FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to________
Commission File No. 0-20380
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FIRST FEDERAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1341110
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
505 Market Street
Zanesville, Ohio 43701
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(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (740) 588-2222
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of January 31, 2001, the latest practicable date, 3,113,321 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 11 Pages
FIRST FEDERAL BANCORP, INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE
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Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 10
SIGNATURES 11
PART I
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FINANCIAL INFORMATION
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First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At Dec. 31 At Sept. 30
2000 2000
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ASSETS
Cash and amounts due from banks $ 5,408,499 $ 4,837,402
Interest-bearing demand deposits 0 0
----------------------------
Cash and cash equivalents $ 5,408,499 $ 4,837,402
Interest-bearing deposits 1,386,000 1,386,000
Investment securities held to maturity (Fair value - $12,220,000
in 12/00 and $11,375,000 in 9/00) 12,335,433 11,377,928
Loans receivable, net of losses of $1,821,000
and $1,723,615 207,467,761 207,048,507
Federal Home Loan Bank stock 4,147,900 4,071,200
Premises and equipment 6,404,050 6,498,446
Interest receivable and other assets 1,451,957 1,353,849
Other assets 304,870 303,271
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Total Assets $238,906,470 $236,876,603
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $164,434,127 $158,720,119
Short-term FHLB advances 29,930,000 29,235,000
Long-term debt 23,966,708 28,970,160
Interest payable 752,895 625,943
Other liabilities 1,371,265 1,207,687
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Total Liabilities $220,454,995 $218,758,909
============================
Stockholders' Equity
Preferred stock: $100 par value; 1,000,000 shares
authorized; no shares issued and outstanding
Common stock: no par value; 9,000,000 shares authorized;
3,303,400 shares issued; 3,113,321 shares outstanding in
both 12/00 and 9/00 $ 3,743,514 $ 3,736,076
Retained earnings 15,671,470 15,345,127
Treasury shares, 190,079 shares in both 12/00 and 9/00, at cost (963,509) (963,509)
----------------------------
Total Stockholders' Equity $ 18,451,475 $ 18,117,694
----------------------------
Total Liabilities and Stockholders' Equity $238,906,470 $236,876,603
============================
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31
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2000 1999
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INTEREST INCOME
Loans receivable $4,427,059 $ 3,628,251
Investment securities 273,954 191,7910
Deposits with financial institutions 24,200 32,582
--------------------------
Total Interest Income 4,725,213 3,852,624
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INTEREST EXPENSE
Deposits 1,968,553 1,372,611
Borrowed money 912,928 773,961
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Total Interest Expense 2,881,481 2,146,572
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Net Interest Income 1,843,732 1,706,052
Provision for Loan Losses (45,306) 31,290
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Net Interest Income After Provision
for Loan Losses 1,889,038 1,674,762
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OTHER INCOME
Service charges on deposit accounts 104,299 101,267
Net gains on loan sales 5,615 1,256
Other income 167,375 171,693
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Total other income 277,289 274,216
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OTHER EXPENSES
Salaries and employee benefits 654,027 632,915
Occupancy and equipment expense 246,915 240,587
Data processing expense 145,988 118,270
Deposit insurance expense 21,617 35,026
Advertising 67,769 80,427
Ohio franchise taxes 51,161 52,765
Other operating expenses 279,365 302,063
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Total other expenses 1,466,842 1,462,053
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Income Before Income Taxes 699,485 486,925
Income tax expense 248,610 182,422
--------------------------
Net Income $ 450,875 $ 304,503
==========================
EARNINGS PER SHARE
Basic
Diluted $ .14 $ .10
--------------------------
$ .14 $ .09
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,113,321 3,196,171
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Diluted 3,290,742 3,406,188
--------------------------
DIVIDENDS DECLARED PER SHARE $ .04 $ .04
--------------------------
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31
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CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
---- ----
Net Income $ 450,875 $ 304,503
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (45,306) 31,290
Depreciation 148,317 150,369
Federal Home Loan Bank stock dividends (76,700) (66,800)
Amortization of net premiums (discounts) on investment securities (33,426) (27,217)
Mortgage loans originated for sale (540,500) (199,200)
Proceeds from sale of mortgage loans 540,500 103,944
Gain on Sale of Loans 5,615 1,256
Change in other assets and other liabilities 63,871 (78,423)
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Net Cash Provided by Operating Activities 513,246 219,722
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 3,006,709 6,706,099
Purchases of investment securities/FHLB stock (3,955,000) (5,049,057)
Loans originated, net of principal repayments (457,515) (11,514,985)
Principal collected on mortgage-backed securities 24,212 88,243
Sale of real estate owned / repossessed assets 85,391 25,800
Purchases of premises and equipment (53,921) (41,150)
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Net Cash Used for Investing Activities (1,350,124) (9,785,050)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts 5,714,008 (5,582,068)
Net change in advance payments by borrowers for taxes and insurance 126,952 149,804
Net change in borrowed funds with original maturities of less than
three months 695,000 15,676,749
Repayment of long-term FHLB advances (5,003,452) (1,000,000)
Cash dividends paid (124,533) (127,847)
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Net Cash Provided by Financing Activities 1,407,975 9,116,638
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NET CHANGE IN CASH AND CASH EQUIVALENTS 571,097 (448,690)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,837,402 5,380,233
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,408,499 $ 4,931,543
===========================
See Notes to the Consolidated Financial Statements.
