UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
__X__Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2001
or
_____Transition report pursuant to Section 13 or 15(d) of the Exchange Act
Commission File Number 333-33350
First Security Bancorp, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Kentucky 61-1364206
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
318 East Main Street, Lexington, KY 40507
(Address of Principal Executive Offices)
(859)- 367-3700
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 90 days.
_X_ Yes ___ No
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: Common stock, no par value - 1,456,250
shares outstanding as of November 14, 2001.
Transitional Small Business Disclosure Format (check one):
___Yes _X_No
FIRST SECURITY BANCORP, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.................................................4
Item 2. Management's Discussion and Analysis or Plan of Operation............10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................18
PART I - Financial Information
Item 1. Financial Statements
First Security Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
September 30 December 31
Assets 2001 2000
Cash & due from banks $ 6,623 $3,774
Federal funds sold 5,079 4,524
------ ------
Total cash & cash equivalents 11,702 8,298
Securities available for sale 21,419 13,240
Loans 145,290 107,098
Less allowance for loan losses (1,492) (1,221)
------ ------
Net loans 143,798 105,877
FHLB stock 330 224
Premises, equipment, and leasehold
improvements, net 6,873 5,590
Accrued interest receivable 1,037 1,062
Other assets 336 168
------- ------
Total Assets $185,495 $134,459
======= =======
Liabilities & Shareholders' Equity
Liabilities
Deposits
Non-interest bearing $14,903 $ 8,274
Time deposits $100,000 and over 38,545 21,750
Other interest bearing 106,784 85,519
------- ------
Total Deposits 160,232 115,543
Securities sold under agreements
to repurchase 5,598 1,393
Federal Home Loan Bank Advances 1,041 1,049
Accrued interest payable 757 624
Other liabilities 567 238
------- ------
Total Liabilities 168,195 118,847
Shareholders' Equity
Common stock no par value 8,385 8,071
Paid-in Capital 8,385 8,071
Retained Earnings 263 (639)
Accumulated other comprehensive
Income 267 109
------- ------
Total Shareholders' Equity 17,300 15,612
------- ------
Total Liabilities and Shareholders' Equity $185,495 $134,459
======= ======
First Security Bancorp, Inc.
Consolidated Statements of
Income and Comprehensive Income (Unaudited)
(three and nine months ended)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
Interest Income
Loans, including fees $2,827 $2,226 $7,792 $6,146
Securities - taxable 230 79 713 194
Securities - non-taxable 110 - 185 -
Federal funds sold 21 213 185 446
Other 7 4 30 10
----- ----- ---- ----
3,195 2,522 8,905 6,796
Interest Expense
Deposits 1,854 1,541 5,323 4,010
Other Borrowings 90 30 196 56
----- --- ----- -----
1,944 1,571 5,519 4,066
----- --- ----- -----
Net Interest Income 1,251 951 3,386 2,730
Provision for loan losses 120 112 321 313
----- --- --- -----
Net interest income after
provision for loan loss 1,131 839 3,065 2,417
Noninterest Income
Service charges and
fees on deposits 73 35 156 94
Securities Gains 100 - 195 -
Real Estate lease - - 101 -
Other 54 16 92 43
-- -- -- --
227 51 544 137
Noninterest expense
Salaries and
employee benefits 492 355 1,328 980
Occupancy & Equipment 166 84 459 248
Data Processing 52 42 153 117
Advertising 46 14 119 71
Professional Fees 39 32 107 171
Taxes other than payroll,
property and income 37 31 104 115
Other 143 122 377 307
--- --- ---- ----
975 680 2,647 2,009
--- --- ----- -----
Net Income Before taxes 383 210 962 545
Income Tax Expense 60 - 60 -
--- --- --- ---
Net Income $323 $210 $902 $545
=== === === ===
Other Comprehensive Income
Other comprehensive income 194 68 158 51
--- --- --- ---
Comprehensive income $517 $ 278 $1,060 $596
=== ==== ===== ===
Weighted average shares common outstanding:
Basic 1,456 1,001 1,455 1,000
Diluted 1,491 1,032 1,490 1,028
Earnings per share:
Basic $.22 $.21 $.62 $ .54
Diluted .22 .20 .61 .53
First Security Bancorp, Inc.
