-----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, TCygatYgdPxtzURBxRjg0jbjAmAcbEJzPwAOz9lxgFTWVOh4T0IjRhlHIe1MrAOz DeD3T0K4I4eVkIFowsYZCw== 0000908834-03-000392.txt : 20030929 0000908834-03-000392.hdr.sgml : 20030929 20030929160953 ACCESSION NUMBER: 0000908834-03-000392 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030929 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: 03915053 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 ffw10ksb_926.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, 2003 [ ] 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: (260) 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. [X] State the issuer's revenues for its most recent fiscal year: $16.5 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 15, 2003, was approximately $23.5 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 15, 2003, there were issued and outstanding 1,292,229 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, 2003. Part III of Form 10-KSB - Proxy Statement for 2003 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, 2003, the Company had $242.8 million of assets and shareholders' equity of $23.6 million (or 9.74 % 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, 2003, 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, 2003, the Bank had FHLB advances totaling $52.0 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. Nevada Subsidiaries. First Federal Savings Bank of Wabash formed in April 2003 three new Nevada subsidiaries. The Bank owns directly 100% of the shares of Wabash Investments, Inc., a Nevada corporation ("Wabash Investments"). Wabash Investments, in turn, owns 100% of the shares of Wabash Holdings, Inc., a Nevada corporation ("Wabash Holdings"). Wabash Holdings owns 99% of the units and Wabash Investments owns 1% of the units of Wabash Portfolio, LLC, a Nevada limited liability company ("Wabash Portfolio"). Effective May 1, 2003, the Bank transferred the management of approximately $53.2 million in securities to Wabash Portfolio. Wabash Portfolio holds, services, manages, and invests that portfolio of securities and other securities that may be transferred from time to time by the Bank to Wabash Portfolio. Wabash Portfolio's investment policy mirrors that of the Bank. At June 30, 2003, of the $87.4 million in consolidated investments owned by the Bank, $53.6 million was held by Wabash Portfolio. 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, 2003, the Bank's net loan portfolio totaled $128.7 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, 2003 vs. 2002 2002 vs. 2001 ------------- ------------- 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)..................... $(1,157) $ (693) $(1,850) $(495) $(957) $(1,452) Securities.............................. 761 (647) 114 563 (517) 46 Mortgage-backed securities.............. (168) (148) (316) 58 (96) (38) Interest-bearings deposits in other financial institutions.................. 24 (31) (7) 27 (105) (78) ------- ------- ------- ----- ------- ------ Total interest-earning assets............ $ (540) $(1,519) $(2,059) $ 153 $(1,675) $(1,522) ======= ======= ======= ===== ======= ======= Interest-bearing liabilities: Money market accounts................... $ (37) $ (35) $ (72) $ (17) $ (120) $ (137) NOW accounts............................ 5 (32) (27) 8 (40) (32) Passbook Savings accounts............... 400 (433) (33) 266 (311) (45) Certificates of deposit................. (95) (1,325) (1,420) 104 (603) (499) FHLB Advances........................... (542) (3) (545) (287) (307) (594) ------- ------- ------- ----- ------- ------ Total interest bearing liabilities....... $ (269) $(1,828) $(2,097) $ 74 $(1,381) $(1,307) ======= ======= ======= ===== ======= ======= Net interest income...................... $38 $ (215) === ======= - -------------------- (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, --------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in Thousands) Real Estate Loans: One- to four-family $ 64,503 48.76% $ 65,658 45.34% $ 68,646 44.49% $ 69,738 45.38% $ 67,825 44.34% Commercial and multi-family 24,593 18.59 21,877 15.11 15,387 9.97 8,138 5.30 9,342 6.11 Construction..... 1,571 1.19 2,746 1.90 4,163 2.70 2,344 1.53 .59 -------- ------ -------- ----- -------- ----- -------- ----- ------- ----- Total real estate loans 90,667 68.54 90,281 62.35 88,196 57.16 80,220 52.21 78,066 51.04 Other Loans: Consumer Loans: Deposit account 209 .16 267 .19 314 .20 349 .23 504 .33 Automobile... 14,977 11.32 21,966 15.17 27,163 17.61 31,368 20.41 36,334 23.75 Home equity and 15,138 11.45 17,232 11.90 15,809 10.25 13,119 8.54 10,394 6.80 improvement. Manufactured home 136 .10 164 .11 212 .14 235 .15 249 .16 Other........ 2,806 2.12 2,855 1.97 3,782 2.45 4,070 2.65 3,621 2.37 -------- ------ -------- ----- -------- ----- -------- ----- ------- ----- Total consumer loans 33,266 25.15 42,484 29.34 47,280 30.65 49,141 31.98 51,102 33.41 -------- ------ -------- ----- -------- ----- -------- ----- ------- ----- Commercial business loans 8,347 6.31 12,041 8.31 18,811 12.19 24,301 15.81 23,781 15.55 -------- ------ -------- ----- -------- ----- -------- ----- ------- ----- Total other loans 41,613 31.46 54,525 37.65 66,091 42.84 73,442 47.79 74,883 48.96 -------- ------ -------- ----- -------- ----- -------- ----- ------- ----- Total loans...... 132,280 100.00% 144,806 100.00% 154,287 100.00% 153,662 100.00% 152,949 100.00% ====== ====== ====== ====== ====== Less: Loans in process. 921 679 565 1,335 444 Deferred fees, cost and 40 (92) (246) (444) (609) discounts.... Allowance for loan losses 2,592 2,361 1,773 1,961 1,623 ----- ----- ----- ----- ------- Total loans, net.. $ 128,727 $141,858 $152,195 $150,810 $151,491 ========= ======== ======== ======== ========
The following table shows the composition of the Bank's loan portfolio by fixed and adjustable-rate at the dates indicated.
