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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1999.
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 10, 1999, 1,709,275 shares of the registrant's common stock were
issued and outstanding.
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CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and September 30, 1998....................................3
Consolidated Statements of Income for the Three-Month Periods
Ended June 30, 1999 and 1998 (unaudited) and the
Nine-Month Periods Ended June 30, 1999 and 1998
(unaudited)................................................4
Consolidated Statements of Changes in Stockholders' Equity for the
Nine Month Period Ended June 30, 1999 (unaudited).........5
Consolidated Statements of Cash Flows for the Nine Month Periods
Ended June 30, 1999 and 1998 (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.................................................16
Item 2. Changes in Securities.............................................16
Item 3. Defaults Upon Senior Securities...................................16
Item 4. Submission of Matters to a Vote of Security Holders...............16
Item 5. Other Information.................................................16
Item 6. Exhibits and Reports on Form 8-K..................................16
SIGNATURES
2
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of As of
June 30, September 30,
1999 1998
----------- -------------
ASSETS (unaudited)
Cash and due from banks $ 658,174 $ 739,772
Interest Bearing Deposits 10,432,034 7,334,333
Available-for-sale securities 4,471,104 3,825,492
Held-to-maturity securities 6,706,351 11,140,809
Loans receivable, net 87,628,968 85,271,904
Accrued interest receivable 607,066 660,798
Premises and equipment, net 983,493 852,123
Other assets 98,229 94,046
------------------ ------------------
Total assets $ 111,585,419 $ 109,919,277
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 82,843,720 $ 78,995,644
Advance payments by borrowers for taxes and insurance 61,059 71,849
Deferred federal income tax 1,553,134 1,398,193
Dividends payable 354,445
Other liabilities 244,060 117,533
------------------ ------------------
Total liabilities 84,701,973 80,937,664
------------------ ------------------
Stockholders' equity
Common stock, $0.10 per value, 5,000,000 shares authorized;
2,182,125 shares issued 218,213 218,213
Additional paid-in capital 21,185,871 21,154,129
Retained earnings, substantially restricted 11,284,635 11,003,179
Accumulated other comprehensive income 2,901,111 2,475,007
Treasury stock, 458,550 and 258,607 shares as of June 30,
1999 and September 30, 1998, respectively (7,400,544) (4,477,515)
Unallocated employee stock ownership plan (ESOP) shares (1,305,840) (1,391,400)
------------------ ------------------
Total stockholders' equity 26,883,446 28,981,613
------------------ ------------------
Total liabilities and stockholders' equity $ 111,585,419 $ 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 For the Nine-Month Periods
Ended June 30 Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Interest on loans $ 1,704,284 $ 1,646,267 $ 5,061,573 $ 4,926,099
Interest and dividends on securities 116,680 193,814 427,044 584,874
Other interest income 125,535 106,121 324,346 342,879
-------------- ------------- ------------- -------------
Total interest income 1,946,499 1,946,202 5,812,963 5,853,852
-------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 954,515 969,736 2,862,492 2,914,647
-------------- ------------- ------------- -------------
Net interest income 991,984 976,466 2,950,471 2,939,205
Provision for loan losses 15,000 10,000 90,000
-------------- ------------- ------------- -------------
Net interest income after provision
for loan losses 991,984 961,466 2,940,471 2,849,205
-------------- ------------- ------------- -------------
Non-interest income:
Loan and other service fees, net 25,952 25,498 73,243 65,579
Other 4,099 4,292 10,846 17,894
-------------- ------------- ------------- -------------
Total non-interest income 30,051 29,790 84,089 83,473
-------------- ------------- ------------- -------------
Non-interest expense:
Compensation and benefits 232,961 241,201 698,607 704,815
Occupancy expenses, net 40,636 33,286 108,147 104,609
Federal and other insurance premiums 12,249 12,585 36,209 38,780
Data processing expenses 31,989 30,815 94,794 85,905
State franchise tax 24,623 23,819 72,256 71,225
Other operating expenses 85,652 77,858 292,681 264,621
-------------- ------------- ------------- -------------
Total non-interest expense 428,110 419,564 1,302,694 1,269,955
-------------- ------------- ------------- -------------
Income before income tax expense 593,925 571,692 1,721,866 1,662,723
Income tax expense 201,935 194,377 585,435 565,327
-------------- ------------- ------------- -------------
Net income $ 391,990 $ 377,315 $ 1,136,431 $ 1,097,396
============== ============= ============= =============
Earnings per common share $ 0.24 $ 0.21 $ 0.69 $ 0.60
============== ============= ============= =============
Earnings per common share
assuming dilution $ 0.24 $ 0.21 $ 0.69 $ 0.61
============== ============= ============= =============
Weighted average common shares
outstanding 1,600,084 1,798,903 1,641,887 1,820,734
============== ============= ============= ============
Weighted average common shares
outstanding after dilutive effect 1,600,084 1,801,515 1,641,887 1,822,972
============== ============= ============= =============
See accompanying notes to consolidated financial statements.
