITEM 1 FINANCIAL STATEMENTS
KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
------------ ----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 688 $ 522
Interest-bearing deposits in other financial
institutions 1,793 1,435
------- -------
Total cash and cash equivalents 2,481 1,957
Investment securities available for sale - at market 5,962 4,607
Investment securities held to maturity - at amortized cost,
approximate market value of $1,685 and $5,211 as of
March 31, 1999 and June 30, 1998 1,630 5,162
Mortgage-backed securities available for sale - at market 6,915 3,213
Mortgage-backed securities held to maturity - at
amortized cost, approximate market value of $10,885
and $14,797 as of March 31, 1999 and June 30, 1998 10,775 14,680
Loans receivable - net 47,446 48,801
Office premises and equipment - at depreciated cost 1,301 1,356
Federal Home Loan Bank stock - at cost 1,191 1,130
Accrued interest receivable 447 492
Prepaid expenses and other assets 462 460
Prepaid federal income taxes 200 144
Deferred federal income tax assets 63 44
------- -------
Total assets $78,873 $82,046
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $57,588 $56,566
Advances from the Federal Home Loan Bank 6,506 10,412
Accrued interest payable 93 117
Other liabilities 790 543
------- -------
Total liabilities 64,977 67,638
Shareholders' equity
Preferred stock - authorized 500,000 shares of
$.01 par value; no shares issued - -
Common stock, authorized 3,000,000 shares of
$.01 par value; 1,388,625 shares issued 14 14
Additional paid-in capital 9,272 9,291
Retained earnings - restricted 8,365 8,144
Less shares acquired by stock benefit plans (1,249) (1,249)
Less 194,411 and 147,520 shares of treasury
stock - at cost (2,541) (1,883)
Unrealized gains on securities designated as available
for sale, net of related tax effects 35 91
------- -------
Total shareholders' equity 13,896 14,408
------- -------
Total liabilities and shareholders' equity $78,873 $82,046
======= =======
</TABLE>
3<PAGE>
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- --------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $2,950 $3,083 $ 962 $1,024
Mortgage-backed securities 825 980 267 316
Investment securities 415 609 142 186
Interest-bearing deposits and other 93 72 39 24
------ ------ ------ ------
Total interest income 4,283 4,744 1,410 1,550
Interest expense
Deposits 1,839 1,837 585 613
Borrowings 306 697 84 194
------ ------ ------ ------
Total interest expense 2,145 2,534 669 807
------ ------ ------ ------
Net interest income 2,138 2,210 741 743
Provision for losses on loans 23 25 8 7
------ ------ ------ ------
Net interest income after
provision for losses on loans 2,115 2,185 733 736
Other income
Gain on investment securities
transactions 5 16 - -
Service charges 98 96 33 31
Other operating 37 31 18 12
------ ------ ------ ------
Total other income 140 143 51 43
General, administrative and other expense
Employee compensation and benefits 778 745 260 237
Occupancy and equipment 132 110 49 37
Federal deposit insurance premiums 25 26 8 9
Data processing 97 96 34 33
Other operating 316 298 112 97
------ ------ ------ ------
Total general, administrative and
other expense 1,348 1,275 463 413
------ ------ ------ ------
Earnings before income taxes 907 1,053 321 366
Federal income taxes
Current 246 337 107 130
Deferred 15 (4) (14) (10)
------ ------ ------ ------
Total federal income taxes 261 333 93 120
------ ------ ------ ------
NET EARNINGS $ 646 $ 720 $ 228 $ 246
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .57 $ .60 $ .20 $ .21
====== ====== ====== ======
Diluted $ .55 $ .58 $ .20 $ .20
====== ====== ====== ======
</TABLE>
4
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- --------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Net earnings $ 646 $ 720 $ 228 $ 246
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
on securities during the period (56) 35 (49) (33)
Reclassification adjustment for
realized gains included
in earnings - (3) - -
------ ------ ------ ------
Comprehensive income $ 590 $ 752 $ 179 $ 213
====== ====== ====== ======
</TABLE>
5<PAGE>
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 646 $ 720
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net (10) (31)
Depreciation and amortization 68 41
Amortization of deferred loan origination fees (22) (22)
Provision for losses on loans 23 25
Amortization of expense related to stock benefit plans 211 226
Gain on investment securities transactions (5) (16)
Federal Home Loan Bank stock dividends (61) (58)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 46 169
Prepaid expenses and other assets 10 (36)
Accrued interest payable (24) (27)
Other liabilities 10 (32)
Federal income taxes
Current (62) (10)
Deferred 15 (4)
------- --------
Net cash provided by operating activities 845 945
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 6,560 6,463
Proceeds from sale of investment securities - 155
Purchase of investment securities designated as
available for sale (4,374) (1,810)
Purchase of mortgage-backed securities designated as
available for sale (3,975) -
Principal repayments on mortgage-backed securities 4,097 2,297
Purchase of loans (1,938) -
Loan principal repayments 11,661 8,175
Loan disbursements (8,355) (8,526)
Purchase of office premises and equipment (12) (13)
------- --------
Net cash provided by investing activities 3,664 6,741
Cash flows provided by (used in) financing activities:
Net increase in deposits 1,022 776
Proceeds from Federal Home Loan Bank advances 4,900 17,400
Repayment of Federal Home Loan Bank advances (8,806) (24,606)
Purchase of treasury stock (767) (1,124)
Proceeds from exercise of stock options 90 34
Dividends on common stock (424) (455)
------- --------
Net cash used in financing activities (3,985) (7,975)
------- --------
Net increase (decrease) in cash and cash equivalents 524 (289)
Cash and cash equivalents at beginning of period 1,957 1,267
------- --------
Cash and cash equivalents at end of period $ 2,481 $ 978
======= ========
</TABLE>
6
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KENTUCKY FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 308 $ 356
====== ======
Interest on deposits and borrowings $2,169 $2,561
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (56) $ 32
====== ======
</TABLE>
7
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three months ended March 31, 1999 and 1998
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
were prepared in accordance with instructions for Form 10-QSB
and, therefore, do not include information or footnotes
necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto of Kentucky First Bancorp, Inc. (the
"Corporation") included in the Annual Report on Form 10-KSB
for the year ended June 30, 1998. However, in the opinion of
management, all adjustments (consisting of only normal
recurring accruals) which are necessary for a fair
presentation of the financial statements have been included.
