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 March 31, 1997
OR
[_] 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 number: 0-26360
FRANKFORT FIRST BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1271129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
216 West Main Street, Frankfort, Kentucky 40602
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(Address of principal executive offices) (Zip Code)
(502) 223-1638
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 9, 1997: 3,385,000
Page 1 of 13 pages
page 1
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
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Item 1 Consolidated Statements of Financial Condition at
March 31, 1997 and June 30, 1996 3
Consolidated Statements of Earnings for the three
months and nine months ended March 31,
1997 and 1996 4
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults upon Senior Securities 12
Item 4 Submission of Matters to a
Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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page 2
FRANKFORT FIRST BANCORP, INC.
----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
March 31, June 30,
1997 1996
ASSETS --------- --------
Cash and due from banks $ 35 $ 144
Interest-bearing deposits in other financial institutions 1,557 5,673
-------- --------
Cash and cash equivalents 1,592 5,817
Certificates of deposit in other financial institutions 200 200
Investment securities - at amortized costs, approximate
fair market value of $4,689 and $8,811 as of
March 31, 1997 and June 30, 1996 4,853 8,872
Loans receivable - net 118,505 110,331
Office premises and equipment - at depreciated cost 1,591 1,606
Federal Home Loan Bank stock - at cost 1,116 1,078
Accrued interest receivable on loans 281 264
Accrued interest receivable on investments and
interest-bearing deposits 84 156
Prepaid expenses and other assets 24 126
Prepaid federal income taxes -- 21
Deferred federal income tax assets 82 42
-------- --------
Total assets $128,328 $128,513
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 86,008 $ 87,777
Advances from the Federal Home Loan Bank 7,628 4,998
Other borrowed money -- 500
Advances by borrowers for taxes and insurance 204 267
Accrued interest payable 111 138
Accrued federal income taxes 95 --
Other liabilities 671 568
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Total liabilities 94,717 94,248
Commitments -- --
Shareholders' equity
Preferred stock, 5,000,000 shares authorized, $.01 par
value: no shares issued -- --
Common stock, 7,500,000 shares authorized, $.01 par
value: 3,450,000 shares issued 35 35
Additional paid-in capital 19,595 19,595
Retained earnings - restricted 18,660 19,120
Shares acquired by employee stock benefit plans (4,013) (4,485)
Less 65,000 shares of treasury stock - at cost (666) --
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Total shareholders' equity 33,611 34,265
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Total liabilities and shareholders' equity $128,328 $128,513
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page 3
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
March 31, March 31
------------------ -------------------
1997 1996 1997 1996
------ ------ ------- ------
Interest Income
Loans $6,331 $5,882 $2,173 $1,993
Investment securities 475 1,416 111 441
Interest-bearing deposits and other 58 53 17 18
------ ------ ------ ------
Total interest income 6,864 7,351 2,301 2,452
Interest expense
Deposits 3,175 3,234 1,015 1,042
Borrowings 325 206 122 70
------ ------ ------ ------
Total interest expense 3,500 3,440 1,137 1,112
------ ------ ------ ------
Net interest income 3,364 3,911 1,164 1,340
Provision for losses on loans 5 9 - 3
------ ------ ------ ------
Net interest income after provision
for losses on loans 3,359 3,902 1,164 1,337
Other operating income 48 44 15 9
General, administrative, and other expense
Employee compensation and benefits 1,361 1,126 460 448
Occupancy and equipment 125 127 44 43
Federal deposit insurance premiums 710 183 34 70
Franchise and other taxes 112 105 38 46
Data processing 95 93 33 32
Other operating expense 304 370 105 125
------ ------ ------ ------
Total general, administrative,
and other expense 2,707 2,004 714 764
------ ------ ------ ------
Earnings before income taxes 700 1,942 465 582
Federal income taxes
Current 277 674 169 237
Deferred (40) (27) (11) (14)
------ ------ ------ ------
Total federal income taxes 237 647 158 223
------ ------ ------ ------
NET EARNINGS $ 463 $1,295 $ 307 $ 359
====== ====== ====== ======
EARNING PER SHARE $ 0.15 $ 0.41 $ 0.10 $ 0.11
====== ====== ====== ======
page 4
FRANKFORT FIRST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1997 1996
