SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(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, 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.
--------------------------------------------------------------
(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, 1999, 1,763,542 shares of the registrant's common stock were
issued and outstanding.
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 December 31, 1998 (unaudited) and
September 30, 1998...........................................................................3
Consolidated Statements of Income for the Three-Month Periods Ended
December 31, 1998 and 1997 (unaudited).......................................................4
Consolidated Statements of Changes in Stockholders' Equity for the
Three Month Period Ended December 31, 1998 (unaudited).......................................5
Consolidated Statements of Cash Flows for the Three Month Periods Ended
December 31, 1998 and December 31, 1997 (unaudited)..........................................6
Notes to Consolidated Financial Statements............................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................9
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
December 31, September 30,
1998 1998
------------------ ------------------
ASSETS (unaudited)
Cash and due from banks $ 658,848 $ 739,772
Interest Bearing Deposits 9,389,757 7,334,333
Available-for-sale securities 4,967,358 3,825,492
Held-to-maturity securities 8,658,992 11,140,809
Loans receivable, net 85,525,219 85,271,904
Accrued interest receivable 602,422 660,798
Premises and equipment, net 834,832 852,123
Other assets 50,902 94,046
------------------ ------------------
Total assets $ 110,688,330 $ 109,919,277
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 80,360,339 $ 78,995,644
Advance payments by borrowers for taxes and insurance 29,353 71,849
Deferred federal income tax 1,786,427 1,398,193
Dividends payable 354,445
Other liabilities 317,944 117,533
------------------ ------------------
Total liabilities 82,494,063 80,937,664
------------------ ------------------
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 21,166,734 21,154,129
Retained earnings, substantially restricted 10,843,704 11,003,179
Accumulated other comprehensive income 3,228,638 2,475,007
Treasury stock, 354,783 and 258,607 shares as of December 31,
1998 and September 30, 1998, respectively (5,900,142) (4,477,515)
Unallocated employee stock ownership plan (ESOP) shares (1,362,880) (1,391,400)
------------------ ------------------
Total stockholders' equity 28,194,267 28,981,613
------------------ ------------------
Total liabilities and stockholders' equity $ 110,688,330 $ 109,919,277
================== ==================
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,
-------------------------------------------------
1998 1997
-------------- -------------
Interest income:
Interest on loans $ 1,685,549 $ 1,622,689
Interest and dividends on securities 170,914 194,702
Other interest income 90,519 135,536
-------------- -------------
Total interest income 1,946,982 1,952,927
-------------- -------------
Interest expense:
Interest on deposits 968,563 984,925
-------------- -------------
Net interest income 978,419 968,002
Provision for loan losses 10,000 35,000
-------------- -------------
Net interest income after provision for loan losses 968,419 933,002
-------------- -------------
Non-interest income:
Loan and other service fees, net 22,415 19,194
Other 3,366 4,608
-------------- -------------
25,781 23,802
-------------- -------------
Non-interest expense:
Compensation and benefits 227,390 227,553
Occupancy expenses, net 33,312 37,149
Federal and other insurance premiums 11,671 13,073
Data processing expenses 30,689 26,443
State franchise tax 23,819 23,587
Other operating expenses 103,388 83,101
-------------- -------------
430,269 410,906
-------------- -------------
Income before income tax expense 563,931 545,898
Income tax expense 191,736 185,606
-------------- -------------
Net income $ 372,195 $ 360,292
============== =============
Earnings per common share $ .21 $ .20
============== =============
Earnings per common share assuming dilution $ .21 $ .20
============== =============
See accompanying notes to consolidated financial statements.
