UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number: 0-26360
FRANKFORT FIRST BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1271129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
216 West Main Street, Frankfort, Kentucky 40602
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(Address of principal executive offices) (Zip Code)
(502) 223-1638
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 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 the number of shares outstanding of each of the issuer's classes of
common stock as of February 11, 2002: 1,246,108
Page 1 of 13 pages
page 1
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------------------------------------------------
Item 1 Consolidated Statements of Financial Condition at
December 31, 2001 and June 30, 2001 3
Consolidated Statements of Earnings for the three
months and six months ended December 31,
2001 and 2000 4
Consolidated Statements of Cash Flows for the six
months ended December 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 12
Item 2 Changes in Securities and Use of Proceeds 12
Item 3 Defaults upon Senior Securities 12
Item 4 Submission of Matters to a
Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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page 2
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
2001 2001
(Audited)
ASSETS
Cash and due from banks $ 452 $ 740
Interest-bearing deposits in other financial institutions 3,182 5,977
--------- ---------
Cash and cash equivalents 3,634 6,717
Certificates of deposit in other financial institutions 100 100
Investment securities held to maturity- at amortized cost,
approximate fair market value of $1,005 and $2,013 as of
December 31, 2001 and June 30, 2001, respectively 999 1,995
Loans receivable - net 136,526 136,435
Office premises and equipment - at depreciated cost 1,411 1,421
Federal Home Loan Bank stock - at cost 2,647 2,566
Accrued interest receivable on loans 407 433
Accrued interest receivable on investments and
interest-bearing deposits 24 42
Prepaid expenses and other assets 39 79
Prepaid federal income taxes 75 68
--------- ---------
Total assets $ 145,862 $ 149,856
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 80,426 $ 82,829
Advances from the Federal Home Loan Bank 45,767 47,128
Advances by borrowers for taxes and insurance 41 344
Accrued interest payable 86 54
Deferred federal income taxes 137 93
Other liabilities 1,248 1,274
--------- ---------
Total liabilities 127,705 131,722
Shareholders' equity
Preferred stock, 500,000 shares authorized, $.01 par
value; no shares issued -- --
Common stock, 3,750,000 shares authorized, $.01
par value; 1,672,443 shares issued 17 17
Additional paid-in capital 5,876 5,876
Retained earnings - restricted 18,698 18,675
Less 426,335 shares of treasury stock-at cost (6,434) (6,434)
--------- ---------
Total shareholders' equity 18,157 18,134
--------- ---------
Total liabilities and shareholders' equity $ 145,862 $ 149,856
========= =========
Book value per share $ 14.57 $ 14.55
========= =========
page 3
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
December 31, December 31,
2001 2000 2001 2000
Interest income
Loans $ 5,056 $ 5,246 $ 2,497 $ 2,652
Investment securities 48 66 19 33
Interest-bearing deposits and other 144 118 58 61
------- ------- ------- -------
Total interest income 5,248 5,430 2,574 2,746
Interest expense
Deposits 1,904 2,020 918 1,006
Borrowings 1,431 1,398 710 730
------- ------- ------- -------
Total interest expense 3,335 3,418 1,628 1,736
------- ------- ------- -------
Net interest income 1,913 2,012 946 1,010
Provision for losses on loans 1 -- -- --
------- ------- ------- -------
Net interest income after provision
for losses on loans 1,912 2,012 946 1,010
Other operating income 31 25 13 11
General, administrative and other expense
Employee compensation and benefits 504 465 246 228
Occupancy and equipment 85 77 44 39
Federal deposit insurance premiums 8 8 4 4
Franchise and other taxes 41 57 27 28
Data processing 61 61 30 30
Other operating 155 173 77 90
------- ------- ------- -------
Total general, administrative
and other expense 854 841 428 419
------- ------- ------- -------
Earnings before income taxes 1,089 1,196 531 602
Federal income taxes
Current 323 364 151 187
Deferred 44 43 25 18
------- ------- ------- -------
Total federal income taxes 367 407 176 205
------- ------- ------- -------
NET EARNINGS $ 722 $ 789 $ 355 $ 397
======= ======= ======= =======
Basic Earnings Per Share $ 0.58 $ 0.62 $ 0.28 $ 0.32
======= ======= ======= =======
Diluted Earnings Per Share $ 0.57 $ 0.62 $ 0.28 $ 0.32
======= ======= ======= =======
page 4
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 722 $ 789
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments, and mortgage backed securities, net (4) (8)
Amortization of deferred loan origination fees (40) (19)
Depreciation and amortization 40 36
