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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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) 453-0606
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
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As of July 31, 1999, the latest practicable date, 3,196,171 shares of
the registrant's common stock, no par value, were issued and outstanding.
Page 1 of 13 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 8
PART II OTHER INFORMATION 12
SIGNATURES 13
PART I
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FINANCIAL INFORMATION
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First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At June 30 At September 30
1999 1998
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ASSETS
Cash and amounts due from depository institutions $ 4,087,744 $ 4,957,155
Overnight deposits 1,000,000 13,375,000
------------------------------
Cash and cash equivalents $ 5,087,744 $ 18,332,155
Investment securities held to maturity (Fair value - $15,906,000 in 6/99
and $12,105,000 in 9/98) 15,653,535 12,092,484
Mortgage-backed securities held to maturity (Fair value - $1,057,000
in 6/99 and $1,252,000 in 9/98) 1,059,382 1,256,327
Loans receivable, net 171,091,550 169,622,791
Premises and equipment, net 7,057,112 7,347,715
Accrued interest receivable and other assets 5,308,680 4,850,905
------------------------------
Total Assets $205,258,003 $213,502,377
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $145,366,994 $147,688,662
Borrowed funds 40,986,662 47,995,988
Advances from borrowers for taxes and insurance 379,278 295,463
Accrued expenses and other liabilities 1,181,671 1,022,450
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Total Liabilities $187,914,605 $197,002,563
------------------------------
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 $ 3,656,323 $ 3,656,323
Retained earnings 14,038,920 13,334,589
Treasury shares, 107,229 shares in 6/99 and 152,868 in 9/98 (351,845) (491,098)
------------------------------
Total Stockholders' Equity $ 17,343,398 $ 16,499,814
------------------------------
Total Liabilities and Stockholders' Equity $205,258,003 $213,502,377
==============================
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
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1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $3,443,538 $3,823,602 $10,376,113 $11,447,408
Interest on mortgage-backed securities 18,694 14,042 62,119 76,738
Interest on investment securities 434,804 103,112 953,349 305,773
Interest on other interest earning investments 98,264 31,829 481,812 88,325
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Total Interest Income 3,995,300 3,972,585 11,873,393 11,918,244
---------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 1,663,116 1,424,959 4,774,899 4,075,381
Interest on borrowed money 677,708 833,998 2,159,316 2,754,210
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Total Interest Expense 2,340,824 2,258,957 6,934,215 6,829,591
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Net Interest Income 1,654,476 1,713,628 4,939,178 5,088,653
Provision for Loan Losses 122,759 (78,953) 75,873 329,105
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Net Interest Income After Provision
for Loan Losses 1,531,717 1,792,581 4,863,305 4,759,548
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NONINTEREST INCOME
Service charges on deposit accounts 93,586 85,123 250,970 243,009
Gain on sale of loans 6,014 65,746 49,136 128,980
Dividends on FHLB stock 63,845 61,691 188,271 177,800
Other operating income 140,077 117,937 422,230 355,269
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Total Noninterest Income 303,522 330,497 910,607 905,058
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NONINTEREST EXPENSE
Salaries and employee benefits 525,878 537,198 1,733,114 1,564,166
Occupancy and equipment expense 229,933 203,569 679,732 610,631
Deposit insurance expense 35,864 34,748 107,683 103,860
Data processing expense 141,579 127,332 412,093 336,873
Advertising 60,822 60,875 167,821 180,042
Ohio franchise taxes 52,768 55,625 160,466 159,777
Other operating expenses 247,737 390,780 795,469 911,552
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Total Noninterest Expenses 1,294,581 1,410,127 4,056,378 3,866,901
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Income Before Income Taxes 540,658 712,951 1,717,534 1,797,705
Provision for Income Taxes 176,335 234,847 566,874 602,160
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Net Income $ 364,323 $ 478,104 $ 1,150,660 $ 1,195,545
=========================================================
EARNINGS PER SHARE
Basic $ .110 $ .150 $ .360 $ .380
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Diluted $ .110 $ .140 $ .340 $ .340
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
Basic 3,196,171 3,150,532 3,196,171 3,150,532
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Diluted 3,405,080 3,539,740 3,412,128 3,536,677
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DIVIDENDS DECLARED PER SHARE $ .040 $ .035 $ .115 $ .105
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See Notes to the Consolidated Financial Statements.
