Exhibit 13
Annual Report to Security Holders
Exhibit 13 was sent under separate cover
or is enclosed herein.
SELECTED FINANCIAL AND OTHER DATA
At June 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
Selected Financial Condition Data:
Total assets $747,332 $609,398 $548,870 $523,131 $481,192
Loans receivable, net 453,791 353,012 285,212 254,435 239,459
Allowance for loan losses 3,623 3,027 1,723 1,259 1,186
Nonperforming assets 1,782 2,143 2,480 1,126 992
Securities available for sale 249,159 211,185 202,677 202,176 148,273
Securities held to maturity - 28,295 44,875 47,918 74,006
Deposits 429,225 435,462 412,934 392,350 377,644
Federal Home Loan Bank advances 94,811 44,820 58,398 76,078 52,436
Repurchase agreements 54,430 60,430 16,000 - -
Total shareholders' equity 158,054 59,357 53,747 48,823 46,209
For the Years Ended June 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
Summary of earnings:
Total interest income $ 48,126 $ 42,482 $ 38,413 $ 36,436 $ 34,362
Total interest expense 25,682 25,512 22,929 21,858 20,150
-------- -------- -------- -------- --------
Net interest income 22,444 16,970 15,484 14,578 14,212
Provision for loan losses 1,062 1,779 590 238 313
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses 21,382 15,191 14,894 14,340 13,899
Total noninterest income 1,981 1,751 444 1,220 565
Total noninterest expense (1) (2) 20,692 10,372 11,898 9,149 8,396
-------- -------- -------- -------- --------
Income before income tax 2,671 6,570 3,440 6,411 6,068
Provision for income tax 616 2,498 1,216 2,262 2,039
-------- -------- -------- -------- --------
Net income $ 2,055 $ 4,072 $ 2,224 $ 4,149 $ 4,029
======== ======== ======== ======== ========
(1) For the year ended June 30, 1999, noninterest expense included $8.0 million
as a result of the contribution to the Foundation.
(2) For the year ended June 30, 1997, noninterest expense included a one-time
charge of $2.5 million to recapitalize the Savings Association Insurance
Fund (SAIF).
For the Years Ended June 30,
------------------------------------------------------------------------
Selected Financial Ratios and Other Data: 1999 1998 1997 1996 1995
------------------------------------------------------------------------
Performance Ratios(1):
Return on average assets 0.30% 0.70% 0.42% 0.82% 0.84%
Return on average equity 1.86 7.00 4.39 8.52 9.74
Interest rate spread(2) 2.67 2.55 2.52 2.48 2.49
Net interest margin(3) 3.42 3.00 2.97 2.94 2.88
Noninterest expense to average assets 3.03 1.77 2.23 1.81 1.75
Efficiency ratio(4) 84.72 55.40 74.70 57.91 56.82
Net interest income to operating expenses 108.47 163.60 130.13 159.35 169.27
Capital Ratios:
Equity to total assets at end of period 21.15 9.74 9.79 9.33 9.60
Average equity to average assets 16.21 9.94 9.51 9.61 8.62
Average interest-earning assets to average 119.07 110.46 109.90 109.94 109.08
interest-bearing liabilities
Tangible capital 14.08 9.52 9.80 9.79 9.81
Core capital 14.08 9.52 9.80 9.79 9.81
Total risk-based capital 30.12 21.84 23.85 25.64 24.87
Asset Quality Ratios:
Nonperforming assets as a percent of total assets(5) 0.24 0.35 0.45 0.22 0.21
Allowance for loan losses as a percent of loans(6) 0.79 0.85 0.60 0.49 0.49
Allowance for loan losses as a percent of 230.23 141.25 69.48 111.81 119.56
nonperforming loans(5)
(1) The performance ratios include the $8.0 million contribution to the
Foundation in the year ended June 30, 1999, and the $2.5 million charge to
recapitalize SAIF in the year ended June 30, 1997.
(2) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(3) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(4) The efficiency ratio represents the ratio of noninterest expense divided by
the sum of net interest income and noninterest income.
(5) Nonperforming assets consist of nonperforming loans and repossessed autos.
(6) Loans represent loans receivable, net, excluding the allowance for loan
losses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------
General
First Place Financial Corp. (the "Company") was formed with the conversion of
First Federal Savings and Loan Association of Warren (the "Association") from a
federally-chartered mutual savings and loan association to a federally-chartered
stock savings and loan association. The Association is a community-oriented
financial institution engaged primarily in gathering deposits to originate one-
to- four family residential mortgage loans and consumer loans. Management's
discussion should be read in conjunction with the consolidated financial
statements and footnotes.
Financial Condition at June 30, 1999 and 1998
Total assets increased $137.9 million, or 22.6%, and totaled $747.3 million at
June 30, 1999 compared to $609.4 million at June 30, 1998. The increase in
assets was primarily attributable to growth in loans receivable funded by the
sale of the Company's shares in connection with the conversion.
Net loans receivable increased from $353.0 million at June 30, 1998, to $453.8
million at June 30, 1999. This growth was primarily concentrated in one- to-four
family loans with approximately 70% of the growth concentrated in 15-20 year
fixed rate production. The increase reflects the efforts of the Company to
expand into the Mahoning County mortgage market as well as the significant loan
demand brought about by the decrease in long-term interest rates in 1998 and
early 1999.
During the third quarter, the Association opened a secondary market mortgage
origination operation in Akron with satellite facilities in Newark, Mt. Vernon
and Medina, Ohio. These offices originate fixed-rate loans, both 15 and 30
years, which are in turn sold to various secondary market investors including
the Federal Home Loan Mortgage Corporation (FHLMC). Depending upon market
conditions and the needs of the Company, the Association may elect to portfolio
a portion of this production. The opening of these facilities provides a low
cost alternative to generate additional fee income while also providing
geographic diversification to the Company's existing markets.
Total deposits were $429.2 million at June 30, 1999, a decrease of $6.3 million,
or 1.4%, compared to June 30, 1998. This decrease was due to deposits being
withdrawn to purchase shares of the Company in the conversion. In addition,
management allowed some runoff to occur in certificate accounts when the
secondary market (FHLB advances and repurchase agreements) offered more
attractive rates and/or terms.
Federal Home Loan Bank Advances increased $50.0 million to $94.8 million at June
30, 1999 compared to $44.8 million at June 30, 1998. Advances increased to
support the runoff in deposits, the maturity of a repurchase agreement and to
help fund the increase in the loan and security portfolios.
Total shareholders' equity increased to $158.1 million at June 30, 1999 compared
to $59.4 million at June 30, 1998. This increase was primarily due to the
conversion.
Comparison of Results of Operations for Years Ended June 30, 1999 and 1998
General. Net income for the year ended June 30, 1999 was $2.1 million, compared
to $4.1 million for the year ended June 30, 1998. The decrease in net income was
primarily the result of an $8.0 million contribution to fund the Foundation.
Excluding this item, net income would have been $7.4 million.
Basic and diluted earnings per share (since conversion) for 1999, totaled
($0.02). Earnings per share are not presented for the prior year since the
conversion was not completed until December 31, 1998.
Net interest income. Net interest income increased $5.4 million, or 32.3%, and
totaled $22.4 million for the year ended June 30, 1999 compared to $17.0 million
for the year ended June 30, 1998. The increase in net interest income was mainly
due to an increase in average loans outstanding of $89.3 million, or 28.3%. In
addition, the net interest margin for the year ended June 30, 1999 was 3.42%
compared with 3.00% for the year ended June 30, 1998. Much of the increase in
margin was due to the use of the proceeds from the conversion to fund the
increase in loans outstanding.
Total interest income increased $5.6 million and totaled $48.1 million for the
year ended June 30, 1999 compared to $42.5 million for the year ended June 30,
1998. This 13.3% increase was primarily due to the increase in average loans
outstanding discussed above partially offset by a decrease in the yield on
earning assets of 20 basis points.
Total interest expense remained flat year to year increasing by $170 thousand,
or less than 1%. While deposit expense declined $974 thousand to $18.9 million
for the year ended June 30, 1999, the expense for borrowed funds (FHLB advances
and repurchase agreements) increased $1.1 million to $6.8 million. The decrease
in deposit expense was primarily due to the lower rate environment in 1999
resulting in a reduction in the rates paid on certificates of deposit. The
increase in the cost of borrowed funds reflects the increased volume in 1999
compared to 1998.
Provision for loan losses. The provision for loan losses declined $717 thousand
for the year ended June 30, 1999 compared to the year ended June 30, 1998.
