SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26570
Harrodsburg First Financial Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 61-1284899
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 South Chiles Street, Harrodsburg, Kentucky 40330
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (859) 734-5452
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes X No
------ -----
As of February 7, 2003, 1,334,039 shares of the registrant's common stock were
issued and outstanding.
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2002 (unaudited) and
September 30, 2002....................................................3
Consolidated Statements of Income for the Three-Month Periods Ended
December 31, 2002 and 2001 (unaudited)................................4
Consolidated Statements of Changes in Stockholders' Equity for the
Three Month Periods Ended December 31, 2002 and 2001 (unaudited)......5
Consolidated Statements of Cash Flows for the Three Month Periods Ended
December 31, 2002 and 2001 (unaudited)................................6
Notes to Consolidated Financial Statements.....................................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................9
Item 3 Controls and Procedures.......................................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 16
Item 2. Changes in Securities........................................................ 16
Item 3. Defaults Upon Senior Securities.............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders.......................... 16
Item 5. Other Information............................................................ 16
Item 6. Exhibits and Reports on Form 8-K............................................. 16
Signatures and Certifications................................................................17
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of As of
December 31, September 30,
2002 2002
------------------ ------------------
ASSETS (unaudited)
Cash and cash equivalents $ 15,123,192 $ 9,555,676
Interest bearing deposits in banks 100,000 2,892,000
Securities available-for-sale at fair value 18,540,983 17,275,431
Securities held-to-maturity, fair value of $1,240,000 and
$2,761,000 at December 31, 2002 and September 30, 2002 1,219,823 2,221,053
Federal Home Loan Bank stock, at cost 1,852,200 1,831,400
Loans receivable, net 109,956,917 113,351,935
Accrued interest receivable 659,333 667,290
Investment in Independence Bancorp of New Albany 1,749,511
Cash surrender value of life insurance 2,691,291 2,646,941
Premises and equipment, net 1,995,779 1,838,733
Core deposit intangible asset 265,872
Goodwill 356,064 356,064
Other assets 178,606 415,515
------------- -------------
Total assets $ 154,689,571 $ 153,052,038
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 127,297,913 $ 121,920,471
Advances from Federal Home Loan Bank 1,000,000 5,000,000
Advance payments by borrowers for taxes and insurance 301 364
Deferred federal income tax 1,635,990 1,537,650
Dividends payable 401,975
Other liabilities 555,000 463,668
------------- -------------
Total liabilities 130,489,204 129,324,128
------------- -------------
Minority interests 1,662,939 1,661,699
------------- -------------
Stockholders' equity
Common stock, $0.10 per value, 5,000,000 shares authorized;
1,257,987 and 1,257,477 shares issued and outstanding at
December 31, 2002 and September 30, 2002, respectively 218,213 218,213
Additional paid-in capital 21,262,650 21,283,692
Retained earnings, substantially restricted 11,213,394 10,906,419
Accumulated other comprehensive income 3,066,628 2,867,743
Treasury stock, 848,109 and 842,209 shares, at cost, as of
December 31, 2001 and September 30, 2002, respectively (12,462,938) (12,385,241)
Unallocated employee stock ownership plan (ESOP) shares (760,519) (824,615)
------------- -------------
Total stockholders' equity 22,537,428 22,066,211
------------- -------------
Total liabilities and stockholders' equity $ 154,689,571 $ 153,052,038
============= =============
See accompanying notes to consolidated financial statements.
3
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three-Month Periods
Ended December 31,
-------------------------------
2002 2001
------------ -------------
Interest income:
Interest on loans $ 1,979,435 $ 2,086,995
Interest and dividends on securities 132,041 75,465
Other interest income 50,991 97,096
----------- -----------
Total interest income 2,162,467 2,259,556
----------- -----------
Interest expense:
Interest on deposits 1,059,731 1,261,979
Interest on other borrowings 16,434 48,797
----------- -----------
Total interest expense 1,076,165 1,310,776
----------- -----------
Net interest income 1,086,302 948,780
Provision for loan losses 29,100 42,000
----------- -----------
Net interest income after provision for loan losses 1,057,202 906,780
----------- -----------
Non-interest income:
Loan and other service fees, net 70,410 63,456
Other 204,493 8,448
----------- -----------
274,903 71,904
----------- -----------
Non-interest expense:
Compensation and benefits 453,733 451,690
Occupancy expenses, net 86,642 81,859
Federal and other insurance premiums 7,374 6,917
Data processing expenses 76,385 91,571
State franchise tax 33,828 29,759
Other operating expenses 205,744 176,783
----------- -----------
863,706 838,579
----------- -----------
Income before income tax expense 468,399 140,105
Income tax expense (163,992) (107,092)
Minority interests 6,156 76,471
----------- -----------
Net income $ 310,563 $ 109,484
=========== ===========
Basic earnings per common share $ .25 $ .09
=========== ===========
Diluted earnings per common share $ .25 $ .09
=========== ===========
Weighted average common shares outstanding 1,255,970 1,239,319
=========== ===========
Weighted average common shares outstanding
after dilutive effect 1,255,970 1,239,319
=========== ===========
See accompanying notes to consolidated financial statements.