Provision for losses on loans 1 --
Federal Home Loan Bank stock dividends (81) (90)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 44 (19)
Prepaid expenses and other assets 40 36
Accrued interest payable 32 (15)
Other liabilities (26) (2)
Federal income taxes
Current (7) (52)
Deferred 44 43
-------- --------
Net cash provided by operating activities 765 699
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,000 --
Purchase of Federal Home Loan Bank stock -- (35)
Loan principal repayments 16,383 10,698
Loan disbursements (16,435) (12,036)
Purchase of office premises and equipment (30) (3)
-------- --------
Net cash provided by (used in) investing activities 918 (1,376)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (2,403) (1,731)
Proceeds from Federal Home Loan Bank advances -- 14,650
Repayment of Federal Home Loan Bank advances (1,361) (8,668)
Proceeds from other borrowed money -- 460
Repayment of other borrowed money -- (833)
Advances by borrowers for taxes and insurance (303) (312)
Dividends paid on common stock (699) (652)
Acquisition of treasury stock -- (953)
-------- --------
Net cash provided by (used in) financing activities (4,766) 1,961
-------- --------
Net increase (decrease) in cash and cash equivalents (3,083) 1,284
Cash and cash equivalents at beginning of period 6,717 978
-------- --------
Cash and cash equivalents at end of period $ 3,634 $ 2,262
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 330 $ 415
======== ========
Interest on deposits and borrowings $ 3,303 $ 3,433
======== ========
page 5
FRANKFORT FIRST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and therefore do not include all
disclosures necessary for a complete presentation of the statements of financial
condition, statements of earnings, and statements of cash flows in conformity
with accounting principles generally accepted in the United States of America.
However, all adjustments which are, in the opinion of management, necessary for
the fair presentation of the interim financial statements have been included and
all such adjustments are of a normal recurring nature. The results of operations
for the six and three month periods ended December 31, 2001, are not necessarily
indicative of the results which may be expected for the entire year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 2001.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Frankfort First Bancorp, Inc. (the Company) and First Federal Savings Bank of
Frankfort (the Bank). All significant intercompany items have been eliminated.
(3) EARNINGS PER SHARE
Basic earnings per share is computed based upon the weighted average common
shares outstanding which totaled 1,246,108 for each of the six and three month
periods ended December 31, 2001, and 1,278,385 and 1,250,347 for the six and
three month periods ended December 31, 2000, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares, i.e. the Company's
stock option plan. Weighted-average common shares deemed outstanding for
purposes of computing diluted earnings per share totaled 1,276,657 and 1,276,721
for the six and three month periods ended December 31, 2001, respectively.
Incremental shares related to the assumed exercise of stock options included in
the calculation of diluted earnings per share totaled 30,549 and 30,613 for the
six and three month periods ended December 31, 2001. For the six and three month
periods ended December 31, 2000, there were no incremental shares related to the
assumed exercise of stock options due to the non-dilutive nature of the options
during those periods. As of December 31, 2001 the Company has 181,859 stock
options outstanding of which 177,112 have an exercise price of $13.80 per share
and 4,747 have an exercise price of $14.91 per share.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations," which requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method. The
pooling-of-interests method of accounting is prohibited except for combinations
initiated before June 30, 2001. The remaining provisions of SFAS No. 141
relating to business combinations accounted for by the purchase method,
including identification of intangible assets, accounting for negative goodwill,
financial statement presentation and disclosure, are effective for combinations
completed after June 30, 2001. Management adopted SFAS No. 141 effective July 1,
2001, as required, without material effect on the Company's financial position
or results of operations.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible
Assets," which prescribes accounting for all purchased goodwill and intangible
assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is
tested for impairment at the reporting unit level annually and whenever an
impairment indicator arises.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. SFAS No. 142 is not expected to have a material effect on the Company's
financial position or results of operations.