During the year ended June 30, 1998, additional provision was accrued due to
higher levels of nonperforming assets, the increase in the size of the indirect
auto portfolio and the uncertainty surrounding the future of General Motors'
Lordstown plant. For the year ended June 30, 1999, the allowance for loan losses
as a percent of nonperforming loans had improved to 230.2% compared to 141.3%
for the year ended June 30, 1998. Also, General Motors announced its intention
to remain at their Lordstown facility at least through the year 2004. As a
result of these developments, management believes that the allowance for loan
losses is adequate at June 30, 1999.
Noninterest income. Noninterest income increased $230 thousand, or 13.1%, to
$2.0 million for the year ended June 30, 1999, from $1.8 million for the prior
year. This increase was due to increased fee income associated with NOW accounts
and automated teller machine transactions. Also contributing to the increase in
noninterest income were gains realized on the sale of loans from the Akron
secondary market mortgage operation.
Noninterest expense. Noninterest expense increased $10.3 million to $20.7
million for the year ended June 30, 1999 compared to $10.4 million for the prior
year. The increase in expense was primarily attributable to the $8.0 million
contribution to the Foundation.
Other items included a charge of $495 thousand to terminate a fixed rate advance
from the Federal Home Loan Bank and $330 thousand as a result of the
establishment of the Employee Stock Ownership Plan (ESOP). In addition, results
for the year ended June 30, 1999 include personnel expense for the Akron
operation for approximately three months and a full twelve months of personnel
expense for the Canfield, Ohio lending operation that was opened in May of 1998.
Income taxes. The provision for income taxes totaled $616 thousand in 1999
compared to $2.5 million in 1998. This decrease reflects the lower level of
income before taxes primarily due to the contribution to the Foundation.
Comparison of Results of Operations for the Years Ended June 30, 1998 and 1997
General. Net income for the year ended June 30, 1998 was $4.1 million, an
increase of $1.9 million or 83.1% from $2.2 million for the year ended June 30,
1997. The increase was primarily due to a decrease in noninterest expense, due
to the one-time special assessment to recapitalize the SAIF, which was recorded
in fiscal 1997, as well as the increase in net interest income and noninterest
income, including an increase in gains on sales of securities. The increase in
net income was partially offset by increases in the provision for loan losses
and federal income tax expense.
Net Interest Income. Net interest income is the largest component of the
Association's net income, and consists of the difference between interest income
generated on interest-earnings assets and interest expense incurred on interest-
bearing liabilities. Net interest income is primarily affected by the volume,
interest rates and composition of interest-earning assets and interest-bearing
liabilities.
Net interest income increased approximately $1.5 million, or 9.6%, from $15.5
million in 1997 to $17.0 million in fiscal 1998. The primary component of this
change was a $3.9 million, or 17.7%, increase in interest income on loans. The
increase in interest income on loans consisted of a $3.9 million increase due to
increased average volume in the loan portfolio and a $32,000 decrease due to
decreasing average interest rates. The increase in interest income of $4.1
million was partially offset by a $2.6 million, or 11.3%, increase in interest
expense, primarily due to the $2.1 million increase in repurchase agreement
costs.
Average loans outstanding during fiscal 1998 increased $47.8 million, or 17.8%,
compared to fiscal 1997, while average mortgage-backed securities increased
$12.5 million, or 6.6%, compared to the prior year. The increase in average
loans reflects the Association's expansion efforts into Mahoning County, the
decrease in long term interest rates in 1998 which led to an overall increase in
loan demand due to significant refinancing activity and the continued growth in
the consumer automobile loan portfolio based on successful relationship
development with dealers in the Association's local market. In fiscal 1998, the
Association experienced increases in yield on assets and cost of liabilities of
15 and 12 basis points, resulting in the $4.1 million increase in interest
income and $2.6 million increase in interest expense. Net interest margin
increased three basis points from 2.97% in 1997 to 3.00% in 1998. The
Association's average interest rate spread increased three basis points from
2.52% in 1997 to 2.55% in 1998.
Provision for Loan Losses. The provision for loan losses is based on
management's regular review of the loan portfolio, which considers factors such
as past experience, prevailing general economic conditions and considerations
applicable to specific loans,
such as the ability of the borrower to repay the loan and the estimated value of
the underlying collateral, as well as changes in the size and growth of the loan
portfolio.
The provision for loan losses increased $1.2 million from $590,000 for 1997 to
$1.8 million for 1998. At June 30, 1998, the allowance for loan losses
represented 0.85% of loans, net of unearned and deferred income, compared to
0.60% at June 30, 1997. The increased provision and resulting increased
allowance for loan losses was due to several factors including an increase in
the level of consumer loan charge-offs, the approximately 25% growth in total
loans, the continued trend of increased non-performing loans over the
Association's historical levels as well as local economic conditions including
significant recent layoffs at GM's Lordstown plant caused by a strike at two of
GM's other facilities. The strike which affected these facilities has
subsequently been settled and the majority of the striking workers have returned
to full employment. Management considered the evaluation of the local economic
conditions and the increase in the level of consumer loan charge-offs as
significant factors in evaluating the allowance for loan losses. While
nonperforming loans have increased in the last two years over historical levels,
the Association's level of nonperforming loans is not above peers. The increase
in nonperforming loans is due primarily to increases in nonperforming real
estate loans which have historically resulted in a relatively low level of
charge-offs. The increase in nonperforming consumer loans and charge-offs is due
to the increase in nonperforming loans and charge-offs from indirect automobile
lending. Both the increase in nonperforming loans and the charge-offs are a
result of increases in consumer bankruptcy filings, which is a national trend.
In an effort to reduce the level of nonperforming consumer loans and charge-
offs, management has implemented more aggressive collection efforts than have
historically been utilized. Management believes the allowance for loan losses is
adequate to absorb losses; however, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, the OTS, as an
integral part of its examination process, periodically reviews the Association's
allowance for loan losses. Such agency may require the Association to make
additional provisions for loan losses based on judgments different from those of
management.
Noninterest Income. The Association experienced a $1.3 million, or 294.5%,
increase in noninterest income during 1998. The increase was primarily due to
sales of securities which generated net gains of $135,000 in 1998, resulting in
an increase of $1.1 million over the loss on sale of securities of $934,000
recognized in fiscal 1997. The increase was due to management's decision to
restructure a portion of its investment portfolio which occurred in 1997. The
restructuring was accomplished by selling assets in the investment portfolio
that were underperforming as compared to the rest of the portfolio and using the
proceeds to fund additional loans. In addition, service charges provided an
increase in noninterest income of $156,000, or 16.8% from $929,000 in fiscal
1997 to $1.1 million in fiscal 1998, due to the increase in the average balance
of deposit accounts.
Noninterest Expense. Noninterest expense decreased $1.5 million, or 12.8%,
primarily due to the special assessment to recapitalize the SAIF recorded in
fiscal 1997. Salaries and benefits increased $607,000, or 12.5%, for 1998,
compared to 1997 due primarily to the staffing requirements for opening two new
offices. The construction in progress at June 30, 1998 represented minor
remodeling projects which will not significantly impact operating expenses in
future periods. The Association expects that salaries and benefits may increase
after the conversion, primarily as a result of the adoption of various employee
benefit plans contemplated in connection with the conversion. In
addition, noninterest expense may increase in future periods as a result of the
possible renovation or reconstruction of the Association's main office, the cost
of which is currently estimated to be up to $15.0 million. Other expense
includes professional fees, advertising, deposit account expense, telephone,
stationery and printing as well as other miscellaneous expense accounts. There
were no significant changes to any category of expense included within other
expenses.
Income Taxes. The provision for income taxes totaled $2.5 million in fiscal 1998
compared to $1.2 million in fiscal 1997, due to the increase in income before
income taxes. The effective tax rate was 38.0% for fiscal 1998 as compared to
35.3% for fiscal 1997.
Average Balances, Interest Rates and Yields. The following table presents for
the periods indicated the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed in both dollars and
rates. Average balances are derived from daily average balances.
