10QSB 1 ffw_10q02.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2002 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-21170 FFW CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 35-1875502 (State or other jurisdiction of incorporation (I.R.S. Employer identification or organization) or Number) 1205 North Cass Street, Wabash, IN 46992 (Address of principal executive offices) (260) 563-3185 (Issuer's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Transitional Small Business Disclosure Format (check one): Yes ___ No _X_ State the number of Shares outstanding of each of the issuer's classes of common equity, as of the latest date: As of February 6, 2003, there were 1,346,775 shares of the Registrant's common stock issued and outstanding. FFW CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets for December 31, 2002 3 and June 30, 2002 Consolidated Statements of Income and 4 Comprehensive Income for the three and six months ended December 31, 2002 and 2001. Consolidated Statements of Cash Flows for the 5 six months ended December 31, 2002 and 2001. Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3. Controls and Procedures 14 PART II. OTHER INFORMATION Items 1-6 15 Signature Page 16 Certifications 17 PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited) ASSETS : December 31 June 30 2002 2002 ------ ------ Cash and due from financial institutions ......................................... $ 5,702,698 $ 6,321,697 Interest-earning deposits in financial institutions - short term ................. 2,354,353 2,996,816 ------------- ------------- Cash and cash equivalents ..................................................... 8,057,051 9,318,513 Securities available for sale .................................................... 79,877,910 76,344,629 Loans receivable, net of allowance for loan losses of $2,608,712 at December 31, 2002 and $2,361,241 at June 30, 2002 .......................................... 131,034,762 141,857,794 Federal Home Loan Bank stock, at cost ............................................ 3,400,900 3,400,900 Accrued interest receivable ...................................................... 1,370,733 1,448,182 Premises and equipment-net ....................................................... 2,675,616 2,693,163 Investment in limited partnership ................................................ 377,374 409,974 Cash surrender value of life insurance ........................................... 4,584,051 --- Goodwill ......................................................................... 975,468 1,022,415 Other assets ..................................................................... 1,236,157 1,332,871 ------------- ------------- Total Assets .............................................................. $ 233,590,022 $ 237,828,441 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Non-interest-bearing demand deposits .......................................... $ 9,425,420 $ 9,981,667 Savings, NOW and MMDA deposits ................................................ 67,672,209 67,611,581 Other time deposits ........................................................... 84,268,159 81,067,474 ------------- ------------- Total Deposits ............................................................ 161,365,788 158,660,722 Federal Home Loan Bank advances ............................................... 45,740,957 54,362,554 Accrued interest payable ...................................................... 127,896 153,571 Accrued expenses and other liabilities......................................... 2,881,426 2,242,805 ------------- ------------- Total Liabilities ......................................................... 210,116,067 215,419,652 Shareholders' Equity: Preferred stock, $.01 par value, 500,000 shares authorized none issued ........ --- --- Common stock, $.01 par value, 2,000,000 shares authorized, 1,829,828 shares issued and 1,346,775 shares outstanding at December 31, 2002; 1,829,828 shares issued and 1,367,375 shares outstanding at June 30, 2002 ........... 18,298 18,298 Additional paid-in capital..................................................... 9,345,123 9,345,123 Retained earnings - substantially restricted .................................. 18,496,937 17,711,055 Accumulated other comprehensive income ........................................ 731,673 138,695 Unearned management retention plan shares ..................................... (63,375) (80,961) Treasury stock at cost, 483,053 shares on December 31, 2002 and 462,453 shares on June 30, 2002 ........................................... (5,054,701) (4,723,421) ------------- ------------- Total Shareholders' Equity ................................................ 23,473,955 22,408,789 ------------- ------------- Total Liabilities and Shareholders' Equity ............................ $ 233,590,022 $ 237,828,441 ============= =============
