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, 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
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FIRST FEDERAL BANCORP, INC.
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(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
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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, 2002, the latest practicable date, 3,161,411 shares of the
registrant's common stock, no par value, were issued and outstanding.
1
FIRST FEDERAL BANCORP, INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE
Consolidated Balance Sheets 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 BALANCE SHEETS
At Dec. 31 At Sept. 30
2001 2001
---- ----
<s> <c> <c>
ASSETS (unaudited)
Cash and amounts due from banks $ 4,020,241 $ 4,996,134
Interest-bearing demand deposits 1,500,000 1,500,000
----------------------------
Cash and cash equivalents $ 5,520,241 $ 6,496,134
Interest-bearing deposits 796,000 996,000
Investment securities held to maturity
(Fair value - $10,779,000 in 12/01 and
$10,921,000 in 9/01) 10,747,631 10,774,966
Loans receivable, net of losses of
$1,612,860 and $1,605,000 199,741,684 203,403,831
Federal Home Loan Bank stock 4,434,700 4,374,100
Premises and equipment 6,442,686 6,369,719
Interest receivable 1,573,704 1,342,548
Other assets 160,131 1,011,679
----------------------------
Total Assets $229,416,777 $234,768,977
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $141,572,485 $146,250,668
Short-term FHLB advances 23,417,000 28,840,000
Long-term debt 41,952,375 37,956,039
Interest payable 435,834 522,966
Other liabilities 1,475,919 1,223,360
----------------------------
Total Liabilities $208,853,613 $214,793,033
----------------------------
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;
3,161,401 shares outstanding at
12/01 and 3,124,941 at 9/01 $ 3,743,514 3,743,514
Retained earnings 17,638,366 17,170,780
Treasury shares, 141,999 shares
at 12/01 and 178,459 at 9/01, at cost (818,716) (938,350)
----------------------------
Total Stockholders' Equity $ 20,563,164 $ 19,975,944
----------------------------
Total Liabilities and Stockholders'
Equity $229,416,777 $234,768,977
============================
See Notes to the Consolidated Financial Statements.
3
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31
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2001 2000
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<s> <c> <c>
INTEREST INCOME (unaudited)
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Loans receivable $4,152,417 $4,427,059
Investment securities 177,106 273,954
Deposits with financial institutions 16,523 24,200
------------------------
Total Interest Income 4,346,046 4,725,213
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INTEREST EXPENSE
Deposits 1,235,892 1,968,553
Borrowed money 751,380 912,928
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Total Interest Expense 1,987,272 2,881,481
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Net Interest Income 2,358,774 1,843,732
Provision for Loan Losses 48,298 (45,306)
------------------------
Net Interest Income After Provision
for Loan Losses 2,310,476 1,889,038
------------------------
INCOME
Service charges on deposit accounts 127,490 104,299
Net gains on loan sales 197,116 5,615
Other income 203,901 167,375
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Total other income 528,507 277,289
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EXPENSES
Salaries and employee benefits 826,481 654,027
Occupancy and equipment expense 226,431 246,915
Data processing expense 270,812 145,988
Deposit insurance expense 21,924 21,617
Advertising 60,706 67,769
Ohio franchise taxes 55,378 51,161
Other operating expenses 319,206 279,365
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Total other expenses 1,780,938 1,466,842
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Income Before Income Taxes 1,058,045 699,485
Income tax expense 374,215 248,610
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Net Income $ 683,830 $ 450,875
========================
EARNINGS PER SHARE
Basic $ .22 $ .14
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Diluted $ .21 $ .14
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,133,665 3,113,321
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Diluted 3,318,927 3,290,742
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DIVIDENDS DECLARED PER SHARE $ .045 $ .04
------------------------
See Notes to the Consolidated Financial Statements.