The results of operations for the nine and three month periods
ended March 31, 1999 are not necessarily indicative of the
results which may be expected for an entire fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Corporation and First Federal Savings Bank
(the "Savings Bank"). All significant intercompany items have
been eliminated.
3. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-
average shares outstanding during the period, less shares in
the ESOP that are unallocated and not committed to be
released. Weighted-average common shares deemed outstanding,
which gives effect to 80,153 unallocated ESOP shares, totaled
1,128,014 and 1,117,063, for the nine and three month periods
ended March 31, 1999. Weighted-average common shares deemed
outstanding, which gives effect to 92,574 unallocated ESOP
shares, totaled 1,201,948 and 1,179,002 for the nine and three
month periods ended March 31, 1998.
Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential
common shares to be issued under the Corporation's stock
option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per
share totaled 1,170,357 and 1,154,631 for the nine and three
month periods ended March 31, 1999 and totaled 1,249,791 and
1,230,924 for the nine and three month periods ended March 31,
1998, respectively.
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 1997, the Financial Accounting Standards Board ( the
"FASB") issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires that all items
that
8<PAGE>
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. It does not require a specific format
for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for
the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The
Corporation adopted SFAS No. 130 effective July 1, 1998, as
required, without material impact on the Corporation's
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No.
131 significantly changes the way that public business
enterprises report information about operating segments in
annual financial statements and requires that those
enterprises report selected information about reportable
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management
organizes the segments within the enterprise for making
operating decisions and assessing performance. For many
enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131
requires significantly more information to be disclosed for
each reportable segment than is presently being reported in
annual financial statements and also requires that selected
information be reported in interim financial statements. SFAS
No. 131 is effective for fiscal years beginning after December
15, 1997. The Corporation adopted SFAS No. 131 effective July
1, 1998, as required, without material impact on the
Corporation's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires
entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair
value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions
that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting.
9
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KENTUCKY FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
The definition of a derivative financial instrument is
complex, but in general, it is an instrument with one or more
underlyings, such as an interest rate or foreign exchange
rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It
generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the
embedded derivative is clearly and closely related to the host
contract.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. On adoption, entities are permitted to
transfer held-to-maturity debt securities to the available-
for-sale or trading category without calling into question
their intent to hold other debt securities to maturity in the
future. SFAS No. 133 is not expected to have a material
impact on the Corporation's financial statements.
10
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KENTUCKY FIRST BANCORP, INC.
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Forward-Looking Statements
- --------------------------
In addition to historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, the
Corporation's operations and the Corporation's 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 interest rates in the
nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the
statements regarding management's determination of the amount
and adequacy of the allowance for losses on loans, the effect of
certain recent accounting pronouncements and the Corporation's
projected effects related to the year 2000 compliance issue.
Discussion of Financial Condition Changes from June 30, 1998 to
- ---------------------------------------------------------------
March 31, 1999
- --------------
At March 31, 1999, the Corporation's consolidated total assets
amounted to $78.9 million, a decrease of $3.2 million, or 3.9%,
from the total at June 30, 1998. The decrease in assets
resulted primarily from a decrease of $3.9 million in advances
from the Federal Home Loan Bank and a decline in shareholders'
equity of $512,000, which were partially offset by an increase
in deposits of $1.0 million.
Liquid assets (i.e. cash, interest-bearing deposits and
investment securities) decreased by $1.7 million, or 14.1%, over
the nine month period, to a total of $10.1 million at March 31,
1999. Investment securities totaling $6.6 million matured or
were called during the period. Purchases of investment
securities during the period were $4.4 million. Mortgage-backed
securities totaled $17.7 million at March 31, 1999, a decrease
of $203,000, or 1.1%, from June 30, 1998 levels. The decrease
in mortgage-backed securities resulted from principal repayments
of $4.1 million during the period offset by purchases of $3.9
million.
Loans receivable decreased by $1.4 million, or 2.8%, during the
nine month period, to a total of $47.4 million at March 31,
1999. Loan disbursements and loan purchases amounted to $10.3
million and were offset by principal repayments of $11.7
million. The allowance for loan losses totaled $406,000 at
March 31, 1999, as compared to $384,000 at June 30, 1998.