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Six Months Ended December 31 December 31 2002 2001 2002 2001 ---- ---- ---- ---- Interest income: Loans receivable Mortgage loans ........................................... $ 1,172,763 $ 1,481,273 $ 2,344,886 $ 2,966,908 Consumer and other loans ................................. 1,471,774 1,633,441 3,034,712 3,335,497 Securities Taxable .................................................. 682,773 810,502 1,431,138 1,660,739 Nontaxable ............................................... 244,683 148,073 473,869 278,553 Other interest-earning assets ............................... 15,936 15,020 39,742 44,653 ----------- ----------- ----------- ----------- Total interest income .................................... 3,587,929 4,088,309 7,324,347 8,286,350 Interest expense: Deposits .................................................... 1,218,927 1,571,327 2,533,595 3,294,405 Other ....................................................... 676,130 793,512 1,383,762 1,635,563 ----------- ----------- ----------- ----------- Total interest expense ................................... 1,895,057 2,364,839 3,917,357 4,929,968 ----------- ----------- ----------- ----------- Net interest income ............................................ 1,692,872 1,723,470 3,406,990 3,356,382 Provision for loan losses ................................... 405,000 450,000 630,000 675,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses ............ 1,287,872 1,273,470 2,776,990 2,681,382 Non-interest income: Net gain (loss) on sale of securities ....................... (641) --- 581 5,000 Net gain on sale of loans ................................... 207,920 101,671 341,806 150,695 Other ....................................................... 439,335 339,206 788,541 681,858 ----------- ----------- ----------- ----------- Total non-interest income ................................ 646,614 440,877 1,130,928 837,553 Non-interest expense : Compensation and benefits ................................... 580,504 527,847 1,160,409 1,054,137 Occupancy and equipment ..................................... 101,501 98,060 201,773 190,863 Data processing expense ..................................... 121,864 113,874 241,225 230,741 Other ....................................................... 363,417 364,334 761,388 710,489 ----------- ----------- ----------- ----------- Total non-interest expense ............................... 1,167,286 1,104,115 2,364,795 2,186,230 ----------- ----------- ----------- ----------- Income before income taxes ..................................... 767,200 610,232 1,543,123 1,332,705 Income tax expense .......................................... 150,550 170,354 350,733 366,717 ----------- ----------- ----------- ----------- Net income ..................................................... $ 616,650 $ 439,878 $ 1,192,390 $ 965,988 =========== =========== =========== =========== Change in unrealized appreciation (depreciation) on securities available for sale, net of tax ................... 451,864 (179,136) 592,978 27,253 ----------- ----------- ----------- ----------- Comprehensive income ........................................... $ 1,068,514 $ 260,742 $ 1,785,368 $ 993,241 =========== =========== =========== =========== Earnings per common share : Basic ....................................................... $ .46 $ .32 $ .88 $ .69 Diluted ..................................................... $ .45 $ .32 $ .87 $ .69
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended December 31 2002 2001 ---- ---- Cash flows from operating activities : Net income .......................................................... $ 1,192,390 $ 965,988 Adjustments to reconcile net income to net cash from operating activities : Depreciation and amortization, net of accretion .................. 199,179 60,216 Provision for loan losses ........................................ 630,000 675,000 Increase in cash surrender value of life insurance ............... (84,051) --- Net (gains) losses on sale of : Securities available for sale ................................. (581) (5,000) Loans held for sale ........................................ (341,806) (150,695) Foreclosed estate owned and repossessed assets ................ 8,481 13,700 Origination of loans held for sale ............................... (26,939,734) (16,398,475) Proceeds from sale of loans held for sale ........................ 27,208,214 16,549,170 Net change in accrued interest receivable and other assets ........................................................ 126,523 147,377 Amortization of goodwill ......................................... --- 41,601 Net change in accrued interest payable, accrued expenses and other liabilities ................................ 630,532 (341,636) ------------ ------------ Total adjustments .......................................... 1,436,757 591,258 ------------ ------------ Net cash from operating activities ............................ 2,629,147 1,557,246 Cash flows from investing activities : Proceeds from : Sales/calls of securities available for sale ..................... 5,302,317 9,386,600 Maturities of securities available for sale ...................... 150,000 --- Purchase of securities available for sale ........................... (18,378,436) (16,002,501) Purchase of life insurance .......................................... (4,500,000) --- Principal collected on mortgage- backed securities .................. 