June 30, ------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ----- ----- ----- ---- ---- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in Thousands) Fixed-Rate Loans: Real Estate: One- to four-family.......... $ 27,563 20.83% $ 18,119 12.51% $ 17,690 11.47% $ 15,268 9.94% $ 16,976 11.10% Commercial and multi-family.. 8,342 6.31 6,061 4.19 7,906 5.13 2,253 1.46 6,671 4.36 Construction................. 566 .43 2,380 1.64 3,973 2.57 2,272 1.48 .46 -------- ----- -------- ----- -------- ----- -------- ------ -------- ----- Total real estate loans... 36,471 27.57 26,560 18.34 29,569 19.17 19,793 12.88 24,352 15.92 -------- ----- -------- ----- Consumer........................ 19,740 14.92 32,721 22.60 38,915 25.22 49,024 31.90 45,140 29.51 Commercial business............. 4,499 3.40 4,308 2.97 9,199 5.96 8,666 5.64 6,853 4.48 -------- ----- -------- ----- -------- ----- -------- ------ ------- ----- Total fixed-rate loans.... 60,710 45.89 63,589 43.93 77.793 50.35 77,483 50.42 76,345 49.91 Adjustable-Rate Loans: Real estate: One- to four-family......... 36,940 27.93 47,539 32.83 50,956 33.03 54,470 35.44 50,849 33.24 Commercial and multi-family. 16,251 12.28 15,816 10.92 7.481 4.85 5,885 3.83 2,671 1.75 Construction................ 1,005 .76 366 .26 190 .12 72 .05 194 .13 -------- ----- -------- ----- -------- ----- -------- ------ -------- ----- Total real estate loans... 54,196 40.97 63,721 44.01 58,627 38.00 60,427 39.32 53,714 35.12 -------- ----- -------- ----- -------- ----- -------- ------ -------- ----- Consumer.................... 13,526 10.23 9,763 6.74 8,365 5.42 117 .08 5,962 3.90 Commercial business......... 3,848 2.91 7,733 5.34 9,612 6.23 15,635 10.18 16,928 11.07 -------- ----- -------- ----- -------- ----- -------- ------ -------- ----- Total adjustable-rate loans..... 71,570 54.11 81,217 56.09 76,604 49.65 76,179 49.58 76,604 50.09 -------- ----- -------- ----- -------- ----- -------- ------ -------- ----- Total loans............... 132,280 100.00% 144,806 100.00% 154,287 100.00% 153,662 100.00% $152,949 100.00% ====== ====== ====== ====== ====== Less: Loans in process............. 921 679 565 1,335 444 Deferred fees, cost and discounts.. 40 (92) (246) (444) (609) Allowance for loan losses.... 2,592 2,361 1,773 1,961 1,623 -------- -------- -------- Total loans, net.......... $128,727 $141,858 $152,195 $150,810 $151,491 ======== ======== ======== ======== ========
The following schedule illustrates the interest rate sensitivity of the Bank's loan portfolio (including non-accruing loans) at June 30, 2003. 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, 2004 $ 2,845 8.26% $ 2,676 5.75% $1,571 7.44% $ 3,197 10.13% $4,644 4.88% $14,933 11.29% 2005-2008 1,766 7.24 8,303 6.22 --- --- 16,139 9.76 1,407 7.51 27,615 20.88 2009 and following 59,892 7.00 13,614 6.92 --- --- 13,930 6.83 2,296 6.50 89,732 67.83 ------- ---- ------- ---- ------ ---- ------- ----- ------ ---- ------- ----- $64,503 7.06% $24,593 6.56% $1,571 7.44% $33,266 8.57% $8,347 5.77% $132,280 100.00% ======= ======= ====== ======= ====== ========
The total amount of loans due after June 30, 2004 which have fixed interest rates is $53.8 million, while the total amount of loans due after such dates which have floating or adjustable interest rates is $63.5 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, 2003, the Bank's one- to four-family residential mortgage loans totaled $64.5 million, or approximately 48.8% 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 securing 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 indirect lending 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, 2003, the Bank's consumer loan portfolio totaled $33.3 million, or 25.2% 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, 2003, $124,000 or approximately 0.4% of the consumer loan portfolio was non-accruing. There can be no assurance that delinquencies will not increase in the future. The largest components of First Federal's consumer loan portfolio are home equity and improvement loans and automobile loans. 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, 2003, home equity and home improvement loans, most of which are secured by second mortgages, amounted to $15.1 million, or 11.4% of the Bank's gross loan portfolio. At June 30, 2003, automobile loans totaled $15.0 million, or approximately 11.3% 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, 2003, the Bank had $1.6 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, 2003, the Bank had $552,000 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, 2003, 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, 2003, the Bank had $24.6 million of commercial and multi-family real estate loans, which represented 18.6% of the Bank's total gross loan portfolio. The largest commercial or multi-family real estate loan outstanding at June 30, 2003 was $1.6 million, which was performing in accordance with its repayment terms. At June 30, 2003, 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. At June 30, 2003, approximately $8.3 million, or 6.3% 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 nonaccrual status and, as a result, previously accrued interest income on the loan is taken out of current income. The loan will remain on a nonaccrual 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, 2003. 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 7 $ 440 0.68% 5 $ 698 1.08% 14 $1,554 2.41% 26 $2,692 4.17% Commercial and Multi-Family - - - 1 29 0.12 1 723 2.94 2 752 3.06 Construction - - - - - - - - - - - - Consumer 43 248 0.75 20 138 0.41 16 124 .37 79 510 1.53 Commercial business 1 190 2.28 1 294 3.52 4 215 2.58 6 699 8.37 Total delinquent loans 51 $ 878 0.66% 27 $1,159 0.88% 35 $2,616 1.98% 113 $4,653 3.52% == ===== == ====== == ====== === ======
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, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (Dollars in Thousands) Non-accruing loans: One- to four-family $1,554 $210 $134 $137 $1 Commercial and multi-family real estate 723 350 346 39 317 Consumer 124 94 163 75 92 ----- ----- ----- ---- --- Commercial 215 1,288 676 - - ----- ----- ----- ---- --- Total non-accruing loans............ 2,616 1,942 1,319 251 410 ----- ----- ----- ---- --- Foreclosed and repossessed assets: One- to four-family 5 148 230 --- 274 Commercial and multi-family real estate 100 --- --- --- 101 Consumer 21 40 69 39 57 -- -- -- -- -- Commercial --- --- --- --- --- ----- ----- ----- ---- --- Total foreclosed assets............. 126 188 299 39 432 Troubled debt restructurings --- --- --- --- --- --- --- --- --- --- Total non-performing assets $2,742 $2,130 $1,618 $290 $842 ====== ====== ====== ==== ==== Total as a percentage of total assets 1.13% 0.90% 0.70% 0.13% 0.39% ===== ===== ==== ==== ====