FIRST FEDERAL BANCORP, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-QSB. The Form
10-QSB does not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Only material changes in financial condition and results of operations are
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
In the opinion of management, the condensed Consolidated Financial
Statements contain all adjustments necessary to present fairly the financial
condition of First Federal Bancorp, Inc. ("Bancorp"), as of December 31,
2000, and September 30, 2000, and the results of its operations for the
three months ended December 31, 2000, and 1999, and its cash flow for the
three months ended December, 2000 and 1999. The results of operations for
the interim periods reported herein are not necessarily indicative of
results of operations to be expected for the entire year.
2. Commitments
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Outstanding commitments to originate mortgage loans and to sell mortgage
loans were $382,000 and $0 respectively, at December 31, 2000, and $645,487
and $0 respectively at September 30, 2000.
3. Earnings Per Common Share
-------------------------
Basic earnings per share is based on net income divided by the weighted
average number of shares outstanding during the period. Diluted earnings per
share shows the dilutive effect of additional common shares issuable under
stock options.
4. Allowance for Losses on Loans
-----------------------------
Because some loans may not be repaid in full, an allowance for loan losses
is recorded. Increases to the allowance are recorded by a provision for loan
losses charged to expense. Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Accordingly, the allowance is
maintained by management at a level considered adequate to cover probable
losses that are currently anticipated based on past loss experience, general
economic conditions, information about specific borrower situations,
including their financial position and collateral values, and other factors
and estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off by management as a loss when deemed
uncollectible, although collection efforts continue and future recoveries
may occur.
Loans are considered impaired if full principal or interest payments are not
anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair
value of the collateral if the loan is collateral dependent. A portion of
the allowance for loan losses may be allocated to impaired loans.
Smaller-balance, homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one- to four-
family residences, residential construction loans, and automobile, home
equity and second mortgage loans. Mortgage loans secured by other properties
are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash
flows of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Loans are generally
moved to nonaccrual status when 90 days or more past due. These loans are
often also considered impaired. Impaired loans, or portions thereof, are
charged-off when deemed uncollectible. The nature of disclosures for
impaired loans is considered generally comparable to prior nonaccrual and
renegotiated loans and nonperforming and past-due asset disclosures. The
Savings Bank had no loans meeting the definition of impaired during the
quarter ended December 31, 2000, and the year ended September 30, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
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First Federal Bancorp, Inc. ("Bancorp"), is a savings and loan holding
company that wholly owns First Federal Savings Bank of Eastern Ohio (the
"Savings Bank"). The Savings Bank is engaged in the savings and loan
business primarily in Central and Eastern Ohio. The Savings Bank is a member
of the Federal Home Loan Bank ("FHLB") of Cincinnati, and the deposit
accounts in the Savings Bank are insured up to the applicable limits by the
Federal Deposit Insurance Corporation in the Savings Association Insurance
Fund ("SAIF").
Note Regarding Forward-Looking Statements
- -----------------------------------------
In addition to historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, First Federal's operations and First
Federal's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein, but also include
changes in the economy and interest rates in the nation and First Federal's
market area generally.
Some of the forward-looking statements included herein are the statements
regarding the following:
1. Management's determination of the amount of loan loss allowance;
2. Management's belief that deposits will increase slightly during fiscal
year 2001;
3. Management's anticipation that loan demand will remain stable, but
that the loan portfolio will increase as lower interest rates make
consumer loans more attractive;
4. Management's anticipation that advances from the FHLB will increase to
fund loan originations;
5. Management's anticipation that adjustable-rate loans will reprice
higher in fiscal year 2001 if interest rates remain relatively stable;
6. Legislative changes with respect to the activities of financial
institutions;
7. Management's expectation that the amount of its consumer loans will
remain stable; and
8. Management's expectation that a significant portion of the
certificates of deposit at First Federal maturing in fiscal year 2001
will remain on deposit with First Federal.