10,167,506 2,188,418 Net change in loans receivable ...................................... 9,884,857 4,279,303 Net purchases premises and equipment ................................ (77,169) (742,767) Proceeds from sales of other real estate and repossessed assets ............................................... 214,635 261,623 ------------ ------------ Net cash from investing activities ............................. 2,763,710 (629,324) Cash flows from financing activities : Net increase in deposits ............................................ 2,705,066 4,765,486 Proceeds from borrowings ............................................ 3,000,000 26,790,750 Payment on borrowings ............................................... (11,621,597) (33,290,750) Purchase of treasury stock .......................................... (331,280) (449,280) Proceeds from stock option exercising ............................... --- 11,120 Cash dividends paid ................................................. (406,508) (375,851) ------------ ------------ Net cash from financing activities ............................ (6,654,319) (2,548,525) Net increase (decrease) in cash and cash equivalents ................... (1,261,462) (1,620,603) Cash and cash equivalents at beginning of period ....................... 9,318,513 8,530,159 ------------ ------------ Cash and cash equivalents at end of period ............................. $ 8,057,051 $ 6,909,556 ============ ============
PART I: FINANCIAL INFORMATION FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) necessary to represent fairly the financial condition of FFW Corporation as of December 31, 2002 and June 30, 2002 and the results of its operations, for the three and six-months ended December 31, 2002 and 2001. Financial Statement reclassifications have been made for the prior period to conform to classifications used as of and for the period ended December 31, 2002. Operating results for the three and six-months ended December 31, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2003. (2) New Accounting Pronouncements: Effective July 1, 2002, the Company adopted new accounting standards for goodwill and intangible assets, and as a result, reclassified $975,000 of unidentifiable intangible assets arising from previous acquisitions into goodwill. Starting on July 1, 2002, goodwill is no longer amortized into expense but rather reviewed for impairment. The following table reflects net income and earnings per share as previously reported and adjusted income and earnings per share for the same period as if the new standard had been adopted in 2001.
Three months ended Six months ended December 31 December 31 (Dollars in thousands except for per share data) 2002 2001 2002 2001 ---- ---- ---- ---- Net income as reported $ 617 $ 440 $ 1,192 $ 966 Add discontinued goodwill expense, net of tax --- 14 --- 28 ------- ------- ------- ------- Adjusted net income $ 617 $ 454 $ 1,192 $ 994 ======= ======= ======= ======= Basic earnings per share as reported $ 0.46 $ 0.32 $ 0.88 $ 0.69 Diluted earnings per share as reported $ 0.45 $ 0.32 $ 0.87 $ 0.69 Adjusted basic earnings per share $ 0.46 $ 0.33 $ 0.88 $ 0.71 Adjusted diluted earnings per share $ 0.45 $ 0.33 $ 0.87 $ 0.71
Intangible assets at December 31, 2002 subject to amortization are as follows: Gross Accumulated (Dollars in thousands) Amount Amortization ------ ------------ Core deposit premium resulting from branch acquisition $ 447 $ 410 Amortization expense for the first six months of fiscal 2003 was $36,000. The remaining amortization expense is $37,000 and will be expensed in the remaining six months of fiscal 2003. Unidentifiable intangible assets have been reclassified to goodwill and include the following: Gross Accumulated (Dollars in thousands) Amount Amortization ------ ------------ 1997 Purchase of South Whitley branch $ 1,248 $ 416 2001 Purchase of investment company 160 17 ------- ------- $ 1,408 $ 433 ======= ======= Impairment testing has revealed that no impairment provision is required. (3) Earnings Per Share: Basic earnings per share are calculated solely on weighted-average common shares outstanding. Diluted earnings per share will reflect the potential dilution of stock options and other common stock equivalents. For the three and six-month periods ending December 31, 2002, the weighted average shares outstanding in calculating basic earnings per share were 1,351,665 and 1,358,086 while the weighted average number of shares for diluted earnings per share were 1,367,487 and 1,373,901. For the three and six-month periods ending December 31, 2001, the weighted average shares outstanding in calculating basic earnings per share were 1,384,398 and 1,395,091 while the weighted average number of shares for diluted earnings per share were 1,393,053 and 1,403,744. PART I: ITEM 2 FFW CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The accompanying Consolidated Financial Statements include the accounts of FFW Corporation (the "Company") and its wholly owned subsidiaries, First Federal Savings Bank of Wabash (the "Bank") and FirstFed Financial, Inc ("FirstFed Financial"). All significant inter-company transactions and balances are eliminated in consolidation. The Company's results of operations are primarily dependent on the Bank's net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank's net income is also affected by the level of its non-interest income and non-interest expenses, such as employee compensation and benefits, occupancy expenses, and other expenses. FORWARD-LOOKING STATEMENTS Except for historical information contained herein, the matters discussed in this document, and other information contained in the Company's SEC filings, may express "forward-looking statements." Those "forward-looking statements" may involve risk and uncertainties, including statements concerning future events, performance and assumptions and other statements that are other than statements of historical facts. