10QSB 1 ffw10q_0302.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 March 31, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-21170 FFW CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 35-1875502 (State or other jurisdiction of incorporation (I.R.S. Employer identification or organization) or Number) 1205 North Cass Street, Wabash, IN 46992 (Address of principal executive offices) (260) 563-3185 (Issuer's telephone number) 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 90 days. Yes X No --- --- Transitional Small Business Disclosure Format (check one): Yes No X --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest date: As of May 13, 2002, there were 1,373,947 shares of the Registrant's common stock issued and outstanding. FFW CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets March 31, 2002 3 and June 30, 2001 Consolidated Statements of Income and 4 Comprehensive Income for the three and nine months ended March 31, 2002 and 2001. Consolidated Statements of Cash Flows for the nine 5 months ended March 31, 2002 and 2001. Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations PART II. OTHER INFORMATION Items 1-6 12 Signature Page 13
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS : March 31 June 30 2002 2001 ---- ---- Cash and due from financial institutions .................................... $ 6,063,667 $ 6,372,538 Interest-earning deposits in financial institutions - short term ............ 1,695,753 2,157,621 ------------- ------------- Cash and cash equivalents .......................................... 7,759,420 8,530,159 Securities available for sale ............................................... 75,985,388 60,973,088 Loans receivable, net of allowance for loan losses of $2,029,751 at March 31, 2002 and $1,773,194 at June 30, 2001 ............................... 142,846,910 152,195,442 Federal Home Loan Bank stock, at cost ....................................... 3,400,900 3,400,900 Accrued interest receivable ................................................. 1,367,888 1,479,567 Premises and equipment-net .................................................. 2,718,738 2,099,125 Investment in limited partnership ........................................... 435,481 480,548 Other assets ................................................................ 2,230,722 2,027,633 ------------- ------------- Total assets............................................... $ 236,745,447 $ 231,186,462 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Non-interest-bearing demand deposits ........................................ $ 10,097,462 $ 9,161,009 Savings, NOW and MMDA deposits .............................................. 58,899,358 48,126,243 Other time deposits ......................................................... 84,409,514 87,342,800 ------------- ------------- Total deposits...................................................... 153,406,334 144,630,052 Federal Home Loan Bank advances ............................................. 59,096,906 62,396,906 Accrued interest payable .................................................... 990,203 196,840 Accrued expenses and other liabilities....................................... 1,357,676 1,969,604 ------------- ------------- Total liabilities .................................................. 214,851,119 209,193,402 Shareholders' equity: Preferred stock, $.01 par value, 500,000 shares authorized none issued ...... ----- ----- Common stock, $.01 par value, 2,000,000 shares authorized, 1,829,828 shares issued and 1,377,325 shares outstanding at March 31, 2002; 1,829,828 shares issued and 1,412,478 shares outstanding at June 30, 2001 ........ 18,298 18,298 Additional paid-in capital................................................... 9,344,511 9,336,605 Retained earnings - substantially restricted ................................ 17,336,966 16,423,161 Accumulated other comprehensive income (loss) ............................... (151,362) 330,776 Unearned management retention plan shares ................................... (90,348) (52,242) Treasury stock at cost, 452,503 shares on March 31, 2002 and 417,350 shares on June 30, 2001 .................................... (4,563,737) (4,063,538) ------------- ------------- Total shareholders' equity .................................. 21,894,328 21,993,060 ------------- ------------- Total liabilities and shareholders' equity ................ $ 236,745,447 $ 231,186,462 ============= =============