4
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the three month period ended December 31, 1998
(unaudited)
---------------------------
Accumulated
Additional Other Unearned Total
Common Paid-in Retained Comprehensive Treasury ESOP Stockholders'
Stock Capital Earnings Income Stock Shares Equity
-------- ----------- ----------- ------------- ------------ ------------ -------------
Balance, September 30, 1998 $218,213 $21,154,129 $11,003,179 $2,475,007 $(4,477,515) $(1,391,400) $28,981,613
-----------
Comprehensive income:
Net income 372,195 372,195
Other comprehensive income,
net of tax unrealized gains
on securities 753,631 753,631
-----------
Total comprehensive income 1,125,826
Dividend declared (531,670) (531,670)
ESOP shares earned 12,605 28,520 41,125
Purchase of common stock, 96,176
shares (1,422,627) (1,422,627)
-------- ----------- ----------- ---------- ----------- ----------- -----------
Balance, December 31, 1998 $218,213 $21,166,734 $10,843,704 $3,228,638 $(5,900,142) $(1,362,880) $28,194,267
======== =========== =========== ========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
5
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------------------
For the Three-Month Periods
Ended December 31,
-------------------------------------------------
1998 1997
-------------- -------------
Operating activities
Net income $ 372,195 $ 360,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 10,000 35,000
ESOP benefit expense 41,125 48,772
Provision for depreciation 17,288 17,214
Amortization of loan fees (18,772) (10,014)
Accretion/amortization of investment
premium/discount (1,557) 20
FHLB stock dividend (24,300) (23,400)
Change in:
Interest receivable 58,376 34,532
Interest payable 1,903 986
Accrued liabilities 198,508 (121,300)
Prepaid expense 43,144 26,089
Income taxes payable 298,854
-------------- -------------
Net cash provided by operating activities 697,910 667,045
-------------- -------------
Investing activities
Net (increase) decrease in loans (244,543) (1,597,719)
Maturity of certificates of deposit 600,000
Purchase of held-to-maturity securities (1,000,000)
Maturity of securities held-to-maturity 2,500,000 500,000
Principal repayments - mortgage back securities 7,676 10,780
Purchase of fixed assets - (1,646)
-------------- -------------
Net cash provided (used) by investing activities 2,263,133 (1,488,585)
-------------- -------------
See accompanying notes to consolidated financial statements.
6
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
---------------------------
For the Three-Month Periods
Ended December 31,
-------------------------------------------------
1998 1997
-------------- -------------
Financing activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 1,433,203 (93,937)
Net increase (decrease) in certificates of deposit (68,508) (290,189)
Net increase (decrease) in custodial accounts (42,496) (41,418)
Purchase of treasury stock (1,422,627) (658,428)
Payment of dividends (886,115) (749,385)
-------------- ------------
Net cash provided (used) by financing activities (986,543) (1,833,357)
-------------- ------------
Increase (decrease) in cash and cash equivalents 1,974,500 (2,654,897)
Cash and cash equivalents, beginning of period 8,074,105 12,620,793
-------------- ------------
Cash and cash equivalents, end of period $ 10,048,605 $ 9,965,896
============== ============
Supplemental Disclosures
Cash payments for:
Interest on deposits $ 966,660 $ 983,938
============== ============
Income taxes $ $
============== ============
See accompanying notes to consolidated financial statements.
7
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, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending September 30, 1999.
2. Earnings Per Share
Earnings per share for the three month periods ended December 31, 1998 and
1997 amounted to $0.21 and $0.20 per common share based on weighted
average common stock shares outstanding of 1,735,274 and 1,839,603,
respectively. For the three months ended December 31, 1998, there were no
common stock equivalents, which had a dilutive effect on earnings.
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.
3. Dividends
A special cash dividend of $0.30 per share was paid on October 16, 1998 to
stockholders of record as of October 1, 1998. The regular semi-annual cash
dividend of $.20 per share was paid on October 15, 1998 to stockholders of
record as of September 30, 1998. The total dividends paid by the Company
for the three months ended December 31, 1998 amounted to $886,115.