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Readers are advised that various factors--including, but not limited to, changes in laws, regulations or accounting principles generally accepted in the United States of America; the Company's competitive position within the markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; any unforeseen downturns in the local, regional or national economies--could cause the Company's actual results or circumstances for future periods to differ materially from those anticipated or projected. The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. CRITICAL ACCOUNTING POLICIES Certain of the Company's accounting policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could effect these judgments include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses, ("ALL") and the valuation of mortgage servicing rights. Allowance for Loan Losses: The ALL 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 ALL 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 ALL may be made for specific loans, but the entire ALL is available for any loan that, in management's judgment, should be charged-off. Loan losses are charged against the ALL 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 and consumer loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the ALL 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. 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. As of December 31, 2002, mortgage servicing rights had a carrying value of $539,000. COMPARISON OF THREE AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2002 AND 2001 Net income for the three-month and six-month periods ended December 31, 2002 was $617,000 and $1,192,000 compared to net income of $440,000 and $966,000 for the equivalent periods in 2001. The increases of $177,000 and $226,000 for the three and six-month periods were primarily the result of increased gain on sale of loans, a lower provision for loan losses and other non-interest income combined with a lower effective tax rate due to increased nontaxable income for the periods ended December 31, 2002 compared to December 31, 2001. Diluted earnings per common share were $0.45 for the three-month period ended December 31, 2002 compared to diluted earnings per common share of $0.32 for the equivalent period in 2001. For the comparable six-month periods, diluted earnings per common share were $0.87 in 2002 and $0.69 in 2001. Return on average shareholders' equity was 10.52% for the three months and 10.28% for the six-months ended December 31, 2002, compared to 7.78% and 8.61% in 2001. The return on total average assets was 1.04% and 1.00% for the three and six-month periods ended December 31, 2002, compared to 0.76% and 0.84% in 2001. NET INTEREST INCOME The net interest income for the three-month period ended December 31, 2002, was $1,693,000 compared to $1,723,000, a decrease of 1.7% over the same period in 2001, resulting in a net interest margin of 3.05% compared to 3.12% in 2001. The net interest income for the six-month period ended December 31, 2002, was $3,407,000 compared to $3,356,000, an increase of 1.5% over the same period in 2001, resulting in a net interest margin of 3.02% compared to 3.03% in 2001. Total average earning assets increased $2,120,000 and $4,661,000, respectively, for the three-month and six-month periods ended December 31, 2002, over the comparative periods in 2001. Total average investment securities increased $15,202,000 and $14,548,000 for the three-month and six-month periods over one-year ago. Total average loans decreased $14,796,000 and $12,161,000 for the three-month and six-month periods over one-year ago. The yields on total average earning assets were 6.45% and 7.43% for the three-month periods ended December 31, 2002, and 2001 and 6.49% and 7.50% for the six-month periods. The following tables set forth consolidated information regarding average balances and rates. FFW Corp Three Months Ending (Dollars in thousands)