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Nine Months Ended March 31 March 31 2002 2001 2002 2001 ---- ---- ---- ---- Interest income : Loans receivable Mortgage loans ..................................... $ 1,316,337 $ 1,535,676 $ 4,283,245 $ 4,569,383 Consumer and other loans ........................... 1,600,585 1,824,714 4,936,082 5,553,516 Securities Taxable ............................................ 704,114 710,012 2,174,275 2,389,376 Nontaxable ......................................... 262,951 276,855 732,082 509,117 Other interest-earning assets ............................... 13,230 42,523 57,883 126,213 ------------ ------------ ------------ ------------ Total interest income .............................. 3,897,217 4,389,780 12,183,567 13,147,605 Interest expense : Deposits .................................................... 1,531,914 1,796,649 4,826,319 5,207,876 Other ....................................................... 768,369 915,625 2,403,932 2,862,619 ------------ ------------ ------------ ------------ Total interest expense ............................. 2,300,283 2,712,274 7,230,251 8,070,495 ------------ ------------ ------------ ------------ Net interest income .................................................. 1,596,934 1,677,506 4,953,316 5,077,110 Provision for loan losses ................................... 305,000 225,000 980,000 1,470,000 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses .................. 1,291,934 1,452,506 3,973,316 3,607,110 Non-interest income : Net gain (loss) on sale of securities ....................... 92,229 (6,246) 97,229 (22,197) Net gain on sale of loans ................................... 193,747 26,161 344,442 47,349 Other........................................................ 339,439 293,142 1,021,297 878,270 ------------ ------------ ------------ ------------ Total non-interest income .......................... 625,415 313,057 1,462,968 903,422 Non-interest expense : Compensation and benefits ................................... 549,410 496,190 1,603,547 1,506,461 Occupancy and equipment ..................................... 102,071 99,902 292,934 301,528 Data processing expense ..................................... 117,771 121,067 348,512 352,542 Other........................................................ 469,762 321,817 1,180,251 1,007,156 ------------ ------------ ------------ ------------ Total non-interest expense ......................... 1,239,014 1,038,976 3,425,244 3,167,687 ------------ ------------ ------------ ------------ Income before income taxes ........................................... 678,335 726,587 2,011,040 1,342,845 Income tax expense .......................................... 160,581 160,905 527,298 284,950 ------------ ------------ ------------ ------------ Net income ........................................................... $ 517,754 $ 565,682 $ 1,483,742 $ 1,057,895 ============ ============ ============ ============ Comprehensive income ................................................. $ 8,363 $ 1,211,535 $ 1,001,604 $ 2,881,463 ============ ============ ============ ============ Earnings per common share : Basic........................................................ $ .38 $ .39 $ 1.07 $ .74 Diluted ..................................................... $ .37 $ .39 $ 1.06 $ .73
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended March 31 2002 2001 ---- ---- Cash flows from operating activities : Net income ................................................ $ 1,483,742 $ 1,057,895 Adjustments to reconcile net income to net cash from Operating activities : Depreciation and amortization, net of accretion ....... 134,380 (24,964) Provision for loan losses ............................. 980,000 1,470,000 Net (gains) losses on sale of : Securities available for sale .................... (97,229) 22,197 Loans held for sale .............................. (344,442) (47,349) Foreclosed estate owned and repossessed assets ... 4,085 2,135 Origination of loans held for sale .................... (24,692,019) (4,528,265) Proceeds from sale of loans held for sale ............. 24,911,461 4,575,614 Net change in accrued interest receivable and other assets ........................................... 110,049 320,471 Amortization of goodwill and core deposit intangibles . 125,279 120,825 Net change in accrued interest payable, accrued expenses and other liabilities ................... 200,129 695,024 ------------ ------------ Total adjustments ....................... 1,331,693 2,605,688 ------------ ------------ Net cash from operating activities ............... 2,815,435 3,663,583 Cash flows from investing activities : Proceeds from : Sales/calls of securities available for sale ..... 16,448,829 13,789,842 Maturities of securities available for sale ...... --- 745,000 Purchase of securities available for sale ............. (35,272,222) (20,959,138) Principal collected on mortgage- backed securities .... 3,118,979 358,546 Net change in loans receivable ........................ 8,160,929 (3,839,484) Net purchases premises and equipment .................. (762,892) (163,302) Investment in limited partnership ..................... --- (75,000) Proceeds from sales of other real estate and repossessed assets ............................... 362,951 322,899 ------------ ------------ Net cash from investing activities ............... (7,943,426) (9,820,637) Cash flows from financing activities : Net increase in deposits ............................... 8,776,282 11,151,987 Proceeds from borrowings ............................... 37,990,750 49,500,000 Payment on borrowings .................................. (41,290,750) (51,000,000) Purchase of treasury stock ............................. (627,380) (245,000) Proceeds from exercising of stock options .............. 78,287 121,000 Cash dividends paid .................................... (569,937) (561,561) ------------ ------------ Net cash from financing activities ............... 4,357,252 8,966,426 Net increase (decrease) in cash and cash equivalents ............... (770,739) 2,809,372 Cash and cash equivalents at beginning of period ................... 8,530,159 5,254,418 ------------ ------------ Cash and cash equivalents at end of period ......................... $ 7,759,420 $ 8,063,790 ============ ============