page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, the Company's operations, and the
Company's actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Company's market area generally.
GENERAL
The principal business of the Bank consists of accepting deposits from the
general public and investing these funds in loans secured by one- to four-family
owner-occupied residential properties in the Bank's primary market area. The
Bank also invests in loans secured by non-owner occupied one- to four-family
residential properties and some churches located in the Bank's primary market
area. The Bank also maintains an investment portfolio which may include FHLB
stock, FHLB certificates of deposit, U.S. Government Agency-issued bonds, and
other investments.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2001 AND JUNE 30, 2001
ASSETS: The Company's total assets decreased from $149.9 million at June
30, 2001 to $145.9 million at December 31, 2001, a decrease of $4.0 million or
2.7%. The decrease in total assets is primarily attributable to a decrease in
the Company's cash and cash equivalents, which decreased $3.1 million or 45.9%
to $3.6 million at December 31, 2001. Also decreasing was investment securities
held to maturity, which decreased $996,000 or 49.9% to $999,000 at December 31,
2001. Loans receivable increased by $91,000, or 0.1%.
LIABILITIES: The Company's total liabilities decreased $4.0 million or 3.0%
to $127.7 million at December 31, 2001. The decrease in total liabilities is
primarily attributable to a decrease in deposits of $2.4 million or 2.9% from
$82.8 million at June 30, 2001 to $80.4 million at December 31, 2001. Also
contributing to the decrease in total liabilities was a decrease in Advances
from the Federal Home Loan Bank ("Advances") of $1.4 million or 2.9% to $45.8
million at December 31, 2001.
SHAREHOLDERS' EQUITY: Shareholders' equity increased $23,000 or 0.1% to
$18.2 million at December 31, 2001. This increase is a result of the Company's
net earnings of $722,000 less the Company's dividends declared during the period
of $699,000. The Company's book value per share was $14.57 at December 31, 2001,
compared to $14.55 at June 30, 2001.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2001,
AND DECEMBER 31, 2000
NET EARNINGS: The Company's net earnings decreased by $67,000 or 8.5% from
$789,000 for the six month period ended December 31, 2000, to $722,000 for the
six month period ended December 31, 2001. The decrease in net earnings was
primarily attributable to a decrease in net interest income of $99,000. The
Company's basic earnings per share decreased $0.04 or 6.5% to $0.58 per share
for the six month period ended December 31, 2001, compared to $0.62 for the
previous period. The Company's diluted earnings per share declined $0.05 or 8.1%
from $0.62 per share for the six month period ended December 31, 2000 to $0.57
per share for the six month period ended December 31, 2001.
NET INTEREST INCOME: Net interest income decreased $99,000 or 4.9% from
$2.0 million for the six month period ended December 31, 2000 to $1.9 million
for the six month period ended December 31, 2001. The decrease was primarily due
to a decrease in total interest income as the average return on the Company's
interest-earning assets continued to decline at a faster rate than the average
cost of funds. The unprecedented reduction in interest rates by the Federal Open
Market Committee has caused a radical overall reduction in market interest
rates.