Other Loans of Concern. As of June 30, 2003, $9.6 million in loans were 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. These circumstances may result in the future inclusion of such items in the non-performing asset categories. This $9.6 million total includes the non-accruing loans set forth in the preceding table. The principal components of loans of concern are 58 consumer loans aggregating $638,000, 15 one- to four-family loans aggregating $1.3 million and 42 nonresidential real estate and commercial loans aggregating $7.5 million at June 30, 2003. The principal components of loans of concern at June 30, 2002 consisted of 31 consumer loans aggregating $212,000, 8 one- to four-family loans aggregating $363,000 and 43 nonresidential real estate and commercial loans aggregating $8.2 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, 2003, the Bank had classified a total of approximately $5.0 as special mention, $4.0 million of its assets as substandard and $631,000 as doubtful. At June 30, 2003, total classified and non-performing assets comprised $9.6 million, or 40.7% of the Bank's capital, or 4.0% 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 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, 2003, the Bank had a total allowance for loan losses of $2.6 million or 2.0% 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, -------------------------------------------------------------------- 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (Dollars in Thousands) Balance at beginning of period............... $2,361 $1,773 $1,961 $1,623 $983 Charge-offs: One- to four-family....................... 43 10 113 -- 26 Consumer.................................. 404 802 1,277 507 439 Commercial and nonresidential real estate. 1,082 420 802 276 --- ----- ------ ----- ----- ---- 1,529 1,232 2,192 783 465 Recoveries: One- to four-family real estate 25 6 -- -- -- Consumer.................................. 286 242 139 82 95 Commercial and nonresidential real estate. 9 217 150 5 --- ----- ------ ----- ----- ---- 320 465 289 87 95 ----- ------ ----- ----- ---- Net charge-offs.............................. 1,209 767 1,903 696 370 Additions charged to operations.............. 1,440 1,355 1,715 1,034 1,010 ----- ------ ----- ----- ----- Balance at end of period..................... $2,592 $2,361 $1,773 $1,961 $1,623 ====== ====== ====== ====== ====== Ratio of net charge-offs during the period to average loans outstanding during the period 0.91% 0.52% 1.23% 0.45% 0.25% ==== ==== ==== ==== ====
The distribution of the Bank's allowance for loan losses at the dates indicated is summarized as follows:
June 30, ----------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------- 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........... $ 193 48.76% $ 211 45.34% $ 184 44.49% $ 274 45.38% $ 113 44.34% Commercial and multi-family real estate............... 595 18.59 293 15.11 215 9.97 120 5.30 225 6.11 Construction.................. --- 1.19 --- 1.90 --- 2.70 --- 1.53 --- 0.59 Consumer...................... 912 25.15 684 29.34 454 30.65 825 31.98 700 33.41 Commercial business........... 892 6.31 1,173 8.31 859 12.19 571 15.81 405 15.55 Unallocated................... --- --- --- --- 61 --- 171 --- 180 --- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total.................... $2,592 100.00% $2,361 100.00% $1,773 100.00% $1,961 100.00% $1,623 100.00% ====== ======= ====== ====== ====== ====== ====== ====== ====== ======
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, 2003, 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. 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, 2003, the Company had no securities classified as held to maturity and $89.6 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, 2003, 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 4.8 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 $20.7 million as of June 30, 2003, 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, ----------------------------------------------------------------------------- 2003 2002 2001 ----------------------------------------------------------------------------- Carrying % of Carrying % of Carrying % of Value Total Value Total Value Total (Dollars in Thousands) Securities available for sale: US Govt & agency ...................... $16,697 25.80% $12,894 25.54% $ 11,134 27.55% Corporate.............................. 7,235 11.18 2,531 5.01 4,631 11.46 State & municipal...................... 20,263 31.30 17,082 33.84 8,094 20.02 Other equity securities................ 17,086 26.40 14,574 28.87 13,160 32.56 ------ ----- ------ ----- ------- ----- Total securities available for sale.. 61,281 94.68 47,081 93.26 37,019 91.59 FHLB stock............................. 3,446 5.32 3,401 6.74 3,401 8.41 ------- ------ ------- ------ ------- ------ Total securities................... $64,727 100.00% $50,482 100.00% $40,420 100.00% ======= ====== ======= ====== ======= ====== Weighted average remaining life or term to repricing, excluding FHLB stock and other equity securities available for sale. 4.8 yrs. 6.2 yrs. 3.6 yrs. Other interest-earning assets: Interest-earning deposits with banks... $1,589 $2,997 $ 2,158 ====== ====== =======
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, 2003 ----------------------------------------------------------------------------------- Less Than 1 to 5 5 to 10 Over 10 Total 1 Year Years Years Years Securities ----------------------------------------------------------------------------------- Amortized Amortized Amortized Amortized Amortized Fair Cost Cost Cost Cost Cost Value ----------------------------------------------------------------------------------- (Dollars in Thousands) US Govt & agency............ $ --- $8,012 $2,199 $5,959 $16,169 $16,697 Corporate................... 1,534 3,506 --- 1,934 6,974 7,235 State & municipal........... 1,030 144 2,490 15,270 18,934 20,263 ------ ------- ------ ------- ------- ------- Total debt securities....... $2,564 $11,662 $4,689 $23,162 $42,077 $44,195 ====== ======= ====== ======= ======= ======= Weighted average yield(1)... 5.64% 3.94% 5.39% 6.18% 5.44% - ----------------------- (1) Yields reflected have been computed on a tax equivalent basis.
