First Federal Bancorp (FFBZ) 10QSB 2000 Q3 Quarterly report (small business)

FORM 10-QSB

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2000
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                       to
	Commission File No.0-20380

FIRST FEDERAL BANCORP, INC.
(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization) 31-1341110
(I.R.S. Employer
Identification Number)

505 Market Street
Zanesville, Ohio
(Address of principal
executive office)
43701
(Zip Code)

Registrant's telephone number, including area code: (740) 453-0606

As of July 31, 2000, the latest practicable date, 3,152,771 shares of the registrant's common stock, no par value, were issued and outstanding.

FIRST FEDERAL BANCORP, INC.

INDEX

PART  I	FINANCIAL INFORMATION	PAGE
	Consolidated Statements of Financial Condition	3
	Consolidated Statements of Income	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
PART  II	OTHER INFORMATION	11
	SIGNATURES	12

PART I

FINANCIAL INFORMATION

First Federal Bancorp, Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	At June 30 2000	At Sept. 30 1999
ASSETS Cash and amounts due from depository institutions Overnight deposits       Cash and cash equivalents Interest-bearing deposits in other financial institutions Investment securities held to maturity (Fair value - $9,450,000 in 6/00 and  $9,693,000 in 9/99) Mortgage-backed securities held to maturity (Fair value - $788,000 in 06/00  and $980,000 in 9/99) Loans receivable, net Federal Home Loan Bank stock Premises and equipment, net Accrued interest receivable and other assets       Total Assets	$    3,268,236                      0  $    3,268,236  2,393,751  9,622,356  797,090  204,507,454  3,995,900  6,639,260        1,795,448  $233,019,495	$    5,355,233             25,000  $    5,380,233  2,497,030  9,705,812  969,044  178,949,202  3,790,100  6,978,793        1,589,594  $209,859,808
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities    Deposits     Borrowed funds    Advances from borrowers for taxes and insurance    Accrued expenses and other liabilities       Total Liabilities	$150,763,252  62,728,560  297,824        1,184,221  $214,973,857	$145,120,096  45,568,460  411,326        1,107,658  $192,207,540
Stockholders' Equity    Preferred stock: $100 par value; 1,000,000 shares     authorized; no shares issued and outstanding    Common stock: no par value; 9,000,000 shares authorized; 3,303,400     shares issued; 3,152,771 shares outstanding in 06/00 and 3,196,171 in     9/99    Retained earnings    Treasury shares, 150,629 shares in 06/00 and 107,229 in 9/99, at cost       Total Stockholders' Equity	$    3,736,076  15,025,662          (716,100) $  18,045,638	$    3,736,076  14,268,057          (351,865) $  17,652,268
Total Liabilities and Stockholders' Equity	$233,019,495	$209,859,808

See Notes to the Consolidated Financial Statements.

First Federal Bancorp, Inc.

