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 March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-20380
FIRST FEDERAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1341110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
505 Market Street
Zanesville, Ohio 43701
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (740) 453-0606
As of April 30, 2001, the latest practicable date, 3,117,801 shares of
the registrant's common stock, no par value, were issued and outstanding.
1 of 11 Pages
FIRST FEDERAL BANCORP, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 10
SIGNATURES 11
2
PART I
FINANCIAL INFORMATION
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At Mar. 31 At Sept. 30
2001 2000
---------- -----------
ASSETS
Cash and amounts due from banks $ 6,593,352 $ 4,837,402
Interest-bearing demand deposits 0 0
------------------------------
Cash and cash equivalents $ 6,593,352 $ 4,837,402
Interest-bearing deposits 1,183,000 1,386,000
Investment securities held to maturity
(Fair value - $13,176,500 in 3/01 and
$11,375,000 in 9/00) 13,150,701 11,377,928
Loans receivable, net of allowance of
$1,688,000 and $1,828,000 202,831,574 207,048,507
Federal Home Loan Bank stock 4,222,000 4,071,200
Premises and equipment 6,295,115 6,498,446
Interest receivable and other assets 1,304,899 1,353,849
Other assets 554,187 303,271
------------------------------
Total Assets $236,134,828 $236,876,603
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $166,564,217 $158,720,119
Short-term FHLB advances 0 29,235,000
Long-term debt 48,963,205 28,970,160
Interest payable 727,917 625,943
Other liabilities 996,938 1,207,687
------------------------------
Total Liabilities $217,252,277 $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;
3,117,801 shares outstanding in
03/01 and 3,113,321 in 9/00 $ 3,743,514 $ 3,736,076
Retained earnings 16,087,866 15,345,127
Treasury shares, 185,599 shares
in 03/01 and 190,079 in 9/00, at cost (948,829) (963,509)
------------------------------
Total Stockholders' Equity $ 18,882,551 $ 18,117,694
------------------------------
Total Liabilities and Stockholders'
Equity $236,134,828 $236,876,603
==============================
See Notes to the Consolidated Financial Statements.
3
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
March 31 March 31
-------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Loans receivable $4,473,528 $3,902,467 $8,900,587 $7,530,718
Investment securities 275,473 215,843 549,427 407,634
Deposits with financial institutions 23,625 24,070 47,825 56,652
----------------------------------------------------------
Total Interest Income 4,772,626 4,142,380 9,497,839 7,995,004
----------------------------------------------------------
INTEREST EXPENSE
Deposits 1,893,716 1,467,363 3,862,269 2,839,974
Borrowed money 790,629 877,001 1,703,557 1,650,962
----------------------------------------------------------
Total Interest Expense 2,684,345 2,344,364 5,565,826 4,490,936
----------------------------------------------------------
Net Interest Income 2,088,281 1,798,016 3,932,013 3,504,068
Provision for Loan Losses 54,819 13,798 9,513 45,088
----------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 2,033,462 1,784,218 3,922,500 3,458,980
----------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 82,803 86,383 187,102 187,650
Net gains on loan sales 29,003 2,105 34,618 3,361
Other income 167,716 154,238 335,091 325,931
----------------------------------------------------------
Total other income 279,522 242,726 556,811 516,942
----------------------------------------------------------
OTHER EXPENSE
Salaries and employee benefits 656,101 568,113 1,310,128 1,201,028
Occupancy and equipment expense 215,054 232,773 461,969 473,360
Data processing expense 161,698 145,778 307,686 264,048
Deposit insurance expense 22,550 20,870 44,167 55,896
Advertising 56,715 59,358 124,484 139,785
Ohio franchise taxes 55,717 55,800 106,878 108,565
Other operating expenses 273,346 245,576 552,711 547,639
----------------------------------------------------------
Total other expenses 1,441,181 1,328,268 2,908,023 2,790,321
----------------------------------------------------------
Income Before Income Taxes 871,803 698,676 1,571,288 1,185,601
Income tax expense 306,024 248,683 554,634 431,105
----------------------------------------------------------
Net Income $ 565,779 $ 449,993 $1,016,654 $ 754,496
==========================================================
EARNINGS PER SHARE
Basic $ .18 $ .14 $ .33 $ .23
----------------------------------------------------------
Diluted $ .17 $ .13 $ .31 $ .22
----------------------------------------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,116,606 3,181,403 3,114,946 3,188,828
----------------------------------------------------------
Diluted 3,288,601 3,362,580 3,289,654 3,369,580
----------------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ .045 $ .040 $ .085 $ .080
----------------------------------------------------------
See Notes to the Consolidated Financial Statements.