4
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Month Periods Ended December 31, 2002 and 2001
(unaudited)
Accumulated
Additional Other Unearned Total
Common Paid-in Retained Comprehensive Treasury ESOP Stockholders'
Stock Capital Earnings Income Stock Shares Equity
-------- ----------- ----------- ------------- ------------ ------------ -------------
Balance, September 30, 2002 $218,213 $21,283,692 $10,906,419 $2,867,743 $(12,385,241) $ (824,615) $22,066,211
Comprehensive income:
Net income 310,563 310,563
Other comprehensive income,
net of tax unrealized
gains on securities 198,885 198,885
-----------
Total comprehensive income 509,448
ESOP shares earned (21,042) (3,588) 64,096 39,466
Purchase of common stock (77,697) (77,697)
-------- ----------- ----------- ---------- ------------ ----------- -----------
Balance, December 31, 2002 $218,213 $21,262,650 $11,213,394 $3,066,628 $(12,462,938) $ (760,519) $22,537,428
======== ============ =========== ========== ============ =========== ===========
Balance, September 30, 2001 $218,213 $21,237,991 $10,978,953 $3,257,257 $(12,333,701) $(1,053,323) $22,305,390
-----------
Comprehensive income:
Net income 109,484 109,484
Other comprehensive income,
net of tax unrealized
gains on securities 20,351 20,351
-----------
Total comprehensive income 129,835
ESOP shares earned 3,981 32,783 36,764
Purchase of common stock (8,985) (8,985)
-------- ----------- ----------- ---------- ------------ ----------- -----------
Balance, December 31, 2001 $218,213 $21,241,972 $11,088,437 $3,277,608 $(12,343,686) $(1,020,540) $22,463,004
======== =========== =========== ========== ============ =========== ===========
See accompanying notes to consolidated financial statements.
5
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three-Month Periods
Ended December 31,
----------------------------
2002 2001
----------- ------------
Operating activities
Net income $ 310,563 $ 109,484
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 29,100 42,000
ESOP benefit expense 39,467 36,764
Provision for depreciation 46,114 30,799
Amortization of loan fees (50,948) (35,855)
Accretion/amortization of investment
premium/discount 5,401 2,567
FHLB stock dividend (20,800) (23,600)
Gain on sale of securities (18,326)
Gain on sale of property (119,855)
Minority interest 1,239 (76,471)
Change in:
Interest receivable 7,958 31,286
Interest payable (3,757) 31,596
Accrued liabilities (15,708) 41,789
Prepaid expense 72,895 34,497
Cash surrender value of life insurance (44,350)
Income tax payable 209,137 110,908
----------- -----------
Net cash provided by operating activities 448,130 335,764
----------- -----------
Investing activities
Net (increase) decrease in loans 3,348,196 (2,775,706)
Proceeds from maturity of investment securities - HTM 1,000,000 1,000,000
Proceeds from sale of securities - AFS 2,597,706 7,498,031
Purchase of securities - AFS (3,665,600) (4,498,688)
Purchase of bank owned life insurance (2,500,000)
Proceeds from sale of property 462,543
Maturity of certificates of deposit 2,792,000
Investment in Independence Bancorp, Inc. (2,000,000)
Purchase of fixed assets (313,164) (12,590)
----------- -----------
Net cash provided (used) by investing activities 4,221,681 (1,288,953)
----------- -----------
See accompanying notes to consolidated financial statements.