The Company's securities portfolio at June 30, 2003 contained no tax-exempt securities or other securities of any single 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, ----------------------------------- 2003 2002 2001 ---- ---- ---- (In Thousands) Fannie Mae........................... $19,077 $14,193 $ 6,991 Ginnie Mae........................... 3,428 2,406 12,650 Freddie Mac.......................... 4,079 12,538 3,856 Other................................ 1,518 --- --- ------- ------- -------- Total............................ $28,102 $29,137 $ 23,497 ======= ======= ======== The following table sets forth the contractual maturities of the Company's mortgage-backed securities based on amortized cost at June 30, 2003. 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, -------------------------------------------- 2003 5 Years 5 to 10 10 to 20 Over 20 Balance or Less Years Years Years Outstanding ------- ------- -------- ------- ----------- (Dollars In Thousands) Fannie Mae........................................... $355 $--- $12,290 $6,432 $19,077 Ginnie Mae........................................... --- --- --- 3,428 3,428 Freddie Mac.......................................... --- --- 4,079 --- 4,079 Other................................................ --- --- --- 1,518 1,518 ---- ---- ------- ------- ------- Total........................................... $355 $--- $16,369 $11,378 $28,102 ==== ==== ======= ======= ======= Weighted average yield............................... 0.18% ---% 2.79% 4.23% 3.34%
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 savings, money market, NOW 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, ----------------------------------------- 2003 2002 2001 ---- ---- ---- (Dollars in Thousands) Opening balance..................... $158,661 $144,630 $133,105 Purchased deposits.................. --- --- --- Net deposits........................ 747 8,807 5,723 Interest credited................... 4,038 5,224 5,802 -------- -------- -------- Ending balance...................... $163,446 $158,661 $144,630 ======== ======== ======== Net increase........................ $4,785 $14,031 $ 11,525 Percent increase.................... 3.02% 9.70% 8.66% 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, ------------------------------------------------------------------------------ 2003 2002 2001 ---- ---- ---- Percent Percent Percent Amount of Total Amount of Total Amount of Total ------ -------- ------ -------- ------ -------- (Dollars in Thousands) Interest Rate Range: Savings accounts.................... $60,054 36.74% $57,180 36.04% $ 35,376 24.46% Demand accounts(1).................. 11,238 6.88 9,981 6.29 9,161 6.33 Money market accounts............... 2,247 1.37 2,973 1.87 5,621 3.88 NOW accounts........................ 8,149 4.99 7,460 4.70 7,129 4.93 ------- ----- ------- ----- -------- ------ Total non-certificates.............. 81,688 49.98 77,594 48.90 57,287 39.60 Certificates: 0.00 - 3.99%...................... 56,569 34.61 34,298 21.62 2,293 1.59 4.00 - 5.99%...................... 22,372 13.69 26,461 16.68 26,651 18.43 6.00 - 7.99%...................... 2,817 1.72 20,308 12.80 58,319 40.32 8.00 - 9.99%...................... --- --- --- 80 .06 -------- ------ -------- ------ -------- ------ Total Certificates.................. 81,758 50.02 81,067 51.10 87,343 60.40 ------- ------ -------- ------ -------- ------ Total Deposits...................... $163,446 100.00% $158,661 100.00% $144,630 100.00% ======== ====== ======== ====== ======== ====== (1) Non-interest-bearing accounts.
The following table shows rate and maturity information for the Bank's certificates of deposit as of June 30, 2003.
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, 2003..................... $6,471 $3,425 $131 $10,027 12.26% December 31, 2003...................... 7,468 288 301 8,057 9.85 March 31, 2004......................... 5,992 969 149 7,110 8.70 June 30, 2004.......................... 15,029 1,529 189 16,747 20.48 September 30, 2004..................... 9,043 1,244 --- 10,287 12.58 December 31, 2004...................... 2,319 83 474 2,876 3.52 March 31, 2005......................... 1,322 35 714 2,071 2.53 June 30, 2005.......................... 2,287 1,071 232 3,590 4.39 September 50, 2005..................... 1,059 250 282 1,591 1.95 December 51, 2005...................... 2,080 148 230 2,458 3.01 March 31, 2006......................... 363 626 115 1,104 1.35 June 30, 2006.......................... 458 604 --- 1,062 1.30 Thereafter............................. 2,678 12,100 --- 14,778 18.08 ------- ------- ------- ------- ------ Total............................. $56,569 $22,372 $2,817 $81,758 100.00% ======= ======= ====== ======= Percent of total....................... 69.19% 27.36% 3.45% 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, 2003.
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...... $6,420 $4,204 $19,136 $30,737 $60,497 Certificates of deposit of $100,000 or more..... 1,417 3,752 3,578 9,050 17,797 Public funds(1)................................. 2,190 100 1,143 31 3,464 ------- ------ ------- ------- ------- Total certificates of deposit................... $10,027 $8,056 $23,857 $39,818 $81,758 ======= ====== ======= ======= ======= - -------------------- (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, 2003 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, 2003, the Bank had $52.0 million in FHLB advances, and a $1.0 million 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, 2003, 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, ------------------------------------ 2003 2002 2001 ---- ---- ---- (Dollars in Thousands) Maximum Balance: FHLB advances and line of credit................................ $54,363 $66,388 $64,168 Securities sold under agreements to repurchase.................. --- --- --- Average Balance: FHLB advances and line of credit................................ 47,747 57,607 62,585 Securities sold under agreements to repurchase.................. --- --- --- Average Rate Paid On: FHLB advances and line of credit................................ 5.50% 5.50% 6.02% Securities sold under agreements to repurchase.................. --- --- ---
