-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc1K97Sx9WYsboEXR+65UGelcWbcMP/JX1/9ML/I0DJ9/3jTgetHaexVyrpHiruO L8RPunZO68rvdqgRV7Dnzw== 0000908834-02-000271.txt : 20020927 0000908834-02-000271.hdr.sgml : 20020927 20020927163209 ACCESSION NUMBER: 0000908834-02-000271 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FFW CORP CENTRAL INDEX KEY: 0000895401 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 351875502 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21170 FILM NUMBER: 02774985 BUSINESS ADDRESS: STREET 1: 1205 N CASS STREET STREET 2: PO BOX 419 CITY: WABASH STATE: IN ZIP: 46992-1027 BUSINESS PHONE: 2195633185 MAIL ADDRESS: STREET 1: 1205 N CASS ST STREET 2: PO BOX 419 CITY: WABASH STATE: IN ZIP: 46992 10KSB 1 ffw_10k.txt FFW FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2002 [ ] 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 (Name of small business issuer in its charter) Delaware 35-1875502 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1205 N. Cass Street, Wabash, Indiana 46992-1027 - ---------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (219) 563-3185 ------------------- Securities Registered Pursuant to Section 12(b) of the Act: None - -------------------------------------------------------------------------------- Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share - -------------------------------------------------------------------------------- (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. YES [X] NO [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State the issuer's revenues for its most recent fiscal year: $18.3 million. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price per share of such stock on the NASDAQ Stock Market on September 9, 2002, was approximately $18.3 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) As of September 9, 2002, there were issued and outstanding 1,363,275 shares of the Registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Part II of Form 10-KSB - Portions of the Annual Report to Stockholders for the fiscal year ended June 30, 2002. Part III of Form 10-KSB - Proxy Statement for 2002 Annual Meeting of Stockholders. Transitional Small Business Disclosure Format (check one) Yes [ ] No [X] PART I Item 1. Description of Business General The Company. FFW Corporation (the "Company"), a Delaware corporation, was formed in December 1992 to act as the holding company for First Federal Savings Bank of Wabash ("First Federal" or the "Bank") upon completion of the Bank's conversion from mutual to stock form (the "Conversion"). The Conversion was completed on April 1, 1993. The Company's business consists primarily of the business of First Federal. The Company also offers insurance and investment products through its wholly-owned subsidiary, FirstFed Financial, Inc. The executive offices of the Company are located at 1205 N. Cass Street, Wabash, Indiana 46992, and its telephone number at that address is (260) 563-3185. At June 30, 2002, the Company had $237.8 million of assets and shareholders' equity of $22.4 million (or 9.42% of total assets). First Federal. First Federal is a federally chartered stock savings bank headquartered in Wabash, Indiana and regulated by the Office of Thrift Supervision ("OTS"). Its deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"), which is backed by the full faith and credit of the United States Government. First Federal's primary market area covers Wabash, Kosciusko and Whitley Counties in northeast and central Indiana, which are serviced through its four offices in Wabash, North Manchester, Syracuse and South Whitley, Indiana. The principal business of the Bank consists of attracting retail deposits from the general public and investing those funds primarily in one- to four-family residential mortgage, consumer (primarily automobile) loans, commercial and multi-family real estate, construction and commercial business loans primarily in the Bank's market area. The Bank also purchases mortgage-backed securities and invests in U.S. Government and agency obligations and other permissible investments. At June 30, 2002, substantially all of the Bank's real estate mortgage loans (excluding mortgage-backed securities) were secured by properties located in Indiana. The Bank's revenues are derived primarily from interest on small business, consumer and mortgage loans, mortgage-backed and other investment securities, income from service charges and loan originations and loan servicing fee income. The Bank does not originate loans to fund leveraged buyouts, has no loans to foreign corporations or governments and is not engaged in land development or construction activities through joint ventures or subsidiaries. The Bank offers a variety of accounts having a wide range of interest rates and terms. The Bank's deposit accounts include passbook accounts, money market savings accounts, NOW, money market checking and regular checking accounts, and certificate accounts with terms of three to sixty months. The Bank solicits deposits in its primary market area. The Bank also has, from time to time, borrowed funds, both in the form of Federal Home Loan Bank ("FHLB") advances and by entering into repurchase agreements. At June 30, 2002, the Bank had FHLB advances totaling $54.4 million. FirstFed Financial, Inc. During fiscal 1993, the Company acquired FirstFed Financial, Inc. ("FirstFed") from the Bank. FirstFed offers insurance products, including life insurance, mutual funds, annuity and brokerage services through a registered broker dealer. FirstFed, which is located in Wabash, Indiana, was incorporated in 1989. In December 2000, FirstFed acquired Pulley Financial Services, Inc. Subsequent to the acquisition, FirstFed continued to operate as a wholly-owned subsidiary of the Company and also appointed a new president of FirstFed. Forward-Looking Statements When used in this Form 10-KSB and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and are subject to the above-stated qualifications in any event. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. 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. Lending Activities of First Federal Market Area of the Bank. The main office of First Federal is located in Wabash, Indiana, which is located in Wabash County. The Bank operates three branches in the following locations: North Manchester, Syracuse and South Whitley, Indiana. North Manchester is located in Wabash County, Syracuse is located in adjacent Kosciusko County, and South Whitley is located in adjacent Whitley County. The Bank considers Wabash, Kosciusko and Whitley Counties as its primary market area. The Bank also serves Grant, Miami, Huntington, Noble, Allen and Elkhart Counties in Indiana. General. Historically, the Bank has originated fixed-rate, one- to four-family mortgage loans. In the early 1980s, the Bank began to focus on the origination of adjustable-rate mortgage ("ARM") loans and short-term loans for retention in its portfolio in order to increase the percentage of loans in its portfolio with more frequent repricing or shorter maturities, and in some cases higher yields, than fixed-rate mortgage loans. While the Bank has continued to originate fixed-rate mortgage loans in response to customer demand, currently, the Bank originates and sells most of its fixed-rate, first mortgage loans with maturities of 15 years or greater in the secondary market with servicing retained. The Bank also originates consumer (including automobile), commercial and multi-family real estate, commercial business, and residential construction loans in its primary market area. At June 30, 2002, the Bank's net loan portfolio totaled $141.9 million. The Executive Committee of the Bank, comprised of any three outside directors selected by and including the Chairman, has the responsibility for the supervision of the Bank's loan portfolio with an overview by the Board of Directors. The Bank's loan policy requires Executive Committee or full Board approval on mortgage, commercial and consumer loans over certain dollar thresholds, loan extensions, special loan situations, assumptions and loan participations. The Board of Directors has responsibility for the overall supervision of the Bank's loan portfolio and, in addition, reviews all foreclosure actions or the taking of deeds-in-lieu of foreclosure. The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between changes related to higher or lower outstanding balances and changes due to the levels and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
Year Ended June 30, Year Ended June 30, --------------------------------- -------------------------------- 2002 vs. 2001 2001 vs. 2000 --------------------------------- -------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total ------------------- Increase ------------------- Increase Volume Rate (Decrease) Volume Rate (Decrease) ------- ------ ---------- ------ ------ ---------- (In Thousands) Interest-earning assets: Loans receivable(1)..................... $(495) $(957) $(1,452) $ 95 $484 $ 579 Securities.............................. 563 (517) 46 171 26 197 Mortgage-backed securities.............. 58 (96) (38) 101 (35) 66 Interest-bearings deposits in other financial Institutions................ 27 (105) (78) 59 (44) 15 ------ ------- ------- ----- ---- ------ Total interest-earning assets............ $153 $(1,675) $(1,522) $ 426 $431 $ 857 ====== ======= ======= ===== ==== ====== Interest-bearing liabilities: Money market accounts................... $ (17) $ (120) $ (137) $ 173 $ 10 $ 183 NOW accounts............................ 8 (40) (32) 6 (2) 4 Passbook Savings accounts............... 266 (311) (45) (274) (39) (313) Certificates of deposit................. 104 (603) (499) 541 645 1,186 FHLB Advances........................... (287) (307) (594) (127) 211 84 ------ ------- ------- ----- ---- ------ Total interest bearing liabilities....... $74 $(1,381) $(1,307) $ 319 $825 $1,144 ====== ======= ======= ===== ==== ====== Net interest income...................... $ (215) $ (287) ======= ====== - --------------------- (1) Includes the impact of non-accruing loans and loan fees.
Loan Portfolio Composition. The following table contains information concerning the composition of the Bank's loan portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees, cost and discounts and allowances for loan losses) as of the dates indicated.
June 30, --------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------------- ---------------- ---------------- ---------------- ----------------- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in Thousands) Real Estate Loans: One- to four-family ........ $60,622 41.86% $68,646 44.49% $ 69,738 45.38% $ 67,825 44.34% $70,243 49.64% Commercial and multi-family. 10,772 7.44 8,887 5.76 8,138 5.30 9,342 6.11 7,272 5.14 Construction................ 2,746 1.90 4,163 2.70 2,344 1.53 899 .59 3,991 2.82 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total real estate loans .. 74,140 51.20 81,696 52.95 80,220 52.21 78,066 51.04 81,506 57.60 Other Loans: Consumer Loans: Deposit account .......... 267 .19 314 .20 349 .23 504 .33 475 .34 Automobile................ 21,966 15.17 27,163 17.60 31,368 20.41 36,334 23.75 33,814 23.90 Home equity and improvement.............. 17,232 11.90 15,809 10.25 13,119 8.54 10,394 6.80 9,105 6.43 Manufactured home......... 164 .11 212 .14 235 .15 249 .16 301 .21 Other..................... 2,855 1.97 3,782 2.45 4,070 2.65 3,621 2.37 3,348 2.37 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total consumer loans ... 42,484 29.34 47,280 30.64 49,141 31.98 51,102 33.41 47,043 33.25 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Commercial business loans... 28,182 19.46 25,311 16.41 24,301 15.81 23,781 15.55 12,945 9.15 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total other loans........... 70,666 48.80 72,591 47.05 73,442 47.79 74,883 48.96 59,988 42.40 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total loans................. 144,806 100.00% 154,287 100.00% 153,662 100.00% 152,949 100.00% 141,494 100.00% ====== ====== ====== ====== ====== Less Loans in process............ 679 565 1,335 444 1,716 Deferred fees, cost and discounts................. (92) (246) (444) (609) (599) Allowance for loan losses.. 2,361 1,773 1,961 1,623 983 -------- -------- -------- -------- -------- Total loans, net........... $141,858 $152,195 $150,810 $151,491 $139,394 ======== ======== ======== ======== ========
The following table shows the composition of the Bank's loan portfolio by fixed and adjustable-rate at the dates indicated.
June 30, --------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------------- ---------------- ---------------- ---------------- ----------------- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in Thousands) Fixed-Rate Loans: Real Estate: One- to four-family...........$ 13,083 9.04% $ 17,690 11.47% $ 15,268 9.94% $ 16,976 11.10% $ 17,492 12.36% Commercial and multi-family... 1,061 .73 4,566 2.96 2,253 1.46 6,671 4.36 2,307 1.63 Construction.................. 2,380 1.64 3,973 2.57 2,272 1.48 705 .46 2,110 1.49 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total real estate loans..... 16,524 11.41 26,229 17.00 19,793 12.88 24,352 15.92 21,909 15.48 Consumer........................ 32,721 22.60 38,915 25.22 49,024 31.90 45,140 29.51 42,370 29.94 Commercial business............. 12,343 8.52 12,376 8.02 8,666 5.64 6,853 4.48 5,540 3.92 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total fixed-rate loans...... 61,588 42.53 77,520 50.24 77,483 50.42 76,345 49.91 69,819 49.34 Adjustable-Rate Loans: Real estate: One- to four-family........... 47,539 32.83 50,956 33.03 54,470 35.44 50,849 33.24 52,751 37.28 Commercial and multi-family... 9,711 6.71 2.80 5,885 3.83 2,671 1.75 4,965 3.51 4,321 Construction.................. 366 .25 190 .12 72 .05 194 .13 1,881 1.33 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total real estate loans..... 57,616 39.79 55,467 35.95 60,427 39.32 53,714 35.12 59,597 42.12 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Consumer...................... 9,763 6.74 8,365 5.43 117 .08 5,962 3.90 4,673 3.30 Commercial business........... 15,839 10.94 12,935 8.38 15,635 10.18 16,928 11.07 7,405 5.24 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total adjustable-rate loans. 83,218 57.47 76,767 49.76 76,179 49.58 76,604 50.09 71,675 50.66 ------- ------ ------- ------ -------- ------ -------- ------ ------- ------ Total loans................. 144,806 100.00% 154,287 100.00% 153,662 100.00% 152,949 100.00% 141,494 100.00% Less: Loans in process................ 679 565 1,335 444 1,716 Deferred fees, cost and discou (92) (246) (444) (609) (599) Allowance for loan losses..... 1,961 1,623 983 2,361 1,773 -------- -------- -------- -------- -------- Total loans, net............$141,858 $152,195 $150,810 $151,491 $139,394 ======== ======== ======== ======== ========
The following schedule illustrates the interest rate sensitivity of the Bank's loan portfolio (including non-accruing loans) at June 30, 2002. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.
Real Estate ------------------------------------------------------- One- to four-family Commercial Construction Consumer Commercial Business Total ------------------- ---------- ------------ -------- ------------------- ----- Weighted Weighted Weighted Weighted Weighted Average Average Average Average Average Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Percent ---------------------------------------------------------------------------------------------------------------- Due During Years (Dollars in Thousands) Ending June 30, 2003 $ 32 7.33% $ 528 9.19% $2,746 8.13% $ 2,903 10.00% $11,530 8.12% 17,739 12.25% 2004-2007 1,067 7.85 389 7.59 --- --- 22,666 10.24 5,824 7.65 29,946 20.68 2008 and following 59,523 7.65 9,855 7.65 --- --- 16,915 7.60 10,828 8.90 97,121 67.07 ------- ---- ------- ---- ------ ---- ------- ----- ------- ---- -------- ------ $60,622 7.65% $10,772 7.72% $2,746 8.13% $42,484 9.17% $28,182 8.32% $144,806 100.00% ======= ==== ======= ==== ====== ==== ======= ====== ======= ==== ======== ======
The total amount of loans due after June 30, 2003 which have fixed interest rates is $54.0 million, while the total amount of loans due after such dates which have floating or adjustable interest rates is $73.0 million. One- to Four-Family Residential Mortgage Lending. Residential loan originations of this type are generated by the Bank's marketing efforts, its present and walk-in customers, and referrals from real estate agents and builders. The Bank focuses its lending efforts primarily on the origination of loans secured by first mortgages on owner-occupied, one- to four-family residences. At June 30, 2002, the Bank's one- to four-family residential mortgage loans totaled $60.6 million, or approximately 41.9% of the Bank's total gross loan portfolio. The Bank currently originates up to a maximum of 30-year adjustable-rate, one- to four-family residential mortgage loans in amounts up to 95% of the appraised value of the security property provided that private mortgage insurance is obtained in an amount sufficient to reduce the Bank's exposure to at or below the 80% loan-to-value level. The Bank's one- to four-family residential mortgage originations are primarily in its market and surrounding areas. The Bank currently offers one-, three-, five-, and seven-year ARM loans with a stated interest rate margin over applicable Treasury rates. These loans have a fixed-rate for the stated period and, thereafter, such loans adjust annually. Depending on whether a one-, three-, five-, or seven-year loan is selected, per-year and lifetime caps and floors will range from 100 to 200 basis points, and 300 to 600 basis points. As a consequence of using an initial fixed-rate, caps and floors, the interest rates on these loans may not be as rate sensitive as is the Bank's cost of funds. The Bank's ARM loans do not permit negative amortization of principal. The Bank qualifies borrowers at the fully indexed rate. Due to consumer demand, the Bank also offers fixed-rate 10- through 15-year and 15- through 30-year mortgage loans, most of which conform to the secondary market standards of Freddie Mac. Interest rates charged on these fixed-rate loans are competitively priced according to market conditions. Residential loans generally do not include prepayment penalties. Most of the fixed-rate loans with maturities of 15 to 30 years are sold in the secondary market. The Bank generally retains servicing rights on such loans. Generally, the Bank will retain fixed-rate loans with maturities of less than 15 years in its portfolio. The Bank reserves the right to discontinue, adjust or create new lending programs to respond to its needs and to competitive factors. In underwriting one- to four-family residential real estate loans, First Federal evaluates both the borrower's ability to make monthly payments and the value of the property securing the loan. Properties in Wabash County securing real estate loans made by First Federal are appraised by the Bank's salaried appraisers. Properties located outside of Wabash County securing real estate loans and all properties securing commercial loans are appraised by independent fee appraisers approved and qualified by the Board of Directors. First Federal generally requires borrowers to obtain an attorney's title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property. Consumer Lending. First Federal offers a variety of secured consumer loans, including automobile, home equity, home improvement and loans secured by savings deposits. In addition, First Federal offers other secured and unsecured consumer loans. The Bank currently originates substantially all of its consumer loans in its primary market area and surrounding areas. The Bank originates consumer loans on both a direct and indirect basis. Direct loans are made when the Bank extends credit directly to the borrower. Indirect loans are obtained when the Bank purchases loan contracts from retailers of goods or services which have extended credit to their customers. The only indirect lending by First Federal began in the early 1980s, and is with selected automobile and boat dealers located in the Bank's primary market and surrounding areas. The Bank underwrites each indirect loan in accordance with its normal consumer loan standards. At June 30, 2002, the Bank's consumer loan portfolio totaled $42.5 million, or 29.3% of its total gross loan portfolio. Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or mobile homes. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. At June 30, 2002, $94,000 or approximately 0.2% of the consumer loan portfolio was non-accruing. There can be no assurance that delinquencies will not increase in the future. The largest component of First Federal's consumer loan portfolio consists of automobile loans. At June 30, 2002, automobile loans totaled $22.0 million, or approximately 15.2% of the Bank's gross loan portfolio. Loans secured by second mortgages, together with loans secured by all prior liens, are currently limited to 100% or less of the appraised value of the property securing the loan. Generally, such loans have a maximum term of up to 20 years. As of June 30, 2002, home equity and home improvement loans, most of which are secured by second mortgages, amounted to $17.2 million, or 11.9% of the Bank's gross loan portfolio. Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. Loans secured by deposit accounts at the Bank are currently originated for up to 90% of the account balance with a hold placed on the account restricting the withdrawal of the account balance. The interest rate on such loans is typically equal to 200 basis points above the deposit contract rate. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. Construction Lending. The Bank engages in limited amounts of construction lending to individuals for the construction of their residences as well as to builders for the construction of single family homes in the Bank's primary market area and surrounding areas. At June 30, 2002, the Bank had $2.7 million of gross construction loans, most of which were to borrowers who intended to live in the properties upon completion of construction. Construction loans to individuals for their residences are structured to be converted to permanent loans at the end of the construction phase, which typically runs for six months. During the construction phase, the borrower pays interest only. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans. Construction loans to builders of one- to four-family residences require the payment of interest only for up to 12 months. In most cases, these loans carry fixed interest rates. At June 30, 2002, the Bank had $810,000 in construction loans outstanding to builders. Construction lending generally affords the Bank an opportunity to receive interest at rates higher than those obtainable from permanent residential loans and to receive higher origination and other loan fees. In addition, construction loans are generally made with fixed rates of interest or for relatively short terms. Nevertheless, construction lending is generally considered to involve a higher level of credit risk than one- to four-family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on development projects, real estate developers and managers. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. Finally, the risk of loss on construction loans is dependent largely upon the accuracy of the initial estimate of the individual property's value upon completion of the project and the estimated cost (including interest) of the project. If the cost estimate proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. At June 30, 2002, the Bank had no construction loans outstanding which were over thirty days delinquent. Commercial and Multi-Family Real Estate Lending. The Bank has also engaged in commercial and multi-family real estate lending in the Wabash market area and surrounding areas and has purchased participation interests in loans from other financial institutions throughout Indiana and neighboring jurisdictions. At June 30, 2002, the Bank had $10.8 million of commercial and multi-family real estate loans, which represented 7.4% of the Bank's total gross loan portfolio. The largest commercial or multi-family real estate loan outstanding at June 30, 2002 was $1.6 million, which was performing in accordance with its repayment terms. At June 30, 2002, substantially all of the Bank's commercial and multi-family real estate loan portfolio was secured by properties located in Indiana. Loans secured by commercial and multi-family real estate properties are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower's ability to repay the loan may be impaired. The Bank's commercial and multi-family real estate loan portfolio is secured primarily by apartment buildings and, to a lesser extent, office buildings and nursing homes. Commercial and multi-family real estate loans generally have terms that do not exceed 20 years. The Bank has a variety of rate adjustment features and other terms in its commercial and multi-family real estate loan portfolio. Generally, the loans are made in amounts up to 75% of the appraised value of the security property. Commercial real estate and multi-family loans provide for a margin over a designated index which is generally the prime rate. The Bank currently analyzes the financial condition of the borrower, the borrower's credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. The Bank generally requires personal guaranties of the borrowers. Appraisals on properties securing commercial real estate loans originated by the Bank are performed by independent appraisers. Commercial Business Lending. The Bank began increasing its commercial loan portfolio in fiscal 1999. At June 30, 2002, approximately $28.2 million, or 19.5% of the Bank's total gross loan portfolio, was comprised of commercial loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself (which, in turn, is likely to be dependent upon the general economic environment). The Bank's commercial business loans are usually, but not always, secured by business assets. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. The Bank recognizes the generally increased risks associated with commercial business lending. First Federal's commercial business lending policy includes credit file documentation and analysis of the borrower's character, capacity to repay the loan, the adequacy of the borrower's capital and collateral as well as an evaluation of conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows is also an important aspect of First Federal's current credit analysis. Non-Performing Assets and Classified Assets When a borrower fails to make a required payment on real estate secured loans and consumer loans within 30 days after the payment is due, the Bank generally institutes collection procedures by mailing a delinquency notice. The customer is contacted again, by notice and/or telephone, when the payment is 31 days past due and when 60 days past due. In most cases, delinquencies are cured promptly; however, if a loan secured by real estate or other collateral has been delinquent for more than 90 days, satisfactory payment arrangements must be adhered to or the Bank will initiate foreclosure or repossession. Generally, when a loan becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Bank will place the loan on a non-accrual status and, as a result, previously accrued interest income on the loan is taken out of current income. The loan will remain on a non-accrual status as long as the loan is 90 days delinquent. The following table sets forth information concerning delinquent mortgage and other loans at June 30, 2002. The amounts presented represent the total remaining principal balances of the related loans, rather than the actual payment amounts which are overdue.
