UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ___________
Commission File Number 0-26242
FORT THOMAS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 61-1278396
- --------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
- --------------------------------------- ----------------------
(Address of principal executive office) (Zip Code)
(606) 441-3302
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of August 11, 1997, there
were issued and outstanding 1,418,132 shares of the Registrant's Common Stock,
par value $.01 per share.
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
----
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of September 30, 1996 and June 30, 1997 (unaudited))......... 1
Consolidated Statements of Income for the three and nine months
ended June 30, 1997 (unaudited) and 1996 (unaudited)............. 2
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1997 (unaudited) and 1996 (unaudited)............. 3
Notes to Unaudited Consolidated Financial Statements............. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 5
Part II. Other Information
Item 1. Legal Proceedings................................................ 15
Item 2. Changes in Securities............................................ 15
Item 3. Defaults Upon Senior Securities.................................. 15
Item 4. Submission of Matters to a Vote of Security Holders.............. 15
Item 5. Other Information................................................ 16
Item 6. Exhibits and Reports on Form 8-K................................. 16
Signatures
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, SEPTEMBER 30,
1997 1996
--------- -------------
(IN THOUSANDS)
Assets
Cash.................................................................................. $ 1,361 $ 1,785
Investment Securities:
Held to maturity--at amortized cost................................................. 3,491 3,503
Available for sale--at market value................................................. 996 494
Mortgage-backed securities--available for sale........................................ 794 816
Loans Receivable, net................................................................. 86,829 77,987
Office Properties and equipment--at depreciated cost.................................. 589 643
Real Estate Owned..................................................................... 36 --
Federal Home Loan Bank Stock (FHLB)--at cost.......................................... 771 700
Cash Surrender Value of Life Insurance................................................ 1,103 1,068
Accrued Interest Receivable........................................................... 712 642
Prepaid and Other Assets.............................................................. 93 118
Deferred Federal Income Tax Asset..................................................... 165 257
--------- ---------
Total Assets........................................................................ $ 96,940 $ 88,013
--------- ---------
--------- ---------
Liabilities
Savings Accounts...................................................................... $ 70,379 $ 63,731
Borrowed funds........................................................................ 9,649 6,754
Advances from Borrowers for Taxes and Insurance....................................... 215 188
Deferred Compensation................................................................. 470 376
Accrued Interest Payable.............................................................. 64 60
Accrued Federal Income Taxes.......................................................... 152 85
Deferred Federal Income Taxes......................................................... -- --
Other Liabilities..................................................................... 458 887
Deferred Income....................................................................... -- 11
--------- ---------
Total Liabilities................................................................... 81,387 72,092
--------- ---------
Stockholders' Equity
Common Stock, $.01 par value; 4,000,000 shares authorized; 1,573,775 shares issued and
1,418,132 and1,489,099 shares outstanding........................................... 16 16
Additional Paid-in Capital............................................................ 9,426 9,387
Unearned ESOP Shares.................................................................. (770) (847)
MRP Trust............................................................................. (703) (793)
Retained Earnings, Substantially Restricted........................................... 8,697 8,165
Treasury Stock (78,689 Shares at Cost)................................................ (1,103) --
Unrealized Loss on Investment Securities.............................................. (10) (7)
--------- --------
Total Stockholders' Equity.......................................................... 15,553 15,921
--------- --------
Total Liabilities and Stockholders' Equity.......................................... $ 96,940 $ 88,013
--------- --------
--------- --------
1
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Interest Income
Interest on loans........................................................ $ 1,939 $ 1,635 $ 5,530 $ 4,877
Interest on investment securities........................................ 82 93 211 274
Interest on mortgage-backed securities................................... 15 13 37 41
Other interest and dividends............................................. 38 66 128 254
--------- --------- --------- ---------
Total interest income.................................................. 2,074 1,807 5,906 5,446
--------- --------- --------- ---------
Interest Expense
Deposits................................................................. 928 809 2,655 2,466
Borrowed Funds........................................................... 143 48 391 146
--------- --------- --------- ---------
Total interest expense................................................. 1,071 857 3,046 2,612
--------- --------- --------- ---------
Net interest income........................................................ 1,003 950 2,860 2,834
Provision for loan losses.................................................. 12 12 125 78
--------- --------- --------- ---------
Net interest income after provision for loan losses...................... 991 938 2,735 2,756
--------- --------- --------- ---------
