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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
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 August 5, 1998, 1,926,343 shares of the registrant's common stock were
issued and outstanding.
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Page 1 of 16 Pages Exhibit Index at Page N/A
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CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
September 30, 1997..............................................................................3
Consolidated Statements of Income for the Three-Month Periods
Ended June 30, 1998 and 1997 (unaudited) and the Nine-Month
Periods Ended June 30, 1998 and 1997 (unaudited)................................................4
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended
June 30, 1998 and 1997 (unaudited)..............................................................5
Notes to Consolidated Financial Statements.........................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................15
Item 2. Changes in Securities.............................................................................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
2
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
As of As of
June 30, September 30,
ASSETS 1998 1997
------------------ -----------
(unaudited)
Cash and due from banks $ 627,345 $ 739,782
Interest bearing deposits 8,787,183 11,881,011
Certificates of deposit 600,000
Available-for-sale securities 3,627,954 2,717,352
Held-to-maturity securities 11,120,524 11,064,606
Loans receivable, net 83,232,879 81,261,278
Accrued interest receivable 682,889 641,324
Premises and equipment, net 869,996 656,197
Other assets 84,519 76,771
------------ ------------
Total assets $109,033,289 $109,638,321
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 78,519,521 $ 78,629,205
Advance payments by borrowers for taxes and insurance 51,145 66,070
Income taxes payable 1,476,221 1,003,636
Other liabilities 52,685 166,587
------------ ------------
Total liabilities 80,099,572 79,865,498
------------ ------------
Stockholders' equity:
Common stock, $0.10 par value, 5,000,000 shares authorized;
2,182,125 shares issued and outstanding 218,213 218,213
Additional paid-in capital 21,137,692 21,077,238
Retained earnings, substantially restricted 11,026,348 11,037,504
Net unrealized appreciation on available-for-sale securities,
net of deferred income taxes 2,344,631 1,743,634
Treasury stock, 251,682 and 157,369 shares at cost as of
June 30, 1998 and September 30, 1997, respectively (4,370,097) (2,790,826)
Unallocated employee stock ownership plan (ESOP) shares (1,423,070) (1,512,940)
------------ ------------
Total stockholders' equity 28,933,717 29,772,823
------------ ------------
Total liabilities and stockholders' equity $109,033,289 $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 For the Nine-Month Periods
Ended June 30, Ended June 30,
-------------------------------- ------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ---------
Interest income:
Interest on loans $1,646,267 $1,575,061 $4,926,099 $4,662,224
Interest and dividends on securities 193,814 198,848 584,874 580,301
Other interest income 106,121 161,381 342,879 505,158
---------- ---------- ---------- ----------
Total interest income 1,946,202 1,935,290 5,853,852 5,747,683
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 969,736 960,804 2,914,647 2,849,361
---------- ---------- ---------- ----------
Net interest income 976,466 974,486 2,939,205 2,898,322
Provision for loan losses 15,000 11,000 90,000 11,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 961,466 963,486 2,849,205 2,887,322
---------- ---------- ---------- ----------
Non-interest income:
Loan and other service fees, net 25,498 22,280 65,579 54,021
Other 4,292 5,070 17,894 13,757
---------- ---------- ---------- ----------
Total non-interest income 29,790 27,350 83,473 67,778
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and benefits 241,201 232,040 704,815 686,658
Occupancy expenses, net 33,286 32,320 104,609 94,392
Federal and other insurance premiums 12,585 13,363 38,780 65,468
Data processing expenses 30,815 24,212 85,905 75,762
State franchise tax 23,819 23,587 71,225 71,317
Other operating expenses 77,858 89,826 264,621 297,069
---------- ---------- ---------- ----------
Total non-interest expense 419,564 415,348 1,269,955 1,290,666
---------- ---------- ---------- ----------
Income before income tax expense 571,692 575,488 1,662,723 1,664,434
Income tax expense 194,377 196,994 565,327 570,047
---------- ---------- ---------- ----------
Net income $ 377,315 $ 378,494 $1,097,396 $1,094,387