page 7
INTEREST INCOME: Interest income decreased $182,000 or 3.4% to $5.2 million
for the six month period ended December 31, 2001. This was primarily
attributable to a decrease in interest income from loans of $190,000 or 3.6%,
which is chiefly the result of lower interest rates earned on these loans caused
by downward adjustments in adjustable rate mortgages (which comprise
approximately 70% of the Company's loan portfolio) and refinancing as borrowers
sought to lower their mortgage rates. Management states that it is possible that
the level of loans receivable-net could further decline as a result of borrowers
choosing long-term, fixed-rate mortgages offered by other lenders over the
Bank's primary offering of adjustable-rate mortgages. As a portfolio lender, the
Bank is reluctant to offer long-term, fixed-rate mortgages when those rates are
at historically low levels and for the same reason borrowers may be more likely
to eagerly pursue such mortgages. This could likewise have a negative impact on
earnings. Interest income from interest-bearing deposits and other increased
during the period by $26,000 or 22.0%. This was the result of increased levels
of interest-bearing deposits in other financial institutions generated primarily
by an increase in the average balance of deposits and a decrease in investment
securities. The Company primarily utilizes short-term vehicles for investment
and liquidity purposes. The rates earned on these assets have dropped sharply as
well.
INTEREST EXPENSE: Interest expense decreased $83,000 or 2.4% to $3.3
million for the six month period ended December 31, 2001. This decrease was due
to a decrease in interest expense on deposits of $116,000 or 5.7% to $1.9
million for the six month period ended December 31, 2001, but was offset by an
increase of $33,000 in interest expense on borrowings. The decrease in interest
expense on deposits is a result of a decrease in the average rate paid on
deposits, as the average balance of deposits increased slightly for the period.
The increase in interest expense on borrowings is a result of an increase in the
average balance of advances outstanding. The average rate paid on advances
decreased slightly. The average balance of advances outstanding increased $1.1
million or 2.5% from $45.4 million for the six month period ended December 31,
2000, to $46.5 million for the six month period ended December 31, 2001.
Generally, rates paid on deposits have been decreasing in the current period.
Management has some discretion in reducing rates paid on savings accounts,
checking accounts, and short-term certificates of deposit. However, the average
cost of longer-term certificates of deposit and long-term borrowings cannot be
reduced. Management cannot predict whether the rates paid on deposits will
decrease at a rate faster than the rates earned on loans; therefore, it is
possible that earnings could be negatively impacted by the current and future
interest rate environment. Conversely, the rates paid for advances are generally
fixed and will not decline. They offer protection in times of increasing
interest rates, but could hamper earnings in times such as these where rates
have significantly decreased.
PROVISION FOR LOSSES ON LOANS: The provision for losses on loans was $1,000
for the six month period ended December 31, 2001, compared to no provision for
the six month period from the prior year. The allowance for losses on loans
increased from $101,000 at December 31, 2000 to $102,000 at December 31, 2001.
As a percentage of non-performing loans, the allowance for loan losses decreased
from 46.9% at December 31, 2000 to 12.8% at December 31, 2001. This decrease was
caused by a greater balance of nonperforming loans at December 31, 2001 (see
"Non-Performing Assets"). Despite the increase in non-performing loans,
Management believes, on the basis of its analysis of the risk profile of the
Company's assets, that the allowance for loan losses is adequate. In determining
the appropriate provision, management considers a number of factors, including
specific loans in the Company's portfolio, real estate market trends in the
Company's market area, economic conditions, interest rates, and other conditions
that may affect a borrower's ability to comply with repayment terms. Overall,
management considers the fact that the vast majority of loans in the Company's
portfolio are secured by 1-4 family residential real estate which heretofore has
resulted in minimal losses on loans. The decision to adjust the provision for
losses on loans in the six month period ended December 31, 2001 was made after
careful consideration of these factors. However, there can be no assurance that
the allowance will be adequate to cover losses on nonperforming assets in the
future.
