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 June 30, 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) 588-2222
As of July 31, 2001, the latest practicable date, 3,124,941 shares of
the registrant's common stock, no par value, were issued and outstanding.
Page 1 of 12 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 8
PART II OTHER INFORMATION 11
SIGNATURES 12
PART I
------
FINANCIAL INFORMATION
---------------------
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At June 30 At Sept. 30
2001 2000
---------- -----------
(unaudited)
<s> <c> <c>
ASSETS
Cash and amounts due from banks $ 3,689,028 $ 4,837,402
Interest-bearing demand deposits 0 0
------------------------------
Cash and cash equivalents $ 3,689,028 $ 4,837,402
Interest-bearing deposits 985,000 1,386,000
Investment securities held to maturity
(Fair value - $11,390,000 in 6/01 and
$11,375,000 in 9/00) 11,388,209 11,377,928
Loans receivable, net of allowance of
$1,673,000 and $1,828,000 199,739,425 207,048,507
Federal Home Loan Bank stock 4,298,300 4,071,200
Premises and equipment 6,372,389 6,498,446
Interest receivable and other assets 1,318,967 1,353,849
Other assets 909,443 303,271
------------------------------
Total Assets $228,700,761 $236,876,603
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $154,411,790 $158,720,119
Short-term FHLB advances 5,160,000 29,235,000
Long-term debt 47,959,649 28,970,160
Interest payable 574,803 625,943
Other liabilities 1,093,436 1,207,687
------------------------------
Total Liabilities $209,199,678 $218,758,909
------------------------------
Commitments and Contingencies
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; 3,124,941 shares
outstanding in 06/01 and 3,113,321
in 9/00 $ 3,743,514 $ 3,736,076
Retained earnings 16,695,919 15,345,127
Treasury shares, 178,459 shares in
06/01 and 190,079 in 9/00, at cost (938,350) (963,509)
------------------------------
Total Stockholders' Equity $ 19,501,083 $ 18,117,694
------------------------------
Total Liabilities and Stockholders'
Equity $228,700,761 $236,876,603
==============================
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
June 30 June 30
-------------------- ---------------------
2001 2000 2001 2000
---- ---- ---- ----
(unaudited) (unaudited)
<s> <c> <c> <c> <c>
INTEREST INCOME
Loans receivable $4,323,160 $4,114,410 $13,223,747 $11,645,128
Investment securities 232,602 241,013 782,029 680,984
Deposits with financial institutions 31,490 22,509 79,315 46,824
------------------------------------------------------------
Total Interest Income 4,587,252 4,377,932 14,085,091 12,372,936
------------------------------------------------------------
INTEREST EXPENSE
Deposits 1,756,749 1,643,718 5,619,018 4,483,692
Borrowed money 710,443 901,568 2,414,000 2,552,530
------------------------------------------------------------
Total Interest Expense 2,467,192 2,545,286 8,033,018 7,036,222
------------------------------------------------------------
Net Interest Income 2,120,060 1,832,646 6,052,073 5,336,714
Provision for Loan Losses 19,884 70,871 29,397 115,959
------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 2,100,176 1,761,775 6,022,676 5,220,755
------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 92,670 109,951 279,772 297,601
Net gains on loan sales 309,974 1,424 344,592 4,785
Other income 191,503 160,506 526,594 486,437
------------------------------------------------------------
Total Noninterest Income 594,147 271,881 1,150,958 788,823
------------------------------------------------------------
OTHER EXPENSE
Salaries and employee benefits 697,239 593,375 2,007,367 1,794,403
Occupancy and equipment expense 235,383 232,816 697,352 706,176
Data processing expense 162,008 126,641 469,694 390,689
Deposit insurance expense 22,628 20,507 66,795 76,403
Advertising 63,272 83,394 187,756 223,179
Ohio franchise taxes 55,252 52,357 162,130 160,922
Other operating expenses 271,293 274,545 824,004 822,184
------------------------------------------------------------
Total Other Expenses 1,507,075 1,383,635 4,415,098 4,173,956
------------------------------------------------------------
Income Before Income Taxes 1,187,248 650,021 2,758,536 1,835,622
Income Tax Expense 413,893 231,374 968,527 662,479
------------------------------------------------------------
Net Income $ 773,355 $ 418,647 $ 1,790,009 $ 1,173,143
============================================================
EARNINGS PER SHARE
Basic $ .25 $ .13 $ .57 $ .37
------------------------------------------------------------
Diluted $ .23 $ .13 $ .54 $ .35