4. Treasury stock
Pursuant to the stock repurchase plan approved by the Board of Directors
of the Company on September 21, 1998, the Company repurchased a total of
96,176 shares at a total price of $1,422,627 during the three months ended
December 31, 1998.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
The Company's consolidated assets increased approximately $769,000, or .70% to
$110.7 million at December 31, 1998 compared to $110.0 million at September 30,
1998. The net increase of $769,000 was due primarily to a $2.0 million increase
in cash and interest-bearing deposits, offset in part by a decrease of $1.3
million in investment securities.
The Company's investment portfolio decreased approximately $1.3 million.
Securities classified as available- for-sale and recorded at market value per
SFAS No. 115 increased $1.1 million due solely to the increase in market value
of such securities. Securities held-to-maturity decreased $2.4 million primarily
due to the call of three $500,000 FHLB bonds and two $500,000 FNMA bonds.
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, 1998, the Company included net unrealized gains of
approximately $3,228,600 in retained earnings. At September 30, 1998, the
Company included net unrealized gains of approximately $2,475,000 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.
Deposits increased $1.4 million, or 1.7% from $79.0 million at September 30,
1998 to $80.4 million at December 31, 1998. This increase reflects the Company's
competitively priced product line within the local market area.
Stockholders' equity decreased by $790,000 to $28.2 million for the quarter
ended December 31, 1998. The net decrease of $790,000 is due to decreases of
$1.4 million from the purchase of the Company's stock and the declaration of
dividends totaling $532,000, offset in part by an increase from net income of
$372,000, an increase of $754,000 in net unrealized appreciation on investments
held-for-sale, plus an increase of $41,000 related to the release of ESOP shares
from collateral during the quarter ended December 31, 1998.
Results of Operations for the Three Months Ended December 31, 1998 and 1997
Net Income
Net income increased by $12,000, or 3.3%, for the three month period ended
December 31, 1998 as compared to the same period in 1997. The net increase of
$12,000 was due to a $10,000 increase in net interest income, a $2,000 increase
in non interest income, and a $25,000 decrease in the provision for loan losses
offset by a $19,000 increase in non interest expenses, and a $6,000 increase in
income tax expense for 1998 compared to 1997.
Net Interest
Net interest income for the three months ended December 31, 1998 was $978,000
compared to $968,000 for the same period in 1997. The increase in net interest
income in 1998 of $10,000 was due to a decrease in interest expense of $16,000
offset by a decrease in interest income of $6,000.
9
Interest Income
Interest income was $1.9 million, or 7.24% of average interest-earning assets,
for the quarter ended December 31, 1998 as compared to $1.9 million, or 7.31% of
average interest-earning assets, for the quarter ended December 31, 1997.
Interest income decreased $6,000 or .3% from 1998 to 1997. The change was due to
an increase of $660,000 in the average balance of interest-earning assets during
the quarter ended December 31, 1998 compared to the quarter ended December 31,
1997, offset by a 7 basis point decrease in the average rate earned on
interest-earning assets.
Interest Expense
Interest expense was $969,000, or 4.88% of average interest-bearing deposits,
for the quarter ended December 31, 1998 as compared to $985,000, or 5.04% of
average interest-bearing deposits, for the corresponding period in 1997.
Interest expense decreased by $16,000 due primarily to a .16 basis point
decrease in the average rate paid on average interest bearing liabilities during
the quarter ended December 31, 1998 compared to the quarter ended December 31,
1997.
Provision for Loan Losses
The provision for loan losses during the quarter ended December 31, 1998
amounted to $10,000, as compared to $35,000 for the corresponding period in
1997. 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, 1998, the
allowance for loan losses represented .40% of total loans compared to .41% at
December 31, 1997. The allowance for loan losses was at a level consistent with
management's analysis of the loan portfolio.
Non Interest Income
Non-interest income amounted to $26,000 and $24,000 for the quarters ended
December 31, 1998 and 1997, respectively. The largest item in non interest
income is service fees on loan and deposit accounts, which amounted to $22,000
and $19,000 for 1998 and 1997, respectively. The increase in non interest income
of $2,000 was primarily due to an increase in service fees on deposit accounts.
