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, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______
Commission File Number: No. 0-26360
Franfort First Bancorp, Inc.
_______________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 61-1271129
____________________ ______________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
216 West Main Street, Frankfort, Kentucky 40602
________________________________________________________________
(Address of principal executive offices) (Zip Code)
(502) 223-1638
________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
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 9, 1998:
1,619,111
Page 1 of 13 pages
page 1
CONTENTS
PART I - FINANCIAL INFORMATION PAGE
-----------------------------------------------------
Item 1. Consolidated Statements of Financial Condition
at December 31, 1997 and June 30, 1997 3
Consolidated Statements of Earnings for the
three months and six months ended
December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
six months ended December 31, 1997 and 1996 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 13
Item 2 Changes in Securities 13
Item 3 Defaults upon Senior Securities 13
Item 4 Submission of Matters to a Vote
Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
- ----------
page 2
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
1997 1997
------------ ------------
ASSETS
Cash and due from banks $ 125 $ 161
Interest-bearing deposits in other financial
institutions 1,900 2,590
-------- --------
Cash and cash equivalents 2,025 2,751
Certificates of deposit in other financial
institutions 200 200
Investment securities - at amortized cost,
approximate fair market value of $2,991 and
$4,819 as of December 31, 1997 and June 30,
1997 2,995 4,850
Loans receivable-net 124,183 120,888
Office premises and equipment - at depreciated
cost 1,540 1,573
Federal Home Loan Bank stock - at cost 1,226 1,156
Accrued interest receivable on loans 319 316
Accrued interest receivable on investments
and interest-bearing deposits 60 79
Prepaid expenses and other assets 30 95
Prepaid federal income taxes 188 --
Deferred federal income taxes 43 130
-------- --------
Total assets $132,809 $132,038
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 83,094 $ 85,957
Advances from the Federal Home Loan Bank 23,822 9,006
Other borrowed money 2,000 13,000
Advances by borrowers for taxes and insurance 65 298
Accrued interest payable 112 129
Accrued federal income taxes -- 141
Other liabilities 1,185 1,162
-------- --------
Total liabilities 110,278 109,693
Shareholders' equity
Preferred stock, 500,000 shares authorized
$.01 par value: no shares issued -- --
Common stock, 3,750,000 shares authorized, at
aggregate stated value: 1,672,476 shares
issued 35 35
Additional paid-in capital 5,858 5,858
Retained earnings - restricted 17,671 17,532
Shares acquired by stock benefit plans -- (414)
Less 53,291 shares of treasury stock - at
cost (1,033) (666)
-------- --------
Total shareholders' equity 22,531 22,345
-------- --------
Total liabilities and shareholders' equity $132,809 $132,038
======== ========
Book value per share $ 13.92 $ 13.88
======== ========
page 3
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Six Months Ended Three Months Ended
December 31, December 31,
--------------------- --------------------
1997 1996 1997 1996
---------- --------- -------- --------
Interest income
Loans $4,639 $4,158 $2,342 $2,104
Investment securities 126 364 57 169
Interest-bearing deposits and
other 94 41 51 22
------ ------ ------ ------
Total interest income 4,859 4,563 2,450 2,295
Interest expense
Deposits 2,058 2,160 1,033 1,085
Borrowings 836 203 436 112
------ ------ ------ ------
Total interest expense 2,894 2,363 1,469 1,197
------ ------ ------ ------
Net interest income 1,965 2,200 981 1,098
Provision for losses on loans -- 5 -- 2
------ ------ ------ ------
Net interest income after
provision for losses on
loans 1,965 2,195 981 1,096
Other operating income 25 33 13 10
General, administrative and other
expense
Employee compensation and benefits 464 901 240 460
Occupancy and equipment 73 81 36 41
Federal deposit insurance premiums 27 676 13 39
Franchise and other taxes 28 74 3 37
Data processing 63 62 31 30
Other operating 188 199 94 107
------ ------ ------ ------
Total general, administrative
and other expense 843 1,993 417 714
------ ------ ------ ------
Earnings before income taxes 1,147 235 577 392
Federal income taxes
Current 303 108 196 165
Deferred 87 (29) -- (32)
------ ------ ------ ------
Total federal income taxes 390 79 196 133
------ ------ ------ ------
NET EARNINGS $ 757 $ 156 $ 381 $ 259
====== ====== ====== ======
Basic Earnings Per Share $ 0.50 $ 0.10 $ 0.25 $ 0.16
Diluted Earnings Per Share $ 0.47 $ 0.10 $ 0.24 $ 0.16
page 4
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
1997 1996
------------ ------------
Cash flows from operating activities:
Net earnings for the period $ 757 $ 156
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 11
Amortization of deferred loan origination fees (5) (10)
Depreciation and amortization 39 54
Provision for losses on loans -- 5
Amortization of expenses related to stock benefit
plans 47 104
Federal Home Loan Bank stock dividends (43) (19)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 16 31
Prepaid expenses and other assets 65 85
Other liabilities 6 270
Federal income taxes
Current (329) 63
Deferred 87 (29)
------- --------
Net cash provided by operating activities 645 721
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,850 3,000
Loan principal repayments 12,341 12,630
Loan disbursements (15,631) (17,722)