========== ========== ========== ==========
Earnings per common share $ 0.21 $ 0.20 $ 0.60 $ 0.58
========== ========== ========== ==========
Earnings per common share
assuming dilution $ 0.21 $ 0.20 $ 0.60 $ 0.58
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------------------
For the Nine-Month Periods
Ended June 30,
1998 1997
------------- ------------
Cash flows from operating activities:
Net income $ 1,097,396 $ 1,094,387
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 90,000 11,000
Amortization of investment premium 1,515 753
Gain on sale of fixed assets (5,394)
ESOP benefit expense 150,323 145,103
Provision for depreciation 53,197 48,219
Amortization of loan fees (45,221) (31,672)
FHLB stock dividend (70,700) (64,300)
Change in:
Interest receivable (41,565) 64,456
Interest payable (270) 756
Accrued liabilities (113,632) (569,805)
Prepaid expense (7,748) 58,036
Income taxes payable 162,984 129,679
------------ ------------
Net cash provided by operating activities 1,270,885 886,612
------------ ------------
Cash flows from investing activities:
Net (increase) decrease in loans (2,016,380) (2,695,703)
Maturity of certificates of deposit 600,000 2,500,000
Purchase of held-to-maturity securities (1,500,000) (1,000,885)
Maturity of securities held-to-maturity 1,500,000
Principle repayments - mortgage back securities 13,267 29,616
Purchase of fixed assets (266,996) (24,656)
Sale of fixed assets 5,394
------------ ------------
Net cash provided (used) by investing activities (1,664,715) (1,191,628)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW accounts and savings accounts (62,819) (130,697)
Net increase (decrease) in certificates of deposit (46,865) 1,589,700
Net increase (decrease) in custodial accounts (14,925) (18,269)
Purchase of treasury stock (1,579,271) (2,001,331)
Payment of dividends (1,108,555) (1,059,468)
------------ ------------
Net cash provided (used) by financing activities (2,812,435) (1,620,065)
------------ ------------
Increase (decrease) in cash and cash equivalents (3,206,265) (1,925,081)
Cash and cash equivalents, beginning of period 12,620,793 15,064,677
------------ ------------
Cash and cash equivalents, end of period $ 9,414,528 $ 13,139,596
============ ============
Supplemental Disclosures
Cash payments for:
Interest on deposits $ 2,914,917 $ 2,848,605
============ ============
Income taxes $ 490,000 $ 385,000
============ ============
See accompanying notes to consolidated financial statements.
5
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 and nine month periods ended June 30,
1998 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 common share for the three and nine month periods ended
June 30, 1998 amounted to $0.21 per share and $0.60 per share, based
on weighted average common shares outstanding of 1,798,903 and
1,820,734, respectively. Earnings per common share assuming dilution
for the three and nine month periods ended June 30, 1998 amounted to
$0.21 per share and $0.60 per share, based on weighted average common
shares outstanding after dilutive effect of 1,801,515 and 1,822,972,
respectively. Earnings per common share for the three and nine month
periods ended June 30, 1997 amounted to $0.20 per share and $0.58 per
share, based on weighted average common stock shares outstanding of
1,869,800 and 1,894,989, respectively. For the three and nine months
periods ended June 30, 1997, there were no common stock equivalents,
which had a dilutive effect on earnings.
3. Dividends
On March 16, 1998, the Board of Directors of the Company authorized
the payment of a cash dividend of $.20 per share to all shareholders
of record on March 31, 1998 payable on April 15, 1998. The total
dividends paid by the Company for the nine months ended June 30, 1998
amounted to $1,108,555.
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 16,700 shares at a total price of $270,975
during the three months ended June 30, 1998. During the nine months
ended June 30, 1998, a total of 94,313 shares has been repurchased at
a total price of $1,579,271.
6
5. Possible Year 2000 Computer Program Problems
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs
that can only distinguish the final two digits of the year entered (a
common programming practice in earlier years) are expected to read
entries for the year 2000 as the year 1900 and compute payment,
interest, or delinquency based on the wrong date or are expected to be
unable to compute payment, interest, or delinquency. Rapid and
accurate data processing is essential to the operations of the
Company. Data processing is also essential to most other financial
institutions and many other companies.