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) necessary to represent fairly the financial condition of FFW Corporation as of March 31, 2002 and June 30, 2001 and the results of its operations, for the three and nine months ended March 31, 2002 and 2001. Financial statement reclassifications have been made for the prior period to conform to classifications used as of and for the period ended March 31, 2002. Operating results for the three and nine months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2002. PART II FFW CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The accompanying Consolidated Financial Statements include the accounts of FFW Corporation (the "Company") and its wholly owned subsidiaries, First Federal Savings Bank of Wabash (the "Bank") and FirstFed Financial, Inc ("FirstFed Financial"). All significant inter-company transactions and balances are eliminated in consolidation. The Company's results of operations are primarily dependent on the Bank's net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank's net income is also affected by the level of its non-interest expenses, such as employee compensation and benefits, occupancy expenses, and other expenses. FORWARD-LOOKING STATEMENTS Except for historical information contained herein, the matters discussed in this document, and other information contained in the Company's SEC filings, may express "forward-looking statements." Those "forward-looking statements" may involve risk and uncertainties, including statements concerning future events, performance and assumptions and other statements that are other than statements of historical facts. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Readers are advised that various factors--including, but not limited to, changes in laws, regulations or accounting principles generally accepted in the United States of America; the Company's competitive position within the markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; any unforeseen downturns in the local, regional or national economies--could cause the Company's actual results or circumstances for future periods to differ materially from those anticipated or projected. The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. COMPARISON OF THREE-MONTH AND NINE-MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 Net income for the three-month and nine-month periods ended March 31, 2002 was $518,000 and $1,484,000 compared to net income of $566,000 and $1,058,000 for the equivalent periods in 2001. The substantial increase of $426,000 for the nine-month period was primarily the result of a $490,000 decrease in the provision for loan loss coupled with a $560,000 increase in total non-interest income partially offset by a $258,000 increase in total non-interest expense for the period ended March 31, 2002 compared to March 31, 2001. The decrease of $48,000 for the three month period ended March 31, 2002 was a combination of lower net interest income, an increase in the provision for loan loss and higher non-interest income and expense. Diluted net income per common share was $0.37 for the three-month period ended March 31, 2002 compared to diluted net income per common share of $0.39 for the equivalent period in 2001. For the comparable nine-month periods, diluted net income per common share was $1.06 in 2002 and $0.73 in 2001. Return on average shareholders' equity was 9.47% for the three months and 8.89% for the nine-months ended March 31, 2002, compared to 10.91% and 6.96% in 2001. The return on total average assets was 0.91% and 0.86% for the three and nine-month periods ended March 31, 2002, compared to 1.01% and 0.63% in 2001. NET INTEREST INCOME The net interest income for the three-month period ended March 31, 2002, was $1,597,000 compared to $1,678,000, a decrease of 4.8% over the same period in 2001, resulting in a net yield of 2.91% compared to 3.13% in 2001. The net interest income for the nine-month period ended March 31, 2002, was $4,953,000 compared to $5,077,000, a decrease of 2.4% over the same period in 2001, resulting in a net yield of 3.00% compared to 3.14% in 2001. Total average earning assets increased $4,910,000 and $6,986,000, respectively, for the three-month and nine-month periods ended March 31, 2002, over the comparative periods in 2001. Total average investment securities increased $11,859,000 and $11,173,000 for the three-month and nine-month periods over one-year ago. Total average loans decreased $6,632,000 and $4,516,000 for the three-month and nine-month periods over one-year ago. The yields on total average earning assets were 7.13% and 8.17% for the three-month periods ended March 31, 2002, and 2001 and 7.38% and 8.13% for the nine-month periods. The following tables set forth consolidated information regarding average balances and rates.