Loans Delinquent For: 30-59 Days 60-89 Days 90 Days and Over Total Delinquent Loans ----------------------------------------------------------------------------------------------------- Number Amount Percent Number Amount Percent Number Amount Percent Number Amount Percent (Dollars in Thousands) Real Estate: One-to four-family 15 $ 906 1.49% 4 $162 .27% 6 $ 210 .35% 25 $1,278 2.11% Commercial and Multi-Family 2 149 1.38 2 150 1.39 1 350 3.25 5 649 6.02 Construction -- -- -- -- -- -- -- -- -- -- -- -- Consumer 84 548 1.29 26 139 .33 20 94 .22 130 781 1.84 Commercial business 13 791 2.81 6 120 .42 9 1,288 4.57 28 2,199 7.80 Total delinquent loans 114 $2,394 1.65% 38 $571 .39% 36 $1,942 1.34% 188 $4,907 3.39% === ====== == ==== == ====== === ======
The table below sets forth the amounts and categories of non-performing assets in the Bank's loan portfolio at the dates indicated. Loans are placed on non-accrual status when the collection of principal and/or interest become doubtful or when the loan is in excess of 90 days delinquent. Foreclosed and repossessed assets include assets acquired in settlement of loans. See Notes [1] and [4] to Notes to Consolidated Financial Statements.
June 30, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (Dollars in Thousands) Non-accruing loans: One- to four-family $ 210 $ 134 $137 $ 1 $521 Commercial and multi-family real estate 1,638 1,022 39 317 --- Consumer 94 163 75 92 193 Total non-accruing loans............ 1,942 1,319 251 410 714 ------ ------ ---- ---- ---- Foreclosed and repossessed assets: One- to four-family 148 230 --- 274 --- Commercial and multi-family real estate --- --- --- 101 101 Consumer 40 69 39 57 58 ------ ------ ---- ---- ---- Total foreclosed assets............. 188 299 39 432 159 Troubled debt restructurings --- --- --- --- --- Total non-performing assets $2,130 $1,618 $290 $842 $873 ------ ------ ---- ---- ---- Total as a percentage of total assets .90% 0.70% 0.13% 0.39% 0.43% ====== ====== ===== ===== =====
Other Loans of Concern. Including the non-accruing loans set forth in the preceding table, as of June 30, 2002 there was also an aggregate of $8.7 million in net book value of loans classified by the Bank with respect to the majority of which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have some doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories. The principal components of loans of concern are 31 consumer loans aggregating $212,000, 8 one- to four-family loans aggregating $363,000 and 43 commercial loans aggregating $8.2 million at June 30, 2002. The principal components of loans of concern at June 30, 2001 consisted of 85 consumer loans aggregating $631,000, 13 one- to four-family loans aggregating $668,000 and 23 commercial loans aggregating $3.5 million. Classified Assets. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the OTS to be of lesser quality as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the savings association will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. When a savings bank classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize probable losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When a savings bank classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. First Federal's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the District Director at the regional OTS office, who may order the establishment of additional general or specific loss allowances. In accordance with its classification of assets policy, the Bank regularly reviews the loans in its portfolio to determine whether any loans require classification. On the basis of management's review of its assets, at June 30, 2002, the Bank had classified a total of approximately $2.8 million of its assets as substandard, $446,000 as doubtful, none as loss, and $5.5 million as special mention. At June 30, 2002, total classified and non-performing assets comprised $8.9 million, or 39.9% of the Bank's capital, or 3.8% of the Bank's total assets. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the probable losses in its loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of loans for which full collectibility may not be reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance. Real estate properties acquired through foreclosure are recorded at the lower of carrying amount or fair value. If carrying amount or fair value at the date of foreclosure is lower than the balance of the related loan, the difference will be charged-off to the allowance at the time of transfer. Valuations are periodically updated by management and if the value declines, a specific provision for losses on such property is established by a charge to operations. Although management believes that it uses the best information available to determine the allowances, unforeseen market conditions could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the final determination. Future additions to the Bank's allowances will be the result of periodic loan, property and collateral reviews and thus cannot be predicted in advance. At June 30, 2002, the Bank had a total allowance for loan losses of $2.4 million or 1.66% of total loans, net. See Note 4 of the Notes to Consolidated Financial Statements in the Annual Report to Stockholders (the "Annual Report"), attached hereto as Exhibit 13. The following table sets forth an analysis of the Bank's allowance for loan losses.
Year Ended June 30, -------------------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (Dollars in Thousands) Balance at beginning of period............... $1,773 $1,961 $1,623 $ 983 $572 Charge-offs: One- to four-family....................... 10 113 -- 26 --- Consumer.................................. 802 1,277 507 439 285 Commercial Business....................... 420 802 276 --- 47 ------ ------ ------ ------ ---- 1,232 2,192 783 465 332 Recoveries: One- to four-family real estate 6 -- -- -- -- Consumer.................................. 242 139 82 95 38 Commercial and multi-family real estate... 217 150 5 --- --- ------ ------ ------ ------ ---- 465 289 87 95 38 Net charge-offs.............................. 767 1,903 696 370 294 Additions charged to operations.............. 1,355 1,715 1,034 1,010 705 ------ ------ ------ ------ ---- Balance at end of period..................... $2,361 $1,773 $1,961 $1,623 $983 ====== ====== ====== ====== ==== Ratio of net charge-offs during the period to average loans outstanding during the period 0.52% 1.23% 0.45% 0.25% 0.23% ====== ====== ====== ====== ====
The distribution of the Bank's allowance for loan losses at the dates indicated is summarized as follows:
June 30, ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------- Percent Percent Percent Percent Percent of Loans of Loans of Loans of Loans of Loans in Each in Each in Each in Each in Each Category Category Category Category Category to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- (Dollars in Thousands) One- to four-family........... $211 41.86% $ 184 44.49% $ 274 45.38% $ 113 44.34% $105 49.64% Commercial and 293 7.44 215 5.76 120 5.30 225 6.11 230 5.14 multi-family real estate...... Construction.................. --- 1.90 --- 2.70 -- 1.53 --- 0.59 28 2.82 Consumer...................... 684 29.34 454 30.64 825 31.98 700 33.41 445 33.25 Commercial business........... 1,173 19.46 859 16.41 571 15.81 405 15.55 165 9.15 Unallocated................... --- --- 61 --- 171 --- 180 --- 10 --- ------ ------ ------ ------ ------ ------ ------ ------ ---- ------ Total.................... $2,361 100.00% $1,773 100.00% $1,961 100.00% $1,623 100.00% $983 100.00%
Investment Activities Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, the Bank has generally maintained its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows. As of June 30, 2002, the Bank's liquidity position was at a level deemed by management to be consistent with safe and sound banking practices. Federally chartered savings institutions have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest their assets in commercial paper, investment grade corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly. Generally, the investment policy of the Bank is to invest funds among various categories of investments and maturities based upon the Bank's need for liquidity, to achieve the proper balance between its desire to minimize risk and maximize yield, to provide collateral for borrowings, and to fulfill the Bank's asset/liability management policies. First Federal's investment and mortgage-backed securities portfolios are managed in accordance with a written investment policy adopted by the Board of Directors. Other than certificates of deposit and mortgage-backed securities, investments may be made by the President or the Chief Accounting Officer of First Federal only with the approval of the Investment Committee. Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), requires that securities and mortgage-backed securities be classified as held to maturity, available for sale or trading purposes. Under SFAS No. 115, securities that the Company has the positive intent and ability to hold until maturity are classified as held to maturity and are reported at amortized cost. Securities classified as available for sale are those the Company may sell in response to liquidity needs, for asset/liability management purposes and other reasons and are reported at fair value. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Trading securities are those which are purchased for sale in the near future and are reported at fair value. Unrealized gains and losses on trading securities are included in income. Transfers between categories are accounted for as sales and repurchases at fair value. For any sales or transfers of securities classified as held to maturity, the cost basis, the realized gain or loss, and the circumstances leading to the decision to sell are required to be disclosed. At the time of purchase of new securities, management of the Company makes a determination as to the appropriate classification of securities as available for sale or held to maturity. At June 30, 2002, the Company had no securities classified as held to maturity and $76.3 million classified as available for sale including mortgage-backed securities. No securities were held for trading purposes on such date. Securities. It is the Company's general policy to purchase securities which are U.S. Government securities and federal agency obligations, state and local government obligations, commercial paper, short-term corporate debt securities and overnight federal funds. At June 30, 2002, the weighted average term to maturity or repricing of the investment securities portfolio, excluding the FHLB, Fannie Mae stock and other equity securities available for sale, was 6.2 years. OTS regulations restrict investments in corporate debt and equity securities by the Bank. These restrictions include prohibitions against investments in the debt securities of any one issuer in excess of 15.0% of the Bank's unimpaired capital and unimpaired surplus as defined by federal regulations, which totaled $19.6 million as of June 30, 2002, plus an additional 10% if the investments are fully secured by readily marketable collateral. See "Regulation - Federal Regulation of Savings Associations" for a discussion of additional restrictions on the Bank's investment activities. The following table sets forth the composition of the Company's securities portfolio excluding mortgage-backed securities, at the dates indicated.
June 30, ----------------------------------------------------------------------------- 2002 2001 2000 ----------------------------------------------------------------------------- Carrying % of Carrying % of Carrying % of Value Total Value Total Value Total (Dollars in Thousands) Securities available for sale: Federal agency obligations............. $12,894 25.54% $11,134 27.55% $21,952 49.41% Commercial notes and commercial paper.. 2,531 5.01 4,631 11.46 1,499 3.37 State and local government obligations. 17,082 33.84 8,094 20.02 8,498 19.13 Other equity securities................ 14,574 28.87 13,160 32.56 9,073 20.43 ------- ------ ------- ------ ------- ------ Total securities available for sale.. 47,081 93.26 37,019 91.59 41,022 92.34 FHLB stock............................. 3,401 6.74 3,401 8.41 3,401 7.66 ------- ------ ------- ------ ------- ------ Total securities................... $50,482 100.00% $40,420 100.00% $44,423 100.00% ======= ====== ======= ====== ======= ====== Weighted average remaining life or term to repricing, excluding FHLB stock and other equity securities available for sale. 6.2 yrs. 3.6 yrs. 8.7 yrs. Other interest-earning assets: Interest-earning deposits with banks... $ 2,997 $ 2,158 $ 1,102 ======= ======= =======
The composition and maturities of the securities portfolio, excluding mortgage-backed securities, FHLB of Indianapolis stock and other equity securities, are indicated in the following table.
June 30, 2002 ------------------------------------------------------------------------------ Less Than 1 to 5 5 to 10 Over 10 Total 1 Year Years Years Years Securities ------------------------------------------------------------------------------ Amortized Amortized Amortized Amortized Amortized Market Cost Cost Cost Cost Cost Value ------------------------------------------------------------------------------ (Dollars in Thousands) Federal agency obligations................ $--- $1,500 $3,182 $8,182 $12,864 $12,894 Commercial notes and commercial paper.......... --- 1,510 --- 964 2,474 2,531 State and local government obligations..... 150 1,031 1,941 13,624 16,746 17,082 ---- ------ ------ ------- ------- ------- Total debt securities....... $150 $4,041 $5,123 $22,770 $32,084 $32,507 ==== ====== ====== ======= ======= ======= Weighted average yield(1)... 12.71% 6.40% 6.66% 7.18% 7.03%
- ---------------------------- (1) Yields reflected have been computed on a tax equivalent basis. Except for obligations of state and local governments, the Company's securities portfolio at June 30, 2002 contained neither tax-exempt securities nor securities of any issuer with an aggregate book value in excess of 10% of the Company's shareholders' equity, excluding those issued by the United States Government, or its agencies. Mortgage-Backed Securities. The Company's investment in mortgage-backed securities can serve as collateral for borrowings and, through repayments, as a source of liquidity. In addition, management from time to time has purchased mortgage-backed securities in order to supplement loan originations. For information regarding the carrying and market values of the Company's mortgage-backed securities portfolio, see Note 3 of the Notes to Consolidated Financial Statements in the Annual Report attached hereto as Exhibit 13. The following table sets forth the amortized cost of the Company's mortgage-backed securities at the dates indicated. June 30, ---------------------------------- 2002 2001 2000 ---------------------------------- (In Thousands) Fannie Mae..................... $14,193 $ 6,991 $ 1,219 Ginnie Mae..................... 2,406 12,650 10,110 Freddie Mac.................... 12,538 3,856 73 ------- ------- ------- Total...................... $29,137 $23,497 $11,402 ======= ======= ======= The following table sets forth the contractual maturities of the Company's mortgage-backed securities based on amortized cost at June 30, 2002. Not considered in the preparation of the table below is the effect of prepayments, periodic principal repayments and the adjustable-rate nature of these instruments. Due in June 30, ----------------------------------------- 2002 5 Years 5 to 10 10 to 20 Over 20 Balance or Less Years Years Years Outstanding ------- ------- -------- ------- ----------- (Dollars In Thousands) Fannie Mae................. $ --- $ --- $1,937 $12,256 $14,193 Ginnie Mae................. --- --- -- 2,406 2,406 Freddie Mac................ --- --- 1,519 11,019 12,538 ----- ----- ------ ------- ------- Total................. $ --- $ --- $3,456 $25,681 $29,137 ===== ===== ====== ======= ======= Weighted average yield..... ---% ---% 6.01% 5.31% 5.39% Sources of Funds General. The Bank's primary sources of funds are deposits, borrowings, amortization and prepayment of loan principal (including interest earned on mortgage-backed securities), sales of whole loans and loan participations, interest earned on or sales and maturation of investment securities and short-term investments, and funds provided from operations. Borrowings, including FHLB advances and reverse repurchase agreements, may be used at times to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels, and may be used on a longer term basis to support expanded lending activities. Deposits. First Federal offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposit accounts consist of passbook savings accounts, money market savings accounts, NOW, money market checking and regular checking accounts, and certificate accounts ranging in terms from 91 days to 60 months. The Bank only solicits deposits from its market area and currently does not use brokers to obtain deposits. The Bank relies primarily on competitive pricing policies, advertising and customer service to attract and retain these deposits. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition. The variety of deposit accounts offered by the Bank has allowed it to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. Nonetheless, the Bank has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. The Bank endeavors to manage the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, the Bank believes that its passbook savings, money market savings accounts, NOW, money market checking and regular checking accounts are relatively stable sources of deposits. However, the ability of the Bank to attract and maintain certificates of deposit and its passbook accounts and the rates paid on these deposits has been and will continue to be significantly affected by market conditions. The following table sets forth the savings flows at the Bank during the periods indicated. Year Ended June 30, 2002 2001 2000 ---- ---- ---- (Dollars in Thousands) Opening balance............. $144,630 $133,105 $130,401 Purchased deposits.......... --- --- --- Net deposits................ 8,807 5,723 (2,213) Interest credited........... 5,224 5,802 4,917 -------- -------- -------- Ending balance.............. $158,661 $144,630 $133,105 ======== ======== ======== Net increase................ $14,031 $ 11,525 $ 2,704 Percent increase............ 9.70% 8.66% 2.07% The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by the Bank at the dates indicated.
