UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number 0-18832
First Federal Financial Corporation of Kentucky
-----------------------------------------------
(Exact Name of Registrant as specified in its charter)
Kentucky 61-1168311
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2323 Ring Road
Elizabethtown, Kentucky 42701
-----------------------------
(Address of principal executive offices)
(Zip Code)
(270) 765-2131
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
------- ------
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding as of October 31, 2002
----- ----------------------------------
Common Stock 3,659,275 shares
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. -Consolidated Financial Statements and Notes to Consolidated
Financial Statements
Item 2. -Management's Discussion and Analysis of the Consolidated
Statements of Financial Condition and Results of Operations
Item 3. -Quantitative and Qualitative Disclosures about Market Risk
Item 4. -Controls and Procedures
PART II - OTHER INFORMATION
SIGNATURES
CERTIFICATIONS
Item 1.
- -------
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Consolidated Statements of Financial Condition
(Unaudited)
September 30, June 30,
2002 2002
---- ----
ASSETS: (Dollars in thousands)
Cash and cash equivalents .............................. $ 38,610 $ 40,016
Interest bearing deposits .............................. 51,000 64,000
Securities available-for-sale .......................... 1,973 1,978
Securities held-to-maturity: fair value of $23,709
(Sep.) and $21,750 (June) 2002 ...................... 23,596 21,715
Loans held for sale .................................... 2,644 1,511
Loans receivable, less allowance for loan losses
of $4,353 (Sep.) and $3,735 (June) 2002 ............. 515,852 518,750
Federal Home Loan Bank stock ........................... 6,243 6,170
Premises and equipment ................................. 11,539 11,487
Real estate owned:
Acquired through foreclosure ......................... 679 660
Held for development ................................. 821 721
Other repossessed assets ............................... 73 119
Goodwill ............................................... 8,384 8,384
Accrued interest receivable ............................ 1,712 1,925
Other assets ........................................... 1,226 1,674
----- -----
TOTAL ASSETS ................................. $664,352 $679,110
======== ========
LIABILITIES:
Deposits:
Non-interest bearing ................................ $ 29,072 $ 28,341
Interest bearing .................................... 485,425 501,541
------- -------
Total Deposits ............................ 514,497 529,882
Advances from Federal Home Loan Bank ................... 77,740 77,778
Trust Preferred Securities ............................. 9,726 9,715
Accrued interest payable ............................... 492 516
Accounts payable and other liabilities ................. 3,473 2,604
----- -----
TOTAL LIABILITIES ............................ 605,928 620,495
------- -------
STOCKHOLDERS' EQUITY:
Serial preferred stock, 5,000,000 shares
authorized and unissued ........................... -- --
Common stock, $1 par value per share;
authorized 10,000,000 shares; issued and
outstanding, 3,659,375 shares in September and
3,729,400 shares in June .................... 3,659 3,729
Additional paid-in capital ............................ -- 18
Retained earnings ..................................... 54,383 54,483
Accumulated other comprehensive
income, net of tax ................................. 382 385
--- ---
TOTAL STOCKHOLDERS' EQUITY ................... 58,424 58,615
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ... $664,352 $679,110
======== ========
See notes to consolidated financial statements.
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
September 30,
2002 2001
---- ----
Interest Income:
Interest and fees on loans ........................................................ $10,217 $10,873
Interest and dividends on investments
and deposits .................................................................... 648 613
--- ---
Total interest income ...................................................... 10,865 11,486
------ ------
Interest Expense:
Deposits .......................................................................... 3,738 5,222
Federal Home Loan Bank advances ................................................... 944 944
Trust Preferred Securities ........................................................ 148 -
--- ---
Total interest expense 4,830 6,166
----- -----
Net interest income .................................................................. 6,035 5,320
Provision for loan losses ............................................................ 726 300
--- ---
Net interest income after provision for loan losses .................................. 5,309 5,020
----- -----
Non-interest Income:
Customer service fees on deposit accounts ......................................... 1,041 702
Gain on sale of mortgage loans .................................................... 225 161
Brokerage and insurance commissions ............................................... 128 150
Other income ...................................................................... 138 221
--- ---
Total non-interest income ................................................... 1,532 1,234
----- -----
Non-interest Expense:
Employee compensation and benefits ................................................ 1,978 1,744
Office occupancy expense and equipment ............................................ 357 379
FDIC insurance premium ............................................................ 21 22
Marketing and advertising ......................................................... 143 132
Outside services and data processing .............................................. 371 382
State franchise tax ............................................................... 129 107
Goodwill amortization ............................................................. - 208
Other expense ..................................................................... 610 649
--- ---
Total non-interest expense .................................................. 3,609 3,623
----- -----
Income before income taxes ........................................................... 3,232 2,631
Income taxes ......................................................................... 1,078 879
----- ---
Net income ........................................................................... $ 2,154 $ 1,752
======= =======
Earnings per share:
Basic ....................................................................... $ 0.59 $ 0.47
Diluted ..................................................................... $ 0.58 $ 0.47
See notes to consolidated financial statements.
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
Three Months Ended
September 30,
-------------
2002 2001
---- ----
Net Income ........................................... $ 2,154 $ 1,752
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss)
on securities ................................ (3) (28)
Reclassification of realized amount ............. - -
--- ---
Net unrealized (loss) recognized in
Comprehensive income ......................... (3) (28)
-- ---
Comprehensive Income ................................. $ 2,151 $ 1,724
======= =======
See notes to consolidated financial statements.