Other Income
Fees and charges......................................................... 39 17 95 44
Gain on sale of REO...................................................... 0 11 0 11
Other.................................................................... 34 18 71 61
--------- --------- --------- ---------
Total other income..................................................... 73 46 166 116
--------- --------- --------- ---------
Other Expenses
Salaries and employee benefits........................................... 280 312 846 799
Franchise and other taxes................................................ 25 29 85 85
Federal insurance premium................................................ 11 33 60 98
Expenses of premises and fixed assets.................................... 46 40 132 123
Data processing and other related contract services...................... 29 30 100 95
Other operating expense.................................................. 168 130 462 461
--------- --------- --------- ---------
Total other expenses................................................... 559 574 1,685 1,661
--------- --------- --------- ---------
Income before income tax................................................... 505 410 1,216 1,211
Federal income tax expense................................................. 174 126 401 373
--------- --------- --------- ---------
Net income............................................................... $ 331 $ 284 $ 815 $ 838
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share......................................................... $ 0.23 $ 0.20 $ 0.56 $ 0.58
--------- --------- --------- ---------
--------- --------- --------- ---------
2
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Cash Flows From Operating Activities
Net income................................................................................... $ 815 $ 838
Reconciliation of net income with cash flows from operations:
Allowance for losses on mortgages............................................................ 125 78
Depreciation................................................................................. 59 67
Deferred income taxes........................................................................ 91 (33)
Amortization................................................................................. (217) (38)
FHLB stock dividends......................................................................... (37) (27)
ESOP and stock compensation.................................................................. 130 186
Changes in
Accrued interest receivable................................................................ (70) (102)
Prepaid and other assets................................................................... 25 (13)
Cash surrender value of life insurance..................................................... (35) (44)
Deferred compensation...................................................................... 94 84
Accrued interest payable................................................................... 4 1
Accrued income tax......................................................................... 67 (30)
Other liabilities.......................................................................... (440) (43)
--------- ---------
Net Cash Provided by Operating
Activities............................................................................. 611 924
--------- ---------
Cash Flows From Investing Activities
Purchase of investment securities............................................................ (1,988) (2,502)
Maturity of investment securities............................................................ 1,500 1,500
Purchase of FHLB stock....................................................................... (34) 0
Loan originations and repayments, net........................................................ (8,816) (5,040)
Principal received on mortgage-backed security............................................... 19 102
Proceeds from sale of REO.................................................................... 28 221
Purchase of office properties and equipment.................................................. (4) (12)
--------- ---------
Net Cash Used by Investing Activities...................................................... (9,295) (5,731)
--------- ---------
Cash Flows From Financing Activities
Net increase in savings accounts............................................................. 6,646 1,948
Dividends paid............................................................................... (284) (295)
ESOP shares released......................................................................... 78 19
Common Stock shares purchased for MRP Trust.................................................. -- (892)
Common Stock shares purchased for treasury................................................... (1,102) --
Advance from borrowers for taxes and insurance............................................... 27 2
Repayments of FHLB advances.................................................................. (1,155) (147)
Proceeds from FHLB advances.................................................................. 4,050 1,000
--------- ---------
Net cash provided by financing activities.................................................. 8,260 1,635
--------- ---------
Changes in cash and cash equivalents....................................................... (424) (3,172)
Cash and cash equivalents, beginning of period............................................... 1,785 6,032
--------- ---------
Cash and cash equivalents, end of period..................................................... $ 1,361 $ 2,860
--------- ---------
--------- ---------
3
FORT THOMAS FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
Fort Thomas Financial Corporation (the "Corporation") was incorporated under
Ohio law in March 1995 by Fort Thomas Federal Savings and Loan Association (the
"Association") in connection with the conversion of the Association from a
federally chartered mutual savings and loan association to a federally chartered
stock savings bank, known as Fort Thomas Savings Bank, F.S.B. (the "Bank"), the
issuance of the Bank's stock to the Corporation and the offer and sale of the
Corporation's common stock by the Corporation (the "Conversion"). Upon
consummation of the Conversion on June 27, 1995, the Corporation became the
unitary holding company for the Bank.