Purchase of office premises and equipment (6) (61)
Purchase of Federal Home Loan Bank stock (27) --
------- --------
Net cash used in investing activities (1,473) (2,153)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (2,863) (82)
Purchase of treasury stock -- (103)
Proceeds from Federal Home Loan Bank advances 26,500 2,500
Repayment of Federal Home Loan Bank advances (11,000) (500)
Repayment of other borrowed money (11,684) (176)
Advances by borrowers for taxes and insurance (233) (194)
Dividends on common stock (618) (619)
------- --------
Net cash provided by financing activities 102 826
------- --------
Net decrease in cash and cash equivalents (726) (606)
Cash and cash equivalent at beginning of period 2,751 5,817
------- --------
Cash and cash equivalents at end of period $ 2,025 $ 5,211
======= ========
page 5
PAGE>
Frankfort First Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1997 and 1996
(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 generally accepted accounting principles.
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, 1997 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 financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1997.
(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 less shares in the ESOP that
are unallocated and not committed to be released. Weighted
average common shares deemed outstanding for purposes of
computing basic earnings per share totaled 1,526,155 and
1,526,664 for the six and three month periods ended December 31,
1997, respectively, and 1,596,914 and 1,594,631 for the six and
three month periods ended December 31, 1996, 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 1,593,818 and 1,594,001 for the six
and three month periods ended December 31, 1997, respectively,
and 1,625,824 and 1,621,900 for the six and three month periods
ended December 31, 1996, respectively. Weighted-average common
shares outstanding for the six and three month periods ended
December 31, 1996, have been restated to give effect to the
Corporation's two-for-one reverse stock split effected on
December 1, 1997.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Transfers of Financial Assets. In June
1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
125. "Accounting for Transfers of Financial Assets, Servicing
Rights, and Extinguishment of Liabilities," that provides
accounting guidance on transfers of financial assets, servicing
of financial assets, and extinguishment of liabilities. SFAS
No. 125 introduces an approach to accounting for transfers of
financial assets that provides a means of dealing with more
complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations,
makes use of special purpose entities in the transaction, or
otherwise has continuing involvement with the transferred
assets. The new accounting method, the financial components
approach, provides that the carrying amount of the financial
assets transferred be allocated to components of the transaction
based on their relative fair values. SFAS No. 125 provides
criteria for determining whether control of assets has been
relinquished and whether a sale has occurred. If the transfer
does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No.
125 include, among others, transfers involving repurchase
agreements, securitizations of financial assets, loan
participations, factoring arrangements, and transfers of
receivables with recourse.
page 6
An entity that undertakes an obligation to service
financial assets recognizes either a servicing asset or
liability for the servicing contract (unless related to a
securitization of assets, and all the securitized assets are
retained and classified as held-to-maturity). A servicing asset
or liability that is purchased or assumed is initially
recognized at its fair value. Servicing assets and liabilities
are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to
subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the
balance sheet only if the debtor either pays the creditor and is
relieved of its obligation for the liability or is legally
released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring
after December 31, 1997 and is to be applied prospectively.
Earlier or retroactive application is not permitted. The
Company adopted SFAS No. 125 effective January 1, 1998, as
required, without material effect on the consolidated financial
position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements. It does not
require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for
comparative purposes is required. SFAS No. 130 is not expected
to have a material impact on the Company's financial statements.
In June , 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS
No. 131 significantly changes the way that public business
enterprises report information about operating segments in
annual financial statements and requires that those enterprises
report selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive
information about the way that management organizes the segments
within the enterprise for making operating decisions and
assessing performance. For many enterprises, the management
approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information
to be disclosed for each reportable segment than is presently
being reported in annual financial statements and also requires
that selected information be reported in interim financial
statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected
to have a material impact on the Company's financial statements.
page 7
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 includes FHLB stock, FHLB
certificates of deposit, U.S. Government Agency-issued bonds,
and other investments.