First Federal Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
June 30
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,150,660 $ 1,195,545
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 75,873 329,105
Depreciation 432,545 398,293
Federal Home Loan Bank stock dividends (188,100) (177,600)
Amortization of net premiums (discounts) on investment securities (191,626) (17,918)
Mortgage loans originated for sale (5,274,309) (8,683,127)
Proceeds from sale of mortgage loans 5,328,009 8,624,902
Change in other assets and other liabilities (110,461) (609,060)
----------------------------
Net Cash Provided by Operating Activities 1,222,591 1,060,140
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 19,031,358 5,864,208
Purchases of investment securities/FHLB stock (22,400,782) (5,757,913)
Loans originated, net of principal repayments (1,776,864) (2,325,570)
Principal collected on mortgage-backed securities 196,945 128,124
Sale of real estate owned 178,533 419,575
Purchases of premises and equipment (141,942) (279,534)
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Net Cash Used for Investing Activities (4,912,752) (1,951,110)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposit accounts (2,321,668) 13,223,807
Net change in advance payments by borrowers for taxes and insurance 83,815 (233,021)
Net change in borrowed funds with original maturities of less than three months (7,009,326) (9,805,996)
Dividends paid (381,395) (315,023)
Proceeds from exercise of options 74,324 2,213
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Net Cash Provided by Financing Activities (9,554,250) 2,871,980
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NET CHANGE IN CASH AND CASH EQUIVALENTS (13,244,411) 1,981,010
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,332,155 8,837,127
----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,087,744 $10,818,137
============================
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 June
30, 1999, and September 30, 1998, and the results of its operations for the
three and nine months ended June 30, 1999, and 1998, and its cash flow for
the nine months ended June, 1999 and 1998. 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 $6,416,780 and $0 respectively, at June 30, 1999, and $1,846,409
and $53,700 respectively at September 30, 1998.
3. Earnings and Dividends 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. On June 3, 1998, the Board of Directors declared a
two-for-one stock split in the form of a 100% stock dividend. All earnings
and dividends per share disclosures have been restated to reflect this
stock split.
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 is 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, 1999, and the year ended
September 30, 1998.
5. Interest Income on Loans
------------------------
Interest on loans is accrued over the term of the loans based upon the
principal outstanding. Management reviews loans delinquent 90 days or more
to determine if the interest accrual should be discontinued. The carrying
value of impaired loans reflects cash payments, revised estimates of future
cash flows, and increases in the present value of expected cash flows due
to the passage of time. Cash payments representing interest income are
reported as such and other cash payments are reported as reductions in
carrying value. Increases or decreases in carrying value due to changes in
estimates of future payments or the passage of time are reported as
reductions or increases in bad debt expense.
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. See Exhibit 99.1 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 1999;
3. Management's anticipation that no additional advances from the FHLB
will be necessary to fund loan originations;
4. Management's anticipation that some adjustable-rate loans will
reprice higher in fiscal year 1999 and the remainder will not reprice
substantially lower if interest rates remain relatively stable; and
5. Legislative changes with respect to the federal thrift charter.
Changes in Financial Condition from September 30, 1998 to June 30, 1999
- -----------------------------------------------------------------------
Total consolidated assets of Bancorp decreased by $8.2 million, or 3.86%,
from $213.5 million at September 30, 1998, to $205.3 million at June 30,
1999. The decrease is due primarily to a decrease of $13.2 million in cash
and cash equivalents, offset by an increase in loans receivable of $1.5
million and an increase of $3.5 million in investments held to maturity
which were used in large part to reduce borrowed funds at the FHLB.