6
HARRODSBURG FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
For the Three-Month Periods
Ended December 31,
--------------------------------------
2002 2001
--------------- ----------------
Financing activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 2,347,269 715,824
Net increase (decrease) in certificates of deposit 3,030,172 5,758,269
Net increase (decrease) in custodial accounts (64) (1,193)
Purchase of treasury stock (77,697) (8,985)
Proceeds from FHLB borrowings 7,000,000
Repayment of FHLB borrowings (4,000,000) (7,000,000)
Payment of dividends (401,975) (404,150)
--------------- ---------------
Net cash provided by financing activities 897,705 6,059,765
--------------- ---------------
Increase in cash and cash equivalents 5,567,516 5,106,576
Cash and cash equivalents, beginning of period 9,555,676 10,795,848
--------------- ---------------
Cash and cash equivalents, end of period $ 15,123,192 $ 15,902,424
=============== ===============
Supplemental Disclosures
Cash payments for:
Interest on deposits $ 884,803 $ 1,279,180
=============== ===============
Income taxes $ 53,194 $ -0-
=============== ===============
See accompanying notes to consolidated financial statements.
7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Harrodsburg First Financial Bancorp, Inc. ("Company" or "HFFB") is a
corporation organized under the laws of Delaware. On July 15, 2001, the
Company converted to a bank holding company. The activities of the Company
are primarily limited to holding stock in two banks, First Financial Bank
("First Financial"), a wholly-owned subsidiary, and Citizens Financial
Bank, Inc. ("Citizens"), in which the Company acquired a 55.8% interest on
July 15, 2001. In addition, on December 31, 2002, the Company finalized the
purchase of a 22.53% interest in Independence Bancorp of New Albany
("Independence"), which is accounted for using the equity method of
accounting. Independence is a bank holding company, which has one bank
subsidiary.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for fair
presentation have been included. The results of operations and other data
for the three-month period ended December 31, 2002 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending September 30, 2003.
2. Purchase of Interest in Bank Holding Company
On December 31, 2002, the Company acquired 200,000 shares of common stock
in Independence Bancorp of New Albany at a cost of $10 per share for a
total purchase price of $2,000,000. The Company owns a 22.53% interest in
Independence and the transaction resulted in the Company recording a core
deposit intangible asset of $265,872. This intangible asset is the excess
of the purchase price of $2.0 million over the Company's interest acquired
in the consolidated book value of Independence at December 31, 2002. This
intangible asset will be amortized over its expected useful life. The
consolidated assets and stockholders' equity of Independence at December
31, 2002 amounted to $89.6 million and $7.7 million, respectively.
3. Treasury stock
The Company repurchased a total of 5,900 shares of common stock at a total
price of $77,697 during the three months ended December 31, 2002.
4. Consolidated Income Statement
Three Months Ended December 31, 2002
------------------------------------------------------------
ELIMINA- CONSOLI-
HFFB FFB CFB TIONS DATED
---------- --------- -------- -------- --------
Net interest income $ 12 $ 896 $ 190 $ (12) $ 1,086
Provision for loan losses - - (29) - (29)
Non-interest income 333 235 40 (333) 275
Non-interest expense (46) (615) (215) 12 (864)
Income tax expense 11 (175) - - (164)
Minority interest - - - 6 6
------- ------- ------ ------- --------
$ 310 $ 341 $ (14) (327) $ 310
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
The Company may from time to time make written or oral "forward-looking
statements", including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly Report on Form
10-QSB and the exhibits thereto), in its reports to stockholders and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements involve risks that uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to changes based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the Strength of the United States economy in general
and the strength of the local economy in which the Company conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the board of governors of the federal
reserve system, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors' products
and services; the willingness of users to substitute competitors' products and
services for the Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
acquisitions; changes in consumer spending and savings habits; and the success
of the Company at managing the risks resulting from these factors.
The Company cautions that the listed factors are not exclusive. The Company does
not undertake to update any forward-looking statement, whether written or oral,
that may be made from time to time by or on behalf of the Company.
Recent Legislation to Curtail Corporate Accounting Irregularities
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Act"). The Securities and Exchange Commission (the "SEC") has promulgated
certain regulations pursuant to the Act and will continue to propose additional
implementing or clarifying regulations as necessary in furtherance of the Act.