OTHER MATTERS -- YEAR 2000 COMPLIANCE
As with all providers of financial services, the Bank's
operations are heavily dependent on information technology
systems. The Bank is addressing the potential problems
associated with the possibility that the computers that control
or operate the Bank's information technology system and
infrastructure may not be programmed to read four-digit date
codes and, upon arrival of the year 2000, may recognize the two-
digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous date. The Bank is working with
the companies that supply or service its information technology
systems to identify and remedy any year 2000 related problems.
The Company expects that there will be some expense incurred as a
result of preparing for the year 2000. Management, in connection
with the Bank's primary data service provider, is currently
assessing the impact of such cost on the Company's net earnings
in future periods. Management currently does not expect such
cost to be substantial; however, if the Bank is ultimately
required to purchase replacement computer systems, programs, and
equipment or incur substantial expenses to make the Bank's
current systems, programs and equipment year 2000 compliant, the
Company's net earnings and financial condition could be adversely
affected.
While it is possible that the Bank could incur losses if loan
payments are delayed due to year 2000 problems affecting its
borrowers, management believes that such losses are unlikely
given to the composition of the Bank's loan portfolio, which is
primarily made up of 1-4 family residential mortgages.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE
30, 1997
ASSETS: The Company's total assets increased slightly
from $132.0 million at June 30, 1997 to $132.8 million at
December 31, 1997, an increase of $771,000 or 0.6%. The
Company's net loans receivable increased from $120.9 million at
June 30, 1997 to $124.2 million at December 31, 1997, an
increase of $3.3 million or 2.7%.
page 8
LIABILITIES: Deposits decreased from $86.0 million at
June 30, 1997 to $83.1 million at December 31, 1997, a decrease
of $2.9 million or 3.3%. Advances from the Federal Home Loan
Bank increased from $9.0 million at June 30, 1997 to $23.8
million at December 31, 1997, an increase of $14.8 million or
164.5%. At June 30, 1997, the Company had borrowed $13.0
million from a commercial bank to fund the $4 per share return
of capital paid to shareholders on June 24, 1997. After June
30, 1997, the Company paid off $11.0 million of this loan with
proceeds from various advances from the Federal Home Loan Bank.
Management believes that, when compared to loans from commercial
banks, FHLB advances offer better rates and terms that can be
more easily matched to the characteristics of the Company's
assets. All borrowings increased from $22.0 million at June 30,
1997 to $25.8 million at December 31, 1997, an increase of $3.8
million or 17.3%. The increase in overall borrowings was used
to fund new loan originations.
SHAREHOLDERS' EQUITY: Shareholders' equity increased from
$22.3 million at June 30, 1997 to $22.5 million at December 31,
1997, an increase of $186,000 or 0.8%. This increase was caused
by the Company's net earnings of $757,000 less the Company's
dividends accrued or paid during the period of $618,000. The
Company's book value per share was $13.92 at December 31, 1997
compared to $13.88 at June 30, 1997 (adjusted for the two-for-
one reverse stock split effected on December 1, 1997).
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND DECEMBER 31, 1996
NET EARNINGS: The Company's net earnings increased from
$156,000 for the six months ended December 31, 1996 to $757,000
for the six months ended December 31, 1997, an increase of
$601,000 or 385.3%. This increase is primarily attributable to
a decrease in general, administrative, and other expense of
$1.2 million which was partially offset by a $235,000 decrease
in net interest income and an increase in provision for federal
income taxes of $311,000. The Company's basic earnings per
share rose from $0.10 per share for the six months ended
December 31, 1996 to $0.50 per share for the six months ended
December 31, 1997 (adjusted for the two-for-one reverse stock
split effected on December 1, 1997). The Company's diluted
earnings per share rose from $.10 per share for the six months
ended December 31, 1996 to $.47 per share for the six months
ended December 31, 1997 (adjusted for the two-for-one reverse
stock split effected on December 1, 1997).
NET INTEREST INCOME: Net interest income decreased from
$2.2 million for the six-month period ended December 31, 1996 to
$2.0 million for the six-month period ended December 31, 1997, a
decrease of $235,000 or 10.7%. This decrease was primarily due
to an increase in interest expense.