Consolidated Statement of Changes In Shareholders' Equity
(in thousands) (unaudited)
Accumulated
Additional Other Total
--Common Stock-- Paid-In Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income (Loss) Equity
Balance January 1, 2001 1,415 $8,071 $8,071 $(639) $ 109 $15,612
Net change in accumulated
other comprehensive income
158 158
Issuance of Common Stock 41 314 314 628
Net Income 902 902
----- ----- ------ ------ ---- -----
Balance September 30, 2001 1,456 $8,385 $8,385 $ 263 $ 267 $ 17,300
===== ===== ====== ======= ===== ======
First Security Bancorp, Inc.
Statements of Cash Flows (unaudited)
Nine Months Ended September 30, 2001 and 2000
(in thousands)
2001 2000
Cash flows from Operating Activities:
Net income $902 $ 545
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 172 94
Amortization and accretion on available
for sale securities, net (29) 2
Provision for loan losses 321 313
Federal Home Loan Bank Stock dividends (15) (10)
Securities gains (195) -
Change in assets and liabilities:
Accrued interest receivable 25 (340)
Other assets (307) 16
Accrued interest payable 133 202
Other liabilities 329 32
--- ----
Net cash from operating activities 1,336 854
Cash flows from investing activities
Net change in loans (38,242)(21,271)
Activity in available for sale securities
Maturities,Calls, and principal repayments 6,792 1,594
Purchases (27,801) (4,196)
Sales 13,351 -
Leasehold improvements and net purchases of
premises and equipment (1,455) (711)
Purchases Federal Home Loan Bank stock (91) (93)
------ ------
Net cash from investing activities (47,446)(24,677)
Cash flows from financing activities
Net change in deposits 44,689 30,021
Net changes in securities sold under
agreements to repurchase 4,205 (883)
Payments on Federal Home Loan Bank advances (8) -
Issuance of common stock 628 778
----- -----
Net cash from financing activities 49,514 29,916
------ ------
Net change in cash and cash equivalents 3,404 6,093
Cash and cash equivalents at beginning of period 8,298 11,272
------ ------
Cash and cash equivalents at end of period $11,702 $17,365
====== ======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest $5,386 $ 3,864
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The accounting and reporting policies of First Security Bancorp, Inc. and
its wholly-owned subsidiary First Security Bank of Lexington, Inc. conform to
generally accepted accounting principles and to predominant practices within the
banking industry. The significant policies are described within First Security
Bancorp's 10-KSB for the year ended December 31, 2000.
First Security Bank is a Kentucky corporation incorporated to operate as a
commercial bank under a state bank charter. First Security Bank generates
commercial, mortgage, and installment loans, and receives deposits from
customers located primarily in the Fayette County, Kentucky area. The majority
of First Security Bank's income is derived from lending activities. The majority
of First Security Bank's loans are secured by specific items of collateral
including business assets, real estate, and consumer assets, although borrower
cash flow may also be a primary source of repayment. All of First Security
Bank's operations are considered by management to be aggregated into one
reportable operating segment.
Recent Accounting Pronouncements: Beginning January 1, 2001, a new standard
required all derivatives to be recorded at fair value. Unless designated as
hedges, change in these fair values will be recorded in the income statement.
Fair value changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the fair value of
the hedged item is not otherwise recorded. The adoption of this standard did not
have a material effect.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ending September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001.
NOTE 2 - SECURITIES
Securities were as follows: Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(in thousands)
Available for Sale
September 30, 2001
U.S. Government agency $ 500 $ 5 $ - $ 505
Mortgage-backed 10,392 260 - 10,652
Municipal securities 10,121 144 (3) 10,262
------ --- ------ ------
Total debt securities $21,013 $409 $ (3) $21,419
===== === ====== ======
December 31, 2000
U.S. Treasury $ 250 $ - $ - $ 250
U.S. Government agency 10,628 121 (54) 10,695
Mortgage-backed 2,253 48 (6) 2,295
----- --- ---- -----
Total debt securities $13,131 $169 $(60) $13,240
===== === ==== =====
Securities pledged at Setpember 30, 2001 and year-end 2000 had carrying amounts
of $12.0 million, and $2.4 million, respectively, and were pledged to secure
customer repurchase agreements and to the Federal Reserve Discount window.
