SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26570
Harrodsburg First Financial Bancorp, Inc.
------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1284899
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 South Chiles Street, Harrodsburg, Kentucky 40330-1620
- ---------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, inclu(606) 734-5452:
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 ninety days. Yes X No
--- ---
As of February 10, 1997, 1,864,736 shares of the registrant's common stock were
issued and outstanding.
Page 1 of 17 Pages Exhibit Index at Page N/A
---
CONTENTS
------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996 (unaudited) and
September 30, 1996...................................................3
Consolidated Statements of Income for the Three-Month Periods Ended
December 31, 1996 and 1995 (unaudited)...............................4
Consolidated Statements of Cash Flows for the Three Month Periods Ended
December 31, 1996 and December 31, 1995 (unaudited)..................5
Notes to Consolidated Financial Statements.................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................14
Item 2. Changes in Securities.....................................................14
Item 3. Defaults Upon Senior Securities...........................................14
Item 4. Submission of Matters to a Vote of Security Holders.......................14
Item 5. Other Information.........................................................14
Item 6. Exhibits and Reports on Form 8-K......................................... 14
SIGNATURES
2
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
------------------
As of As of
December 31, September 30,
ASSETS 1996 1996
------------ -----------
(unaudited)
Cash and due from banks $ 586,822 $ 834,621
Interest Bearing Deposits 11,715,429 14,230,056
Certificates of deposit 1,500,000 2,500,000
Available-for-sale securities 2,127,147 1,881,429
Held-to-maturity securities 11,017,871 10,502,766
Loans receivable, net 78,793,866 77,502,336
Accrued interest receivable 598,052 675,433
Premises and equipment, net 652,147 657,920
Other assets 59,367 168,113
------------- -------------
Total assets $ 107,050,701 $ 108,952,674
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 77,412,985 $ 76,946,210
Advance payments by borrowers for taxes and insurance 25,754 68,534
Income taxes payable 936,247 719,402
Dividends payable 391,633
Other liabilities 40,121 604,906
------------- -------------
Total liabilities 78,415,107 78,730,685
------------- -------------
Stockholders' equity
Common stock, $0.10 per value, 5,000,000 shares authorized;
2,182,125 shares issued and outstanding 218,213 218,213
Additional paid-in capital 21,025,783 21,001,572
Retained earnings, substantially restricted 10,295,480 10,229,074
Net unrealized appreciation on available-for-sale
securities, net of deferred income taxes 1,354,099 1,191,925
Treasury stock, 151,939 and 49,392 shares as of December 31,
1996 and September 30, 1996, respectively (2,657,781) (789,495)
Unallocated employee stock ownership plan (ESOP) shares (1,600,200) (1,629,300)
------------- -------------
Total stockholders' equity 28,635,594 30,221,989
------------- -------------
Total liabilities and stockholders' equity $ 107,050,701 $ 108,952,674
============= =============
See accompanying notes to consolidated financial statements.
3
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
------------------
For the Three-Month Periods
Ended December 31,
1996 1995
---------- ----------
Interest income:
Interest on loans $1,536,179 $1,491,598
Interest and dividends on securities 186,458 27,923
Other interest income 189,557 423,203
---------- ----------
Total interest income 1,912,194 1,942,724
---------- ----------
Interest expense:
Interest on deposits 951,186 988,119
---------- ----------
Net interest income 961,008 954,605
Provision for loan losses -- --
---------- ----------
Net interest income after provision for loan losses 961,008 954,605
---------- ----------
Non-interest income:
Loan and other service fees, net 15,386 19,406
Other 4,591 5,525
---------- ----------
19,977 24,931
---------- ----------
Non-interest expense:
Compensation and benefits 224,638 199,150
Occupancy expenses, net 30,183 31,338
Federal and other insurance premiums 38,517 46,352
Data processing expenses 25,297 23,029
State franchise tax 24,143 20,609
Other operating expenses 87,663 83,954
---------- ----------
430,441 404,432
---------- ----------
Income before income tax expense 550,544 575,104
Income tax expense 188,669 195,536
---------- ----------
Net income $ 361,875 $ 379,568
========== ==========
Earnings per share $ 0.19 $ 0.19
========== ==========
See accompanying notes to consolidated financial statements.