Total liquidity (consisting of cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and investment
securities) was $20.7 million at June 30, 1999, which is an increase of
$3.6 million from September 30, 1998. The regulatory liquidity of the
Savings Bank was 10.70% at June 30, 1999 and 14.13% at September 30, 1998,
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 $1.5 million for the nine-month
period as the decline in the trend of refinancing of mortgage loans
resulted in an increase of outstanding loans.
As of June 30, 1999, the Savings Bank had borrowed funds from the FHLB in
the amount of $41.0 million at a weighted average rate of 6.38%. FHLB
advances decreased $7.0 million from $48.0 million at September 30, 1998
due to payment on maturing advances at the FHLB. Deposits decreased by
$2.3 million, or 1.57%, from $147.7 million at September 30, 1998, to
$145.4 million at June 30, 1999. Management believes that the Savings Bank
will experience a slight increase in deposits during the current fiscal
year. As the result of the decrease in the SAIF premium cost, the Savings
Bank can afford to pay depositors a slightly higher rate while managing the
cost of funds. FHLB advances have increased in cost compared to deposits
of a similar term. The Savings Bank therefore plans to become more
aggressive in promoting deposit products. No assurance can be provided,
however, that deposits will grow. Deposit levels are affected by national,
as well as local, interest rates 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, 1999.
Amount Percent of
(In Thousands) Assets
-------------- ----------
Actual Tangible Capital $15,424 7.50%
Required Tangible Capital 3,084 1.50%
-----------------------
Excess Tangible Capital $12,340 6.00%
Actual Core Capital $15,424 7.50%
Required Core Capital 8,224 4.00%
-----------------------
Excess Core Capital $ 7,200 3.50%
Actual Risk Based Capital $16,756 12.71%
Required Risk Based Capital 10,544 8.00%
-----------------------
Excess Risk Based Capital $ 6,212 4.71%
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, 1998, 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.
Year 2000 Considerations
- ------------------------
As with all financial institutions, First Federal's operations depend
almost entirely on computer systems. First Federal is addressing the
potential problems associated with the possibility that the computers that
control or operate First Federal's operating systems, facilities and
infrastructure may not be programmed to read four-digit date codes and,
upon arrival of the year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or to generate erroneous
data. An overall plan, developed by the Year 2000 Committee, was approved
by the Board of Directors and put into effect in 1998. This plan is a
step-by-step process of awareness, assessment, remediation and testing of
hardware, software and embedded systems, as well as a customer awareness
program, contingency plan and business continuity plan.
First Federal has been upgrading its technology as part of a planned
performance quality commitment and for maintaining a competitive position.
As a result, much of the Bank's internal systems now incorporate technology
that has been year 2000 ("Y2K") tested and certified. Beginning in fiscal
year 1996, the Bank's capital budget included replacement of all personal
computers ("PCs") throughout the Company over a 3- to 4-year period. This
will bring most PCs into compliance. The Savings Bank has used its current
internal staffing with little reliance on outside resources. Major vendors
have provided remediated software. First Federal believes that any
additional Y2K costs will be immaterial.
First Federal has no software that is internally developed and relies
primarily on third-party vendors for its computer output and processing, as
well as other significant functions and services, such as securities
safekeeping services, securities pricing information and wire transfers.
The Year 2000 Committee has been working with the vendors to assess their
Y2K readiness and believes that the third-party vendors are taking the
appropriate steps to ensure that critical systems will function properly.
The modifications and conversions of hardware and software were completed
and tested by June 30, 1999.
If the modifications and conversions by third-party vendors and First
Federal fail to function properly, the operations and financial condition
of First Federal could be materially adversely affected. First Federal's
contingency plan, which continues to be developed, allows for continued
operations in the event of system failure. Testing of mission-critical
systems started in the fourth quarter of 1998 and was completed by June 30,
1999. Testing included all core systems required for continued Bank
operation and included interfaces with critical third-party vendors.
