SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(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, 1997.
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.
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(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, including area code: (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 14 Pages Exhibit Index at Page N/A
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 (unaudited) and
September 30, 1996....................................................................3
Consolidated Statements of Income for the Three-Month Periods Ended
December 31, 1997 and 1996 (unaudited)................................................4
Consolidated Statements of Cash Flows for the Three Month Periods Ended
December 31, 1997 and December 31, 1996 (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,
1997 1997
------------ -------------
(unaudited)
ASSETS
Cash and due from banks $ 694,041 $ 739,782
Interest Bearing Deposits 9,271,855 11,881,011
Certificates of deposit 600,000
Available-for-sale securities 3,232,878 2,717,352
Held-to-maturity securities 11,577,207 11,064,606
Loans receivable, net 82,834,011 81,261,278
Accrued interest receivable 606,792 641,324
Premises and equipment, net 640,629 656,197
Other assets 50,682 76,771
----------------- ----------------
Total assets $ 108,908,095 $ 109,638,321
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 78,245,079 $ 78,629,205
Advance payments by borrowers for taxes and insurance 24,652 66,070
Income taxes payable 1,477,769 1,003,636
Other liabilities 46,274 166,586
----------------- ----------------
Total liabilities 79,793,774 79,865,497
----------------- ----------------
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 21,096,910 21,077,239
Retained earnings, substantially restricted 10,648,411 11,037,504
Net unrealized appreciation on available-for-sale
securities, net of deferred income taxes 2,083,881 1,743,634
Treasury stock, 196,482 and 157,369 shares as of December 31,
1997 and September 30, 1997, respectively (3,449,254) (2,790,826)
Unallocated employee stock ownership plan (ESOP) shares (1,483,840) (1,512,940)
----------------- ----------------
Total stockholders' equity 29,114,321 29,772,824
----------------- ----------------
Total liabilities and stockholders' equity $ 108,908,095 $ 109,638,321
================= ================
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,
1997 1996
------------ ------------
Interest income:
Interest on loans $ 1,622,689 $ 1,536,179
Interest and dividends on securities 194,702 186,458
Other interest income 135,536 189,557
------------ ------------
Total interest income 1,952,927 1,912,194
------------ ------------
Interest expense:
Interest on deposits 984,925 951,186
------------ ------------
Net interest income 968,002 961,008
Provision for loan losses 35,000 -
------------ ------------
Net interest income after provision for loan losses 933,002 961,008
------------ ------------
Non-interest income:
Loan and other service fees, net 19,194 15,386
Other 4,608 4,591
------------ ------------
23,802 19,977
------------ ------------
Non-interest expense:
Compensation and benefits 227,553 224,638
Occupancy expenses, net 37,149 30,183
Federal and other insurance premiums 13,073 38,517
Data processing expenses 26,443 25,297
State franchise tax 23,587 24,143
Other operating expenses 83,101 87,663
------------ ------------
410,906 430,441
------------ ------------
Income before income tax expense 545,898 550,544
Income tax expense 185,606 188,669
------------ ------------
Net income $ 360,292 $ 361,875
============ ============
Earnings per common share $ .20 $ 0.19
============ ============
Earnings per common share assuming dilution $ .20 $ 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,
1997 1996
------------ ------------
Operating activities
Net income $ 360,292 $ 361,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 35,000
ESOP benefit expense 48,772 53,311
Provision for depreciation 17,214 16,074
Amortization of loan fees (10,014) (10,050)
Accretion/amortization of investment
premium/discount 20 (254)
FHLB stock dividend (23,400) (21,000)
Change in:
Interest receivable 34,532 77,381
Interest payable 986 1,273
Accrued liabilities (121,300) (566,058)
Prepaid expense 26,089 108,746
Income taxes payable 298,854 133,302
------------ ------------
Net cash provided by operating activities 667,045 154,600
------------ ------------
Investing activities
Net (increase) decrease in loans (1,597,719) (1,281,480)
Maturity of certificates of deposit 600,000 1,000,000
Purchase of held-to-maturity securities (1,000,000) (500,000)
Maturity of securities held-to-maturity 500,000
Principal repayments - mortgage back securities 10,780 6,149
Purchase of fixed assets (1,646) (10,301)
------------ ------------
Net cash (used) by investing activities (1,488,585) (785,632)
------------ ------------
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,
1997 1996
------------- -------------
Financing activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (93,937) 298,223
Net increase (decrease) in certificates of deposit (290,189) 168,552
Net increase (decrease) in custodial accounts (41,418) (42,780)
Purchase of treasury stock (658,428) (1,868,286)
Payment of dividends (749,385) (687,103)
------------- -------------
Net cash provided (used) by financing activities (1,833,357) (2,131,394)
------------- -------------
Increase (decrease) in cash and cash equivalents (2,654,897) (2,762,426)
Cash and cash equivalents, beginning of period 12,620,793 15,064,677
------------- -------------
Cash and cash equivalents, end of period $ 9,965,896 $ 12,302,251
============= =============
Supplemental Disclosures
Cash payments for:
Interest on deposits $ 983,938 $ 949,913
============= =============
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, 1997 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending September 30, 1998.