The passage of the Act and the regulations implemented by the SEC subject
publicly-traded companies to additional and more cumbersome reporting
regulations and disclosure. Compliance with the Act and corresponding
regulations may increase the Company's expenses.
Financial Condition
The Company's consolidated assets increased approximately $1.6 million, or 1.1%
to $154.7 million at December 31, 2002 compared to $153.1 million at September
30, 2002. The increase in assets of $1.6 million was funded primarily by an
increase in deposits of $5.4 million net of $4.0 million used to repay advances
from the Federal Home Loan Bank.
9
Securities available-for-sale increased $1.3 million to $18.5 million at
December 31, 2002. The increase of $1.3 million is due to a purchase of U.S.
Government Agency backed securities totaling $3.6 million, the increase in the
unrealized fair value of these securities totaling $300,000, offset by the sale
of mortgage derivative securities totaling $2.6 million. Securities
held-to-maturity decreased $1.0 million to $1.2 million at December 31, 2002 due
to the maturity of two $500,000 U.S. Government Agency bonds.
Loans receivable, net decreased $3.4 million to $110.0 million at December 31,
2002. Net loans for First Financial decreased $5.1 million, which was offset in
part by a net increase in loans for Citizens of $1.7 million. The decrease of
$5.1 million in loans for First Financial was primarily due to the repricing of
loans and the refinancing of loans by customers resulting from the current
interest rate environment. The increase in loans for Citizens of $1.7 million
represents management's efforts to increase loan growth in the Bank's market
area.
The investment in Independence Bancorp of New Albany for $1.7 million was
purchased on December 31, 2002. The Company paid $2.0 million for a 22.53%
interest in Independence, which resulted in approximately $300,000 recorded as
an intangible asset identified as core deposit value.
Total interest bearing liabilities increased $1.4 million to $128.3 million at
December 31, 2002 compared to $126.9 million at September 30, 2002. Total
deposits for First Financial increased $2.6 million during this period while the
total deposits of Citizens increased $2.8 million. The $5.4 million increase in
interest-bearing deposits was offset by the repayment of $4.0 million in
advances from the Federal Home Loan Bank.
Stockholders' equity was $22.5 million at December 31, 2002, an increase of
approximately $500,000 from the balance at September 30, 2002. The increase in
stockholders' equity was due to net income of $310,000, an increase in net
unrealized gains on available-for-sale securities of $199,000 plus an increase
of $39,000 from the release of ESOP shares, offset in part by the purchase of
Company stock totaling $78,000.
Net Income
Net income increased $201,000, or 183.4%, to $310,000 for the three months ended
December 31, 2002 compared to the same period in 2001. Net interest income
increased $138,000, non-interest income increased $203,000, and the provisions
for loan losses decreased $13,000, which were offset by an increase of $26,000
in non-interest expense, an increase of $57,000 in income tax expense and a
decrease of $70,000 in Citizens' loss.
Net Interest Income
Net interest income for the three months ended December 31, 2002 was $1.1
million. The increase in net interest income of $138,000 in the quarter ended
December 31, 2002 compared to the same period in 2001 was due to a decrease in
interest expense of $235,000, partially offset by a decrease in interest income
of $97,000. Interest income in the 2002 period was $2.2 million with an average
yield of 5.69% compared to $2.3 million with an average yield of 6.62% in the
2001 period. Interest expense in the 2002 period was $1.1 million with an
average rate paid of 3.36% compared to $1.3 million with an average rate paid of
4.59% in the 2001 period.
10
Interest Income
Interest income was $2.2 million, or 5.69% of average interest-earning assets
for the three months ended December 31, 2002 compared to $2.3 million, or 6.62%
of average interest-earning assets for the same period in 2001. The decrease in
interest income of $97,000 was due to the reduced yields from lower market
interest rates earned in 2002 compared to 2001 offset in part by an increase in
the average balance of interest-earning assets in 2002. The average balance of
interest-earning assets was $151.9 million in the three month period ended
December 31, 2002 compared to $136.6 million for this same period in 2001.
Interest Expense
Interest expense was $1.1 million, or 3.36% of average interest-bearing
liabilities for the three months ended December 31, 2002 compared to $1.3
million, or 4.59% of average interest-bearing liabilities for the same period in
2001. The decrease in interest expense of $235,000 was due to the reduction in
the rates paid on the average interest-bearing liabilities in 2002 compared to
2001, offset in part by an increase in the average balance of interest-bearing
liabilities in 2002. The average balance of interest-bearing liabilities was
$128.2 million in the three month period ended December 31, 2002 compared to
$114.2 million for the same period in 2001.