Testing has not revealed any deficiencies in the remediated systems. First
Federal has a concern in the case where there is possible interruption of
electrical power, which is certainly a concern that all businesses face due
to the interdependencies within the nation's power grid. First Federal has
developed plans for manually processing core operations.
First Federal has a plan in place to educate our personnel and to inform
our customers of the Year 2000 issue. Brochures have been distributed to
customers and are readily available upon request.
First Federal may experience increases in problem loans and credit losses
in the event that borrowers or major employers in our area fail to prepare
properly for Y2K. First Federal has contacted major borrowers to assess
their awareness and status regarding their year 2000 compliance, although
loans to commercial borrowers constitute 1.04% of the loan portfolio.
First Federal faces the risk of loss of deposits and consequent liquidity
problems should Bank customers lose confidence in the Savings Bank in
particular, or the banking system in general, and choose to withdraw their
funds. Customers who experience cash flow problems due to their own lack
of year 2000 preparedness could fund their cash shortfall by withdrawing
their deposits from the Company, thereby causing liquidity problems. First
Federal also intends to increase its cash reserves during the final months
of 1999 and take any other steps deemed necessary to meet liquidity needs.
First Federal could also be materially adversely affected if other third
parties, such as governmental agencies, clearinghouses, telephone
companies, utilities and other service providers fail to prepare properly.
First Federal is therefore attempting to assess these risks and take action
to minimize their effect.
Comparison of Operating Results for the Three- and Nine-Month
- -------------------------------------------------------------
Periods Ended June 30, 1999, and 1998
- -------------------------------------
Net interest income before provision for loan losses decreased $59,000 for
the three-month comparative periods and decreased $149,000 for the
comparative nine-month periods. Total interest income increased by $23,000
for the three-month period and decreased $45,000 for the nine-month period
ended June 30, 1999, compared to the same periods in 1998. The decrease is
primarily due to a decrease in the interest rate earned on newly-originated
mortgage loans and, until this quarter ended June 30, 1999, a decrease in
loans receivable as the result of the refinancing trend in the market. The
majority of the loans in the Savings Bank's portfolio are adjustable-rate
mortgage loans whose interest rates fluctuate with market interest rates.
The decrease was offset by an increase in investment income of $332,000 for
the comparative three-month periods and $647,000 for the comparative nine-
month periods due to the increase in investments.
The adjustable-rate mortgage loan portfolio will reprice at slightly higher
rates, as most loans originated during fiscal year 1998 were not initially
priced at the fully indexed interest rate. These loans will be repricing
upward at their first adjustment in fiscal year 1999 while the balance of
the adjustable-rate mortgage loan portfolio will not reprice substantially
lower during fiscal year 1999. 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.
Interest expense increased by $82,000 for the comparative three-month
period, as the result of increases in interest rates of savings deposits at
First Federal and increased $105,000 for the comparative nine-month period
ended June 30, 1999, as the result of increased savings balances at First
Federal compared to June 30, 1998.
Nonperforming and Delinquent Loans and Allowance for Loan Losses
- ----------------------------------------------------------------
Total nonaccrual loans and accruing loans that are 90 days past due were
$221,000 at June 30, 1999, which represents .13% of total loans. This was
a decrease of $455,000 from June 30, 1998.
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 $1,808,000 at June 30, 1999, compared to $2,109,000
at June 30, 1998. During the nine-month period ended June 30, 1999, the
Savings Bank recorded no recoveries and charge-offs of $310,000, compared
to $78,000 in charge-offs and net recoveries of $42,000 during the same
period in 1998. Charge-offs increased $232,000 due to the losses taken on
the sale of repossessed cars. The provisions for loan losses during the
nine-month periods ended June 30, 1999, and 1998, were $76,000 and $329,000
respectively.