2. Earnings Per Share
Earnings per share for the three month periods ended December 31, 1997 and
1996 amounted to $0.20 and $0.19 per common share based on weighted
average common stock shares outstanding of 1,839,603 and 1,919,985,
respectively. Earnings per common share, assuming dilution for common
stock equivalents for the three-month period ended December 31, 1997,
amounted to $0.20 per common share, based on weighted average common
shares outstanding after dilutive effect of 1,841,541. For the three
months ended December 31, 1996, there were no common stock equivalents,
which had a dilutive effect on earnings.
3. Dividends
A special cash dividend of $0.20 per share was paid on October 16, 1997 to
stockholders of record as of October 6, 1997. The regular semi-annual cash
dividend of $.20 per share was paid on October 15, 1996 to stockholders of
record as of October 1, 1997. The total dividends paid by the Company for
the three months ended December 31, 1997 amounted to $749,385.
4. Treasury stock
Pursuant to the stock repurchase plan approved by the Board of Directors
of the Company on September 15, 1997, the Company repurchased a total of
39,113 shares at a total price of $658,428 during the three months ended
December 31, 1997.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended December 31, 1997 and 1996
Net Income
Net income decreased by $2,000, or .4%, for the period ended December 31, 1997
as compared to the same period in 1996. The net decrease of $2,000 was due to an
increase of $35,000 in the provision for loan losses, offset by approximately a
$7,000 increase in net interest income, a $4,000 increase in non interest
income, a $19,000 decrease in non interest expenses, and a $3,000 decrease in
income tax expense for 1997 compared to 1996.
Net Interest
Net interest income for the three months ended December 31, 1997 was $968,000
compared to $961,000 for the same period in 1996. The increase in net interest
income in 1997 of $7,000 was due to an increase in interest income of $41,000
offset by an increase in interest expense of $34,000.
Interest Income
Interest income was $1.9 million, or 7.31% of average interest-earning assets,
for the quarter ended December 31, 1997 as compared to $1.9 million, or 7.24% of
average interest-earning assets, for the quarter ended December 31, 1996.
Interest income increased $41,000 or 2.1% from 1997 to 1996. The change was due
to a 7-basis point increase in the average rate earned on the average
interest-earning assets and an increase of $1.2 million in the average balance
of interest-earning assets during the quarter ended December 31, 1997 compared
to the quarter ended December 31, 1996.
Interest Expense
Interest expense was $985,000, or 5.04% of average interest-bearing deposits,
for the quarter ended December 31, 1997 as compared to $951,000, or 5.00% of
average interest-bearing deposits, for the corresponding period in 1996.
Interest expense increased by $34,000 due primarily to an increase of $2.1
million in the average balance of interest-bearing deposits during the quarter
ended December 31, 1997 compared to the quarter ended December 31, 1996.
Provision for Loan Losses
The provision for loan losses during the quarter ended December 31, 1997
amounted to $35,000, as compared to no provision for the corresponding period in
1996. Management considered 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, 1997, the
allowance for loan losses represented .41% of total loans compared to .37% at
December 31, 1996. The allowance for loan losses was at a level consistent with
management's analysis of the loan portfolio.
8
Non Interest Income
Non-interest income amounted to $24,000 and $20,000 for the quarters ended
December 31, 1997 and 1996, respectively. The largest item in non interest
income is service fees on loan and deposit accounts, which amounted to $19,000
and $15,000 for 1997 and 1996, respectively. The increase in non interest income
of $4,000 was primarily due to the increase in income from late fees on
delinquent loans plus an increase in NOW account service fees.
Non Interest Expense
Non-interest expense decreased approximately $19,000, or 4.5% to $411,000 for
the quarter ended December 31, 1997 compared to $430,000 for the comparable
period in 1996. Non-interest expense was 1.5% and 1.6% of average assets for the
quarters ended December 31, 1997 and 1996, respectively. The decrease of $19,000
was due primarily to a decrease in federal and other insurance premiums of
$25,000 offset by a net increase of $6,000 in all other non interest expense
classifications. The decrease of $19,000 in federal and other insurance premiums
was due to the reduction of the insurance assessment rate on the Bank's deposits
as a result of the recapitalization of the Savings Association Insurance fund
(SAIF) in 1996.