Changes in Financial Condition from September 30, 2000 to December 31, 2000
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Total consolidated assets of Bancorp increased by $2.0 million, or .84%,
from $236.9 million at September 30, 2000, to $238.9 million at December 31,
2000. The increase is due primarily to an increase of $400,000 in loans
receivable, an increase of $600,000 in cash and cash equivalents, and an
increase of $1 million in investments held to maturity.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $19.1 million at December 31, 2000, which is an increase of
$1.5 million from September 30, 2000. The regulatory liquidity of the
Savings Bank was 4.89% at December 31, 2000 and 4.83% at September 30, 2000,
which was in excess of the minimum regulatory requirement of 4%. Funds are
available through FHLB advances to meet the Savings Bank's liquidity
requirement if necessary.
The loans receivable balance increased $400,000 million for the three-month
period. As rates remained uncertain, consumer demand for loans was flat.
Management anticipates that loan demand will remain stable but that the loan
portfolio will increase as lower interest rates make consumer loans more
attractive. No assurance can be provided, however, that the loan portfolio
will increase or that loan demand will remain stable.
As of December 31, 2000, the Savings Bank had long and short term borrowed
funds from the FHLB in the amount of $24.0 million and $29.9 million
respectively, at a weighted average rate of 6.62%. Long term FHLB advances
decreased $5.0 million from $29.0 million and short term FHLB advances
increased $690,000 at September 30, 2000. The net decrease of $4.3 million
was due to paying off a long term advance, when it became due, with the
funds generated by increased deposits. Deposits increased by $5.7 million,
or 3.60%, from $158.7 million at September 30, 2000, to $164.4 million at
December 31, 2000. The increase in savings was due to a $6.1 million
increase in certificates and a $400,000 reduction in noncertificate
accounts. Management believes that deposits will increase slightly during
fiscal year 2001 and that it will be necessary to fund the anticipated
steady loan demand with further advances from the FHLB. No assurance can be
provided, however, that deposits will increase slightly and that the loan
portfolio will increase or that loan demand will remain stable. Deposit
levels and loan demand are affected by national, as well as local, interest
rates, the attractiveness of alternative investments and other national and
local economic circumstances.
The Savings Bank is subject to regulatory capital requirements established
by the Office of Thrift Supervision ("OTS"). The Savings Bank's capital
ratios were as follows at December 31, 2000.
Amount Percent of
(In Thousands) Assets
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Actual Tangible Capital $16,725 7.01%
Required Tangible Capital 3,580 1.50%
----------------------
Excess Tangible Capital $13,145 5.51%
Actual Core Capital $16,725 7.01%
Required Core Capital (1) 9,548 4.00%
----------------------
Excess Core Capital $ 7,177 3.01%
Actual Risk Based Capital $18,136 10.63%
Required Risk Based Capital 13,652 8.00%
----------------------
Excess Risk Based Capital $ 4,484 2.63%
(1) Although the general required minimum core capital is 4.00%, savings
associations that meet certain requirements may be permitted to
maintain minimum core capital of 3.00%.
Management is not aware of any proposed regulations or recommendations by
the OTS that, if implemented, would have a material effect upon the Savings
Bank's capital.
In August 1996, Congress passed legislation repealing the reserve method of
accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes and requiring any bad debt reserves taken after
1987, using the percentage of taxable income method, be included in future
taxable income of the association over a six-year period. A two-year delay
is permitted for institutions meeting a residential mortgage loan
origination test. At September 30, 2000, First Federal had approximately
$1.6 million in bad debt reserves subject to recapture for federal income
tax purposes. The deferred tax liability related to the recapture was
established in prior years, so First Federal's net income will not be
negatively affected by this legislation.
Comparison of Operating Results for the Three-Month Periods Ended
- -----------------------------------------------------------------
December 31, 2000, and 1999
- ---------------------------
Net interest income before provision for loan losses increased $138,000 for
the comparative three-month periods. Total interest income increased
$873,000 for the three-month period ended December 31, 2000, compared to the
same period in 1999, but was offset by an increase of interest expense of
$735,000. Total interest income increased primarily due to an increase in
the interest earned on loans receivable. The balance of loans receivable
increased $9.0 million to $207.5 million at December 2000, compared to
December 1999. Total interest expense increased due to the increased balance
of savings deposits since December 31, 1999.