FFW Corp Three Months Ending (In Thousands) 03/31/2002 03/31/2001 Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate ------------------------ ------- -------- ---- ------- -------- ---- Loans receivable $147,301 $ 2,917 8.03% $153,933 $ 3,360 8.85% Securities available for sale 72,133 967 5.48% 60,274 986 6.58% Other interest-earning assets 2,868 13 1.84% 3,185 43 5.48% -------- --------- -------- --------- Total interest-earning assets 222,302 3,897 7.13% 217,392 4,389 8.17% Non interest-earning assets Cash and due from financial inst. 5,245 4,485 Allowance for loan losses (1,992) (1,810) Other non interest-earning assets 6,231 6,476 -------- -------- Total assets $231,786 $226,543 ======== ======== Interest-bearing liabilities: ----------------------------- Interest-bearing deposits $140,515 1,532 4.42% $132,499 1,797 5.50% FHLB advances 57,185 768 5.45% 62,210 915 5.97% -------- --------- -------- --------- Total interest-bearing liabilities 197,700 2,300 4.72% 194,709 2,712 5.65% -------- --------- -------- --------- Non interest-bearing deposit accounts 9,859 8,635 Other non interest-bearing liabilities 2,058 2,179 -------- -------- Total liabilities 209,617 205,523 Shareholders' equity 22,169 21,020 -------- -------- Total liabilities and shareholders equity $231,786 $226,543 ======== ======== Net interest income $ 1,597 $ 1,677 ========= ========= Net interest margin 2.91% 3.13% ===== =====
FFW Corp Nine Months Ending (In Thousands) 03/31/2002 03/31/2001 Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate ------------------------ ------- -------- ---- ------- -------- ---- Loans receivable $149,715 $9,219 8.20% $154,231 $10,123 8.74% Securities available for sale 67,919 2,906 5.77% 56,746 2,898 6.62% Other interest-earning assets 3,140 58 2.46% 2,811 126 5.97% -------- --------- -------- --------- Total interest-earning assets 220,774 12,183 7.38% 213,788 13,147 8.13% Non interest-earning assets Cash and due from financial inst. 5,145 4,457 Allowance for loan losses (1,794) (2,128) Other non interest-earning assets 5,985 6,656 -------- -------- Total assets $230,110 $222,773 ======== ======== Interest-bearing liabilities: ----------------------------- Interest-bearing deposits $137,501 4,826 4.68% $128,645 5,208 5.39% FHLB advances 58,357 2,404 5.49% 62,636 2,862 6.09% -------- --------- -------- --------- Total interest-bearing liabilities 195,858 7,230 4.92% 191,281 8,070 5.62% -------- --------- -------- --------- Non interest-bearing deposit accounts 9,681 8,835 Other non interest-bearing liabilities 2,340 2,403 -------- -------- Total liabilities 207,879 202,519 Shareholders' equity 22,231 20,254 -------- -------- Total liabilities and shareholders equity $230,110 $222,773 ======== ======== Net interest income $ 4,953 $ 5,077 ========= ========= Net interest margin 3.00% 3.14% ===== =====
PROVISION FOR LOAN LOSSES The Company establishes an allowance for loan losses based on an evaluation of risk factors in the loan portfolio and changes in the nature and volume of its loan activity. This evaluation includes, among other factors, the level of the Company's classified and non-performing assets and their estimated value, the national outlook which may tend to inhibit economic activity and depress real estate and other values in the Company's primary market area, regulatory issues and historical loan loss experience. Accordingly, the calculation of the adequacy of loan losses is not based directly on the level of non-performing loans. Although management believes it uses the best information available to determine the allowances, unforeseen market conditions or other unforeseen events could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the determination. In addition, a determination by the Company's main operating subsidiary, First Federal, as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision, (OTS), which may order the establishment of additional general or specific reserve allowances. The provision for loan losses was $305,000 and $980,000 for the three-month and nine-month periods ended March 31, 2002 and $225,000 and $1,470,000 for the same periods in 2001. A substantial difference between the nine-month periods is due to an additional $900,000 provision taken in the period ending September 30, 2000 on loans to a single borrower. Net charge-offs of $176,000 have been recorded for the three-month period ended March 31, 2002, compared to $501,000 of net charge-offs for the same period in 2001. Net charge-offs of $723,000 have been recorded for the nine-month period ended March 31, 2002, compared to $1,829,000 of net charge-offs for the same period in 2001. Changes in the provision for loan losses are attributed to management's analysis of the adequacy of the allowance for loan losses to address recognizable