4
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31
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OPERATING ACTIVITIES: 2001 2000
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<s> <c> <c>
Net Income (unaudited)
$ 683,830 $ 450,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 48,298 (45,306)
Depreciation and amortization 146,606 148,317
Investment securities accretion, net 51,783 (33,426)
FHLB stock dividend (60,600) (76,700)
Net change in
Mortgage loans held for sale 691,296 0
Other assets and other liabilities 626,220 63,871
---------------------------
Net Cash Provided by Operating Activities 2,187,433 507,631
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INVESTING ACTIVITIES:
Net change in interest-bearing deposits 200,000 0
Purchase of securities held to maturity (1,354,770) (3,955,000)
Proceeds from maturities of securities held to maturity 1,330,322 3,006,709
Net change in loans 2,879,033 (427,688)
Purchase of premises and equipment (219,573) (53,921)
Proceeds from sales and payments received on real estate
owned and repossessed assets 43,520 85,391
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Net Cash Provided (Used) by Investing Activities 2,878,532 (1,344,509)
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FINANCING ACTIVITIES:
Net change in
Deposits (4,678,183) 5,714,008
Advance payments by borrowers for taxes and
insurance 159,599 126,952
Short-term borrowings (5,423,000) 695,000
Proceeds of long-term debt 4,000,000 0
Repayment of long-term debt (3,664) (5,003,452)
Cash dividends (142,263) (124,533)
Proceeds from exercise of options 45,653 0
---------------------------
Net Cash Provided (Used) by Financing Activities (6,041,858) 1,407,975
---------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (975,893) 571,097
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,496,134 4,837,402
---------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,520,241 $ 5,408,499
===========================
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 accounting principles generally accepted in the
United States of America 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 accounting principles generally
accepted in the United States of America 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 balance sheet as of September 30, 2001 has been derived
from the audited consolidated balance sheet as of that date.
In the opinion of management, the Consolidated Financial Statements contain
all adjustments necessary to present fairly the financial condition of First
Federal Bancorp, Inc. ("Bancorp"), as of December 31, 2001, and September
30, 2001, and the results of its operations for the three months ended
December 31, 2001, and 2000, and its cash flow for the three months ended
December, 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 $4,783,000 and $60,000 respectively, at December 31, 2001, and
$1,846,000 and $694,000 respectively at September 30, 2001.
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, 2001, and the year ended
September 30, 2001.
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, the Savings Bank's operations and
the Savings Bank'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
Savings Bank'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 remain stable during
fiscal year 2002;
3. Management's anticipation that loan demand will remain stable,
but that the mortgage loan portfolio will decrease as lower
interest rates make adjustable mortgages, which are held in
portfolio rather than being sold, less 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 lower in fiscal year 2001 if interest rates remain
relatively stable or decrease;
6. Legislative changes with respect to the activities of financial
institutions;
Changes in Financial Condition from September 30, 2001 to December 31, 2001
Total consolidated assets of Bancorp decreased by $5.4 million, or 2.28%,
from $234.8 million at September 30, 2001, to $229.4 million at December 31,
2001. The decrease is due primarily to a decrease of $3.7 million in loans
receivable, a decrease of $976,000 in cash and cash equivalents, and a
decrease of $852,000 in other assets.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $17.1 million at December 31, 2001, which is a decrease of
$1.2 million from September 30, 2001. The OTS requires savings associations
to maintain a sufficient level of investments in specified types of liquid
assets intended to provide a source of relatively liquid funds upon which
the Savings Bank may rely if necessary to fund deposit withdrawals and other
short-term funding needs. The liquidity of the Savings Bank was 5.20% of
deposits and funding needs at December 31, 2001 and 5.71% at September 30,
2001. Funds are available through FHLB advances to meet the Savings Bank's
liquidity needs.
The loans receivable balance decreased $3.7 million for the three-month
period. The decrease in loans receivable was comprised of a decrease in
residential real estate loans of $6.0 million, a $900,000 decrease in
consumer automobile loans, an $800,000 increase in non-residential real
estate loans and commercial loans and a $2.4 million increase in other
consumer loans. The decrease in residential loans was due to the sale of
fixed rate loans in the secondary market as part of the Saving Bank's
interest rate management. The decrease in consumer auto loans was due to a
decreased volume in loans originated.
As of December 31, 2001, the Savings Bank had long-and short-term borrowed
funds from the FHLB in the amount of $42.0 million and $23.4 million,
respectively, at a weighted average rate of 4.60%. Long term FHLB advances
increased $4.0 million from $38.0 million and short-term FHLB advances
decreased $5.4 million at September 30, 2001. The net decrease of $1.4
million was due to paying off advances with the funds generated by loan
paydowns. Deposits decreased by $4.7 million, or 3.20%, from $146.3 million
at September 30, 2001, to $141.6 million at December 31, 2001. The decrease
in savings was due to a $7.7 million decrease in certificates offset by a
$3 million increase in noncertificate accounts. Management believes that
deposits will remain stable during fiscal year 2002 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
remain stable and that the loan portfolio and 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, 2001.