------- -------
Cash flows from operating activities:
Net earnings for the period $ 463 $ 1,295
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments, and mortgage backed securities, net 19 --
Amortization of deferred loan origination fees (15) (36)
Depreciation and amortization 67 69
Provision for losses on loans 5 9
Amortization of expense related to employee
stock benefit plans 472 --
Federal Home Loan Bank stock dividends (38) (52)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 55 (296)
Prepaid expenses and other assets 102 685
Other liabilities 76 339
Federal income taxes
Current 116 23
Deferred (40) (27)
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Net cash provided by operating activities 1,282 2,009
Cash flows provided by (used in) investing activities:
Purchase of investments securities designated as held to maturity -- (9,775)
Proceeds from maturity of investment securities 4,000 --
Loan principal repayments 17,379 17,526
Loan disbursements (25,543) (23,699)
Purchase of office premises and equipment (52) (189)
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Net cash used in investing activities (4,216) (16,137)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (1,769) (33,681)
Net proceeds from the issuance of common stock -- 30,680
Purchase of shares for stock benefit plans -- (1,884)
Purchase of treasury stock (666) --
Proceeds from Federal Home Loan Bank advances 3,000 500
Repayment of Federal Home Loan Bank advances (370) (369)
Repayment of other borrowed money (500) --
Advances by borrowers for taxes and insurance (63) (138)
Dividends on common stock (923) (932)
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Net cash used in financing activities (1,291) (5,824)
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Net decrease in cash and cash equivalents (4,225) (19,952)
Cash and cash equivalents at beginning of period 5,817 38,017
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Cash and cash equivalents at end of period $ 1,592 $18,065
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 130 $ 628
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Interest on deposits and borrowings $ 3,527 $ 3,482
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page 5
FRANKFORT FIRST BANCORP, INC.
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(1) BASIS OF PRESENTATIONS
On July 7, 1995, First Federal Savings Bank of Frankfort converted from a
Federal mutual savings bank to a Federal stock savings bank. The stock of the
Bank was issued to the holding company (Frankfort First Bancorp, Inc or "the
Company") formed in connection with the conversion. Pursuant to the Plan,
shares of capital stock of the Company were offered initially for subscription
to eligible account holders, the tax-qualified employee stock ownership plan
(ESOP) of the Company, supplemental eligible account holders, other members of
the Bank, and members of the public pursuant to priorities established by
applicable regulations. The number of shares sold was 3,450,000, at $10 per
share, resulting in gross proceeds of $34,500,000.
Pursuant to the Bank's plan of conversion, the Bancorp has loaned to the
Frankfort First Bancorp, Inc. Employee Stock Ownership Plan Trust $2,710,000 for
purchase of stock by the Employee Stock Ownership Plan. In addition, the
Bancorp has reimbursed the Bank for conversion costs incurred by the Bank. The
total conversion cost was $1,110,048. The Bancorp invested one half of the
remainder, $16,694,976 to purchase 100% of the ownership of the Bank. The
remaining proceeds were invested or used for general corporate purposes.
The Bancorp charged the deferred conversion costs against the gross proceeds and
accounts for its investment in the Bank under the equity method.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore do not include all
disclosures necessary for a complete presentation of the statements of financial
condition, statements of earnings, and statements of cash flows in conformity
with generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included and all such adjustments are of
a normal recurring nature. The results of operations for the nine and three
month periods ended March 31, 1997 are not necessarily indicative of the results
which may be expected for the entire year. These financial statements should be
read in conjunction with the audited financial statements and the notes thereto
for the year ended June 30, 1996.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Frankfort First Bancorp, Inc. (the Company) and First Federal Savings Bank of
Frankfort (the Bank). All significant intercompany items have been eliminated.