4
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
March 31
------------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,016,654 $ 754,496
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 9,513 45,088
Depreciation 297,644 298,493
Federal Home Loan Bank stock dividends (150,800) (133,900)
Amortization of net premiums (discounts)
on investment securities (74,464) (57,590)
Mortgage loans originated for sale (5,387,760) (276,700)
Proceeds from sale of mortgage loans 5,387,760 276,700
Gain on Sale of Loans 34,618 3,361
Change in other assets and other liabilities (412,715) (157,412)
------------------------------
Net Cash Provided by Operating Activities 720,450 752,536
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 11,247,319 10,427,266
Purchases of investment securities/FHLB stock (12,793,996) (10,394,193)
Loans originated, net of principal repayments 4,063,419 (19,660,736)
Principal collected on mortgage-backed securities 51,368 138,558
Sale of real estate owned / repossessed assets 116,821 107,325
Purchases of premises and equipment (94,314) (84,269)
------------------------------
Net Cash Used for Investing Activities 2,590,617 (19,466,049)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts 7,844,098 10,106,163
Net change in advance payments by borrowers
for taxes and insurance 101,974 (66,510)
Net change in borrowed funds with original
maturities of less than three months (29,235,000) 9,683,449
Proceeds (repayments) of long-term FHLB advances 19,993,045 (1,000,000)
Cash dividends paid (264,834) (254,571)
Proceeds from exercise of options 5,600 0
Purchase of treasury shares 0 (208,216)
------------------------------
Net Cash Provided by Financing Activities (1,555,117) 18,260,315
------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,755,950 (453,198)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,837,402 5,380,233
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,593,352 $ 4,927,035
==============================
See Notes to the Consolidated Financial Statements.
5
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 March 31, 2001,
and September 30, 2000, and the results of its operations for the three and
six months ended March 31, 2001, and 2000, and its cash flow for the six
months ended March 31, 2001 and 2000. The results of operations for the
interim periods reported herein are not necessarily indicative of results of
operations to be expected for the entire year.
2. Commitments
Outstanding commitments to originate mortgage loans and to sell mortgage
loans were $1,450,125 and $864,578 respectively, at March 31, 2001, 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 maybe 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 March 31, 2001, and the year ended
September 30, 2000.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
First Federal Bancorp, Inc. ("Bancorp"), is a savings and loan holding
company that wholly owns First Federal Savings Bank of Eastern Ohio (the
"Savings Bank"). The Savings Bank is engaged in the savings and loan
business primarily in Central and Eastern Ohio. The Savings Bank is a
member of the Federal Home Loan Bank ("FHLB") of Cincinnati, and the deposit
accounts in the Savings Bank are insured up to the applicable limits by the
Federal Deposit Insurance Corporation in the Savings Association Insurance
Fund ("SAIF").
Note Regarding Forward-Looking Statements
In addition to historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, First Federal's operations and First
Federal's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include changes
in the economy and interest rates in the nation and First Federal's market
area generally. See Exhibit 99.2 hereto, which is incorporated herein by
reference.