Non Interest Expense
Non-interest expense increased approximately $19,000, or 4.7% to $430,000 for
the quarter ended December 31, 1998 compared to $411,000 for the comparable
period in 1997. Non-interest expense was 1.6% and 1.5% of average assets for the
quarters ended December 31, 1998 and 1997, respectively. The increase of $19,000
was due primarily to an increase in other operating expenses of $20,000 offset
by a net decrease of $1,000 in all other non interest expense classifications.
The increase of $20,000 in other operating expenses was due to an increase in
advertising, supplies, transfer agent fees, and franchise taxes related to the
holding company.
Income Taxes
The provision for income tax expense amounted to approximately $192,000 and
$186,000 for the quarters ended December 31, 1998 and 1997, respectively, which
as a percentage of income before income tax expenses amounted to 34.0% for 1998
and 1997.
10
Year 2000 Readiness
The financial industry is one of the largest industries impacted by the year
2000 issue. However, this is not a new problem. This issue was first faced years
ago when financial institutions began issuing mortgage loans for 25-30 years,
which caused the maturity date to fall in year 2000 or beyond. So, this is not a
new issue for financial institutions.
The following discussion of the implications of the Year 2000 problem for the
Bank contains numerous forward looking statements based on inherently uncertain
information. The cost of the project and the date on which the Bank plans to
complete the internal Year 2000 modifications are based on management's best
estimates, which are derived utilizing a number of assumptions of future events
including the continued availability of internal and external resources, third
party modifications, and other factors. However, there can be no guarantee that
these statements will be achieved, and actual results could differ. Moreover,
although management believes it will be able to make the necessary modifications
in advance, there can be no guarantee that failure to modify the systems would
not have a material adverse effect on the Bank.
The Bank places a high degree of reliance on computer systems of third parties,
such as customers, suppliers, and other financial and governmental institutions.
Although the Bank is assessing the readiness of these third parties and
preparing contingency plans, there can be no guarantee that the failure of these
third parties to modify their systems in advance of December 31, 1999 would not
have a material adverse affect on the Bank.
First Federal Savings Bank of Harrodsburg has fully completed the Awareness
Phase and has completed approximately 95% of the Assessment Phase of its Year
2000 Compliance Plan. All mission critical systems have been identified and the
status determined. In addition, the Bank is actively pursuing responses from
those few vendors who have not replied on those systems determined mission
necessary or mission desirable.
The Bank is currently working on the Renovation Phase of its Plan. As the Bank
uses an outside service provider, INTRIEVE, Inc., the renovation of its mission
critical system largely depends upon their progress. They are actively pursuing
every avenue required to insure their Y2K compliance and are currently being
monitored by the Bank's regulatory agency, the Office of Thrift Supervision.
INTRIEVE, Inc. is keeping their customers informed as to their state of
readiness. The Bank has identified that its teller processing hardware and
software, used to process deposits, withdrawals, payments, and other customer
transactions, are not currently Y2K compatible, and the Bank has signed a
contract for the purchase of Y2K compatible hardware and software. The hardware
and software is currently scheduled for installation during the first or second
quarter of 1999. The Bank anticipates all testing should be completed by June
30, 1999.
Total expenses related to year 2000 compliance are estimated at approximately
$115,500. Expenses consist of the cost of replacement hardware and software,
consulting fees and labor. Expenses to date are approximately $7,000. The bulk
of expenses are estimated at $106,500 for 1999, of which the main expense is
replacement hardware and software, and the remaining estimated expenses are
$2,000 in the year 2000 for consulting fees and labor.
The major component of risk to the Bank lies with its service provider,
INTRIEVE, Inc. Should INTRIEVE, Inc. not become fully Y2K compliant, it would be
necessary for the Bank to revert to manual processing of customer accounts.