All of the material data processing applications of the Company that
could be affected by this problem are provided by a third party
service bureau. The service bureau used by the Company has advised the
Company that it expects to resolve this potential problem before the
year 2000. However, if the service bureau is unable to resolve this
problem in time, the Company would likely experience significant data
processing delays, mistakes, and failures. These delays, mistakes, and
failures could have a significant adverse impact on the financial
condition and results of operations of the Company.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended June 30, 1998 and 1997
Net Income
Net income decreased by $1,000 or .3% for the three months ended June 30, 1998
as compared to the same period in 1997. The net decrease of $1,000 was due to an
increase of $4,000 in the provision for loan losses plus a $4,000 increase in
non-interest expenses offset by a $2,000 increase in net interest income, a
$2,000 increase in non-interest income and a $3,000 decrease in income tax
expense.
Interest Income
Interest income was $1.9 million, or 7.3% of average interest-earning assets,
for the quarter ended June 30, 1998 as compared to $1.9 million, or 7.2% of
average interest-earning assets, for the quarter ended June 30, 1997. Interest
income increased by $11,000 or .6% from 1997 to 1998. The increase in interest
income was due to a $323,000 increase in the average balance of interest-earning
assets during the quarter ended June 30, 1998 compared to the quarter ended June
30, 1997 plus an increase of 2 basis points in the average rate earned.
Interest Expense
Interest expense was $970,000, or 4.9% of average interest-bearing deposits, for
the quarter ended June 30, 1998 as compared to $961,000, or 4.9% of average
interest-bearing deposits, for the corresponding period in 1997. Interest
expense increased by $9,000 or .9% from 1997 to 1998. The increase in interest
expense was due primarily to a 3 basis point increase in the average rate paid
on the deposits during the period ended June 30, 1998 compared to the
corresponding period in 1997.
Provision for Loan Losses
The provision for loan losses during the quarter ended June 30, 1998 amounted to
$15,000 as compared to $11,000 for the corresponding period in 1997. Management
considers many factors in determining the necessary level 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 June 30, 1998 the allowance
for loan losses represented .48% of total loans compared to .38% at June 30,
1997.
There can be no assurance that management will not decide to increase the
allowance for loan losses or that regulators, when reviewing the Bank's loan
portfolios in the future, will not request the Bank to increase such allowance,
either of which could adversely affect bank earnings. Further, there can be no
assurance that the Bank's actual loan losses will not exceed its allowance for
loan losses.
Non-Interest Income
Non-interest income amounted to $29,000 and $27,000 for the quarter ended June
30, 1998 and 1997, respectively. The largest item in non-interest income is
service fees on loan and deposit accounts, which amounted to $25,000 and $22,000
for the quarter ended June 30, 1998 and 1997, respectively. The increase
8
in non-interest income of $2,000 was primarily due to the increase in income
from late fees on delinquent loans plus an increase in service fees on deposit
transaction accounts.
Non-Interest Expense
Non-interest expense increased $4,000 or 1.0% to $419,000 for the quarter ended
June 30, 1998 compared to $415,000 for the comparable period in 1997.
Non-interest expense was 1.5% of average assets for both periods. The increase
of $4,000 was primarily due to an increase in compensation and benefits of
$9,000 and an increase of $7,000 in all other non-operating expense
classifications offset by a decrease of $12,000 in other operating expenses.
Income Taxes
The provision for income tax expense amounted to $194,000 and $197,000 for the
quarters ended June 30, 1998 and 1997, respectively, which as a percentage of
income before income tax expense amounted to 34.0% for 1998 and 34.2% for 1997.
Results of Operations for the Nine Months Ended June 30, 1998 and 1997
Net Income
Net income increased by $3,000 or .3% for the nine month period ended June 30,
1998 as compared to the same period in 1997. The net increase of $3,000 was due
to an increase of $41,000 in net interest income, an increase of $15,000 in
non-interest income, a $21,000 decrease in non-interest expense, and a $5,000
decrease in income tax expense offset by an increase of $79,000 in the provision
for loan losses for the nine month period ended June 30, 1998 compared to the
same period in 1997.