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30		Nine Months Ended June 30
	2000	1999	2000	1999
INTEREST INCOME    Interest and fees on loans    Interest on mortgage-backed securities    Interest on investment securities    Interest on other interest earning investments       Total Interest Income	$4,114,410 14,886 154,174        22,509   4,305,979	$3,443,538 18,694 434,804        98,264   3,995,300	$11,645,128 46,401 428,631          46,824   12,166,984	$10,376,113 62,119 953,349        481,812   11,873,393
INTEREST EXPENSE    Interest on deposits    Interest on borrowed funds       Total Interest Expense	1,643,718      901,568   2,545,286	1,663,116      677,708   2,340,824	4,483,692     2,552,530     7,036,222	4,774,899     2,159,316     6,934,215
Net Interest Income	1,760,693	1,654,476	5,130,762	4,939,178
Provision for Loan Losses	70,871	122,759	115,959	75,873
Net Interest Income After Provision        for Loan Losses	1,689,822	1,531,717	5,014,803	4,863,305
NONINTEREST INCOME    Service charges on deposit accounts    Gain on sale of loans    Dividends on FHLB stock    Other operating income       Total Noninterest Income	109,951 1,424 71,953      160,506      343,834	93,586 6,014 63,845      140,077      303,522	297,601 4,785 205,952        486,437        994,775	250,970 49,136 188,271        422,230        910,607
NONINTEREST EXPENSE    Salaries and employee benefits    Occupancy and equipment expense    Deposit insurance expense    Data processing expense    Advertising    Ohio franchise taxes    Other operating expenses       Total Noninterest Expenses	593,375 232,816 20,507 126,641 83,394 52,357      274,545   1,383,635	525,878 229,933 35,864 141,579 60,822 52,768      247,737   1,294,581	1,794,403 706,176 76,403 390,689 223,179 160,922        822,184     4,173,956	1,733,114 679,732 107,683 412,093 167,821 160,466        795,469     4,056,378
Income Before Income Taxes	650,021	540,658	1,835,622	1,717,534
Provision for Income Taxes	231,374	176,335	662,479	566,874
Net Income	$   418,647	$ 364,323	$  1,173,143	$  1,150,660
EARNINGS PER SHARE    Basic    Diluted	$           .13 $           .13	$           .11 $           .11	$             .37 $             .35	$             .36 $             .34
WEIGHTED AVERAGE COMMON AND  COMMON EQUIVALENT SHARES    Basic    Diluted	3,164,294   3,313,140	3,196,171   3,405,080	3,180,679     3,335,376	3,196,171     3,412,128
DIVIDENDS DECLARED PER SHARE	$           .04	$           .04	$             .12	$           .115

See Notes to the Consolidated Financial Statements

First Federal Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended June 30
CASH FLOWS FROM OPERATING ACTIVITIES:	2000	1999
Net Income	$  1,173,143	$  1,150,660
Adjustments to reconcile net income to net cash     provided by operating activities:
Provision for loan losses       Depreciation       Federal Home Loan Bank stock dividends       Amortization of net premiums (discounts) on investment securities       Mortgage loans originated for sale       Proceeds from sale of mortgage loans       Change in other assets and other liabilities	115,959  448,256  (205,800) (102,763) (431,200) 434,561        (129,291)	75,873  432,545  (188,100) (191,626) (5,274,309) 5,328,009        (110,461)
Net Cash Provided by Operating Activities	1,302,865	1,222,591
CASH FLOWS FROM INVESTING ACTIVITIES:    Proceeds from maturities of investment securities    Purchases of investment securities/FHLB stock    Loans originated, net of principal repayments    Principal collected on mortgage-backed securities    Sale of real estate owned / repossessed assets    Purchases of premises and equipment	13,576,533 (13,287,036) (25,844,049) 171,954 166,478       (108,723)	19,031,358  (22,400,782) (1,776,864) 196,945  178,533        (141,942)
Net Cash Used for Investing Activities	(25,324,843)	(4,912,752)
CASH FLOWS FROM FINANCING ACTIVITIES:    Net change in deposit accounts    Net change in advance payments by borrowers for taxes and insurance    Net change in borrowed funds with original maturities of less than three months    Repayment of long-term FHLB advances    Cash dividends paid    Proceeds from exercise of options    Purchase of treasury shares	5,643,156  (113,502) 18,160,100  (1,000,000) (380,683) 21,438       (420,528)	(2,321,668) 83,815  (7,009,326) 0  (381,395) 74,324                    0
Net Cash Provided by Financing Activities	21,909,981	(9,554,250)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(2,111,997)	(13,244,411)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	5,380,233	18,332,155
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$  3,268,236	$  5,087,744

See Notes to the Consolidated Financial Statements.

FIRST FEDERAL BANCORP, INC.
Notes to Consolidated Financial Statements

1.    Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. The Form 10-QSB does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Only material changes in financial condition and results of operations are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the opinion of management, the condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial condition of First Federal Bancorp, Inc. ("Bancorp"), as of June 30, 2000, and September 30, 1999, and the results of its operations for the three and nine months ended June 30, 2000, and 1999, and its cash flow for the nine months ended June 30, 2000 and 1999. The results of operations for the interim periods reported herein are not necessarily indicative of results of operations to be expected for the entire year.