The following table sets forth the Bank's borrowings at the dates indicated. Year Ended June 30, ----------------------------------- 2003 2002 2001 ---- ---- ---- (In Thousands) FHLB advances and line of credit......... $52,038 $54,363 $62,397 Due to brokers........................... --- --- --- ------- ------- ------- Total borrowings..................... $52,038 $54,363 $62,397 ======= ======= ======= Subsidiary Activities As a federally chartered savings association, First Federal is permitted by OTS regulations to invest up to 2% of its assets, or $4.9 million at June 30, 2003, 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. Moreover, First Federal may make loans to such subsidiaries in an aggregate amount not exceeding 50% of its regulatory capital. 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. A savings association that acquires a non-savings association subsidiary, or that elects to conduct a new activity within a subsidiary, must give the Federal Deposit Insurance Corporation and the Office of Thrift Supervision at least 30 days advance written notice. The Federal Deposit Insurance Corporation may, after consultation with the Office of Thrift Supervision, prohibit specified activities if it determines such activities pose a serious threat to the Savings Association Insurance Fund. Moreover, a savings association must deduct from capital, for purposes of meeting the core capital, tangible capital and risk-based capital requirements, its entire investment in and loans to a subsidiary engaged in activities not permissible for a national bank (other than exclusively agency activities for its customers or mortgage banking subsidiaries.) At June 30, 2003, the Bank was in compliance with all capital requirements imposed by law. Nevada Subsidiaries. First Federal Savings Bank of Wabash formed in April 2003 three new Nevada subsidiaries. The Bank owns directly 100% of the shares of Wabash Investments, Inc., a Nevada corporation ("Wabash Investments"). Wabash Investments, in turn, owns 100% of the shares of Wabash Holdings, Inc., a Nevada corporation ("Wabash Holdings"). Wabash Holdings owns 99% of the units and Wabash Investments hold 1% of the units of Wabash Portfolio, LLC, a Nevada limited liability company ("Wabash Portfolio"). Effective May 1, 2003, the Bank transferred the management of approximately $53.2 million in securities to Wabash Portfolio. Wabash Portfolio holds, services, manages, and invests that portfolio of securities and other securities that may be transferred from time to time by the Bank to Wabash Portfolio. Wabash Portfolio's investment policy mirrors that of the Bank. At June 30, 2003, of the $87.4 million in consolidated investments owned by the Bank, $53.6 million was held by Wabash Portfolio. 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, 2003 was approximately $94,000. 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, 2003, the Bank's lending limit under this restriction was approximately $3.4 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, 2003, 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 1.60 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, 2003, 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 also establish special capitalization requirements for savings associations that own subsidiaries. A savings association must deduct from capital, for purposes of meeting the core capital, tangible capital and risk-based capital requirements, its entire investment in and loans to a subsidiary engaged in activities not permissible for a national bank (other than exclusively agency activities for its customers or mortgage banking subsidiaries). The Bank is not required to deduct from capital any investment in its three Nevada subsidiaries. At June 30, 2003, the Bank had tangible capital of $19.3 million, or 8.12% of adjusted total assets, which is approximately $9.8 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, 2003 the Bank had certain intangible assets related to the branch purchase which were subject to these tests. At June 30, 2003, the Bank had core capital equal to $19.3 million, or 8.12% of adjusted total assets, which is $9.8 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, 2003, First Federal had no capital instruments that qualify as supplementary capital and $2.6 million of general loss reserves, of which $752,000 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, 2003. 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, 2003, the Bank had total risk-based capital of $21.1 million (including $19.3 million in core capital and $1.8 million in qualifying supplementary capital) and risk-weighted assets of $145.9 million (including, converted off-balance sheet assets); or total capital of 14.48% of risk-weighted assets. This amount was $9.4 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, 2003, 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 April 2003 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. 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, 2003, 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 administer 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, 2003, 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, 2003, dividends paid by the FHLB of Indianapolis to First Federal totaled $104,000 and 45,000 shares of FHLB stock. Over the past five fiscal years such dividends have averaged 7.24% and were 5.63% for the fiscal year ended June 30, 2003. 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, 2003, 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, 2003, the Company and its affiliates had a total of 64 employees, including 11 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, 2003 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, 2003. 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, 2003. PART II Item 5. Market for Common Equity and Related Stockholder Matters Pages 35 and 36 of the attached 2003 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. Item 6. Management's Discussion and Analysis or Plan of Operation Pages 4 through 12 of the attached 2003 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, 2003, 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, 2003 and 2002............ 14 Consolidated Statements of Income Years Ended June 30, 2003, 2002 and 2001............................ 15 Consolidated Statement of Changes in Shareholders' Equity Years Ended June 30, 2003, 2002 and 2001............................ 16 Consolidated Statements of Cash Flows Years Ended June 30, 2003, 2002 and 2001............................ 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, 2003, 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. Item 8A. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the regulations promulgated under the Securities Exchange Act of 1934, as amended), as of the end of the most recent fiscal quarter covered by this annual report (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and are designed to ensure that material information relating to the Company would be made known to such officers by others within the Company on a timely basis. (b) Changes in internal controls. There were no significant changes in the Company's internal control over financial reporting identified in connection with the Company's evaluation of controls that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 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 28, 2003 (the "Proxy Statement"). Information concerning Section 16(a) Beneficial Ownership Reporting Compliance is incorporated herein by reference from the Proxy Statement. Item 10. Executive Compensation Information concerning executive compensation is incorporated herein by reference from the Proxy Statement. Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Proxy Statement. 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, 2003.