Nonperforming loans totaled $122,000 at March 31, 1999, as
compared to $141,000 at June 30, 1998. The allowance for loan
losses represented 332.8% of nonperforming loans as of March 31,
1999 and 272.3% at June 30, 1998. Although management believes
that its allowance for loan losses at March 31, 1999 is adequate
based upon the available facts and circumstances, there can be
no assurance that additions to such allowance will not be
necessary in future periods, which could adversely affect the
Corporation's results of operations.
Deposits totaled $57.6 million at March 31, 1999, an increase of
$1.0 million, or 1.8%, from June 30, 1998 levels. During the
current period, management has not attempted to match premium
deposit rates offered by certain competitors and has instead
continued its conservative pricing strategy with respect to
deposit accounts during the current interest rate environment.
11<PAGE>
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KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Discussion of Financial Condition Changes from June 30, 1998 to
- ---------------------------------------------------------------
March 31, 1999 (continued)
- --------------
Advances from the Federal Home Loan Bank totaled $6.5 million at
March 31, 1999, a decrease of $3.9 million, or 37.5%, from the
total at June 30, 1998, as proceeds from maturities of
investment securities and principal repayments of loans and
mortgage-backed securities were partially utilized to repay such
advances.
The Corporation's shareholders' equity amounted to $13.9 million
at March 31, 1999, a decrease of $512,000, or 3.6%, from June
30, 1998 levels. The decrease resulted primarily from purchases
of treasury stock totaling $767,000 and dividends paid on common
stock totaling $424,000, which were partially offset by fiscal
1999 period net earnings of $646,000.
The Savings Bank is required to meet each of three minimum
capital standards promulgated by the Office of Thrift
Supervision ("OTS"), hereinafter described as the tangible
capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital
requirement mandates maintenance of shareholders' equity less
all intangible assets equal to 1.5% of adjusted total assets.
The core capital requirement provides for the maintenance
of tangible capital plus certain forms of supervisory goodwill
equal to 3% of adjusted total assets, while the risk-based
capital requirement mandates maintenance of core capital plus
general loan loss allowances equal to 8% of risk-weighted assets
as defined by OTS regulations.
At March 31, 1999, the Savings Bank's tangible and core capital
totaled $11.5 million, or 14.7%, of adjusted total assets, which
exceeded the minimum tangible and core capital requirements of
$1.2 million and $2.4 million by $10.3 million and $9.1 million,
respectively. The Savings Bank's risk-based capital of $11.9
million, or 26.5% of risk-weighted assets, exceeded the current
8% of risk-weighted assets requirement by $8.3 million.
Comparison of Operating Results for the Nine Month Periods Ended
- ----------------------------------------------------------------
March 31, 1999 and 1998
- -----------------------
General
- -------
Net earnings amounted to $646,000 for the nine months ended
March 31, 1999, a decrease of $74,000, or 10.3%, from the
$720,000 of net earnings reported for the nine months ended
March 31, 1998. The decrease in net earnings in the current
period was due to a $72,000 decrease in net interest income, a
$3,000 decrease in other income and a $73,000 increase in
general administrative and other expense, which were partially
offset by a $2,000 decrease in the provision for losses on loans
and a $72,000 decrease in the provision for federal income
taxes.
12
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KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended
- ----------------------------------------------------------------
March 31, 1999 and 1998 (continued)
- ----------------------------------
Net Interest Income
- -------------------
Net interest income was $2.1 million for the nine months ended
March 31, 1999, which represents a decrease of $72,000, or 3.3%,
compared to the nine month period ended March 31, 1998. Total
interest income decreased by $461,000, or 9.7%, due to a $7.4
million, or 8.8%, decrease in the weighted-average balance of
interest-earning assets outstanding year to year and due to a
decrease in the average yield of interest-earning assets, from
7.50% to 7.42%. Interest income on loans decreased by $133,000,
or 4.3%, due to a $1.6 million, or 3.2%, decrease in the
weighted-average balance of loans outstanding year to year and
due to a decrease in the average yield on loans, from 8.25% to
8.16%. Interest income on mortgage-backed securities decreased
by $155,000, or 15.8%, due primarily to a $2.9 million, or
14.7%, decrease in the weighted-average balance outstanding year
to year. Interest income on investment securities and
interest-bearing deposits decreased by $173,000, or 25.4%, due
primarily to a $2.9 million, or 19.6%, decrease in the
weighted-average balance outstanding year to year.
Total interest expense decreased by $389,000, or 15.4%, due to a
$6.6 million, or 9.3%, decrease in the weighted average balance
of interest-costing liabilities year to year and due to a
decrease in the average cost of funds, from 4.73% to 4.41%.
Interest expense on deposits increased by $2,000, or 0.1%, due
to a $1.6 million, or 3.0%, increase in the weighted-average
balance of deposits outstanding year to year, which was mostly
offset by a decrease in the average cost of deposits, from 4.43%
to 4.31%. Interest expense on borrowings decreased by $391,000,
or 56.1%, due to an $8.3 million, or 51.1%, decrease in the
weighted-average balance of advances outstanding from the
Federal Home Loan Bank and due to a decrease in the average cost
of advances, from 5.75% to 5.17%.