2.    Commitments

Outstanding commitments to originate mortgage loans and to sell mortgage loans were $945,350 and $200,000 respectively, at June 30, 2000, and $3,327,100 and $0 respectively at September 30, 1999.

3.    Earnings and Dividends Per Common Share

Basic earnings per share is based on net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share shows the dilutive effect of additional common shares issuable under stock options.

4.    Allowance for Losses on Loans

Because some loans may not be repaid in full, an allowance for loan losses is recorded. Increases to the allowance are recorded by a provision for loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover probable losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem loan situations, the whole allowance is available for any loan charge-offs that occur. A loan is charged-off by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur.

Loans are considered impaired if full principal or interest payments are not anticipated. Impaired loans are carried at the present value of expected cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans.

Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one- to four-family residences, residential construction loans, and automobile, home equity and second mortgage loans. Mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often also considered impaired. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The nature of disclosures for impaired loans is considered generally comparable to prior nonaccrual and renegotiated loans and nonperforming and past-due asset disclosures. The Savings Bank had no loans meeting the definition of impaired during the quarter ended June 30, 2000, and the year ended September 30, 1999.

5.    Interest Income on Loans

Interest on loans is accrued over the term of the loans based upon the principal outstanding. Management reviews loans delinquent 90 days or more to determine if the interest accrual should be discontinued. The carrying value of impaired loans reflects cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such and other cash payments are reported as reductions in carrying value. Increases or decreases in carrying value due to changes in estimates of future payments or the passage of time are reported as reductions or increases in bad debt expense.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

First Federal Bancorp, Inc. ("Bancorp"), is a savings and loan holding company that wholly owns First Federal Savings Bank of Eastern Ohio (the "Savings Bank"). The Savings Bank is engaged in the savings and loan business primarily in Central and Eastern Ohio. The Savings Bank is a member of the Federal Home Loan Bank ("FHLB") of Cincinnati, and the deposit accounts in the Savings Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation in the Savings Association Insurance Fund ("SAIF").

Note Regarding Forward-Looking Statements

In addition to historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, First Federal's operations and First Federal'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 First Federal's market area generally. See Exhibit 99.2 hereto, which is incorporated herein by reference.

Some of the forward-looking statements included herein are the statements regarding the following:

1.	Management's determination of the amount of loan loss allowance;
2.	Management's belief that deposits will increase slightly during fiscal year 2000;
3.	Management's anticipation that loan demand will remain stable but that the mortgage loan portfolio will increase as higher interest rates make adjustable mortgages, which are held in portfolio, more attractive;
4.	Management's anticipation that advances from the FHLB will increase to fund loan originations; and
5.	Management's anticipation that adjustable-rate loans will reprice higher in fiscal year 2000 if interest rates remain relatively stable.

Changes in Financial Condition from September 30, 1999 to June 30, 2000

Total consolidated assets of Bancorp increased by $23.2 million, or 11.04%, from $209.9 million at September 30, 1999, to $233.0 million at June 30, 2000. The increase is due primarily to an increase of $25.6 million in loans receivable offset by a decrease of $2.1 million in cash and cash equivalents and a decrease of $.3 million in premises and equipment.

Total liquidity (consisting of cash and amounts due from depository institutions, interest-bearing deposits in other banks, and investment securities) was $15.3 million at June 30, 2000, which is a decrease of $2.3 million from September 30, 1999. The regulatory liquidity of the Savings Bank was 4.41% at June 30, 2000 and 6.49% at September 30, 1999, which was in excess of the minimum regulatory requirement of 4%. Funds are available through FHLB advances to meet the Savings Bank's liquidity requirement if necessary.

The loans receivable balance increased $25.6 million for the nine-month period. As rates increased, consumer demand for adjustable-rate mortgages has increased. The Savings Bank has retained these adjustable-rate mortgages in its portfolio as they meet the requirement of its Strategic Plan. Consumer loans increased $17.0 million, and mortgages increased $4.9 million from September 30, 1999. Management anticipates that loan demand will remain stable but that the mortgage loan portfolio will increase as higher interest rates make adjustable mortgages more attractive. No assurance can be provided, however, that the loan portfolio will increase or that loan demand will remain stable.