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, 2003 of outstanding options, outstanding (excluding securities warrants and rights as of options, warrants reflected in June 30, 2003 and rights column (a)) Plan category (a) (b) (c) ---------------------------- ------------------------ --------------------------- Equity compensation plans approved by security holders (1) 1992 Stock Option and Incentive Plan 23,024 $14.99 --- (2) 1998 Omnibus Incentive Plan 34,573 12.53 91,668 (1) (2) (1) Equity compensation plans not approved by security holders ------ ------ ------ Total 57,597 $13.51 91,668
(1) Column (c) includes shares which are reserved for issuance as restricted stock grants under this plan but have not yet been awarded. Restricted stock grants that have already been made consist of shares that were purchased on the open market and are outstanding, some of which have vested as of the date hereof. These awards are not included in this chart. (2) Column (b) includes only the weighted-average price of stock options, as the restricted shares awarded under this plan have no exercise price. Item 12. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is incorporated herein by reference from the Proxy Statement. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K The Company filed a Form 8-K dated April 23, 2003, relating to its earnings release for the quarter ended March 31, 2003. Item 14. Principal Accountant Fees and Services. The information required by this item is incorporated by reference to pages 9 through 10 of the Proxy Statement. 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 29, 2003 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 29, 2003 Date: September 29, 2003 /s/ Timothy A. Sheppard /s/ Joseph W. McSpadden - ----------------------------------- ------------------------------------ TIMOTHY A. SHEPPARD JOSEPH W. McSPADDEN Treasurer Director (Principal Accounting Officer) Date: September 29, 2003 Date: September 29, 2003 /s/ J. Stanley Myers /s/ Ronald D. Reynolds - ----------------------------------- ------------------------------------ J. STANLEY MYERS RONALD D. REYNOLDS Director Director Date: September 29, 2003 Date: September 29, 2003 /s/ Thomas L. Frank /s/ John N. Philippsen - ----------------------------------- ------------------------------------ THOMAS L. FRANK JOHN N. PHILIPPSEN Director Director Date: September 29, 2003 Date: September 29, 2003
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 are incorporated by reference to Exhibit 3(ii) to the Issuer's Form 10-KSB for the fiscal year ended June 30, 2002. 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 (h) Salary Continuation Agreement between First Federal Savings Bank of Wabash and Roger K. Cromer dated January 2, 3003. 10(h) (i) Salary Continuation Agreement between First Federal Savings Bank of Wabash and Timothy A. Sheppard dated January 2, 3003 10(i) (j) Salary Continuation Agreement between First Federal Savings Bank of Wabash and Noah Smith dated January 2, 3003. 10(j) (k) Amendment to First Federal Savings Bank of Wabash Split Dollar Agreement between First Federal Savings Bank of Wabash and Roger K. Cromer dated June 30, 2003. 10(k) (l) Amendment to First Federal Savings Bank of Wabash Split Dollar Agreement between First Federal Savings Bank of Wabash and Timothy A. Sheppard dated June 30, 2003. 10(l) (m) Amendment to First Federal Savings Bank of Wabash Split Dollar Agreement between First Federal Savings Bank of Wabash and Noah Smith dated June 30, 2003. 10(m) (n) Amendment to First Federal Savings Bank of Wabash Split Dollar Agreement between First Federal Savings Bank of Wabash and Christine K. Noonan dated June 30, 2003. 10(n) 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 Registrant 21 23 Consents of Experts and Counsel 23 31(1) Certification required by 17 C.F.R.ss.240.13a-14(a) 31(1) 31(2) Certification required by 17 C.F.R.ss.240.13a-14(a) 31(2) 32 Certification required by 18 U.S.C.ss.1350, as adopted 32 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-10 3 ffw_ex10h.txt CROMER SALARY CONTINUATION AGREEMENT Exhibit 10(h) ------------- FIRST FEDERAL SAVINGS BANK OF WABASH SALARY CONTINUATION AGREEMENT THIS AGREEMENT is adopted this 2nd day of January, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal Stock Savings bank, located in Wabash, Indiana (the "Company") and ROGER K. CROMER (the "Executive"). INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to provide salary continuation benefits to the Executive. The Company will pay the benefits from its general assets. AGREEMENT The Executive and the Company agree as follows: Article 1 Definitions Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 1.1 "Change of Control" means the transfer of shares of the Company's voting common stock such that one entity or one person acquires (or is deemed to acquire when applying Section 318 of the Code) more than 50 percent of the Company's outstanding voting common stock followed within twelve (12) months by the Executive's Termination of Employment for reasons other than death, Disability or retirement 1.2 "Code" means the Internal Revenue Code of 1986, as amended. 1.3 "Disability" means the Executive's suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive totally and permanently disabled. The Executive must submit proof to the Company of the carrier's or Social Security Administration's determination upon the request of the Company. 1.4 "Early Termination" means the Termination of Employment before Normal Retirement Age for reasons other than death, Disability, Termination for Cause or following a Change of Control. 1.5 "Early Termination Date" means the month, day and year in which Early Termination occurs. 1.6 "Effective Date" means January 1, 2003. 1.7 "Normal Retirement Age" means the Executive's 55th birthday. 1.8 "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment. 1.9 "Plan Year" means each twelve-month period from the Effective Date. 1.10 "Termination for Cause" See Article 5. 1.11 "Termination of Employment" means that the Executive ceases to be employed by the Company for any reason, voluntary or involuntary, other than by reason of a leave of absence approved by the Company. 1.12 "Year of Service" means a period of twelve consecutive months during which the Executive has been continuously employed by the Company. The Executive's first Year of Service shall begin with the Executive's date of hire and end twelve months later. Additional Years of Service, if any, will be counted for each consecutive 12 month period thereafter that begins on the same month and day as the Executive's first Year of Service. If there are any approved leaves of absence, the Executive shall be considered continuously employed for purposes of this Agreement. The Executive's date of hire is October 26, 1998. Article 2 Lifetime Benefits 2.1 Normal Retirement Benefit. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement. 2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is $100,000 (One hundred thousand dollars). The Company's Board of Directors, in its sole discretion, may increase the annual benefit under this Section 2.1.1; however, any increase shall require the recalculation of Schedule A. 2.1.2 Payment of Benefit. The Company shall pay the benefit to the Executive in 12 equal monthly installments commencing with the month following the Executive's Normal Retirement Date, paying the annual benefit to the Executive for a period of 10 years. 2.1.3 Benefit Increases. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors, in its sole discretion, may increase the benefit. 2.2 Early Termination Benefit. Upon Early Termination, the Company shall pay to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Agreement. 2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the Early Termination Annual Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the Early Termination Date, determined by vesting the Executive in 6.25 percent of the Accrual Balance set forth in Schedule A for the first Year of Service, and an additional 6.25 percent of said amount for each succeeding Year of Service thereafter until the Executive becomes 100 percent vested in the accrual balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.2.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments commencing with the month following the Normal Retirement Age, paying the annual benefit to the Executive for a period of 10 years. 2.2.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.3 Disability Benefit. If the Executive terminates employment due to Disability prior to Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Agreement. 2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the Disability Annual Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the date in which the Termination of Employment occurs (except during the first Plan Year, the benefit is the amount set forth for Plan Year 1), determined by vesting the Executive in 100 percent of the Accrual Balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.3.2 Payment of Benefit. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments commencing with the month following the Termination of Employment, paying the annual benefit to the Executive for a period of 10 years. 