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(In thousands)
Accumulated Other
Additional Comprehensive
Paid - in Retained Income,
Shares Amount Capital Earnings Net of Tax Total
------ ------ ------- -------- ---------- -----
Balance, June 30, 2002 3,729 $ 3,729 $ 18 $ 54,483 $ 385 $ 58,615
Net income ............................... - - - 2,154 - 2,154
Exercise of stock
options, net of redemptions ............ 2 2 (2) -
Net change in unrealized
gains (losses) on
securities available-
for-sale, net of tax ................... - - - - (3) (3)
Cash dividends declared
($.18 per share) ...................... - - - (659) - (659)
Stock repurchased ........................ (72) (72) (16) (1,595) - (1,683)
--- --- --- ------ --- ------
Balance, September 30, 2002 .............. 3,659 $ 3,659 $ - $ 54,383 $ 382 $ 58,424
===== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
September 30,
-------------
Operating Activities: 2002 2001
---- ----
Net income ...................................................................... $ 2,154 $ 1,752
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses .................................................... 726 300
Depreciation of premises and equipment ....................................... 226 290
Federal Home Loan Bank stock dividends ....................................... (73) (103)
Goodwill amortization ........................................................ - 208
Net amortization (accretion) ................................................. 35 (18)
Gain on sale of mortgage loans ............................................... (225) (161)
Origination of loans held for sale ........................................... (13,635) (9,190)
Proceeds on sale of loans held for sale ...................................... 12,727 8,905
Changes in:
Interest receivable ........................................................ 213 242
Other assets ............................................................... 911 984
Interest payable ........................................................... (24) (1,070)
Accounts payable and other liabilities ..................................... 870 1,039
----- -----
Net cash from operating activities ............................................... 3,905 3,178
----- -----
Investing Activities:
Change in interest bearing deposits ............................................ 13,000 -
Purchases of securities held-to-maturity ....................................... (19,000) -
Maturities of securities held-to-maturity ...................................... 17,096 12,058
Net change in loans ............................................................ 1,736 (8,163)
Net purchases of premises and equipment ........................................ (278) (416)
Purchase of real estate held for development ................................... (100) -
------ -----
Net cash from investing activities ............................................... 12,454 3,479
------ -----
Financing Activities:
Net decrease in deposits ....................................................... (15,385) (479)
Repayments to Federal Home Loan Bank ........................................... (38) (37)
Dividends paid ................................................................. (659) (676)
Common stock repurchased ....................................................... (1,683) -
------ -----
Net cash from financing activities ............................................... (17,765) (1,192)
------- ------
Decrease in cash and cash equivalents ............................................ (1,406) 5,465
Cash and cash equivalents, beginning of period ................................... 40,016 35,464
-------- --------
Cash and cash equivalents, end of period ......................................... $ 38,610 $ 40,929
======== ========
See notes to consolidated financial statements.
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of First Federal Financial Corporation of
Kentucky (the Corporation) and its wholly owned subsidiaries, First Federal Savings Bank of Elizabethtown (the Bank), and
First Federal Statutory Trust I. The Bank has two wholly owned subsidiaries, First Service Corporation of Elizabethtown and
First Heartland Mortgage Company. All significant intercompany transactions and balances have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q
and Rule 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ending September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ended June 30, 2003. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Corporation's annual report on Form 10-K for the year ended June 30, 2002.
New Accounting Pronouncements - On October 1, 2002, new guidance was issued on the accounting for financial institution
acquisitions. Under this new guidance, if certain criteria are met, the amount of the unidentifiable intangible asset
resulting from prior financial institutions acquisitions is to be reclassified to goodwill commensurate with the previously
adopted business combination standards. Accordingly, the Corporation reclassified $6.6 million of previously recognized
unidentifiable intangible assets to goodwill effective July 1, 2002. Thus, the acquisition intangibles consist solely of
goodwill which is no longer amortized.
Reclassifications - Certain amounts have been reclassified in the prior period financial statements to conform to the
current period classifications.
2. SECURITIES
----------
The amortized cost basis and fair values of securities are as follows:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
(Dollars in thousands)
Securities available-for-sale:
September 30, 2002:
Equity securities ......................... $ 385 $ 499 $ - $ 884
Obligation of states and political
subdivisions ........................... 1,010 79 - 1,089
------- ------- ----- --------
Total available-for-sale ............. $ 1,395 $ 578 $ - $ 1,973
======= ======= ===== ========
Securities held-to-maturity:
September 30, 2002:
U.S. Treasury and agencies ................. $22,975 $ 98 $ - $ 23,073
Mortgage-backed securities ................. 621 15 - 636
------- ------- ----- --------
Total held-to-maturity ................ $23,596 $ 113 $ - $ 23,709
======= ======= ===== ========
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
(Dollars in thousands)
Securities available-for-sale:
June 30, 2002:
Equity securities ........................... $ 385 $ 545 $ - $ 930
Obligation of states and political
subdivisions ............................. 1,010 38 - 1,048
------- ------- ----- -------
Total available-for-sale ...............$ 1,395 $ 583 $ - $ 1,978
======= ======= ===== =======
Securities held-to-maturity:
June 30, 2002:
U.S. Treasury and agencies ................... $20,964 $ 58 $ - $21,022
Mortgage-backed securities ................... 751 7 (30) 728
------- ------- ----- -------
Total held-to-maturity ...............$21,715 $ 65 $(30) $21,750
======= ======= ===== =======
3. LOANS RECEIVABLE
----------------
Loans receivable are summarized as follows:
September 30, June 30,
2002 2002
---- ----
(Dollars in thousands)
Commercial $ 22,167 $ 21,130
Real estate commercial 117,200 112,528
Real estate construction 12,769 10,662
Residential mortgage 298,715 308,690
Consumer and home equity 51,057 51,796
Indirect consumer 20,137 19,640
------- -------
Total loans 522,045 524,446
------- -------
Less:
Net deferred loan origination fees (1,840) (1,961)
Allowance for loan losses (4,353) (3,735)
------ -----
(6,193) (5,696)
-------- --------
Loans Receivable $515,852 $518,750
======== ========
The allowance for losses on loans is summarized as follows:
Three Months Ended
September 30,
-------------------------
2002 2001
---- ----
(Dollars in thousands)
Balance, beginning of period $ 3,735 $ 2,906
Provision for loan losses 726 300
Charge-offs (165) (252)
Recoveries 57 21
------- -------
Balance, end of period $ 4,353 $ 2,975
======= =======
Investment in impaired loans is summarized below. There were no impaired loans for the periods presented without an
allowance allocation.