Year Ended June 30, 2002 2001 2000 ---- ---- ---- Percent Percent Percent Amount of Total Amount Of Total Amount of Total ------ -------- ------ -------- ------ -------- (Dollars in Thousands) Interest Rate Range: Passbook accounts................... $57,180 36.04% $ 35,376 24.46% $37,775 28.38% Demand accounts(1).................. 9,981 6.29 9,161 6.33 8,876 6.67 Money market accounts............... 2,973 1.87 5,621 3.88 2,884 2.17 NOW accounts........................ 7,460 4.70 7,129 4.93 7,539 5.66 -------- ------ -------- ------ -------- ------ Total non-certificates.............. 77,594 48.90 57,287 39.60 57,074 42.88 Certificates: 0.00 - 3.99%...................... 34,298 21.62 2,293 1.59 --- --- 4.00 - 5.99%...................... 26,461 16.68 26,651 18.43 $37,129 27.89 6.00 - 7.99%...................... 20,308 12.80 58,319 40.32 38,902 29.23 8.00 - 9.99%...................... --- --- 80 .06 --- --- -------- ------ -------- ------ -------- ------ Total Certificates.................. 81,067 51.10 87,343 60.40 76,031 57.12 -------- ------ -------- ------ -------- ------ Total Deposits...................... $158,661 100.00% $144,630 100.00% $133,105 100.00% ======== ====== ======== ====== ======== ======
(1) Non-interest-bearing accounts. The following table shows rate and maturity information for the Bank's certificates of deposit as of June 30, 2002.
0.00- 4.00- 6.00- Percent 3.99% 5.99% 7.99% Total of Total ------------------------------------------------------------------- (Dollars in Thousands) Certificate accounts maturing in quarter ending: September 30, 2002..................... $2,961 $7,100 $12,752 $22,813 28.14% December 31, 2002...................... 6,026 4,186 1,507 11,719 14.46 March 31, 2003......................... 4,809 687 1,578 7,074 8.73 June 30, 2003.......................... 6,322 1,845 1,671 9,838 12.14 September 30, 2003..................... 1,118 3,349 130 4,597 5.67 December 31, 2003...................... 1,213 301 304 1,818 2.24 March 31, 2004......................... 2,167 948 141 3,256 4.02 June 30, 2004.......................... 8,931 1,199 183 10,313 12.72 September 30, 2004..................... 357 500 --- 857 1.06 December 31, 2004...................... 161 91 480 732 .90 March 31, 2005......................... 54 9 706 769 .95 June 30, 2005.......................... 174 1,045 230 1,449 1.78 Thereafter............................. 5 5,201 626 5,832 7.19 ------- ------- ------- ------- ------ Total............................. $34,298 $26,461 $20,308 $81,067 100.00% ======= ======= ======= ======= ====== Percent of total....................... 42.31% 32.64% 25.05% 100.00%
The following table indicates the amount of the Bank's certificates of deposit and other deposits by time remaining until maturity as of June 30, 2002.
Maturity ------------------------------------------------------------------ Over Over 3 Months 3 to 6 6 to 12 Over or Less Months Months 12 months Total -------- ------ ------ --------- ----- (In Thousands) Certificates of deposit less than $100,000...... $17,806 $9,152 $10,490 $24,485 $61,933 Certificates of deposit of $100,000 or more..... 4,437 2,134 3,607 5,038 15,216 Public funds(1)................................. 570 433 2,815 100 3,918 ------- ------- ------- ------- ------- Total certificates of deposit................... $22,813 $11,719 $16,912 $29,623 $81,067 ======= ======= ======= ======= =======
- ------------------------- (1) Deposits from governmental and other public entities. Generally, the Bank does not pay interest rates on its jumbo certificates of deposit (certificates of deposit with balances of $100,000 or more) in excess of the interest rates paid on certificates of deposit with balances of less than $100,000. Borrowings. Although deposits are the Bank's primary source of funds, the Bank's policy has been to utilize borrowings when they are a less costly source of funds, can be invested at a positive interest rate spread or when the Bank desires additional capacity to fund loan demand. First Federal's borrowings at June 30, 2002 consisted of advances from the FHLB of Indianapolis upon the security of a hybrid collateral agreement of a percentage of unencumbered loans. Such advances can be made pursuant to several different credit programs, each of which has an interest rate and range of maturities. At June 30, 2002, the Bank had $54.4 million in FHLB advances, and a $1,000,000 overdraft line of credit was available from the FHLB. From time to time, First Federal has entered into repurchase agreements through a nationally recognized broker-dealer firm. These agreements are accounted for as borrowings by the Bank and are secured by certain of the Bank's securities. The broker-dealer takes possession of the securities during the period that the repurchase agreement is outstanding. The terms of the agreements have typically ranged from 30 days to a maximum of six months. The proceeds of these transactions are used to meet cash flow needs of the Bank. At June 30, 2002, the Bank had no repurchase agreements outstanding. The following table sets forth the maximum month-end balance and average balance of FHLB advances and line of credit from the FHLB and securities sold under agreements to repurchase at the dates indicated.
Year Ended June 30, ------------------------------------ 2002 2001 2000 ------------------------------------ (Dollars in Thousands) Maximum Balance: FHLB advances and line of credit................... $66,388 $64,168 $66,300 Securities sold under agreements to repurchase..... --- --- --- Average Balance: FHLB advances and line of credit................... 57,607 62,585 64,770 Securities sold under agreements to repurchase..... --- --- --- Average Rate Paid On: FHLB advances and line of credit................... 5.50% 6.02% 5.68% Securities sold under agreements to repurchase..... --- --- ---
The following table sets forth the Bank's borrowings at the dates indicated. Year Ended June 30, ------------------------------------ 2002 2001 2000 ------------------------------------ (In Thousands) FHLB advances and line of credit.... $54,363 $62,397 $64,168 Due to brokers...................... --- --- --- ------- ------- ------- Total borrowings................ $54,363 $62,397 $64,168 ======= ======= ======= Subsidiary Activities As a federally chartered savings association, First Federal is permitted by OTS regulations to invest up to 2% of its assets, or $4.8 million at June 30, 2002, in the stock of, or loans to, service corporation subsidiaries. First Federal may invest an additional 1% of its assets in service corporations where such additional funds are used for inner city or community development purposes. In addition to investments in service corporations, federal associations are permitted to invest an unlimited amount in operating subsidiaries engaged solely in activities which a federal association may engage in directly. First Federal had no subsidiaries at June 30, 2002. Regulation General. First Federal is a federally chartered savings bank, the deposits of which are federally insured and backed by the full faith and credit of the United States Government. Accordingly, First Federal is subject to broad federal regulation and oversight extending to all its operations. The Bank is a member of the FHLB of Indianapolis and is subject to certain limited regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As the savings and loan holding company of First Federal, the Company also is subject to federal regulation and oversight by the Office of Thrift Supervision (the "OTS"). The purpose of the regulation of the Company and other savings and loan holding companies is to protect subsidiary savings associations. The Bank is a member of the Savings Association Insurance Fund ("SAIF"), which together with the Bank Insurance Fund (the "BIF") are the two deposit insurance funds administered by the FDIC, and the deposits of the Bank are insured by the FDIC. As a result, the FDIC has certain regulatory and examination authority over the Bank. Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document. Federal Regulation of Savings Associations. The OTS has extensive authority over the operations of savings associations. As part of this authority, First Federal is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS and the FDIC. When these examinations are conducted by the OTS and the FDIC, the examiners may require the Bank to provide for higher general or specific loan loss reserves. All savings associations are subject to a semi-annual assessment, based upon the association's total assets, to fund the operations of the OTS. The Bank's OTS assessment for the fiscal year ended June 30, 2002 was approximately $75,000. The OTS also has extensive enforcement authority over all savings institutions and their holding companies, including First Federal and the Company. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required. In addition, the investment, lending and branching authority of the Bank is prescribed by federal laws, and the Bank is prohibited from engaging in any activities not permitted by such laws. The Bank's general permissible lending limit for loans-to-one borrower is the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At June 30, 2002, the Bank's lending limit under this restriction was approximately $3.2 million. First Federal is in compliance with the loans-to-one borrower limitation. The OTS, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan. Insurance of Accounts and Regulation by the FDIC. First Federal is a member of the SAIF, which is administered by the FDIC. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices, or is in an unsafe or unsound condition. The FDIC's deposit insurance premiums are assessed through a risk-based system, under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions will be made by the FDIC for each semi-annual assessment period. As of June 30, 2002, the Bank met the requirements of a well-capitalized institution. The premium schedule for BIF and SAIF insured institutions ranges from 0 to 27 basis points. However, SAIF insured institutions and BIF insured institutions are required to pay a Financing Corporation assessment in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. This amount is currently equal to about 1.88 points for each $100 in domestic deposits for BIF and SAIF insured institutions. These assessments, which may be revised based upon the level of BIF and SAIF deposits, will continue until the bonds mature in 2017 through 2019. Regulatory Capital Requirements. Federally insured savings associations, such as the Bank, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as defined by regulation). Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from tangible capital for calculating compliance with this requirement. At June 30, 2002, First Federal did not have any unamortized purchased mortgage servicing rights, but did have certain intangible assets related to the purchase of the branch in South Whitley, Indiana. The OTS regulations establish special capitalization requirements for savings associations that own subsidiaries. As of June 30, 2002, the Bank had no subsidiaries. At June 30, 2002, the Bank had tangible capital of $18.5 million, or 7.88% of adjusted total assets, which is approximately $9.1 million above the minimum requirement of 4% of adjusted total assets in effect on that date. The capital standards also effectively require core capital equal to at least 4% of adjusted total assets. Core capital generally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. At June 30, 2002 the Bank had certain intangible assets related to the branch purchase which were subject to these tests. At June 30, 2002, the Bank had core capital equal to $18.5 million, or 7.88% of adjusted total assets, which is $9.1 million above the minimum leverage ratio requirement of 4% as in effect on that date. The OTS risk-based requirement requires savings associations to have total capital of at least 8% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The OTS is also authorized to require a savings association to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. At June 30, 2002, First Federal had no capital instruments that qualify as supplementary capital and $2.4 million of general loss reserves, of which $482,000 was more than 1.25% of risk-weighted assets. Certain exclusions from capital and assets are required to be made for the purpose of calculating total capital. Such exclusions consist of equity investments (as defined by regulation) and that portion of land loans and nonresidential construction loans in excess of an 80% loan-to-value ratio and reciprocal holdings of qualifying capital instruments. First Federal had no such exclusions from capital and assets at June 30, 2002. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100% based on the risk inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan to value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by Fannie Mae or Freddie Mac. On June 30, 2002, the Bank had total risk-based capital of $20.4 million (including $18.5 million in core capital and $1.9 million in qualifying supplementary capital) and risk-weighted assets of $149.9 million (including, converted off-balance sheet assets); or total capital of 13.6% of risk-weighted assets. This amount was $8.4 million above the 8.0% requirement in effect on that date. The OTS and the FDIC are authorized and, under certain circumstances, required to take certain actions against savings associations that fail to meet their capital requirements. The OTS is generally required to take action to restrict the activities of an "undercapitalized association" (generally defined to be an association with less than either a 4% core capital ratio, a 4% Tier 1 risk-based capital ratio or an 8% risk-based capital ratio). Any such association must submit a capital restoration plan and until such plan is approved by the OTS may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The OTS is authorized to impose the additional restrictions, discussed below, that are applicable to significantly undercapitalized associations. As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized association must agree that it will enter into a limited capital maintenance guarantee with respect to the institution's achievement of its capital requirements. Any savings association that fails to comply with its capital plan or is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk-based capital ratio of less than 6%) must be made subject to one or more additional actions and operating restrictions which may cover all aspects of its operations and include a forced merger or acquisition of the association; and any other action the OTS deems appropriate. An association that becomes "critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to further mandatory restrictions on its activities in addition to those applicable to significantly undercapitalized associations. In addition, the OTS must appoint a receiver (or conservator with the concurrence of the FDIC) for a savings association, with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any undercapitalized association is also subject to the general enforcement authority of the OTS and the FDIC, including the appointment of a receiver or conservator. The OTS is also generally authorized to reclassify an association into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The imposition by the OTS or the FDIC of any of these measures on the Bank may have a substantial adverse effect on the Bank's operations and profitability. Limitations on Dividends and Other Capital Distributions. OTS regulations impose various restrictions or requirements on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. OTS regulations permit a federal savings association to pay dividends in any calendar year equal to net income for that year plus retained earnings for the preceding two years (less any dividends paid). Dividends in excess of such amounts require prior OTS approval. Qualified Thrift Lender Test. All savings associations, including the Bank, are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. At June 30, 2002, the Bank met the test and has always met the test since its effectiveness. The test requires a savings association to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments on a monthly average in nine out of every 12 months on a rolling basis. As an alternative, the savings association may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing, related loans and investments. Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it requalifies as a QTL and thereafter remains a QTL. If an association does not requalify and converts to a national bank charter, it must remain SAIF-insured until the FDIC permits it to transfer to the BIF. If such an association has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state. In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for payment of dividends. If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. In addition, it must repay promptly any outstanding FHLB borrowings, which may result in prepayment penalties. If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies. See "- Holding Company Regulation." Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), every FDIC insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with the examination of the Bank, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch, by the Bank. An unsatisfactory rating may be used as the basis for the denial of an application by the OTS. The federal banking agencies, including the OTS, have recently revised the CRA regulations and the methodology for determining an institution's compliance with the CRA. Due to the heightened attention being given to the CRA in the past few years, the Bank may be required to devote additional funds for investment and lending in its local community. The Bank was examined for CRA compliance in June 1996 and received a rating of satisfactory. Transactions with Affiliates. Generally, transactions between a savings association or its subsidiaries and its affiliates are required to be on terms as favorable to the association as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the association's capital. Affiliates of First Federal include the Company and any company which is under common control with the Bank. In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The OTS has the discretion to treat subsidiaries of savings associations as affiliates on a "case-by-case" basis. Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must be made on substantially the same terms and conditions as loans to unaffiliated persons. At June 30, 2002, the Bank was in compliance with the above restrictions. Holding Company Regulation. The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is registered and files reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. As a unitary savings and loan holding company that has been in existence prior to May 4, 1999, the Company generally is not subject to activity restrictions. If the Company acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Company and any of its subsidiaries (other than the Bank or any other SAIF-insured savings association) would become subject to such restrictions unless such other associations each qualify as a QTL and were acquired in a supervisory acquisition. If the Bank fails the QTL test, the Company must obtain the approval of the OTS prior to continuing after such failure, directly or through its other subsidiaries, any business activity other than those approved for multiple savings and loan holding companies or their subsidiaries. In addition, within one year of such failure the Company must register as, and will become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank holding company are more limited than are the activities authorized for a unitary or multiple savings and loan holding company. See "Qualified Thrift Lender Test." Federal Securities Law. The stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act. Company stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period. Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts). At June 30, 2002, the Bank was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS. Savings associations are authorized to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the Federal Reserve Bank. Federal Home Loan Bank System. The Bank is a member of the FHLB of Indianapolis, which is one of 12 regional FHLBs that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, First Federal is required to purchase and maintain stock in the FHLB of Indianapolis. At June 30, 2002, First Federal had $3.4 million in FHLB stock, which was in compliance with this requirement. In past years, the Bank has received substantial dividends on its FHLB stock. For the year ended June 30, 2002, dividends paid by the FHLB of Indianapolis to First Federal totaled $223,000. Over the past five fiscal years such dividends have averaged 7.71% and were 6.57% for the fiscal year ended June 30, 2002. Federal Taxation. In addition to the regular income tax, corporations, including savings associations such as the Bank, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income. A portion of the Bank's reserves for losses on loans may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). As of June 30, 2002, the portion of the Bank's reserves subject to this treatment for tax purposes totaled approximately $1.2 million. The Company and its subsidiaries file consolidated federal income tax returns on a fiscal year basis using the accrual method of accounting. The Company and its subsidiaries have not been audited by the IRS within the last ten years. Indiana Taxation. The State of Indiana imposes an 8.5% franchise tax on the net income (as defined) for financial (including thrift) institutions, exempting them from the current gross income, supplemental net income and intangible taxes. Net income for franchise tax purposes will constitute federal taxable income before net operating loss deductions and special deductions, adjusted for certain items, including Indiana income taxes, tax exempt interest and bad debts. Other applicable Indiana taxes include sales, use and property taxes. Delaware Taxation. As a Delaware holding company, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual fee to the State of Delaware. The Company is also subject to an annual franchise tax imposed by the State of Delaware which is generally based upon authorized shares. Competition First Federal faces strong competition, both in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, savings associations, credit unions and mortgage bankers making loans secured by real estate located in the Bank's market area. Commercial banks and finance companies provide vigorous competition in consumer lending. The Bank competes for real estate and other loans principally on the basis of the quality of services it provides to borrowers, interest rates and loan fees it charges, and the types of loans it originates. The Bank attracts all of its deposits through its retail banking offices, primarily from the communities in which those retail banking offices are located; therefore, competition for those deposits is principally from other commercial banks, savings associations and credit unions located in the same communities, as well as mutual funds. The Bank competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours, and convenient branch locations with interbranch deposit and withdrawal privileges at each. The Bank serves Wabash, Kosciusko, Grant, Miami, Huntington, Whitley, Allen, Noble and Elkhart Counties in Indiana. The Indiana counties of Wabash, Kosciusko and Whitley serve as the Bank's primary market areas. There are four commercial banks and one credit union which compete for deposits and loans in Wabash County. In Kosciusko County, there are eight commercial banks, two credit unions and one savings bank competing for market share. In Whitley County, there are six commercial banks, five credit unions and one savings bank competing for market share. Employees At June 30, 2002, the Company and its affiliates had a total of 68 employees, including 9 part-time employees. The Company's employees are not represented by any collective bargaining group. Management considers its employee relations to be good. Item 2. Description of Property The Bank conducts its business at its main office and three other locations in its primary market area. The Bank owns all of its offices. The total net book value of the Bank's premises and equipment (including land, buildings and furniture, fixtures and equipment) at June 30, 2002 was $2.7 million. See Note 6 of Notes to Consolidated Financial Statements in the Annual Report attached as Exhibit 13. The following table sets forth information relating to each of the Bank's offices as of June 30, 2002. Date Total Approximate Location Acquired Square Footage --------------------------------- -------------------- --------------------- Main Office: 1982 10,185(1) 1205 N. Cass Street Wabash, Indiana 500 S. Huntington 1977 2,400 Syracuse, Indiana(2) 1404 Street Road 114 West N. 1968 4,400 Manchester, Indiana(4) 105 E. Columbia Street 1997 5,300(5) South Whitley, Indiana(3) (1) The Bank leases space in this office to its affiliate, FirstFed Financial, Inc. (2) A new branch at this site was completed in September 1995. (3) NBD Bank Branch acquired on June 13, 1997. (4) A new branch at this site was completed in November 2001. (5) Includes basement. Item 3. Legal Proceedings The Company and First Federal are involved from time to time as plaintiff or defendant in various legal actions arising in the normal course of its business. FirstFed, the Company's other wholly-owned subsidiary is not a party to any legal action. While the ultimate outcome of these proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing the Company and First Federal in the proceedings, that the resolution of these proceedings should not have a material effect on the Company's consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended June 30, 2002. PART II Item 5. Market for Common Equity and Related Stockholder Matters Pages 35 and 36 of the attached 2002 Annual Report to Stockholders are herein incorporated by reference. The issuer sold no equity securities during the period covered by this report that were not registered under the Securities Act of 1933. Equity Compensation Plan Information The following table provides the information about the Company's common stock that may be issued upon the exercise of options and rights under all existing equity compensation plans as of June 30, 2002.