OTHER OPERATING INCOME: Other operating income increased $6,000 or 24.0%
from $25,000 for the six month period ended December 31, 2000 to $31,000 for the
six month period ended December 31, 2001. Other operating income is not a
significant component of the Company's statement of earnings.
page 8
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES: General, administrative, and
other expense increased $13,000 or 1.5% from $841,000 for the six month period
ended December 31, 2000 to $854,000 for the six month period ended December 31,
2001. The increase was due primarily to a $39,000 or 8.4% increase in employee
compensation and benefits, which resulted mostly from increased costs associated
with the Company's deferred compensation program. The deferred compensation plan
has some features that cause compensation expense to increase with the Company's
stock price. Partially offsetting the increase in employee compensation and
benefits was an $18,000 or 10.4% decrease in other operating expense. The
decrease in other operating expense resulted from lower overall costs in various
expenses and an incident occurring during the six month period ended December
31, 2000, which management does not expect to reoccur.
INCOME TAX: The Company's provision for federal income taxes decreased from
$407,000 for the six month period ended December 31, 2000 to $367,000 for the
six month period ended December 31, 2001. The decrease was a result of the
decrease in the Company's pretax earnings. The Company's effective tax rate was
33.7% and 34.0% for the six month periods ended December 31, 2001 and 2000,
respectively.
NON-PERFORMING ASSETS: At December 31, 2001, the Bank had approximately
$797,000 (0.6% of net loans) in loans 90 days or more past due but still
accruing, as compared to $215,000 at December 31, 2000. Also, the Bank had
$461,000 in loans listed as special mention and $762,000 in loans internally
classified as Substandard. No loans were classified as Doubtful or Loss. All
assets listed as non-performing are 1-4 family mortgage loans with a
loan-to-value ratio (based on the original appraisal) of less than 80%.
Non-performing assets are considered by the Bank to still be accruing as long as
the reasonably determined fair value of the collateral exceeds all principal,
interest, and fees required to discharge the obligation without loss. Management
has initiated foreclosure proceedings on some of the loans included in
non-performing assets. With others, management is attempting to encourage the
borrower to remedy the delinquency although foreclosure remains an option. The
Bank has not charged off any loans during the period.
DIVIDENDS: On September 14, 2001, the Company announced a dividend policy
whereby it will pay a quarterly cash dividend of $0.28 per share, payable on the
15th day of the month following the end of each quarter, to shareholders of
record as of the last business day of each quarter. This represented an increase
of $0.02 or 7.7% from the previous quarterly dividend of $0.26 per share, which
was established on September 13, 2000. The Board of Directors determined that
the payment of a dividend was appropriate in light of the Company's capital
position and financial condition. Although the Board of Directors has adopted
this policy, the future payment of dividends is dependent upon the Company's
financial condition, earnings, equity structure, capital needs, regulatory
requirements, and economic conditions. The Company last paid a dividend on
October 15, 2001. At December 31, 2001, the Company had recorded dividends
payable of $349,000 for the payment of a dividend on January 15, 2002.
STOCK REPURCHASES: On November 7, 2001, the Company announced that the
Board of Directors had authorized a new program for the purchase of up to 62,000
of the remaining outstanding shares of common stock. Management believes that
the repurchase program should be completed within nine months of commencement.
The Board of Directors considers the Company's common stock to be an attractive
investment, and believes that repurchase programs may improve liquidity in the
market for the common stock and may result in increased per share earnings and,
depending on price, book value per share. The Board will continue to consider
stock repurchases and in the future may enact similar programs depending on
market conditions, interest rates, and the availability of funds.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
AND DECEMBER 31, 2000
NET EARNINGS: The Company's net earnings decreased $42,000 or 10.6% to
$355,000 for the three months ended December 31, 2001 compared to $397,000 for
the three months ended December 31, 2000. This decrease is primarily
attributable to a decrease in net interest income of $64,000. The Company's
basic and diluted earnings per share declined $0.04 or 12.5% from $0.32 per
share for the three month period ended December 31, 2000 to $0.28 per share for
the three month period ended December 31, 2001.