Income Taxes
The provision for income tax expense amounted to approximately $185,000 and
$188,000 for the quarters ended December 31, 1997 and 1996, respectively, which
as a percentage of income before income tax expenses amounted to 34.0% for 1997
and 1996.
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, 1997 September 30, 1996
----------------- ------------------
(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................................................. 337 387
Other ..................................................... 73 73
Consumer.................................................... 75 60
-------------- --------------
Total ..................................................... 485 520
-------------- --------------
Total of non-accrual and 90 day past due loans.................... $ 485 $ 520
============== ==============
Percentage of net loans........................................... .59% .64%
============== ==============
Other non-performing assets/2..................................... $ - $ -
============== ==============
- -------------
/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 accounted for as a foreclosure in-substance.
This property is carried at the fair market of the property value, net of
selling expenses.
9
At December 31, 1997, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the three months ended December 31, 1997 on
the loans in the table above, has been included in income.
At December 31, 1997, 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 $730,000, or .67% to
$108.9 million at December 31, 1997 compared to $109.6 million at September 30,
1997. The net decrease of $730,000 was due primarily to a $3.3 million decrease
in cash, interest-bearing deposits, and certificates of deposits offset in part
by an increase of $1.6 million in loans and an increase of $1.0 million in
investment securities.
The Company's investment portfolio increased approximately $1.0 million.
Securities classified as available-for-sale and recorded at market value per
SFAS No. 115 increased $516,000 due solely to the increase in market value of
such securities. Securities held-to-maturity increased $513,000 primarily due to
the purchase of two $500,000 FHLB bonds offset by the call of a $500,000 FNMA
bond.
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, 1997, the Company included net unrealized gains of
approximately $2,084,000 in retained earnings. At September 30, 1997, the
Company included net unrealized gains of approximately $1,744,000 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.
Loans increased by $1.6 million, or 1.9% from $81.2 million at September 30,
1997 to $82.8 million at December 31, 1997, as management continued its efforts
to be competitive in meeting the loan demand in the Bank's market area.
Stockholders' equity decreased by $658,000 to $29.1 million for the quarter
ended December 31, 1997. The net decrease of $658,000 is due to decreases of
$658,000 from the purchase of the Company's stock and the declaration of
dividends totaling $749,000, offset in part by an increase from net income of
$360,000, an increase of $340,000 in net unrealized appreciation on investments
held-for-sale, plus an increase of $49,000 related to the release of ESOP shares
from collateral during the quarter ended December 31, 1997.
10
The following summarized the Bank's capital requirements and position at
December 31, 1997 and September 30, 1997.
December 31 September 30
1997 1997
-------------------------- --------------------------
(Dollars in Thousands)
Amount Percent Amount Percent
------------ ---------- ------------ ----------
Tangible capital.................... $ 23,742 22.5% $ 23,392 21.3%
Tangible capital requirement........ 1,586 1.5% 1,605 1.5%
------------ ---------- ------------ ----------
Excess ....................... $ 22,156 21.0% $ 21,787 19.8%
============ ========== ============ ==========
Core capital ....................... $ 23,742 22.5% $ 23,392 21.3%
Core capital requirement............ 3,173 3.0% 3,210 3.0%
------------ ---------- ------------ ----------
Excess ....................... $ 20,569 19.5% $ 20,182 18.3%
============ ========== ============ ==========
Tangible capital ................... $ 23,742 42.6% $ 23,392 42.7%
General valuation allowance......... 270 .5% 235 .4%
------------ ---------- ------------ ----------
Total capital (core and supplemental) 24,012 43.1% 23,627 43.1%
Risk-based capital requirement...... 4,454 8.0% 4,387 8.0%
------------ ---------- ------------ ----------
Excess ....................... $ 19,558 35.1% $ 19,240 35.1%
============ ========== ============ ==========
Liquidity
The liquidity of the Company depends primarily on the dividends paid to it as
the sole shareholder of the Bank. At December 31, 1997, the Bank could pay
common stock dividends of approximately $12.0 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, 1997, 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, 1997 and 1996.
The Bank's most liquid assets are cash and cash-equivalents, which include
investments in highly liquid, short-term investments. At December 31, 1997 and
September 30, 1997, cash and cash equivalents totaled $10.0 million and $12.6
million, respectively.
11
At December 31, 1997, the Bank had $43.9 million in certificates of deposits due
within one year and $15.5 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, 1997, the Bank had
$1.6 million in outstanding commitments to originate mortgages, excluding $1.1
million in approved but unused home equity lines of credit and $1.1 million in
approved but unused lines of credit and letters of credit. 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
4.0%. During the first quarter of fiscal year 1998, 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.
12
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
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter ended December 31, 1997.
13
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.
Date: --------------------------------
Jack Hood, President
Date: --------------------------------
Teresa W. Noel, Treasurer
14