Number of securities Remaining available for future issuance under Equity compensation Number of securities to Weighted-average plans as of be issued upon exercise exercise price of June 30, 2002 of outstanding options, outstanding (excluding securities warrants and rights as of options, warrants reflected in June 30, 2002 and rights column (a)) Plan category (a) (b) (c) ---------------------------- ------------------------- ------------------------------ Equity compensation plans 23,024 (1) $14.99 (1) --- (1) approved by security holders 34,573 (2) 12.53 (2) 91,668 (2) Equity compensation plans not approved by security holders --- --- --- Total 57,597 $13.51 91,668
(1) 1992 Stock Option and Incentive Plan. (2) 1998 Omnibus Incentive Plan. Column (a) includes 11,250 shares subject to restricted grants under this Plan. Column (b) includes only the weighted-average price of stock options, as the restricted shares awarded under this plan have no exercise price. Item 6. Management's Discussion and Analysis or Plan of Operation Pages 4 through 12 of the attached 2002 Annual Report to Stockholders are herein incorporated by reference. Item 7. Financial Statements The following information appearing in the Company's Annual Report to Stockholders for the year ended June 30, 2002, is incorporated by reference in this Annual Report on Form 10-KSB as Exhibit 13. Pages in Annual Annual Report Section Report Report of Independent Auditors...................................... 13 Consolidated Balance Sheets as of June 30, 2002 and 2001............ 14 Consolidated Statements of Income Years Ended June 30, 2002, 2001 and 2000............................ 15 Consolidated Statement of Changes in Shareholders' Equity Years Ended June 30, 2002, 2001 and 2000............................ 16 Consolidated Statements of Cash Flows Years Ended June 30, 2002, 2001 and 2000............................ 17 Notes to Consolidated Financial Statements.......................... 18 to 33 With the exception of the information listed in Items 5-7 above, the Company's Annual Report to Stockholders for the year ended June 30, 2002, is not deemed filed as part of this Annual Report on Form 10-KSB. Item 8 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure There has been no Current Report on Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants and/or reporting disagreements on any matter of accounting principle or financial statement disclosure. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Information concerning Directors and executive officers of the Company is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 22, 2002. Information concerning Section 16(a) Beneficial Ownership Reporting Compliance is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 22, 2002. Item 10. Executive Compensation Information concerning executive compensation is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 22, 2002. Item 11. Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 22, 2002. Item 12. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 22, 2002. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2002. Item 14. Controls and Procedures. We currently have in place systems relating to internal controls and procedures with respect to our financial information. Our management periodically reviews and evaluates these internal control systems with our internal auditors and our independent accountants. We have completed such a review and evaluation in connection with the preparation of this Form 10-KSB. We have determined that there have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to our most recent evaluation. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Date: September 26, 2002 By: /s/ Roger K. Cromer --------------------------- ROGER K. CROMER (Duly Authorized Representative) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Roger K. Cromer /s/ Wayne W. Rees - -------------------------------- -------------------------------- ROGER K. CROMER WAYNE W. REES President and Chief Executive Officer Chairman of the Board (Principal Executive and Operating Officer) Date: September 26, 2002 Date: September 26, 2002 /s/ Timothy A. Sheppard /s/ Joseph W. McSpadden - -------------------------------- -------------------------------- TIMOTHY A. SHEPPARD JOSEPH W. McSPADDEN Treasurer Director (Principal Accounting Officer) Date: September 26, 2002 Date: September 26, 2002 /s/ J. Stanley Myers /s/ Ronald D. Reynolds - -------------------------------- -------------------------------- J. STANLEY MYERS RONALD D. REYNOLDS Director Director Date: September 26, 2002 Date: September 26, 2002 /s/ Thomas L. Frank /s/ John N. Philippsen - -------------------------------- -------------------------------- THOMAS L. FRANK JOHN N. PHILIPPSEN Director Director Date: September 26, 2002 Date: September 26, 2002 CERTIFICATION I, Roger K. Cromer, certify that: 1. I have reviewed this annual report on Form 10-KSB of FFW Corporation; 2. Based on my knowledge, this annual 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 annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report. Date: September 26, 2002 /s/ Roger K. Cromer ------------------------------------- President and Chief Executive Officer CERTIFICATION I, Timothy A. Sheppard, certify that: 1. I have reviewed this annual report on Form 10-KSB of FFW Corporation; 2. Based on my knowledge, this annual 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 annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report. Dated: September 26, 2002 /s/ Timothy A. Sheppard ------------------------------------- Treasurer CERTIFICATION By signing below, each of the undersigned officers hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Home Federal Bancorp. Signed this 26th day of September, 2002. /s/ Timothy A. Sheppard /s/ Roger K. Cromer - --------------------------------- --------------------------------- (Signature of Authorized Officer) (Signature of Authorized Officer) Timothy A. Sheppard Roger K. Cromer - --------------------------------- --------------------------------- (Typed Name) (Typed Name) Treasurer President and Chief Executive Officer - --------------------------------- --------------------------------- (Title) (Title)
Index to Exhibits Reference to Regulation S-B Exhibit Exhibit Number Number Document Attached Hereto 3(i) Certificate of Incorporation is incorporated by referenced to Exhibit 3.1 to the Issuer's Form S-1 Registration Statement filed on December 21, 1992 (File No. 33-56110) (the "Registration Statement") 3(ii) By-Laws 4 Instruments defining the rights of security holders, including debentures are incorporated by reference to Exhibit 4 to the Registration Statement 10 Executive Compensation Plans and Arrangements (a) Employment Contract between Roger K. Cromer and the Bank is incorporated by reference to Exhibit 10(b) of the Issuer's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999 (b) 1992 Stock Option and Incentive Plan is incorporated by reference to Exhibit 10.1 to the Registration Statement (c) Management Recognition and Retention Plan is incorporated by reference to Exhibit 10(c) of the Issuer's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1994 (d) 1998 Omnibus Incentive Plan is incorporated by reference to the Issuer's proxy statement for its 1998 Annual Shareholder Meeting (e) Employment Agreement between Timothy A. Sheppard and the Company is incorporated by reference to Exhibit 10(e) to the Issuer's Form 10-KSB for the fiscal year ended June 30, 2001 (f) Employment Agreement between Noah T. Smith and the Company is incorporated by reference to Exhibit 10(f) to the Issuer's Form 10-KSB for the fiscal year ended June 30, 2001 (g) Employment Agreement between Christine K. Noonan and the Company is incorporated by reference to Exhibit 10(g) to the Issuer's Form 10-KSB for the fiscal year ended June 30, 2001 11 Statement re: computation of per share earnings is incorporated to Note 2 of the Notes to Consolidated Financial Statements included in the Annual Report to Security Holders under Exhibit 13 13 Annual Report to Security Holders 13 21 Subsidiaries of Registration 21 23 Consents of Experts and Counsel 23
EX-3.(II) 3 ex_3ii.txt Exhibit 3(ii) Effective July 30, 2002 FFW CORPORATION BY-LAWS Article I. STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, unless otherwise provided by the Board of Directors, shall be held at 2:30 p.m. on the fourth Tuesday in October (or if such day is a legal holiday, on the next succeeding day not a legal holiday) at such place as the Board of Directors shall each year fix. Section 2. Special Meetings. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of at least one-third of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 5. Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the Chairman of the Board of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 6. Conduct of Business. (a) The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The polls for each matter upon which the stockholders will vote at the meeting will be opened and closed in accordance with Delaware law. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(b). For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders (which notice or public disclosure shall include the date of the Annual Meeting specified in the By-Laws, if such By-Laws have been filed with the Securities and Exchange Commission and if the Annual Meeting is held on such date), notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder who proposed such business, (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(b) and, if he should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors or by or at the direction of the holders of not less than one-tenth of all the outstanding capital stock of the Corporation entitled to vote at whose instance the special meeting is called. (c) Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the date of the meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior disclosure of the date of the meeting is given or made to stockholders (which notice or public disclosure shall include the date of the Annual Meeting specified in the By-Laws, if such By-Laws have been filed with the Securities and Exchange Commission and if the Annual Meeting is held on such date), notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations or proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(c). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Section 7. Proxies and Voting. At all meetings of stockholders, every stockholder entitled to vote may vote in person or by proxy executed in writing (or as otherwise permitted under applicable law) by the stockholder or his duly authorized attorney-in-fact in accordance with the procedures established for the meeting. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the Board of Directors. No proxy shall be valid after eleven months from the date of its execution except for a proxy coupled with an interest. Each stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or in the Certificate of Incorporation of the Corporation or as required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that the Board of Directors, in its discretion, or the officer of the Corporation presiding at the meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast pursuant to a roll call. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the Board of Directors in advance of the meeting of stockholders and such inspector or inspectors shall act at the meeting or any adjournment thereof and made a written report thereof, in accordance with Delaware law. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. Section 8. Stock List. The officer who has charge of the stock transfer books of the Corporation shall prepare and make, in the time and manner required by applicable law, a list of stockholders entitled to vote and shall make such list available for such purposes, at such places, at such times and to such persons as required by applicable law. The stock transfer books shall be the only evidence as to the identity of the stockholders entitled to examine the stock transfer books or to vote in person or by proxy at any meeting of stockholders. Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Section 10. Inspectors of Election. The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. Article II. BOARD OF DIRECTORS Section 1. General Powers, Number and Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The number of directors shall be set as provided for in the Certificate of Incorporation. The number of directors who shall constitute the Whole Board shall be such number as the Board of Directors shall from time to time have designated except that in the absence of any such designation, such number shall be nine. The Board of Directors shall annually elect a Chairman of the Board and a President from among its members and shall designate, when present, either the Chairman of the Board or the President to preside at its meetings. The directors, other than those who may be elected by the holders of any class or series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the conclusion of the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. Directors (a) must have their primary domicile in Wabash County, Indiana, and (b) must have a loan or deposit relationship with which they have maintained for at least a continuous period of twelve (12) months immediately prior to their nomination to the Board of Directors (or in the case of Directors in office on July 30, 2002, prior to that date). In addition, each director who is not an employee of the Corporation or any of its subsidiaries must have served as a member of a civic or community organization based in Wabash County, Indiana, for at least a continuous period of twelve (12) months during the five (5) years prior to his or her nomination to the Board of Directors (or in the case of Directors in office on July 30, 2002, prior to that date). The Board of Directors may waive one or more of the requirements set forth in the two previous sentences for one or more representatives it determines to appoint or nominate to the Board of Directors in connection with the acquisition of another financial institution by the Corporation or by its subsidiary, First Federal Savings Bank of Wabash, or the acquisition or opening of a new branch by First Federal Savings Bank of Wabash. No person 70 years of age shall be eligible for election, reelection, appointment, or reappointment to the Board of the Corporation. No Director shall serve as such beyond the annual meeting of the Corporation in the year which the Director becomes 70. A Director's term will be adjusted, if necessary, to expire in the year the Director turns 70. This age limitation does not apply to a Emeritus Director. Section 2. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of preferred stock then outstanding, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the Chairman of the Board and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Notwithstanding the above, at any adjourned meeting of the Board of Directors, at least one-third of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 8. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (a) To declare dividends from time to time in accordance with law; (b) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (c) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (d) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (e) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (f) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (g) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and, (h) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation's business and affairs. Section 9. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. Article III. COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the Whole Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any other provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designated the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Nominating Committee. The Board of Directors shall appoint a Nominating Committee of the Board, consisting of not less than three (3) members, one of which shall be the Chairman of the Board. The Nominating Committee shall have authority (a) to review any nominations for election to the Board of Directors made by a stockholder of the corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in order to determine compliance with such By-law and (b) to recommend to the Whole Board nominees for election to the Board of Directors to replace those directors whose terms expire at the annual meeting of stockholders next ensuing. Article IV. OFFICERS Section 1. Generally. (a) The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Chief Financial Officer and from time to time may choose such other officers as it may deem proper. The Chairman of the Board and the President shall be chosen from among the directors. Any number of offices may be held by the same person. (b) The term of office for all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors. (c) All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. Section 2. Chairman of the Board of Directors. The Chairman of the Board of Directors of the Corporation shall have general responsibility for the conduct of meetings of the Board of Directors, subject to the direction of the Board of Directors, Section 3 herein and to Article I, Section 6. Section 3. President. The President shall be the chief executive officer and, subject to the control of the Board of Directors, shall have general power over the management and oversight of the administration and operation of the Corporation's business and general supervisory power and authority over its policies and affairs. He shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. Each meeting of the stockholders and of the Board of Directors shall be presided over by the Chairman of the Board or, in his absence, the President or, in his absence, by such officer as has been designated by the Board of Directors or, in his absence, by such officer or other person as is chosen at the meeting. The Secretary or, in his absence, the General Counsel of the Corporation or such officer as has been designated by the Board of Directors or, in his absence, such officer or other person as is chosen by the person presiding, shall act as secretary of each such meeting. Section 4. Vice President. The Vice President or Vice Presidents, if any, shall perform the duties of the President in his absence or during his disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board or the President. Section 5. Secretary. The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the President. Section 6. Chief Financial Officer. The Chief Financial Officer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Chief Financial Officer with such banks or trust companies as the Board of Directors from time to time shall designate. He shall sign or countersign such instruments as require his signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him by the Board of Directors, the Chairman of the Board or the President, and may be required to give bond for the faithful performance of his duties in such sum and with such surety as may be required by the Board of Directors. Section 7. Assistant Secretaries and Other Officers. The Board of Directors may appoint one or more assistant secretaries and one or more assistants to the Chief Financial Officer, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these By-laws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President. Section 8. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. Article V. STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Section 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 4. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction or any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. Article VI. NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mail, postage paid, by sending such notice by prepaid telegram or mailgram or by sending such notice by facsimile machine or other electronic transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mail, by telegram or mailgram or by facsimile machine or other electronic transmission, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. Article VII. MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. The fiscal year of the Corporation shall be June 30 of each year. Section 5. Time Periods. In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included. Article VIII. AMENDMENTS The By-laws of the Corporation may be adopted, amended or repealed as provided in Article SEVENTH of the Certificate of Incorporation of the Corporation. EX-13 4 ffw_ara1.txt FFW ANNUAL REPORT [LOGO OMITTED] FFW Corporation 2002 Annual Report FFW Corporation Wabash, Indiana [PHOTO OF BANK OMITTED] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PRESIDENT'S MESSAGE ....................................................... 2 SELECTED CONSOLIDATED FINANCIAL INFORMATION ............................... 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................... 4 REPORT OF INDEPENDENT AUDITORS ............................................ 13 CONSOLIDATED BALANCE SHEETS - JUNE 30, 2002 and 2001 ...................... 14 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED JUNE 30, 2002, 2001 and 2000 .............................. 15 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED JUNE 30, 2002, 2001 and 2000 .............................. 16 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2002, 2001 and 2000 .............................. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................ 18 DIRECTORS AND EXECUTIVE OFFICERS .......................................... 34 SHAREHOLDER INFORMATION ................................................... 35 PRESIDENT'S MESSAGE Dear Shareholder: Fiscal year 2002 was a profitable and challenging year for FFW Corporation (the Company) and its wholly-owned subsidiaries First Federal Savings Bank of Wabash and FirstFed Financial, Inc. We started this year in a weakened economy with the Federal Reserve enacting multiple interest rate decreases. Unemployment grew and as economic conditions worsened, the tragic events of September 11th rocked our nation. Through all this, we took major strides in repositioning our balance sheet for future growth and profitability. I invite you to read Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 4 of the Annual Report that explains our financial condition. Results of operations improved from the prior year. Net earnings for the year ending June 30, 2002 were $2,048,000, or diluted earnings per share of $1.47, compared to $1,623,000 or $1.13 for 2001. As shareholders, you were rewarded with a 30.1% increase in diluted earnings per share compared to the prior year. The Company paid dividends of $0.56 per share; an increase of 7.7% over the $0.52 per share paid during the prior year. The Company completed a 5% stock buy back program in January 2002 and initiated another stock buy back program to purchase up to an additional 5% of our outstanding shares. Your Board of Directors is committed to enhancing shareholder value. Our ninth year as a public company continued to show our ability to add services and products. On October 15th, we opened the doors of our new 4,400 square foot facility in North Manchester. This new branch allows us to provide a full service financial institution in that market area. FirstFed Financial, Inc., our insurance and brokerage subsidiary, produced record growth and earnings during the year in spite of the turbulent economic environment. As we move forward, we remain committed to our customers by continuing to invest in technology, training, and staff in order to provide efficient, hometown service. As a shareholder, I ask you to review our Annual Report. With all of the success of FFW Corporation, it is important to acknowledge and recognize the tireless efforts of our employees and officers. To you, our shareholder, we pledge our best efforts to build shareholder value in the coming year and will make every effort to justify your continued confidence and support. Sincerely, /s/ Roger K. Cromer Roger K. Cromer President and Chief Executive Officer