Though this would be a labor-intensive process, it would be possible to operate
in such a manner for a reasonable period of time. The Bank does not anticipate
any risk associated with environmental systems, such as heating/air
conditioning, phone systems, or utilities, as it has been assured that all
systems are Y2K compliant. However, as First Federal Savings Bank does not
control all software it uses or interfaces
11
to, it is possible that errors may be undetected should other parties fail to
ensure their systems are year 2000 compliant.
First Federal has adopted a Contingency Plan to be used in the event on-line
processing with INTRIEVE, Inc., the Bank's service provider, is not operational
due to the rollover of the date from December 31, 1999 to January 1, 2000. The
plan, if needed, will be implemented by the Year 2000 Steering Team as
designated in the Bank's Year 2000 Compliance Plan approved by the Board of
Directors.
Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Bank, such as customers, vendors, payment system providers, and other financial
institutions, makes it impossible to assure that a failure to achieve compliance
by one or more of these entities would not have material adverse impact on the
operations of the Bank.
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, September 30,
1998 1998
--------------- ---------------
(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............................................... 458 358
Other .................................................... 27 27
Consumer.................................................. 33 104
--------------- ---------------
Total .................................................... 518 489
--------------- ---------------
Total of non-accrual and 90 day past due loans.................. $ 518 $ 489
=============== ===============
Percentage of net loans......................................... .61% .57%
=============== ===============
Other non-performing assets/2................................... $ - $ -
=============== ===============
At December 31, 1998, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the three months ended December 31, 1998 on
the loans in the table above, has been included in income.
At December 31, 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
- - --------
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.
12
management to have serious doubts as to the ability of the borrowers to comply
with present loan repayment terms.
The following summarized the Bank's capital requirements and position at
December 31, 1998 and September 30, 1998.
December 31 September 30
1998 1998
-------------------------------- ------------------------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Core capital ........................ $ 21,345 20.2% $ 24,912 23.5%
Core capital requirement............... 4,232 3.0% 4,247 4.0%
-------------- ------------- ------------- -------------
Excess ........................ $ 17,113 17.2% $ 20,665 19.5%
============== ============= ============= =============
Core capital .......................... $ 21,345 36.8% $ 24,912 43.2%
General valuation allowance............ 345 .6% 335 .6%
-------------- ------------- ------------- -------------
Total capital (core and supplemental) 21,690 37.4% 25,247 43.8%
Risk-based capital requirement......... 4,644 8.0% 4,612 8.0%
-------------- ------------- ------------- -------------
Excess ........................ $ 17,046 29.4% $ 20,635 35.8%
============== ============= ============= =============
Liquidity
The liquidity of the Company depends primarily on the dividends paid to it as
the sole shareholder of the Bank. At December 31, 1998, the Bank could pay
common stock dividends of approximately $13.0 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, 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 quarters
ended December 31, 1998 and 1997.
The Bank's most liquid assets are cash and cash-equivalents, which include
investments in highly liquid, short-term investments. At December 31, 1998 and
September 30, 1998, cash and cash equivalents totaled $10.0 million and $8.1
million, respectively.
At December 31, 1998, the Bank had $41.8 million in certificates of deposits due
within one year and $17.6 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, 1998, the Bank had
$940,000 in outstanding commitments to originate mortgages, excluding $1.3
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
13
regulation is presently 4.0%. During the first quarter of fiscal year 1999, 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.
14
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
Form 8-K, Item 5 filed on December 30, 1998 relating to the
Company's announcement of its adoption of a stock repurchase
program.
The following exhibits are filed herewith:
Exhibit 27..................................................................Financial Data Schedule
Exhibit 99.1.......................................................Form 8-K dated December 30, 1998
15
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: February 10, 1999
-----------------------------------------
Jack Hood, President
Date: February 10, 1999
-----------------------------------------
Teresa W. Noel, Treasurer
16