Proceeds from securities sold during the nine months ended September 30, 2001
totaled $13.3 million and resulted in a net gain of $195,000.
NOTE 3 - LOANS
Loans were as follows:
September 30 December 31
2001 2000
---- ----
(in thousands)
Commercial $35,907 $31,257
Mortgage loans on real estate:
Commercial 78,222 53,058
Residential 18,583 11,663
Consumer 12,578 11,120
------ -----
$145,290 $107,098
====== ======
Changes in the allowance for loan losses were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
Beginning balance $1,373 $ 997 $1,221 $819
Loans charged off (1) - (50) (23)
Recoveries - - - -
Provision for loan losses 120 112 321 313
---- ---- ---- ----
Ending Balance $1,492 $1,109 $ 1,492 $1,109
===== ===== ===== =====
NOTE 4 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
Three Months Ended Nine Months Ended
Setpember 30 September 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except per share data)
Basic
Net Income $ 323 $ 210 $ 902 $ 545
Weighted average common shares 1,456 1,001 1,455 1,000
Basic earnings per common share .22 .21 .62 .54
Diluted
Net income $323 $210 902 545
Weighted average common shares 1,456 1,001 1,455 1,000
Add: Dilutive effects of assumed exercises
of stock warrents 35 31 35 28
----- ----- ---- ---
Average shares and dilutive potential
common shares 1,491 1,032 1,490 1,028
===== ===== ===== =====
Diluted earnings per common share .22 .20 .61 .53
Diluted earnings per share for the nine month period ending September 30, 2001
excluded 21,950 stock options because they were anti-dilutive.
NOTE 5 - STOCK OFFERING
On September 29, 2000,the Company initiated a public offering at 500,000
shares of common stock at $16 per share. Through December 31, 2000, the Company
sold 414,778 shares which, net of direct costs of issuance, increased
shareholders' equity $6.3 million. An additional 41,472 shares in the offering
were sold in January 2001 which, net of direct costs of issuance, increased
shareholder's equity an additional $628,000.
Part I Item 2.
Management's Discussion and Analysis or Plan of Operation
General.
First Security Bank is a commercial banking organization organized under
the laws of the Commonwealth of Kentucky, and is a wholly-owned subsidiary of
the Company. First Security Bank offers a variety of products and services
through three full service offices including the acceptance of deposits for
checking, savings and time deposit accounts; extension of secured and unsecured
loans to corporations, individuals and others; issuance of letters of credit;
and rental of safe deposit boxes. First Security Bank's lending activities
include commercial and industrial loans, real estate, installment, and other
consumer loans and revolving credit plans. Operating revenues are derived
primarily from interest and fees on loans and from interest on investment
securities.
We have made, and may continue to make, various forward-looking statements
with respect to credit quality (including delinquency trends and the allowance
for loan losses), corporate objectives and other financial and business matters.
When used in this discussion the words "anticipate," "project," "expect,"
"believe," and similar expressions are intended to identify forward-looking
statements. In addition to factors disclosed by First Security Bancorp, the
following factors, among others, could cause actual results to differ materially
from such forward-looking statements: pricing pressures on loan and deposit
products; competition; changes in economic conditions both nationally and in our
market; the extent and timing of actions of the Federal Reserve Board;
customers' acceptance of our products and services; and the extent and timing of
legislative and regulatory actions and reforms.
Overview
The mission of First Security Bank is to firmly establish itself in Lexington,
Kentucky as a full-service bank providing traditional products and services
typically offered by commercial banks. The Lexington banking market is highly
competitive with 17 commercial banks and thrift institutions currently serving
the market. Most of the banks in Lexington are part of larger bank holding
companies headquartered outside of the Lexington /Fayette County market and
Kentucky. Promoting local management has proven effective for First Security
Bank in attracting customers, fostering loyalty and establishing and maintaining
strong asset quality.