Provision for Losses on Loans
The provision for losses is charged to operations to bring the total allowance
for loan losses to a level that represents management's best estimate of the
losses inherent in the portfolio based on:
- Historical experience;
- Volume;
- Type of lending;
- Industry standards;
- The level and status of past due and non-performing loans;
- The general and local economic conditions; and
- Other factors affecting the collectibility of the loans in the portfolio.
For the three months ended December 31, 2002, the provision for loan losses
decreased by $12,900 to $29,100 compared to $42,000 for the same period in 2001.
The provision in 2002 of $29,100 was related to the continued growth of
Citizens' loan portfolio, which increased by a net $1.7 million during the three
month period ended December 31, 2002. The loan portfolio for First Financial
decreased by a net $5.1 million in the 2002 period, and no change in the
allowance for loan losses related to the First Financial loan portfolio was
deemed necessary by management.
The allowance for loan losses is maintained at a level that represents
management's best estimates of losses in the loan portfolio at the balance sheet
date. However, there can be no assurance that the allowance for losses will be
adequate to cover losses, which may be realized in the future and that
additional provisions for losses will not be required.
11
Non-interest Income
Non-interest income was $275,000 and $72,000 for the quarters ended December 31,
2002 and 2001, respectively. Other non-interest income increased by $196,000 to
$204,000 in 2002, primarily due to a $118,000 gain on the sale by First
Financial of branch facilities which were replaced by new facilities in 2001.
The increase in non-interest income was also attributable to increases in the
Company's bank owned life insurance cash value increase of $44,000, and a gain
of $18,000 on the sale of available-for-sale securities.
Non-Interest Expense
Non-interest expense increased approximately $26,000, or 3.1% to $864,000 for
the three month period ended December 31, 2002 compared to $838,000 for the same
period in 2001. Other non-interest expense increased $30,000, primarily due to
$24,000 in legal expenses incurred in connection with the investment in
Independence Bancorp of New Albany.
12
Non-Performing Assets
The following table sets forth information with respect to non-performing assets
at the dates indicated. No loans were recorded as restructured loans within the
meaning of SFAS No. 15 at the dates indicated.
December 31, September 30,
2002 2002
--------------- ---------------
(amounts in thousands)
Loans accounted for on a non-accrual basis:(1)
Real Estate:
Residential............................................... $ - $ 41
--------------- ---------------
Total .................................................... - 41
--------------- ---------------
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential............................................... 231 217
Other .................................................... 5
Consumer.................................................. 496 112
--------------- ---------------
Total .................................................... 727 334
--------------- ---------------
Total of non-accrual and 90 day past due loans $ 727 $ 375
=============== ===============
Percentage of net loans .66% .33%
=============== ===============
Other non-performing assets(2) $ 69 $ 233
=============== ===============
At December 31, 2002, there were no loans in non-accrual status. Accordingly,
all income earned for the nine months ended December 31, 2002 on the loans in
the table above, has been included in income.
At December 31, 2002, there were no loans identified by management, which were
not reflected in the preceding table, but as to which known information about
possible credit problems of borrowers caused management to have serious doubts
as to the ability of the borrowers to comply with present loan repayment terms.
The actual capital and the related capital levels as defined by the OTS and FDIC
based on the accompanying consolidated financial statements are as follows (in
thousands):
December 31, 2002
-----------------------------------------------------
First Financial Citizens
------------------------- --------------------------
Amount % Amount %
------------------------- --------------------------
Total risk-based capital (to risk-weighted assets) $13,512 20.60% $3,968 18.36%
Tier I capital (to risk-weighted assets) $13,129 20.02% $3,738 17.30%
Tier I capital (to adjusted total assets) $13,129 11.18% $3,738 18.36%
----------------------------
(1) Non-accrual status denotes any loan past due 90 days and whose loan
balance, plus accrued interest, exceeds 90% of the estimated loan
collateral value. Payments received on a non-accrual loan are either
applied to the outstanding principal balance or recorded as interest
income, or both, depending on assessment of the collectibility of the loan.