Noninterest Income and Expense
- ------------------------------
Total noninterest income decreased $27,000 for the three-month period and
remained stable for the nine-month period ended June 30, 1999, compared to
the same period in 1998. Dividends on FHLB stock increased $2,000 for the
three-month period and $10,000 for the nine-month period ended June 30,
1999 due to an increase in FHLB stock held. Gain on the sale of loans
decreased $60,000 for the three-month period and $80,000 for the nine-month
period ended June 30, 1999 due to the decline in fixed-rate loans
originated for sale. Other income increased $22,000 for the comparative
three-month periods and $67,000 for the comparative nine-month periods due
to a $32,000 increase in loan late charges and other loan fees and an
increase of $29,500 on ATM fees due to surcharging noncustomer use of ATMs
for the nine-month periods.
Total noninterest expenses decreased $116,000 for the three-month period
and increased $189,000 for the nine-month period ended June 30, 1999,
compared to the same periods in 1998. Salaries and benefits increased
$169,000 as a result of an increase of $57,000 in retirement plan accrual
costs for the nine-month period ended June 30, 1999, and an increase in
salaries of $53,000. Salaries increased due to the increase in staff and
normal increases in compensation for the comparative nine-month periods.
Occupancy expense increased $69,000 for the nine-month period ended June
30, 1999; $35,000 of the increase was due to increased depreciation on
furniture and fixtures, and $20,000 of the increase was due to increased
costs for routine repairs and maintenance at branch offices. Data
processing costs increased $36,000 due to the costs associated with the
utilization of a networking system and the new check-imaging product.
The federal income tax provision decreased $59,000 for the three-month
period and $35,000 for the nine-month period ended June 30, 1999, compared
to the same period in 1998 due to a decrease 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 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement significantly
changes the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about reportable segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS 131 uses a "management approach" to
disclose financial and descriptive information about an enterprise's
reportable operating segments which is based on reporting information the
way management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, the Statement requires significantly more information to be
disclosed for each reportable segment than is presently being reported in
annual financial statements. The Statement also requires that selected
information be reported in interim financial statements. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company does not anticipate that any further disclosures will be
necessary.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 amends the
disclosure requirements of SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination of
Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This Statement standardizes the disclosure
requirements of SFAS No. 87 and No. 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and
other postretirement benefits. The Statement does not change any of the
measurement or recognition provisions provided for in SFAS No. 87, No. 88
or No. 106. This Statement is effective for fiscal years beginning after
December 15, 1997. First Federal adopted SFAS No. 132 on October 1, 1998,
and required disclosures will be included beginning with the Company's 1999
Annual Report.
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. This Statement will not
have a 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 3.1 The Articles of Incorporation of First Federal
Bancorp, Inc. ("Bancorp"), filed as Exhibit 4a(1)
to Bancorp's Registration Statement on Form S-8
filed with the Securities and Exchange Commission
("SEC") on February 1, 1994 (the "1994 S-8"), are
incorporated herein by reference.
Exhibit 3.2 The Amendment to the Articles of Incorporation of
Bancorp, filed as Exhibit 4a(1) to the 1994 S-8,
is incorporated herein by reference.
Exhibit 3.3 The Code of Regulations of Bancorp filed as
Exhibit 4b to Bancorp's Registration Statement on
S-8, filed with the SEC on February 1, 1994, is
incorporated herein by reference.
Exhibit 3.4 The Amendment to the Code of Regulations of
Bancorp filed as Exhibit 4b to Bancorp's
Registration Statement on S-8, filed with the SEC
on February 1, 1994, is incorporated herein by
reference.
Exhibit 27 Financial Data Schedule
Exhibit 99.1 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: August 13, 1999 By: /s/ J. William Plummer
----------------------
J. William Plummer
President
Date: August 13, 1999 By: /s/ Connie Ayres LaPlante
-------------------------
Connie Ayres LaPlante
Chief Financial Officer