The majority of the loans in the Savings Bank's portfolio are adjustable-
rate mortgage loans whose interest rates fluctuate with market interest
rates. If interest rates remain relatively stable during fiscal year 2001,
the adjustable-rate mortgage loan portfolio will reprice at slightly higher
rates, as most loans originated during fiscal year 2000 were not initially
priced at the fully indexed interest rate. These loans will be repricing
upward at their first adjustment in fiscal year 2001 while the balance of
the adjustable-rate mortgage loan portfolio will not reprice substantially
lower during fiscal year 2001. No assurance can be provided, however, that
interest rates will remain stable. Interest rates are affected by general,
local and national economic conditions, the policies of various regulatory
authorities and other factors beyond the control of First Federal.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
- ----------------------------------------------------------------
Total nonaccrual loans and accruing loans that are 90 days past due were
$208,000 at December 31, 2000, which represents .10% of total loans. This
was a decrease of $118,000 from December 31, 1999.
There were no loans that are not currently classified as nonaccrual, 90 days
past due or restructured but which may be so classified in the near future
because management has concerns as to the ability of the borrowers to comply
with repayment terms.
The Savings Bank maintains an allowance for losses on loans. The allowance
for losses on loans was $1,723,615 at December 31, 2000, compared to
$1,770,000 at December 31, 1999. During the three-month periods ended
December 31, 2000, and December 31, 1999, the Savings Bank recorded
recoveries of $6,200 and $4,500 and charge-offs of $65,000 and $87,000,
respectively. The provisions for loan losses during the three-month periods
ended December 31, 2000, and 1999, were $(45,300) and $31,300 respectively.
Based on management's review of the allowance for losses at December 31,
2000, it was determined that there was an excess allowance, based on
collateral value, and therefore, $45,300 was reversed.
Noninterest Income and Expense
- ------------------------------
The federal income tax provision increased $66,000 for the three-month
period ended December 31, 2000, compared to the same period in 1999 due to
an increase in pre-tax net income for the period.
Total noninterest income remained stable for the three-month period ended
December 31, 2000, compared to the same period in 1999. There was an
increase in a gain on the sale of loans of $4,000 for the three-month period
ended December 31, 2000, due to an increase in the demand for fixed rate
loans that were not retained in the portfolio.
Total noninterest expenses increased $5,000 for the quarter ended December
31, 2000, compared to the same period in 1999. Salaries and benefits
increased $21,000 as a result of increased entry-level pay ranges and normal
pay increases in the three-month period ended December 2000 compared to the
three-month period ended December 31, 1999. Occupancy expense increased
$6,000 for the three-month period ended December 31, 2000, due to the
repaving of parking lots. Data processing costs increased $27,000 due to
accruing for additional costs associated with changing our core processor.
Advertising decreased $13,000 due to a reduction in marketing. Other
operating expense decreased $23,000 due to a reduction in training costs.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in
relative purchasing power of money over time because of inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of First Federal are monetary in nature. As a result, interest
rates have a more significant impact on First Federal's performance than the
effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods
and services.
Effect of Accounting Changes
- ----------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities are
required to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e.
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. If certain conditions are met, entities may elect
to designate a derivative instrument as a hedge of exposures to changes in
fair value, cash flows, or foreign currencies. If the hedged exposure is a
fair value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change together with the offsetting
loss or gain on the hedged item attributable to the risk being hedged. If
the hedged exposure is a cash flow exposure, the effective portion of the
gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings.
Any amounts excluded from the assessment of hedge effectiveness as well as
the ineffective portion of the gain or loss are reported in earnings
immediately. Accounting for foreign currency hedges is similar to accounting
for fair value and cash flow hedges. If the derivative instrument is not
designated as a hedge, the gain or loss is recognized in earnings in the
period of change. SFAS No. 133, as amended, is effective for fiscal years
beginning after June 15, 2000. This Statement had no material effect on the
Company.
PART II
OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 99.2 Safe Harbor Under the Private Securities
Litigation Reform Act of 1995
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 12, 2001 By: /s/ J. William Plummer
----------------------
J. William Plummer
President
Date: February 12, 2001 By: /s/ Connie Ayres LaPlante
-------------------------
Connie Ayres LaPlante
Chief Financial Officer