September 30, June 30,
2002 2002
---- ----
(Dollars in thousands)
End of period impaired loans $4,163 $3,736
Amount of allowance for loan
loss allocated 945 511
4. EARNINGS PER SHARE
The reconciliation of the numerators and denominators of the basic and diluted EPS is as follows:
Three Months Ended
September 30,
-------------
(In thousands) 2002 2001
---- ----
Net income available
to common shareholders .......................... $2,154 $1,752
====== ======
Basic EPS:
Weighted average common shares .................. 3,681 3,758
====== ======
Diluted EPS:
Weighted average common shares .................. 3,681 3,758
Dilutive effect of stock options ................ 18 7
----- -----
Weighted average common and
incremental shares ............................ 3,699 3,765
===== =====
Earnings Per Share:
Basic .......................................... $ 0.59 $0.47
====== =====
Diluted ........................................ $ 0.58 $0.47
====== =====
Stock options for 7,500 and 72,000 shares of common stock were not included in the 2002 and 2001 computation of diluted
earnings per share because their impact was anti-dilutive.
Item 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Federal Financial Corporation of Kentucky ("Corporation") is the parent to its wholly owned subsidiary, First Federal Savings
Bank of Elizabethtown ("Bank"). The Bank has operations in the Kentucky communities of Elizabethtown, Radcliff, Bardstown,
Munfordville, Shepherdsville, Mt. Washington, Brandenburg, Flaherty, and Hillview. The Bank's activities include the acceptance of
deposits for checking, savings and time deposit accounts, making secured and unsecured loans, investing in securities and trust
services. The Bank's lending services include the origination of real estate, commercial and consumer loans. Operating revenues are
derived primarily from interest and fees on domestic real estate, commercial and consumer loans, and from interest on securities of
the United States Government and Agencies, states, and municipalities.
This discussion and analysis covers material changes in the financial condition since June 30, 2002 and material changes in the
results of operations for the three-month period ending, September 30, 2002. It should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report on Form 10-K for the fiscal
year ended June 30, 2002 ("2002 10-K").
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this report that are not statements of historical fact constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. In addition, the Corporation may make forward-looking
statements in future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements.
Forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per share,
capital structure and other financial items; (2) statements of plans and objectives of the Corporation or its management or Board of
Directors; (3) statements regarding future events, actions or economic performance; and (4) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends," "plans," "targeted," and similar expressions are intended
to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those indicated by
such statements. Some of the events or circumstances that could cause actual results to differ from those indicated by
forward-looking statements include, but are not limited to, changes in economic conditions in the markets served by the Corporation,
in Kentucky and the surrounding region, or in the nation as a whole; changes in interest rates; the impact of legislation and
regulation; the Corporation's ability to offer competitive banking products and services; competition from other providers of
financial services, the continued growth of the markets in which the Corporation operates; and the Corporation's ability to expand
into new markets and to maintain profit margins in the face of pricing pressure. All of these events and circumstances are difficult
to predict and many of them are beyond the Corporation's control, and readers are cautioned not to place undue reliance on the
forward-looking statements in this report. The forward-looking statements speak as of the date of this report, and the Corporation
makes no undertaking to update the forward-looking statements in this report to reflect developments after the date of this report.
RECENT DEVELOPMENTS
The Bank is in the initial stages of converting from a thrift charter to a commercial bank charter and changing its fiscal year end
from June 30 to December 31. The change in fiscal year will be effective beginning January 1, 2003. Pending regulatory approval,
the charter conversion is expected to take effect in early 2003.
OVERVIEW
The Bank reported net income of $2.2 million during the quarter ended September 30, 2002 compared with $1.8 million for 2001, an
increase of 23%. Diluted earnings per share also increased 23% from $.47 during 2001 to $.58 for 2002. The increase in earnings for
2002 was primarily attributable to increased net interest income, service charges on deposit accounts and gain on sale of mortgage
loans. The Bank's book value per common share increased from $14.80 at September 30, 2001 to $15.97 at September 30, 2002. Net
income for 2002 generated a return on average assets of 1.28% and a return on average equity of 14.76%. These compare with a return
on average assets of 1.15% and a return on average equity of 12.68% for the 2001 period.
The Bank's total assets at September 30, 2002 decreased to $664.4 million compared to $679.1 million at June 30, 2002. The decrease
in assets was due to the decrease in the Bank's interest bearing deposits, a direct result of the decrease in retail deposits. Net
loans (including loans held for sale) decreased $1.8 million from June 30, 2002 to $518.5 million at September 30, 2002. Residential
mortgage loans decreased by $10.0 million during the 2002 period as declining market interest rates caused an increase in 1-4 family
refinancing activity into fixed-rate, secondary market loan products. The real estate construction portfolio increased $2.1 million
for the quarter ended September 30, 2002 due to customer demand. The growth in the commercial and commercial real estate portfolios
remained strong, increasing by $5.7 million to $139.4 million at September 30, 2002. This growth is a result of the Bank's continued
emphasis on the active pursuit of these lending opportunities that meet its lending criteria. In addition, the Bank just recently
hired a dealer loan specialist to expand its dealer loan program.