------------------------------------------------------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,118,169 3,164,294 3,116,020 3,180,679
------------------------------------------------------------
Diluted 3,305,291 3,313,140 3,294,792 3,335,376
------------------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ .045 $ .04 $ .13 $ .12
------------------------------------------------------------
See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
------------------
June 30
--------------------
2001 2000
---- ----
(unaudited)
<s> <s> <s>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,790,009 $ 1,173,143
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 29,397 115,959
Depreciation 446,659 448,256
Federal Home Loan Bank stock dividends (227,100) (205,800)
Amortization of net premiums (discounts) on
investment securities (95,475) (102,763)
Mortgage loans originated for sale (13,746,600) (431,200)
Proceeds from sale of mortgage loans 13,746,600 431,200
Gain on Sale of Loans 344,592 4,785
Change in other assets and other liabilities (685,541) (130,715)
----------------------------
Net Cash Provided by Operating Activities 1,602,541 1,302,865
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 22,310,773 13,576,533
Purchases of investment securities/FHLB stock (21,910,372) (13,287,036)
Loans originated, net of principal repayments 6,729,473 (25,844,049)
Principal collected on mortgage-backed securities 85,793 171,954
Sale of real estate owned / repossessed assets 213,058 166,478
Purchases of premises and equipment (320,604) (108,723)
----------------------------
Net Cash Provided (Used) for Investing Activities 7,108,121 (25,324,843)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts (4,308,329) 5,643,156
Net change in advance payments by borrowers for taxes
and insurance (51,140) (113,502)
Net change in borrowed funds with original maturities
of less than three months (24,075,000) 18,160,100
Proceeds (repayment) of long-term FHLB advances 18,989,489 (1,000,000)
Cash dividends paid (405,456) (380,683)
Proceeds from exercise of options 15,175 21,438
Purchase of treasury shares (23,775) (420,528)
----------------------------
Net Cash Provided (Used) by Financing Activities (9,859,036) 21,909,981
----------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,148,374) (2,111,997)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,837,402 5,380,233
----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,689,028 $ 3,268,236
============================
See Notes to the Consolidated Financial Statements.
FIRST FEDERAL BANCORP, INC.
Notes to Consolidated Financial Statements
(unaudited)
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.
The consolidated Statement of Financial Condition of First Federal Bancorp,
Inc. ("Bancorp"), as of September 30, 2000 has been derived from the audited
statement of financial condition of the Bancorp as of that date.
In the opinion of management, the Consolidated Financial Statements contain
all adjustments necessary to present fairly the financial condition of
Bancorp, as of June 30, 2001, and September 30, 2000, and the results of its
operations for the three and nine months ended June 30, 2001, and 2000, and
its cash flow for the nine months ended June 30, 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 $3,413,480 and $968,785 respectively, at June 30, 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 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 June 30, 2001, and the year ended
September 30, 2000.
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 remain stable 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 June 30, 2001
- -----------------------------------------------------------------------
Total consolidated assets of Bancorp decreased by $8.2 million, or 3.45%,
from $236.8 million at September 30, 2000, to $228.7 million at June 30,
2001. The decrease is due primarily to a decrease of $7.3 million in loans
receivable, and a decrease of $1.1 million in cash and cash equivalents,
offset by an increase of $.2 million in FHLB stock.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $16.1 million at June 30, 2001, which is a decrease of $1.5
million from September 30, 2000. The regulatory liquidity of the Savings
Bank was 4.38% at June 30, 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 $7.3 million for the nine-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 decline or that loan demand will remain stable as loan demand
is affected by interest rates, nationally and locally, and economic
conditions beyond the control of Bancorp.