As a result of the foregoing changes in interest income and
interest expense, net interest income decreased by $72,000, or
3.3%, to a total of $2.1 million for the nine months ended March
31, 1999, as compared to the nine months ended March 31, 1998.
The interest rate spread amounted to approximately 3.01% and
2.77% during the nine month periods ended March 31, 1999 and
1998, respectively, while the net interest margin amounted to
approximately 3.70% in fiscal 1999 and 3.49% in fiscal 1998.
Provision for Losses on Loans
- -----------------------------
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the
volume and type of lending conducted by the Savings Bank, the
status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to
the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio. As a
result of such analysis, management recorded a $23,000 and a
$25,000 provision for losses on loans during the nine month
periods ended March 31, 1999 and 1998, respectively. There can
be no assurance that the loan loss allowance of the Savings Bank
will be adequate to cover losses on nonperforming assets in the
future.
13
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KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended
- ----------------------------------------------------------------
March 31, 1999 and 1998 (continued)
- -----------------------------------
Other Income
- ------------
Other income decreased by $3,000, or 2.1%, for the nine months
ended March 31, 1999, compared to the nine months ended March
31, 1998, due to an $11,000, or 68.8%, decrease in gain on
investment securities transactions offset by a $2,000, or 2.1%,
increase in service charges and a $6,000, or 19.4%, increase in
other operating income.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $73,000,
or 5.7%, during the nine months ended March 31, 1999, compared
to the nine months ended March 31, 1998. The increase in
general, administrative and other expense resulted from a
$33,000, or 4.4%, increase in employee compensation and
benefits, a $22,000, or 20.0%, increase in occupancy and
equipment expense, and an $18,000, or 6.0%, increase in other
operating expense. The increase in employee compensation and
benefits was primarily due to increased staffing levels. The
increase in occupancy and equipment expense was primarily due to
an increase in depreciation expense on furniture, fixture and
equipment.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $72,000, or
21.6%, for the nine months ended March 31, 1999, as compared to
the nine months ended March 31, 1998. The decrease resulted
primarily from the decrease in net earnings before taxes of
$146,000, or 13.9%. The effective tax rates were 28.8% and
31.6% for the nine month periods ended March 31, 1999 and 1998,
respectively.
Comparison of Operating Results for the Three Month Periods
- -----------------------------------------------------------
Ended March 31, 1999 and 1998
- -----------------------------
General
- -------
Net earnings amounted to $228,000 for the three months ended
March 31, 1999, a decrease of $18,000, or 7.3%, from the
$246,000 of net earnings reported for the three months ended
March 31, 1998. The decrease in net earnings in the current
period was due to a $2,000 decrease in net interest income, a
$1,000 increase in provision for losses on loans, a $50,000
increase in general administrative and other expense, offset by
an $8,000 increase in other income and a $27,000 decrease in the
provision for federal income taxes.
Net Interest Income
- -------------------
Net interest income was $741,000 for the three months ended
March 31, 1999, which represents a decrease of $2,000, or .3%,
compared to the three months ended March 31, 1998. Total
interest income decreased by $140,000, or 9.0%, due to a $6.1
million, or 7.5%, decrease in the weighted average balance of
interest-earning assets outstanding year to year and due to a
decrease in the average yield of interest-earning assets, from
7.53% to 7.40%.
14
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KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods
- -----------------------------------------------------------
Ended March 31, 1999 and 1998 (continued)
- -----------------------------
Net Interest Income (continued)
- -------------------
Interest income on loans decreased by $62,000, or 6.1%, due
primarily to a $2.9 million, or 5.7%, decrease in the weighted-
average balance of loans outstanding year to year. Interest
income on mortgage-backed securities decreased by $49,000, or
15.5%, due primarily to a $2.6 million, or 13.7%, decrease in
the weighted-average balance outstanding year to year. Interest
income on investment securities and interest-bearing deposits
decreased by $29,000, or 13.8%, due to a $665,000, or 5.0%,
decrease in the weighted-average balance outstanding year to
year and due to a decrease in the average yield, from 6.33% to
5.76%.
Total interest expense decreased by $138,000, or 17.1%, due to a
$5.5 million, or 7.9%, decrease in the weighted-average balance
of interest-costing liabilities year to year and due to a
decrease in the average cost of funds, from 4.64% to 4.18%.
Interest expense on deposits decreased by $28,000, or 4.6%, due
to a decrease in the average cost of deposits year to year, from
4.36% to 4.07%, which was partially offset by a $1.3 million, or
2.2%, increase in the weighted-average balance of deposits
outstanding. Interest expense on borrowings decreased by
$110,000, or 56.7%, due primarily to a $6.7 million, or 50.2%,
decrease in the weighted-average balance of advances outstanding
from the Federal Home Loan Bank.
As a result of the foregoing changes in interest income and
interest expense, net interest income decreased by $2,000, or
.3%, to a total of $741,000 for the three months ended March 31,
1999, as compared to the three months ended March 31, 1998. The
interest rate spread amounted to approximately 3.23% and 2.89%
during the three month periods ended March 31, 1999 and 1998,
respectively, while the net interest margin amounted to
approximately 3.89% in fiscal 1999 and 3.61% in fiscal 1998.
