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 March 31, 2002
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 May 9, 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
March 31, 2002 and June 30, 2001 3
Consolidated Statements of Earnings for the three
months and nine months ended March 31,
2002 and 2001 4
Consolidated Statements of Cash Flows for the nine
months ended March 31, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 11
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
page 2
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
2002 2001
(Audited)
ASSETS
Cash and due from banks $ 1,478 $ 740
Interest-bearing deposits in other financial institutions 4,273 5,977
----------- -----------
Cash and cash equivalents 5,751 6,717
Certificates of deposit in other financial institutions 100 100
Investment securities held to maturity- at amortized cost,
approximate fair market value of $2,013 as of June 30, 2001 -- 1,995
Loans receivable - net 132,811 136,435
Office premises and equipment - at depreciated cost 1,392 1,421
Federal Home Loan Bank stock - at cost 2,676 2,566
Accrued interest receivable on loans 405 433
Accrued interest receivable on investments and
interest-bearing deposits -- 42
Prepaid expenses and other assets 57 79
Prepaid federal income taxes -- 68
----------- ----------
Total assets $ 143,192 $ 149,856
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 77,992 $ 82,829
Advances from the Federal Home Loan Bank 45,283 47,128
Advances by borrowers for taxes and insurance 198 344
Accrued interest payable 51 54
Accrued federal income taxes 30 --
Deferred federal income taxes 200 93
Other liabilities 1,296 1,274
----------- ----------
Total liabilities 125,050 131,722
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 18,683 18,675
Less 426,335 shares of treasury stock-at cost (6,434) (6,434)
----------- ----------
Total shareholders' equity 18,142 18,134
----------- ----------
Total liabilities and shareholders' equity $ 143,192 $ 149,856
=========== ==========
Book value per share $ 14.56 $ 14.55
=========== ==========
page 3
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
March 31, March 31,
2002 2001 2002 2001
Interest income
Loans $ 7,421 $ 7,907 $ 2,365 $ 2,661
Investment securities 54 100 7 33
Interest-bearing deposits and other 186 201 42 83
---------- ---------- --------- ---------
Total interest income
7,661 8,208 2,414 2,777
Interest expense
Deposits 2,671 3,049 767 1,029
Borrowings 2,116 2,119 686 721
---------- ---------- --------- ---------
Total interest expense 4,787 5,168 1,453 1,750
---------- ---------- --------- ---------
Net interest income 2,874 3,040 961 1,027
Provision for losses on loans 1 -- -- --
---------- ---------- --------- ---------
Net interest income after provision for
losses on loans 2,873 3,040 961 1,027
Other operating income 42 35 11 10
General, administrative and other expense
Employee compensation and benefits 771 711 267 246
Occupancy and equipment 131 123 45 46
Federal deposit insurance premiums 12 13 4 4
Franchise and other taxes 67 83 27 27
Data processing 91 98 30 36
Other operating 243 252 88 79
---------- ---------- --------- ---------
Total general, administrative
and other expense 1,315 1,280 461 438
---------- ---------- --------- ---------
Earnings before income taxes 1,600 1,795 511 599
Federal income taxes
Current 438 549 167 186
Deferred 107 61 11 18
---------- ---------- --------- ---------
Total federal income taxes 545 610 178 204
---------- ---------- --------- ---------
NET EARNINGS $ 1,055 $ 1,185 $ 333 $ 395
========== ========== ========= =========
Basic Earnings Per Share $ 0.85 $ 0.93 $ 0.27 $ 0.31
========== ========== ========= =========
Diluted Earnings Per Share $ 0.83 $ 0.93 $ 0.26 $ 0.31
========== ========== ========= =========
page 4
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 1,055 $ 1,185
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 (5) (12)
Amortization of deferred loan origination fees (50) (32)
Depreciation and amortization 59 55
Provision for losses on loans 1 --
Federal Home Loan Bank stock dividends (110) (134)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 70 2
Prepaid expenses and other assets 22 23
Accrued interest payable (3) (2)
Other liabilities 22 49
Federal income taxes
Current 98 74
Deferred 107 61
-------- --------