NET INTEREST INCOME: Net interest income totaled $946,000 for the three
month period ended December 31, 2001, a decrease of $64,000 or 6.3% from the
same period in 2000. The decrease was primarily due to a decrease in total
interest income as the average return on the Company's interest-earning assets
continued to decline at a faster rate than the average cost of funds. The
unprecedented reduction in interest rates by the Federal Open Market Committee
has caused a radical overall reduction in market interest rates.
page 9
INTEREST INCOME: Interest income decreased $172,000 or 6.3% to $2.6 million
for the three month period ended December 31, 2001. This was primarily
attributable to a decrease in interest income from loans which decreased by
$155,000 or 5.8%, which is chiefly the result of lower interest rates earned on
these loans caused by downward adjustments in adjustable rate mortgages (which
comprise approximately 70% of the Company's loan portfolio) and refinancing as
borrowers sought to lower their mortgage rates. Interest income from investment
securities decreased from $33,000 for the three month period ended December 31,
2000 to $19,000 for the three month period ended December 31, 2001, a decrease
of $14,000 or 42.4%. Interest income from interest-bearing deposits and other
decreased from $61,000 for the three month period ended December 31, 2000 to
$58,000 for the three month period ended December 31, 2001, a decrease of $3,000
or 4.9%.
INTEREST EXPENSE: Interest expense decreased $108,000 or 6.2% to $1.6
million for the three month period ended December 31, 2001. This decrease was
primarily due to a decrease in interest expense on deposits which decreased
$88,000 or 8.7% to $918,000 for the three month period ended December 31, 2001.
The decrease in interest expense on deposits is a result of a decrease in the
average rate paid on deposits, as the average balance of deposits increased $2.0
million or 2.5% to $81.8 million for the three month period ended December 31,
2001 compared to the prior year. Interest expense on borrowings decreased
$20,000 or 2.7% to $710,000 for the three month period ended December 31, 2001,
primarily due to a decrease in the average amount of advances outstanding. The
average amount of advances outstanding decreased $1.2 million or 2.6% for the
three month period ended December 31, 2001, compared to the three month period
ended December 31, 2000.
OTHER OPERATING INCOME: Other operating income increased $2,000 or 18.2%
from $11,000 for the three month period ended December 31, 2000 to $13,000 for
the three month period ended December 31, 2001. Other operating income is not a
significant component of the Company's statement of operations.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES: General, administrative, and
other expense increased $9,000 or 2.1% from $419,000 for the three month period
ended December 31, 2000 to $428,000 for the three month period ended December
31, 2001. The increase was primarily the result of an $18,000 or 7.9% increase
in employee compensation and benefits, which resulted mostly from increased
costs associated with the Company's deferred compensation program. The deferred
compensation plan has some features that cause compensation expense to increase
with the Company's stock price. Partially offsetting the increase in employee
compensation and benefits was a $13,000 or 14.4% decrease in other operating
expense. The decrease in other operating expense resulted from lower overall
costs in various expenses and an incident occurring during the three month
period ended December 31, 2000, which management does not expect to reoccur.
INCOME TAX: The Company's provision for federal income taxes decreased from
$205,000 for the three month period ended December 31, 2000 to $176,000 for the
three month period ended December 31, 2001. The decrease was a result of the
decrease in the Company's pretax earnings. The Company's effective tax rate was
34.1% for the three month period ended December 31, 2000 and 33.1% for the three
month period ended December 31, 2001.
page 10
PART II.
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The registrant held its Annual Meeting of Stockholders on November 12,
2001.
(b) Not applicable.
(c) The only matter to be voted upon at the Annual Meeting was the
election of two individuals as directors.
Nominee Votes For Votes Withheld
------- --------- --------------
Charles A. Cotton, III 1,101,924 1,627
Danny A. Garland 1,089,447 14,104
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: None
Reports on Form 8-K: None
page 11
SIGNATURE
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.
Frankfort First Bancorp, Inc.
Date: February 11, 2002
/s/ Don D. Jennings
-----------------------------------
Don D. Jennings
President
/s/ R. Clay Hulette
-----------------------------------
R. Clay Hulette
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
page 12