1
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 December 31, 1996
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 0-26242
FORT THOMAS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 61-1278396
- ------------------------------------------------ ---------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
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 February 1,
1996, there were issued and outstanding 1,528,631 shares of the Registrant's
Common Stock, par value $.01 per share.
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Statement of Financial Condition
(As of September 30, 1996 and December 31, 1996 (unaudited)) 1
Consolidated Statements of Income for the three months
ended December 31, 1996 (unaudited) and 1995 (unaudited). 2
Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 (unaudited) and 1995 (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
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Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
3
FORT THOMAS FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS DECEMBER 31, SEPTEMBER 30,
1996 1996
-------------- -------------
ASSETS
Cash and Due From Banks 1,157 1,785
Investment Securities
Held to Maturity - at Amortized Cost 3,505 3,503
Available for Sale - at Market Value 993 494
Mortgage Backed Securities Available for Sale -
At Market Value 797 816
Loans Receivable, Net 81,225 77,987
Office Properties and Equipment - at
Depreciated Cost 625 643
Real Estate Owned 0 0
Federal Home Loan Bank Stock - at Cost 712 700
Cash Surrender Value of Life Insurance 1,080 1,068
Accrued Interest Receivable 686 642
Prepaid and Other Assets 47 118
Deferred Federal Income Tax Asset 282 257
-------------- -------------
TOTAL ASSETS 91,109 88,013
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 65,080 63,731
Borrowed Funds 9,403 6,754
Advances from Borrowers for
Taxes and Insurance 4 188
Deferred Compensation 406 376
Accrued Interest Payable 63 60
Accrued Federal Income Tax 22 85
Deferred Federal Income Tax 0 0
Other Liabilities 435 887
Deferred Income 11 11
-------------- -------------
TOTAL LIABILITIES 75,424 72,092
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STOCKHOLDERS' EQUITY
Common Stock of $.01 Par Value; 4,000,000 Shares
Authorized; 1,573,775 Shares Issued and 1,457,623
and 1,489,096 Shares Outstanding, Respectively 16 16
Additional Paid-In Capital 9,415 9,387
Unearned ESOP Shares (821) (847)
MRP Trust (764) (793)
Retained Earnings - Substantially Restricted 8,328 8,165
Treasury Stock at Cost (481) 0
Unrealized Gain (Loss) on Investment Security (8) (7)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,685 15,921
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 91,109 88,013
============== =============
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FORT THOMAS FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE DATA)
3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- -------------
INTEREST INCOME
Interest on Loans 1,767 1,589
Interest on Investment Securities 65 90
Interest on Mortgage Backed Securities 10 14
Other Interest and Dividends 46 98
-------------- -------------
Total Interest Income 1,888 1,791
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INTEREST EXPENSE
Deposits 848 837
Borrowed Funds 116 49
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Total Interest Expense 964 886
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Net Interest Income 924 905
Allowance for Losses on Loans 12 6
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Net Interest Income After Allowance for
Losses on Loans 912 899
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OTHER INCOME
Fees and Charges 23 11
Gain on sale of REO 0 0
Other 26 20
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Total Other Income 49 31
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GENERAL AND ADMINISTRATIVE
Salaries and Employee Benefits 304 213
Franchise and Other Taxes 30 15
Federal Insurance Premium 37 33
Expenses of Premises and Fixed Assets 44 31
Data Processing and Related Contract Services 30 25
Other Operating Expense 146 131
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Total General & Administrative Expenses 591 448
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Income Before Income Tax 370 482
Federal Income Tax Expense 110 156
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NET INCOME 260 326
Beginning Retained Earnings 8,165 8,042
Dividends Paid (97) (98)
-------------- -------------
Ending Retained Earnings 8,328 8,270
============== =============
Earnings Per Share $0.177 $0.230
============== =============
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FORT THOMAS FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 260 326
Reconciliation of Net Income with
Cash Flows from Operations
Allowance for Losses on Mortgages 12 5
Depreciation 20 20
Deferred Income Taxes (25) (11)
Amortization (53) (47)
FHLB Stock Dividends (12) (11)
ESOP and Stock Compensation 58 0
(Gain) Loss on Reo 0 0
Changes In
Accrued Interest Receivable (44) (99)
Prepaid and Other Assets 71 49
Cash Surrender Value Life Insurance (12) (17)
Deferred Compensation 31 27
Accrued Interest Payable 2 3
Accrued Income Tax (64) 122
Other Liabilities (452) (54)
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NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (208) 313
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investment Securities (500) (2,002)
Maturity of Investment Securities 0 500
Loan Originations and Repayments, Net (3,199) (1,730)
Principal Received on Mortgage Backed Security 19 33
Proceeds From Sale of REO 0 0
Purchase of Office Properties and Equipment (2) (4)
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NET CASH USED IN INVESTING ACTIVITIES (3,682) (3,203)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits 1,349 2,119
Dividends Paid (97) (98)
ESOP Shares Released 26 18
Common Stock Shares Purchased For Treasury (481) 0
Advance from Borrowers for
Taxes and Insurance (184) (179)
Repayments of Borrowed Funds 2,649 (48)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,262 1,812
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CHANGES IN CASH AND CASH EQUIVALENTS (628) (1,078)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,785 6,032
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CASH AND CASH EQUIVALENTS, END OF PERIOD 1,157 4,954
=============== ==============
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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 months ended December 31, 1996
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 quarters ended December 31, 1995
and 1996 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 was 1,434,219 and 1,473,001, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At December 31, 1996, the Corporation's assets amounted to $91.1
million as compared to $88.0 million at September 30, 1996. The $3.1 million
or 3.5% increase was primarily due to an increase in loans receivable, net.