4
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the nine month period ended June 30, 1999
(unaudited)
--------------------
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income
----------- -------------- ----------- -------------
Balance, September 30, 1998 $ 218,213 $ 21,154,129 $ 11,003,179 $ 2,475,007
Comprehensive income:
Net income 1,136,431
Other comprehensive income, net of tax
unrealized gains on securities 426,104
Total comprehensive income
Dividend declared (854,975)
ESOP shares earned 31,742
Purchase of common stock, 199,943 shares
-------------- ------------- ------------ -------------
Balance, June 30, 1999 $ 218,213 $ 21,185,871 $ 11,284,635 $ 2,901,111
============== ============= ============ =============
Unearned Total
Treasury ESOP Stockholders'
Stock Shares Equity
---------- -------- -------------
Balance, September 30, 1998 $ (4,477,515) $ (1,391,400) $ 28,981,613
-------------
Comprehensive income:
Net income 1,136,431
Other comprehensive income, net of tax
unrealized gains on securities 426,104
-------------
Total comprehensive income 1,562,535
Dividend declared (854,975)
ESOP shares earned 85,560 117,302
Purchase of common stock, 199,943 shares (2,923,029) (2,923,029)
-------------- ------------- -------------
Balance, June 30, 1999 $ (7,400,544) $ (1,305,840) $ 26,883,446
============== ============= =============
See accompanying notes to consolidated financial statements.
5
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
--------------------
For the Nine-Month Periods
Ended June 30,
------------------------------------------------
1999 1998
-------------- -------------
Operating activities
Net income $ 1,136,431 $ 1,097,396
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 10,000 90,000
ESOP benefit expense 117,302 150,323
Provision for depreciation 41,911 53,197
Loss (gain) on sale of fixed asset 3,397 (5,394)
Amortization of loan fees (56,095) (45,221)
Accretion/amortization of investment
premium/discount (3,022) 1,515
FHLB stock dividend (73,400) (70,700)
Change in:
Interest receivable 53,732 (41,565)
Interest payable 820 (270)
Accrued liabilities (65,707) (113,632)
Prepaid expense (4,183) (7,748)
Income taxes payable 126,847 162,984
-------------- -------------
Net cash provided by operating activities 1,288,033 1,270,885
-------------- -------------
Investing activities
Net (increase) decrease in loans (2,310,969) (2,016,380)
Maturity of certificates of deposit 600,000
Purchase of held-to-maturity securities (1,500,000)
Maturity of securities held-to-maturity 4,500,000 1,500,000
Principal repayments - mortgage back securities 10,881 13,267
Purchase of fixed assets (176,678) (266,996)
Sale of fixed assets 5,394
-------------- -------------
Net cash provided (used) by investing activities 2,023,234 (1,664,715)
-------------- -------------
See accompanying notes to consolidated financial statements.