(3) EARNINGS PER SHARE
Primary and fully diluted earnings per share for the nine and three months ended
March 31, 1997 and 1996 are based upon the weighted average shares outstanding
during the periods plus those stock options that are dilutive, less shares in
the ESOP that are unallocated and not committed to be released. Weighted
average common shares deemed outstanding totaled 3,179,663 and 3,179,039 for the
nine months ended March 31, 1997 and 1996, respectively.
Weighted average common shares deemed outstanding totaled 3,150,706 and
3,179,083 for the three months ended March 31, 1997 and 1996, respectively.
(4) EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Mortgage Servicing Rights. In May, 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights." SFAS No.
122 requires that the Company recognizes as separate assets rights to service
mortgage loans for others, regardless of how those servicing rights were
acquired. An institution that acquires mortgage servicing rights through either
the purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to the
mortgage servicing rights. SFAS No. 122 also requires that an enterprise
allocate the cost of purchasing or originating the mortgage loans between the
mortgage servicing rights and
page 6
the loans when mortgage loans are securitized, if it is practicable to estimate
the fair value of mortgage servicing rights. Additionally, SFAS No. 122
requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment would be measured
based on fair value. SFAS No. 122 is to be applied prospectively to the
Company's fiscal year beginning July 1, 1996, to transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited.
Management adopted SFAS No. 122 on July 1, 1996, as required, without material
effect on the Company's consolidated financial position or results of
operations.
Accounting for Stock-Based Compensation. In October, 1994, the FASB issued
SFAS No. 123 entitled "Accounting for Stock Based Compensation." SFAS No. 123
established a fair value based method of accounting for stock-based compensation
paid to employees. SFAS No. 123 recognizes the fair value of an award of stock
or stock options on the grant date and is effective for transactions occurring
after December 1995. Companies are allowed to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net earnings and,
if presented, earnings per share, as if SFAS No. 123 had been adopted.
Management has determined that the Company will continue to account for stock-
based compensation pursuant to Accounting Principles Board Opinion No. 25 and
therefore adoption of SFAS No. 123 will not have a material effect on the
Company's consolidated financial condition or results of operations.
Accounting for Transfers of Financial Assets. In June 1996, the FASB
issued SFAS No. 125. "Accounting for Transfers of Financial Assets, Servicing
Rights, and Extinguishment of Liabilities," that provides accounting guidance on
transfers of financial assets, servicing of financial assets, and extinguishment
of liabilities. SFAS No. 125 introduces an approach to accounting for transfers
of financial assets that provides a means of dealing with more complex
transactions in which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special purpose entities in
the transaction, or otherwise has continuing involvement with the transferred
assets. The new accounting method, the financial components approach, provides
that the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. SFAS No. 125
provides criteria for determining whether control of assets has been
relinquished and whether a sale has occurred. If the transfer does not qualify
as a sale, it is accounted for as a secured borrowing. Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers involving
repurchase agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or
liability that is purchased or assumed is initially recognized at its fair
value. Servicing assets and liabilities are amortized in proportion to and over
the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet
only if the debtor either pays the creditor and is relieved of its obligation
for the liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishment of liabilities occurring after December 31, 1997 and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
In February, 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which requires companies to present basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully diluted earnings per
share, respectively. Basic earnings per share is computed without including
potential common shares, i.e. no dilutive effect. Diluted earnings per share is
computed taking into consideration common shares outstanding and dilutive
potential common shares, including options, warrants, convertible securities,
and contingent stock agreements. SFAS No. 128 is effective for periods ending
after December 15, 1997. Early application is not permitted. Based upon the
provisions of SFAS No. 128, the Company's basic and diluted earnings per share
for the three-month period ended March 31, 1997 would have been $0.10 and
$0.10, respectively. The Company's basic and diluted earnings per share for the
nine-month period ended March 31, 1997, would have been $0.15 and $0.14,
respectively.
page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 Company's operations, and the
Company'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 Company's market area generally.