For the Years Ended June 30,
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable, net $405,036 32,087 7.92% $315,726 $25,736 8.15%
Mortgage-backed and related securities(1) 218,181 13,913 6.38 200,866 13,581 6.84
Investment securities(1) (2) 27,177 1,523 5.84 41,498 2,507 6.04
Other earning assets 2,710 235 8.67 4,107 306 7.45
FHLB stock 5,216 368 7.06 4,869 352 7.23
-------- -------- -------- -------
Total interest-earning assets 658,320 48,126 7.32 567,066 42,482 7.52
Noninterest-earning assets: 23,746 18,267
-------- --------
Total assets $682,066 $585,333
======== ========
Interest-bearing liabilities:
NOW and money market accounts $114,876 3,705 3.23 $ 95,871 3,301 3.44
Savings accounts 67,145 1,465 2.18 68,945 1,661 2.41
Time deposits 246,584 13,716 5.56 251,130 14,898 5.93
Repurchase agreements 53,800 3,092 5.75 45,044 2,595 5.76
FHLB advances 70,472 3,704 5.26 52,396 3,057 5.83
-------- -------- -------- -------
Total interest-bearing liabilities 552,877 25,682 4.65 513,386 25,512 4.97
Noninterest-bearing liabilities 18,655 13,739
-------- --------
Total liabilities 571,532 527,125
Stockholders' equity 110,534 58,208
-------- --------
Total liabilities and stockholders' equity $682,066 $585,333
======== ========
Net interest income/interest rate spread $22,444 2.67% $16,970 2.55%
======= ======= ======= ======
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.42% 3.00%
======= ======
Average interest-earning assets to interest-
bearing liabilities 119.07% 110.46%
======= ======
For the Years Ended June 30,
-------------------------------
1997
-------------------------------
Average
Average Yield/
Balance Interest Cost
---------- --------- -------
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans receivable, net $ 267,928 $ 21,872 8.16%
Mortgage-backed and related securities(1) 188,362 12,805 6.76
Investment securities(1) (2) 47,774 2,783 5.83
Other earning assets 10,452 623 5.96
FHLB stock 4,683 330 7.05
---------- ---------
Total interest-earning assets 519,199 38,413 7.37
Noninterest-earning assets: 13,228
----------
$ 532,427
==========
Total assets
Interest-bearing liabilities:
NOW and money market accounts $ 84,388 2,702 3.20
Savings accounts 72,132 1,782 2.47
Time deposits 238,859 14,012 5.87
Repurchase agreements 8,470 480 5.67
FHLB advances 68,596 3,953 5.76
---------- ---------
Total interest-bearing liabilities 472,445 22,929 4.85
Noninterest-bearing liabilities 9,368
----------
Total liabilities 481,813
Stockholders' equity 50,614
----------
Total liabilities and stockholders' equity $ 532,427
==========
Net interest income/interest rate spread $ 15,484 2.52%
========= =======
Net interest margin (net interest income as a
percent of average interest-earning assets) 2.97%
=======
Average interest-earning assets to interest-
bearing liabilities 109.90%
=======
(1) Includes unamortized discounts and premiums. Average balance is computed
using the carrying value of securities. The average yield has been computed
using the historical amortized cost average balance for available for sale
securities.
(2) Average yields are stated on a fully taxable equivalent basis.
Rate/Volume Analysis of Net Interest Income. The following table presents the
dollar amount of changes in interest income and interest expense for major
components of interest-earning assets and interest-bearing liabilities. It
distinguishes between the increase or decrease related to changes in balances
and/or changes in interest rates. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (i.e., changes in volume multiplied by old
rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume).
For purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately to the change due to
volume and the change due to rate.
Year Ended Year Ended
June 30, 1999 June 30, 1998
Compared to Compared to
Year Ended Year Ended
June 30, 1998 June 30, 1997
---------------------------------------- ---------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------- -----------------------
Volume Rate Net Volume Rate Net
------------ ---------- --------- ----------- --------- ---------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net $7,095 $( 744) $ 6,351 $3,896 $ (32) $3,864
Mortgage-backed and related securities 1,225 (893) 332 637 139 776
Investment securities (903) (81) (984) (393) 117 (276)
Other earning assets (93) 22 (71) (445) 128 (317)
FHLB stock 24 (8) 16 13 9 22
------ ------- ------- ------ ----- ------
Total interest-earning assets 7,348 (1,704) 5,644 3,708 361 4,069
------ ------- ------- ------ ----- ------
Interest-bearing liabilities:
NOW and money market accounts 616 (212) 404 385 214 599
Savings accounts (42) (154) (196) (77) (44) (121)
Time deposits (266) (916) (1,182) 728 158 886
Repurchase agreements 502 (5) 497 2,107 8 2,115
FHLB advances 970 (323) 647 (945) 49 (896)
------ ------- ------- ------ ----- ------
Total interest-bearing liabilities 1,780 (1,610) 170 2,198 385 2,583
------ ------- ------- ------ ----- ------
Net change in net interest income $5,568 $( 94) $ 5,474 $1,510 $ (24) $1,486
====== ======= ======= ====== ===== ======
Asset and Liability Management and Market Risk
General. The principal market risk affecting the Association is interest rate
risk. The Association does not maintain a trading account for any class of
financial instrument, and the Association is not affected by foreign currency
exchange rate risk or commodity price risk. Because the Association does not
hold any equity securities other than stock in the FHLB of Cincinnati, the
Association is not subject to equity price risk.
The Association, like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As part of its efforts to monitor and manage the
interest rate risk of the Association, the Board of Directors has adopted an
interest rate risk policy which charges the Board with reviewing quarterly
reports related to interest rate risk and to set exposure limits for the
Association as a guide to senior management in setting and implementing day to
day operating strategies.
Quantitative Aspects of Market Risk. As part of its efforts to monitor and
manage interest rate risk, the Association uses the NPV methodology adopted by
the OTS as part of its capital regulations. In essence, NPV is the difference
between the present value of expected cash flows from assets and the present
value of expected cash flows from liabilities. The Association uses a net
portfolio value simulation model prepared in-house as the primary method of
managing interest rate risk. The model utilizes the actual cash flows and
repricing characteristics of its assets and liabilities and incorporates market-
based assumptions regarding the impact of changing interest rates on future
volumes and prepayment rates. For purposes of valuing core deposit products,
valuations derived by the OTS for the Association each quarter are utilized.
Presented below, as of June 30, 1999, is an analysis of the Association's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis point increments in market interest rates. The
percentage changes fall within the policy limits set forth by the Board of
Directors of the Association.
Change in NPV as % of Portfolio
Interest Rates Net Portfolio Value Value of Assets
------------------------------------------------ -----------------------------
In Basis Points %
(Rate Shock) Amount $ Change Change NPV Ratio Change
- ----------------- ------------ ------------ --------------- ------------ ------------
(Dollars in thousands)
300 $ 57,408 ($41,426) -41.91% 9.04% -503 bp
200 72,225 (26,609) -26.92 10.97 -309
100 85,140 (13,694) -13.86 12.52 -155
0 98,834 - - 14.07 -
(100) 112,570 13,736 13.90 15.59 152
(200) 108,439 9,605 9.72 14.98 92
(300) 104,642 5,808 5.88 14.43 37
As illustrated in the table, the Association's NPV is more sensitive to
increases in interest rates than to decreases. This sensitivity arises because
as interest rates rise, borrowers become less likely to prepay fixed-rate loans
than when rates are falling. Since a majority of the Association's assets have
longer terms and its liabilities have shorter terms, an increase in market
interest rates results in the cash flow characteristics of the Association's
liabilities changing more rapidly than the cash flow characteristics of its
assets resulting in a decrease in NPV from the base.
In evaluating the Association's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in varying
degrees to changes in market interest rates. In addition, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Furthermore, in the event of a change in interest
rates, prepayments on loans and mortgage-backed securities and early withdrawals
of certificates of deposit would likely deviate significantly from those assumed
in calculating the table. Therefore, the actual effect of changing interest
rates may differ from that presented in the foregoing table.
The Board of Directors and management of the Association believe that certain
factors afford the Association the ability to operate successfully despite its
exposure to interest rate risk. The Association manages its interest rate risk
by maintaining capital and liquidity well in excess of regulatory requirements.
The Association continually manages interest rate risk, and formally measures
changes in interest rate risk quarterly using its own interest rate risk model,
as well as the OTS model outlined above. The Board of Directors sets interest
rate risk limits to give management guidelines and limitations as to how much
risk can be maintained. The guidelines are reviewed periodically to ensure
effectiveness. Management makes adjustments to both assets and liabilities
continuously to mitigate interest rate risk exposure.
Liquidity and Capital Resources
Liquidity. The Association's liquidity, primarily represented by cash and cash
equivalents, is a result of its operating, investing and financing activities.
These activities are summarized below for the years ended June 30, 1999 and
1998.