6
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
--------------------
For the Nine-Month Periods
Ended June 30,
----------------------------------------------
1999 1998
------------ -------------
Financing activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 1,453,229 (62,819)
Net increase (decrease) in certificates of deposit 2,394,846 (46,865)
Net increase (decrease) in custodial accounts (10,790) (14,925)
Purchase of treasury stock (2,923,029) (1,579,271)
Payment of dividends (1,209,420) (1,108,555)
------------ -----------
Net cash provided (used) by financing activities (295,164) (2,812,435)
------------ -----------
Increase (decrease) in cash and cash equivalents 3,016,103 (3,206,265)
Cash and cash equivalents, beginning of period 8,074,105 12,620,793
------------ -----------
Cash and cash equivalents, end of period $ 11,090,208 $ 9,414,528
============ ===========
Supplemental Disclosures
Cash payments for:
Interest on deposits $ 2,861,673 $ 2,914,917
=========== ===========
Income taxes $ 515,000 $ 490,000
=========== ===========
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 and nine month periods ended June 30, 1999 are not
necessarily indicative of results that may be expected for the entire
fiscal year ending September 30, 1999.
2. Dividends
On March 16, 1999, 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, 1999 payable on April 15, 1999. The total dividends declared
by the Company for the nine months ended June 30, 1999 amounted to
$854,975.
3. Treasury Stock
The Company repurchased a total of 13,867 shares at a total price of
$175,027 during the three months ended June 30, 1999. During the nine
months ended June 30, 1999, a total of 199,943 shares had been repurchased
at a total price of $2,923,029.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
The Company's consolidated assets increased approximately $1.6 million, or 1.51%
to $111.6 million at June 30, 1999 compared to $110.0 million at September 30,
1998. The net increase of $1.6 million was due primarily to a $3.0 million
increase in cash and interest-bearing deposits and a $2.4 million increase in
net loans receivable, offset in part by a decrease of $3.8 million in investment
securities.
The Company's investment portfolio decreased approximately $3.8 million.
Securities classified as available-for-sale and recorded at market value per
SFAS No. 115 increased $645,000 due solely to the increase in market value of
such securities. Securities held-to-maturity decreased $4.4 million primarily
due to the call of five $500,000 FHLB bonds and four $500,000 FNMA/FHLMC 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 June 30, 1999, the Company included net unrealized gains of
approximately $2,901,000 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.
Loans receivable increased by $2.4 million, or 2.8%, from $85.3 million at
September 30, 1998 to $87.7 million at June 30, 1999 as management continued its
efforts to be competitive in meeting the loan demand in the Bank's market area.
Deposits increased $3.8 million, or 4.9% from $79.0 million at September 30,
1998 to $82.8 million at June 30, 1999. This increase reflects the Company's
competitively priced product line within the local market area.
Stockholders' equity decreased by $2.1 million to $26.9 million for the nine
months ended June 30, 1999. The net decrease of $2.1 million is due to decreases
of $2.9 million from the purchase of the Company's stock and the declaration of
dividends totaling $855,000, offset in part by an increase from net income of
$1.1 million, an increase of $426,000 in net unrealized appreciation on
investments held-for-sale, plus an increase of $117,000 related to the release
of ESOP shares from collateral during the nine-month period ended June 30, 1999.
Results of Operations for the Three Months Ended June 30, 1999 and 1998
Net Income
Net income increased by $15,000, or 3.9%, for the three month period ended June
30, 1999 as compared to the same period in 1998. The net increase of $15,000 was
due to an increase in net interest income of $16,000 and a decrease of $15,000
in the provision for loan losses offset by a $8,000 increase in non interest
expenses and an $8,000 increase in income tax expense for 1999 compared to 1998.
Interest Income
Interest income was $1.9 million, or 7.1% of average interest-earning assets,
for the quarter ended June 30, 1999 as compared to $1.9 million, or 7.3% of
average interest-earning assets, for the quarter ended June 30, 1998.
9
Interest income was comparable for the quarters as the effect of the increase of
$2.1 million in the average balance of interest-earning assets was offset by a
decrease of 14 basis points in the average rate earned.
Interest Expense
Interest expense was $954,000, or 4.6% of average interest-bearing deposits, for
the quarter ended June 30, 1999 as compared to $970,000, or 4.9% of average
interest-bearing deposits, for the corresponding period in 1998. Interest
expense decreased by $16,000 due primarily to a 26 basis point decrease in the
average rate paid on average interest bearing liabilities offset by an increase
of $2.9 million in the average balance of interest bearing liabilities during
the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998.