4
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
------------------
For the Three-Month Periods
Ended December 31,
---------------------------
1996 1995
--------- ---------
Operating activities
Net income $ 361,875 $ 379,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
ESOP benefit expense 53,311 39,646
Provision for depreciation 16,074 17,964
Amortization of loan fees (10,050) (17,529)
Amortization of investment discount (254)
FHLB stock dividend (21,000) (19,600)
Change in:
Interest receivable 77,381 16,015
Interest payable 1,273 1,102
Accrued liabilities (566,058) 634
Prepaid expense 108,746 78,591
Income taxes payable 133,302 160,108
----------- -----------
Net cash provided by operating activities 154,600 656,499
----------- -----------
Investing activities
Net (increase) decrease in loans (1,281,480) 1,392,712
Maturity of certificates of deposit 1,000,000 1,000,000
Purchase of held-to-maturity securities (500,000) (2,500,000)
Principle repayments - mortgage back securities 6,149 10,651
Purchase of fixed assets (10,301) (46,228)
Retirement of assets 2,667
----------- -----------
Net cash (used) by investing activities (785,632) (140,198)
----------- -----------
See accompanying notes to consolidated financial statements.
5
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
------------------
For the Three-Month Periods
Ended December 31,
----------------------------
1996 1995
--------- ---------
Financing activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 298,223 551,362
Net increase (decrease) in certificates of deposit 168,552 (52,069)
Net increase (decrease) in custodial accounts (42,780) (54,262)
Payment of conversion expenses (365,414)
Purchase of treasury stock (1,868,286)
Payment of dividends (687,103)
------------ ------------
Net cash provided (used) by financing activities (2,131,394) 79,617
------------ ------------
Increase (decrease) in cash and cash equivalents (2,762,426) 595,918
Cash and cash equivalents, beginning of period 15,064,677 21,990,430
------------ ------------
Cash and cash equivalents, end of period $ 12,302,251 $ 22,586,348
============ ============
Supplemental Disclosures
Cash payments for:
Interest on deposits $ 949,913 $ 987,017
============ ============
Income taxes $ $
============ ============
See accompanying notes to consolidated financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Harrodsburg First Financial Bancorp (the "Company") was formed at the
direction of First Federal Savings Bank of Harrodsburg (the "Bank") to
become the holding company of the Bank upon the conversion of the Bank from
mutual to stock form (the "Conversion"). The Company's sole business is to
serve as a holding company for the Bank. Accordingly, the financial
statements and discussions herein include both the Company and the Bank. The
Company was incorporated at the direction of the Board of Directors of the
Bank in June 1995. On September 29, 1995, the Bank converted from mutual to
stock form as a wholly owned subsidiary of the Company. In conjunction with
the Conversion, the Company issued 2,182,125 shares of its common stock to
the public.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring accruals) necessary for fair presentation have been
included. The results of operations and other data for the three month
period ended December 31, 1996 are not necessarily indicative of results
that may be expected for the entire fiscal year ending September 30, 1997.
2. Earnings Per Share
Earnings per share for the three month periods ended December 31, 1996 and
1995 amounted to $0.19 per share for both periods, based on weighted average
common stock shares outstanding. The weighted average number of common
shares issued and outstanding for the three month periods ended December 31,
1996 and 1995 was 1,919,985 and 2,009,010 shares, respectively.
3. Dividends
A special cash dividend of $0.15 per share was paid on October 16, 1996 to
stockholders of record as of October 1, 1996. A cash dividend of $.20 per
share was paid on October 15, 1996 to stockholders of record as of September
30, 1996. The total dividends paid by the Company for the three months ended
December 31, 1996 amounted to $687,103.