Some of the forward-looking statements included herein are the statements
regarding the following:
1. Management's determination of the amount of loan loss allowance;
2. Management's belief that deposits will increase slightly during
fiscal year 2001;
3. Management's anticipation that loan demand will remain stable,
but that the loan portfolio will decline as lower interest rates
make fixed-rate mortgages more attractive; and
4. Management's anticipation that interest income will be reduced
if interest rates remain low.
Changes in Financial Condition from September 30, 2000 to March 31, 2001
Total consolidated assets of Bancorp decreased by $742,000, or .31%, from
$236.8 million at September 30, 2000, to $236.1 million at March 31, 2001.
The decrease is due primarily to a reduction of $4.2 million in loans
receivable offset by an increase of $1.8 million in cash and cash
equivalents and an increase of $1.8 million in investments.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $20.9 million at March 31, 2001, which is an increase of
$3.3 million from September 30, 2000. The regulatory liquidity of the
Savings Bank was 5.60% at March 31, 2001 and 4.83% at September 30, 2000.
Funds are available through FHLB advances to meet the Savings Bank's
liquidity needs.
The loans receivable balance decreased $4.2 million for the six-month
period. As rates decreased, consumer demand for adjustable-rate mortgages
has decreased and the demand for fixed-rate mortgages has increased. The
Savings Bank has not retained these fixed-rate mortgages in its portfolio as
they do not meet the requirement of its Strategic Plan. Management
anticipates that loan demand will remain stable but that the mortgage loan
portfolio will decrease as lower interest rates make fixed-rate mortgages
more attractive. No assurance can be provided, however, that the loan
portfolio will decrease or that loan demand will remain stable.
As of March 31, 2001, the Savings Bank had borrowed funds from the FHLB in
the amount of $49.0 million at a weighted average rate of 5.87%. FHLB
advances decreased $9.2 million from $58.2 million at September 30, 2000.
The Savings Bank restructured FHLB advances of $20 million from short-term
variable rate advances to long term fixed rate advances during the quarter
ended March 31, 2001. The Savings Bank has obtained a line of credit at the
discount window of the Federal Reserve System for $23.0 million secured by
consumer auto loans, although there was no balance owed on the line of
credit as of March 31, 2001. Deposits increased by $7.8 million, or 4.94%,
from $158.7 million at September 30, 2000, to $166.6 million at March 31,
2001. The increase in savings was due to an increase in certificates of
deposit of $6.1 million and transaction accounts of $2.7 million.
Management believes that deposits will increase during fiscal year 2001. No
assurance can be provided, however, that deposits will increase. 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 March 31, 2001.
Amount Percent of
(In Thousands) Assets
-------------- ----------
Actual Tangible Capital $17,049 7.21%
Required Tangible Capital 3,549 1.50%
Excess Tangible Capital $13,500 5.71%
Actual Core Capital $17,049 7.21%
Required Core Capital (1) 9,464 4.00%
Excess Core Capital $ 7,585 3.21%
Actual Risk Based Capital $18,465 11.92%
Required Risk Based Capital 12,395 8.00%
Excess Risk Based Capital $ 6,070 3.92%
<FN>
<F1> 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%.
</FN>
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- and Six-Month Periods Ended
March 31, 2001, and 2000
Net interest income before provision for loan losses increased $290,000 for
the three-month comparative periods and increased $428,000 for the
comparative six-month periods. Total interest expense increased $340,000
for the three-month period and increased $1,075,000 for the six-month period
ended March 31, 2001, compared to the same periods in 2000. Total interest
income increased primarily due to an increase in the interest earned on
loans receivable and interest earned on other interest earning investments.
Loans receivable increased $4.4 million to $202.8 million at March 31, 2001
from $198.5 million at March 31, 2000. Other interest earning investments
increased $1.3 million to $14.3 million at March 31, 2001 from $13 million
at March 31, 2000.