Deposits decreased by $15.4 million to $514.5 million at September 30, 2002 compared to $529.9 million at June 30, 2002. The
decrease in retail deposits was primarily in certificate of deposit accounts caused in part by the Bank's deposit customers shifting
funds to higher interest earning deposit products at other financial institutions. The Bank's strategic plan includes a focus toward
increasing non-interest income, in addition to maintaining the current interest margin. Non-relationship certificate customers lack
the fee income from other products and represent high-cost funding that can be replaced by current liquidity or FHLB advances once
interest rates increase. On March 26, 2002, the Corporation issued $10.0 million of Trust Preferred Securities through First Federal
Statutory Trust I, a subsidiary of the Corporation. The Corporation undertook the issuance of these securities to enhance its
regulatory capital position. The Corporation intends to utilize the capital for general business purposes and to support the Bank's
future opportunities for growth.
In January 2002, the Bank implemented a check imaging service for its customers. Imaged checks are also integrated with the Bank's
internet banking service to allow customers the benefit of reviewing their canceled checks online. Customers also have the option of
receiving their bank statements through e-mail, a service delivery improvement to the customer and an operational efficiency to the
Bank.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of First Federal Financial Corporation of Kentucky are in accordance with accounting principles
generally accepted in the United States of America and conform to general practices within the banking industry. The accounting policy relating
to the allowance for loan losses is critical to the understanding of the Corporation's results of operations since the application of
this policy requires significant management assumptions and estimates that could result in materially different amounts to be
reported if conditions or underlying circumstances were to change. See "Allowance and Provision for Loan Losses" herein for a
complete discussion of the First Federal Financial Corporation's accounting methodologies related to the allowance. Also refer to
Note 1 in the "Note to Consolidated Financial Statements" in the 2002 10-K for details regarding all of the Corporation's critical
and significant accounting policies.
RESULTS OF OPERATIONS
Net Interest Income- The principal source of the Bank's revenue is net interest income. Net interest income is the difference
between interest income on interest-earning assets, such as loans and securities and the interest expense on liabilities used to fund
those assets, such as interest-bearing deposits and borrowings. Net interest income is impacted by both changes in the amount and
composition of interest-earning assets and interest-bearing liabilities as well as market interest rates.
For the quarter ended September 30, 2002, net interest income was $6.0 million, up $715,000 from the $5.3 million attained during the
2001 period. The Bank was able to increase its net interest income through an improved interest rate margin compared to 2001 and an
increase in interest earning assets in the 2002 period. The Bank's net interest margin increased from 3.71% during 2001 to 3.79% for
the 2002 period. The net interest rate spread increased from 3.30% during 2001 to 3.50% in 2002. The net interest spread and margin
benefited from a significant decline in the Bank's cost of funds due to a reduction in short-term market interest rates by the
Federal Reserve which occurred principally during calendar 2001. The Bank's cost of funds averaged 3.32% during 2002 which was a
decrease of 138 basis points from the 2001 average cost of funds of 4.70% compared to a decrease of 118 basis points on interest
earning assets from 8.00% to 6.82%. The 2002 period includes Trust Preferred Securities which were issued in March 2002.
Substantially all categories of interest income and interest expense declined as a result, but more so with interest-bearing
liabilities. During the 2002 period, average interest-earning assets were $637.7 million, an increase of $63.0 million over the same
period in 2001. Total average interest bearing liabilities increased from $524.5 million during 2001 to $581.3 million for the same
period in 2002. (For additional analysis on the effect of increasing and decreasing interest rates on the Corporation's net interest
margin, see the interest rate sensitivity model under "Asset/Liability Management and Market Risk.")
AVERAGE BALANCE SHEET
The following table sets forth information relating to the Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Dividing income or expense by the average monthly balance of assets or
liabilities, respectively, derives such yields and costs for the periods presented.
Three Months Ended September 30,
------------------------------------------------------------------------------------
2002 2001
---- ----
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
ASSETS (Dollars in thousands)
Interest earning assets:
Equity securities ........................... $ 919 $ 7 3.05% $ 982 $ 7 2.85%
State and political subdivision
securities (1) ............................ 1,058 17 6.43 1,021 17 6.66
U.S. Treasury and agencies .................. 19,978 163 3.26 14,449 265 7.34
Mortgage-backed securities .................. 684 9 5.26 953 17 7.14
Loans receivable (2) (3) (4) ................ 523,048 10,217 7.81 526,166 10,873 8.27
FHLB stock .................................. 6,188 74 4.78 5,871 103 7.02
Interest bearing deposits ................... 85,804 384 1.79 25,198 210 3.33
--------- ------ ---- ------- ------ ----
Total interest earning assets 637,679 10,871 6.82 574,640 11,492 8.00
------ ---- ------ ----
Less: Allowance for loan losses ............... (3,972) (2,976)
Non-interest earning assets .................... 38,534 36,937
--------- ---------
Total assets ....................... $ 672,241 $ 608,601
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts ............................ $ 78,969 $ 319 1.62% $ 36,384 $ 210 2.31%
NOW and money market
Accounts .................................. 111,981 462 1.65 87,461 466 2.13
Certificates of deposit and
other time deposits ....................... 302,891 2,957 3.91 322,550 4,546 5.64
FHLB Advances ............................... 77,761 944 4.86 78,056 944 4.84
Trust Preferred Securities .................. 9,722 148 6.09 - - -
--------- ------ ---- ------- ------ ----
Total interest bearing liabilities . 581,323 4,830 3.32 524,451 6,166 4.70
------ ---- ----- ----
Non-interest bearing liabilities:
Non-interest bearing deposits ............... 28,444 21,991
Other liabilities ........................... 4,104 6,899
------- -------
Total liabilities .................. 613,871 553,341
Stockholders' equity ........................... 58,370 55,260
--------- ---------
Total liabilities and
stockholders' equity ............... $ 672,241 $ 608,601
========= =========
Net interest income ..................... $ 6,041 $ 5,326
========= =========
Net interest spread ..................... 3.50% 3.30%
===== =====
Net interest margin ..................... 3.79% 3.71%
===== =====
- -----------------------------------------------------
(1) Taxable equivalent yields are calculated assuming a 34% federal income tax rate.
