President’s Message

Mike Head

Fellow Stockholders:

Ten years removed from the beginning of the “great recession”, the banking industry, as a whole, has stabilized.  Commercial and residential construction is trending higher, the unemployment rate is near record lows, and consumer optimism is encouraging.  Despite these positive signs, challenging times still lie ahead.  Attracting and retaining qualified staff is increasingly more difficult.  Maintaining compliance with the plethora of regulatory rules, many enacted in response to the financial crisis, requires considerable diligence and expense.  Staying ahead of the next wave of computer fraudsters necessitates continual technology innovations and, of course, capital outlays.  Finally, the yield curve, as measured by the spread between two-year and ten-year Treasury yields, is near its flattest since 2007.  These factors, along with the unexpected business failure by a large borrower, contributed to earnings falling from last year’s record levels.  First Bancorp earnings of $901,000, or $0.51 per share, for fiscal 2017 included an $800,000 pre-tax charge for potential loan losses associated with loans to the failed business.  Although the event occurred subsequent to fiscal year-end, we share our accountants’ view that additional reserves for loan losses should be set aside in fiscal 2017.

            Despite the earnings dip, we were pleased with the general direction of the bank over the past year.  The commercial loan portfolio increased 10.7% to $168.7 million in fiscal 2017.   Although inventories of single-family homes in our markets remain tight, traditionally-underwritten single-family mortgage production increased nearly 17% to $25.5 million.  In addition, the portfolio of home equity loans and lines of credit grew 13.8% during the year.  In order to sustain this momentum we are exploring all avenues to spread our business footprint as we did earlier this year with the establishment of a loan production office in neighboring Henderson, Kentucky.

As evidenced by good deposit growth, First Federal Savings Bank and Home Building Savings Bank maintain strong reputations in the communities served.  Our attractive array of checking, savings, and money market deposits increased $27.6 million, or 13.5%, in fiscal 2017 and comprised 83.3% of total deposits at June 30, 2017, compared to 81.2% a year ago.

Even with the potential loan loss mentioned above, overall credit quality remains solid.  As of June 30, 2017, impaired loans represented just 1.0% of total assets.  We’re also making headway in reducing our holdings of foreclosed real estate.  These properties totaled $2.7 million at June 30, 2017, compared to $3.6 million a year earlier.  Also, the Company remains committed to maintaining prudent loan loss reserves.  The $800,000 provision noted above boosted the allowance for loan losses to $3.0 million compared to $2.3 million last year.

The Company continues to invest in new technologies to protect customer information and maintain system integrity.  During the past fiscal year anti-skimming devices were installed on our ATMs, Security Information and Event Management (SIEM) software was deployed on the network to provide real time analysis of security alerts generated by network hardware and applications, and we continue to work diligently with our skilled team of IT specialists at Infinite Solutions, LLC to ensure we are staying ahead of the technology curve.

Again this year the Company rewarded your trust by paying competitive quarterly dividends totaling 62 cents per share annually while maintaining a strong capital base.  At June 30, 2017, First Federal’s Tier 1 capital and total risk-based capital ratios were 8.6% and 13.8%, respectively.  First Federal’s capital ratios continue to comfortably exceed the Tier 1 capital requirement of 5% and the total risk-based minimum of 10% to qualify as well-capitalized under current federal regulations.

This year we will be saying goodbye to Dan Schenk who is stepping down after serving 15 years as a member of the First Bancorp and First Federal Savings Bank boards of directors.  We thank Dan for his service to the Company and wish him and his lovely wife, Kathy, well.

Through innovative product offerings, state-of-the-art technologies, and well-trained staff members, management and the board of directors are committed to our customers’ and shareholders’ complete satisfaction.  We welcome you to stop by any of our nine convenient banking locations and, as always, I thank you for your investment in First Bancorp of Indiana, Inc.