With the recent lowering of rates, many loan customers have chosen fixed-
rate loans over adjustable-rate loans. This has resulted in selling more
loans in the secondary market versus keeping the loans in the savings bank's
portfolio. If interest rates remain low and the savings bank continues to
sell the fixed-rate loans, interest income will be reduced as will the
outstanding portfolio. No assurance can be provided, however, that interest
rates will remain lower. 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 totaled
$708,000 at March 31, 2001, which represents .35% of total loans. This
amount was an increase of $440,000 from March 31, 2000.
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 $1,688,347 at March 31, 2001, compared to $1,773,154
at March 31, 2000. During the six-month periods ended March 31, 2001, and
March 31, 2000, the Savings Bank recorded recoveries of $18,063 and $0 and
charge-offs of $167,178 and $26,020 respectively. Charge-offs increased
$141,158 due to the increase in delinquencies. The provisions for loan
losses during the six-month periods ended March 31, 2001, and 2000, were
$10,000 and $45,000 respectively.
Noninterest Income and Expense
The federal income tax provision increased $57,000 for the three-month
period and $124,000 for the six-month period ended March 31, 2001, compared
to the same period in 2000 due to an increase in pre-tax net income for the
period.
Total noninterest income increased $37,000 for the three-month period and
$40,000 for the six-month period ended March 31, 2001, compared to the same
period in 2000. Gain on the sale of fixed-rate loans increased $27,000 for
the three-month period and $31,000 for the six-month period ended March 31,
2001. Other income increased $13,000 for the comparative three-month
periods and $9,000 for the comparative six-month periods. The increases are
the result of the continuation of adopting increased fees for services
provided by the Savings Bank. Fee income decreased $4,000 for the
comparative three-month periods and remained stable for the comparative six-
month periods.
Total noninterest expenses increased $113,000 for the three-month period and
increased $118,000 for the six-month period ended March 31, 2001, compared
to the same period in 2000. Salaries and benefits increased $88,000 for the
three-month period and $109,000 for the six-month period ended March 2001
due to increased staff and normal pay increases. Occupancy expense
decreased $11,000 for the six-month period ended March 31, 2001, but was
offset by an increase in data processing cost of $44,000 as the Savings Bank
has accrued for expenses in the change of service bureaus. Advertising
decreased $15,000 due to a transition to a new marketing company.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in
relative purchasing power of money over time because of inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of First Federal are monetary in nature. As a result, interest
rates have a more significant impact on First Federal's performance than the
effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods
and services.
Effect of Accounting Changes
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities are
required to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e.
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. If certain conditions are met, entities may
elect to designate a derivative instrument as a hedge of exposures to
changes in fair value, cash flows, or foreign currencies. If the hedged
exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings)
and subsequently reclassified into earnings when the forecasted transaction
affects earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss are
reported in earnings immediately. Accounting for foreign currency hedges is
similar to accounting for fair value and cash flow hedges. If the
derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change. SFAS No. 133, as amended,
is effective for fiscal years beginning after June 15, 2000. This Statement
will not have a material effect on the Company.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting was held February 21, 2001. The following Directors were
elected to terms expiring in 2003.
For Withheld
--- --------
Ward D. Coffman, III 2,659,181 209,442
Robert D. Goodrich, II 2,663,781 204,842
Patrick L. Hennessey 2,662,781 205,842
Connie Ayres LaPlante 2,684,631 183,992
Those directors continuing their term were J. William Plummer, John C.
Matesich, III, and Don R. Parkhill.
One other matter was presented to the shareholders.
1. To ratify the selection of Olive LLP as the Auditors of Bancorp for
the current fiscal year:
For 2,846,338 Against 800 Abstentions 21,485
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.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 2001 By: /s/ J. William Plummer
--------------------------------
J. William Plummer
President
Date: May 14, 2001 By: /s/ Connie Ayres LaPlante
--------------------------------
Connie Ayres LaPlante
Chief Financial Officer
11