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, 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 0-26242
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 6,
1998, there were issued and outstanding 1,474,466 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
----
PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Statement of Financial Condition
(As of September 30, 1997 and December 31, 1997 (unaudited)) 1
Consolidated Statements of Income for the three months
ended December 31, 1997 (unaudited) and 1996 (unaudited). 2
Consolidated Statements of Cash Flows for the three months
ended December 31, 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
3
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, September 30,
1997 1997
------------ -------------
(In Thousands)
ASSETS
Cash $ 2,395 $ 2,186
Investment Securities:
Held to maturity - at amortized cost 2,993 2,990
Available for sale - at market value -- --
Mortgage-backed securities - available
for sale -- 798
Loans Receivable, net 91,073 88,452
Office Properties and equipment - at
depreciated cost 556 570
Federal Home Loan Bank Stock
(FHLB) - at cost 800 785
Cash Surrender Value of Life Insurance 1,125 1,114
Accrued Interest Receivable 766 770
Prepaid and Other Assets 74 93
Federal Tax Overpaid -- 29
Deferred Federal Income Tax Asset 91 86
-------- --------
TOTAL ASSETS $ 99,873 $ 97,873
======== ========
LIABILITIES
Savings Accounts $ 71,585 $ 71,858
Federal Home Loan Bank Advances 11,292 8,846
Advances from Borrowers for Taxes and
Insurance 25 229
Deferred Compensation 522 504
Accrued Interest Payable 71 59
Accrued Federal Income Taxes 147 --
Other Liabilities 433 591
-------- --------
TOTAL LIABILITIES 84,075 82,087
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value;
4,000,000 shares authorized;
1,573,775 shares issued and
outstanding 16 16
Additional Paid-in Capital 9,454 9,436
Unearned ESOP Shares (718) (744)
MRP Trust (642) (672)
Retained Earnings, Substantially
Restricted 9,066 8,852
Treasury Stock (99,309 shares at cost) (1,378) (1,103)
Unrealized Gain on Investment
Securities -- 1
-------- --------
TOTAL STOCKHOLDERS' EQUITY 15,798 15,786
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 99,873 $ 97,873
======== ========
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
December 31,
-------------------------------
1997 1996
--------------- --------------
(Dollars in Thousands)
Interest Income
Interest on loans $1,978 $1,767
Interest on investment
securities 48 65
Interest on mortgage-backed
securities 1 10
Other interest and dividends 49 46
------ ------
Total interest income 2,076 1,888
------ ------
Interest Expense
Deposits 970 848
FHLB advances 138 116
------ ------
Total interest expense 1,108 964
------ ------
Net interest income 968 924
Provision for loan losses 12 12
------ ------
Net interest income after
provision for loan losses 956 912
------ ------
Other Income
Fees and charges 39 23
Gain on sale of REO -- --
Other 36 26
------ ------
Total other income 75 49
------ ------
Other Expenses
Salaries and employee
benefits 280 296
Franchise and other taxes 36 30
Federal insurance premium 11 37
Expenses of premises and
fixed assets 44 44
Data processing and related contract
services 33 30
Other operating expense 152 154
------ ------
Total other expenses 556 591
------ ------
Income before income tax 475 370
Federal income tax expense 169 110
------ ------
Net income $ 306 $ 260
====== ======
Earnings per share:
Basic $0.22 $0.18
====== ======
Diluted $0.21 $0.17
====== ======
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FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
----------------------------------
1997 1996
---------------- ----------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $306 $260
Reconciliation of net income
with cash flows from
operations:
Allowance for losses on
loans 12 12
Depreciation 17 20
Deferred income taxes (5) (25)
Amortization (63) (53)
FHLB stock dividends (14) (12)
Amortization of stock-based 48 58
compensation plans
Changes in
Accrued interest receivable 4 (44)
Prepaid and other assets 19 71
Cash surrender value of life insurance (11) (12)
Deferred compensation 18 31
Accrued interest payable 11 2
Accrued income tax 176 (64)
Other liabilities (158) (452)
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NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES 361 (208)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities -- (500)
Maturity of investment securities 791 --
Loan originations and repayments, net (2,636) (3,199)
Principal received on mortgage-backed
security -- 19
Expenses paid for REO (14) --
Proceeds from sale of REO 83 --
Purchase of office properties and
equipment (4) (2)
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NET CASH USED IN INVESTING
ACTIVITIES (1,780) (3,682)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in savings
accounts (272) 1,349
Dividends paid (92) (97)
ESOP shares released 26 26
Common Stock shares purchased for
Treasury (275) (481)
Advance from borrowers for taxes and
insurance (204) (184)
Repayments of FHLB advances (2,004) 2,649
Proceeds from FHLB advances 4,450 --
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NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,629 3,262
------- -------
CHANGES IN CASH AND CASH EQUIVALENTS 210 (628)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 2,185 1,786
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CASH AND CASH EQUIVALENTS, END OF
PERIOD $2,395 $1,157
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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, 1997 are
not necessarily indicative of the results to be expected for the year ending
September 30, 1998. 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, 1997 contained
in the Corporation's 1997 Annual Report.