Such increase was funded primarily by an increase in savings accounts and
advances from the Federal Home Loan Bank of Cincinnati ("FHLB"). Stockholders'
equity decreased $236,000 to $15.7 million or 17.2% of total assets at December
31, 1996 compared to $15.9 million at September 30, 1996. The decrease in
stockholders' equity during the three month period was due primarily to stock
repurchases during the period.
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.
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 December 31, 1996. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.
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Percent of Corresponding
Loans Delinquent For Loan Categories
------------------------------ -------------------------------
90 Days
30-89 90 Days 30-89 and
Days and Over Total Days Over Total
------- -------- ----- ----- ------ -----
(Dollars in Thousands)
One- to four-family residential $3,285 $1,402 $4,687 4.98% 2.13% 7.11%
Multi-family and non-
residential 547 -- 547 4.94 -- 4.94
Construction and land 450 97 547 8.14 1.76 9.90
Consumer -- 33 33 -- 2.81 2.81
------ ------ ------
Total delinquent loans $4,282 $1,532 $5,814
===== ===== =====
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The following table sets forth the amounts and categories of the
Bank's non-performing assets at the dates indicated.
December 31, September 30,
------------------------------------- -------------
1996 1995 1996
--------------- ------------------ ------------
(Dollars in Thousands)
Non-accruing loans:
One- to four-family
residential (1) $1,402 $1,398 $ 917
Multi-family and non-
residential real estate -- 112 56
Construction and land 97 446 90
Consumer 33 3 117
Accruing consumer loans
greater than 90 days
delinquent: -- -- --
------ ----- -----
Total non-performing loans 1,532 1,959 1,180
----- ----- -----
Real estate acquired through
foreclosure -- 71 --
----- ----- -----
Total non-performing assets $1,532 $2,030 $1,180
===== ===== =====
Total non-performing
assets as a percentage of
total net loans 1.83% 2.69% 1.51%
==== ==== ====
Total non-performing
assets as a percentage of
total assets 1.68% 2.21% 1.34%
==== ==== ====
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(1) Includes second mortgage loans.
The $1.5 million of nonaccruing loans at December 31, 1996 consisted
of 46 loans with an average balance of approximately $33,000. Interest that
would have been earned on these loans, if they had been accounted for on an
accruing basis during the quarter would have been approximately $32,000.
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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 December
31, 1996, the Bank had $2.0 million of loans which were classified as
substandard, $20,000 of loans classified as doubtful and $33,000 of loans
classified as loss. The difference between the $2.0 million of assets
classified for regulatory purposes and the delinquent loans of $5.8 million was
approximately $3.8 million. This amount represents loans that were not
required to be classified for regulatory purposes due to certain quantitative
factors regarding collateral, delinquency periods, and loan terms.
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.
The following table summarizes changes in the allowance for loan
losses and other selected statistics for the periods presented.
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Three Months Ended Year Ended
December 31, September 30,
----------------------------------- -------------
1996 1995 1996
-------------- ------------------- -------------
(Dollars in Thousands)
Average loans receivable, net $79,778 $71,818 $73,875
====== ====== ======
Allowance for loan losses
Balance at beginning of period $ 366 $ 239 $ 239
Net (charge-offs) recoveries -- -- 1
Provision for loan losses 12 6 126
------ ------ ------
Balance at end of period $ 378 $ 245 $ 366
====== ====== ======
Net loans (charged-off)
recovered to average loans -- --% --%
====== ====== =====
Allowance for loan losses to
total loans 0.47% 0.34% 0.45%
===== ===== =====
Allowance for loan losses to
total non-performing loans 24.67% 12.51% 31.02%
===== ===== =====
Net loans (charged-off)
recovered to allowance for
loan losses -- -- 0.27%
===== ===== =====
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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.
December 31, 1996
------------------------------------------
Percent of Loans in Each
Amount Category to Total Loans
------------ ------------------------
(Dollars in Thousands)
One- to four-family residential $248 78.76%
Multi-family residential 75 13.23
Land and construction 20 6.60
Consumer loans 35 1.41
--- ------
Total $378 100.00%
=== ======
RESULTS OF OPERATIONS
GENERAL. The Corporation reported net income of $260,000 during the
three months ended December 31, 1996 compared to $326,000 during the three
months ended December 31, 1995. The decrease in net income during the three
months ended December 31, 1996 compared to the same period ended December 31,
1995 was due primarily to an increase in total general and administrative
expenses.