Provision for Losses on Loans
- -----------------------------
A provision for losses on loans is charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the
volume and type of lending conducted by the Savings Bank, the
status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to
the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio. As a
result of such analysis, management recorded an $8,000 and a
$7,000 provision for losses on loans during the three month
periods ended March 31, 1999 and 1998, respectively. There can
be no assurance that the loan loss allowance of the Savings Bank
will be adequate to cover losses on nonperforming assets in the
future.
Other Income
- ------------
Other income increased by $8,000, or 18.6%, for the three months
ended March 31, 1999, compared to the three months ended March
31, 1998, due to a $2,000, or 6.5%, increase in service charges
and a $6,000, or 50.0%, increase in other operating income.
15
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods
- -----------------------------------------------------------
Ended March 31, 1999 and 1998 (continued)
- -----------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $50,000,
or 12.1%, during the three month period ended March 31, 1999,
compared to the three months ended March 31, 1998. The increase
in general, administrative and other expense resulted from a
$23,000, or 9.7%, increase in employee compensation and
benefits, a $12,000, or 32.4%, increase in occupancy and
equipment expense, and a $15,000, or 15.5%, increase in other
operating expense. The increase in employee compensation and
benefits was primarily due to increased staffing levels. The
increase in occupancy and equipment expense was primarily due to
an increase in depreciation expense on furniture, fixture and
equipment.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $27,000, or
22.5%, for the three months ended March 31, 1999, as compared to
the three months ended March 31, 1998. This decrease resulted
primarily from the decrease in net earnings before taxes of
$45,000, or 12.3%. The effective tax rates were 29.0% and 32.8%
for the three month periods ended March 31, 1999 and 1998,
respectively.
Year 2000 Compliance Matters
- ----------------------------
As with all providers of financial services, the Savings Bank's
operations are heavily dependent on information technology
systems. The Savings Bank is addressing the potential problems
associated with the possibility that the computers that control
or operate the Bank's information technology system and
infrastructure may not be programmed to read four-digit date
codes and, upon arrival of the year 2000, may recognize the
two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data.
As part of the awareness and assessment phases of its action
plan related to the Year 2000 problem, the Savings Bank
identified the operating systems that it considers critical to
the on-going operations of the Savings Bank. The Savings Bank
is working with companies that supply or service its information
technology systems to remedy any year 2000 problems.
Of the systems that the Savings Bank identified as mission-
critical, the most significant is the on-line core account
processing system that is performed by a third party service
provider, Intrieve, Inc. The service provider has converted its
hardware to a new Year 2000 compliant system. The Savings
Bank's conversion to this new system was completed on October
17, 1998. The service provider successfully performed Year 2000
proxy testing with several of its larger users during early
October 1998. On November 15, 1998, the Savings Bank performed
final customer testing, which was designed to test the Savings
Bank's unique equipment configuration and communications link to
the service provider.
16
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
- ----------------------------
In September 1998, the Savings Bank developed a contingency plan
in case the mission-critical systems are not successfully
renovated in a timely manner or if they actually fail at Year
2000 critical dates. The contingency plan states that the
Savings Bank deems the likelihood of failure of the service
provider's efforts to renovate Year 2000 changes to the on-line
core account processing system to be remote; however, a more
likely scenario is that the service provider's system will be
down for several days or weeks upon arrival of Year 2000. The
plan, therefore, primarily addresses action to deal with the
latter possibility rather than with a catastrophic event. The
Savings Bank does not consider contingency planning to be a
static process; therefore, the plan will be amended to address a
catastrophic event if testing results indicate greater concern.
Management of the Savings Bank has developed an estimate of
expenses that are reasonably likely to be incurred by the
Savings Bank in connection with this issue; however, the Savings
Bank does not expect to incur significant expense to implement
the necessary corrective measures. The amount estimated by the
Savings Bank to achieve compliance is $20,000, of which less
than $5,000 has been expended as of March 31, 1999. No
assurance can be given, however, that significant expense will
not be incurred in future periods. In the event that the
Savings Bank is ultimately required to purchase replacement
computer systems, programs and equipment, or incur substantial
expense to make the Savings Bank's current systems, programs and
equipment Year 2000 compliant, the Savings Bank's net earnings
and financial condition could be adversely affected.
In addition to possible expense related to its own systems, the
Savings Bank could incur losses if loan payments are delayed due
to Year 2000 problems affecting any major borrowers in the
Savings Bank's primary market area. Because the Savings Bank's
loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Savings Bank's primary
market area is not significantly dependent upon one employer or
industry, the Savings Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash
flow.
17
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K: None
Exhibit 3: Bylaws, as amended
Exhibit 27: Financial Data Schedule for the
nine months ended March 31, 1999.
18
<PAGE>
<PAGE>
KENTUCKY FIRST BANCORP, INC.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 14, 1999 By: /s/Betty J. Long
-------------------------
Betty J. Long
President and Chief
Executive Officer
Date: May 14, 1999 By: /s/Russell M. Brooks
-------------------------
Russell M. Brooks
Executive Vice President and
Financial Officer
19
<PAGE>
EXHIBIT A
BYLAWS
OF
KENTUCKY FIRST BANCORP, INC.