INTEREST INCOME: Interest income increased from $4.6
million for the six-month period ended December 31, 1996 to
$4.9million for the six-month period ended December 31, 1997, an
increase of $296,000 or 6.5%. This increase was primarily due
to an increase in the Company's level of loans receivable, the
upward adjustment of some of the Company's adjustable rate
mortgages and a higher percentage of fixed rate mortgages
compared to adjustable rate mortgages in the Company's mortgage
loan portfolio. Fixed rate mortgages generally pay a higher
rate of interest than adjustable rate mortgages.
page 9
INTEREST EXPENSE: Interest expense increased from $2.4
million for the six-month period ended December 31, 1996 to $2.9
million for the six-month period ended December 31, 1997, an
increase of $531,000 or 22.5%. This increase is primarily
attributable to an increase of $633,000 in the Bank's expense on
borrowings while the expense on deposits has decreased by
$102,000. The increase in interest expense on borrowings is
due to the increase in the balance of Federal Home Loan Bank
advances and other borrowed money. These funds were used to
fund the $4.00 special distribution to shareholders paid on June
24, 1997 and to fund the Company's loan growth. Management
expects that the proportion of interest expense attributable to
FHLB advances will continue to grow as FHLB advances are used to
fund loan growth. In general, rates paid on FHLB advances are
greater than rates paid on deposits (see "Comparison of Financial
Condition--Liabilities").
PROVISION FOR LOSSES ON LOANS: The provision for losses
on loans decreased from $5,000 for the six months ended
December 31, 1996 to no provision for the six months ended
December 31, 1997. Management believed, on the basis of its
analysis of the risk profile of the Company's assets, that it
was appropriate to maintain the allowance for loan losses at
$100,000, which was reached during the prior year. 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. 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 decreased
from $33,000 for the six months ended December 31, 1996 to
$25,000 for the six months ended December 31, 1997. Other
operating income is not a significant component of the Company's
statement of operations.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSE: General,
administrative, and other expense decreased from $2.0 million
for the six-month period ended December 31, 1996 to $843,000 for
the six-month period ended December 31, 1997, a decrease of
$1.15 million or 57.7%. The decrease is primarily attributable
to the Company's lower level of expense for employee
compensation and benefits which decreased by $437,000 or 48.5%.
This reduction was caused by the termination of the Company's
Employee Stock Ownership Plan and Management Recognition Plan in
June, 1997 which was a component of the Company's Restructuring
Plan announced June 5, 1997. The primary purpose of this plan
was to improve profitability by, among other things, reducing
compensation expense. Also contributing to the decrease are
lower FDIC premiums subsequent to the one-time special
assessment of $567,000 to recapitalize the Savings Association
Insurance Fund. FDIC deposit insurance premiums were $676,000
for the six-month period ended December 31, 1996 compared to
$27,000 for the six-month period ended December 31, 1997.
INCOME TAX: The Company's provision for federal income
taxes increased from $79,000 for the six months ended December
31, 1996 to $390,000 for the six months ended December 31, 1997.
The increase was a result of the increase in the Company's
pretax earnings. The Company's effective tax rate was 34.0% for
the six months ended December 31, 1997 and 33.6% for the six
months ended December 31, 1996.
NON-PERFORMING ASSETS: At December 31, 1997, the Bank had
approximately $164,000 in loans 90 days or more past due but
still accruing. These delinquent loans represent 0.13% of the
Bank's net loans. The Bank had approximately $139,000 in loans
internally classified as Substandard and no loans classified as
Doubtful, or Loss.
page 10
DIVIDENDS: On December 10, 1997, the Company announced a
dividend policy whereby it will pay a quarterly cash dividend of
$0.20 per share, per quarter, 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. 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, 1997. At December 31, 1997 the Company had recorded
dividends payable of $324,000 for the payment of a dividend on
January 15, 1998.
In addition to this regular dividend policy, on June 24,
1997 the Company also paid a return of capital in the amount of
$4.00 per share to shareholders of record on June 17, 1997. It
was subsequently determined that $3.60 of this $4.00
distribution was not taxable but would reduce the shareholders'
basis in the stock. The $0.40 portion of this return of
capital, as well as all other dividends paid during calendar
1997, are treated as ordinary dividends.
STOCK SPLIT: On December 1, 1997, the Company effected a
two-for-one reverse stock split, as approved by the shareholders
at the Company's 1997 annual meeting held November 11, 1997.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 AND DECEMBER 31, 1996
NET EARNINGS: The Company's net earnings increased from
$259,000 for the three months ended December 31, 1996 to
$381,000 for the three months ended December 31, 1997, an
increase of $122,000 or 47.1%. The increase is primarily
attributable to a decrease in general, administrative, and other
expense of $297,000 partially offset by a $117,000 decrease in
net interest income. The Company's basic earnings per share
rose from $0.16 per share for the three months ended December
31, 1996 to $0.25 per share for the three months ended December
31, 1997 (adjusted for two-for-one reverse stock split effected
on December 1, 1997). The Company's diluted earnings per share
rose from $.16 per share for the three months ended December 31,
1996 to $.24 per share for the three months ended December 31,
1997 (adjusted for two-for-one reverse stock split effected on
December 1, 1997).