(2) Includes loan fees, immaterial in amount, in both interest income and the calculation of yield on loans.
(3) Calculations include non-accruing loans in the average loan amounts outstanding.
(4) Includes loans held for sale.
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods
indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes
attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (change in volume multiplied by
old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are
proportionately allocated between rate and volume variance.
Three Months Ended
September 30,
2002 vs. 2001
-------------
Increase (decrease)
Due to change in
(Dollars in thousands)
Net
Interest income: Rate Volume Change
---- ------ ------
Equity securities ........................... $ 1 $ (1) $ -
State and political subdivision
securities ................................ (1) 1 -
U.S. Treasury and agencies .................. (181) 79 (102)
Mortgage-backed securities .................. (4) (4) (8)
Loans ....................................... (592) (64) (656)
FHLB stock .................................. (34) 5 (29)
Interest bearing deposits ................... (135) 309 174
------- ------- -------
Net Change in Interest Income ........ (946) 325 (621)
------- ------- -------
Interest expense:
Savings accounts ........................... (78) 187 109
NOW and money market accounts .............. (118) 114 (4)
Certificates of deposit and other
time deposits ........................... (1,326) (263) (1,589)
FHLB advances .............................. 4 (4) -
Trust preferred securities ................. 111 37 148
------- ------- -------
Net Change in Interest Expense ...... (1,407) 71 (1,336)
------- ------- -------
Increase in net interest income ..... $ 461 $ 254 $ 715
======= ======= =======
Non-Interest Income-Non-interest income was $1.5 million for the quarter ended September 30, 2002, as compared to $1.2 million for
the 2001 period. The increased level of non-interest income during 2002 was primarily due to increased service fees on deposit
accounts and to a lesser extent, gain on sale of mortgage loans. Offsetting these increases were slight decreases in brokerage and
insurance commissions and other income.
Service charges on deposit accounts increased by $339,000 or 48% during 2002 due to growth in fee-related customer transactions.
Service charges on deposit accounts were positively affected by the Bank's overdraft program.
Gain on sale of mortgage loans increased by $64,000 or 40% for 2002 compared to 2001 as declining market interest rates prompted an
increase in consumer refinance activity of 1-4 family fixed-rate residential loans, which the Bank sells into the secondary market
through its subsidiary, First Heartland Mortgage Company. Mortgage banking income depends upon loan demand and refinance volume
which management anticipates will continue at or near current levels for at least the next quarter. Income from brokerage
commissions and insurance sales decreased $22,000 as a result of a decline in demand for these products. Other income decreased
during the 2002 period by $83,000 due to increases in customer fees waived and increased losses from the sale of repossessd assets
and real estate owned.
Non-Interest Expense- Non-interest expense remained constant at $3.6 million on a quarter over quarter comparative basis. Factors
impacting non-interest expense included an increase in staffing levels and a change in accounting rules in which goodwill
amortization expense from acquisitions is no longer recorded. Moderate increases in non-interest expense are likely going forward as
the Bank anticipates future remodeling and expansion of its banking centers in the surrounding areas. Non-interest
expense levels are often measured using an efficiency ratio (non-interest expense divided by the sum of net interest income and
non-interest income). A lower efficiency ratio is indicative of higher bank performance. The Bank's efficiency ratio was 48% in
2002 compared to 55% in 2001.
Employee compensation and benefits increased $234,000 or 13% for 2002. The increase reflects growth in the overall staffing level
from 216 full-time equivalent employees at September 30, 2001 to 235 at September 30, 2002. The Bank's continued emphasis on
building its commercial and retail staff to reflect its commercial bank philosophy was the largest contributing factor.
As a result of adopting new accounting standards on July 1, 2002, the Corporation ceased annual amortization of $832,000 on remaining
goodwill assets of $8.4 million. Annual impairment testing will be required for goodwill with impairment being recorded if the
carrying amount of goodwill exceeds its implied fair value. Goodwill amortization expense reported for the quarter ended September
30, 2001 was $208,000.
ALLOWANCE AND PROVISIONS FOR LOAN LOSSES
The allowance for loan losses is evaluated quarterly by the Executive Loan Committee and maintained at a level that is considered
sufficient to absorb probable incurred credit losses existing in the loan portfolio. Periodic provisions to the allowance are made
as needed. An appropriate level of the general allowance is determined based on the application of loss percentages to graded loans
by categories. In addition, specific reserves are established for individual loans when deemed necessary. The amount of the
provision for loan losses necessary to maintain an adequate allowance is based upon an analysis of various factors, including changes
in lending policies and procedures; underwriting standards; collection; charge-off and recovery history; changes in national and
local economic business conditions and developments; changes in the characteristics of the portfolio; ability and depth of lending
management and staff; changes in the trend of the volume and severity of past due, non-accrual and classified loans; troubled debt
restructuring and other loan modifications; and results of regulatory examinations.
The methodology for allocating the allowance for loan and lease losses has taken into account the Bank's strategic plan to increase
its emphasis on commercial and consumer lending. The Bank increased the amount of the reserve allocated to commercial loans and
consumer loans in response to the growth of the commercial and consumer loan portfolios and management's recognition of the higher
risks and loan losses in these lending areas. The indirect consumer loan program was a new product in 1999 and is comprised of new
and used automobile, motorcycle and all terrain vehicle loans originated on the behalf of the Bank by a select group of auto dealers
within the service area. The indirect loan program involves a greater degree of risk and is evaluated quarterly and monitored by
the Board of Directors. In light of the greater charge-offs from indirect consumer loans compared to direct consumer loans,
proportionally more of the allowance for consumer loans is allocated for indirect loans than direct loans. As the indirect loan
program has evolved, dealer analysis and underwriting standards have been refined to improve the loan loss experience of the
program. Estimating the reserve is a continuous process. In this regard, the Executive Loan Committee continues to monitor the
performance of indirect consumer loans as well as the Bank's other loan products and updates its estimates as the evidence warrants.