Year Ended June 30,
-------------------
1999 1998
---- ----
(Dollars in thousands)
Net income $ 2,055 $ 4,072
Adjustments to reconcile net income to net cash from
Operating activities 6,999 2,700
--------
Net cash from operating activities 9,054 6,772
Net cash used in investing activities (141,286) (60,522)
Net cash from financing activities 131,412 53,662
--------- --------
Net change in cash and cash equivalents (820) (88)
Cash and cash equivalents at beginning of period 6,669 6,757
--------- --------
Cash and cash equivalents at end of period $ 5,849 $ 6,669
========= ========
The Association's sources of funds include customer deposits, other borrowings
including FHLB advances and repurchase agreements, loan and mortgage-backed
securities repayments and other funds provided by operations. The Association
also has the ability to borrow additional funds from the FHLB of Cincinnati.
The Association maintains investments in liquid assets based upon management's
assessment of (i) the Association's need for funds, (ii) expected deposit flows,
(iii) the yields available on short-term liquid assets, and (iv) the objectives
of the Association's asset/liability management program. The OTS requires
savings associations to maintain minimum levels of liquid assets. OTS
regulations currently require the Association to maintain an average daily
balance of liquid assets equal to at least 4.0% of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. At June 30, 1999, the Association's regulatory liquidity ratio was
45.0%. At June 30, 1999 and 1998, the Association had commitments to originate
loans or fund outstanding lines of credit totaling $38.3 million and $23.9
million, respectively. The Association considers its liquidity sufficient to
meet its outstanding short- and long-term needs. The Association expects to be
able to fund or refinance, on a timely basis, its material commitments and long-
term liabilities.
Capital Resources. Federally insured savings institutions, such as the
Association, are required to meet a 1.5% tangible capital requirement, a 4.0%
leverage ratio (core capital to risk weighted assets) requirement, a 4.0%
leverage ratio (core capital to adjusted total assets) requirement and an 8.0%
risk-based capital requirement. At June 30, 1999, the Association exceeded
these requirements with a tangible capital ratio of 14.1%, a core capital to
risk weighted assets ratio of 29.2%, a core capital to adjusted total assets of
14.1% and a risk-based capital ratio of 30.1%.
Year 2000 Issues
The Year 2000 issue is the result of many computer programs being written using
two digits rather than four to define an applicable year. The Company's
hardware, data-driven automated equipment, or computer programs that have date
sensitive software, may recognize a date using "00" as the year 1900 rather than
the year 2000. This faulty recognition could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in normal business
activities.
Through the establishment of a Year 2000 task force, the Company has conducted a
comprehensive review of all of its information technology and non-information
technology systems to identify potential Year 2000 problems. To facilitate the
review of all systems, the task force utilized the guidelines issued by the
Federal Financial Institutions Examination Council (FFIEC). The FFIEC outline
breaks the resolution of the Year 2000 problem into phases which are as follows:
Awareness, Assessment, Renovation, Validation and Implementation. At June 30,
1999, these phases had all been completed.
The Company has additionally developed contingency plans for all mission
critical systems and applications. The contingency plans encompass not only
potential internal disruptions but also the possible external disruptions
associated with utilities and other essential services. The plans detail
procedures that the Company will follow to allow for the delivery of products
and services to our customers should problems occur.
The Company currently anticipates that it will spend another $100,000 related to
Year 2000 issues in addition to the estimated $500,000 spent thus far.
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
Board of Directors
First Place Financial Corp.
Warren, OH
We have audited the accompanying consolidated statements of financial condition
of First Place Financial Corp. as of June 30, 1999 and 1998, and the related
statements of income, changes in shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The 1997 financial statements were
audited by other auditors whose report dated September 9, 1997, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Place
Financial Corp. as of June 30, 1999, and 1998, and the results of its operations
and cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/Crowe, Chizek and Company LLP
Cleveland, Ohio
July 15, 1999
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- ----------------------------------------------
June 30,
--------
1999 1998
- -------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 5,849 $ 6,669
Federal funds sold 22,869 1,565
Securities available for sale 249,159 211,185
Securities held to maturity, fair value
of $28,518,985 in 1998 28,295
Loans held for sale 945
Loans receivable, net 453,791 353,012
Premises and equipment, net 6,181 5,899
Accrued interest receivable 2,357 1,835
Federal income taxes receivable 2,511
Other assets 3,670 938
-------- --------
Total assets $747,332 $609,398
======== ========
LIABILITIES
Deposits $429,225 $435,462
Repurchase agreements 54,430 60,430
Federal Home Loan Bank advances 94,811 44,820
Advances by borrowers for taxes and
insurance 2,348 1,983
Accrued interest payable 1,131 1,090
Federal income taxes payable 1,702
Other liabilities 7,333 4,554
-------- --------
Total liabilities 589,278 550,041
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,
3,000,000
shares authorized, no shares issued and
outstanding
Common stock, $.01 par value, 33,000,000
shares authorized, 11,241,250 shares
issued 112
Additional paid in capital 110,230
Retained earnings, substantially
restricted 59,042 57,763
Unearned employee stock ownership plan
shares (8,693)
Accumulated other comprehensive income (2,637) 1,594
-------- --------
Total shareholders' equity 158,054 59,357
-------- --------
Total liabilities and shareholders'
equity $747,332 $609,398
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
Years ended June 30,
--------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
Interest income
Loans $32,087 $ 25,736 $ 21,872
Securities 2,126 3,165 3,736
Mortgage-backed and related securities 13,913 13,581 12,805
------- -------- --------
Total interest income 48,126 42,482 38,413
------- -------- --------
Interest expense
Deposits 18,886 19,860 18,496
FHLB advances 3,704 3,057 3,953
Repurchase agreements 3,092 2,595 480
------- -------- --------
Total interest expense 25,682 25,512 22,929
------- -------- --------
Net interest income 22,444 16,970 15,484
Provision for loan losses 1,062 1,779 590
------- -------- --------
Net interest income after provision
for loan losses 21,382 15,191 14,894
------- -------- --------
Noninterest income
Service charges 1,343 1,085 929
Security gains (losses), net (48) 135 (934)
Gain on sale of loans 73
Other 613 531 449
------- -------- --------
Total noninterest income 1,981 1,751 444
------- -------- --------
Noninterest expense
Salaries and benefits 6,571 5,471 4,863
Occupancy and equipment 1,828 1,578 1,432
Federal deposit insurance premiums 265 258 2,971
Franchise taxes 961 776 714
FHLB advances termination charges 495
Contribution to foundation 8,026
Other 2,546 2,289 1,918
------- -------- --------
Total noninterest expense 20,692 10,372 11,898
------- -------- --------
Income before income tax 2,671 6,570 3,440
Provision for income tax 616 2,498 1,216
------- -------- --------
Net income $ 2,055 $ 4,072 $ 2,224
======= ======== ========
Basic and diluted earnings per share
(since conversion) $ (.02) N/A N/A
=======
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ----------------------------------------------------------
Years Ended June 30, 1999, 1998 and 1997
--------------------------------------------
Additional Obligation Accumulated Other
Common Paid in Retained Under Comprehensive
Stock Capital Earnings ESOP Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Balance at July 1, 1996 $ 51,467 $ (2,644) $ 48,823
Comprehensive income:
Net income 2,224 2,224
Change in unrealized gain (loss) on
securities available for sale, net of tax 2,700 2,700
--------
Total comprehensive income 4,924
-------- -------- --------
Balance at June 30, 1997 53,691 56 53,747
Comprehensive income:
Net income 4,072 4,072
Change in unrealized gain (loss) on
securities available for sale, net of tax 0 1,538 1,538
-------- -------- --------
Total comprehensive income 4,072 1,538 5,610
-------- -------- --------
Balance at June 30, 1998 57,763 1,594 59,357
Comprehensive income:
Net income 2,055 2,055
Cumulative effect of securities
transferred, net of tax 0 172 172
Change in unrealized gain (loss) on
securities available for sale, net of tax 0 (4,403) (4,403)
-------- -------- --------
Total comprehensive income 2,055 (4,231) (2,176)
Issuance of common shares $ 112 $110,200 110,312
Cash dividends declared ($.075 per share) (776) (776)
Employee stock ownership plan obligation $(8,993) (8,993)
Commitment to release employee stock
ownership plan shares 30 300 330
-------- ---------- --------
Balance at June 30, 1999 $ 112 $110,230 $ 59,042 $(8,693) $ (2,637) $158,054
======= ======== ======== ========== ======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
Years ended June 30,
--------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
(Dollars in thousands)
Cash flows from operating activities
Net income $ 2,055 $ 4,072 $ 2,224
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 865 738 570
Provision for loan losses 1,062 1,779 590
Net amortization 649 282 128
Investment security (gains) losses 48 (135) 934
Loss on disposal of fixed assets 27 159
FHLB stock dividend (368) (352) (330)
Contribution of common stock to foundation 8,026
ESOP expense 330
Change in
Loans held for sale (945)
Interest receivable (522) 54 (16)
Interest payable 41 385 (186)
Other assets (2,731) (134) (24)
Other liabilities 2,481 499 573
Deferred loan fees 548 4 (181)