Net cash provided by operating activities 1,266 1,269
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 2,000 --
Purchase of Federal Home Loan Bank stock -- (35)
Loan principal repayments 24,520 15,961
Loan disbursements (20,847) (16,010)
Purchase of office premises and equipment (30) (4)
-------- --------
Net cash provided by (used in) investing
activities 5,643 (88)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (4,837) (1,649)
Proceeds from Federal Home Loan Bank advances -- 14,650
Repayment of Federal Home Loan Bank advances (1,845) (9,274)
Proceeds from other borrowed money -- 460
Repayment of other borrowed money -- (833)
Advances by borrowers for taxes and insurance (146) (133)
Dividends paid on common stock (1,047) (977)
Acquisition of treasury stock -- (953)
-------- --------
Net cash provided by (used in) financing
activities (7,875) 1,291
-------- --------
Net increase (decrease) in cash and cash equivalents (966) 2,472
Cash and cash equivalents at beginning of period 6,717 978
-------- --------
Cash and cash equivalents at end of period $ 5,751 $ 3,450
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 340 $ 475
======== ========
Interest on deposits and borrowings $ 4,790 $ 5,170
======== ========
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 nine and three month periods ended March 31, 2002, 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 nine and three month
periods ended March 31, 2002, and 1,267,626 and 1,246,108 for the nine and three
month periods ended March 31, 2001, 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 1,278,394 and 1,281,768
for the nine and three month periods ended March 31, 2002, respectively, and
1,247,897 for the three month period ended March 31, 2001. Incremental shares
related to the assumed exercise of stock options included in the calculation of
diluted earnings per share totaled 32,286 and 35,660 for the nine and three
month periods ended March 31, 2002. Incremental shares related to the assumed
exercise of stock options included in the calculation of diluted earnings per
share totaled 1,789 for the three month period ended March 31, 2001. For the
nine month period ended March 31, 2001, there were no incremental shares related
to the assumed exercise of stock options due to the non-dilutive nature of the
options during that period. As of March 31, 2002 the Company had 181,859 stock
options outstanding of which 177,112 had an exercise price of $13.80 per share
and 4,747 had 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. 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, changes in interest rates in the nation and the Company's market area
generally, loan demand and refinancing activity.
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 and commercial real estate 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 MARCH 31, 2002 AND JUNE 30, 2001
ASSETS: The Company's total assets decreased by $6.7 million or 4.4% to
$143.2 million at March 31, 2002, compared to total assets at June 30, 2001. The
decrease in total assets was primarily attributable to a decrease in the
Company's loans receivable, which decreased by $3.6 million or 2.7% to $132.8
million at March 31, 2002. Loans receivable decreased primarily as a result of
historically low interest rates during the period which induced borrowers to
refinance their mortgages with long-term, fixed rate mortgages rather than the
Bank's primary product, the adjustable rate mortgage. Also decreasing was
investment securities held to maturity, which decreased by $2.0 million or
100.0% to zero at March 31, 2002. The Company's cash and cash equivalents also
decreased by $966,000 or 14.4% to $5.8 million at March 31, 2002.
LIABILITIES: The Company's total liabilities decreased by $6.7 million or
5.1% to $125.1 million at March 31, 2002. The decrease in total liabilities was
primarily attributable to a decrease in deposits of $4.8 million or 5.8% from
$82.8 million at June 30, 2001 to $78.0 million at March 31, 2002. The decrease
in deposits occurred in response to management's efforts to match the decline in
the level of interest-earning assets. Also contributing to the decrease in total
liabilities was a decrease in Advances from the Federal Home Loan Bank
("Advances") of $1.8 million or 3.9% to $45.3 million at March 31, 2002.