AS AMENDED AND RESTATED
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
The principal executive office of Kentucky First Bancorp,
Inc. (the "Corporation") shall be at 306 North Main Street,
Cynthiana, Kentucky 41031. The Corporation may also have
offices at such other places within or without the Commonwealth
of Kentucky as the board of directors shall from time to time
determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special
meetings of stockholders shall be held at the principal
executive office of the Corporation or at such other place
within or without the State of Delaware as the board of
directors may determine and as designated in the notice of such
meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders
of the Corporation for the election of directors and for the
transaction of any other business of the Corporation shall be
held annually at such date and time as the board of directors
may determine.
SECTION 3. Special Meetings. Special meetings of the
stockholders for any purpose or purposes may be called at any
time by the board of directors or by a committee of the board of
directors in accordance with the provisions of the Corporation's
Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special
meetings shall be conducted in accordance with these Bylaws or
as otherwise prescribed by the board of directors. The chairman
or the chief executive officer of the Corporation shall preside
at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the
place, day and hour of the meeting and the purpose or purposes
for which the meeting is called shall be mailed by the secretary
or the officer performing his duties, not less than ten days nor
more than fifty days before the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it
appears on the stock transfer books or records of the
Corporation as of the record date prescribed in Section 6, with
postage thereon prepaid. If a stockholder is present at a
meeting, or in writing waives notice thereof before or after the
meeting, notice of the meeting to such stockholder shall be
unnecessary. When any stockholders' meeting, either annual or
special, is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in the case of an original
meeting. It shall not be necessary to give any notice of the
time and place of any meeting adjourned for less than thirty
days or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such
adjournment is taken.
A-1<PAGE>
<PAGE>
SECTION 6. Fixing of Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or stock-
holders entitled to receive payment of any dividend, or in order
to make a determination of stockholders for any other proper
purpose, the board of directors shall fix in advance a date as
the record date for any such determination of stockholders.
Such date in any case shall be not more than sixty days, and in
case of a meeting of stockholders not less than ten days, prior
to the date on which the particular action requiring such
determination of stockholders, is to be taken. When a
determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent having
charge of the stock transfer books for shares of the Corporation
shall make, at least ten days before each meeting of
stockholders, a complete record of the stockholders entitled to
vote at such meeting or any adjournment thereof, with the
address of and the number of shares held by each. The record,
for a period of ten days before such meeting, shall be kept on
file at the principal office of the Corporation, whether within
or outside the Commonwealth of Kentucky, and shall be subject to
inspection by any stockholder for any purpose germane to the
meeting at any time during usual business hours. Such record
shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any
stockholder for any purpose germane to the meeting during the
whole time of the meeting. The original stock transfer books
shall be prima facie evidence as to who are the stockholders
entitled to examine such record or transfer books or to vote at
any meeting of stockholders.
SECTION 8. Quorum. One-third of the outstanding shares
of the Corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders.
If less than one-third of the outstanding shares are represented
at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have
been transacted at the meeting as originally notified. The
stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the with-
drawal of enough stockholders to leave less than a quorum.
SECTION 9. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing by the stock-
holder or by his duly authorized attorney in fact. Proxies
solicited on behalf of the management shall be voted as directed
by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy
shall be valid after eleven months from the date of its
execution unless otherwise provided in the proxy.
SECTION 10. Voting. At each election for directors every
stockholder entitled to vote at such election shall be entitled
to one vote for each share of stock held. Unless otherwise
provided by the Certificate of Incorporation, by statute, or by
these Bylaws, a majority of those votes cast by stockholders at
a lawful meeting shall be sufficient to pass on a transaction or
matter, except in the election of directors, which election
shall be determined by a plurality of the votes of the shares
present in person or by proxy at the meeting and entitled to
vote on the election of directors.
SECTION 11. Voting of Shares in the Name of Two or More
Persons. When ownership of stock stands in the name of two or
more persons, in the absence of written directions to the
Corporation to the contrary, at any meeting of the stockholders
of the Corporation any one or more of such stockholders may
cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast
conflicting votes, in person or by proxy, by the several persons
in whose name shares of stock stand, the vote or votes to which
these persons are entitled shall be cast as directed by a
majority of those holding such stock and present in person or by
proxy at such meeting, but no votes shall be cast for such stock
if a majority cannot agree.
SECTION 12. Voting of Shares by Certain Holders. Shares
standing in the name of another corporation may be voted by any
officer, agent or proxy as the bylaws of such corporation may
prescribe, or, in the absence of such provision, as the board of
directors of such corporation may determine. Shares held by an
administrator, executor,
A-2<PAGE>
<PAGE>
guardian or conservator may be voted by him, either in person or
by proxy, without a transfer of such shares into his name.
Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled
to vote shares held by him without a transfer of such shares
into his name. Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer
thereof into his name if authority to do so is contained in an
appropriate order of the court or other public authority by
which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into
the name of the pledgee and thereafter the pledgee shall be
entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the
Corporation, nor shares held by another corporation, if a
majority of the shares entitled to vote for the election of
directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the
total number of outstanding shares at any given time for
purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any
meeting of stockholders, the chairman of the board or the board
of directors may appoint any persons, other than nominees for
office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either
one or three. If the board of directors so appoints either one
or three inspectors, that appointment shall not be altered at
the meeting. If inspectors of election are not so appointed,
the chairman of the board may make such appointment at the
meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by
appointment in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties
of such inspectors shall include: determining the number of
shares of stock and the voting power of each share, the shares
of stock represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies; receiving
votes, ballots or consents; hearing and determining all
challenges and questions in any way arising in connection with
the right to vote; counting and tabulating all votes or
consents; determining the result; and such acts as may be proper
to conduct the election or vote with fairness to all stock-
holders.