Provision for Loan Losses
There was no provision for loan losses during the quarter ended June 30, 1999,
as compared to a $15,000 provision for the corresponding period in 1998.
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 June 30, 1999, the
allowance for loan losses represented .39% of total loans compared to .38% at
June 30, 1998. 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 $30,000 for both quarters ended June 30, 1999
and 1998. The largest item in non interest income is service fees on loan and
deposit accounts, which amounted to $26,000 and $25,000 for 1999 and 1998,
respectively.
Non Interest Expense
Non-interest expense increased approximately $8,000, or 2.0% to $428,000 for the
quarter ended June 30, 1999 compared to $420,000 for the comparable period in
1998. Non-interest expense was 1.6% of average assets for both periods. The
increase of $8,000 was due primarily to increases of $8,000 in occupancy expense
and $8,000 in other operating expense offset by a decrease of $8,000 in
compensation and benefits.
Income Taxes
The provision for income tax expense amounted to approximately $202,000 and
$194,000 for the quarters ended June 30, 1999 and 1998, respectively, which as a
percentage of income before income tax expenses amounted to 34.0% for 1999 and
1998.
Results of Operations for the Nine Months Ended June 30, 1999 and 1998
Net Income
Net income increased by $39,000 or 3.6% for the nine month period ended June 30,
1999 as compared to the same period in 1998. The net increase of $39,000 was due
to an increase of $11,000 in net interest income and a decrease of $80,000 in
the provision for loan losses, offset by a $32,000 increase in non interest
10
expense and a $20,000 increase in income tax expense for the nine month period
ended June 30, 1999 compared to the same period in 1998.
Interest Income
Interest income was $5.8 million, or 7.1% of average interest-earning assets for
the nine month period ended June 30, 1999 compared to $5.8 million, or 7.3% of
average-earning assets for the nine month period ended June 30, 1998. Interest
income decreased by $41,000 or .70% from 1998 to 1999. The decrease in interest
income was due to a decrease of 16 basis points in the average rate earned
offset by a $1.7 million increase in the average balance of interest-earning
assets during the nine month period ended June 30, 1999 compared to the nine
month period ended June 30, 1998.
Interest Expense
Interest expense was 2.9 million, or 4.7% of average interest-bearing deposits,
for the nine month period ended June 30, 1999 as compared to $2.9 million, or
5.0% of average interest-bearing deposits, for the corresponding period in 1998.
Interest expense decreased by $52,000 or 1.8% from 1998 to 1999. The decrease in
interest expense was due primarily to a 26 basis point decrease in the average
rate paid on the deposits offset by a $2.9 million increase in the average
balance of interest bearing liabilities for the period ended June 30, 1999
compared to the corresponding period in 1998.
Provision for Loan Losses
The provision for loan losses during the nine month period ended June 30, 1999
amounted to $10,000 as compared to $90,000 for the corresponding period in 1998.
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.
Non-Interest Income
Non-interest income amounted to $84,000 for both the nine month periods ended
June 30, 1999 and 1998. The largest item in non-interest income is service fees
on loan and deposit accounts, which amounted to $73,000 and $66,000 for the nine
month period ended June 30, 1999 and 1998, respectively.
Non-Interest Expense
Non-interest expense increased $32,000 or 2.6% for the nine month period ended
June 30, 1999 compared to the same period in 1998. Non-interest expense was 1.6%
of average assets for both periods. The increase of $32,000 was due primarily to
an increase of $29,000 in other operating expenses plus a net increase of $3,000
in all other non interest expense classifications. The increase of $29,000 in
other operating expenses was due to increases in transfer agent fees, accounting
fees, supplies, and franchise taxes related to the holding company and ATM
expenses.
Income Taxes
The provision for income tax expense amounted to approximately $585,000 and
$565,000 for the nine month periods ended June 30, 1999 and 1998, respectively,
which as a percentage of income before income tax expense amounted to a 34.0%
for both periods.