4. Treasury stock
Pursuant to the stock repurchase plan approved by the Board of Directors of
the Company on September 16, 1996, the Company repurchased a total of
102,547 shares at a total price of $1,868,286 during the three months ended
December 31, 1996.
5. Subsequent Event - Employee Benefit Plans
On January 27, 1997 the stockholders of the Company approved the
establishment of the Harrodsburg First Financial Bancorp, Inc. 1996 Stock
Option Plan ("Option Plan") and the First Federal Savings Bank of
Harrodsburg Restricted Stock Plan and Trust Agreement ("Restricted Stock
Plan").
7
Pursuant to the Option Plan, which is effective January 27, 1997, 200,000
authorized but unissued shares of common stock have been reserved for
issuance upon the exercise of options or the grant of restricted stock to
employees and directors of the Company or the Bank. Effective with the
approval of the Option Plan by the stockholders, stock options were granted
for the purchase of 190,000 shares. The options are exercisable at the fair
market value of the common stock on the date of the award which was $16.63
per share. All options are nontransferable and have a maximum term of 10
years.
The objective of the Restricted Stock Plan (RSP), which is effective January
27, 1997, is to enable the Bank to attract and retain personnel of
experience and ability in key positions of responsibility. Those eligible to
receive benefits under the Restricted Stock Plan will be such employees as
selected by members of a committee appointed by the Company's Board of
Directors. The Restricted Stock Plan is a non-qualified plan that will be
managed through a separate trust. The Bank will contribute sufficient funds
to the RSP Trust for the purchase of up to 85,000 shares of common stock.
The Company will recognize an expense for the fair market value of any
awards granted over the period the award is earned.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended December 31, 1996 and 1995
Net Income
Net income decreased by $18,000 or 4.7% for the period ended December 31, 1996
as compared to the same period in 1995. The net decrease of $18,000 was due to
an increase of $26,000 in non-interest expenses, and a decrease of approximately
$5,000 in non-interest income, offset by approximately a $6,000 increase in net
interest income and a $7,000 decrease in income tax expense for 1996 compared to
1995.
Interest Income
Interest income was $1.9 million, or 7.24% of average interest-earning assets,
for the quarter ended December 31, 1996 as compared to $1.9 million, or 7.36% of
average interest-earning assets, for the quarter ended December 31, 1995.
Interest income decreased by $31,000 or 1.6% from 1996 to 1995. The change was
due to a 12 basis point decrease in the average rate earned on the average
interest-earning assets offset by a $71,000 increase in the average balance of
interest-earning assets during the quarter ended December 31, 1996 compared to
the quarter ended December 31, 1995.
Interest Expense
Interest expense was $951,000, or 5.00% of average interest-bearing deposits,
for the quarter ended December 31, 1996 as compared to $988,000, or 5.21% of
average interest-bearing deposits, for the corresponding period in 1995.
Interest expense decreased by $37,000 or 3.7% from 1996 to 1995. The change was
due primarily to a 21 basis point decrease in the average rate paid on the
deposits during the period ended December 31, 1996 compared to the corresponding
period in 1995, partially offset by a increase of $203,000 in the balance of
average interest-bearing liabilities.
Provision for Loan Losses
There was no provision for loan losses during the quarters ended December 31,
1996 and 1995. Management considers many factors in determining the necessary
levels of the allowance for loan losses, including an analysis of specific loans
in the portfolio, estimated value of the underlying collateral, assessment of
general trends in the real estate market, delinquency trends, prospective
economic and regulatory conditions, inherent loss in the loan portfolio, and the
relationship of the allowance for loan losses to outstanding loans. At December
31, 1996 the allowance for loan losses represented .37% of total loans compared
to .40% at December 31, 1995. The allowance for loan losses was at a level
consistent with management's analysis of the loan portfolio.
Non-Interest Income
Non-interest income amounted to $20,000 and $25,000 for the quarters ended
December 31, 1996 and 1995, respectively. The largest item in non-interest
income is service fees on loan and deposit accounts, which amounted to $15,000
and $19,000 for 1996 and 1995, respectively. The decrease in non-interest income
of $5,000 was primarily due to the decrease in income from late fees on
delinquent loans plus an increase in NOW account service fees.