As of June 30, 2000, the Savings Bank had borrowed funds from the FHLB in the amount of $62.7 million at a weighted average rate of 6.67%. FHLB advances increased $17.2 million from $45.6 million at September 30, 1999. The Savings Bank has obtained a line of credit at the discount window of the Federal Reserve System for $18.6 million secured by consumer auto loans. The balance on the line of credit was $0 as of June 30, 2000. Deposits increased by $5.6 million, or 3.89%, from $145.1 million at September 30, 1999, to $150.8 million at June 30, 2000. The net increase in savings was due to an increase in certificates of deposit of $7.7 million and a decrease in passbook accounts of $2.0 million. The Savings Bank utilizes a subscription service to attract funds throughout the United States. This program has generated $17.4 million in deposits since September 30, 1999, at a weighted average rate of 6.59%. Management believes that deposits will increase slightly during fiscal year 2000 and that it will be necessary to fund the anticipated steady loan demand with further advances from the FHLB, whose rates are now in line with current market savings rates and their SAIF premiums. No assurance can be provided, however, that deposits will increase slightly and that the loan portfolio will increase or that loan demand will remain stable. Deposit levels and loan demand are affected by national, as well as local, interest rates, the attractiveness of alternative investments and other national and local economic circumstances.

The Savings Bank is subject to regulatory capital requirements established by the Office of Thrift Supervision ("OTS"). The Savings Bank's capital ratios were as follows at June 30, 2000.

	Amount (In Thousands)	Percent of Assets
Actual Tangible Capital Required Tangible Capital Excess Tangible Capital	$16,427     3,501 $12,746	6.96%   1.50% 5.46%
Actual Core Capital Required Core Capital (1) Excess Core Capital	$16,427     9,337 $  6,910	6.96%   4.00% 2.96%
Actual Risk Based Capital Required Risk Based Capital Excess Risk Based Capital	$17,617   12,326 $  5,291	11.43%   8.00% 3.43%

(1) Although the general required minimum core capital is 4.00%, savings associations that meet certain requirements may be permitted to maintain minimum core capital of 3.00%.

Management is not aware of any proposed regulations or recommendations by the OTS that, if implemented, would have a material effect upon the Savings Bank's capital.

In August 1996, Congress passed legislation repealing the reserve method of accounting used by many thrifts to calculate their bad debt reserve for federal income tax purposes and requiring any bad debt reserves taken after 1987, using the percentage of taxable income method, be included in future taxable income of the association over a six-year period. A two-year delay is permitted for institutions meeting a residential mortgage loan origination test. At September 30, 1999, First Federal had approximately $1.6 million in bad debt reserves subject to recapture for federal income tax purposes. The deferred tax liability related to the recapture was established in prior years, so First Federal's net income will not be negatively affected by this legislation.

Comparison of Operating Results for the Three- and Nine-Month Periods
 Ended June 30, 2000, and 1999

Net interest income before provision for loan losses increased $106,000 for the three-month comparative periods and increased $192,000 for the comparative nine-month periods. Total interest expense increased $204,000 for the three-month period and $102,000 for the nine-month period ended June 30, 2000, compared to the same periods in 1999. Total interest income increased primarily due to an increase in the interest earned on loans receivable offset by a reduction in interest earned on other interest earning investments.

The majority of the loans in the Savings Bank's portfolio are adjustable-rate mortgage loans whose interest rates fluctuate with market interest rates. If interest rates remain relatively stable during fiscal year 2000, the adjustable-rate mortgage loan portfolio will reprice at slightly higher rates, as most loans originated during fiscal year 1999 were not initially priced at the fully indexed interest rate. These loans will be repricing upward at their first adjustment in fiscal year 2000 while the balance of the adjustable-rate mortgage loan portfolio will not reprice substantially lower during fiscal year 2000. No assurance can be provided, however, that interest rates will remain stable. Interest rates are affected by general, local and national economic conditions, the policies of various regulatory authorities and other factors beyond the control of First Federal.