Note 2 - Earnings Per Share
The earnings per share amount for the quarters ended December 31, 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 was 1,558,058 and 1,483,690,
respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At December 31, 1997, the Corporation's total assets amounted to $99.9
million as compared to $97.9 million at September 30, 1997. The $2.0 million or
2.0% increase was primarily due to an increase in loans receivable, net. Such
increase was funded primarily by an increase in advances from the Federal Home
Loan Bank of Cincinnati ("FHLB"). Stockholders' equity remained stable at $15.8
million or 15.8% of total assets at December 31, 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.
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, 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
------------------------------------------ -----------------------------------
90 Days
30-89 90 Days 30-89 and
Days and Over Total Days Over Total
------------ ------------ ------------ -------- ----------- --------
(Dollars in Thousands)
One- to four-family residential $2,625 $1,470 $4,095 3.98% 2.23% 6.21%
Multi-family and non-
residential 340 436 776 3.07 3.94 7.01
Construction and land 640 111 751 11.58 2.01 13.59
Consumer -- 18 18 -- 1.53 1.53
------ ----- ------
Total delinquent loans $3,605 $2,035 $5,640
===== ===== =====
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8
The following table sets forth the amounts and categories of the Bank's
non-performing assets at the dates indicated.
December 31, September 30,
--------------------------- -----------------
1997 1996 1997
------------ ----------- -----------------
Non-accruing loans:
One- to four-family
residential (1) $1,470 $1,402 $1,266
Multi-family and non-
residential real estate 436 -- 360
Construction and land 111 97 309
Consumer -- 33 --
Accruing consumer loans
greater than 90 days
delinquent: 18 -- 2
------ ------ ------
Total non-performing loans 2,035 1,532 1,937
------ ------ ------
Real estate acquired through
foreclosure -- -- --
------ ------ ------
Total non-performing assets $2,035 $1,532 $1,937
====== ====== ======
Total non-performing
assets as a percentage of
total net loans 2.43% 1.83% 2.19%
==== ==== ====
Total non-performing
assets as a percentage of
total assets 2.04% 1.68% 1.98%
==== ==== ====
- ---------------------------
(1) Includes second mortgage loans.
The $2.0 million of nonaccruing loans at December 31, 1997 consisted of 38
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 quarter would have been approximately $42,000.
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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, 1997, the Bank had
$2.3 million of loans which were classified as substandard, $20,000 of loans
classified as doubtful and $48,000 of loans classified as loss.
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.
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10
The following table summarizes changes in the allowance for loan losses and
other selected statistics for the periods presented.