SHAREHOLDERS' EQUITY: Shareholders' equity was $18.1 million at both March
31, 2002 and June 30, 2001. The Company's net earnings of $1.1 million were
distributed to shareholders via the Company's dividends declared during the
period. The Company's book value per share was $14.56 at March 31, 2002,
compared to $14.55 at June 30, 2001.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2002
AND MARCH 31, 2001
NET EARNINGS: The Company's net earnings decreased by $130,000 to 11.0 % or
$1.1 million for the nine month eriod ended March 31, 2002, compared to the nine
month period ended March 31, 2001. The decrease in net earnings was primarily
attributable to a decrease in net interest income of $166,000. The Company's
basic earnings per share decreased by $0.08 or 8.6% to $0.85 per share for the
nine month period ended March 31, 2002, compared to $0.93 for the previous
period. The Company's diluted earnings per share declined $0.10 or 10.8% from
$0.93 per share for the nine month period ended March 31, 2001 to $0.83 per
share for the nine month period ended March 31, 2002.
NET INTEREST INCOME: Net interest income decreased by $166,000 or 5.5% to
$2.9 million for the nine month period ended March 31, 2002, compared to the
same period in 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 by $547,000 or 6.7% to $7.7
million for the nine month period ended March 31, 2002. This decrease was
primarily attributable to a decrease in interest income from loans of $486,000
or 6.1%, 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 grow its loan portfolio with
long-term, fixed-rate mortgages when those rates are at historically low levels.
Understandably, borrowers may be more likely to eagerly pursue such mortgages.
This could likewise have a negative impact on earnings. Interest income from
investment securities decreased by $46,000 or 46.0% to $54,000 for the nine
month period ended March 31, 2002. Since the Company's investment securities
matured, the proceeds have been invested in interest-bearing deposits and other.
Despite increased average levels of interest-bearing deposits in other financial
institutions, interest income from interest-bearing deposits and other decreased
by $15,000 or 7.5% to $186,000 for the nine month period ended March 31, 2002.
The reason for the decrease is that the rates earned on these assets have
dropped sharply as well.
INTEREST EXPENSE: Interest expense decreased by $381,000 or 7.4% to $4.8
million for the nine month period ended March 31, 2002. This decrease was due
primarily to a decrease in interest expense on deposits of $378,000 or 12.4% to
$2.7 million for the nine month period ended March 31, 2002. Interest expense on
borrowings decreased by $3,000 or 0.1% to $2.1 million during the same period.
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
$145,000 or 0.2% to $80.9 million for the nine month period ended March 31,
2002. The decrease in interest expense on borrowings is a result of a decrease
in the average rate paid on the Advances. The average balance of Advances
outstanding during the period increased $119,000 or 0.3% from $46.1 million for
the nine month period ended March 31, 2001, to $46.2 million for the nine month
period ended March 31, 2002. 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 nine month period ended March 31, 2002, compared to no provision for the
nine month period from the prior year. The allowance for losses on loans
increased from $101,000 at March 31, 2001 to $102,000 at March 31, 2002. As a
percentage of non-performing loans, the allowance for loan losses decreased from
39.9% at March 31, 2001 to 16.6% at March 31, 2002. This decrease was caused by
an increase in the balance of nonperforming loans at March 31, 2002 (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 nine month period ended March 31, 2002 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 by $7,000 or 20.0%
from $35,000 for the nine month period ended March 31, 2001 to $42,000 for the
nine month period ended March 31, 2002. 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 by $35,000 or 2.7% to $1.3 million for the nine month
period ended March 31, 2002. The increase was due primarily to a $60,000 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 were decreases in franchise and other taxes
and other operating expense. Franchise and other taxes decreased $16,000 or
19.3% to $67,000 for the nine month period ended March 31, 2002, due primarily
to tax attributes utilized during the period. Similar tax attributes will not be
available for future use. Other operating expense decreased $9,000 or 3.6% to
$243,000 for the nine month period ended March 31, 2002. The decrease in other
operating expense resulted from lower overall costs in various expenses and an
incident occurring during the nine month period ended March 31, 2001, which
management does not expect to reoccur.
INCOME TAX: The Company's provision for federal income taxes decreased from
$610,000 for the nine month period ended March 31, 2001 to $545,000 for the nine
month period ended March 31, 2002. The decrease was a result of the decrease in
the Company's pretax earnings. The Company's effective tax rate was 34.1% and
34.0% for the nine month periods ended March 31, 2002 and 2001, respectively.