As of June 30, 2001, the Savings Bank had borrowed funds from the FHLB in
the amount of $53.1 million at a weighted average rate of 5.7%. FHLB
advances decreased $5.1 million from $58.2 million at September 30, 2000.
The Savings Bank has obtained a line of credit at the discount window of the
Federal Reserve System for $19.7 million secured by consumer auto loans,
although there was no balance owed on the line of credit as of June 30,
2001. Deposits decreased by $4.3 million, or 2.71%, from $158.7 million at
September 30, 2000, to $154.4 million at June 30, 2001. The decrease in
savings was due to a decrease in certificates of deposit. Management
believes that deposits will remain stable during fiscal year 2001. No
assurance can be provided, however, that deposits will remain stable.
Deposit levels 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 June 30, 2001.
Amount Percent of
(In Thousands) Assets
-------------- ----------
<s> <c> <c>
Actual Tangible Capital $17,583 7.66%
Required Tangible Capital 3,441 1.50%
----------------------
Excess Tangible Capital $14,142 6.16%
Actual Core Capital $17,583 7.66%
Required Core Capital (1) 9,177 4.00%
----------------------
Excess Core Capital $ 8,406 3.66%
Actual Risk Based Capital $18,994 12.35%
Required Risk Based Capital 12,306 8.00%
----------------------
Excess Risk Based Capital $ 6,688 4.35%
<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 Nine-Month Periods Ended June 30, 2001, and 2000
- ------------------------------------------------------------
Net interest income before provision for loan losses increased $287,000 for
the three-month comparative periods and $715,300 for the comparative nine-
month periods. Total interest expense decreased $78,100 for the three-month
period and increased $997,000 for the nine-month period ended June 30, 2001,
compared to the same periods in 2000. Total interest income increased
primarily due to an increase in the interest earned on loans receivable.
Loans receivable decreased $4.8 million to $199.7 million at June 30, 2001
from $204.5 million at June 30, 2000, but the average loans outstanding
increased $11.7 million to $202.8 million during the nine months ended June
30, 2001 from $191.1 million for the nine months ended June 30, 2000
resulting in more interest income.
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
$503,000 at June 30, 2001, which represents .25% of total loans. This
amount was an increase of $365,000 from June 30, 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 $1,672,684 at June 30, 2001, compared to $1,813,038
at June 30, 2000. During the nine-month periods ended June 30, 2001, and
June 30, 2000, the Savings Bank recorded recoveries of $23,510 and $31,901
and charge-offs of $208,173 and $155,821 respectively. The provisions for
loan losses during the nine-month periods ended June 30, 2001, and 2000,
were $29,397 and $115,959 respectively
Noninterest Income and Expense
- ------------------------------
Total noninterest income increased $322,300 for the three-month period and
$362,100 for the nine-month period ended June 30, 2001, compared to the same
period in 2000. The primary reason noninterest income increased is due to
the Savings Bank adjusting for FASB 125 "Accounting for Transfers on
Servicing of Financial Assets and Extinguishment of Liabilities" (FASB 125)
during the three-month period ending June 30, 2001. The cumulative effect
of the $298,000 was recorded as gain on loans sold.
Total noninterest expenses increased $123,400 for the three-month period and
increased $241,100 for the nine-month period ended June 30, 2001, compared
to the same period in 2000. Salaries and benefits increased $103,900 for
the three-month period and $213,000 for the nine-month period ended June
2001 due to increased staff and normal pay increases. Data processing
increased $35,000 for the three-month period and $79,000 for the nine-month
period due to the Savings Bank accruing for expenses related to the change
of service bureaus. Advertising expense decreased $35,000 due to a
transition to a new marketing company.
The federal income tax provision increased $182,500 for the three-month
period and $306,000 for the nine-month period ended June 30, 2001, compared
to the same period in 2000 due to an increase in pre-tax net income for the
period.
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
---------------------------------------------------
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
----------
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: August 14, 2001 By: /s/ J. William Plummer
------------------------------
J. William Plummer
President
Date: August 14, 2001 By: /s/ Connie Ayres LaPlante
------------------------------
Connie Ayres LaPlante
Chief Financial Officer