NET INTEREST INCOME: Net interest income decreased from
$1.1 million for the three months ended December 31, 1996 to
$981,000 for the three months ended December 31, 1997, a
decrease of $117,000 or 10.7%. This decrease was primarily due
to an increase in interest expense.
Interest Income: Interest income increased from $2.3
million for the three months ended December 31, 1996 to $2.5
million for the three months ended December 31, 1997, an
increase of $155,000 or 6.8%. This increase was primarily due
to an increase in the Company's level of loans receivable, the
upward adjustment of some of the Company's adjustable rate
mortgages and a higher percentage of fixed rate mortgages
compared to adjustable rate mortgages in the Company's mortgage
loan portfolio. Fixed rate mortgages generally pay a higher
rate of interest than adjustable rate mortgages.
INTEREST EXPENSE: Interest expense increased from $1.2
million for the three months ended December 31, 1996 to $1.5
million for the three months ended December 31, 1997, an
increase of $272,000 or 22.7%. This increase is primarily
attributable to an increase of $324,000 in the Bank's expense on
borrowings, while the expense on deposits decreased by $52,000.
The increase in interest expense on borrowings is due to the
increase in the balance of Federal Home Loan Bank advances and
other borrowed money. These funds were used to fund the $4.00
special distribution to shareholders paid on June 24, 1997 and to
fund the Company's loan growth. Management expects that the
proportion of interest expense attributable to FHLB advances will
continue to grow as FHLB advances are used to fund loan growth.
In general, rates paid on FHLB advances are greater than rates
paid on deposits (see "Comparison of Financial
Condition--Liabilities").
page 11
PROVISION FOR LOSSES ON LOANS: The provision for losses
on loans decreased from $2,000 for the three months ended
December 31, 1996 to no provision for the three months ended
December 31, 1997. Management believed, on the basis of its
analysis of the risk profile of the Company's assets, that it
was appropriate to maintain this provision at $100,000, which
was reached during the 1996 three month period. 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. 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
from $10,000 for the three months ended December 31, 1996 to
$13,000 for the three months ended December 31, 1997. Other
operating income is not a significant component of the Company's
statement of operations.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSE: General,
administrative, and other expense decreased from $714,000 for
the three months ended December 31, 1996 to $417,000 for the
three months ended December 31, 1997, an decrease of $297,000 or
41.6%. The decrease was primarily attributed to lower expense
for employee compensation and benefits which decreased from
$460,000 for the three months ended December 31, 1996, to
$240,000 for the three months ended December 31, 1997, a
decrease of $220,000 or 47.8%. This reduction was caused by the
termination of the Company's Employee Stock Ownership Plan and
Management Recognition Plan in June, 1997 which was a component
of the Company's Restructuring Plan announced June 5, 1997. The
primary purpose of this plan was to improve profitability by,
among other things, reducing compensation expense. In addition,
FDIC deposit insurance premiums were $39,000 for the three-month
period ended December 31, 1996 compared to $13,000 for the three
month period ended December 31, 1997, a decrease of $26,000
which is attributable to the reduction in premiums caused by the
BIF-SAIF resolution.
INCOME TAX: The Company's provision for federal income
taxes increased from $133,000 for the three months ended
December 31, 1996 to $196,000 for the three months ended
December 31, 1997. The increase was a result of the increase in
the Company's pretax earnings. The Company's effective tax
rates were 34.0% and 33.9% for the three months ended December
31, 1997 and 1996, respectively.
page 12
PART II.
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
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 the
Stockholders on November 11, 1997.
(b) Not applicable
(c) The following matters were voted upon at the Annual
Meeting: (i) the election of three individuals as
directors; and (ii) approval of a one-for-two
reverse stock split, including approval of an amendment
to the Company's Certificate of Incorporation reflecting
the reverse stock split.
Proposal I -- Election of Directors
Nominee Votes For Votes Withheld
- ------- --------- --------------
William M. Johnson 2,511,431.815 9,238.206
Frank McGrath 2,511,537.330 9,132.691
Herman D. Regan, Jr. 2,512,246.523 8,423.498
Proposal II -- Approval of One-For-Two Reverse Stock
Split
Votes For Votes Against Abstentions (1)
--------- ------------- --------------
2,430,063.796 43,614.627 46,991.598
(1) Includes broker non-votes
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27, Financial Data Schedule, is attached.
page 13
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.
Frankfort First Bancorp, Inc.
Date: February 9, 1998 /s/ William C. Jennings
-------------------------------------
William C. Jennings
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
page 14