In order to support continued growth, First Security Bancorp made an offering of
common stock that commenced on September 29, 2000 at a price of $16.00 per
share. First Security Bancorp sold 414,778 shares through December 31, 2000 and
an additional 41,472 shares were sold in January, 2001, for total gross proceeds
of $7.3 million, ($6.9 million net of direct costs of issuance). Shareholders'
equity to total assets increased from 8.7% at year-end 1999 as compared to 11.6%
at year-end 2000 and was 9.3% at September 30, 2001.
Net income for the nine months ending September 30, 2001 was $902,000,up from
$545,000 for the same period in 2000. Earning assets increased from $123.9
million as of December 31, 2000, to $170.6 million as of September 30, 2001
contributing to the increase in net income. Net loans increased from $105.9
million as of December 31, 2000 to $143.8 million as of September 30, 2001.
Investment securities increased from $13.2 million as of December 31, 2000 to
$21.4 million as of September 30, 2001. Funding earning asset growth, were
deposit increases of $44.7 million from $115.5 million as of December 31, 2000,
to $160.2 million as of September 30, 2001, and increases in customer repurchase
agreements of $4.2 million from $1.4 million to $5.6 million respectively, as of
the same date.First Security Bancorp began recording federal income tax expense
for the first time during the quarter ending September 30, 2001. The amount of
the tax provision made was $60,000 and therefore, net income for this quarter is
not comparable on the same basis with prior quarters.
In December, 2000 First Security Bank purchased a former banking facility at
318-320 East Main Street in downtown Lexington for $3.5 million to replace its
main office. First Security moved its downtown offices to the new facility in
September, 2001. The new location features drive-thru windows, an ATM and
innovative interior design features. A total of $1.1 million was invested on the
new facility in addition to its purchase price. A fourth location will be opened
during the fourth quarter of 2001. A building has been purchased and will be
renovated for this purpose, at an anticipated total cost of $850,000. The land
for this facility will be leased for $5,600 per month. The impact of these new
locations will cause an increase in non-earning assets which may slow near-term
growth in net interest income. Further, growth in net income and book value per
per share will be negatively impacted until the growth in earnings associated
with these new locations covers the additional costs. First Security Bancorp
believes however, that the potential longer term benefits, including prospects
for new loan and deposit growth, outweigh the near term costs.
Results of Operations
Net Interest Income
Net interest income was $3.39 million for the nine months ended September 30,
2001, compared to $2.73 million for the nine months ended September 30, 2000,
resulting in an increase of $660,000 or 24.2%. Net interest income was $1.25
million for the three months ended September 30, 2001, compared to $951,000 for
the three months ended September 30, 2000, resulting in an increase of $299,000
or 31.4%. The increase in net interest income was primarily the result of volume
increases in earning assets. Year-to-date earning assets were up $46.7 million,
or 37.7%, from December 31, 2000 levels. The general level of interest rates
declined significantly for the nine month period ending September 30, 2001,
causing rate sensitive assets to reprice at lower rates faster than interest
bearing liabilities, resulting in a falling net interest margin during 2001. The
net interest margin rose during the same period in 2000. Net interest margin for
the nine months ending September 30, 2001, was 3.08%. This was the same as for
the nine months ending September 30, 2000. Quarterly net interest margin was
3.08% for the period ending September 30, 2001, decreasing from 3.34% for the
same period in 2000.
In order to improve net interest margin going forward, we have deployed
available funding by investing in investments such as mortgage backed securities
and federally tax exempt municipal bonds, and in response to market conditions,
have lowered interest bearing deposit rates. While we anticipate some additional
downward rate movement, which could further reduce margin and earnings, the
actions discussed above in conjunction with lower deposit costs, should have a
positive impact on earnings.