SELECTED CONSOLIDATED FINANCIAL INFORMATION AT OR FOR THE YEAR ENDED JUNE 30: 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- (In Thousands) Financial Condition Data: Total assets $ 237,828 $ 231,186 $ 219,037 $ 217,489 $ 203,311 Loans 141,858 152,195 150,810 151,491 139,394 Securities 76,345 60,973 52,026 51,029 50,293 Deposits 158,661 144,630 133,105 130,401 125,256 Borrowings 54,363 62,397 64,168 66,300 56,500 Equity 22,409 21,993 19,615 19,357 19,129 (In Thousands) Selected Operations Data: Total interest income $ 16,022 $ 17,544 $ 16,687 $ 16,052 $ 14,589 Net interest income 6,570 6,786 7,072 6,686 5,998 Provision for loan losses (1,355) (1,715) (1,034) (1,010) (705) Non-interest income 2,305 1,265 1,689 1,990 1,265 Non-interest expense (4,804) (4,237) (4,657) (4,591) (3,800) Income tax expense (668) (476) (799) (964) (858) --------- --------- --------- --------- --------- Net income $ 2,048 $ 1,623 $ 2,271 $ 2,111 $ 1,900 ========= ========= ========= ========= ========= Per Share: Basic earnings per share (1) $ 1.48 $ 1.14 $ 1.60 $ 1.48 $ 1.36 Diluted earnings per share (1) 1.47 1.13 1.57 1.46 1.32 Dividends declared (1) 0.56 0.52 0.48 0.42 0.38 Dividend payout ratio 37.84% 45.61% 30.00% 28.38% 27.94% Other Data: Net interest margin (2) 2.96% 3.14% 3.38% 3.28% 3.31% Average interest-earning assets to average interest-bearing liabilities 1.13x 1.12x 1.10x 1.12x 1.12x Non-performing assets (3) to total assets at end of period .90% .70% .13% .39% .43% Equity-to-total assets (end of period) 9.42 9.51 8.96 8.90 9.41 Return on assets (ratio of net income to average total assets) .88 .72 1.04 .99 1.00 Return on equity (ratio of net income to average equity) 9.24 7.87 11.83 10.68 10.51 Equity-to-assets ratio (ratio of average equity to average total assets) 9.57 9.13 8.76 9.25 9.49 Number of full-service offices 4 4 4 4 4 (1) Restated for 100% stock dividend. (2) Net interest income divided by average interest-earning assets. (3) Includes non-accruing loans, accruing loans delinquent more than 90 days and foreclosed assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS When used in this Annual Report and in filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the word or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinion or statements expressed with respect to future periods in any current statements. 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. GENERAL FFW Corporation (the Company) owns First Federal Savings Bank of Wabash (the Bank or First Federal), and the Company's earnings are primarily dependent on the operations of First Federal. The following discussion relates primarily to the Bank. The principal business of First Federal is attracting deposits from the public and making small business, consumer and mortgage loans. The Bank's earnings are primarily dependent on net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans, mortgage-backed securities and investments outstanding during the period and the yield earned on such assets. The balances of deposits and borrowings and the rates paid on such deposits and borrowings determine interest expense. Operating expenses consist of employee compensation and benefits, occupancy and equipment, federal deposit insurance and other general and administrative expenses. Economic conditions as well as federal regulations concerning financial institutions and monetary and fiscal policies affect the Company. Deposit balances are influenced by a number of factors including interest rates paid on competing personal investments and the level of personal income and savings in our market. Deposit balances are influenced by the perceptions of customers regarding the stability of the financial services industry. Lending activities are influenced by the demand for housing and by competition from other lending institutions. The primary sources of funds for lending activities include deposits, loan repayments, borrowings, sales and maturities of securities available for sale and funds provided from operations. FINANCIAL CONDITION Total assets increased $6.6 million during the year to $237.8 million at June 30, 2002. This increase was funded by an increase in deposits of $14.0 million. These funds were used to pay down FHLB advances and invest in government agencies, municipals and other securities. Total securities available for sale increased from $61.0 million at June 30, 2001 to $76.3 million at June 30, 2002. During fiscal 2002, state and municipal securities increased from $8.1 million at June 30, 2001 to $17.1 million at June 30, 2002. Government agency securities increased from $11.1 million at June 30, 2001 to $12.9 million at June 30, 2002. Mortgage-backed, equity and other securities increased from $41.8 million at June 30, 2001 to $46.3 million at June 30, 2002. The Company has unrealized appreciation of $139,000, net of tax, at June 30, 2002 on securities available for sale. Net loans decreased $10.3 million, or 6.8%, from $152.2 million at June 30, 2001 to $141.9 million at June 30, 2002. The decreases in the loan portfolio were comprised primarily of $7.6 million in total mortgage loans and $6.2 million in automobile and other consumer loans. These decreases were partially offset by an increase of $1.4 million in home equity and improvement loans and $2.9 million in commercial loans. Approximately half of the loan portfolio is comprised of first mortgage loans secured by real estate located in the Company's market area. At June 30, 2002, total first mortgage loans secured by real estate comprised $73.5 million, or 51.8% of the net loan portfolio. The consumer and other loan portfolio included $17.2 million of home equity and improvement loans, $28.2 million in commercial loans and $25.2 million in automobile and other consumer loans at June 30, 2002. Total deposits increased $14.0 million, or 9.7%, from $144.6 million at June 30, 2001 to $158.6 at June 30, 2002. During fiscal 2002, non interest bearing accounts increased $800,000, or 9.0%, and interest bearing accounts increased $13.2 million, or 9.8%. The increase resulted from increased savings accounts and targeted pricing of short term and intermediate certificates of deposit. Management will continue to control the overall increases in interest rates in deposits by targeting certain terms and offering "specials" rather than making across the board increases in interest rates on all deposit products. Total shareholders' equity increased $416,000 to $22.4 million at June 30, 2002. The increase primarily resulted from net income of $2.0 million and $84,000 of proceeds from the exercise of stock options, which were offset by dividends paid of $760,000, $792,000 of treasury stock purchases and a $192,000 decrease in unrealized appreciation on securities available for sale, net of tax. RESULTS OF OPERATIONS Comparison of Years Ended June 30, 2002 and June 30, 2001 General. Net income for the year ended June 30, 2002 was $2.0 million; an increase of $425,000 compared to net income of $1.6 million for the year ended June 30, 2001, an increase of 26.2%. The increase was primarily the result of an increase of $1.0 million in noninterest income and a $360,000 decrease in provisions for loan losses which was partially offset by an increase in noninterest expense of $567,000 and a decrease in net interest income of $216,000. Further details of the changes in these items are discussed below. [GRAPH OMITTED] NET INCOME FROM 1998 TO 2002 1998 . . . . . . $1,900 1999 . . . . . . $2,111 2000 . . . . . . $2,271 2001 . . . . . . $1,623 2002 . . . . . . $2,048 Net Interest Income. Net interest income decreased $216,000, or 3.2%, from $6.8 million to $6.6 million for the year ended June 30, 2002. The decrease in net interest income was due to a decrease of $1.5 million in interest income, offset by a decrease of $1.3 million in interest expense. The decrease in net interest income was primarily a result of a larger decrease in the yield on interest-earning assets compared to the decrease in the yield on interest-bearing liabilities. Net interest margin, the ratio of net interest income to average earning assets, is affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin was 2.96% in 2002 compared to 3.14% in 2001. The net interest margin decreased due primarily to the net impact of changes in yields and rates of interest-earning assets and interest-bearing liabilities. The yield on earning assets in 2002 was 7.23% compared to 8.09% in 2001. Average earning assets increased 2.9% in 2002, following a 3.3% increase in 2001. The effective rate on interest bearing liabilities was 4.79% in 2002, compared to 5.58% in 2001. Provision for Loan Losses. The provision for loan losses decreased $360,000 from $1.7 million in fiscal 2001 to $1.4 million in fiscal 2002. The decrease was primarily due to a $900,000 additional provision that was identified during the first quarter of fiscal 2001 for losses expected on loans to a single borrower. The amounts provided during the fiscal year were based on management's quarterly analysis of the allowance for loan losses. In addition, the inherent and identified risks of commercial and consumer loans continue to require a higher level of provisions for loan losses. The Company has monitored the historical increase in net charge-offs in the commercial and consumer loan portfolios and increased the provision for loan losses accordingly. The Company will continue to monitor its allowance for loan losses and make future additions to the allowance through the provision for loan losses based on management's quarterly analysis of the adequacy of the allowance. Although the Company maintains its allowance for loan losses at a level which it considers to be adequate to provide for probable incurred losses, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods. In addition, the Company's determination as to the amount of the allowance for loan losses is subject to review by regulatory agencies, which can order the establishment of additional general or specific allowances. Noninterest Income. Noninterest income increased 82.1% from $1.3 million in 2001 to $2.3 million in 2002. All components of noninterest income, net gain or loss on sales of securities, sales of loans, commission income, service charges and fees and other income, increased in 2002. The primary factors influencing the $1.0 million increase were gains on sales of securities, commission income and gains on sales of loans. Gain on sales of securities was $229,000 in 2002 compared to a loss on sales of securities of $14,000 in 2001. Commission income increased 55.0% or $103,000 in 2002. The gain on sales of loans increased $631,000 as interest rates decreased during the year causing an increase in the number of newly originated fixed-rate mortgage loans with maturities 15 years and greater. Included in this gain on sales of loans is $465,000 of income relative to the recording of mortgage servicing rights resulting from the substantial increase in the Company's serviced loan portfolio. Non-interest Expense. During 2002, noninterest expense increased 13.4%, from $4.2 million in 2001 to $4.8 million in 2002. The increase was primarily attributed to salaries and benefits and other expense. Salaries and benefits increased 7.8% in 2002 as the Company increased professional staff. Other expense increased 51.2% or $358,000 in 2002 with $292,000, or 81.6%, of the increase resulting from a one-time increase due to processing errors occurring over a period of time related to the processing of loan sales and payments on serviced loans. Management has taken steps to ensure such errors will not occur in the future. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" effective July 1, 2002. In accordance with this new standard, management is currently assessing the extent to which the amortization of goodwill recorded in connection with the purchase of the South Whitley branch location may be discontinued. Income Tax Expense. Income tax expense was $668,000 in fiscal 2002 compared to $476,000 in fiscal 2001, an increase of $192,000 or 40.3%. Income taxes increased primarily due to higher net income before taxes in 2002. The effective tax rates were 24.6% and 22.7% for the years ended June 30, 2002 and 2001. Comparison of Years Ended June 30, 2001 and June 30, 2000 General. Net income for the year ended June 30, 2001 was $1.6 million; a decrease of $648,000 compared to net income of $2.3 million for the year ended June 30, 2000, a decrease of 28.5%. The decrease was primarily the result of a decrease of $286,000 in net interest income and a $681,000 increase in provisions for loan losses which was partially offset by a decrease in income taxes of $323,000. Further details of the changes in these items are discussed below. Net Interest Income. Net interest income decreased $286,000, or 4.0%, from $7.1 million to $6.8 million for the year ended June 30, 2001. The decrease in net interest income was due to an increase of $857,000 in interest income, offset by an increase of $1.1 million in interest expense. The decrease in net interest income was primarily a result of a smaller increase in the yield on interest-earning assets compared to the increase in the yield on interest-bearing liabilities. Net interest margin, the ratio of net interest income to average earning assets, is affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin was 3.14% in 2001 compared to 3.38% in 2000. The net interest margin decreased due primarily to the net impact of changes in yields and rates of interest-earning assets and interest-bearing liabilities. The yield on earning assets in 2001 was 8.09% compared to 7.93% in 2000. Average earning assets increased 3.3% in 2001, following a 2.5% increase in 2000. The effective rate on interest bearing liabilities was 5.58% in 2001, compared to 5.08% in 2000. Provision for Loan Losses. The provision for loan losses increased $681,000 from $1.0 million in fiscal 2000 to $1.7 million in fiscal 2001. This increase was the result of a $900,000 additional provision that was identified during the first quarter of this fiscal year for losses expected on loans to a single borrower. The amounts provided during the fiscal year were based on management's quarterly analysis of the allowance for loan losses. In addition, the inherent and identified risks of commercial and consumer loans continued to require a higher level of provisions for loan losses. Noninterest Income. Noninterest income decreased 25.1% from $1.7 million in 2000 to $1.3 million in 2001. The primary factor influencing the decrease was other income. Other income decreased $674,000 compared to 2000 due to death benefit proceeds in 2000 from insurance resulting in additional non-taxable income of $559,000. These proceeds were offset by expenses related to a payment under a deferred compensation plan of $312,000 that is included in salaries and benefits expense. The other components of noninterest income, net gain or loss on sales of securities, sales of loans and service charges and fees, increased in 2001 while commission income was down 16.1% from $223,000. Loss on sale of securities was $14,000 in 2001 compared to a loss on sale of securities of $63,000 in 2000. The gain on sale of loans increased $75,000 as interest rates decreased during the year causing an increase in the number of newly originated fixed-rate mortgage loans with maturities greater than 15 years. Service charges and fees increased 19.2% from 2000 due to increased volume in our deposit and loan areas. Noninterest Expense. . During 2001, noninterest expense decreased 9.0%, from $4.7 million in 2000 to $4.2 million in 2001. The decrease was primarily attributed to salaries and benefits and other expense. Stringent cost control and better utilization of resources continues to be a major focus at First Federal. Salaries and benefits decreased 15.3% in 2001 compared to a 17.5% increase in 2000. The decrease in 2001 is due to the recording of expense related to a payment under a deferred compensation plan of $312,000 in 2000 that was offset by $559,000 of proceeds from insurance included in other income in 2000. Occupancy and equipment costs increased 3.6% from the prior year. The increase is due to additional furniture and fixtures purchased and the related depreciation costs. Correspondent bank charges increased 15.2% from prior year due to volume and increased pass through costs. Income Tax Expense. Income tax expense was $476,000 in fiscal 2001 compared to $799,000 in fiscal 2000, a decrease of $323,000, or 40.4%. Income taxes decreased primarily due to lower net income before taxes and benefits from a reapportionment of interest affecting state taxes. The Company's effective tax rate was impacted by the insurance proceeds received in the fourth quarter of fiscal 2000. Also, the impact of federal tax-free municipal interest and a dividend received deduction on FNMA and FHLMC preferred stock to reduce income tax expense was magnified in 2001 compared to 2000 due to the lower net income before taxes. Asset and Liability Management and Market Risk General. The principal market risk affecting the Company is interest-rate risk. The Company does not maintain a trading account and is not affected by foreign currency exchange rate risk or commodity price risk. The Company is subject to interest rate risk to the extent its interest-earning assets reprice differently than its interest-bearing liabilities. The Company reduces exposure to changes in market interest rates by managing asset and liability maturities and interest rates, primarily by reducing the effective maturity of assets through the use of adjustable rate mortgage-backed securities and adjustable rate loans and by extending funding maturities through the use of other borrowings such as FHLB Advances. Quantitative Aspects of Market Risk. As part of its efforts to monitor and manage interest rate risk, the Company uses the "net portfolio value" (NPV) methodology adopted by the Office of Thrift Supervision (OTS). This approach calculates the difference between the present value of expected cash flows from assets and liabilities, as well as cash flows from off balance sheet contracts, arising from an assumed 300 basis point increase or decrease in interest rates. The Company's asset/liability management strategy sets limits on the change in NPV given certain changes in interest rates. The tables presented here, as of June 30, 2002 and 2001, are the Company's interest rate risk measured by changes in NPV for instantaneous parallel shifts in the yield curve, in 100 basis point increments, up and down 300 basis points. At June 30, 2002, the OTS did not provide information as to interest rate risk for 200 and 300 point decreases due to the low level of interest rates. As of June 30, 2002 Change in NPV as % of Portfolio Interest Rates Net Portfolio Value Value of Assets In Basis ------------------------------ ------------------- Points NPV (Rate Shock) $ Amount $Change %Change Ratio Change (1) ------------ -------- ------- ------- ----- ---------- (Dollars in thousands) 300 $17,987 $(8,387) (32)% 7.73% (294) 200 21,535 (4,840) (18) 9.05 (162) 100 24,551 (1,824) (7) 10.10 (57) Static 26,375 10.67 (100) 26,323 (51) 0 10.53 (14) (1) Expressed in basis points As of June 30, 2001 Change in NPV as % of Portfolio Interest Rates Net Portfolio Value Value of Assets In Basis ------------------------------ ------------------- Points NPV (Rate Shock) $ Amount $Change %Change Ratio Change (1) ------------ -------- ------- ------- ----- ---------- (Dollars in thousands) 300 $15,497 $(7,671) (33)% 6.95% (288) 200 18,171 (4,997) (22) 8.00 (183) 100 20,780 (2,387) (10) 8.98 (85) Static 23,168 9.83 (100) 24,269 1,101 5 10.15 32 (200) 23,277 109 0 9.66 (17) (300) 22,309 (859) (4) 9.16 (67) (1) Expressed in basis points As illustrated in the table, the Company's NPV declines in a rising interest rate environment. Specifically, the table indicates that, at June 30, 2002, the Company's NPV was $26.4 million (or 11% of portfolio assets). Based upon the assumptions used, an immediate increase in market interest rates of 200 basis points would result in a $4.8 million or 18% decline in NPV and a 162 basis point or 15.2% decline in the Company's NPV ratio to 9.05%. This is within the Company's guidelines. In evaluating the exposure to interest rate risk, certain simplifications in analysis must be considered. For example, although assets and liabilities may have similar maturities or period to repricing, they may react differently to changes in market interest rates. In addition, the rates on some assets and liabilities may fluctuate before changes in market interest rates, while interest rates on other types may lag behind. Further, if rates change, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their debt may decrease in case of an interest rate increase. Therefore, the actual effect of changing interest rates may differ from that presented in the foregoing table. The Board of Directors and management of the Company believe that certain factors afford the Company the ability to operate successfully despite its exposure to interest rate risk. The Company manages its interest rate risk by originating adjustable rate loans and purchasing adjustable rate mortgage-backed securities, by maintaining capital well in excess of regulatory requirements and by selling the majority of fixed rate one-to four-family real estate loans. The Company focuses lending efforts toward offering competitively priced adjustable rate loan products as an alternative to more traditional fixed rate mortgage loans. In addition, while the Company generally originates mortgage loans for its own portfolio, sales of fixed-rate first mortgage loans with maturities of 15 years or greater are currently undertaken to manage interest rate risk. These loans are currently classified as held for sale by the Company at origination. There were no loans held for sale at June 30, 2002. The Company retains the servicing on loans sold in the secondary market. At June 30, 2002, $51.0 million of such loans were being serviced for others. The primary objective of the Company's investment strategy is to provide liquidity necessary to meet funding needs as well as address daily, cyclical and long-term changes in the asset/liability mix while contributing to profitability by providing a stable flow of dependable earnings. Generally, the Company invests funds among various categories of investments and maturities based on the Company's liquidity needs and to achieve the proper balance between the desire to minimize risk and maximize yield to fulfill the Company's asset/liability management policies. The Company's cost of funds responds to changes in interest rates due to the relatively short-term nature of its deposit portfolio. As a result, the levels of short-term interest rates influence the results of operations. The Company offers a range of maturities on its deposit products at competitive rates and monitors the maturities on an ongoing basis. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Average Balances, Interest Rates and Yields The following table shows weighted average interest rates on loans, investments, deposits, other interest-bearing liabilities, and the interest rate spread and the net yield on weighted average interest-earning assets.