GENERAL
The principal business of Frankfort First Bancorp, Inc. (the Company) is
that of First Federal Savings Bank of Frankfort (the Bank). On July 7, 1995 in
connection with the Bank's conversion to stock form, the Company issued
3,450,000 shares of common stock to the public and the Bank issued all of its
issued and outstanding common stock to the Company. Financial information for
periods prior to July 7, 1995, reflects the Bank only. The principal business
of the Bank consists of accepting deposits from the general public and investing
these funds in loans secured by one-to-four-family owner-occupied residential
properties in the Bank's primary market area. The Bank also invests in loans
secured by non-owner occupied one-to-four family residential properties and some
churches located in the Bank's primary market area. The Bank also maintains an
investment portfolio which includes FHLB stock, FHLB certificates of deposit,
Government Agency-issued bonds, and other investments.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND JUNE 30, 1996
ASSETS: The Company's total assets decreased slightly from $128.5 million
at June 30, 1996 to $128.3 million at March 31, 1997, a decrease of $200,000 or
0.1%. The Company's net loans receivable increased from $110.3 million at June
30, 1996 to $118.5 million at March 31, 1997, an increase of $8.2 million or
7.4%. Cash used to fund this increase in loans was in part drawn from
investment securities (which decreased by $4.0 million or 45.3%) and cash and
cash equivalents (which decreased by $4.2 million or 72.6%). Federal Home Loan
Bank advances were also used to fund a portion of these loan originations.
LIABILITIES: Deposits decreased from $87.8 million at June 30, 1996 to
$86.0 million at March 31, 1997, a decrease of $1.8 million or 2.0%. Advances
from the Federal Home Loan Bank increased from $5.0 million at June 30, 1996 to
$7.6 million at March 31, 1997, an increase of $2.6 million or 52.6%.
Generally, the rates paid on advances from the Federal Home Loan Bank are higher
than rates paid on consumer deposits. However, these advances are being used to
fund fixed rate mortgages which generally provide a higher yield than adjustable
rate mortgages, which is the Company's primary loan product. Also, by matching
long term advances from the Federal Home Loan Bank with fixed rate mortgages,
the Company can better manage its exposure to interest rate risk.
SHAREHOLDERS' EQUITY: Shareholders' equity decreased from $34.3 million at
June 30, 1996 to $33.6 million at March 31, 1997, a net decrease of $654,000 or
1.9%. This decrease was primarily caused by the Company's payment of dividends
of $310,000 on October 15, 1996 and January 15, 1997 and the Company's accrual
for its regular dividend of $305,000 to be paid to shareholders on April 15,
1997. Also, the Company repurchased 55,000 shares during the period for a total
of $563,000 which serves to decrease shareholder's equity. In addition, the
Company allocated shares totalling $468,000 to participants in the Company's
Management Recognition Plan, which served to increase shareholder's equity. The
Company's book value per share was $9.93 at March 31, 1997 compared to $9.93 at
June 30, 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1996
NET EARNINGS: The Company's net earnings decreased from $1.3 million for
the nine months ended March 31, 1996 to $463,000 for the nine months ended March
31, 1997, a decrease of $832,000 or 64.2%. The decrease is primarily
attributable to an increase in general, administrative, and other expenses of
$703,000 coupled with a $547,000 decrease in net interest income. The
Company's earnings per share fell from $0.41 per share for the nine months ended
March 31, 1996 to $0.15 per share for the nine months ended March 31, 1997.
page 8
NET INTEREST INCOME: Net interest income decreased from $3.9 million for
the nine months ended March 31, 1996 to $3.4 million for the nine months ended
March 31, 1997, a decrease of $547,000 or 14.0%. This decrease was primarily
due to a decrease in interest income.
INTEREST INCOME: Interest income decreased from $7.4 million for the nine
months period ended March 31, 1996 to $6.9 million for the nine months ended
March 31, 1997, a decrease of $487,000 or 6.6%. This decrease was primarily due
to the decrease in the Company's average interest-earning assets which fell from
$136.9 million for the nine months ended March 31, 1996 to $126.3 million for
the nine months ended March 31, 1997. This decrease in average interest earning
assets is primarily the result of the Company's return of capital paid to
shareholders on June 3, 1996 in the amount of $13.8 million.