Deferred taxes (2,512) (420) 15
--------- -------- --------
Net cash from operating activities 9,054 6,772 4,456
--------- -------- --------
Cash flows from investing activities
Investment and mortgage-backed securities
available for sale
Proceeds from sales 34,421 37,052 43,294
Proceeds from maturities, calls
and principal paydowns 67,302 41,985 9,480
Purchases (118,203) (85,698) (50,050)
Investment and mortgage-backed securities
held to maturity
Proceeds from maturities, calls
and principal paydowns 1,226 16,438 7,225
Purchases (4,000)
Net decrease (increase) in fed funds sold (21,304) (1,355) 2,361
Purchases of Federal Home Loan Bank Stock (1,165) (330)
Sale of Federal Home Loan Bank Stock 830
Net increase in loans (102,389) (69,583) (30,678)
Premises and equipment expenditures, net (1,174) (191) (2,063)
--------- -------- --------
Net cash from investing activities (141,286) (60,522) (24,761)
--------- -------- --------
(continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
- ---------------------------------------------
Years ended June 30,
-------------------
1999 1998 1997
- ---------------------------------------------------------------------------------
(Dollars in thousands)
Cash flows from financing activities
Net change in deposits $ (6,237) $ 22,528 $ 21,200
Net change in advances by borrowers
for taxes and insurance 365 282 (16)
Proceeds from repurchase agreements (6,000) 44,430 16,000
Net proceeds from issuance of common stock 93,293
Net change in overnight borrowings 51,525
Proceeds from FHLB borrowings 14,000 57,075 59,550
Repayment of FHLB borrowings (15,534) (70,653) (77,230)
--------- -------- --------
Net cash from financing activities 131,412 53,662 19,504
--------- -------- --------
Net change in cash and cash equivalents (820) (88) (801)
Cash and cash equivalents at beginning
of year 6,669 6,757 7,558
--------- -------- --------
Cash and cash equivalents at end of year $ 5,849 $ 6,669 $ 6,757
========= ======== ========
Supplemental disclosures of cash flow
information
Cash paid during the year for
Interest $ 25,641 $ 25,127 $ 23,216
Income taxes 3,408 2,745 1,200
Non-cash transfer of securities from held
to maturity to available for sale 27,039
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
June 30, 1999, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Amounts are in thousands, except per share data
Nature of Operations and Principles of Consolidation: The consolidated
- ----------------------------------------------------
financial statements include First Place Financial Corp. and its wholly-owned
subsidiary, First Federal Savings and Loan Association of Warren, together
referred to as "the Company". Intercompany transactions and balances have been
eliminated in consolidation.
The Company provides financial services through its main office in Warren, Ohio,
eleven branch locations and six loan production offices. Its primary deposit
products are checking, savings and term certificate accounts, and its primary
lending products are residential mortgage, commercial and installment loans.
Substantially all loans are secured by specific items of collateral including
real estate, consumer assets and business assets. Commercial loans are expected
to be repaid from cash flow from operations of businesses. Real estate loans
are secured by both residential and commercial real estate. The majority of the
Company's income is derived from one-to four family residential real estate
loans and mortgage-backed securities.
Use of Estimates: The preparation of financial statements in conformity with
- ----------------
generally accepted accounting principles requires management to make estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. Areas involving the use of
management's estimates and assumptions include the allowance for loan losses,
fair values of financial instruments, the realization of deferred tax assets,
the carrying value of impaired loans, depreciation of premises and equipment,
the actuarial present value of pension benefit obligations and the net periodic
pension expense and prepaid pension costs recognized in the consolidated
financial statements.
Cash and Cash Equivalents: Cash and cash equivalents includes cash and deposits
- -------------------------
with other financial institutions under 90 days. Net cash flows are reported
for loan and deposit transactions.
Securities: Securities are classified into held-to-maturity and available-for-
- ----------
sale categories. Held-to-maturity securities are those that the Company has the
positive intent and ability to hold to maturity, and are reported at amortized
cost. Available-for-sale securities are those that the Company may decide to
sell if needed for liquidity, asset-liability management, or other reasons.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax.
Realized gains or losses on sales are determined based on the amortized cost of
the specific security sold. Amortization of premiums and accretion of discounts
are computed under a system materially consistent with the level yield method
and are recognized as adjustments to interest income. Prepayment activity on
mortgage-backed securities is affected primarily by changes in interest rates.
Yields on mortgage-backed securities are adjusted as prepayments occur through
changes to premium amortization or discount accretion.
Loans: Interest income on loans is accrued over the term of the loans based
- -----
upon the principal outstanding. The accrual of interest on loans is suspended
when, in management's opinion, the collection of all or a portion of the loan
principal has become doubtful. When a loan is placed on nonaccrual status,
accrued and unpaid interest at risk is charged against income. Under Statement
of Financial Accounting Standards ("SFAS") No. 114, as amended by SFAS No. 118,
the carrying value of impaired loans is periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and other cash payments are
reported as reductions in carrying value. Increases or decreases in carrying
value due to changes in estimates of future payments or the passage of time are
reported as reductions or increases in bad debt expense.
Loan fees, net of direct loan origination costs, are deferred and recognized
over the life of the loan as a yield adjustment.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
- -------------------------
allowance for loan losses is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the risk
of the loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While management
may periodically allocate portions of the allowance for specific problem-loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off against the allowance by management when deemed
uncollectible, although collection efforts continue and future recoveries may
occur.
A loan is impaired when it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
Impaired loans are carried at the present value of expected cash flows
discounted at the loan's effective interest rate or at the fair value of the
collateral if the loan is collateral dependent.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans and automobile, home equity and
second mortgages. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment.
When analysis of borrower operating results and financial condition indicates
that underlying cash flows of the borrower's business are not adequate to meet
its debt service requirements, the loan is evaluated for impairment. Often this
is associated with a delay or shortfall in payments of 30 days or more. Loans
are generally moved to nonaccrual status when 90 days or more past due or when
collection of principal or interest is in doubt. These loans are often also
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectible. The nature of disclosures for impaired loans is considered
generally comparable to prior nonaccrual and renegotiated loans and non-
performing and past-due asset disclosures.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
- -----------------
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense.
Costs after acquisition are expensed.
Premises and Equipment: Premises and equipment are stated at cost less
- ----------------------
accumulated depreciation. Depreciation is computed over the asset useful lives
on an accelerated basis, except for buildings for which the straight-line basis
is used. Maintenance and repairs are expensed and major improvements are
capitalized.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
- ------------------------------
yet allocated to participants is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce shareholders' equity; dividends on unearned ESOP shares reduce
debt and accrued interest.
Income Taxes: The Company records income tax expense based on the amount of tax
- ------------
due on its tax return plus deferred taxes computed based on the expected future
tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, using enacted tax rates. The provision for
income taxes is based on the effective tax rate expected to be applicable for
the entire year.
Earnings Per Common Share: Basic earnings per common share is net income
- -------------------------
divided by the weighted average number of common shares outstanding during the
period. ESOP shares are considered outstanding for this calculation unless
unearned. Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under stock options. Basic and
diluted earnings per share for the year ended June 30, 1999 were computed based
on earnings from the period December 31, 1998 (conversion date) to June 30,
1999, divided by the weighted average number of common shares outstanding for
the period. The earnings for the period December 31, 1998 (conversion date)
through June 30, 1999 were ($170). The weighted average number of shares
outstanding was 10,350,580 for the year ended June 30, 1999. Earnings per share
information for the years ended June 30, 1998 and 1997 is not meaningful since
the mutual to stock conversion was not consummated until December 31, 1998.
Comprehensive Income: Comprehensive income consists of net income and other
- --------------------
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity. The accounting standard that requires reporting
comprehensive income first applies for 1999, with prior information restated to
be comparable.