The accompanying unaudited consolidated financial statements of the
Corporation have been prepared in accordance with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods.
The results of operations for the three and nine months ended June 30, 1997
are not necessarily indicative of the results to be expected for the year ending
September 30, 1997. The unaudited consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto for the year ended September 30, 1996 contained in the
Corporation's 1996 Annual Report.
NOTE 2--EARNINGS PER SHARE
The earnings per share amount for the three and nine months ended June 30,
1996 and 1997 is based upon the average outstanding shares of the Corporation
reduced by the unreleased shares of the Corporation's Employee Stock Ownership
Plan. The number of shares used in this calculation for the 1997 periods was
1,415,586 and 1,448,968, respectively. The number of shares used in this
calculation for the 1996 periods was 1,456,596 and 1,454,002, respectively.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 1997, the Corporation's assets amounted to $96.9 million as
compared to $88.0 million at September 30, 1996. The $8.9 million increase was
primarily due to an increase of $8.8 million in loans receivable, net. Such
increase was funded primarily by an increase of $6.6 million or 10.4% in savings
accounts. Stockholders' equity decreased $368,000 to $15.6 million or 16.0% of
total assets at June 30, 1997 compared to $15.9 million or 18.1% of total assets
at September 30, 1996. The decrease in stockholders' equity was due to stock
repurchases amounting to $1.1 million and dividends of $284,000 paid during the
nine month period ended June 30, 1997. The reduction in stockholders' equity
resulting from the stock repurchases and the distribution of dividends was
partially offset by net income of $815,000 during the nine months ended June 30,
1997.
ASSET QUALITY
Loans are placed on nonaccrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on nonaccrual status, previously
accrued but unpaid interest is deducted from interest income. The Bank does not
accrue interest on real estate loans past due 90 days or more. Loans may be
reinstated to accrual status when all payments are brought current and, in the
opinion of management, collection of the remaining balance can be reasonably
expected.
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as other real estate owned until sold.
Pursuant to a statement of position ("SOP 92-3") issued by the American
Institute of Certified Public Accountants in April 1992, which provides guidance
on determining the balance sheet treatment of foreclosed assets in annual
financial statements for periods ending on or after December 15, 1992, there is
a rebuttable presumption that foreclosed assets are held for sale and such
assets are recommended to be carried at the lower of fair value minus estimated
costs to sell the property, or cost (generally the balance of the loan on the
property at the date of acquisition). After the date of acquisition, all costs
incurred in maintaining the property are expenses and costs incurred for the
improvement or development of such property are capitalized up to the extent of
their net realizable value. The Bank's accounting for its real estate acquired
by foreclosure complies with the guidance set forth in SOP 92-3.
Under general accepted accounting principles, the Bank is required to
account for certain loan modifications or restructuring as "troubled debt
restructurings." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Bank for economic or legal
reasons related to the borrower's financial difficulties grants a concession to
the borrower that the Bank would not otherwise consider. Debt restructurings
5
or loan modifications for a borrower do not necessarily always constitute
troubled debt restructurings, however, and troubled debt restructurings do
not necessarily result in nonaccrual loans. The Bank did not have any
troubled debt restructurings as of June 30, 1997.
DELINQUENT LOANS
The following table sets forth information concerning delinquent loans in
dollar amounts and as a percentage of each category of the Bank's loan portfolio
at June 30, 1997. The amounts presented represent the total outstanding
principal balances of the related loans, rather than the actual payment amounts
which are past due.
