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 JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 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 officer) (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 last practicable date. As of July 16, 1999,
there were issued and outstanding 1,474,321 shares of the Registrant's Common
Stock, par value $.01 per share.
Page 1 of 16
2
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of June 30, 1999 (unaudited) and September 30, 1998) 3
Consolidated Statements of Income for the three and nine months
ended June 30, 1999 (unaudited) and 1998 (unaudited) 4
Consolidated Statements of Cash Flow for the nine months ended
June 30, 1999 (unaudited) and 1998 (unaudited) 5
Notes to the Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2 of 16
3
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1999 1998
--------------- ---------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
Cash and Due from Banks $ 1,770 $ 3,135
Investment Securities - Held to Maturity - at Amortized Cost 5,500 3,001
- Available for Sale - at Market 741 753
Loans Receivable, Net 88,326 92,795
Office Properties and Equipment - at Depreciated Cost 607 493
Federal Home Loan Bank Stock (FHLB) - at Cost 917 871
Cash Surrender Value of Life Insurance 1,198 1,159
Real Estate Owned 116 --
Accrued Interest Receivable 797 856
Prepaid and Other Assets 96 112
Deferred Federal Income Tax Asset 449 436
--------- ---------
TOTAL ASSETS $ 100,517 $ 103,611
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 73,583 $ 76,851
Borrowed Funds 12,042 12,526
Advances from Borrowers for Taxes and Insurance 230 270
Deferred Compensation 585 552
Accrued Interest Payable 68 72
Accrued Federal Income Tax 84 6
Other Liabilities 515 621
--------- ---------
TOTAL LIABILITIES 87,107 90,898
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock, $.01 Par value; 4,000,000 Shares Authorized;
1,573,775 Shares Issued and 1,474,321 Shares
Outstanding 16 16
Additional Paid-In Capital 7,620 7,594
Shares Acquired by Employee Stock Ownership Plan (ESOP) (421) (498)
MRP Trust (458) (550)
Retained Earnings, Substantially Restricted 8,033 7,531
Treasury Stock (99,454 Shares at Cost) (1,380) (1,380)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 13,410 12,713
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 100,517 $ 103,611
========= =========
Page 3 of 16
4
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
(IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
INTEREST INCOME
Interest on Loans $1,916 $2,063 $5,913 $6,047
Interest on Investment Securities 85 47 188 142
Other Interest and Dividends 70 64 238 178
------ ------ ------ ------
Total Interest Income 2,071 2,174 6,339 6,367
------ ------ ------ ------
INTEREST EXPENSE
Deposits 940 991 2,950 2,936
Long-Term Borrowed Funds 154 114 476 409
------ ------ ------ ------
Total Interest Expense 1,094 1,105 3,426 3,345
------ ------ ------ ------
Net Interest Income 977 1,069 2,913 3,022
Provision for Loan Losses 32 157 56 181
------ ------ ------ ------
Net Interest Income After Provision for Loan
Losses 945 912 2,857 2,841
------ ------ ------ ------
OTHER INCOME
Fees and Charges 25 42 71 113
Other 38 46 106 112
------ ------ ------ ------
Total Other Income 63 88 177 225
------ ------ ------ ------
GENERAL AND ADMINISTRATIVE
Salaries and Employee Benefits 301 295 931 880
Franchise and Other Taxes 33 44 116 116
Federal Insurance Premium 6 11 23 33
Expenses of Premises and Fixed Assets 42 41 137 125
Data Processing and Related Contract Services 52 35 133 114
Legal, Audit, and Supervisory Exam 47 37 173 192
Other Operating Expense 103 84 299 285
------ ------ ------ ------
Total General and Administrative 584 547 1,812 1,745
------ ------ ------ ------
Income Before Income Tax 424 453 1,222 1,321
Federal Income Tax Expense 151 158 442 471
------ ------ ------ ------
NET INCOME $ 273 $ 295 $ 780 $ 850
====== ====== ====== ======
Comprehensive Income $ 273 $ 295 $ 780 $ 850
====== ====== ====== ======
EARNINGS PER SHARE
Basic EPS $ 0.19 $ 0.21 $ 0.55 $ 0.61
====== ====== ====== ======
Fully Diluted EPS $ 0.18 $ 0.20 $ 0.52 $ 0.57
====== ====== ====== ======
Page 4 of 16
5
FORT THOMAS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
----------- -----------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 779 $ 849
Reconciliation of Net Income with Cash Flows from
Operations:
Provision for Loan Losses 56 181
Depreciation 55 49
Deferred Income Taxes (13) (153)
Amortization (185) (208)
FHLB Stock Dividends (46) (44)
ESOP and Stock Compensation 116 116
Changes In:
Accrued Interest Receivable 59 (53)
Prepaid and Other Assets 15 (9)
Cash Surrender Value of Life Insurance (38) (34)
Deferred Compensation 33 38
Accrued Interest Payable (3) 4