11
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.
Harrodsburg First Financial Bancorp, Inc. has fully completed the Awareness
Phase, Assessment Phase, and Renovation Phase of its Year 2000 Compliance Plan.
All mission critical systems have been identified, and all systems requiring
replacement have been replaced. The Bank's entire computer system has been
replaced with Y2K compliant hardware and software and is already in use; thus,
completing the Implementation Phase, with the exception of the Contingency Plan.
All testing, with the exception of the Contingency Plan and the frame relay
communications, has been successfully completed. The Contingency Plan will be
tested during August 1999 to allow ample time to make adjustments to the Plan if
needed. The satellite system had been previously tested successfully; however,
the bank has since implemented a frame relay system which replaces the
satellite. Testing of the frame relay system will be done in September 1999.
The Bank's service provider, INTRIEVE, Inc., continues to actively pursue every
avenue required to insure their Y2K compliance and continues to be 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.
Total expenses related to year 2000 compliance are estimated at approximately
$187,000. Expenses consist of the cost of replacement hardware and software,
consulting fees and labor. Expenses to date are approximately $181,000. The
balance of expenses are estimated at $4,000 in 1999, of which the main expense
is consulting fees and labor, 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 Harrodsburg First Financial Bancorp, Inc.
does not control all software it uses or interfaces to, it is possible that
errors may be undetected should other parties fail to ensure their systems are
year 2000 compliant.
12
The Bank 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
Company, 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 Company.
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,
1999 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............................................... 283 358
Other .................................................... 23 27
Consumer.................................................. 83 104
-------------- --------------
Total .................................................... 389 489
-------------- --------------
Total of non-accrual and 90 day past due loans.................. $ 389 $ 489
============== ==============
Percentage of net loans......................................... .44% .57%
============== ==============
Other non-performing assets2.................................... $ - $ -
============== ==============
At June 30, 1999, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the nine months ended June 30, 1999 on the
loans in the table above, has been included in income.
At June 30, 1999, 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.
- --------
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.
13
The following summarized the Bank's capital requirements and position at June
30, 1999 and September 30, 1998.
June 30 September 30
1999 1998
---------------------------------- --------------------------------
(Dollars in Thousands)
Amount Percent Amount Percent
-------------- ----------------- ------------- ---------------
Core capital........................... $ 22,169 20.7% $ 24,912 23.5%
Core capital requirement............... 4,288 4.0% 4,247 4.0%
-------------- --------------- ------------- --------------
Excess................................. $ 17,881 16.7% $ 20,665 19.5%
============== =============== ============= ==============
Core capital........................... $ 22,169 36.8% $ 24,912 43.2%
General valuation allowance............ 345 .6% 335 .6%
-------------- --------------- ------------- --------------
Total capital (core and supplemental).. 22,514 37.4% 25,247 43.8%
Risk-based capital requirement......... 4,815 8.0% 4,612 8.0%
-------------- --------------- ------------- --------------
Excess................................. $ 17,699 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 June 30, 1999, the Bank could pay common
stock dividends of approximately $13.8 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, 1999, 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 periods
ended June 30, 1999 and 1998.
The Bank's most liquid assets are cash and cash-equivalents, which include
investments in highly liquid, short-term investments. At June 30, 1999 and
September 30, 1998, cash and cash equivalents totaled $11.1 million and $8.1
million, respectively.
At June 30, 1999, the Bank had $48.1 million in certificates of deposits due
within one year and $13.6 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 June 30, 1999, the Bank had $1.1
million in outstanding commitments to originate mortgages, excluding $1.4
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 third quarter of fiscal year 1999, the Bank satisfied all
regulatory
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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.
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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
Form 8-K, Item 5 filed on May 12, 1999 relating to the Company's
announcement of a repurchase program that authorized the repurchase of
approximately 2.5% of the outstanding shares of common stock.
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 10, 1999 /s/ Jack Hood
-----------------------------------------
Jack Hood, President
Date: August 10, 1999 /s/ Teresa W. Noel
-----------------------------------------
Teresa W. Noel, Treasurer
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