Year Ended June 30 ---------------------------------------------------------------------------------------- 2002 2001 2000 ---------------------------- ---------------------------- --------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ------ ------- -------- ------ ------- -------- ------ (Dollars in Thousands) Interest-earning assets: Loans receivable (1) ........... $148,394 $12,015 8.10% $154,211 $13,467 8.73% $153,090 $12,888 8.42% Securities (2) (3) ............. 57,399 3,099 5.40 46,736 3,053 6.39 43,536 2,856 6.32 Mortgage-backed securities (3) ............... 13,085 834 6.64 12,174 872 7.12 10,496 806 7.45 Other interest-bearing deposits ..................... 3,342 74 2.21 2,754 152 5.52 1,800 137 7.61 -------- ------- -------- ------- -------- ------- Total interest-earning assets ....................... 222,220 16,022 7.23 215,875 17,544 8.09 208,922 16,687 7.93 Other assets ................... 9,422 9,028 10,199 -------- -------- -------- Total assets ..................... $231,642 $224,903 $219,121 ======== ======== ======== Interest-bearing liabilities: Money market accounts ..................... $ 4,335 $ 105 2.42% $ 4,690 $ 242 5.15% $ 1,316 $ 59 4.48 NOW accounts ................... 7,771 129 1.66 7,398 161 2.18 7,134 157 2.20 Passbook savings accounts ..................... 42,624 1,281 3.01 34,798 1,326 3.81 41,970 1,639 3.91 Certificates of deposit ................... 84,968 4,766 5.61 83,295 5,265 6.32 74,085 4,079 5.51 FHLB advances .................. 57,607 3,171 5.50 62,585 3,765 6.02 64,770 3,681 5.68 -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities .................... 197,305 9,452 4.79 192,766 10,759 5.58 189,275 9,615 5.08 ------- ---- ------- ---- ------- ---- Other liabilities .............. 12,178 11,502 10,645 -------- -------- -------- Total liabilities ................ 209,483 204,268 199,920 Equity ........................... 22,159 20,635 19,201 -------- -------- -------- Total liabilities and shareholders' equity ........................ $231,642 $224,903 $219,121 ======== ======== ======== Net interest income/ interest rate spread ............. $ 6,570 2.44% $ 6,785 2.51% $ 7,072 2.85% ======= ==== ======= ==== ======= ==== Net interest margin (4) .......... 2.96% 3.14% 3.38% ==== ==== ====
(1) Average outstanding balances include non-accruing loans. Interest on loans receivable includes fees. The inclusion of nonaccrual loans and fees does not have a material effect on either the average outstanding balance or the average yield. (2) Yields reflected have not been computed on a tax equivalent basis. (3) Yields computed using the average amortized cost for securities available for sale. (4) Net interest income divided by average interest earning assets. Asset Quality Total non-performing assets increased to $2.1 million at June 30, 2002 compared to $1.6 million at June 30, 2001. The ratio of non-performing assets to total assets at June 30, 2002 was .90% compared to .70% at June 30, 2001. Included in non-performing assets at June 30, 2002 were $1.9 million in non-accruing loans and $188,000 in repossessed assets. Including the non-accruing loans listed above, as of June 30, 2002 and 2001, there were $8.7 million and $4.7 million, respectively, in net loans designated by the Bank as "watch loans" due to factors that may impact the ability of the borrowers to comply with loan repayment terms. Based on management's review as of June 30, 2002, $5.5 million of loans were classified as special mention, $2.8 million as substandard, $446,000 as doubtful and $0 as loss. As of June 30, 2001, $2.0 million of loans were classified as special mention, $2.5 million as substandard, $248,000 as doubtful and $0 as loss. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits, borrowings, principal and interest payments on loans and mortgage-backed securities and sales and maturities of securities available for sale. While maturities of securities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Historically, the standard measure of liquidity for thrift institutions was the ratio of cash and eligible investments to a certain percentage of net withdrawable savings and borrowings due within one year. OTS regulations no longer require a minimum liquidity ratio of 4%, but do require institutions to maintain sufficient liquidity to ensure their safe and sound operation. The Company maintains liquid investments based on management's assessment of the need for funds, expected deposit flows, yields on short-term liquid investments and its asset/liability management objectives. Year Ended June 30, 2002. During the year ended June 30, 2002, there was a net increase of $788,000 in cash and cash equivalents. Major sources of cash during the year were an increase in deposits of $14.0 million and the sale, call and maturity of securities provided $27.4 million. Management continued to sell fixed rate first mortgage loans with maturities of 15 to 30 years in the secondary market to manage interest rate risk. Major uses of cash during the year which offset the sources of cash include the purchase of $47.0 million in securities available for sale and a reduction in FHLB borrowings of $8.0 million. Year Ended June 30, 2001. During the year ended June 30, 2001, there was a net increase of $3.3 million in cash and cash equivalents. Major sources of cash during the year were an increase in deposits of $11.5 million and the sale, call and maturity of securities provided $18.3 million. Management continued to sell fixed rate first mortgage loans with maturities of 15 to 30 years in the secondary market to manage interest rate risk. Major uses of cash during the year which offset the sources of cash include funding an increase of $4.0 million in the loan portfolio, the purchase of $25.7 million in securities available for sale and a reduction in FHLB borrowings of $1.8 million. Year Ended June 30, 2000. During the year ended June 30, 2000 there was a net increase of $415,000 in cash and cash equivalents. Major sources of cash during the year were an increase in deposits of $2.7 million, and the proceeds from the sales of loans held for sale and the sale, call and maturity of securities provided $1.2 million and $4.6 million. Management continued to sell fixed rate first mortgage loans with maturities of 15 to 30 years in the secondary market to manage interest rate risk. Major uses of cash during the year, which offset the sources of cash, include funding an increase of $1.3 million in the loan portfolio and the purchase of $7.5 million in securities available for sale. Borrowings may be used as a source of funds to offset reductions in other sources of funds such as deposits and to assist in asset/liability management. Management believes that a diversified blend of borrowings from the FHLB offers flexibility and is an important tool to be used in the balanced growth of the Company. As such, borrowings outstanding at June 30, 2002 consisted of advances from the FHLB totaling $54.4 million. The Company had commitments to fund loan originations, unused lines of credit and standby lines of credit with borrowers of $19.5 million at June 30, 2002. In the opinion of management, the Company has sufficient cash flow and borrowing capacity to meet current and anticipated funding commitments. Pursuant to federal law, thrift institutions must meet a 4.00% core capital requirement and an 8.00% total risk-based capital to risk weighted assets requirement. At June 30, 2002, the Bank exceeded all fully phased in capital requirements. Core capital totaled $18.5 million, or 7.88% of adjusted total assets (as defined by regulation) and risk-based capital totaled $20.4 million, or 13.58% of risk-weighted assets (as defined by regulation). See Note 11 of the Notes to Consolidated Financial Statements for additional information regarding capital requirements applicable to the Bank. IMPACT OF INFLATION The financial statements and related data are in terms of historical dollars without considering changes in purchasing power of money over time due to inflation. The primary assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on performance than the general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services. REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders FFW Corporation Wabash, Indiana We have audited the accompanying consolidated balance sheets of FFW Corporation as of June 30, 2002 and 2001 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended June 30, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FFW Corporation as of June 30, 2002 and 2001 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP South Bend, Indiana August 16, 2002
CONSOLIDATED BALANCE SHEETS June 30, 2002 and 2001 2002 2001 ------------ ------------ ASSETS Cash and due from financial institutions ............................... $6,321,697 $ 6,372,538 Interest-bearing deposits in other financial institutions - short-term ............................................ 2,996,816 2,157,621 ------------ ------------ Total cash and cash equivalents .................................. 9,318,513 8,530,159 Securities available for sale .......................................... 76,344,629 60,973,088 Loans receivable, net of allowance for loan losses of $2,361,241 in 2002 and $1,773,194 in 2001 ....................................... 141,857,794 152,195,442 Federal Home Loan Bank stock ........................................... 3,400,900 3,400,900 Accrued interest receivable ............................................ 1,448,182 1,479,567 Premises and equipment, net ............................................ 2,693,163 2,099,125 Other assets ........................................................... 2,765,260 2,508,181 ------------ ------------ Total assets .................................................... $237,828,441 $231,186,462 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing .................................................. $ 9,981,667 $ 9,161,009 Interest-bearing ..................................................... 148,679,055 135,469,043 ------------ ------------ Total deposits ................................................... 158,660,722 144,630,052 Borrowings ............................................................. 54,362,554 62,396,906 Accrued expenses and other liabilities ................................. 2,396,376 2,166,444 ------------ ------------ Total liabilities ................................................ 215,419,652 209,193,402 Shareholders' equity Preferred stock, $.01 par; 500,000 shares authorized; none issued ........................................... --- --- Common stock, $.01 par; 2,000,000 shares authorized; issued: 1,829,828 - 2002 and 2001; outstanding: 1,367,375 - 2002 and 1,412,478 - 2001 ................. 18,298 18,298 Additional paid-in capital .......................................... 9,345,123 9,336,606 Retained earnings ................................................... 17,711,055 16,423,160 Accumulated other comprehensive income ............................... 138,695 330,776 Unearned management retention plan shares ............................ (80,961) (52,242) Treasury stock at cost, 462,453 shares - 2002 and 417,350 shares - 2001 .............................................. (4,723,421) (4,063,538) ------------ ------------ Total shareholders' equity ....................................... 22,408,789 21,993,060 ------------ ------------ Total liabilities and shareholders' equity ...................... $237,828,441 $231,186,462 ============ ============ See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME Years ended June 30, 2002, 2001 and 2000 2002 2001 2000 ----------- ----------- ----------- Interest and dividend income Loans, including fees ............................. $12,015,259 $13,467,200 $12,888,537 Taxable securities ................................ 3,292,147 3,522,670 3,266,784 Nontaxable securities ............................. 640,238 402,370 394,884 Other ............................................. 74,235 152,053 137,211 ----------- ----------- ----------- Total interest and dividend income ............. 16,021,879 17,544,293 16,687,416 Interest expense Deposits .......................................... 6,281,203 6,993,703 5,934,009 Borrowings ........................................ 3,170,538 3,765,075 3,681,171 ----------- ----------- ----------- Total interest expense ........................ 9,451,741 10,758,778 9,615,180 ----------- ----------- ----------- Net interest income ................................. 6,570,138 6,785,514 7,072,236 Provision for loan losses ........................... 1,355,000 1,715,000 1,033,677 ----------- ----------- ----------- Net interest income after provision for loan losses ................................... 5,215,138 5,070,515 6,038,559 Noninterest income Net gains/(loss) on sales of securities ........... 228,817 (14,159) (63,400) Net gains on sales of loans ....................... 715,115 84,601 9,814 Commission income ................................. 289,726 186,877 222,562 Service charges and fees .......................... 1,030,275 1,001,570 840,296 Other income ...................................... 40,509 6,596 679,913 ----------- ----------- ----------- Total noninterest income ..................... 2,304,442 1,265,485 1,689,185 Noninterest expense Salaries and benefits ............................. 2,178,280 2,021,239 2,386,933 Occupancy and equipment ........................... 395,575 400,707 386,744 Deposit insurance premium ......................... 105,859 81,814 101,662 Correspondent bank charges ........................ 269,608 272,908 237,118 Data processing ................................... 478,492 473,371 461,216 Printing, postage and supplies .................... 150,301 124,085 131,015 Amortization of goodwill & core deposit premium ... 167,039 162,584 156,347 Other expense ..................................... 1,058,705 700,221 796,376 ----------- ----------- ----------- Total noninterest expense ..................... 4,803,859 4,236,929 4,657,411 ----------- ----------- ----------- Income before income taxes .......................... 2,715,721 2,099,071 3,070,333 Income tax expense .................................. 667,986 475,726 799,472 ----------- ----------- ----------- Net income .......................................... $ 2,047,735 $ 1,623,345 $ 2,270,861 =========== =========== =========== Earnings per share Basic ............................................. $ 1.48 $ 1.14 $ 1.60 Diluted ........................................... 1.47 1.13 1.57 See accompanying notes.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2002, 2001 and 2000
Unearned Employee Unearned Accumulated Stock Management Additional Other Ownership Retention Common Paid-In Retained Comprehensive Plan Plan Treasury Stock Capital Earnings Income Shares Shares Stock ------- ---------- ----------- ---------- --------- -------- ---------- Balance at July 1, 1999 ..................... $17,853 $8,965,882 $13,970,694 $(455,386) $(52,331) $ --- $(3,089,872) Cash dividends - $0.48 per share ............ --- --- (694,424) --- --- --- --- 8,560 shares released under ESOP ............ --- 69,772 --- --- 52,331 --- --- 7,000 shares purchased under MRP ............ 70 95,305 --- --- --- (95,375) --- Purchased 39,322 shares, net ................ --- 42,497 --- --- --- --- (536,214) Issued 14,725 shares on stock options ....... 147 54,672 --- --- --- --- --- Amortization of MRP contribution ............ --- --- --- --- --- 23,021 --- Net income .................................. --- --- 2,270,861 --- --- --- --- Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $(713,843) ....................... --- --- --- (1,024,583) --- --- --- ----------- Total other comprehensive income --- --- --- (1,024,583) --- --- --- Comprehensive income ........................ --- --- --- --- --- --- --- ------- ---------- ----------- ---------- --------- -------- ----------- Balance at June 30, 2000 .................... 18,070 9,228,128 15,547,131 (1,479,969) --- (72,354) (3,626,086) Cash dividends - $0.52 per share ............ --- --- (747,316) --- --- --- --- 1,000 shares purchased under MRP and 750 MRP shares forfeited ................ --- 1,906 --- --- --- (1,344) (562) Purchased 36,400 shares, net ................ --- --- --- --- --- --- (456,090) Issued 25,200 shares on stock options ....... 228 106,572 --- --- --- --- 19,200 Amortization of MRP contribution ............ --- --- --- --- --- 21,456 --- Net income .................................. --- --- 1,623,345 --- --- --- --- Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $(1,187,178) ..................... --- --- --- 1,810,745 --- --- --- ---------- Total other comprehensive income --- --- --- 1,810,745 --- --- --- Comprehensive income ........................ --- --- --- --- --- --- --- ------- ---------- ----------- ---------- --------- -------- ----------- Balance at June 30, 2001 .................... 18,298 9,336,606 16,423,160 330,776 --- (52,242) (4,063,538) Cash dividends - $0.56 per share ............ --- --- (759,840) --- --- --- --- 4,000 shares purchased under MRP ............ --- 16,440 --- --- --- (56,800) 40,360 Purchased 58,260 shares, net ................ --- --- --- --- --- --- (792,322) Issued 9,157 shares on stock options ........ --- (7,923) --- --- --- --- 92,079 Amortization of MRP contribution ............ --- --- --- --- --- 28,081 --- Net income .................................. --- --- 2,047,735 --- --- --- --- Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $(24,033) ....................... --- --- --- (192,081) --- --- --- ---------- Total other comprehensive income --- --- --- (192,081) --- --- --- Comprehensive income ........................ --- --- --- --- --- --- --- ------- ---------- ----------- ---------- --------- -------- ----------- Balance at June 30, 2002 .................... $18,298 $9,345,123 $17,711,055 $ 138,695 $ --- $(80,961) $(4,723,421) ======= ========== =========== ========== ========= ======== ===========
Total Shareholders' Equity ------------- Balance at July 1, 1999 ..................... $19,356,840 Cash dividends - $0.48 per share ............ (694,424) 8,560 shares released under ESOP ............ 122,103 7,000 shares purchased under MRP ............ --- Purchased 39,322 shares, net ................ (493,717) Issued 14,725 shares on stock options ....... 54,819 Amortization of MRP contribution ............ 23,021 Net income .................................. 2,270,861 Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $(713,843) .................... Total other comprehensive income (1,024,583) ----------- Comprehensive income ........................ 1,246,278 ----------- Balance at June 30, 2000 .................... 19,614,920 Cash dividends - $0.52 per share ............ (747,316) 1,000 shares purchased under MRP and 750 MRP shares forfeited ................ --- Purchased 36,400 shares, net ................ (456,090) Issued 25,200 shares on stock options ....... 126,000 Amortization of MRP contribution ............ 21,456 Net income .................................. 1,623,345 Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $(1,187,178) ..................... Total other comprehensive income 1,810,745 ---------- Comprehensive income ........................ 3,434,090 ---------- Balance at June 30, 2001 .................... 21,993,060 Cash dividends - $0.56 per share ............ (759,840) 4,000 shares purchased under MRP ............ --- Purchased 58,260 shares, net ................ (792,322) Issued 9,157 shares on stock options ........ 84,156 Amortization of MRP contribution ............ 28,081 Net income .................................. 2,047,735 Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $(24,033) ....................... Total other comprehensive income (192,081) ----------- Comprehensive income ........................ 1,855,654 ----------- Balance at June 30, 2002 .................... $22,408,789 =========== See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2002, 2001 and 2000 2002 2001 2000 ------------ ------------ ------------ Cash flows from operating activities Net income ............................................. $ 2,047,735 $ 1,623,345 $ 2,270,861 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization ........................ 172,605 (2,743) (31,822) Provision for loan losses ............................ 1,355,000 1,715,000 1,033,677 Net (gains) losses on sales of: Securities ......................................... (228,817) 14,159 63,400 Loans held for sale ................................ (715,115) (84,601) (9,814) Originations of loans held for sale .................. (28,102,589) (10,081,738) (1,164,250) Proceeds from sales of loans held for sale ........... 28,352,376 10,166,339 1,174,064 ESOP expense ......................................... -- -- 122,103 Amortization of MRP contribution ..................... 28,081 21,456 23,021 Net change in accrued interest receivable and other assets ................................... (13,670) 434,099 (1,132,071) Amortization of goodwill and core deposit intangibles ........................................ 167,039 162,584 219,437 Net change in accrued interest payable and other liabilities .............................. 229,932 91,474 1,433,499 ------------ ------------ ------------ Net cash from operating activities ................. 3,292,577 4,059,374 4,002,105 Cash flows from investing activities Proceeds from: Sales, calls and maturities of securities available for sale ................................. 