PERCENT OF CORRESPONDING
LOANS DELINQUENT FOR LOAN CATEGORIES
------------------------------- -----------------------------------
30-89 90 DAYS 30-89 90 DAYS
DAYS AND OVER TOTAL DAYS AND OVER TOTAL
--------- ----------- --------- ----- ----------- ---------
(DOLLARS IN THOUSANDS)
One- to four-family residential...................... $2,483 $1,065 $3,548 3.43% 1.47% 4.90%
Multi-family and non- residential real estate........ 437 -- 437 3.93 -- 3.93
Construction and land................................ 80 276 356 1.78 6.13 7.91
Consumer............................................. 151 53 204 12.10 4.25 16.35
------ ------- ------
Total delinquent loans............................... $3,151 $1,394 $4,545
------ ------ ------
------ ------ ------
6
The following table sets forth the amounts and categories of the Bank's
non-performing assets at the dates indicated.
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
(DOLLARS IN THOUSANDS)
Non-accruing loans:
One- to four-family residential (1)........................................ $ 1,065 $ 917
Multi-family and non- residential real estate.............................. -- 56
Construction and land...................................................... 276 90
Consumer................................................................... 53 117
Accruing consumer loans greater than 90 days delinquent:..................... -- --
Total non-performing loans................................................. 1,394 1,180
--------- ---------
Real estate acquired through foreclosure..................................... 36 --
--------- ---------
Total non-performing assets................................................ $ 1,430 $ 1,180
========= =========
Total non-performing assets as a percentage of total net loans............. 1.60% 1.51%
========= =========
Total non-performing assets as a percentage of total assets................ 1.48% 1.37%
========= =========
- ------------------------
(1) Includes second mortgage loans.
The $1.4 million of nonaccruing loans at June 30, 1997 consisted of 26 loans
with an average balance of approximately $54,000. Interest that would have been
earned on these loans, if they had been accounted for on an accruing basis
during the nine month period
7
ended June 30, 1997 would have been approximately $40,000. Substantially all
of the loans are extended to separate borrowers.
CLASSIFIED ASSETS
Federal regulations require that each insured savings association classify
its assets on a regular basis. In addition, in connection with examinations of
insured institutions, federal examiners have authority to identify problem
assets and, if appropriate, classify them. There are three classifications for
problem assets: "substandard", "doubtful" and "loss." Substandard assets have
one or more defined weaknesses and are characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified loss
is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. At June 30, 1997, the Bank had $2.3
million of classified loans, all of which were classified as substandard.
ALLOWANCE FOR LOAN LOSSES
It is management's policy to maintain an allowance for estimated losses
based on the perceived risk of loss in the loan portfolio. In assessing risk,
management considers historical loss experience, the volume and type of lending
conducted by the Bank, industry standards, past due loans, general economic
conditions and other factors related to the collectibility of the loan
portfolio. The allowance is increased by provisions for loan losses which are
charged against income.
Although management uses the best information available to make
determinations with respect to the provisions for loan losses, additional
provisions for loan losses may be required to be established in the future
should economic or other conditions change substantially. In addition, the OTS
and the FDIC, as an integral part of their examination process, periodically
review the Bank's allowance for possible loan losses. Such agencies may require
the Bank to recognize additions to such allowance based on their judgments about
information available to them at the time of their examination.
8
The following table summarizes changes in the allowance for loan losses and
other selected statistics for the periods presented.
NINE MONTHS ENDED
JUNE 30, YEAR ENDED
-------------------- SEPTEMBER 30,
1997 1996 1996
--------- --------- -------------
(DOLLARS IN THOUSANDS)
Average loans receivable, net................................................ $ 82,653 $ 72,504 $ 73,875
--------- --------- -------------
--------- --------- -------------
Allowance for loan losses
Balance at beginning of period............................................. $ 366 $ 239 $ 239
Net (charge-offs) recoveries............................................... (23) 1 1
Provision for loan losses.................................................. 125 78 126
--------- --------- -------------
Balance at end of period................................................... $ 468 $ 318 $ 366
--------- --------- -------------
--------- --------- -------------
Net loans (charged-off) recovered to average loans......................... (0.03% --% --%
--------- --------- -------------
--------- --------- -------------
Allowance for loan losses to total loans................................... 0.52% 0.36% 0.45%
--------- --------- -------------
--------- --------- -------------
Allowance for loan losses to total non-performing loans.................... 33.57% 25.95% 31.02%
--------- --------- -------------
--------- --------- -------------
Net loans (charged-off) recovered to allowance for loan losses............. (4.91% --% 0.27%
--------- --------- -------------
--------- --------- -------------
The following table presents the allocation of the allowance for loan losses
to the total amount of loans in each category listed at the dates indicated.