Accrued /Prepaid Income Tax 78 33
Other Liabilities (107) (135)
-------- --------
Net Cash Provided by Operating Activities 799 634
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investment Securities (4,500) (2,860)
Maturity of Investment Securities 2,000 2,789
Loan Originations and Repayments, Net 4,152 (3,937)
Principal Received (Paid) on Debt Security 12 (5)
Expenses paid for REO -- (19)
Proceeds from Sale of REO 331 203
Purchase of Office Properties and Equipment (169) (13)
Purchase of FHLB Stock -- (26)
-------- --------
Net Cash Used in Investing Activities 1,826 (3,868)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits (3,268) 3,342
Dividends Paid (276) (276)
ESOP Shares Released 78 82
Common Stock Shares Purchased for Treasury -- (277)
Advance from Borrowers for Taxes and Insurance (39) (18)
Repayments of Borrowings (4,485) (10,964)
Proceeds of Borrowings 4,000 10,700
-------- --------
Net Cash Provided by Financing Activities (3,990) 2,589
-------- --------
CHANGES IN CASH AND CASH EQUIVALENTS (1,365) (645)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,135 2,186
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,770 $ 1,541
======== ========
Page 5 of 16
6
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 by the Corporation and the offer and sale of the
Corporation's common stock by the corporation (the "Conversion"). Upon
consummation of the Conversion on June 27, 1995, the Corporation became the
unitary holding company for the Bank.
The accompanying unaudited consolidated financial statements of the Corporation
have been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three and nine months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the year ending
September 30, 1999. 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, 1998 contained in the
Corporation's 1998 Annual Report.
NOTE 2 - EARNINGS PER SHARE
------------------
The average number of common shares used to calculate earnings per share were as
follows:
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Basic Weighted - 1,429,680 1,405,511 1,427,105 1,404,667
Average Shares
Diluted Weighted -
Average Shares 1,503,847 1,485,771 1,500,842 1,483,859
NOTE 3 - IMPACT OF RECENT ACCOUNTING STANDARDS
-------------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements and requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial position. Under
existing accounting standards, other comprehensive income shall be classified
separately into foreign currency items, minimum pension liability adjustments
and unrealized gains and losses on certain investments in debt and equity
securities. The provisions of SFAS No. 130 became effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 130 has not had a
material impact on the disclosure requirements of the Corporation.
Page 6 of 16
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 1999 and September 30, 1998, the Corporation's total assets amounted
to $100.5 million and $103.6 million, respectively. Stockholders' equity
amounted to $13.4 million or 13.3% of total assets at June 30, 1999 compared to
$12.7 million or 12.3% at September 30, 1998. The increase in stockholders'
equity was primarily due to continued profitable operations partially offset by
cash dividends.
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 payments are brought current and, in the opinion of
management, collection of the remaining balance can be reasonably expected.
The following is a breakdown of loan receivables as of the periods indicated:
JUNE 30, SEPTEMBER 30,
-------- -------------
1999 1998
---- ----
AMOUNT PERCENT AMOUNT PERCENT
------ ------ ------ ------
REAL ESTATE LOANS (Dollars in Thousands)
One-to-Four Family Residential $73,584 78.8% $78,969 81.6%
Multi-Family and Non-Residential 9,614 10.3 11,070 11.4
Land and Construction:
Residential 6,525 7.0 5,531 5.7
Commercial 2,675 2.8 --
------ ------ ------ ------
Total Real Estate Loans 92,398 98.9 95,570 98.7
------ ------ ------ ------
CONSUMER LOANS
Savings Accounts 619 0.7 665 0.7
Other Consumer Loans 403 0.4 449 0.6
------ ------ ------ ------
Total Consumer Loans 1,022 1.1 1,114 1.3
------ ------ ------ ------
Total Loans 93,420 100.0% 96,684 100.0%
------ ====== ------ ======
LESS
Loans in Process 3,875 2,572
548 613
Deferred Loan Fees
Allowance for Loan Losses 671 704
------ ------
Loan Receivables, Net $88,326 $92,795
====== ======
Page 7 of 16
8
DELINQUENT LOANS
The following table sets forth information concerning delinquent loans in dollar
amounts and as a percentage of each category of the Bank's loan portfolio at
June 30, 1999. The amounts presented represent the total outstanding principal
balances of the related loans, rather than the actual payment amounts that are
past due.