The following table sets forth an analysis of the Bank's loan loss experience for the periods indicated.
Three Months Ended
September 30,
------------
2002 2001
---- ----
(Dollars in thousands)
Balance-beginning of period .................................... $ 3,735 $ 2,906
------- -------
Loans charged-off:
Real estate mortgage ........................................ 0 0
Consumer .................................................... (165) (104)
Commercial .................................................. 0 (148)
------- -------
Total charge-offs .............................................. (165) (252)
------- -------
Recoveries:
Real estate mortgage ........................................ 0 1
Consumer .................................................... 27 20
Commercial .................................................. 30 0
------ -------
Total recoveries ............................................... 57 21
------ -------
Net loans charged-off .......................................... (108) (231)
------- -------
Provision for loan losses ...................................... 726 300
------- -------
Balance-end of period ..........................................$ 4,353 $ 2,975
------- -------
Net charge-offs to average
loans outstanding ............................................ .021% .044%
Allowance for loan losses to
total non-performing loans ................................... 105% 98%
Allowance for loan losses to
to net loans outstanding ..................................... .84% .57%
The provision for loan losses increased to $726,000 during 2002 compared to $300,000 during 2001. The total allowance for loan
losses increased $1.4 million to $4.4 million from September 30, 2001 to September 30, 2002. Management increased the provision and
allowance for loan losses due to a change in the loan classification and charge-off estimates, the increase in non-performing loans
which are commensurate with the generally recognized slowing in the U.S. economy, and continued strong growth in commercial real
estate lending. Net loan charge-offs decreased $123,000 to $108,000 during 2002 compared to $231,000 during 2001. The decrease in
charge-offs is primarily related to a decrease of commercial real estate loan charge-offs during the 2002 period.
Federal regulations require insured institutions to classify their own assets on a regular basis. The regulations provide for three
categories of classified loans -- substandard, doubtful and loss. The regulations also contain a special mention and a specific
allowance category. Special mention is defined as loans that do not currently expose an insured institution to a sufficient degree
of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving management's close attention.
Specific allowance is defined as loans for which the Bank has designated specific reserves to cover specifically identified losses.
Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset, or
portion thereof, is classified as loss, the insured institution must either establish specified allowances for loan losses in the
amount of 100% of the portion of the asset classified loss, or charge off such amount. At September 30, 2002, on the basis of
management's review of the Bank's loan portfolio, the Bank had $3.4 million of assets classified substandard, $411,000 classified as
doubtful, $365,000 classified as specific allowance, and $57,000 of assets classified as loss.
Classified loan ranges of estimated loss are as follows: Substandard-2.5% to 35%; Doubtful-5% to 50%; Loss-100%; Special Mention-2%
to 6%; and Specific Allowance-100%. The Bank additionally provides a reserve estimate for incurred losses in non-classified loans
ranging from .20% to 3.50%. Allowance estimates are developed by the Bank in consultation with regulatory authorities, actual loss
experience and peer group loss experience and are adjusted for current economic conditions. Allowance estimates are considered a
prudent measurement of the risk of the Bank's loan portfolio and are applied to individual loans based on loan type.
NON-PERFORMING ASSETS
Non-performing assets consist of certain restructured loans where interest rate or other terms have been renegotiated, loans on which
interest is no longer accrued, real estate acquired through foreclosure and repossessed assets. The Bank does not have any loans
greater than 90 days past due still on accrual. All loans considered impaired under SFAS 114 are included in non-performing loans.
Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual loan
terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loan's effective interest
rate or at the fair value of the collateral if the loan is collateral dependent.
Loans are reviewed on a regular basis and normal collection procedures are implemented when a borrower fails to make a required
payment on a loan. If the delinquency on a mortgage loan exceeds 90 days and is not cured through normal collection procedures or an
acceptable arrangement is not worked out with the borrower, the Bank institutes measures to remedy the default, including commencing
a foreclosure action. Consumer loans generally are charged off when a loan is deemed uncollectible by management and any available
collateral has been disposed of. Commercial business and real estate loan delinquencies are handled on an individual basis by
management with the advice of the Bank's legal counsel. The Bank anticipates that the increase in non-performing real estate loans
will continue due to the growth of the Bank's loan portfolio.
Interest income on loans is recognized on the accrual basis except for those loans in a nonaccrual of income status. The accrual
of interest on impaired loans is discontinued when management believes, after consideration of economic and business conditions and
collection efforts that the borrowers' financial condition is such that collection of interest is doubtful, typically after the loan
becomes 90 days delinquent. When interest accrual is discontinued, interest income is subsequently recognized only to the extent
cash payments are received.
Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate
owned until such time as it is sold. New and used automobile, motorcycle and all terrain vehicles acquired by the Bank as a result of
foreclosure are classified as repossessed assets until they are sold. When such property is acquired it is recorded at the lower of
the unpaid principal balance of the related loan or its fair market value. Any write-down of the property at the time of acquisition
is charged to the allowance for loan losses. Subsequent gains and losses are included in non-interest income.
The following table sets forth information with respect to the Bank's non-performing assets for the periods indicated.