SECTION 14. Nominating Committee. The board of
directors
or a committee appointed by the board of directors shall act as
a nominating committee for selecting the management nominees for
election as directors. Except in the case of a nominee
substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver
written nominations to the secretary at least twenty days prior
to the date of the annual meeting. Provided such committee
makes such nominations, no nominations for directors except
those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the
Corporation in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 15. New Business. Any new business to be taken
up at the annual meeting shall be stated in writing and filed
with the secretary of the Corporation in accordance with the
provisions of the Corporation's Certificate of Incorporation.
This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers,
directors and committees, but in connection with such reports no
new business shall be acted upon at such annual meeting unless
stated and filed as provided in the Corporation's Certificate of
Incorporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of
the Corporation shall be under the direction of its board of
directors. The chairman shall preside at all meetings of the
board of directors.
A-3<PAGE>
<PAGE>
SECTION 2. Number, Term and Election. The board of
directors shall consist of eight members and shall be divided
into three classes as nearly equal in number as possible. The
members of each class shall be elected for a term of three years
and until their successors are elected or qualified. The board
of directors shall be classified in accordance with the
provisions of the Corporation's Certificate of Incorporation.
SECTION 3. Regular Meetings. A regular meeting of the
board of directors shall be held at such time and place as shall
be determined by resolution of the board of directors without
other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the
board of directors may be called by or at the request of the
chairman, the chief executive officer or one-third of the
directors. The person calling the special meetings of the board
of directors may fix any place as the place for holding any
special meeting of the board of directors called by such
persons.
Members of the board of directors may participate in
special meetings by means of conference telephone or similar
communications equipment by which all persons participating in
the meeting can hear each other. Such participation shall
constitute presence in person.
SECTION 5. Notice. Written notice of any special
meeting shall be given to each director at least two days
previous thereto delivered personally or by telegram or at least
seven days previous thereto delivered by mail at the address at
which the director is most likely to be reached. Such notice
shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid if mailed
or when delivered to the telegraph company if sent by telegram.
Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except
where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 6. Quorum. A majority of the number of
directors fixed by Section 2 shall constitute a quorum for the
transaction of business at any meeting of the board of
directors, but if less than such majority is present at a
meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting
shall be given in the same manner as prescribed by Section 5 of
this Article III.
SECTION 7. Manner of Acting. The act of the majority
of the directors present at a meeting at which a quorum is
present shall be the act of the board of directors, unless a
greater number is prescribed by these Bylaws, the Certificate of
Incorporation, or the General Corporation Law of the State of
Delaware.
SECTION 8. Action Without a Meeting. Any action
required or permitted to be taken by the board of directors at a
meeting may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the
directors.
SECTION 9. Resignation. Any director may resign at any
time by sending a written notice of such resignation to the home
office of the Corporation addressed to the chairman. Unless
otherwise specified therein such resignation shall take effect
upon receipt thereof by the chairman.
SECTION 10. Vacancies. Any vacancy occurring in the
board of directors shall be filled in accordance with the
provisions of the Corporation's Certificate of Incorporation.
Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of
two-thirds of the directors then in office or by election at an
annual meeting or at a special meeting of the stockholders held
for that purpose. The term of such director shall be in
accordance with the provisions of the Corporation's Certificate
of Incorporation.
A-4<PAGE>
<PAGE>
SECTION 11. Removal of Directors. Any director or the
entire board of directors may be removed only in accordance with
the provisions of the Corporation's Certificate of
Incorporation.
SECTION 12. Compensation. Directors, as such, may
receive compensation for service on the board of directors.
Members of either standing or special committees may be allowed
such compensation as the board of directors may determine.
SECTION 13. Advisory and Emeritus Directors. The board
of directors may by resolution appoint as advisory directors
individuals whom the board believes possess knowledge,
experience and other qualifications which may prove valuable to
the Corporation, and may appoint as emeritus directors
individuals who have retired from the board after extended and
faithful service. Advisory and emeritus directors may sit with
the board of directors at regular and special meetings and
discuss any question under consideration; provided, however,
that advisory and emeritus directors shall cast no vote. The
board of directors shall have the power to remove any advisory
or emeritus director with or without cause at any time.
SECTION 14. Residency Requirement. All members of the
board of directors and all nominees for election to the board of
directors must have their principal residence located within 50
miles of the principal executive offices of the Corporation.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees,
as they may determine to be necessary or appropriate for the
conduct of the business of the Corporation, and may prescribe
the duties, constitution and procedures thereof. Each committee
shall consist of one or more directors of the Corporation
appointed by a majority of the whole board. The board may
designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at
any meeting of the committee.