Percent of Corresponding
Loans Delinquent For Loan Categories
-------------------- ---------------
30-89 90 Days 30-89 90 Days
Days And Over Total Days And Over Total
---- -------- ----- ---- -------- -----
(Dollars in Thousands)
One-to-four family
residential $2,487 $1,700 $4,187 3.38% 2.31% 5.69%
Multi-family and
nonresidential 424 343 767 4.41 3.57 7.98
Construction and land 165 305 470 1.79 3.32 5.11
Consumer 3 7 10 0.29 0.69 0.98
----- ----- -----
Total delinquent loans $3,079 $2,355 $5,434
===== ===== =====
The following table sets forth the amounts and categories of the Bank's
non-performing assets at the dates indicated.
JUNE 30, SEPTEMBER 30,
-------- -------------
1999 1998 1998
---- ---- ----
(Dollars in Thousands)
Non-accruing loans:
One-to-four family residential (1) $1,700 $1,612 $2,905
Multi-family and non-residential
real estate 343 340 343
Construction and land 305 -- 335
Consumer 7 -- --
Accruing consumer loans greater
than 90 days delinquent: -- 8 --
------ ------ ------
Total non-performing loans 2,355 1,960 3,583
Real estate acquired through
foreclosure 116 -- --
------ ------ ------
Total non-performing assets $2,471 $1,960 $3,583
====== ====== ======
Total non-performing assets as a
percentage of total loans 2.65% 2.10% 3.71%
====== ====== ======
Total non-performing assets as a
percentage of total assets 2.45% 1.93% 3.46%
====== ====== ======
(1) Includes second mortgage loans.
The $2.5 million of nonaccruing loans at June 30, 1999 consisted of 43 loans
with an average balance of approximately $58,000. Interest that would have been
earned on these loans, if they had been accounted for on an accruing basis
during the quarter ended June 30, 1999 would have been approximately $51,000.
Substantially, all of the loans are extended to separate borrowers.
The increase between June 30, 1998 and June 30, 1999 was primarily due to the
nonaccrual status of eight loans which have been extended to separate borrowers.
Such loans, aggregating $0.4 million at June 30, 1999, are secured by
residential real estate. Presently, the Bank does not believe that it will incur
any material losses on such loans.
Page 8 of 16
9
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 uncollectable and of such little value that continuance as an
asset of the institution is not warranted. At June 30, 1999, the Bank had $2.5
million of loans that were classified as substandard, no loans classified as
doubtful and no loans classified as loss. The difference between the $2.5
million of assets classified for regulatory purposes and the delinquent loans of
$2.4 million represents loans that were 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 collectability of the loan portfolio. Provisions
for loan losses that are charged against income increase the allowance.
Although management uses the best information available to make determinations
with respect to the provisions of 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 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 the activity in the allowance for loan losses and
other selected statistics for the periods presented.
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
-------- -------------
1999 1998 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
Average Loans Receivable, Net $89,371 $91,114 $91,487
====== ====== ======
Allowance for Loan Losses
Balance at Beginning of Period $ 704 $ 476 $ 476
Net (Charge-Offs) (89) (57) (57)
Provision for Loan Losses 56 181 285
------ ------ ------
Balance at End of Period $ 671 $ 600 $ 704
====== ====== ======
Net Loans (Charged-Off) Recovered to Average Loans (0.10)% (0.05)% (0.06)%
====== ====== ======
Allowance for Loan Losses to Total Loans 0.72% 0.69% 0.73%
====== ====== ======
Allowance for Loan Losses to Total Non-Performing
Loans 28.49% 30.61% 19.65%
====== ====== ======
Net Loans (Charged-Off) Recovered to Allowance for
Loan Losses (13.26)% (7.50)% (8.10)%
====== ====== ======
Page 9 of 16
10
The following table presents the allocation of the allowance for loan losses to
the total amount of loans in each category listed at the dates indicated.