JUNE 30, 1997
----------------------------
PERCENT OF
LOANS IN EACH
CATEGORY TO
AMOUNT TOTAL LOANS
----------- ---------------
(DOLLARS IN THOUSANDS)
One- to four-family residential................................... $ 306 81.11%
Multi-family residential.......................................... 100 12.45
Land and construction............................................. 50 5.04
Consumer loans.................................................... 12 1.40
----- ------
Total........................................................... $ 468 100.00%
----- ------
----- ------
9
Results of Operations for the Three Months Ended June 30, 1997 and 1996
GENERAL. The Corporation reported net income of $331,000 during the three
months ended June 30, 1997 compared to $284,000 during the three months ended
June 30, 1996. The increase in net income during the three months ended June 30,
1997 compared to the period ended June 30, 1996 was due primarily to an increase
in net interest income. Net interest income is determined by the Corporation's
interest rate spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities. The increase in net interest income was primarily due to an
increase in the Bank's interest rate spread to 3.45% for the 1997 period
compared to 3.09% for the 1996 period.
INTEREST INCOME. Interest income increased $267,000 or 14.8% to $2.1
million for the three months ended June 30, 1997 compared to the same period in
1996. The increase during the 1997 period was due to an increase in the average
outstanding balance of the Corporation's interest-earning assets and, to a
lesser extent, the average yield earned thereon. The increase in the average
balance was due to continued loan demand and portfolio growth. The increase in
the average yield reflect the upward repricing of certain of the Corporation's
adjustable-rate mortgage loans.
INTEREST EXPENSE. Interest expense increased $214,000 or 25.0% to $1.1
million for the three months ended June 30, 1997 compared to the same period in
1996. Such increase was due to an increase in interest expense on both deposits
and borrowed funds primarily as a result of increases in the average balance
outstanding of such liabilities. The increase in the average balance of deposits
and borrowed funds was primarily due to increased funding requirements as a
result of the increase in the loan portfolio.
PROVISION FOR LOAN LOSSES. The provision for loan losses amounted to
$12,000 for each of the three months ended June 30, 1997 and 1996.
OTHER INCOME. Other income increased $27,000 or 58.7% during the three
months ended June 30, 1997 compared to the same period in 1996 due primarily to
a $22,000 increase in fees and charges relating to loans. The increase in fees
and charges was due primarily to increased loan origination activity. In
addition, miscellaneous other income increased $38,000 or 29.2%. Such increases
were partially offset by a decease of $11,000 in gain on sale of REO due to the
absence of sales of REO during the 1997 period.
OTHER EXPENSES. Operating expenses decreased $15,000 or 2.6% for the three
months ended June 30, 1997 compared to the same period in 1996. Such decrease
was primarily due to a decrease of $32,000 or 10.3% in salaries and employee
benefits and a decrease of $22,000 in federal insurance premiums. Such decreases
were partially offset by an increase in other miscellaneous operating expenses
of $38,000 or 29.2%. The decrease in salaries and employee benefits was
primarily due to a decrease in contributions to the Bank's
10
defined benefit plan. Federal deposit insurance premiums decreased due to a
decrease in the assessment rate.
INCOME TAX EXPENSE. Federal income tax expense amounted to $174,000 and
$126,000 for the three months ended June 30, 1997 and 1996, respectively,
resulting in effective tax rates of 34.4% and 30.7%, respectively.
Results of Operations for the Nine Months Ended June 30, 1997 and 1996
GENERAL. The Corporation reported net income of $815,000 for the nine
months ended June 30, 1997 compared to $838,000 during the nine months ended
June 30, 1996. The decrease in net income was due primarily to an increase in
the provision for loan losses and, to a lesser extent, an increase in other
expenses. Such increases were partially offset by increases in net interest
income and other income. The increase in net interest income was due to an
increase in the interest rate spread to 3.33% for the fiscal 1997 period
compared to 3.05% for the fiscal 1996 period. The increase in the interest rate
spread more than offset the decrease in the ratio of average interest-earning
assets to average interest-bearing liabilities to 119.62% for the fiscal 1997
period from 133.35% for the fiscal 1996 period.