7
Amount Percent of
(In Thousands) Assets
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<s> <c> <c>
Actual Tangible Capital $18,436 7.89%
Required Tangible Capital 3,504 1.50%
----------------------
Excess Tangible Capital $14,932 6.39%
Actual Core Capital $18,436 7.89%
Required Core Capital (1) 9,345 4.00%
----------------------
Excess Core Capital $ 9,091 3.89%
Actual Risk Based Capital $19,782 12.79%
Required Risk Based Capital 12,377 8.00%
----------------------
Excess Risk Based Capital $ 7,405 4.79%
<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
may be permitted for institutions meeting a residential mortgage loan
origination test. At September 30, 2001, the Savings Bank had approximately
$1 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 the Savings Bank's net income will not be
negatively affected by this legislation.
Comparison of Operating Results for the Three-Month Periods Ended
December 31, 2001, and 2000
Net Interest Income
Net interest income before provision for loan losses increased $515,000 for
the comparative three-month periods. Total interest income decreased
$379,000 for the three-month period ended December 31, 2001, compared to the
same period in 2000, but was offset by a decrease of interest expense of
$894,000. Total interest income decreased primarily due to a decrease in
the interest earned on loans receivable and the reduction in loan portfolio
balance. The balance of loans receivable decreased $3.7 million to $199.7
million at December 2001, compared to December 2000. Total interest expense
decreased due to the reduction in interest rates paid on deposits and due to
the decreased balance of savings deposits since December 31, 2000.
The majority of the loans in the Savings Bank's portfolio are adjustable-
rate mortgage loans whose interest rates fluctuate with market interest
rates. 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 relatively stable or decrease
during fiscal year 2002, the adjustable-rate mortgage loan portfolio will
reprice at lower rates, due to the rapid decrease in interest rates, while
rising interest rates could result in upward adjustments to the interest
rates on those loans. No assurance can be provided with respect to which
direction interest rates will move. Interest rates are affected by general,
local and national economic conditions, the policies of various regulatory
authorities and other factors beyond the control of the Savings Bank.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
Total nonaccrual loans and accruing loans that are 90 days past due were
$364,000 at December 31, 2001, which represents .18% of total loans. This
was a decrease of $193,000 from December 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 $1,612,860 at December 31, 2001, compared to
$1,723,615 at December 31, 2000. During the three-month periods ended
December 31, 2001, and December 31, 2000, the Savings Bank recorded
recoveries of $7,000 and $6,200 and charge-offs of $47,400 and $65,000,
respectively. The provisions for loan losses during the three-month periods
ended December 31, 2001, and 2000, were $48,300 and $(45,300) respectively.
8
Noninterest Income and Expense
The federal income tax provision increased $125,600 for the three-month
period ended December 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 $251,000 for the three-month period ended
December 31, 2001, compared to the same period in 2000. There was an
increase in a gain on the sale of loans of $191,500 for the three-month
period ended December 31, 2001, due to an increase in the demand for fixed
rate loans that were not retained in the portfolio. Service charges and
other income increased $23,000 and $36,500 for the three-month period ended
December 31, 2001.
Total noninterest expenses increased $314,000 for the quarter ended December
31, 2001, compared to the same period in 2000. Salaries and benefits
increased $172,000 as a result of increased entry-level pay ranges, normal
pay increases and increased incentive pay in the three-month period ended
December 2001 compared to the three-month period ended December 31, 2000.
Data processing costs increased $125,000 due to additional costs associated
with changing our core processor in November 2001. Other operating expenses
increased $39,800 due to costs associated with the selling of fixed rate
loans.
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 the Savings Bank are monetary in nature. As a result,
interest rates have a more significant impact on the Savings Bank'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 July 2001, the FASB (Financial Accounting Standards Board) issued
Statements (SFAS) No. 141, "Accounting for Business Combinations" and No.
142, "Accounting for Goodwill and Intangible Assets." These Statements will
have no material effect on the Company at this time since it has not been
involved in a "business combination" subject to SFAS No. 141 and does not
have goodwill or other intangible assets subject to SFAS No. 142.
9
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.
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: February 13, 2002 By: /s/ J. William Plummer
---------------------------------
J. William Plummer
President
Date: February 13, 2002 By: /s/ Connie Ayres LaPlante
---------------------------------
Connie Ayres LaPlante
Chief Financial Officer
11