9
Non-Interest Expense
Non-interest expense increased approximately $26,000 or 6.4% to $430,000 for the
quarter ended December 31, 1996 compared to $404,000 for the comparable period
in 1995. Non-interest expense was 1.6% and 1.5% of average assets for the
quarters ended December 31, 1996 and 1995, respectively. The increase of $26,000
was due primarily to an increase in compensation and benefits of $25,000 plus a
net increase of $1,000 in other non-interest expenses. The increase of $26,000
in compensation and benefits was due to an increase of $14,000 related to the
employee stock option plan due to the average increase in price of the stock
plus an increase of $11,000 due to normal salary increases.
Income Taxes
The provision for income tax expense amounted to approximately $188,000 and
$196,000 for the quarters ended December 31, 1996 and 1995, respectively, which
as a percentage of income before income tax expenses amounted to 34.0% for 1996
and 1995.
Non-Performing Assets
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated. No loans were recorded as
restructured loans within the meaning of SFAS No. 15 at the dates indicated.
December 31, 1996 September 30, 1995
----------------- ------------------
(amounts in thousands)
Loans accounted for on a non-accrual basis:1
Real Estate:
Residential................................................. $ - $ -
----------- ----------
Total ........................................................ - -
----------- ----------
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential................................................. 528 567
Other....................................................... 73 58
Consumer.................................................... 96 241
----------- ----------
Total ........................................................ 697 866
----------- ----------
Total of non-accrual and 90 day past due loans $ 697 $ 866
=========== ==========
Percentage of net loans......................................... .88% 1.12%
=========== ==========
Other non-performing assets2.................................... $ - $ -
=========== ==========
- -----------------------
1 Non-accrual status denotes any loan past due 90 days and whose loan
balance, plus accrued interest exceeds 90% of the estimated loan
collateral value. Payments received on a non-accrual loan are either
applied to the outstanding principal balance or recorded as interest
income, or both, depending on assessment of the collectibility of the
loan.
2 Other non-performing assets represent property acquired by the Bank
through foreclosure or repossessions or accounted for as a foreclosure
in-substance. This property is carried at the lower of its fair market
value or the principal balance of the related loan, whichever is lower.
10
At December 31, 1996, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the three months ended December 31, 1996 on
the loans in the table above, has been included in income.
At December 31, 1996, there were no loans identified by management, which were
not reflected in the preceding table, but as to which known information about
possible credit problems of borrowers caused management to have serious doubts
as to the ability of the borrowers to comply with present loan repayment terms.
FINANCIAL CONDITION
The Company's consolidated assets decreased approximately $1.9 million or .17%
to $107.1 million at December 31, 1996 compared to $108.9 million at September
30, 1996. The net decrease of $1.9 million was due primarily to a $3.7 million
decrease in cash, interest bearing deposits, and certificates of deposits offset
in part by an increase of $1.3 million in loans and an increase of $761,000 in
investment securities.
The Company's investment portfolio increased approximately $761,000. Securities
classified as available-for- sale and recorded at market value per SFAS No. 115
increased $246,000 due solely to the increase in market value of such
securities. Securities held-to-maturity increased $515,000 primarily due to the
purchase of a FHLB bond, based on management's decision to seek higher yields on
funds available for investment.
Loans receivable increased by $1.3 million, or 1.7% from $77.5 million at
September 30, 1996 to $78.8 million at December 31, 1996, as management
continued its efforts to meet the loan demand in the Bank's market area.
Under SFAS No. 115, unrealized gains or losses on securities available-for-sale
are recorded net of deferred income tax as a separate component of retained
earnings. At December 31, 1996, the Company included net unrealized gains of
approximately $1,354,000 in retained earnings. At September 30, 1996, the
Company included net unrealized gains of approximately $1,192,000 in retained
earnings. Per SFAS No. 115, such gains or losses will not be reflected as a
charge or credit to earnings until the underlying gains or loss, if any, is
actually realized at the time of sale.