INTEREST EXPENSE: Interest expense increased slightly from $3.4 million
for the nine months ended March 31, 1996 to $3.5 million for the nine months
ended March 31, 1997, an increase of $60,000 or 1.7%. This increase is
primarily attributable to an increase of $119,000 in the Bank's expense on
borrowings, while the expense on deposits decreased by $59,000. The increase
in interest expense on borrowings is due to the increase in the balance of
Federal Home Loan Bank advances, which have primarily been used to fund fixed
rate mortgages.
PROVISION FOR LOSSES ON LOANS: The provision for losses on loans decreased
from $9,000 for the nine months ended March 31, 1996 to $5,000 for the nine
months ended March 31, 1997. Management believed, on the basis of its analysis
of the risk profile of the Company's assets, that it was appropriate to maintain
the allowance for loan losses at $100,000, which was reached during this nine-
month period. In determining the appropriate provision, management considers a
number of factors, including specific loans in the Company's portfolio, real
estate market trends in the Company's market area, economic conditions, interest
rates, and other conditions that may affect a borrower's ability to comply with
repayment terms. There can be no assurance that the allowance will be adequate
to cover losses on nonperforming assets in the future.
OTHER OPERATING INCOME: Other operating income increased from $44,000 for
the nine months ended March 31, 1996 to $48,000 for the nine months ended March
31, 1997. Other operating income is not a significant component of the
Company's statement of operations.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSE: General, administrative, and
other expense increased from $2.0 million for the nine months ended March 31,
1996 to $2.7 million for the nine months ended March 31, 1997, an increase of
$703,000 or 35.1%. This increase was primarily caused by the one-time special
assessment of $567,000 to recapitalize the Savings Association Insurance Fund.
Commencing in 1997, the premium that the Company pays for FDIC Insurance has
been reduced from 23 basis points to 6.5 basis. This lower premium will reduce
the Company's expense for FDIC insurance commencing in 1997. In addition, the
Company's expense for employee compensation and benefits increased by $235,000
or 20.9%, which is primarily the result of accrued expense for the Company's
Management Recognition Plan which was approved by stockholders at the Annual
Meeting of the Company held January 16, 1996.
INCOME TAX: The Company's provision for federal income taxes declined from
$647,000 for the nine months ended March 31, 1996 to $237,000 for the nine
months ended March 31, 1997. This decline resulted primarily from the decline
in pretax earnings of $1.2 million. The Company's effective tax rates were
33.9% and 33.3% for the nine months ended March 31, 1997 and 1996, respectively.
NON-PERFORMING ASSETS: At March 31, 1997, the Bank had approximately
$72,000 in loans 90 days or more past due but still accruing. The Bank had
approximately $25,000 in loans internally classified as Substandard and no loans
classified as Doubtful or Loss. These delinquent loans represent 0.06% of the
Bank's net loans.
page 9
DIVIDENDS: On September 14, 1995, the Company announced a dividend policy
whereby it will pay a quarterly cash dividend of $0.09 per share, per quarter,
payable on the 15th day of the month following the end of each quarter, to
shareholders of record as of the last business day of each quarter. The Board
of Directors determined that the payment of a dividend was appropriate in light
of the Company's capital position and financial condition. Although the Board
of Directors has adopted this policy, the future payment of dividends is
dependent upon the Company's financial condition, earnings, equity structure,
capital needs, regulatory requirements, and economic conditions. The Company
last paid a dividend on January 15, 1997. At March 31, 1997 the Company had
recorded dividends payable of $305,000 for the payment of a dividend on April
15, 1997. In addition to this regular dividend policy, on June 3, 1996 the
Company also paid a return of capital in the amount of $4 per share to
shareholders of record on May 15, 1996.