INTEREST INCOME. Interest income increased $460,000 or 8.4% to $5.9 million
for the nine months ended June 30, 1997 compared to the same period in fiscal
1996. The increase during the fiscal 1997 period was due to an increase in the
average outstanding balance of the Corporation's interest-earning assets and, to
a lesser extent, the average yield earned thereon. The increase in the average
balance was due to continued loan demand and portfolio growth. The increase in
the average yield was primarily due to an increase in the average yield earned
on loans to 8.92% during the fiscal 1997 period compared to 8.68% during the
fiscal 1996 period. The increase in the average yield reflects the upward
repricing of certain of the Corporation's adjustable-rate mortgage loans.
INTEREST EXPENSE. Interest expense increased $434,000 or 16.6% to $3.0
million for the nine months ended June 30, 1997 compared to $2.6 million for the
nine months ended June 30, 1996. Such increase was primarily due to an increase
in the average outstanding balance of the Corporation's time deposits and
borrowed funds as a result of increased funding requirements due to an increase
in the loan portfolio.
PROVISION FOR LOAN LOSSES. The provision for loan losses amounted to
$125,000 and $78,000 for the nine months ended June 30, 1997 and 1996,
respectively. The increase in the provision for losses on loans reflects
management's desire to increase the allowance for loan losses to a level which
is consistent with industry norms.
OTHER INCOME. Other income increased $50,000 or 43.1% during the nine
months ended June 30, 1997 compared to the nine months ended June 30, 1996. The
increase was primarily due to a $51,000 or 115.9% increase in fees and charges
as a result of increased
11
loan origination activity. Such increase was partially offset by a decrease
of $11,000 in gain on sale of REO due to the absence of sales of REO during
the 1997 period.
OTHER EXPENSES. Operating expenses increased $24,000 or 1.4% to $1.7
million for the nine months ended June 30, 1997 compared to the same period in
fiscal 1996. The increase of $47,000 in salaries and employee benefits was
substantially offset by a $38,000 decrease in federal insurance premiums.
Salaries and employee benefits increased due to normal salary and merit
increases and compensation related to the Corporation's management recognition
plan. The decrease in federal insurance premiums was due to a decrease in the
insurance assessment rate.
INCOME TAX EXPENSE. Federal income tax expense amounted to $401,000 and
$373,000 for the nine months ended June 30, 1997 and 1996, respectively,
resulting in effective tax rates of 32.9% and 30.8%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Bank's
primary sources of funds are deposits, borrowings, amortization, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from
operations. While scheduled loan amortization and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank manages the
pricing of its deposits to maintain a steady deposit balance. In addition,
the Bank invests excess funds in overnight deposits and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
The Bank has generally been able to generate enough cash through the retail
deposit market, its traditional funding source, to offset the cash utilized
in investing activities. As an additional source of funds, the Bank may
borrow from the FHLB of Cincinnati and has access to the Federal Reserve
discount window. At June 30, 1997, the Bank had $8.9 million of outstanding
advances from the FHLB of Cincinnati.
As of June 30, 1997, the Bank's regulatory capital was well in excess of all
applicable regulatory requirements. At June 30, 1997, the Bank's tangible, core
and risk-based capital ratios amounted to 14.97%, 14.97% and 23.92%,
respectively, compared to regulatory requirements of 1.5%, 3.0% and 8.0%,
respectively.
12
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor the Bank is involved in any pending legal
proceedings other than non-material legal proceedings occurring in the ordinary
course of business.
ITEM 2. CHANGES IN SECURITIES
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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
13
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.
FORT THOMAS FINANCIAL CORPORATION
Date: August 12, 1997 By: /s/Larry N. Hatfield
-------------------------------------
Larry N. Hatfield
President and Chief Executive Officer
Date: August 12, 1997 By: /s/J. Michael Lonnemann
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J. Michael Lonnemann
Vice President, Secretary and Principal
Financial Officer