September 30, June 30,
2002 2002
---- ----
(Dollars in thousands)
Restructured ......................................... $3,341 $3,350
Past due 90 days still on accural .................... - -
Loans on non-accrual status .......................... 822 386
----- -----
Total non-performing loans ........................ 4,163 3,736
Real estate acquired
through foreclosure ............................... 679 660
Other repossessed assets ............................. 73 119
----- ------
Total non-performing assets .......................$4,915 $4,515
====== ======
Interest income that would have
been earned on non-performing loans ................ $ 96 $ 300
Interest income recognized
on non-performing loans ............................ 11 32
Ratios: Non-performing loans
to net loans .......................... .80% .72%
Non-performing assets
to net loans .......................... .95% .86%
LIQUIDITY
The Bank maintains sufficient liquidity to fund loan demand and routine deposit withdrawal activity. Liquidity is managed by
retaining sufficient liquid assets such as cash and cash equivalents, interest-bearing deposits, principal and interest payments from
loans and securities. If large certificate depositors shift to the Bank's competitors or the stock market in response to interest
rate changes, the Bank has the ability to replenish them through alternative funding sources. While the Bank utilizes numerous
funding sources in order to meet liquidity requirements, FHLB borrowings remain a material component of management's balance sheet
strategy. Also, the proceeds of trust preferred securities held by the Corporation are on deposit with a third party and available
to the Corporation or Bank if needed. At September 30, 2002, the Bank had an unused approved line of credit in the amount of $52.6
million and sufficient collateral to borrow an additional $140.3 million in advances from the FHLB.
CAPITAL
In November 2001 the Corporation's Board of Directors authorized the establishment of an additional stock repurchase program pursuant
to which 10% of the Corporation's outstanding stock may be repurchased from time to time in the open market. The programs, which
began in 1995, have repurchased a total of 717,050 shares. The Board will continue to evaluate earnings per share and monitor the
success of the repurchase plan to maintain an attractive return to stockholders. The current plan expires in May 2003, when the
Board will analyze the Bank's capital position and future earnings potential.
On March 26, 2002, First Federal Statutory Trust I, a trust subsidiary of First Federal Financial Corporation of Kentucky (the
"Corporation"), completed the private placement of 10,000 shares of cumulative trust preferred securities with a liquidation
preference of $1,000 per security. The proceeds of the offering were loaned to the Corporation in exchange for floating rate junior
subordinated deferrable interest debentures. Distributions on the securities are payable quarterly at a rate per annum equal to the
3-month LIBOR plus 3.60%. The Corporation undertook the issuance of these securities to enhance its regulatory capital position as
they are considered as Tier I capital under current regulatory guidelines. The Corporation intends to utilize the proceeds for
general business purposes and to support the Bank's future opportunities for growth.
Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual
risk profiles of financial institutions. The Corporation on a consolidated basis and the Bank continue to exceed the regulatory
requirements for Tier I, Tier I leverage and total risk-based capital. Management intends to maintain a capital position that meets
or exceeds the "well capitalized" requirements as defined by the FDIC. The Bank's average stockholders' equity to average assets
ratio was 8.68% during the quarter ended September 30, 2002 compared to 9.08% in the same quarter during 2001.The actual and required
capital amounts and ratios are presented below:
To Be Considered
Well Capitalized
Under Prompt
For Capital Correction
Actual Adequacy Purposes Action Provisions
------------------------------------------------------------------------
As of September 30, 2002: Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total risk-based capital (to risk-
weighted assets)
Consolidated $63,177 13.5% $37,343 8.0% $46,679 10.0%
Bank 55,020 11.8 37,160 8.0 46,450 10.0
Tier I capital (to risk-weighted
assets)
Consolidated 58,563 12.6 18,672 4.0 27,007 6.0
Bank 50,455 10.9 18,580 4.0 27,870 6.0
Tier I capital (to average assets)
Consolidated 58,563 8.7 26,890 4.0 33,612 5.0
Bank 50,455 7.6 26,548 4.0 32,186 5.0
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
To minimize the volatility of net interest income and exposure to economic loss that may result from fluctuating interest rates, the
Bank manages its exposure to adverse changes in interest rates through asset and liability management activities within guidelines
established by its Asset Liability Committee ("ALCO"). The ALCO, which includes senior management representatives, has the
responsibility for approving and ensuring compliance with asset/liability management polices of the Corporation. Interest rate risk
is the exposure to adverse changes in the net interest income as a result of market fluctuations in interest rates. The ALCO, on an
ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies.
Management considers interest rate risk to be the Bank's most significant market risk.
The Bank utilizes an earnings simulation model to analyze net interest income sensitivity. Potential changes in market interest
rates and their subsequent effects on net interest income are then evaluated. The model projects the effect of instantaneous
movements in interest rates of both 100 and 200 basis points. Assumptions based on the historical behavior of the Bank's deposit
rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently
uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of
fluctuations in market interest rates on net interest income. Actual results will differ from the model's simulated results due to
timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of
various management strategies.
The Bank's interest sensitivity profile was asset sensitive at September 30, 2002 compared to June 30, 2002. Given a sustained 100
basis point decrease in rates, the Bank's base net interest income would decrease by an estimated 1.97% at September 30, 2002
compared to an increase of 5.52% at June 30, 2002. Given a 100 basis point increase in interest rates the Bank's base net interest
income would increase by an estimated 1.46% at September 30, 2002 compared to a decrease of 2.57% at June 30, 2002.
The interest sensitivity of the Corporation at any point in time will be affected by a number of factors. These factors include the
mix of interest sensitive assets and liabilities as well as their relative pricing schedules. It is also influenced by market
interest rates, decay rates and prepayment speed assumptions. Decays and prepayments are calculated at rates published by the most
current statistics available to the Office of Thrift Supervision. Our previous disclosures of sensitivity included growth rates for
loans and deposits. To provide improved period-to-period comparisons, the tables are now presented absent these growth estimates.
As demonstrated by the June 30, and September 30, 2002 sensitivity tables presented below, the bank is transitioning away from a
liability sensitive thrift organization to a more balanced asset sensitive commercial bank institution. The current reporting period
improvement in the bank's asset sensitivity is a result of changes in the investment portfolio to a greater extent than loan
products. While lending practices have shifted to shorter term, variable rate commercial and consumer loans, that impact will be
evidenced in smaller degrees over time. The more dramatic contribution to sensitivity over the June 30 period results from
longer-term investments being called that produces overnight liquidity deposits that immediately reprice during rate shocks.