The board shall have power at any time to change the
members of, to fill vacancies in, and to discharge any committee
of the board. Any member of any such committee may resign at
any time by giving notice to the Corporation; provided, however,
that notice to the board, the chairman of the board, the chief
executive officer, the chairman of such committee, or the
secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of
such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation
shall not be necessary to make it effective. Any member of any
such committee may be removed at any time, either with or
without cause, by the affirmative vote of a majority of the
authorized number of directors at any meeting of the board
called for that purpose.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation
shall be a chairman, a vice chairman, a president, one or more
vice presidents, a secretary and a treasurer, each of whom shall
be elected by the board of directors. The board of directors
may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers
as the business of the Corporation may require. The officers
shall have such authority and perform such duties as the board
of directors may from time to time authorize or determine. In
the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their
respective offices.
A-5<PAGE>
<PAGE>
SECTION 2. Election and Term of Office. The officers
of the Corporation shall be elected annually by the board of
directors at the first meeting of the board of directors held
after each annual meeting of the stockholders. If the election
of officers is not held at such meeting, such election shall be
held as soon thereafter as possible. Each officer shall hold
office until his successor shall have been duly elected and
qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of
itself create contract rights. The board of directors may
authorize the Corporation to enter into an employment contract
with any officer in accordance with state law; but no such
contract shall impair the right of the board of directors to
remove any officer at any time in accordance with Section 3 of
this Article V.
SECTION 3. Removal. Any officer may be removed by vote
of two-thirds of the board of directors whenever, in its
judgment, the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be
without prejudice to the contract rights, if any, of the person
so removed.
SECTION 4. Vacancies. A vacancy in any office because
of death, resignation, removal, disqualification or otherwise,
may be filled by the board of directors for the unexpired
portion of the term.
SECTION 5. Remuneration. The remuneration of the
officers shall be fixed from time to time by the board of
directors, and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by
applicable law, and except as otherwise prescribed by the
Corporation's Certificate of Incorporation or these Bylaws with
respect to certificates for shares, the board of directors or
the executive committee may authorize any officer, employee, or
agent of the Corporation to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to
specific instances.
SECTION 2. Loans. No loans shall be contracted on
behalf of the Corporation and no evidence of indebtedness shall
be issued in its name unless authorized by the board of
directors. Such authority may be general or confined to
specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or
other orders for the payment of money, notes or other evidences
of indebtedness issued in the name of the Corporation shall be
signed by one or more officers, employees or agents of the
Corporation in such manner, including in facsimile form, as
shall from time to time be determined by resolution of the board
of directors.
SECTION 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in any of its duly authorized
depositories as the board of directors may select.
<PAGE>
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the
Corporation shall be represented by certificates signed by the
chairman of the board of directors or the president or a vice
president and by the treasurer or an assistant treasurer or the
secretary or an assistant secretary of the Corporation, and may
be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures upon a certificate may be
facsimiles if the certificate is countersigned
A-6<PAGE>
<PAGE>
by a transfer agent, or registered by a registrar, other than
the Corporation itself or an employee of the Corporation. If
any officer who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such
officer before the certificate is issued, it may be issued by
the Corporation with the same effect as if he were such officer
at the date of its issue.
SECTION 2. Form of Share Certificates. All certifi-
cates representing shares issued by the Corporation shall set
forth upon the face or back that the Corporation will furnish to
any stockholder upon request and without charge a full statement
of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued, the
variations in the relative rights and preferences between the
shares of each such series so far as the same have been fixed
and determined, and the authority of the board of directors to
fix and determine the relative rights and preferences of
subsequent series.
Each certificate representing shares shall state upon the
face thereof: That the Corporation is organized under the laws
of the State of Delaware; the name of the person to whom issued;
the number and class of shares, the designation of the series,
if any, which such certificate represents; the par value of each
share represented by such certificate, or a statement that the
shares are without par value. Other matters in regard to the
form of the certificates shall be determined by the board of
directors.
SECTION 3. Payment for Shares. No certificate shall be
issued for any share until such share is fully paid.
SECTION 4. Form of Payment for Shares. The considera-
tion for the issuance of shares shall be paid in accordance with
the provisions of the Corporation's Certificate of
Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of
capital stock of the Corporation shall be made only on its stock
transfer books. Authority for such transfer shall be given only
the holder of record thereof or by his legal representative, who
shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed
and filed with the Corporation. Such transfer shall be made
only on surrender for cancellation of the certificate for such
shares. The person in whose name shares of capital stock stand
on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
SECTION 6. Lost Certificates. The board of directors
may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. When authorizing such
issue of a new certificate, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen, or
destroyed.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the last
day of June of each year. The Corporation shall be subject to
an annual audit as of the end of its fiscal year by independent
public accountants appointed by and responsible to the board of
directors.
A-7<PAGE>
<PAGE>
ARTICLE IX
DIVIDENDS
Dividends upon the stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may
be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in
property or in the Corporation's own stock.
ARTICLE X
CORPORATION SEAL
The corporate seal of the Corporation shall be in such
form as the board of directors shall prescribe.
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Certificate of
Incorporation, these Bylaws may be repealed, altered, amended or
rescinded by the stockholders of the Corporation only by vote of
not less than 80% of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or
rescission is included in the notice of such meeting). In
addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of
directors at a legal meeting held in accordance with the
provisions of these Bylaws.
A-8
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