Fair Value of Financial Instruments: Fair values of financial instruments are
- -----------------------------------
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Financial Statement Presentation: Certain previously reported consolidated
financial statement amounts have been reclassified to conform to the 1999
presentation.
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN WITH THE
CONCURRENT FORMATION OF A HOLDING COMPANY
On June 15, 1998, the Board of Directors of the Company unanimously adopted a
plan of conversion to convert from a federally chartered mutual savings and loan
company to a federally chartered stock savings and loan with the concurrent
formation of a holding company, First Place Financial Corp.. The conversion was
consummated on December 31,
1998 by amending the thrift's federal charter and the sale of the Company's
common shares in an amount equal to the market value of the Company after giving
effect to the conversion. A total of 11,241,250 common shares of the Company
were issued at $10.00 per share and net proceeds from the sale were $93.3
million after deducting the costs of conversion and the shares contributed to
the foundation.
The Company retained 50% of the net proceeds from the sale of common shares.
The remainder of the net proceeds were invested in the capital stock issued by
the Company to the Association as a result of the conversion.
At the time of conversion, the Company established a liquidation account which
was equal to its regulatory capital as of the latest practicable date prior to
the Conversion. In the event of a complete liquidation, each eligible depositor
will be entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for the
accounts then held.
Under Office of Thrift Supervision ("OTS") regulations, limitations have been
imposed on all capital distributions, including cash dividends. The regulation
establishes a three-tiered system of restrictions, with the greatest flexibility
afforded to thrifts which are both well-capitalized and given favorable
qualitative examination ratings by the OTS.
In connection with the conversion, the Company established the First Federal of
Warren Community Foundation. The Foundation was funded with a contribution of
$8,026 of the Company's common stock at the date the conversion was consummated.
The Foundation is dedicated to the promotion of charitable purposes within the
communities in which the Company operates.
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of securities at June 30, 1999 and 1998 are as follows:
-------------------1999----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------
Available for sale
Investment securities
U.S. Government agencies $ 22,127 $ 33 $ (86) $ 22,074
Federal Home Loan Bank stock 5,947 5,947
Obligations of states and
political subdivisions 6,737 45 (88) 6,694
-------- ------ ------- --------
34,811 78 (174) 34,715
-------- ------ ------- --------
Mortgage-backed securities and
collateralized mortgage obligations
FHLMC 95,644 718 (1,726) 94,636
FNMA 75,008 425 (1,678) 73,755
GNMA 47,033 161 (1,805) 45,389
Other 658 6 664
-------- ------ --------
218,343 1,310 (5,209) 214,444
-------- ------ ------- --------
$253,154 $1,388 $(5,383) $249,159
======== ====== ======= ========
---------------------1998--------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------
Available for sale
Investment securities
U.S. Government agencies $ 15,734 $ 64 $ (1) $ 15,797
Federal Home Loan Bank stock 4,415 4,415
Obligations of states and
political subdivisions 826 27 853
-------- ------ ------ ---------
20,975 91 (1) 21,065
-------- ------ ------ ---------
Mortgage-backed securities and
collateralized mortgage obligations
FHLMC 99,494 1,470 (66) 100,898
FNMA 49,959 1,095 (536) 50,518
GNMA 37,355 376 (17) 37,714
Other 987 3 990
-------- ------ ----- ---------
187,795 2,944 (619) 190,120
-------- ------ ----- ---------
$208,770 $3,035 $(620) $211,185
======== ====== ===== =========
Held to maturity
Investment securities
U.S. Treasury securities $ 6,005 $ 13 $ (4) $ 6,014
U.S. Government agencies 4,147 33 4,180
Obligations of states and
political subdivisions 364 32 396
-------- ------ ------ ---------
10,516 78 (4) 10,590
-------- ------ ------ ---------
Mortgage-backed securities and
collateralized mortgage obligations
FNMA 16,267 210 (110) 16,367
GNMA 1,512 49 1,561
-------- ------ ---------
17,779 259 (110) 17,928
-------- ------ ------ ---------
$ 28,295 $ 337 $(114) $ 28,518
======== ====== ====== =========
The amortized cost and estimated fair value of debt securities at June 30, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
- ---------------------------------------------------------------------
Available for sale
Due in one year or less $ 10,460 $ 10,494
Due after one year through five years 15,224 15,135
Due after five years through ten years 3,180 3,139
-------- --------
28,864 28,768
Mortgage-backed securities and
collateralized mortgage obligations 218,343 214,444
-------- --------
$247,207 $243,212
======== ========
Proceeds from the sale of debt securities for the years ended June 30, 1999 and
1998 were $34,421 and $37,052. Gross gains of $103 and $472 and gross losses of
$151 and $337 were realized on sales of securities in 1999 and 1998.
Investment and mortgage-backed securities with a carrying value of $93,372 and
$103,493 as of June 30, 1999 and 1998 were pledged to secure public deposits,
repurchase agreements and for other purposes as required or permitted by law.
On October 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivatives Instruments and Hedging Activities". SFAS No. 133 allows the
Company a one-time reclassification of securities held to maturity to
classification as available for sale or trading. The Company transferred
securities with an amortized cost of $27,039 previously classified as held to
maturity to available for sale upon adoption. The unrealized gain on the
securities transferred totaled $260. On October 1, 1998, the Bank's equity
increased $172 as a result of the transfer.
NOTE 4 - LOANS
Loans as presented on the balance sheet are comprised of the following
classifications at June 30:
1999 1998
- -------------------------------------------------------------
Real estate mortgage loans
One- to four- family $357,374 $267,950
Multifamily 4,804 4,481
Commercial 10,192 8,627
Construction 13,993 6,301
Home equity 8,944 9,189
-------- --------
395,307 296,548
Consumer and other loans
Automobile 53,243 52,847
Other 19,217 11,242
-------- --------
72,460 64,089
Commercial loans 1,925 2,587
-------- --------
Less:
Loans in process 10,411 5,866
Net deferred loan origination fees 1,867 1,319
Allowance for loan losses 3,623 3,027
-------- --------
15,901 10,212
-------- --------
$453,791 $353,012
======== ========
A summary of the activity in the allowance for loan losses is as follows:
1999 1998 1997
- -----------------------------------------------------------------
Balance at beginning of period $3,027 $1,723 $1,259
Provision for loan losses 1,062 1,779 590
Charge-offs (542) (515) (138)
Recoveries 76 40 12
------ ------ ------
Balance at end of period $3,623 $3,027 $1,723
====== ====== ======
Nonaccrual loans totaled $1,574 and $2,143 at June 30, 1999 and 1998. Interest
not recognized on nonaccrual loans totaled approximately $90, $94 and $172 for
the years then ended June 30, 1999, 1998 and 1997. There were no impaired loans
at June 30, 1999 and 1998 or during the fiscal years ended June 30, 1999, 1998
and 1997.
NOTE 5 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to executive
officers, directors, and their related business interests. A summary of related
party loan activity is as follows for the year ended June 30, 1999:
Balance at beginning of period $ 979
New loans 377
Repayments (511)
-------
Balance at end of period $ 845
=======
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
1999 1998
- ----------------------------------------------------------------------
Land and improvements $ 1,090 $ 1,076
Buildings and improvements 4,542 4,523
Leasehold improvements 996 960
Furniture and equipment 5,261 6,467
Construction in process 438 137
------- -------
Total cost 12,327 13,163
Accumulated depreciation (6,146) (7,264)
------- -------
$ 6,181 $ 5,899
======= =======
At June 30, 1999, the Company is obligated for rental commitments under non-
cancelable operating leases on real estate and equipment as follows:
2000 $ 292
2001 241
2002 223
2003 187
2004 176
Thereafter 1,040
--------
$ 2,159
========
NOTE 7 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30, is summarized as follows:
1999 1998
- --------------------------------------------------------------------------------
Investment securities $ 381 $ 461
Mortgage backed
and related securities 1,062 1,062
Loans receivable 914 312
-------- --------
$ 2,357 $ 1,835
======== ========
NOTE 8 - DEPOSITS
Deposits consist of the following:
1999 1998
- --------------------------------------------------------------------------------
Noninterest-bearing demand $ 5,740 $ 5,217
Savings 66,629 67,402
NOW 36,082 34,141
Money Market 76,694 68,733
Certificates of deposit 244,080 259,969
-------- --------
$429,225 $435,462
======== ========
The aggregate amount of certificates of deposit with a minimum denomination of
$100 is $50,854 and $53,225 at June 30, 1999 and 1998.