JUNE 30, 1999
-------------
PERCENT OF LOANS
IN EACH CATEGORY
AMOUNT TO TOTAL LOANS
------ --------------
(DOLLARS IN THOUSANDS)
One-to-Four Family Residential $443 78.8%
Multi-Family Residential 100 10.3
Land and Construction 100 9.9
Consumer Loans 28 1.0
---- ----
Total $671 100.00%
==== ======
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
GENERAL. The Corporation reported net income of $273,000 during the
three months ended June 30, 1999 compared to $295,000 during the three months
ended June 30, 1998. The decrease in net income during the three months ended
June 30, 1999 compared to the same period in 1998 was due primarily to a
decrease in net interest income of $92,000, a decrease in revenues from fees,
charges and other income of $25,000, and increases in non-interest expense of
$37,000 which were partially offset by a decreases in provision for loan losses
of $125,000 and federal income tax expense of $7,000
INTEREST INCOME. Interest income decreased $103,000 or 4.7% to $2.1
million for the three months ended June 30, 1999 compared to the same period in
1998. The decrease during the 1999 period was primarily due to a decrease in the
average yield on the Corporation's loan portfolio of 43 basis points due to many
loans being refinanced, partially offset by an increase in average yield on
investment securities by 99 basis points.
INTEREST EXPENSE. Interest expense decreased $11,000 or 1.0% to $1.1
million for the three months ended June 30, 1999, compared to the same period in
1998. Such decrease was primarily due to a decrease in the average cost of funds
of the Corporation's time deposits and borrowed funds portfolio of 28 basis
points primarily as a result of the maturity of certain higher rate time
deposits and funds.
NET INTEREST INCOME. Net interest income amounted to $977,000 for the
three months ended June 30, 1999, a decrease of $92,000 or 8.6% over the
comparable period in 1998. The interest rate spread amounted to 3.3% for the
three months ended June 30, 1999 compared to 3.5% for the same period in 1998.
The ratio of average interest-earning assets to average interest-bearing
liabilities was 114.3% and 118.0% for the same respective periods.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
amounted to $37,000 and $157,000 for both the three months ended June 30, 1999
and 1998, respectively. The decrease was due primarily to a decrease in the
level of classified loans in comparison to the overall loan portfolio. Such
provisions are based on management's estimate of net realizable value or fair
value of the collateral, and are adjusted accordingly.
OTHER INCOME. Other income decreased $25,000 or 28.4% during the three
months June 30, 1999, compared to the same period in 1998 due primarily to a
decrease in fees and charges relating to loans.
NON-INTEREST EXPENSES. Non-interest expenses for the three months ended
June 30, 1999 increased $37,000 or 6.8% over the same period in 1998 to
$584,000. This increase was primarily due to an increase in data processing
expenses of $17,000 and an increase in legal, audit and supervisory exam
expenses of $10,000 and salaries and employee benefits of $6,000. The increase
in salaries and employee benefits was due to normal merit increases.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
GENERAL. The Corporation reported net income of $780,000 during the
nine months ended June 30, 1999, compared to $850,000 during the nine months
ended June 30, 1998. The decrease in net income during the nine months ended
June 30, 1999, compared to the same period in 1998 was due primarily to
decreases in net interest income of $109,000 and revenues from fees, charges and
other income of $48,000, and increases in non-interest
Page 10 of 16
11
expense of $67,000 which were partially offset by a decrease in provision for
loan losses of $125,000 and a decrease in federal income tax expense.
INTEREST INCOME. Interest income decreased $28,000 or 0.4% to $6.3
million for the nine months ended June 30, 1999, compared to the same period in
1998. The decrease during the 1999 period was primarily due to a decrease in the
average yield on the Corporation's loan portfolio of 21 basis points.
INTEREST EXPENSE. Interest expense increased $81,000 or 2.4% to $3.4
million for the nine months ended June 30, 1999, compared to the same period in
1998. Such increase was primarily due to an increase in the average outstanding
balance of the Corporation's time deposits and borrowings due in part to the
payment of a special distribution on stock.
NET INTEREST INCOME. Net interest income amounted to $2.9 million for
the nine months ended June 30, 1999, a decrease of $109,000 compared to the same
period in 1998. The interest rate spread amounted to 3.2% for the nine months
ended June 30, 1999, compared to 3.3% for the same period in 1998. The ratio of
average interest-earning assets to average interest-bearing liabilities was
113.6% and 118.2% for the same respective periods.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
amounted to $56,000 and $181,000 for the nine months ended June 30, 1999 and
1998, respectively. The decrease was due primarily to a decrease in the level of
classified loans in comparison to the overall loan portfolio. Such provisions
are based on management's estimate of net realizable value or fair value of the
collateral, as applicable, and are adjusted accordingly.