Interest Rate Sensitivity Table
September 30, 2002
Decrease in Rates Increase in Rates
------------------ -------------------
200 100 100 200
(Dollars in thousands) Basis Points Basis Points Base Basis Points Basis Points
------------ ------------ ---- ------------ ------------
Projected interest income
Loans ................................... $ 36,897 $ 38,341 $ 39,545 $ 40,553 $ 41,463
Investments ............................. 786 1,634 2,490 3,419 4,152
------ ------ ------ ------- ------
Total interest income ........................ 37,683 39,975 42,035 43,972 45,615
Projected interest expense
Deposits ................................ 10,421 11,896 13,477 15,059 16,641
Borrowed funds .......................... 4,333 4,335 4,337 4,339 4,341
------ ------ ------- ------- ------
Total interest expense ....................... 14,754 16,231 17,814 19,398 20,982
Net interest income .......................... $ 22,929 $ 23,744 $ 24,221 $ 24,574 $ 24,633
Change from base ............................. $ (1,292) $ (477) $ 353 $ 412
% Change from base ........................... (5.33)% (1.97)% 1.46% 1.70%
Interest Rate Sensitivity Table
June 30, 2002
Decrease in Rates Increase in Rates
------------------ ---------------------
200 100 100 200
(Dollars in Thousands) Basis Points Basis Points Base Basis Points Basis Points
------------ ------------ ---- ------------ ------------
Projected interest income
Loans ................................... $ 37,450 $ 38,864 $ 39,999 $ 40,940 $ 41,784
Investments ............................. 3,333 3,520 3,612 3,659 3,723
------ ------ ------- ------- ------
Total interest income ........................ 40,783 42,384 43,611 44,599 45,507
Projected interest expense
Deposits ................................ 10,174 11,958 14,548 16,170 17,791
Borrowed funds .......................... 4,335 4,337 4,338 4,339 4,340
------ ------ ------ ------ ------
Total interest expense ....................... 14,509 16,295 18,886 20,509 22,131
Net interest income .......................... $ 26,274 $ 26,089 $ 24,725 $ 24,090 $ 23,376
Change from base ............................. $ 1,549 $ 1,364 $ (635) $ (1,349)
% Change from base ........................... 6.26% 5.52% (2.57)% (5.46)%
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information for this item is incorporated by reference to the Asset/Liability Management and Market Risks section on pages 21 and
22 of Part I, Item 2., Management's Discussion and Analysis of Financial Condition and Results of Operations, of this report.
Item 4. Controls and Procedures
Within the 90-day period before the filing date of this report, an evaluation was carried out under the supervision and with the
participation of First Federal Financial Corporation's management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information
required to be disclosed by First Federal Financial Corporation in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and
forms. After the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no
significant changes in First Federal Financial Corporation's internal controls or in other factors that could significantly affect
its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
Part II - Other Information
Item 1. Legal Proceedings
Although the Bank is, from time to time, involved in various legal proceedings in the normal course of
business, there are no material pending legal proceedings to which the Corporation, the Bank, or its
subsidiaries is a party, or to which any of their property is subject.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits:
99(a) Certification of Principal Executive Officer Pursuant to Section 906 of
Sarbanes-Oxley Act
99(b) Certification of Principal Financial Officer Pursuant to Section 906 of
Sarbanes-Oxley Act
Reports on Form 8-K: None
FIRST FEDERAL FINANCIAL CORPORATION OF KENTUCKY
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.
DATE: November 13, 2002 BY: (S) B. Keith Johnson
----------------------
B. Keith Johnson
President and Chief Executive Officer
DATE: November 13, 2002 BY: (S) Charles E. Chaney
------------------------------
Charles E. Chaney
Chief Operating Officer
Chief Financial Officer &
Principal Accounting Officer
CERTIFICATIONS
I, B. Keith Johnson, certify that:
1) I have reviewed this quarterly report on Form 10-Q of First Federal Financial Corporation of Kentucky;
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 By: /s/ B. Keith Johnson
--------------------
B. Keith Johnson
President and Chief Executive Officer
CERTIFICATIONS
I, Charles Chaney, certify that:
1) I have reviewed this quarterly report on Form 10-Q of First Federal Financial Corporation of Kentucky;
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ Charles Chaney
------------------
Charles Chaney
Chief Operating Officer,
Chief Financial Officer &
Principal Accounting Officer
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
99(a) Certification of Principal Executive Officer Pursuant to Section 906
of Sarbanes-Oxley Act
99(b) Certification of Principal Financial Officer Pursuant to Section 906
of Sarbanes-Oxley Act
EXHIBIT 99 (a)
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
Certification of Principal Executive Officer for Quarterly Report on Form 10-Q
I, B. Keith Johnson, President & Chief Executive Officer of First Federal Financial
Corporation of Kentucky, certify that to my knowledge:
1. The quarterly report fully complies with the requirements of section 13 (a)
of the Securities Exchange Act of 1934 and;
2. The information contained in the quarterly report fairly presents, in
all material respects, the financial condition and results of operations of the Company;
Date: November 13, 2002 By: /s/ B. Keith Johnson
--------------------
B. Keith Johnson
President and Chief Executive Officer
EXHIBIT 99 (b)
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
Certification of Principal Financial Officer for Quarterly Report on Form 10-Q
I, Charles Chaney, Chief Operating Officer, Chief Financial Officer & Principal Accounting Officer
of First Federal Financial Corporation of Kentucky, certify that to my knowledge:
1. The quarterly report fully complies with the requirements of section 13 (a)
of the Securities Exchange Act of 1934 and;
2. The information contained in the quarterly report fairly presents, in
all material respects, the financial condition and results of operations of the Company;
Date: November 13, 2002 By: /s/ Charles Chaney
------------------
Charles Chaney
Chief Operating Officer,
Chief Financial Officer &
Principal Accounting Officer