Stockholders' equity decreased by $1.6 million to $28.6 million for the quarter
ended December 31, 1996. The net decrease of $1.6 million is due to decrease of
$1.9 million from the purchase of Treasury Stock and the declaration of
dividends totaling $295,000, offset in part by an increase from net income of
$362,000, an increase of $162,000 in net unrealized appreciation on investments
held-for-sale, and an increase of $53,000 related to the release of ESOP shares
from collateral during the quarter ended December 31, 1996.
11
The following summarized the Bank's capital requirements and position at
December 31, 1996 and September 30, 1996.
December 31 September 30
1996 1995
--------------------- ---------------------
(Dollars in Thousands)
Amount Percent Amount Percent
--------- -------- ---------- -------
Tangible capital .......................... $ 22,148 20.7% $21,754 20.2%
Tangible capital requirement .............. 1,585 1.5% 1,618 1.5%
--------- ---- --------- ----
Excess .................................... $ 20,563 19.2% $ 20,136 18.7%
========= ==== ========= ====
Core capital .............................. $22,148 20.7% $ 21,754 20.2%
Core capital requirement .................. 3,171 3.0% 3,235 3.0%
--------- ---- --------- ----
Excess .................................... $ 18,977 17.7% $ 18,519 17.2%
========= ==== ========= ====
Tangible capital .......................... $22,148 41.2% $ 21,754 40.2%
General valuation allowance ............... 290 .5% 290 .5%
--------- ---- --------- ----
Total capital (core and supplemental 22,438 41.7% 22,044 40.7%
Risk-based capital requirement ............ 4,297 8.0% 4,334 8.0%
--------- ---- --------- ----
Excess .................................... $ 18,141 33.7% $ 17,710 32.7%
========= ==== ========= ====
Liquidity
The liquidity of the Company depends primarily on the dividends paid to it as
the sole shareholder of the Bank. At December 31, 1996, the Bank could pay
common stock dividends of approximately $11.4 million.
The Bank's primary sources of funds are deposits and proceeds from principal and
interest payments of loans. Additional sources of liquidity are advances from
the FHLB of Cincinnati and other borrowings. At December 31, 1996, the Bank had
no outstanding borrowings. The Bank has utilized and may in the future, utilize
FHLB of Cincinnati borrowings during periods when management of the Bank
believes that such borrowings provide a lower cost source of funds than deposit
accounts and the Bank desires liquidity in order to help expand its lending
operations.
The Company's operating activities produced positive cash flows for the quarters
ended December 31, 1996 and 1995.
The Bank's most liquid assets are cash and cash-equivalents, which include
investments in highly liquid, short-term investments. At December 31, 1996 and
September 30, 1996, cash and cash equivalents totaled $12.3 million and $15.1
million, respectively.
At December 31, 1996, the Bank had $40.4 million in certificates of deposits due
within one year and $17.0 million due between one and three years. Management
believes, based on past experience, that the Bank will retain much of the
deposits or replace them with new deposits. At December 31, 1996, the Bank had
$1.2
12
million in outstanding commitments to originate mortgages. The Bank intends to
fund these commitments with short-term investments and proceeds from loan
repayments.
OTS regulations require that the Bank maintain specified levels of liquidity.
Liquidity is measured as a ratio of cash and certain investments to withdrawable
savings. The minimum level of liquidity required by regulation is presently
5.0%. During the first quarter of fiscal year 1997, the Bank satisfied all
regulatory liquidity requirements, and management believes that the liquidity
levels maintained are adequate to meet potential deposit outflows, loan demand,
and normal operations.
Impact of Inflation and Changing Prices
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
13
PART II. OTHER INFORMATION
-----------------
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
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Harrodsburg First Financial Bancorp, Inc.
/s/ Jack Hood
Date: --------------------------------------
Jack Hood, President
/s/ Teresa W. Noel
Date: --------------------------------------
Teresa W. Noel, Treasurer
15