At June 30, 1999, scheduled maturities of certificates of deposit are as
follows:
2000 $ 154,123
2001 52,344
2002 15,770
2003 4,264
2004 1,475
Thereafter 16,104
---------
$ 244,080
=========
Interest expense on deposits is summarized as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Savings $ 1,465 $ 1,661 $ 1,782
NOW 471 557 592
Money Market 3,234 2,744 2,110
Certificates of deposit 13,716 14,898 14,012
-------- -------- --------
$ 18,886 $ 19,860 $ 18,496
======== ======== ========
NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured by mortgage-backed
securities with a carrying value and fair value of approximately $58,110 at June
30, 1999 and $62,608 at June 30, 1998.
Securities sold under agreements to repurchase are financing arrangements that
mature within three years. Information concerning securities sold under
agreements to repurchase is summarized as follows:
1999 1998
- --------------------------------------------------------------------------------
Average daily balance during the year $ 53,800 $ 45,044
Average interest rate during the year 5.63% 5.76%
Maximum month-end balance during the year $ 60,430 $ 60,430
NOTE 10 - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank at year-end were as follows:
1999 1998
---------------------- -------------------------
Year of Maturity Interest Rate Amount Interest Rate Amount
-----------------------------------------------------------------------------------------------------
2000 5.178 - 6.00% $74,325 5.54% $20,000
2000 4.95 6,000
2003 5.20 - 5.99 9,763 5.20 - 5.59 7,669
2004 5.20 - 5.30 1,923 5.20 - 5.30 2,326
2006 6.20 2,800
2008 6.30 3,258
2010 6.05 11,567
------- -------
$94,811 $44,820
======= =======
At June 30, 1999, scheduled principal payments on FHLB advances are as follows:
Year ended June 30,
-------------------
2000 $ 75,071
2001 6,786
2002 6,409
2003 3,641
2004 85
Thereafter 2,819
------------
$ 94,811
============
All advances are collateralized by the Company's FHLB stock and residential
mortgage loans totaling $142,200 and $67,230 at June 30, 1999 and 1998. Based
on the Company investment in FHLB stock, the maximum dollar amount of FHLB
advance borrowings available at June 30, 1999 was $118.9 million.
NOTE 11 - INCOME TAXES
The provision for income taxes consists of the following:
1999 1998 1997
--------------------------------------------------------------------
Current provision $ 3,128 $2,918 $1,201
Deferred provision (benefit) (2,512) (420) 15
------- ------ ------
$ 616 $2,498 $1,216
======= ====== ======
The differences between the financial statement provision and amounts computed
by applying the statutory federal income tax rate of 34% to income before taxes
are as follows:
1999 1998 1997
-----------------------------------------------------------------
Income tax computed at the
statutory federal rate $ 908 $2,302 $1,169
Add (subtract) tax effect of
Miscellaneous items (292) 196 47
----- ------ ------
$ 616 $2,498 $1,216
===== ====== ======
The tax effects of principal temporary differences and the resulting deferred
tax assets and liabilities that comprise the net deferred tax balance are as
follows at June 30:
1999 1998
-------------------------------------------------------------------------
Items giving rise to deferred tax assets:
Deferred loan fees and costs $ 693 $ 525
Charitable contribution carryforward 2,358
Bad debts 352
Nonaccrual loan interest 31 32
Accrued retirement 137
Deferred compensation 69 68
Unrealized loss on securities available for sale 1,358
Other 32 28
------- -------
Deferred tax asset 4,893 790
Items giving rise to deferred tax liabilities:
FHLB stock dividend (731) (606)
Franchise taxes (139) (139)
Depreciation (624) (468)
Bad debts (26)
Unrealized gain on securities available for sale (821)
Other (4) (26)
------- -------
Deferred tax liabilities (1,498) (2,086)
------- -------
Net deferred asset (liability) $ 3,395 $(1,296)
======= =======
The Company has sufficient taxes paid in prior years and available for recovery
and expected future taxable income sufficient to warrant recording the full
deferred tax asset without a valuation allowance.
Retained earnings at June 30, 1999, include approximately $11,590 for which no
provision for federal income taxes has been made. This amount represents the tax
bad debt reserve at June 30, 1988, which is the end of the Company's base year
for purposes of calculating the bad debt deduction for tax purposes. If this
portion of retained earnings is used in the future for any purpose other than to
absorb bad debts, the amount used will be added to future taxable income. The
unrecorded deferred tax liability on the above amount at June 30, 1999 was
approximately $3,940.
Tax expense (benefit) attributable to securities gains (losses) approximated
($16), $46 and ($318) for the years ended June 30, 1999, 1998 and 1997.
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company sponsors a defined benefit pension plan that covers substantially
all employees. The plan calls for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and
compensation rates near retirement. Contributions to the plan reflect benefits
attributed to employees' services to date, as well as services expected to be
earned in the future. Plan assets consist primarily of certificates of deposits
with the Company and insurance contracts.
Information about the pension plan was as follows.
1999 1998
- --------------------------------------------------------------------------
Change in benefit obligation:
Beginning benefit obligation $ 3,943 $ 3,744
Service cost 300 225
Interest cost 232 225
Actuarial gain 679 664
Benefits paid (141) (915)
------- -------
Ending benefit obligation 5,013 3,943
Change in plan assets, at fair value:
Beginning plan assets 1,416 2,032
Actual return 143 79
Employer contribution 366 220
Benefits paid (141) (915)
------- -------
Ending plan assets 1,784 1,416
------- -------
Funded status (3,229) (2,527)
Unrecognized net actuarial loss 2,262 1,620
Unrecognized prior service cost 75 158
------- -------
Prepaid (accrued) benefit cost $ (892) $ (749)
======= =======
The components of pension expense and related actuarial assumptions were as
follows.
1999 1998 1997
- -------------------------------------------------------------------------
Service cost $ 300 $ 226 $ 230
Interest cost 232 225 233
Expected return on plan assets (79) (35) (134)
Amortization of prior service cost 9 (42) 22
Recognized net actuarial (gain) loss 37
----- ----- -----
Net $ 499 $ 374 $ 351
===== ===== =====
Discount rate on benefit obligation 5.95% 6.93% 6.93%
Long-term expected rate of return
on plan assets 7.00 7.00 7.00
Rate of compensation increase 5.00 5.00 5.00
In June 1999, the Company's Board of Directors approved a resolution terminating
the Company's defined benefit pension plan. In June 1999, the Board of Directors
approved ceasing the accumulation of future benefits to plan participants. The
settlement of vested plan benefits will occur upon receipt of a determination
letter from the Commissioner approving the plan termination. Participants may
choose a lump sum payment, the purchase of a nontransferable deferred annuity
contract or a transfer to the 401 (k) plan.
NOTE 13 - EMPLOYEE STOCK OWNERSHIP PLAN
During 1999, the Company established an Employee Stock Ownership Plan ("ESOP")
for the benefit of employees 21 and older and who have completed at least one
thousand hours of service. Contributions under the ESOP are conditioned upon the
ESOP being qualified under Sections 401 and 501 of the Internal Revenue code of
1986, as amended (the "Code").
To fund the plan, the ESOP borrowed $8,993 from the Company for the purposes of
purchasing 899,300 shares of stock at $10 per share in the conversion. Principal
and interest payments on the loan are due in annual installments which begin
December 31, 1999 with the final payments of principal and interest being due
and payable at maturity on December 31, 2013. Interest is payable during the
term of the loan at a fixed rate of 7.75%. The loan is collateralized by the
shares of the Company's common stock purchased with the proceeds. As the
Association periodically makes contributions to the ESOP to repay the loan,
shares will be allocated to participants on the basis of the ratio of each
year's principal and interest payments to the total of all principal and
interest payments. Dividends on allocated shares increase participant accounts.
ESOP compensation expense was $330 for 1999.
Shares held by the ESOP at June 30 were as follows:
1999
----
Shares allocated to participants 30,000
Unearned shares 869,300
--------
Total ESOP shares 899,300
========
Fair value of unearned shares $ 10,704
========
NOTE 14 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans. The Company's
exposure to credit loss in case of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Company follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of June 30, 1999, variable rate commitments to make loans or fund outstanding
lines of credit amounted to approximately $30.0 million and fixed-rate
commitments amounted to $8.3 million. The interest rates on variable-rate
commitments ranged from 6.75% to 19.75% and interest rates on fixed-rate
commitments ranged from 6.75% to 8.75% at June 30, 1999. As of June 30, 1998,
commitments to extend credit totaled approximately $23.9 million. Since loan
commitments may expire without being used, the amounts do not necessarily
represent future cash commitments.