INTEREST INCOME. Interest income increased $97,000 or 5.4% to $1.9
million for the three months ended December 31, 1996 compared to the same
period in 1995. The increase during the 1996 period was due primarily to an
increase in the average outstanding balance of the Corporation's loan
portfolio. Such increase was primarily due to increased loan demand.
INTEREST EXPENSE. Interest expense increased $78,000 or 8.8% to
$964,000 for the three months ended December 31, 1996 compared to the same
period in 1995. Such increase was primarily due to an increase in the average
outstanding balance of the Corporation's time deposits and FHLB advances.
NET INTEREST INCOME. Net interest income amounted to $924,000 for the
three months ended December 31, 1996 compared to $905,000 for the comparable
period in 1995. The interest rate spread increased to 3.30% for the 1996
period compared to 2.99% for the 1995
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period while average interest-earning assets to average interest-bearing
liabilities increased from 119.10% to 120.76%.
OTHER INCOME. Other income increased $18,000 or 58.1% during the
three months ended December 31, 1996 compared to the same period in 1995 due
primarily to an increase in fees and charges relating to loans.
OTHER EXPENSES. Operating expenses increased $143,000 or 31.9% to
$591,000 for the three months ended December 31, 1996 compared to the same
period in 1995. Such increase was primarily due to an increase of $91,000 or
42.7% in salaries and employee benefits. The increase in salaries and employee
benefits was primarily due to benefits related to the Company's Employee Stock
Ownership Plan and normal salary and merit increases.
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
December 31, 1996, the Bank had $9.4 million of outstanding advances from the
FHLB of Cincinnati.
As of December 31, 1996, the Bank's regulatory capital was well in
excess of all applicable regulatory requirements. At December 31, 1996, the
Bank's tangible, core and risk-based capital ratios amounted to 15.3%, 15.3%
and 24.2%, respectively, compared to regulatory requirements of 1.5%, 3.0% and
8.0%, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Statement Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," affecting the accounting
for investments in all debt and equity securities, which are to be classified
in one of three categories for fiscal years beginning after December 15, 1993.
Securities that an institution has the positive intent and
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ability to hold to maturity are to be reported at amortized cost. Securities
that are bought and held principally for the purpose of selling them in the
near term are to be classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings. Other securities
are to be classified as securities available for sale and reported at fair
value, with unrealized gains and losses excluded from earnings and reported as
a separate component of stockholders' equity. The Corporation adopted SFAS No.
115 effective October 1, 1994. At December 31, 1996, the Corporation had an
unrealized loss of $8,000 relating to its securities classified as available
for sale.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." In October 1994, the FASB issued SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," which amended income recognition methods and certain disclosures
required by SFAS No. 114. The Corporation implemented SFAS No. 114, as
amended, on October 1, 1995. The statement establishes accounting measurement,
recognition and reporting standards for impaired loans. SFAS No. 114 provides
that a loan is impaired when, based on current information and events, it is
probable that the creditor will be unable to collect all amounts due according
to the contractual terms (both principal and interest). SFAS No. 114 requires
that when a loan is impaired, impairment should be measured based on the
present value of the expected cash flows, discounted at the loan's effective
interest rate. If the loan is collateral dependent, as a practical expedient,
impairment can be based on a loan's observable market price or the fair value
of the collateral. The value of the loan is adjusted through a valuation
allowance created through a charge against income. Residential mortgages,
consumer installment obligations and credit cards are excluded. Loans that
were treated as in-substance foreclosures under previous accounting
pronouncements are considered to be impaired loans and remain in the loan
portfolio under SFAS No. 114. The adoption of SFAS No. 114, as amended, has
not had a material effect on the Corporation's financial condition or results
of operations.
In December 1991, the FASB issued SAFS No. 107, "Disclosures about
Fair Value of Financial Instruments," which became effective beginning October
1, 1995. SFAS No. 107 requires disclosure of the fair value of financial
instruments for both assets and liabilities recognized and not recognized in
the statements of financial position, for which it is practical to estimate the
fair value. The adoption of SFAS No. 107 has not had a material effect on the
Corporation's financial condition or results of operations.
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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
On January 27, 1997, the Corporation held an annual meeting
for the election of directors and the ratification of
auditors. The votes with respect to such proposals are set
forth below.
Proposal One (Election of Directors):
Name FOR AGAINST WITHHELD
---- --- ------- --------
Larry N. Hatfield 1,256,729 5,875 ---
Robert L. Grimm 1,256,729 5,875 ---
Harold A. Luersen 1,255,929 6,675 ---
Don J. Beckmeyer 1,256,729 5,875 ---
J. Steven McLane 1,256,729 5,875 ---
Proposal Two (Ratification of Auditors):
FOR AGAINST ABSTAIN
--- ------- -------
1,247,746 5,075 9,783
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Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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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: February 7, 1997 By: /s/ Larry N. Hatfield
----------------------------------------
Larry N. Hatfield
President and Chief Executive Officer
Date: February 7, 1997 By: /s/ J. Michael Lonnemann
----------------------------------------
J. Michael Lonnemann
Vice President, Secretary and Principal
Financial Officer