and currently estimated losses. The allowance for loan losses was $2,030,000 or 1.42% of net loans as of March 31, 2002, compared to $1,901,000 or 1.29% of net loans at December 31, 2001 and $1,773,000 or 1.17% of net loans at June 30, 2001. It is management's opinion that the allowance for loan losses is adequate to absorb existing losses in the loan portfolio as of March 31, 2002. NON-INTEREST INCOME Non-interest income for the three-month and nine-month periods ended March 31, 2002 was $625,000 and $1,463,000 compared to $313,000 and $903,000 for the periods in 2001. The nine-month increase of $560,000 from the prior period is composed primarily of increased gain on sale of loans, $297,000 higher due to increased sales volume during the current nine months, increased commission income from FirstFed Financial, $107,000 higher, and increased gain on sale of investments, $120,000 higher, compared to the period ending March 31, 2001. The three-month increase of $312,000 from the prior period is composed primarily of increased gain on sale of loans, $168,000 higher which includes $125,000 from the adjustment of mortgage servicing right assets during the quarter, and increased gain on sale of investments, $98,000 higher, compared to the period ending March 31, 2001. NON-INTEREST EXPENSE Non-interest expense for the three-month period ended March 31, 2002, was $1,239,000, an increase of $200,000, or 19.2%, compared to the same period in 2001 and was $3,425,000 for the nine-month period ended March 31, 2002, an increase of $257,000, or 8.1%. For the nine-month period ended March 31, 2002, compensation and employee benefits increased 6.4%, occupancy and equipment expense decreased 2.9% and data processing expense decreased 1.1% over the same period in 2001. Other non-interest expense increased 17.2% from the prior year due primarily to an adjustment related to serviced loans. INCOME TAXES The provisions for income taxes for the three-month and nine-month periods ended March 31, 2002, were $161,000 and $527,000, respectively, compared to $161,000 and $285,000 in 2001. The provision for income taxes for the nine months ended March 31, 2002, is at a rate which management believes approximates the effective rate for the year ending June 30, 2002. REGULATORY CAPITAL REQUIREMENTS The Bank is required to maintain specific amounts of regulatory capital pursuant to regulations of the OTS. At March 31, 2002, the Bank exceeded all regulatory capital standards as is shown in the following table.
Minimum To Be Well Minimum Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of March 31, 2002 Total Risk-based Capital $ 19,966 13.67% $ 11,686 8.00% $ 14,608 10.00% (to risk weighted assets) Tier I (Core) Capital 18,137 12.42% 5,843 4.00% 8,765 6.00% (to risk weighted assets) Tier I (Core) Capital 18,137 7.76% 9,348 4.00% 11,685 5.00% (to adjusted total assets)
IMPACT OF NEW ACCOUNTING STANDARDS In August 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which will be adopted by the Company on July 1, 2003. The new accounting standard addresses accounting for obligations associated with the retirement of tangible, long-lived assets and requires a liability to be recognized for the fair value of any such obligations. Adoption of this standard on July 1, 2003 is not expected to have a material effect on the Company's consolidated financial position or results of operations. On July 1, 2002, the Company will adopt SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This new accounting standard establishes more restrictive requirements for the classification of assets as "held for sale" and also expands the types of dispositions that are to be accounted for as discontinued operations. Adoption of this standard on July 1, 2002 will not have a material effect on the Company's consolidated financial position or results of operations. Part II - Other Information As of March 31, 2002, management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have or are reasonably likely to have a material adverse effect on the Company's liquidity, capital resources or operations. Item 1 - Legal Proceedings Not Applicable. Item 2 - Changes in Securities Not Applicable. Item 3 - Defaults upon Senior Securities Not Applicable. Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable. Item 5 - Other Information Not Applicable Item 6 - Exhibits and Reports on Form 8-K Not Applicable SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FFW CORPORATION Registrant Date: May 14, 2002 /S/ Roger K. Cromer ---------------------- ----------------------------------------- Roger K. Cromer President and Chief Executive Officer Date: May 14, 2002 /S/ Timothy A. Sheppard ---------------------- ----------------------------------------- Timothy A. Sheppard Treasurer and Chief Accounting Officer