Interest Income
Interest income was $5.9 million, or 7.3% of average interest-earning assets for
the nine month period ended June 30, 1998 compared to $5.7 million, or 7.2% of
average-earning assets for the nine month period ended June 30, 1997. Interest
income increased by $106,000 or 1.8% from 1997 to 1998. The increase in interest
income was due to a $700,000 increase in the average balance of interest-earning
assets during the nine month period ended June 30, 1998 compared to the nine
month period ended June 30, 1997, and an increase of 8 basis points in the
average rate earned in the 1998 period compared to the 1997 period.
Interest Expense
Interest expense was $2.9 million, or 5.0% of average interest-bearing deposits,
for the nine month period ended June 30, 1998 as compared to $2.8 million, or
4.9% of average interest-bearing deposits, for the corresponding period in 1997.
Interest expense increased by $65,000 or 2.3% from 1997 to 1998. The increase in
interest expense was due primarily to a 8 basis point increase in the average
rate paid on the deposits ended June 30, 1998 compared to the corresponding
period in 1997.
Provision for Loan Losses
The provision for loan losses during the nine month period ended June 30, 1998
amounted to $90,000 as compared to $11,000 for the corresponding period in 1997.
Management considers many factors in determining
9
the necessary level 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.
Non-Interest Income
Non-interest income amounted to $83,000 and $68,000 for the nine month period
ended June 30, 1998 and 1997, respectively. The largest item in non-interest
income is service fees on loan and deposit accounts, which amounted to $66,000
and $54,000 for the nine month period ended June 30, 1998 and 1997,
respectively. The increase in non-interest income of $15,000 was primarily due
to the increase in income from late fees on delinquent loans plus an increase in
deposit transaction service fees.
Non-Interest Expense
Non-interest expense decreased $21,000 or 1.6% for the nine month period ended
June 30, 1998 compared to the comparable period in 1997. Non-interest expense
was 1.6% of average assets for both periods. The decrease of $21,000 was due
primarily to an increase in compensation and benefits of $18,000, an increase in
data processing expenses of $10,000 plus an increase of $10,000 in occupancy
expense offset by a decrease in other operating expense of $32,000 and a
decrease of $27,000 in federal and other insurance premiums. The increase of
$18,000 in compensation and benefits was primarily due to normal salary
increases and an increase related to the employee stock option plan due to the
increase in the average price of the stock. The decrease in other operating
expenses relates primarily to decreases in franchise taxes and legal fees. The
decrease of $27,000 in federal and other insurance premiums was the result of
the reduction of the insurance assessment rate on the Bank's deposits after the
special assessment on September 30, 1996 to recapitalize the Savings Association
Insurance Fund.
Income Taxes
The provision for income tax expense amounted to approximately $565,000 and
$570,000 for the nine month period ended June 30, 1998 and 1997, respectively,
which as a percentage of income before income tax expense amounted to a 34.0%
for 1998 and 34.2% for 1997.
10
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.
June 30, September 30,
1998 1997
------------- -------------
(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.................................................. 426 387
Other........................................................ 100 73
Commercial................................................... -- --
Consumer....................................................... 74 60
------------- -------------
Total...................................................... 600 520
============= =============
Total of non-accrual and 90 day past due loans............... $ 600 $ 520
============= =============
Percentage of net loans........................................... .72% .64%
============= =============
Other non-performing assets2...................................... $ -- $ --
============= =============
- ----------
1 Non-accrual status denotes any loan past due 90 days and whose loan balance,
plus accrued interest exceeds 90% of the estimated loan collateral value.
Payments received on a non-accrual loan are either applied to the outstanding
principal balance or recorded as interest income, or both, depending on
assessment of the collectibility of the loan.
2 Other non-performing assets represent property acquired by the Bank through
foreclosure. This property is carried at the lower of its fair market value
or the principal balance of the related loan, whichever is lower.
At June 30, 1998, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the nine months ended June 30, 1998 on the
loans in the table above has been included in income.