Noninterest Income and Expenses
Noninterest income increased from $137,000 to $544,000 for the first nine months
ending September 30, 2000 and 2001, respectively. Amounts were $51,000 and
$227,000 for the quarters ending September 30, 2000 and 2001, respectively.
Components of noninterest income include service charges and fees on deposit
accounts, securities gains, lease income on real property and other fees.
Service charges and fees on deposits increased from $35,000 to $73,000 comparing
the current quarter to one year ago and from $94,000 to $156,000 comparing year
to date.We anticipate that service charge income on deposit accounts will
continue to grow comensurate with our deposit base, and as a result of the
introduction of a new checking product. Securities gains were $195,000 for the
nine months ended September 30, 2001 , and $100,000 for the three months ended
September 30, 2001. Lease income was $101,000 and $0 for the same periods
respectively. Securities gains resulted from the sale of a number of investments
in order to reinvest as previously discussed and to a lesser degree, for
liquidity. Gains of this nature are normally infrequent and irregular in amount,
and are not anticipated to regularly increase earnings in significant amounts
going forward. As discussed above, no building lease revenue was recorded for
the quarter ending September 30, 2001. The new main office is larger than our
current needs, allowing room for future growth. We are in the process of
securing tenants for the excess space which if fully leased, should provide
annual rents of approximately $200,000. We anticipate that lease revenues will
increase and stabilize as new tenants are added.
Noninterest Expense
Total noninterest expense was $2.6 million for the nine months ended September
30, 2001, versus $2.0 million for the nine months ended September 30, 2000.
Total noninterest expense for the quarter ending September 30, 2001, was
$975,000 versus $680,000 for the quarter ending September 30, 2000. The primary
components of noninterest expense are salaries and benefits and costs associated
with occupancy and equipment.
Salaries and benefits were $1.3 million and $980,000 for the nine months ended
September 30, 2001, and 2000, respectively. The quarterly amounts were $492,000
and $355,000 respectively. The number of full time equivalent employees
increased from 27 at September 30, 2000, to 45 at September 30, 2001. Staffing
levels increased as a result of the addition of a third branch office in the
fourth quarter of 2000, the relocation to the new main office facility this
quarter which offers expanded customer services, and the addition of a fourth
branch office expected to open in the fourth quarter of 2001.
Occupancy and equipment expenses were $459,000 and $248,000 for the nine months
ended Setpember 30, 2001, and 2000, respectively. The quarterly amounts were
$166,000 and $84,000 respectively. The increase in these expenses resulted
primarily from operating costs of the third branch office and costs associated
with preparing the main office for its opening. Additional costs of this nature
will be incurred in connection with the new branch office to open in the fourth
quarter of 2001.
Securities Available for Sale
Investment securities increased from $13.2 million as of December 31, 2000 , to
$21.4 million as of September 30, 2001. Investment security purchases were
designed to attain better yields leading to an improvement in margin, slow the
rate of repayment by increasing the proportion of mortgage backed securities
versus callable securities, increase the amount of municipal securities offering
earnings not subject to federal taxation and to a lesser extent, reinvest in
select shorter term instruments. Securities were sold to provide funding sources
for new loan activity and to reinvest in the security purchases previously
discussed.
Loans
Net loans increased $37.9 million, or 35.8%, from December 31, 2000 to September
30, 2001. During the same period commercial and commercial real estate loans
increased $29.8 million or 35.3% and consumer loans and residential real estate
loans, increased $8.4 million or 36.8%. We anticipate that the rate of growth in
the consumer loan portfolio will increase, precipitated by continued development
of our branch network and the introduction of additional consumer loan products.
We have a significant amount of our loans to commercial and commercial real
estate borrowers. Approximately 78.6% of our loan portfolio was in loans to
commercial businesses and commercial real estate borrowers. The growth of
commercial loans and commercial real estate loans is a result of increased
marketing and outreach efforts in our primary market. We anticipate that the
rate of growth in the commercial sector of the portfolio will decrease as
penetration in the consumer loan market increases, precipitated by the continued
development of our branch network.