(2) Other non-performing assets represent property acquired through
foreclosure or repossessions accounted for as a foreclosure in-substance.
This property is carried at the fair market of the property value, net of
selling expenses.
13
September 30, 2002
-----------------------------------------------------
First Financial Citizens
------------------------- --------------------------
Amount % Amount %
------------------------- --------------------------
Total risk-based capital (to risk-weighted assets) $14,485 21.11% $3,994 19.68%
Tier I capital (to risk-weighted assets) $14,102 20.55% $3,752 18.49%
Tier I capital (to adjusted total assets) $14,102 11.67% $3,752 19.68%
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required each federal banking agency to implement prompt corrective actions for
institutions that it regulates. In response to this requirement, regulations
were adopted requiring banks to meet specified capital requirements. The rules
provide that a bank is "well capitalized" if its total risk-based capital ratio
is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater, its
leverage capital ratio is 5% or greater and the institution is not subject to a
capital directive. Under these regulations, First Financial and Citizens were
deemed to be "well capitalized" as of December 31, 2002 and September 30, 2002.
There are no conditions or events since those notifications that management
believes would change its classifications.
Liquidity
The liquidity of the Company depends primarily on the dividends paid to it by
First Financial and Citizens. The payment of cash dividends by First Financial
and Citizens on their common stocks is limited by regulations of the OTS and the
FDIC, which are tied to their level of compliance with their regulatory capital
requirements.
First Financial's and Citizens' primary sources of funds are deposits and
proceeds from principal and interest payments of loans. Additional sources of
liquidity are advances from the FHLB of Cincinnati and other borrowings, such as
Federal Funds purchased. At December 31, 2002, First Financial had advances from
the FHLB totaling $1.0 million. First Financial utilizes FHLB of Cincinnati
borrowings during periods when management believes that such borrowings provide
a lower cost source of funds than deposit accounts and it desires liquidity in
order to help expand its lending operations.
The Company's operating activities produced positive cash flows for the quarters
ended December 31, 2002 and 2001.
The Company's most liquid assets are cash and cash-equivalents, which include
investments in highly liquid, short-term investments. At December 31, 2002 and
September 30, 2002, cash and cash equivalents totaled $15.1 million and $9.6
million, respectively.
At December 31, 2002, First Financial and Citizens had $78.1 million in
certificates of deposits due within one year and $21.3 million due between one
and three years. Management believes, based on past experience, that First
Financial and Citizens will retain much of the deposits or replace them with new
deposits. At December 31, 2002, First Financial and Citizens had $1.4 million in
outstanding commitments to originate mortgages, unused home equity and
commercial lines of credit totaling $3.0 million and available construction loan
draws of $1.7 million. First Financial and Citizens intend to fund these
commitments with short-term investments and proceeds from loan repayments.
14
Item 3 Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-QSB, the Registrant's principal executive officer and
principal financial officer have concluded that the Registrant's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
(b) Changes in internal controls. There were no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
15
PART II. Other Information
Item 1. Legal Proceedings.................................................None
Item 2. Changes in Securities.............................................None
Item 3. Defaults Upon Senior Securities...................................None
Item 4. Submission of Matters to a Vote of Security Holders...............None
Item 5. Other Information.................................................None
Item 6. Exhibits and Reports on Form 8-K
Number Description
------ -----------------------------------------------------
(A) Exhibit 99.0-Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(B) No reports on Form 8-K were filed during the quarter
ended December 31, 2002.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Harrodsburg First Financial Bancorp, Inc.
/s/ Arthur L. Freeman February 11, 2003
-------------------------------------------------------- -----------------
Arthur L. Freeman, President and Chief Executive Officer Date
/s/ Jack Hood February 11, 2003
-------------------------------------------------------- -----------------
Jack Hood, Secretary/Treasurer (Chief Accounting Officer) Date
17
SECTION 302 CERTIFICATION
I, Arthur L. Freeman, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Harrodsburg First
Financial Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 11, 2003 /s/ Arthur L. Freeman
---------------------- -----------------------------------
Arthur L. Freeman
President and Chief Executive Officer
SECTION 302 CERTIFICATION
I, Jack D. Hood, Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Harrodsburg First
Financial Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 11, 2003 /s/ Jack D. Hood
---------------------- ----------------------------------------
Jack D. Hood
Treasurer
(Chief Financial and Accounting Officer)