At June 30, 1998, 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.
11
Financial Condition
The Company's consolidated assets decreased approximately $605,000 or .5% to
$109.0 million at June 30, 1998 compared to $109.6 million at September 30,
1997. The net decrease of $605,000 was due primarily to a decrease of $3.8
million in cash, interest-bearing deposits and certificates of deposit offset by
a $1.0 million increase in investment securities, a $2.0 million increase in
loans receivable, and a $200,000 net increase in premises and equipment.
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 $910,000 due solely to the increase in market value of
such securities. Held-to-maturity securities increased only $55,000 as the
purchase of two $500,000 FHLB bonds and a $500,000 FNMA bond was offset by the
call of three $500,000 bonds.
Under SFAS No. 115, unrealized gains or losses on available-for-sale securities
are recorded net of deferred income tax as a separate component of stockholders'
equity. At June 30, 1998, the Company included net unrealized gains of
approximately $2,345,000 in stockholders' equity. At September 30, 1997, the
Company included net unrealized gains of approximately $1,744,000 in
stockholders' equity. 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 receivable increased by $2.0 million, or 2.4% from $81.2 million at
September 30, 1997 to $83.2 million at June 30, 1998, as management continued
its efforts to be competitive in meeting the local demand in the Bank's market
area.
Premises and equipment increased $214,000, or 32.6%, from $656,000 at September
30, 1997 to $870,000 at June 30, 1998. The increase was primarily due to the
purchase of a lot in Lawrenceburg, Kentucky. The Company intends to open an
additional branch in that area.
Stockholders' equity decreased by $839,000 to $28.9 million as of June 30, 1998.
The net decrease of $839,000 is due to a decrease of $1.6 million from the
purchase of Treasury Stock and the declaration of dividends totaling $1.1,
offset in part by net income of $1.1 million, an increase of $601,000 in net
unrealized appreciation on investments held-for-sale and an increase of $150,000
related to the release of ESOP shares from collateral during the nine months
ended June 30, 1998.
12
The following summarizes the Bank's capital requirements and position at
June 30, 1998 and September 30, 1997.
June 30 September 30
1998 1997
------------------------------- ------------------------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Core capital .......................... $ 24,557 22.3% $ 23,392 21.3%
Core capital requirement............... 4,221 4.0% 3,210 3.0%
-------------- -------------- ------------- --------------
Excess ................................ $ 20,336 18.3% $ 20,182 18.3%
============== ============== ============= ==============
Tangible capital ...................... $ 24,557 43.2% $ 23,392 42.7%
General valuation allowance............ 328 .5% 235 .4%
-------------- -------------- ------------- --------------
Total capital (risk-based capital)..... 24,885 43.7% 23,627 43.1%
Risk-based capital requirement......... 4,559 8.0% 4,387 8.0%
-------------- -------------- ------------- --------------
Excess ................................ $ 20,326 35.7% $ 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 June 30, 1998, the Bank could pay common
stock dividends of approximately $12.7 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 June 30, 1998, 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 nine
month periods ended June 30, 1998 and 1997.
The Bank's most liquid assets are cash and cash-equivalents, which include
investments in highly liquid, short-term investments. At June 30, 1998 and 1997,
cash and cash equivalents totaled $9.4 million and $13.1 million, respectively.
At June 30, 1998, the Bank had $41.8 million in certificates of deposits due
within one year and $17.1 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 June 30, 1998, the Bank had $1.7
million in outstanding commitments to originate mortgages, excluding $1.3
million in approved but unused home equity lines of credit and $1.2 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 third quarter of fiscal year 1998, the Bank satisfied all
regulatory liquidity
13
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.
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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
No reports on Form 8-k were filed during the quarter ended June 30, 1998.
The following exhibit is filed herewith:
Exhibit 27...............................................................Financial Data Schedule
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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: August 5, 1998 -----------------------------------------
Jack Hood, President
(Duly Authorized Officer)
Date: August 5, 1998 -----------------------------------------
Teresa W. Noel, Treasurer
(Principal Financial and Accounting Officer)
16