OTHER INCOME. Other income decreased $48,000 or 21.3% during the nine
months ended June 30, 1999, compared to the same period in 1998 primarily due to
a decrease in fees and charges relating to loans.
NON-INTEREST EXPENSE. Non-interest expenses for the nine months ended
June 30, 1999 increased $67,000 or 3.8% over the same period in 1998 to $1.8
million. This increase was primarily due to an increase in salaries and employee
benefits of $51,000 and an increase in data processing expenses of $19,000. The
increase in salaries and employee benefits was due to normal 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 that provide liquidity to
meet lending requirements. The Bank has generally been able to generate enough
cash through the retail deposit market, its traditional funding source, to
offset the cash utilized in investing activities. As an additional source of
funds, the Bank may borrow from the FHLB of Cincinnati and has access to the
Federal Reserve discount window. At June 30, 1999, the Bank had $12 million of
outstanding advances from the FHLB of Cincinnati. The interest rates on these
advances range from 4.82% to 5.55%. Maturities on these advances range from
March 26, 2008 to October 2, 2008.
As of June 30, 1999, the Bank's regulatory capital was well in excess of all
applicable regulatory requirements. At June 30, 1999, the Bank's tangible, core
and risk-based capital ratios amounted to 12.5%, 12.5% and 20.5%, respectively,
compared to regulatory requirements 1.5%, 3.0% and 8.0%, respectively.
YEAR 2000 READINESS
Because the Bank's operations rely extensively on computer systems, the Bank is
addressing problems associated with the possibility that computer systems will
not recognize the year 2000 ("Y2K") correctly. The Bank has developed a Year
2000 Plan, which was presented to the Board of Directors in 1997. The Board of
Directors appointed a Year 2000 Committee, which reports to the Board of
Directors quarterly.
The Bank relies primarily on third-party vendors for its computer output and
processing, as well as other significant functions and services, such as
securities safekeeping services, ATM service, and wire transfers. The Year 2000
Committee is working with the vendors to assess their Y2K readiness. Based upon
an initial assessment, the Board of Directors believes that with planned
modifications to existing software and hardware and planned conversions to
Page 11 of 16
12
new software and hardware, the third-party vendors are taking the appropriate
steps to ensure that critical systems will function properly.
All date-dependent equipment and related software throughout the Bank
have been inventoried and tested for Y2K capabilities. Equipment identified as
not being Y2K compatible has been replaced.
If the modifications and conversions by both third-party vendors and
the Bank are not completed on a timely basis or if they fail to function
properly, the operations and financial condition of the Company could be
materially adversely affected. The Bank has developed contingency plans for
continued operations in the event of system failure.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare properly for
Y2K, and higher funding costs could result if consumers react to publicity about
the issue by withdrawing deposits. The Bank has assessed such risks among its
customers as very low due to the composition of its loan portfolio of
approximately 90% residential real estate. The Company could also be materially
adversely affected if other third parties, such as governmental agencies,
clearinghouses, telephone companies, utilities and other service providers fail
to prepare properly. The Bank has assessed these risks and the contingency plan
has been developed to minimize potential failures.
Page 12 of 16
13
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements and information
relating to the Corporation that is based on the beliefs of management as well
as assumptions made by and information currently available to management. In
addition, in those and other portions of this document, the words "anticipate",
"believe", "estimate", "except", "intend", "should" and similar expressions, or
the negative thereof, as they relate to the Corporation or the Corporation's
management, are intended to identify forward-looking statements. Such statements
reflect the current views of the Corporation with respect to future looking
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. The
Corporation does not intend to update these forward-looking statements.
Page 13 of 16
14
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
For a discussion of the Corporation's asset and liability management
policies as well as the potential impact of interest rate changes upon the
market value of the Bank's portfolio equity, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Corporation's
1998 Annual Report to the Stockholders. There has been no material change in the
Corporation's asset and liability position or the market value of the Bank's
portfolio equity since September 30, 1998.
Page 14 of 16
15
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
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
-----------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
Page 15 of 16
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORT THOMAS FINANCIAL CORPORATION
Date: August 12, 1999 By: /s/ Larry N. Hatfield
----------------------
Larry N. Hatfield
President and Chief Executive Officer
Date: August 12, 1999 By: /s/ J. Michael Lonnemann
-------------------------
J. Michael Lonnemann
Vice President, Secretary and Principal
Financial Officer
Page 16 of 16