2.3.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.4 Change of Control Benefit. Upon a Change of Control, followed within twelve (12) months by the Executive's Termination of Employment for reasons other than death, Disability or retirement, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement. 2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the Change of Control Annual Benefit set forth on Schedule A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs (except during the first Plan Year, the benefit is the amount set forth for Plan Year 1), determined by vesting the Executive 100 percent of the Accrual Balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. The benefit will be credited interest at an annual rate of 5 percent, compounded monthly, on the balance from the Termination of Employment until the Executive begins receiving the benefit at the Normal Retirement Age. 2.4.2 Payment of Benefit. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments commencing with the month following the Normal Retirement Age, paying the annual benefit to the Executive for a period of 10 years. 2.4.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.4.4 Excess Parachute Payment. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement to the extent the benefit would create an excise tax under the excess parachute rules of Section 280G of the Code. Article 3 Death Benefits 3.1 Death During Active Service. If the Executive dies while in the active service of the Company, the Company shall pay to the Executive's beneficiary the benefit described in this Section 3.1. This benefit shall be paid in lieu of the Lifetime Benefits of Article 2. 3.1.1 Amount of Benefit. The annual benefit under this Section 3.1 is the Normal Retirement Benefit amount described in Section 2.1.1. 3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the beneficiary in 12 equal monthly installments commencing with the month following the Executive's death, paying the annual benefit to the Executive's beneficiary for a period of 10 years. 3.2 Death During Benefit Period. If the Executive dies after any Lifetime Benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Executive's beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived. 3.3 Death Following Termination of Employment But Before Payment of a Lifetime Benefit Commences. If the Executive is entitled to a Lifetime Benefit under this Agreement, but dies prior to the commencement of said benefit payments, the Company shall pay the same benefit payments to the Executive's beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the month following the date of the Executive's death. Article 4 Beneficiaries 4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate. 4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. Article 5 General Limitations 5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company terminates the Executive's employment for: (a) Gross negligence or gross neglect of duties; (b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or (c) Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment and resulting in an adverse effect on the Company. 5.2 Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Company shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on an employment application or resume provided to the Company, or on any application for any benefits by the Company to the Executive. Article 6 Claims and Review Procedures 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2 Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed. (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial; (b) A reference to the specific provisions of the Plan on which the denial is based; (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company" as used in this Agreement shall be deemed to refer to the successor or survivor company. 8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim. 8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Establishing and revising the method of accounting for the Agreement; (b) Maintaining a record of benefit payments; (c) Establishing rules and prescribing any forms necessary or desirable to administer the Agreement; and (d) Interpreting the provisions of the Agreement. 8.10 Designated Fiduciary. The Company shall be the named fiduciary and plan administrator under this Agreement. It may delegate to others certain aspects of the management and operational responsibilities including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the Executive and the Company have signed this Agreement. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Roger K. Cromer By: /s/ Stan Myers - ------------------------- ------------------------------------ Roger K. Cromer Title: Director --------------------------------- EX-10 4 ffw_ex10i.txt SHEPPARD SALARY CONTINUATION AGREEMENT Exhibit 10(i) ------------- FIRST FEDERAL SAVINGS BANK OF WABASH SALARY CONTINUATION AGREEMENT THIS AGREEMENT is adopted this 2nd day of January, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal Stock Savings bank, located in Wabash, Indiana (the "Company") and TIM A. SHEPPARD (the "Executive"). INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to provide salary continuation benefits to the Executive. The Company will pay the benefits from its general assets. AGREEMENT The Executive and the Company agree as follows: Article 1 Definitions Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 1.1 "Change of Control" means the transfer of shares of the Company's voting common stock such that one entity or one person acquires (or is deemed to acquire when applying Section 318 of the Code) more than 50 percent of the Company's outstanding voting common stock followed within twelve (12) months by the Executive's Termination of Employment for reasons other than death, Disability or retirement. 1.2 "Code" means the Internal Revenue Code of 1986, as amended. 1.3 "Disability" means the Executive's suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive totally and permanently disabled. The Executive must submit proof to the Company of the carrier's or Social Security Administration's determination upon the request of the Company. 1.4 "Early Termination" means the Termination of Employment before Normal Retirement Age for reasons other than death, Disability, Termination for Cause or following a Change of Control. 1.5 "Early Termination Date" means the month, day and year in which Early Termination occurs. 1.6 "Effective Date" means January 1, 2003. 1.7 "Normal Retirement Age" means the Executive's 62nd birthday. 1.8 "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment. 1.9 "Plan Year" means each twelve-month period from the Effective Date. 1.10 "Termination for Cause" See Article 5. 1.11 "Termination of Employment" means that the Executive ceases to be employed by the Company for any reason, voluntary or involuntary, other than by reason of a leave of absence approved by the Company. 1.12 "Year of Service" means a period of twelve consecutive months during which the Executive has been continuously employed by the Company. The Executive's first Year of Service shall begin with the Executive's date of hire and end twelve months later. Additional Years of Service, if any, will be counted for each consecutive 12 month period thereafter that begins on the same month and day as the Executive's first Year of Service. If there are any approved leaves of absence, the Executive shall be considered continuously employed for purposes of this Agreement. The Executive's date of hire is October 23, 2000. Article 2 Lifetime Benefits 2.1 Normal Retirement Benefit. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement. 2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is $50,000 (Fifty thousand dollars). The Company's Board of Directors, in its sole discretion, may increase the annual benefit under this Section 2.1.1; however, any increase shall require the recalculation of Schedule A. 2.1.2 Payment of Benefit. The Company shall pay the benefit to the Executive in 12 equal monthly installments commencing with the month following the Executive's Normal Retirement Date, paying the annual benefit to the Executive for a period of 10 years. 2.1.3 Benefit Increases. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors, in its sole discretion, may increase the benefit. 2.2 Early Termination Benefit. Upon Early Termination, the Company shall pay to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Agreement. 2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the Early Termination Annual Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the Early Termination Date, determined by vesting the Executive in 6.25 percent of the Accrual Balance set forth in Schedule A for the first Year of Service, and an additional 6.25 percent of said amount for each succeeding Year of Service thereafter until the Executive becomes 100 percent vested in the accrual balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.2.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments commencing with the month following the Normal Retirement Age, paying the annual benefit to the Executive for a period of 10 years. 