NOTE 15- SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION
Included in federal deposit insurance premium expense in the Statement of Income
for the year ended June 30, 1997 is $2,461 for a special assessment resulting
from legislation passed and enacted into law on September 30, 1996 to
recapitalize the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation. Thrifts such as the Company paid a one-time assessment in
November, 1996 of $0.657 for each one hundred dollars in deposits as of March
31, 1995. Because of the recapitalization, the Company began paying lower
deposit insurance premiums in January, 1997.
NOTE 16 - REGULATORY CAPITAL
The Company is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
Capital to risk-
weighted assets Tier 1 capital
-----------------
Total Tier 1 to average assets
--------- --------------------------- --------------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year end, actual capital levels (in thousands) and minimum
required levels were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- -------- --------
1999
Total capital (to risk weighted assets) $101,358 30.1% $26,918 8.0% $33,648 10.0%
Tier 1 capital (to risk weighted assets) $ 98,106 29.2% $13,459 4.0% $20,189 6.0%
Tier 1 capital (to adjusted total assets) $ 98,106 14.1% $27,871 4.0% $34,839 5.0%
Tangible capital (to adjusted total assets) $ 98,106 14.1% $10,452 1.5% N/A
1998
Total capital (to risk weighted assets) $ 60,418 21.8% $22,134 8.0% $27,667 10.0%
Tier 1 capital (to risk weighted assets) $ 57,763 20.9% $11,067 4.0% $16,600 6.0%
Tier 1 capital (to adjusted total assets) $ 57,763 9.8% $24,279 4.0% $30,349 5.0%
Tangible capital (to adjusted total assets) $ 57,763 9.8% $ 9,105 1.5% N/A
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
value of the Company's financial instruments at June 30, 1999 and 1998:
------- 1999--------- -------- 1998--------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ----------- ---------- -----------
Assets
Cash and cash equivalents $ 5,849 $ 5,849 $ 6,669 $ 6,669
Federal Funds sold 22,869 22,869 1,565 1,565
Securities available
for sale 249,159 249,159 211,185 211,185
Securities held to
maturity 28,295 28,519
Loans held for sale 945 945
Loans receivable, net 453,791 452,135 353,012 368,109
Accrued interest receivable 2,357 2,357 1,835 1,835
Liabilities
Demand and savings deposits $(185,145) $(185,145) $(175,493) $(175,493)
Time deposits (244,080) (244,322) (259,969) (260,580)
Repurchase agreements (54,430) (54,780) (60,430) (60,888)
FHLB advances (94,811) (94,652) (44,820) (44,774)
Advances by borrowers
for taxes and insurance (2,348) (2,348) (1,983) (1,983)
Accrued interest payable (1,131) (1,131) (1,090) (1,090)
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents
and federal funds sold is considered to approximate cost. The estimated fair
value of investment and mortgage-backed securities is based on quoted market
values for the individual securities or for equivalent securities. Carrying
value is considered to approximate fair value for loans that contractually
reprice at intervals of six months or less, for short-term borrowings, for
deposit liabilities subject to immediate withdrawal and accrued interest. The
fair values of fixed rate loans, loans that reprice less frequently than each
six months, time deposits and Federal Home Loan Bank borrowings have been
approximated by a discount rate value technique utilizing estimated market
interest rates as of June 30, 1999 and 1998. The fair values of unrecorded
commitments at June 30, 1999 and 1998 are not material.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at June 30, 1999 and 1998, the estimated fair values
would necessarily have been achieved at these dates, since market values may
differ depending on various circumstances. The estimated fair values at June 30,
1999 and 1998 should not necessarily be considered to apply at subsequent dates.
Other assets and liabilities of the Company may have value but are not included
in the above disclosures, such as property and equipment. In addition,
nonfinancial instruments typically not recognized in these financial statements
nevertheless may have value, but are not included in the above disclosures.
These include, among other items, the estimated earnings power of core deposit
accounts, the earnings potential of loan servicing rights, the value of a
trained work force, customer goodwill, and similar items.
NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEET
June 30, 1999
ASSETS
Cash and cash equivalents $ 410
Interest-bearing deposits 22,559
Securities available for sale 27,653
Note receivable 8,993
Investment in banking subsidiaries 96,094
Other assets 3,246
--------
Total assets $158,955
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 901
Shareholders' equity 158,054
--------
Total liabilities and shareholders' equity $158,955
========
CONDENSED STATEMENTS OF INCOME
Period December 31, 1998 (inception of Company)
through June 30, 1999
INCOME
Interest income $ 1,011
Dividend from subsidiary 4,413
--------
Total income 5,424
EXPENSES
Contribution to Foundation 8,026
Other expenses 167
--------
Total expense 8,193
Loss before income taxes (2,769)
Income tax benefit (2,459)
--------
Loss before undistributed net earnings of subsidiary (310)
Equity in undistributed net earnings of subsidiary 140
--------
Net loss $ (170)
========
CONDENSED STATEMENTS OF CASH FLOWS
Period December 31, 1998 (inception of
Company) through June 30, 1999
Cash flows from operating activities
Net income $ (170)
Equity in earnings from subsidiary (140)
Net amortization 12
Contribution of common stock to foundation 8,026
Change in other assets (3,246)
Change in other liabilities 777
--------
Net cash from operating activities 5,259
Cash flows from investing activities
Purchases of mortgage-backed securities (29,259)
Paydowns of mortgage-backed securities 648
Increase in interest bearing accounts (22,559)
Increase in loans to subsidiary association (8,993)
Purchase of capital stock of subsidiary (37,979)
--------
Net cash from investing activities (98,142)
Cash flows from financing activities
Proceeds from sale of stock 93,293
--------
Net cash from financing activities 93,293
Net change in cash and cash equivalents 410
Beginning cash and cash equivalents -
--------
Ending cash and cash equivalents $ 410
========
NOTE 19 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
1999 September 30 December 31 March 31 June 30
- ---- ------------ ----------- -------- -------
(Dollars in thousands, except per share data)
Summary of earnings:
Total interest income $11,215 $11,851 $12,455 $12,605
Total interest expense 6,700 6,921 5,990 6,071
------- ------- ------- -------
Net interest income 4,515 4,930 6,465 6,534
Provision for loan losses 183 476 166 238
Net interest income after
provision for loan losses 4,332 4,454 6,299 6,296
Total noninterest income 458 453 460 610
Total noninterest expense 2,900 11,450 3,076 3,266
------- ------- ------- -------
Income before income tax 1,890 (6,542) 3,683 3,640
Provision for incomes tax 643 (2,224) 1,105 1,092
------- ------- ------- -------
Net income $ 1,247 $(4,318) $ 2,578 $ 2,548
======= ======= ======= =======
Basic and diluted earnings
per share (since conversion) N/A $(.51) $0.25 $0.25
1998 September 30 December 31 March 31 June 30
- ---- ------------ ----------- -------- -------
(Dollars in thousands, except per share data)
Summary of earnings:
Total interest income $10,194 $10,498 $10,792 $10,998
Total interest expense 6,094 6,358 6,515 6,545
------- ------- ------- -------
Net interest income 4,100 4,140 4,277 4,453
Provision for loan losses 245 95 151 1,288
Net interest income after
provision for loan losses 3,855 4,045 4,126 3,165
Total noninterest income 558 373 238 582
Total noninterest expense 2,649 2,538 2,356 2,829
------- ------- ------- -------
Income before income tax 1,764 1,880 2,008 918
Provision for incomes tax 498 660 691 649
------- ------- ------- -------
Net income $ 1,266 $ 1,220 $ 1,317 $ 269
======= ======= ======= =======
Basic and diluted earnings per share N/A N/A N/A N/A
NOTE 20 - SUBSEQUENT EVENTS
On July 2, 1999 the Company approved an Employee Stock Option Plan and a
Retention Recognition Plan. Options to buy stock of the Company are granted to
directors and certain key employees under the Employee Stock Option Plan.
The Retention Recognition Plan (RRP) provides to directors and certain key
employees an ownership interest in the Company designed to compensate such
directors and key employees for services to the Company. The Company contributed
sufficient funds to enable the RRP to purchase and issue as awards 449,650
common shares of the Company. The shares awarded vest over a 5-year period
beginning in July 2000.