12/31/02 12/31/01 Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate ------------------------ ------- -------- ----- ------- -------- ---- Loans $135,402 $2,645 7.75% $150,198 $3,115 8.23% Securities 81,150 927 4.59% 65,948 958 5.86% Other interest-earning assets 5,001 16 1.27% 3,287 15 1.81% -------- ------ -------- ------ Total interest-earning assets 221,553 3,588 6.45% 219,433 4,088 7.43% Non interest-earning assets: ---------------------------- Cash and due from 5,676 5,372 Allowance for loan losses (2,396) (1,640) Other non interest-earning assets 11,474 5,828 -------- -------- Total assets $236,307 $228,993 ======== ======== Interest-bearing liabilities: ----------------------------- Interest-bearing deposits $151,414 1,219 3.19% $136,251 1,571 4.57% FHLB advances 48,168 676 5.57% 57,814 794 5.45% -------- ------ -------- ------ Total interest-bearing liabilities 199,582 1,895 3.77% 194,065 2,365 4.83% -------- ------ -------- ------ Non interest-bearing deposit accounts 10,338 9,649 Other non interest-bearing liabilities 3,136 2,846 -------- -------- Total liabilities 213,056 206,560 Shareholders' equity 23,251 22,433 -------- --------- Total liabilities and shareholders equity $236,307 $228,993 ======== ======== Net interest income $1,693 $ 1,723 ====== ======= Net interest margin 3.05% 3.12% ===== =====
FFW Corp Six Months Ending (Dollars in thousands) 12/31/02 12/31/01 Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate ------------------------ ------- -------- ----- ------- -------- ---- Loans $138,761 $5,380 7.69% $150,922 $6,302 8.28% Securities 80,360 1,905 4.75% 65,812 1,939 5.92% Other interest-earning assets 5,550 40 1.43% 3,276 45 2.72% -------- ------ -------- ------ Total interest-earning assets 224,671 7,325 6.49% 220,010 8,286 7.50% Non interest-earning assets Cash and due from 5,236 5,095 Allowance for loan losses (2,393) (1,695) Other non interest-earning assets 9,062 5,862 -------- -------- Total assets $236,576 $229,272 ======== ======== Interest-bearing liabilities: ----------------------------- Interest-bearing deposits $151,444 2,534 3.32% $135,994 3,294 4.80% FHLB advances 49,448 1,384 5.55% 58,943 1,636 5.51% -------- ------ -------- ------ Total interest-bearing liabilities 200,892 3,918 3.87% 194,937 4,930 5.02% -------- ------ -------- ------ Non interest-bearing deposit accounts 9,989 9,592 Other non interest-bearing liabilities 2,692 2,481 -------- -------- Total liabilities 213,573 207,010 Shareholders' equity 23,003 22,262 -------- -------- Total liabilities and shareholders equity $236,576 $229,272 ======== ======== Net interest income $3,407 $3,356 ====== ====== Net interest margin 3.02% 3.03% ===== =====
PROVISION FOR LOAN LOSSES The provision for loan losses was $405,000 and $630,000 for the three and six-month periods ended December 31, 2002 and $450,000 and $675,000 for the same periods in 2001. Changes in the provision for loan losses are attributed to management's analysis of the adequacy of the allowance for loan losses (ALL) to address recognizable and currently estimated losses. Net charge-offs of $63,000 and $383,000 have been recorded for the three and six-month periods ended December 31, 2002, compared to $126,000 and $547,000 of net charge-offs for the same period in 2001. For the three and six-month periods ended December 31, 2002, gross charge-offs were $198,000 and $614,000. The ALL was $2,609,000 or 1.99% of net loans as of December 31, 2002 compared to $2,267,000 or 1.66% of net loans at September 30, 2002 and $2,361,000 or 1.66% of net loans at June 30, 2002. Non-performing loans, which includes non-accruing loans and accruing loans delinquent more than 90 days, were $2,883,000 at December 31, 2002 compared to $1,981,000 at September 30, 2002 and $1,943,000 at June 30, 2002. The increase in non-performing loans for the quarter ended December 31, 2002 is composed primarily of two commercial loan relationships totaling $887,000. Based on an analysis of the collateral on these loans, management believes that the reserves currently allocated in the ALL on these loans are adequate to absorb the currently estimated potential losses on these loans. The Company establishes an ALL based on an evaluation of risk factors in the loan portfolio and changes in the nature and volume of its loan activity. This evaluation includes, among other factors, the level of the Company's classified and non-performing assets and their estimated value, the economic outlook and the resulting impact on real estate and other values in the Company's primary market area, regulatory issues and historical loan loss experience. Although management believes it uses the best information available to determine the ALL, unforeseen market conditions or other unforeseen events could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the determination. In addition, a determination by the Company's main operating subsidiary, First Federal, as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS which may order the establishment of additional general or specific reserve allowances. It is management's opinion that the ALL is adequate to absorb existing losses in the loan portfolio as of December 31, 2002. NONINTEREST INCOME Non-interest income for the three-month and six-month periods ended December 31, 2002 was $647,000 and $1,131,000 compared to $441,000 and $838,000 for the periods in 2001. The six-month increase of $293,000 from the prior period is composed primarily of $191,000 from gain on sale of loans compared to the period ended December 31, 2001. Included in the gain on sale of loans for the six months ended December 31, 2002 is $73,000 of income recorded for mortgage servicing right assets. In other noninterest income, commission income fell by $80,000 due to lower annuity and life insurance sales while other income, fees and charges grew $186,000 over the comparable six-month period. Other income also benefited from an $84,000 increase in the cash surrender value of bank owned life insurance that was not present in the six-month period ended December 31, 2001. NONINTEREST EXPENSE Non-interest expense for the three-month period ended December 31, 2002, was $1,167,000, an increase of $63,000, or 5.7%, compared to the same period in 2001 and was $2,365,000 for the six-month period ended December 31, 2002, an increase of $179,000, or 8.2%. For the six-month period ended December 31, 2002, compensation and employee benefits increased 10.1%, occupancy and equipment expense increased 5.7%, data processing expense increased 4.5% and other noninterest expense increased 7.2% over the same period in 2001. Compensation and employee benefit expense increased due to increased staffing, increased health insurance expense and a higher percentage of employees using the benefit plans. INCOME TAXES The provision for income taxes for the three-month and six-month periods ended December 31, 2002, was $151,000 and $351,000 compared to $170,000 and $367,000 in 2001. The provision for income taxes dropped despite higher income before taxes for the three and six months ended December 31, 2002 due to a lower effective tax rate stemming from increased nontaxable securities income and nontaxable income from the cash surrender value of bank owned life insurance purchased in September 2002. The provision for income taxes for the three months ended December 31, 2002, is at a rate which management believes approximates the effective rate for the year ending June 30, 2003. REGULATORY CAPITAL REQUIREMENTS The Bank is required to maintain specific amounts of regulatory capital pursuant to regulations of the OTS. At December 31, 2002, the Bank exceeded all regulatory capital standards as is shown in the following table.
Minimum To Be Well Minimum Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 2002 Total Risk-Based Capital $ 20,916 14.58% $ 11,473 8.00% $14,341 10.00% Tier I (Core) Capital 19,113 13.33% 5,736 4.00% 8,605 6.00% (to risk weighted assets) Tier I (Core) Capital 19,113 8.35% 9,159 4.00% 11,448 5.00% (to adjusted total assets)
PART I: ITEM 3 FFW CORPORATION CONTROLS AND PROCEDURES Within the 90-day period prior to the filing date of this report, an evaluation was carried out under the supervision and with the participation of FFW Corporation's management, including our Chief Executive Officer and Chief Financial Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Accounting Officer have concluded that the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by FFW Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Accounting Officer have concluded that there were no significant changes in FFW Corporation's internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Part II - Other Information As of December 31, 2002, management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have or are reasonably likely to have a material adverse effect on the Company's liquidity, capital resources or operations. Item 1 - Legal Proceedings ----------------- Not Applicable. Item 2 - Changes in Securities --------------------- Not Applicable. Item 3 - Defaults upon Senior Securities ------------------------------- Not Applicable. Item 4 - Submission of Matters to a vote of Security Holders --------------------------------------------------- Not Applicable. Item 5 - Other Information ----------------- Not Applicable. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- Not Applicable. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FFW CORPORATION Registrant Date: February 7, 2003 /S/ Roger K. Cromer ------------------------------- --------------------------------------- Roger K. Cromer President and Chief Executive Officer Date: February 7, 2003 /S/ Timothy A. Sheppard -------------------------------- --------------------------------------- Timothy A. Sheppard Treasurer and Chief Accounting Officer CERTIFICATION By signing below, each of the undersigned 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 knowledge, (i) this Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2002 ("Report") fully complies with the requirements of Section 13(a) 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 FFW Corporation. Signed this 7th day of February, 2003. /s/ Roger K. Cromer ---------------------------------------------- Roger K. Cromer President and Chief Executive Officer /s/ Timothy A. Sheppard ---------------------------------------------- Timothy A. Sheppard Treasurer and Chief Accounting Officer CERTIFICATION I, Roger K. Cromer, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of FFW Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: February 7, 2003 /S/ Roger K. Cromer ----------------------------------- President/Chief Executive Officer CERTIFICATION I, Timothy A. Sheppard, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of FFW Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: February 7, 2003 /S/ Timothy A. Sheppard -------------------------------------------- Treasurer/Chief Financial Accounting Officer