NON-PERFORMING ASSETS: At March 31, 2002, the Bank had approximately
$612,000 (0.5% of net loans) in loans 90 days or more past due but still
accruing, as compared to $253,000 at March 31, 2001. Also, the Bank had $446,000
in loans listed as special mention and $710,000 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 and current principal balance) 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. On April 8, 2002, the Bank
acquired through foreclosure property worth $385,000 based on a current
appraisal. The Bank has not written off any amount in connection with the
foreclosure and will hold the property as Real Estate Owned ("REO") until such
time as it can be sold. The property will be held at cost (approximately
$322,000).
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
January 15, 2002. At March 31, 2002, the Company had recorded dividends payable
of $349,000 for the payment of a dividend on April 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 MARCH 31, 2002
AND MARCH 31, 2001
NET EARNINGS: The Company's net earnings decreased by $62,000 or 15.7% to
$333,000 for the three months ended March 31, 2002 compared to $395,000 for the
three months ended March 31, 2001. This decrease was primarily attributable to a
decrease in net interest income of $66,000. The Company's basic earnings per
share declined $0.04 or 12.9% from $0.31 per share for the three month period
ended March 31, 2001 to $0.27 per share for the three month period ended March
31, 2002. The Company's diluted earnings per share declined $0.05 or 16.1% from
$0.31 to $0.26 per share for the three month periods ended March 31, 2001 and
2002, respectively.
page 9
NET INTEREST INCOME: Net interest income totaled $961,000 for the three
month period ended March 31, 2002, a decrease of $66,000 or 6.4% from the same
period in 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.
INTEREST INCOME: Interest income decreased by $363,000 or 13.1% to $2.4
million for the three month period ended March 31, 2002. This was primarily
attributable to a decrease in interest income from loans which decreased by
$296,000 or 11.1%, 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
interest-bearing deposits and other decreased from $83,000 for the three month
period ended March 31, 2001 to $42,000 for the three month period ended March
31, 2002, a decrease of $41,000 or 49.4%. Interest income from investment
securities decreased from $33,000 for the three month period ended March 31,
2001 to $7,000 for the three month period ended March 31, 2002, a decrease of
$26,000 or 78.8%.
INTEREST EXPENSE: Interest expense decreased by $297,000 or 17.0% to $1.5
million for the three month period ended March 31, 2002, compared to $1.8
million for the three month period ended March 31, 2001. This decrease was
primarily due to a decrease in interest expense on deposits which decreased by
$262,000 or 25.5% to $767,000 for the three month period ended March 31, 2002.
While the decrease in interest expense on deposits was primarily the result of a
decrease in the average rate paid on deposits, the average balance of deposits
also decreased. The average balance of deposits decreased by $2.1 million or
2.5% from $80.8 million for the three month period ended March 31, 2001, to
$78.7 million for the three month period ended March 31, 2002. Interest expense
on borrowings decreased by $35,000 or 4.9% to $686,000 for the three month
period ended March 31, 2002, primarily due to a decrease in the average amount
of advances outstanding. The average amount of Advances outstanding decreased by
$2.2 million or 4.7% to $45.5 million for the three month period ended March 31,
2002, compared to the three month period ended March 31, 2001.
OTHER OPERATING INCOME: Other operating income increased $1,000 or 10.0%
from $10,000 for the three month period ended March 31, 2001 to $11,000 for the
three month period ended March 31, 2002. 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 by $23,000 or 5.3% from $438,000 for the three month
period ended March 31, 2001 to $461,000 for the three month period ended March
31, 2002. The increase was primarily the result of a $21,000 or 8.5% 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. Also contributing to the increase in general,
administrative and other expense was an increase in other operating expense of
$9,000 or 11.4%, which increased to $88,000 for the three month period ended
March 31, 2002. The increase in other operating expense was primarily related to
increased levels of advertising during the period just ended. Partially
offsetting the increases in employee compensation and benefits and other
operating expense was a $6,000 or 16.7% decrease in data processing expense.
INCOME TAX: The Company's provision for federal income taxes decreased from
$204,000 for the three month period ended March 31, 2001 to $178,000 for the
three month period ended March 31, 2002. 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 March 31, 2001 and 34.8% for the three
month period ended March 31, 2002.
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
None
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: May 14, 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