STOCK REPURCHASE: On September 18, 1996, the Company announced a plan to
purchase up to 172,500 shares of the Company's common stock, which represents
approximately 5% of the outstanding common stock. The program will be dependent
upon market conditions and there is no guarantee as to the exact number of
shares to be repurchased by the Company. The repurchase should be completed
within nine months of commencement. Management considers the Company's common
stock to be an attractive investment, and the repurchase program is expected to
improve liquidity in the market for the common stock and result in increased per
share earnings and book value. At March 31, 1997, 65,000 shares had been
repurchased at an average price of $10.25 per share.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1996
NET EARNINGS: The Company's net earnings decreased from $359,000 for the
three months ended March 31, 1996 to $307,000 for the three months ended March
31, 1997, a decrease of $52,000 or 14.5%. The decrease is primarily
attributable to a $176,000 decrease in net interest income. The Company's
earnings per share fell from $0.11 per share for the three months ended March
31, 1996 to $0.10 per share for the three months ended March 31, 1997.
NET INTEREST INCOME: Net interest income decreased from $1.3 million for
the three months ended March 31, 1996 to $1.2 million for the three months ended
March 31, 1997 for a decrease of $176,000 or 13.1%. This decrease was primarily
due to the decrease in interest income.
INTEREST INCOME: Interest income decreased from $2.5 million for the three
months ended March 31, 1996 to $2.3 million for the three months ended March 31,
1997, a decrease of $151,000 or 6.2%. This decrease was primarily due to the
decrease in the Company's average interest-earning assets which fell from $136.6
million for the three months ended March 31, 1996 to $126.5 million for the
three months ended March 31, 1997. This decrease in average interest earning
assets is primarily the result of the Company's return of capital paid to
stockholders on June 3, 1996 in the amount of $13.8 million.
INTEREST EXPENSE: Interest expense increased only slightly from $1.112
million for the three months ended March 31, 1996 to $1.137 million for the
three months ended March 31, 1997, an increase of $25,000 or 2.2%. This increase
is primarily attributable to an increase of $52,000 in the Bank's expense on
borrowings, while the expense on deposits decreased by $27,000. The increase in
interest expense on borrowings is due to the increase in the balance of Federal
Home Loan Bank advances, which have primarily been used to fund fixed rate
mortgages.
PROVISION FOR LOSSES ON LOANS: The provision for losses on loans decreased
by $3,000 for the three months ended March 31, 1996 as compared to the three
months ended March 31, 1997. Management believed, on the basis of its analysis
of the risk profile of the Company's assets, that it was appropriate to maintain
this provision at $100,000, which was reached during the preceding three-month
period. In determining the appropriate provision, management considers a number
of factors, including specific loans in the Company's portfolio, real estate
market trends in the Company's market area, economic conditions, interest rates,
and other conditions that may affect a borrower's ability to comply with
repayment terms. There can be no assurance that the allowance will be adequate
to cover losses on nonperforming assets in the future.
OTHER OPERATING INCOME: Other operating income increased from $9,000 for
the three months ended March 31, 1996 to $15,000 for the three months ended
March 31, 1997. Other operating income is not a significant component of the
Company's statement of operations.
page 10
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES: General, administrative, and
other expense decreased from $764,000 for the three months ended March 31, 1996
to $714,000 for the three months ended March 31, 1997, a decrease of $50,000 or
6.5%. This decrease was primarily caused by the decrease in Federal deposit
insurance premiums of $36,000. Also, other operating expenses decreased by
$20,000 and franchise and other taxes decreased by $8,000. Offsetting these
decreases was an increase in employee compensation and benefits of $12,000.
INCOME TAX: The Company's provision for federal income taxes declined from
$223,000 for the three months ended March 31, 1996 to $158,000 for the three
months ended March 31, 1997. This decline resulted primarily from the decline
in pretax earnings of $117,000. The Company's effective tax rates were 34.0%
and 38.3% for the three months ended March 31, 1997 and 1996, respectively.
page 11
PART II.
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
page 12
SIGNATURE
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.
Frankfort First Bancorp, Inc.
Date: May 9, 1997
/s/ William C. Jennings
------------------------------------------
William C. Jennings
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
page 13