27,427,247 18,313,604 4,561,566 Sales of foreclosed real estate and repossessed assets 404,501 632,014 935,678 Purchase of: Securities available for sale ........................ (47,046,695) (25,652,052) (7,463,987) Principal collected on mortgage-backed securities ...... 4,279,463 1,574,615 332,873 Net change in loans receivable ......................... 8,688,445 (3,986,875) (1,288,371) Purchases of premises and equipment, net ............... (785,496) (267,349) (101,760) Investment in limited partnership ...................... --- (75,000) --- ------------ ------------ ------------ Net cash from investing activities ................... (7,032,535) (9,461,043) (3,024,001) Cash flows from financing activities Net change in deposits ................................. 14,030,670 11,525,452 2,703,247 Proceeds from borrowings ............................... 39,290,750 57,000,000 78,294,891 Repayment of borrowings ................................ (47,325,102) (58,770,636) (80,427,737) Proceeds from stock options ............................ 84,156 126,000 54,819 Purchase of treasury stock ............................. (792,322) (456,090) (493,717) Cash dividends paid .................................... (759,840) (747,316) (694,424) ------------ ------------ ------------ Net cash from financing activities .................. 4,528,312 8,677,410 (562,921) ------------ ------------ ------------ Net change in cash and cash equivalents .................. 788,354 3,275,741 415,183 Beginning cash and cash equivalents ..................... 8,530,159 5,254,418 4,839,235 ------------ ------------ ------------ Ending cash and cash equivalents ......................... $ 9,318,513 $ 8,530,159 $ 5,254,418 ============ ============ ============ Supplemental disclosure of cash flow information Cash paid during the period Interest ............................................. $ 9,495,010 $ 10,847,619 $ 9,525,756 Income taxes ......................................... 718,000 353,000 930,000 See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include FFW Corporation (the Company), and its wholly-owned subsidiaries, First Federal Savings Bank of Wabash (the Bank) and FirstFed Financial, Inc., Incorporated. All significant inter-company transactions and balances have been eliminated in consolidation. Nature of Business and Concentrations of Credit Risk: The primary source of income for the Company is the origination of commercial and residential real estate loans (see Note 13). Use of Estimates In Preparing Financial Statements: Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Areas involving the use of estimates and assumptions include the allowance for loan losses, fair values of securities and other financial instruments, determination and carrying value of impaired loans and intangible assets, the carrying value of loans held for sale, the value of mortgage servicing rights, the accrued liability for deferred compensation, the fair value of stock options, the realization of deferred tax assets and the determination of depreciation of premises and equipment. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, the classification and carrying value of loans held for sale, the fair value of stock options and the fair value of securities and other financial instruments are particularly susceptible to material change in the near term. Cash Flow Reporting: For reporting cash flows, cash and cash equivalents include cash on hand, due from financial institutions and interest-bearing deposits in other financial institutions -- short-term. Net cash flows are reported for customer loan and deposit transactions. Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported separately in shareholders' equity, net of tax. Securities are classified as trading when held for short term periods in anticipation of market gains, and are carried at fair value. Securities are written down to fair value when a decline in fair value is not temporary. Gains and losses on sales are determined using the amortized cost of the specific security sold. Interest income includes amortization of purchase premiums and discounts. Loans Held for Sale: Mortgage loans intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized in a valuation allowance by charges to income. Loans Receivable: Loans receivable are reported at the principal balance outstanding, net of deferred loan fees and costs, the allowance for loan losses and charge-offs. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when payments are past due over 90 days. Payments received on such loans are reported as principal reductions. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for small-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Foreclosed Real Estate: Real estate properties acquired through, or in lieu of, foreclosure are initially recorded at the lower of carrying amount or fair value at acquisition, establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss and charged against the allowance for loan losses. Valuations are periodically performed by management and valuation allowances are adjusted through a charge to income for changes in fair value or estimated selling costs. Premises and Equipment: Asset cost is reported net of accumulated depreciation. Depreciation expense is calculated on the straight-line method over the assets useful lives. These assets are reviewed for impairment when events indicate the carrying amount may not be recoverable. Intangible Assets: Intangible assets arising primarily from the acquisition of the South Whitley Branch, on June 13, 1998, include goodwill and core deposit intangibles. Goodwill represents the excess of the purchase price over the assets acquired. Goodwill is amortized on a straight-line basis over 15 years. Core deposit intangibles are amortized on an accelerated basis over 10 years. As of June 30, 2002, unamortized goodwill totaled $905,000 and unamortized core deposit intangibles totaled $143,000. The Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" effective July 1, 2002. In accordance with this new standard, management is currently assessing the extent to which the amortization of goodwill recorded in connection with the purchase of the South Whitley branch location may be discontinued. Mortgage Servicing Rights: Servicing rights represent both purchased rights and the allocated value of servicing rights retained on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Stock Compensation: Expense for employee compensation under stock option plans is based on Accounting Principles Board (APB) Opinion 25, with expense reported only if options are granted below market price at grant date. If applicable, disclosures of net income and earnings per common share are provided as if the fair value method of Statement of Financial Accounting Standards SFAS No. 123 were used for stock-based compensation. Financial Instruments with Off-Balance-Sheet Risk: The Company, in the normal course of business, makes commitments to make loans which are not reflected in the financial statements. A summary of these commitments is disclosed in Note 12. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes the net change in net unrealized appreciation (depreciation) on securities available for sale, net of tax which is also recognized as a separate component of shareholders' equity. Earnings and Dividends Per Share: Basic earnings per share is based on the net income divided by the weighted average number of shares outstanding during the period. ESOP shares are considered outstanding for earnings per share calculations as they are committed to be released; unearned shares are not considered outstanding. MRP shares are considered outstanding for basic earnings per share as they become vested. Diluted earnings per share shows the dilutive effect of additional potential shares issuable under stock option plans and nonvested shares issued under the MRP. Earnings and dividends per share are restated for all stock splits and dividends. Stock Split: Common share amounts and market values and price per share disclosures related to stock repurchase programs, stock-based compensation plans and earnings and dividends per share disclosures have been restated for all stock splits and dividends. Stock dividends in excess of 20% are reported by transferring the par value of the stock issued from retained earnings to common stock. Stock dividends for 20% or less are reported by transferring the market value, as of the ex-dividend date, of the stock issued from retained earnings to common stock and additional paid-in capital. Reclassifications: Certain amounts in the 2001 and 2000 financial statements were reclassified to conform to the 2002 presentation. NOTE 2 - EARNINGS PER SHARE A reconciliation of the numerators and denominators used in the computation of basic earnings per share and diluted earnings per share is presented below:
Year ended June 30, 2002 2001 2000 ---------- ---------- ---------- Basic Earnings Per Share Numerator: Net income ........................................ $2,047,735 $1,623,345 $2,270,861 ========== ========== ========== Denominator: Weighted average shares outstanding ............. 1,384,704 1,423,731 1,425,464 Less: Average non-vested MRP shares ........................ (4,930) (5,218) (5,451) Less: Average unallocated ESOP shares ...................... --- --- (2,140) ---------- ---------- ---------- Weighted average shares outstanding ........................ 1,379,774 1,418,513 1,417,873 ========== ========== ========== Basic earnings per share .................................. $ 1.48 $ 1.14 $ 1.60 ========== ========== ========== Diluted Earnings Per Share Numerator: Net income ........................................ $2,047,735 $1,623,345 $2,270,861 ========== ========== ========== Denominator: Weighted average shares outstanding for basic earnings per share ............................... 1,379,774 1,418,513 1,417,873 Add: Dilutive effects of assumed exercise of stock options and nonvested MRP shares ............................. 10,985 16,735 25,076 ---------- ---------- ---------- Weighted average shares and dilutive potential shares outstanding .......................... 1,390,759 1,435,248 1,442,949 ========== ========== ========== Diluted earnings per share ................................... $ 1.47 $ 1.13 $ 1.57 ========== ========== ==========
NOTE 3 - SECURITIES At June 30, securities were as follows: Fair Value Gains Losses ----------- -------- ---------- Available for sale 2002 U.S. government and agency.. $12,893,573 $ 84,838 $ (55,649) State and municipal ........ 17,082,537 392,925 (55,788) Corporate bonds ............ 2,531,079 58,427 (1,333) Mortgage backed ............ 29,263,414 258,946 (132,739) Equity ..................... 10,314,099 185,250 (340,675) Mutual funds ............... 4,259,927 16,599 (79,272) ----------- -------- --------- $76,344,629 $996,985 $(665,456) =========== ======== ========= Available for sale 2001 U.S. government and agency.. $11,133,575 $ 77,891 $ (6,240) State and municipal ........ 8,094,099 143,383 (69,111) Corporate bonds ............ 4,631,112 178,274 --- Mortgage backed ............ 23,953,739 486,842 (29,989) Equity ..................... 8,984,838 79,838 (154,172) Mutual funds ............... 4,175,725 --- (159,073) ----------- -------- --------- $60,973,088 $966,228 $(418,585) =========== ======== ========= Contractual maturities of debt securities at June 30, 2002 were as follows. Expected maturities may differ from contractual maturities because borrowers may call or prepay obligations. Securities not due at a single maturity date are shown separately. Fair Value ----------- Due in one year or less ...... $ 150,254 Due from one to five years ... 4,100,309 Due from five to ten years ... 5,278,158 Due after ten years .......... 22,978,468 Mortgage backed .............. 29,263,414 Equities ..................... 10,314,099 Mutual funds ................. 4,259,927 ----------- $76,344,629 =========== Sales/calls of securities available for sale for the years ended June 30 were: 2002 2001 2000 ----------- ----------- ---------- Sales ........................ $13,145,650 $ 3,442,356 $3,451,566 Calls ........................ 11,631,600 13,806,248 --- Gross gains ................. 296,417 13,624 5,794 Gross losses ................. (67,600) (27,783) (69,194) NOTE 4 - LOANS RECEIVABLE, NET Loans receivable as of June 30 were as follows: 2002 2001 ------------ ------------ Mortgage loans (principally conventional) Secured by one-to-four family residences $ 60,621,679 $ 68,646,306 Secured by other properties 10,771,759 8,887,143 Construction 2,746,126 4,162,603 ------------ ------------ 74,139,564 81,696,052 Undisbursed portion of construction loans (678,953) (565,253) Net deferred loan origination fees (48,641) (52,372) ------------ ------------ Total mortgage loans 73,411,970 81,078,427 Consumer and other loans Automobile 21,965,552 27,162,815 Manufactured home 164,123 211,760 Home equity and improvement 17,232,172 15,809,379 Commercial 28,182,223 25,310,962 Other 3,122,198 4,096,920 ------------ ------------ 70,666,268 72,591,836 Net deferred loan origination costs 140,797 298,373 ------------ ------------ Total consumer and other loans 70,807,065 72,890,209 Less allowance for loan losses (2,361,241) (1,773,194) ------------ ------------ $141,857,794 $152,195,442 ============ ============ Activity in the allowance for loan losses for the years ended June 30 is as follows: 2002 2001 2000 ---------- ---------- ---------- Beginning balance $1,773,194 $1,961,318 $1,623,293 Provision for loan losses 1,355,000 1,715,000 1,033,677 Charge-offs (1,232,425) (2,191,984) (783,484) Recoveries 465,472 288,860 87,832 ---------- ---------- ---------- Ending balance $2,361,241 $1,773,194 $1,961,318 ========== ========== ========== Information regarding impaired loans is as follows for the years ending June 30:
2002 2001 2000 ---------- ---------- -------- Year end loans with no allowance for loan losses allocated $ --- $ --- $ --- Year end loans with allowance for loan losses allocated 1,486,204 2,141,236 754,116 Amount of allowance allocated 405,320 492,328 234,667 Average of impaired loans during the year 1,807,605 1,823,017 285,686 Interest income recognized during impairment 34,955 99,656 48,507 Cash-basis interest income recognized 23,902 92,330 32,814
NOTE 5 - LOAN SERVICING Mortgage loans serviced for others are not reported as assets in the balance sheets. These loans totaled $51,044,000 and $35,240,000 at June 30, 2002 and 2001. Related escrow deposit balances were $108,000 and $71,000 at June 30, 2002 and 2001. NOTE 6 - PREMISES AND EQUIPMENT, NET Premises and equipment at June 30 were as follows: 2002 2001 ---------- ----------- Land $ 480,121 $ 480,121 Buildings 2,928,821 2,191,166 Furniture, fixtures and equipment 1,056,603 1,012,311 ---------- ----------- Total cost 4,465,545 3,683,598 Accumulated depreciation (1,772,382) (1,584,473) ---------- ----------- $2,693,163 $ 2,099,125 ========== =========== NOTE 7 - DEPOSITS Deposit accounts individually exceeding $100,000 totaled approximately $36,023,000 and $26,327,000 at June 30, 2002 and 2001. At June 30, 2002, stated maturities of certificates of deposit for the years ended June 30 were: 2003 $51,444,719 2004 19,984,985 2005 3,806,746 2006 2,136,890 Thereafter 3,694,134 ----------- $81,067,474 =========== NOTE 8 - OTHER BORROWINGS Federal Home Loan Bank (FHLB) advances totaled $54,362,554 and $62,396,906 at June 30, 2002 and 2001. The majority of the advances are fixed with interest rates ranging from 3.66% to 7.94% as of June 30, 2002 and the scheduled maturities during the years ended June 30 were as follows: 2003 $ 9,500,000 2004 5,000,000 2005 5,081,277 2006 --- 2007 --- Thereafter 34,781,277 ----------- $54,362,554 =========== The Bank also maintains a $1,000,000 overdraft line of credit agreement with the FHLB which terminates on June 2, 2003. As of June 30, 2002 and 2001, no balance was outstanding under this agreement. FHLB advances and the overdraft line of credit agreement are secured by all stock in the FHLB, qualifying first mortgage loans, government, agency and mortgage-backed securities. At June 30, 2002, collateral of approximately $63 million is pledged to the FHLB to secure advances outstanding. NOTE 9 - EMPLOYEE BENEFITS Employee Pension Plan: The pension plan is part of a noncontributory multi-employer defined-benefit pension plan covering substantially all employees. There is no separate actuarial valuation of plan benefits nor segregation of plan assets specifically for the Company. As of July 1, 2001, the latest actuarial valuation, plan assets exceeded the actuarially determined value of total vested benefits. For the year ending June 30, 2002, pension expense was $9,000. As of June 30, 2001 and 2000, the plan had reached its full funding limitation for Internal Revenue Code purposes and a full contribution was not required. As a result, other than administrative expenses, there was no pension expense for 2001 and 2000. 401(k) Plan: A retirement savings 401(k) plan covers full time employees 21 or older that have completed one year of service. Participants may defer up to 15% of compensation. The Company contributes 4% of each participant's compensation regardless of the participant's personal contributions to their 401(k) account. Additionally, the Company matches 100% of elective deferrals on the first 4% of the participants' compensation, and the Company matches 50% of elective deferrals on the next 2% of the participant's compensation. Expenses under this plan were $55,000, $41,000, and $39,000 for 2002, 2001 and 2000. Employee Stock Ownership Plan (ESOP): Employees with 1,000 hours of employment with the Bank and who have attained age 21 are eligible to participate in the ESOP. The ESOP borrowed $591,500 from the Company to purchase 118,300 shares of the common stock issued in the conversion at $5 per share. The loan was repaid principally from the Bank's discretionary contributions to the ESOP over seven years, and was paid off as of December 31, 2001. Shares purchased by the ESOP were held in suspense until allocated to participants as the loan was repaid. As of June 30, 2000, all ESOP shares had been allocated. ESOP expense related to shares allocated as the loan was repaid was $0, $0 and $122,000 for 2002, 2001 and 2000. Contributions to the ESOP for loan repayment were $0, $0 and $52,000 for 2002, 2001 and 2000. For 2000, 8,560 shares with an average fair value of $12.34 per share, were committed to be released. Between January 1, 2000 and June 30, 2000 the Bank contributed an additional $125,000 to purchase 10,000 shares for the ESOP. As of June 30, 2000, these shares were allocated to eligible employees participating in the ESOP plan. During the year ending June 30, 2001, the Bank contributed an additional $101,500 to purchase 8,000 shares for the ESOP. As of June 30, 2001, these shares were allocated to eligible employees participating in the ESOP plan. Contributions to the ESOP and shares released from suspense proportional to repayment of the ESOP loan are allocated among ESOP participants on the basis of compensation. Benefits are 100% vested after five years of service including credit for years of service prior to July 1, 1992. Prior to five years of credited service, a participant who terminates employment for reasons other than death, normal retirement, or disability does not receive any ESOP benefit. Forfeitures are reallocated among remaining participating employees, in the same proportion as contributions. Benefits are payable in stock or cash upon termination of employment. The Company's contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated. On April 30, 2002, the Company terminated the ESOP, and all plan participants were given the option of receiving a distribution for their investment in the plan or the participants could transfer their ESOP investment to their 401(k) investment account or other retirement accounts. As of May 1, 2002, the ESOP plan no longer held shares of the Company's common stock.
ESOP shares as of June 30 were: 2002 2001 2000 ------- ------- ------- Allocated (including shares committed to be released) 128,300 128,300 118,300 Shares contributed and allocated --- 8,000 10,000 Shares withdrawn from the plan by participants (69,442) (45,774) (23,295) Termination of plan (58,858) --- --- ------- ------- ------- Total ESOP shares held in the plan --- 90,526 105,005 ======= ======= =======
Stock Option Plan: The 1992 Stock Option and Incentive Plan authorizes options of 169,000 shares of common stock. During 1999, the Company registered with the Securities and Exchange Commission the 1999 Omnibus Incentive Plan. This plan authorizes options, restricted stock and SARs of 142,000 shares of common stock. For both plans when options are granted, the option price is at least 100% of the market value of common stock on the date of grant, and the option term cannot exceed 10 years. Options awarded may be exercised at a rate of 25% per year. No compensation expense was recognized for stock options for 2002, 2001 and 2000. SFAS No. 123 requires proforma disclosures for companies that do not adopt its fair value accounting method for stock-based employee compensation. Accordingly, the following proforma information presents earnings per share had the fair value method been used to measure compensation cost for stock option plans. The fair value of options granted during 2002, 2001 and 2000 were estimated using the following weighted average information: risk-free interest rates of 5.31% to 5.21%, expected lives of 8 to 10 years, expected volatility of stock prices of .22 to .31 and expected dividends of 3.11% to 4.34% per year.