Allowance and Provision for Loan Losses
The allowance for loan losses is regularly evaluated by management and
reported quarterly to our board of directors. Our management and board of
directors maintain the allowance for loan losses at a level believed to be
sufficient to absorb inherent losses in the portfolio at a point in time.
Management's allowance for loan loss estimate consists of specific and general
reserve allocations as influenced by various factors. Such factors include
changes in lending policies and procedures; underwriting standards; collection,
charge-off and recovery history; changes in national and local economic and
business conditions and developments; changes in the characteristics of the
portfolio; ability and depth of lending management and staff; changes in the
trend of the volume and severity of past due, non-accrual and classified loans;
troubled debt restructuring and other loan modifications; and results of
regulatory examinations. To evaluate the loan portfolio, management has also
established loan grading procedures. These procedures establish a grade for each
loan upon origination which is periodically reassessed throughout the term of
the loan. Grading categories include prime, good, satisfactory, fair, watch,
substandard, doubtful, and loss. Specific reserve allocations are calculated for
individual loans having been graded watch or worse based on the specific
collectability of each loan. Loans graded watch or worse also include loans
severely past-due and those not accruing interest. Loss estimates are assigned
to each loan, which results in a specific allocation of a portion of the
allowance for loan losses being allocated to that loan.
The general reserve allocation is computed by loan category reduced by
loans with specific reserve allocations and loans fully secured by certificates
of deposit with us. Loss factors are applied to each category for which the
cumulative product represents the general reserve. These loss factors are
typically developed over time using actual loss experience adjusted for the
various factors discussed above. As we are a newly organized bank, our
historical loss experience is less reliable as a future predictor of inherent
losses than that of a bank with a mature loss history. Until our own experience
becomes fully developed, we have computed these factors utilizing local and
Kentucky peer data from the Uniform Bank Performance Reports which we believe is
representative of our loan customer base and is therefore a reasonable predictor
of inherent losses in our portfolio.
The provision for loan losses was $321,000 and $313,000 for the nine months
ending September 30, 2001, and 2000, respectively. Year to date charge-offs
remained at nominal levels of $50,000 as of September 30, 2001, as compared to
$23,000 as of September 30,2000. The level of delinquent and non-accrual loans,
at minimal levels in the past, did increase to moderate levels. The overall
level of delinquent and non-accrued loans compare favorably with available peer
data. Management considered the increase in the level of past due loans as
discussed above, and as a result increased the level of specific loss allocation
to the allowance for loan losses. As discussed above, management's analysis
includes adjustments to the allowance based upon changes in economic conditions.
The local economy has historically been stronger than the regional or national
economy. Should local economic conditions worsen, additional provisions to the
allowance for loan losses may become necessary. The loan loss reserve to total
loans was 1.03% as of September 30, 2001.
Nonperforming Assets
September 30 December 31
2001 2000
(in thousands)
Nonaccrual loans $349 $ -
Loans past due 90 days
or more and still accruing 404 2
--- --
Total nonperforming loans 753 2
Other real estate owned - -
--- --
Total nonperforming assets $753 2
==== ==
Percentage of nonperforming
loans to total loans .52% -%
Percentage of nonperforming
assets to total assets .41% -%
We believe the allowance for loan losses at September 30, 2001 was
adequate. The relationship between the allowance for loan losses and loans did
not change signficiantly during the periods presented as, based on the best
information available, the overall credit quality of our loan portfolio has not
changed materially. Also, the levels of charge-offs and delinquent loans have
remained low in spite of increases in loan volume. Although we believe we use
the best information available to make allowance provisions, future adjustments
which could be material may be necessary if the assumptions used to determine
the allowance differ from future loan portfolio performance.
Deposits and Other Borrowings
The deposit base provides the major funding source for earning assets.
Total deposits increased by $44.7 million or 38.7% from December 31, 2000 to
September 30, 2001. Non-interest bearing deposits were 9.3% of total deposits as
of September 30, 2001, increasing from 7.2% as of December 30, 2000. We believe
that the expanded branch network will increase the level of non-interest bearing
deposits going forward, contributing to an improvement in net interest margin.