Nonperforming and Delinquent Loans and Allowance for Loan Losses

Total nonaccrual loans and accruing loans that are 90 days past due were $138,000 at June 30, 2000, which represents .06% of total loans. This was a decrease of $83,000 from June 30, 1999.

There were no loans that are not currently classified as nonaccrual, 90 days past due or restructured but which may be so classified in the near future because management has concerns as to the ability of the borrowers to comply with repayment terms.

The Savings Bank maintains an allowance for losses on loans. The allowance for losses on loans was $1,813,038 at June 30, 2000, compared to $1,808,000 at June 30, 1999. During the nine-month periods ended June 30, 2000, and June 30, 1999, the Savings Bank recorded recoveries of $31,901 and $0 and charge-offs of $155,821 and $310,000 respectively. Charge-offs decreased $171,000 due to the decline in delinquencies. A percentage of the outstanding loan balances is added or deducted from the provision for loan losses as the loan portfolio increases and decreases. During the nine-month period ended June 30, 2000, the loan portfolio increased $25.6 million, which caused the provision for loan losses for the period to increase. The provisions for loan losses during the nine-month periods ended June 30, 2000, and 1999, were $115,959 and $75,873 respectively.

Noninterest Income and Expense

The federal income tax provision increased $55,000 for the three-month period and $96,000 for the nine-month period ended June 30, 2000, compared to the same period in 1999 due to an increase in pre-tax net income for the period.

Total noninterest income increased $40,000 for the three-month period and $84,000 for the nine-month period ended June 30, 2000, compared to the same period in 1999. Dividends on FHLB stock increased $8,000 for the three-month period and $18,000 for the nine-month period ended June 30, 2000 due to an increase in FHLB stock held. Other income increased $20,000 for the comparative three-month periods and $64,000 for the comparative nine-month periods. Fee income increased $16,000 for the comparative three-month periods and $47,000 for the comparative nine-month periods due to an increase on fees collected on savings products, ATM, ACH and miscellaneous fees. These increases are a result of implementing recommendations from the independent study completed in the second quarter of fiscal 1999. These increases were offset by a decrease in a gain on the sale of loans due to keeping more of the loan production in portfolio.

Total noninterest expenses increased $89,000 for the three-month period and increased $117,000 for the nine-month period ended June 30, 2000, compared to the same period in 1999. Salaries and benefits increased $68,000 for the three-month period and $61,000 for the nine-month period ended June 1999. Occupancy expense increased $26,000 for the nine-month period ended June 30, 2000; $10,000 of the increase was due to increased depreciation on furniture and fixtures, and $13,500 of the increase was due to increased costs for ATM upgrades and maintenance agreements on equipment. Advertising increased $55,000 due to increased marketing and increased marketing costs.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles ("GAAP"), which require the measurement of financial position and results of operations in terms of historical dollars without considering changes in relative purchasing power of money over time because of inflation.

Unlike most industrial companies, virtually all of the assets and liabilities of First Federal are monetary in nature. As a result, interest rates have a more significant impact on First Federal's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services.

Effect of Accounting Changes

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows, or foreign currencies. If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss are reported in earnings immediately. Accounting for foreign currency hedges is similar to accounting for fair value and cash flow hedges. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. SFAS No. 133, as amended, is effective for fiscal years beginning after June 15, 2000. This Statement will not have a material effect on the Company.

PART II

OTHER INFORMATION

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 Not applicable
ITEM 5.	OTHER INFORMATION Not applicable
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K Exhibit 27     Financial Data Schedule Exhibit 99.2  Safe Harbor Under the Private Securities Litigation Reform Act of 1995 No reports on Form 8-K were filed during the quarter for which this report is filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 11, 2000 By: /s/ J. William Plummer
J. William Plummer
President

Date: August 11, 2000 By: /s/ Connie Ayres LaPlante
Connie Ayres LaPlante
Chief Financial Officer