2002 2001 2000 ---------- ---------- ---------- Net income as reported $2,047,735 $1,623,345 $2,270,861 Proforma net income 2,011,972 1,588,312 2,254,165 Basic earnings per share as reported 1.48 1.14 1.60 Diluted earnings per share as reported 1.47 1.13 1.57 Proforma basic earnings per share 1.45 1.12 1.58 Proforma diluted earnings per share 1.44 1.10 1.56
In future years, the proforma effect of not applying this standard is expected to increase as additional options are granted. Stock option plans are used to reward employees and provide them with an additional equity interest. Options are issued for 10 year periods with varying vesting periods. Information about option grants follows:
Weighted Number of Weighted Average Outstanding Exercise Average Fair Value Options Price Exercise Price of Grants --------- ------------ -------------- --------- Outstanding, July 1, 1999 72,679 $5.00 - 18.50 $10.08 Forfeited (4,000) 10.94 10.94 Granted 16,000 13.38 13.38 $2.35 Exercised (14,725) 5.00 - 10.94 6.61 ------- Outstanding, June 30, 2000 69,954 5.00 - 18.50 11.20 Forfeited (11,030) 5.00 - 18.50 15.99 Granted 28,116 11.38 11.38 2.61 Exercised (25,200) 5.00 5.00 ------- Outstanding, June 30, 2001 61,840 5.00 - 18.50 12.95 Granted 4,000 14.20 14.20 2.92 Exercised (8,243) 5.00 - 11.38 9.65 ------- Outstanding, June 30, 2002 57,597 11.38 - 18.50 13.51 =======
The weighted average remaining contractual life of options outstanding at June 30, 2002 was approximately six years. Stock options exercisable at June 30, 2002, 2001 and 2000 totaled, 23,016, 16,349 and 41,146 at a weighted average exercise price of $14.96, $13.73 and $8.63. As of June 30, 2002, 91,668 options remain available for future grants. Deferred Compensation: The Company has a deferred compensation plan for certain directors of the Company. The Company/Bank is obligated to pay each such individual or beneficiaries the accumulated contributions plus interest credited for the deferred compensation plan. A deferred compensation liability of $26,000 and $23,000 at June 30, 2002 and 2001 has been accrued for these obligations. The expense for these plans was $6,000, $6,000 and $22,000 for 2002, 2001 and 2000. Management Recognition and Retention Plans: The Management Recognition and Retention Plans (MRP) provide directors, officers and other key employees with a proprietary interest in the Company to encourage such persons to remain with the Company. Eligible directors, officers and other key employees of the Company become vested in shares of common stock awarded on a discretionary basis at a rate of 25% per year beginning on the date of grant. Expense of $28,000, $21,000 and $18,000 was recorded for these plans for the years ended June 30, 2002, 2001 and 2000. NOTE 10 - INCOME TAXES Income tax expense for the years ended June 30 was:
2002 2001 2000 -------- -------- --------- Federal Current $564,713 $396,096 $ 738,171 Deferred (82,996) (53,288) (161,618) -------- -------- --------- 481,717 342,808 576,553 State Current 209,671 162,667 244,787 Deferred (23,402) (29,749) (21,868) -------- -------- --------- 186,269 132,918 222,919 -------- -------- --------- Income tax expense $667,986 $475,726 $799,472 ======== ======== ========
Income tax expense differed from amounts computed using the U.S. federal income tax rate of 34% as follows: 2002 2001 2000 -------- -------- ---------- Income taxes at 34% statutory rate $923,345 $713,684 $1,043,913 Tax effect of: Tax-exempt income (196,285) (138,466) (139,919) State tax, net of federal income tax effect 122,938 87,725 147,127 Life insurance proceeds --- --- (189,041) Dividends received deduction (124,096) (100,755) (84,879) Fair market value of ESOP shares in excess of cost --- --- 23,723 Low income housing credits (91,496) (88,724) (87,987) Other 33,580 2,262 86,535 -------- -------- ---------- Total income tax expense $667,986 $475,726 $ 799,472 ======== ======== ==========
Components of the net deferred tax liability as of June 30 are:
2002 2001 2000 ---------- --------- ---------- Deferred tax assets: Bad debts $ 862,357 $ 634,833 $ 686,839 Deferred compensation 10,291 8,921 7,234 Core deposit intangible 132,213 119,111 101,941 Depreciation on securities available for sale --- --- 970,717 Other 114,416 66,641 20,618 ---------- --------- ---------- 1,119,277 829,506 1,787,349 Deferred tax liabilities: Accretion (122,915) (56,331) (48,188) Net deferred loan costs (35,414) (97,441) (175,747) Mortgage Servicing Rights (178,816) --- --- Appreciation on securities available for sale (192,834) (216,867) --- ---------- --------- ---------- (529,979) (370,639) (223,935) Valuation allowance --- --- --- ---------- --------- ---------- Net deferred tax asset (liability) $ 589,298 $ 458,867 $1,563,414 ========== ========= ==========
Federal income tax laws provided savings banks with additional bad debt deductions through 1987, totaling $1,156,000 for the Bank. Accounting standards do not require a deferred tax liability to be recorded on this amount, which liability otherwise would total $393,000 at June 30, 2002 and 2001. If the Bank was liquidated or otherwise ceased to be a bank or if tax laws were to change, the $393,000 would be recorded as expense. NOTE 11 - REGULATORY MATTERS The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. The Bank's actual capital and required capital amounts and ratios are presented below:
Minimum Requirement Minimum To Be Well Requirement Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------- -------------------- -------------------- Amount Ratio Amount Ratio Amount Ratio -------- ------- -------- ------- -------- ------- (Dollars in thousands) As of June 30, 2002 Total Capital $20,359 13.58% $14,994 10.00% $14,994 10.00% Tier I (Core) Capital (to risk weighted assets) 18,480 12.32% 5,998 4.00% 8,997 6.00% Tier I (Core) Capital (to adjusted total assets) 18,480 7.88% 9,375 4.00% 11,719 5.00% Tier I (Core) Capital (to average assets) 18,480 8.07% 9,157 4.00% 11,446 5.00% As of June 30, 2001 Total Capital $20,138 13.60% $14,805 10.00% $14,805 10.00% Tier I (Core) Capital (to risk weighted assets) 18,365 12.40% 5,922 4.00% 8,883 6.00% Tier I (Core) Capital (to adjusted total assets) 18,365 8.07% 9,103 4.00% 11,378 5.00% Tier I (Core) Capital (to average assets) 18,365 8.02% 9,157 4.00% 11,446 5.00%
Regulations of the Office of Thrift Supervision limit the amount of dividends and other capital distributions that may be paid by a savings institution without prior approval of the Office of Thrift Supervision. Under the regulations, the Bank can make without application to the OTS (but only after filing a notification to the OTS), distributions during a calendar year up to 100% of its retained net income for the calendar year-to-date plus retained net income for the previous two calendar years (less any dividends previously paid) as long as the Bank would remain adequately capitalized, as defined in the Office of Thrift Supervision prompt corrective action regulations, following the proposed distribution. Accordingly, at June 30, 2002, approximately $1,855,000 of the Bank's retained earnings was potentially available for distribution to the Company. NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONTINGENCIES Various outstanding commitments and contingent liabilities are not reflected in the financial statements. Commitments to make loans at June 30 were as follows:
2002 2001 --------------------------- ----------------------- Fixed Variable Fixed Variable Rate Rate Rate Rate ---------- ----------- -------- ----------- Commitments to make loans $1,313,700 $ 2,053,500 $960,000 $ 1,482,300 Unused lines of credit --- 14,744,000 --- 15,865,000 Standby letters of credit --- 1,430,000 --- 1,527,000 ---------- ----------- -------- ----------- $1,313,700 $18,227,500 $960,000 $18,874,300 ========== =========== ======== ===========
Fixed rate loan commitments at June 30, 2002 were at current rates, ranging primarily from 6.75% to 8.25%. Variable rate loan commitments, unused lines of credit and standby letters of credit at June 30, 2002 were at current rates ranging from 7.13% to 8.75% for loan commitments, 6.00% to 12.50% for unused lines of credit and primarily at the national prime rate of interest plus 100 to 300 basis points for standby letters of credit. Since commitments to make loans and to fund unused lines of credit, loans in process and standby letters of credit may expire without being used, the amounts do not necessarily represent future cash commitments. In addition, commitments are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The maximum exposure to credit loss in the event of nonperformance by the other party is the contractual amount of these instruments. The same credit policy is used to make such commitments as is used for loans receivable. Under employment agreements with one of its officers, certain events leading to separation from the Company could result in a lump sum cash payment. Under employment agreements with a certain three other officers, certain events leading to separation from the Company could result in cash payments totaling their current year salary, payable over the term the amount would have been originally paid. The Company and the Bank are subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial position or results of operation of the Company. The Bank has a 3% limited partner interest in a limited partnership formed to construct, own and manage affordable housing projects. The Bank is one of 13 investors. As of June 30, 2002, the Bank had invested $750,000 and had recorded equity in the operating loss of the limited partnership of $71,000, $81,000 and $65,000 for the years ended June 30, 2002, 2001 and 2000. At June 30, 2002 and 2001, the obligation due to the limited partnership was $-0- and $-0-. The Bank receives 3% of the eligible tax credits. For the years ended June 30, 2002, 2001 and 2000, the Bank received approximately $91,000, $89,000 and $88,000 in tax credits. NOTE 13 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK Real estate and consumer loans, including automobile, home equity and improvement, manufactured home and other consumer loans are granted primarily in Wabash, Kosciusko and Whitley counties. Loans secured by one to four family residential real estate mortgages make up 42% of the loan portfolio. The Company also sells loans and services loans for secondary market agencies. The policy for collateral on mortgage loans allows borrowings up to 95% of the appraised value of the property as established by appraisers approved by the Company's Board of Directors, if private mortgage insurance is obtained to reduce the Company's exposure to or below the 80% loan-to-value level. Loan-to-value percentages and documentation guidelines are designed to protect the Company's interest in the collateral as well as to comply with guidelines for sale in the secondary market. NOTE 14 - RELATED PARTY TRANSACTIONS Certain directors, executive officers and principal shareholders of the Company, including associates of such persons, are loan customers. A summary of the related party loan activity, for loans aggregating $60,000 or more to any one related party, is as follows: Balance - June 30, 2001 $1,243,361 New loans 1,341,043 Repayments (805,241) Other changes (171,665) ---------- Balance - June 30, 2002 $1,607,498 ========== Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period. NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS Presented below are condensed financial statements for the parent company, FFW Corporation. CONDENSED BALANCE SHEETS June 30, 2002 and 2001
2002 2001 ----------- ----------- ASSETS Cash and cash equivalents $ 556,731 $ 78,818 Investment in Bank subsidiary 19,650,259 19,716,232 Investment in non-bank subsidiary 395,678 337,372 Securities available for sale 1,901,442 1,788,821 Other assets 59,819 269,768 ----------- ----------- Total assets $22,563,929 $22,191,011 =========== =========== LIABILITIES Accrued expenses and other liabilities $ 155,140 $ 197,951 SHAREHOLDERS' EQUITY Common stock 18,298 18,298 Additional paid-in capital 9,345,123 9,336,606 Retained earnings 17,711,055 16,423,160 Unearned employee MRP (80,961) (52,242) Accumulated other comprehensive income 138,695 330,776 Treasury stock (4,723,421) (4,063,538) ----------- ----------- Total shareholders' equity 22,408,789 21,993,060 ----------- ----------- Total liabilities and shareholders' equity $22,563,929 $22,191,011 =========== ===========
CONDENSED STATEMENTS OF INCOME For the years ended June 30, 2002, 2001 and 2000 2002 2001 2000 ---------- ---------- ---------- Interest income $ 88,056 $ 105,072 $ 121,025 Loss on the sale of securities available for sale (67,600) --- --- Dividend income 1,815,000 740,000 650,000 ---------- ---------- ---------- 1,835,456 845,072 771,025 Operating expense 196,859 162,612 80,246 Equity in undistributed income of subsidiaries Bank 257,423 909,403 1,541,534 Non-bank 57,597 15,290 51,374 ---------- ---------- ---------- Income before income taxes 1,953,617 1,607,153 2,283,687 Income tax expense (benefit) (94,118) (16,192) 12,826 ---------- ---------- ---------- Net income $2,047,735 $1,623,345 $2,270,861 ========== ========== ==========
CONDENSED STATEMENTS OF CASH FLOWS For the years ended June 30, 2002, 2001 and 2000 2002 2001 2000 ----------- ----------- ----------- Cash flows from operating activities Net income $ 2,047,735 $ 1,623,345 $ 2,270,861 Adjustments to reconcile net income to net cash from operating activities Equity in undistributed income of subsidiaries (315,020) (924,693) (1,592,908) Loss on the sale of securities 67,600 --- --- Other 157,109 (126,458) 918,066 ----------- ----------- ----------- Net cash from operating activities 1,957,424 572,194 1,596,019 Cash flows from investing activities Proceeds from sales of securities 1,061,625 --- 131,003 Maturities of securities available for sale 238,921 565,000 210,089 Purchase of securities available for sale (1,312,050) (171,690) (731,839) Repayments on loan receivable from ESOP --- --- 52,331 ----------- ----------- ----------- Net cash from investing activities (11,504) 393,310 (338,416) Cash flows from financing activities Proceeds from stock options 84,156 126,000 54,819 Purchase of treasury stock (792,322) (456,090) (493,717) Cash dividends paid (759,841) (747,316) (694,424) ----------- ----------- ----------- Net cash from financing activities (1,468,007) (1,077,406) (1,133,322) ----------- ----------- ----------- Net change in cash and cash equivalents 477,913 (111,902) 124,281 Beginning cash and cash equivalents 78,818 190,720 66,439 ----------- ----------- ----------- Ending cash and cash equivalents $ 556,731 $ 78,818 $ 190,720 =========== =========== ===========
The extent to which the Company may pay cash dividends to shareholders will depend on the cash currently available at the Company, as well as the Bank's ability to pay dividends to the Company (see Note 11). NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following table shows estimated fair values and related carrying amounts of the Company's financial instruments at June 30. Items which are not financial instruments are not included. 2002 2001 -------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (In thousands) (In thousands) Cash and cash equivalents $ 9,319 $ 9,319 $ 8,530 $ 8,530 Securities available for sale 76,345 76,345 60,973 60,973 Loans receivable, net 141,858 146,468 152,195 152,798 Federal Home Loan Bank stock 3,401 3,401 3,401 3,401 Accrued interest receivable 1,448 1,448 1,480 1,480 Non-interest-bearing deposits (9,982) (9,982) (9,161) (9,161) Interest-bearing deposits (148,679) (150,103) (135,469) (137,067) Borrowings (54,363) (57,725) (62,397) (63,928) For purposes of the above disclosures of estimated fair value, the following assumptions were used as of June 30, 2002 and 2001. The estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and non-interest-bearing deposits is considered to approximate cost. The estimated fair value for securities available for sale is based on quoted market values for the individual securities or for equivalent securities. The estimated fair value for loans receivable, net, is based on estimates of the rate the Bank would charge for similar loans at June 30, 2002 and 2001 applied for the time period until the loans are assumed to reprice or be paid. The estimated fair value for interest-bearing deposits as well as borrowings is based on estimates of the rate the Bank would pay on such liabilities at June 30, 2002 and 2001, applied for the time period until maturity. While these estimates of fair value are based on management's judgment of the most appropriate factors, there is no assurance that were the Company to have disposed of such items at June 30, 2002 and 2001, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at June 30, 2002 and 2001 should not necessarily be considered to apply to subsequent dates. In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the above disclosures, such as premises and equipment. Also, non-financial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill and similar items.
NOTE 17 -- OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows: 2002 2001 2000 ------------ ----------- ------------ Net change in net unrealized appreciation (depreciation) on securities available for sale Net unrealized appreciation (depreciation) arising during the year $ 12,703 $ 2,983,764 $(1,801,826) Reclassification adjustments for (gains) losses included in net income (228,817) 14,159 63,400 ---------- ----------- ----------- Net change in net unrealized appreciation (depreciation) on securities available for sale (216,114) 2,997,923 (1,738,426) Tax expense (benefit) (24,033) 1,187,178 (713,843) ---------- ----------- ----------- Total other comprehensive income (loss) $ (192,081) $ 1,810,745 $(1,024,583) ========== =========== ===========
DIRECTORS AND EXECUTIVE OFFICERS FFW CORPORATION FIRST FEDERAL SAVINGS BANK OF WABASH FIRSTFED FINANCIAL, INC. BOARD OF DIRECTORS _______________________________________________________________________________________________________________ Wayne W. Rees Joseph W. McSpadden Roger K. Cromer Owner and Publisher Vice President and Part Owner President and Chief Executive The Paper of Wabash County, Inc. Beauchamp & McSpadden Officer, FFW Corporation President and Chief Executive J. Stanley Myers Ronald D. Reynolds Officer, First Federal Savings Owner and Operator Owner, J.M. Reynolds Oil Co. Inc. Bank of Wabash Servisoft Water Conditioning, Inc. Chairman of the Board, FirstFed Financial, Inc. Thomas L. Frank John N. Philippsen Comptroller, B. Walter & Company Chief Financial Officer Comptroller and Part Owner, Walter The Ford Meter Box Co. Dimension Co. OFFICERS _______________________________________________________________________________________________________________ FFW CORPORATION FIRST FEDERAL SAVINGS BANK OF WABASH FIRSTFED FINANCIAL, INC. Wayne W. Rees Wayne W. Rees Roger K. Cromer Chairman of the Board Chairman of the Board Chairman of the Board Roger K. Cromer Roger K. Cromer Tony Pulley President and Chief Executive Officer President and Chief Executive President Officer Christine K. Noonan Wayne W. Rees Secretary Christine K. Noonan Secretary Senior Vice President, Timothy A. Sheppard Chief Operations Officer and Timothy A. Sheppard Treasurer and Chief Accounting Secretary Treasurer Officer Timothy A. Sheppard Vice President and Controller Noah T. Smith Vice President, Commercial Loans Sonia Niccum Vice President, Mortgage Loans
SHAREHOLDER INFORMATION Stock Listing Information ________________________________________________________________________________ FFW Corporation's common stock is traded on the National Association of Securities Dealers Automated Quotation Small-Cap Market under the symbol "FFWC". Stock Price Information ________________________________________________________________________________ As of September 9, 2002 there were approximately 300 shareholders of record, not including those shares held in nominee or street name through various brokerage firms or banks. The following table sets forth the high and low bid prices and dividends paid per share. The stock price information was provided by NASD, Inc. Quarter Ended High Low Declared ----------------------------------------------------- Sept. 30, 2000 12.88 11.69 .13 Dec. 31, 2000 12.69 10.50 .13 March 31, 2001 12.69 11.13 .13 June 30, 2001 13.00 11.50 .13 Sept. 30, 2001 14.00 12.40 .14 Dec. 31, 2001 13.50 12.95 .14 March 31, 2002 14.40 13.25 .14 June 30, 2002 16.48 14.51 .14 Dividends ________________________________________________________________________________ FFW declared and paid dividends of $0.56 per share for fiscal year 2002. The Board of Directors intends to continue payment of quarterly cash dividends, dependent on the results of operations and financial condition of FFW and other factors. Annual Meeting of Shareholders ________________________________________________________________________________ The Annual Meeting of Shareholders of FFW Corporation will be held at 2:30 p.m., October 22, 2002 at the executive office of FFW Corporation located at: 1205 N. Cass Street P.O. Box 259 Wabash, Indiana 46992 Annual Report on Form 10-KSB and Investor Information ________________________________________________________________________________ A copy of FFW Corporation's annual report on Form 10-KSB, filed with the Securities and Exchange Commission, is available without charge by writing: Timothy A. Sheppard Treasurer and Chief Accounting Officer FFW Corporation 1205 N. Cass Street P.O. Box 259 Wabash, Indiana 46992 Stock Transfer Agent ________________________________________________________________________________ Inquiries regarding stock transfer, registration, lost certificates or changes in name and address should be directed to the stock transfer agent and registrar by writing: Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 Investor Information ________________________________________________________________________________ Shareholders, investors, and analysts interested in additional information may contact Roger K. Cromer, President and Chief Executive Officer. Corporate Office FFW Corporation 1205 N. Cass Street P.O. Box 259 Wabash, Indiana 46992 (260) 563-3185 Branch Locations ________________________________________________________________________________ North Manchester 1404 State Road 114 West P.O. Box 328 North Manchester, IN 46962 260-982-2188 Syracuse 500 S. Huntington St. P.O. Box 188 Syracuse, IN 46567 574-457-4411 South Whitley 105 E. Columbia St. P.O. Box 515 South Whitley, IN 46787 260-723-5127 Special Counsel ________________________________________________________________________________ Barnes and Thornburg 11 South Meridian Street Indianapolis, IN 46204 Independent Auditor ________________________________________________________________________________ Crowe, Chizek and Company LLP 330 E. Jefferson Blvd. South Bend, Indiana 46624 [LOGO OMITTED] FFW CORPORATION HOLDING COMPANY FOR FIRST FEDERAL SAVINGS BANK OF WABASH 1205 N. Cass St. * P.O. Box 259 * Wabash, IN 46992-0259 PH. 260-563-3185 * FAX 260-563-4841 www.ffsbwabash.com EX-21 5 ex_21.txt Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Parent Subsidiary Percent of Ownership FFW Corporation First Federal Savings Bank of Wabash 100% FFW Corporation FirstFed Financial, Inc. 100% The financial statements of FFW Corporation are consolidated with those of its subsidiaries. EX-23 6 ex_23.txt Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 33-71194 and 333-70179) of FFW Corporation (the "Company") of our report dated August 16, 2002, on the consolidated financial statements of the Company, which report is included in the Company's Annual Report to Shareholders and is incorporated by reference in the Company's Form 10-KSB for the year ended June 30, 2002. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP South Bend, Indiana September 25, 2002 -----END PRIVACY-ENHANCED MESSAGE-----