Three Months Ended Year Ended
December 31, September 30,
----------------------------- --------------
1997 1996 1997
------------- ---------- --------------
(Dollars in Thousands)
Average loans receivable, net $89,835 $79,778 $ 83,912
====== ====== ======
Allowance for loan losses
Balance at beginning of period $ 476 $ 366 $ 366
Net (charge-offs) recoveries (15) -- (27)
Provision for loan losses 12 12 137
----- ------ ------
Balance at end of period $ 473 $ 378 $ 476
===== ====== ======
Net loans (charged-off)
recovered to average loans (0.02)% --% (0.03)%
====== ====== ======
Allowance for loan losses to
total loans 0.52% 0.47% 0.54%
===== ===== =====
Allowance for loan losses to
total non-performing loans 23.24% 24.67% 24.57%
===== ===== =====
Net loans (charged-off)
recovered to allowance for
loan losses (3.17)% --% (7.95)%
====== ====== ======
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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, 1997
-------------------------------------
Percent of Loans
in Each Category
Amount to Total Loans
---------------- -------------------
(Dollars in Thousands)
One- to four-family residential $313 80.21%
Multi-family residential 100 11.68
Land and construction 50 6.81
Consumer loans 10 1.30
--- ------
Total $473 100.00%
=== ======
RESULTS OF OPERATIONS
GENERAL. The Corporation reported net income of $306,000 during the three
months ended December 31, 1997 compared to $260,000 during the three months
ended December 31, 1996. The increase in net income during the three months
ended December 31, 1996 compared to the same period in 1996 was due primarily to
increases in net interest income and total other income and a decrease in total
other expenses.
INTEREST INCOME. Interest income increased $188,000 or 10.0% to $2.1 million
for the three months ended December 31, 1997 compared to the same period in
1996. The increase during the 1997 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 $144,000 or 14.9% to $1.1
million for the three months ended December 31, 1997 compared to the same period
in 1996. Such increase was primarily due to an increase in the average
outstanding balance of the Corporation's time deposits and, to a lesser extent,
FHLB advances.
NET INTEREST INCOME. Net interest income amounted to $968,000 for the three
months ended December 31, 1997 compared to $924,000 for the comparable period in
1996. The interest rate spread amounted to 3.16% for the 1997 period compared to
3.30% for the 1996
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period and the ratio of average interest-earning assets to average
interest-bearing liabilities was 118.63% and 120.76% for the same respective
periods.
OTHER INCOME. Other income increased $26,000 or 53.1% during the three
months ended December 31, 1997 compared to the same period in 1996 due primarily
to an increase in fees and charges relating to loans.
OTHER EXPENSES. Operating expenses decreased $35,000 or 5.9% to $556,000 for
the three months ended December 31, 1997 compared to the same period in 1996.
Such decrease was primarily due to a decrease of $26,000 in federal deposit
insurance premiums and a decrease of $16,000 in salaries and employee benefits.
The decrease in insurance premiums resulted from a decrease in the assessment
rate.
YEAR 2000. The Company outsources its primary data processing functions. A
challenging problem exists as the millennium ("year 2000") approaches as many
computer systems worldwide do not have the capability of recognizing the year
2000 or years thereafter. To date, the Company has received conformations from
its primary vendors that plans have been developed by them to address and
correct the issues associated with the year 2000 problem.
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, 1997, the Bank had $11.3
million of outstanding advances from the FHLB of Cincinnati.
As of December 31, 1997, the Bank's regulatory capital was well in excess of
all applicable regulatory requirements. At December 31, 1997, the Bank's
tangible, core and risk-based capital ratios amounted to 15.1%, 15.1% and 24.2%,
respectively, compared to regulatory requirements of 1.5%, 3.0% and 8.0%,
respectively.
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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 and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On January 26, 1998, 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 NOT VOTED
- ---- --- ------- -------- ---------
Larry N. Hatfield 1,195,646 -- 12,269 266,551
Robert L. Grimm 1,193,714 -- 14,201 266,551
Harold A. Luersen 1,193,714 -- 14,201 266,551
Don J. Beckmeyer 1,195,746 -- 12,169 266,551
J. Steven McLane 1,195,746 -- 12,169 266,551
Proposal Two (Ratification of Auditors):
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
1,193,165 3,670 11,080 266,551
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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 6, 1998 By:/s/ Larry N. Hatfield
--------------------------------------
Larry N. Hatfield
President and Chief Executive Officer
Date: February 6, 1998 By:/s/ J. Michael Lonnemann
--------------------------------------
J. Michael Lonnemann
Vice President, Secretary and Principal
Financial Officer