The table below illustrates our deposits by major categories as of
Setpember 30, 2001 and December 31, 2000;
DEPOSITS
September 30 December 31
2001 2000
--------- ------------
(in thousands)
Interest-bearing demand deposits $15,746 $15,028
Savings deposits 14,930 12,784
Time deposits less than $100,000 76,108 57,707
Time deposits $100,000 and over 38,545 21,750
-------- -----------
Total interest-bearing deposits 145,329 107,269
Total noninterest-bearing deposits 14,903 8,274
-------- -----------
Total $160,232 $115,543
======== ===========
Liquidity.
Liquidity management is the process by which management attempts to insure that
adequate liquid funds are available for withdrawals by depositors, to fund
borrower credit needs, to pay operating expenses, fund capital expenditures,
service long-term obligations, and meet reserve requirements. Liquidity is
monitored by the Asset/Liability Management Committee of First Security
Bancorp's Board of Directors, which develops and implements appropriate funding
and balance sheet strategies.
First Security Bank has several alternative funding sources which may supplement
the deposit base in meeting ongoing liquidity needs. The alternative sources
include unsecured federal funds lines of credit aggretating approximately $25
million; a secured repurchase agreement line from a correspondent bank and from
the Commonwealth of Kentucky; and a secured line of credit from the Federal
Reserve Bank of approximately $165,000. Based upon its membership with the
Federal Home Loan Bank of Cincinnati, First Security Bank could borrow an
additional $18.9 million, as of September 30, 2001.
Short-term borrowings as of September 30, 2001, consisted of $5.6 million in
overnight customer repurchase agreements and $1.0 million in Federal Home Loan
Bank advances. The level of consumer repurchase agreements increased
significantly due to the establishment of several new customer relationships.
Federal funds purchased during the quarter ending September 30, 2001, had an
average outstanding balance of $3.2 million. The high outstanding daily balance
was $9.6 million. Loan demand was strong during the quarter and the interest
rate environment helped to create an irregular flow of deposits. These
conditions precipitated the need to borrow. Should these conditions continue,
additional temporary borrowing may be necessary.
Management believes that there is sufficient liquidity to meet all reasonable
depositors' and creditors' needs at the present time.
Capital.
On September 29, 2000, First Security Bancorp initiated a public offering of
500,000 shares of common stock at $16 per share. Through December 31, 2000,
414,778 shares had been sold, which, net of direct costs of issuance, increased
shareholders' equity by $6.3 million. An additional 41,472 shares in the
offering were sold in January, 2001 which, net of direct costs of issuance,
increased shareholders' equity an additional $628,000.
Regulatory agencies measure capital adequacy within a framework that makes
capital requirements, in part, dependent on the individual risk profiles of
financial institutions. Total capital was $17.3 million as of September 30,
2001, increasing $1.7 million from $15.6 million as of December 31, 2000.
Shareholders' equity to assets was 9.3% as of September 30, 2001, and 11.6% as
of December 31, 2000.
The increase in total capital was attributable to the sale of common stock
discussed above, the change in the market value of available for sale securities
and net income year to date through September 30, 2001. First Security Bancorp
and First Security Bank, are allowed to distribute earnings in the form of
dividends to shareholders. At the present time, we have chosen not to pay
dividends in order to retain capital to sustain current and future growth. As of
September 30, 2001, First Security Bank exceeded all of the regulatory minumums
for a "well capitalized" institution.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index of this Form 10-QSB are
filed as a part of this report.
(b) Reports on Form 8-K
A report on Form 8-K dated July 19, 2001 was filed by the registrant
reporting the registrant's earnings for the quarter ending June 30,
2001.
SIGNATURES
In accordance with the requirements of the Exchange Act , the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
First Security Bancorp, Inc.
/s/John S. Shropshire
Date: November 14, 2001 John S. Shropshire
Chairman, President and CEO
(Principal Executive Officer)
/s/Ben A. New
Date: November 14, 2001 Ben A. New
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11 Statement re Computation of Per Share Earnings (see Item 1,
Note 4 "Earnings Per Share" for computation)