2.2.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.3 Disability Benefit. If the Executive terminates employment due to Disability prior to Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Agreement. 2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the Disability Annual Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the date in which the Termination of Employment occurs (except during the first Plan Year, the benefit is the amount set forth for Plan Year 1), determined by vesting the Executive in 100 percent of the Accrual Balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.3.2 Payment of Benefit. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments commencing with the month following the Termination of Employment, paying the annual benefit to the Executive for a period of 10 years. 2.3.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.4 Change of Control Benefit. Upon a Change of Control, followed within twelve (12) months by the Executive's Termination of Employment for reasons other than death, Disability or retirement, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement. 2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the Change of Control Annual Benefit set forth on Schedule A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs (except during the first Plan Year, the benefit is the amount set forth for Plan Year 1), determined by vesting the Executive 100 percent of the Accrual Balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.4.2 Payment of Benefit. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments commencing with the month following the Normal Retirement Age, paying the annual benefit to the Executive for a period of 10 years. 2.4.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. Article 3 Death Benefits 3.1 Death During Active Service. If the Executive dies while in the active service of the Company, the Company shall pay to the Executive's beneficiary the benefit described in this Section 3.1. This benefit shall be paid in lieu of the Lifetime Benefits of Article 2. 3.1.1 Amount of Benefit. The annual benefit under this Section 3.1 is the Normal Retirement Benefit amount described in Section 2.1.1. 3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the beneficiary in 12 equal monthly installments commencing with the month following the Executive's death, paying the annual benefit to the Executive's beneficiary for a period of 10 years. 3.2 Death During Benefit Period. If the Executive dies after any Lifetime Benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Executive's beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived. 3.3 Death Following Termination of Employment But Before Payment of a Lifetime Benefit Commences. If the Executive is entitled to a Lifetime Benefit under this Agreement, but dies prior to the commencement of said benefit payments, the Company shall pay the same benefit payments to the Executive's beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the month following the date of the Executive's death. Article 4 Beneficiaries 4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate. 4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. Article 5 General Limitations 5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company terminates the Executive's employment for: (a) Gross negligence or gross neglect of duties; (b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or (c) Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment and resulting in an adverse effect on the Company. 5.2 Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Company shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on an employment application or resume provided to the Company, or on any application for any benefits by the Company to the Executive. Article 6 Claims and Review Procedures 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2 Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed. (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company" as used in this Agreement shall be deemed to refer to the successor or survivor company. 8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim. 8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Establishing and revising the method of accounting for the Agreement; (b) Maintaining a record of benefit payments; (c) Establishing rules and prescribing any forms necessary or desirable to administer the Agreement; and (d) Interpreting the provisions of the Agreement. 8.10 Designated Fiduciary. The Company shall be the named fiduciary and plan administrator under this Agreement. It may delegate to others certain aspects of the management and operational responsibilities including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the Executive and the Company have signed this Agreement. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Tim A. Sheppard By: /s/ Roger K. Cromer - -------------------------------- ---------------------------------------- Tim A. Sheppard Title: President/CEO ------------------------------------- EX-10 5 ffw_ex10j.txt SMITH SALARY CONTINUATION AGREEMENT Exhibit 10(j) ------------- FIRST FEDERAL SAVINGS BANK OF WABASH SALARY CONTINUATION AGREEMENT THIS AGREEMENT is adopted this 2nd day of January, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal Stock Savings bank, located in Wabash, Indiana (the "Company") and NOAH SMITH (the "Executive"). INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to provide salary continuation benefits to the Executive. The Company will pay the benefits from its general assets. AGREEMENT The Executive and the Company agree as follows: Article 1 Definitions Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 1.1 "Change of Control" means the transfer of shares of the Company's voting common stock such that one entity or one person acquires (or is deemed to acquire when applying Section 318 of the Code) more than 50 percent of the Company's outstanding voting common stock followed within twelve (12) months by the Executive's Termination of Employment for reasons other than death, Disability or retirement. 1.2 "Code" means the Internal Revenue Code of 1986, as amended. 1.3 "Disability" means the Executive's suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive totally and permanently disabled. The Executive must submit proof to the Company of the carrier's or Social Security Administration's determination upon the request of the Company. 1.4 "Early Termination" means the Termination of Employment before Normal Retirement Age for reasons other than death, Disability, Termination for Cause or following a Change of Control. 1.5 "Early Termination Date" means the month, day and year in which Early Termination occurs. 1.6 "Effective Date" means January 1, 2003. 1.7 "Normal Retirement Age" means the Executive's 62nd birthday. 1.8 "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment. 1.9 "Plan Year" means each twelve-month period from the Effective Date. 1.10 "Termination for Cause" See Article 5. 1.11 "Termination of Employment" means that the Executive ceases to be employed by the Company for any reason, voluntary or involuntary, other than by reason of a leave of absence approved by the Company. 1.12 "Year of Service" means a period of twelve consecutive months during which the Executive has been continuously employed by the Company. The Executive's first Year of Service shall begin with the Executive's date of hire and end twelve months later. Additional Years of Service, if any, will be counted for each consecutive 12 month period thereafter that begins on the same month and day as the Executive's first Year of Service. If there are any approved leaves of absence, the Executive shall be considered continuously employed for purposes of this Agreement. The Executive's date of hire is July 31, 2000. Article 2 Lifetime Benefits 2.1 Normal Retirement Benefit. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement. 2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is $50,000 (Fifty thousand dollars). The Company's Board of Directors, in its sole discretion, may increase the annual benefit under this Section 2.1.1; however, any increase shall require the recalculation of Schedule A. 2.1.2 Payment of Benefit. The Company shall pay the benefit to the Executive in 12 equal monthly installments commencing with the month following the Executive's Normal Retirement Date, paying the annual benefit to the Executive for a period of 10 years. 2.1.3 Benefit Increases. Commencing on the first anniversary of the first benefit payment, and continuing on each subsequent anniversary, the Company's Board of Directors, in its sole discretion, may increase the benefit. 2.2 Early Termination Benefit. Upon Early Termination, the Company shall pay to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Agreement. 2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the Early Termination Annual Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the Early Termination Date, determined by vesting the Executive in 6.25 percent of the Accrual Balance set forth in Schedule A for the first Year of Service, and an additional 6.25 percent of said amount for each succeeding Year of Service thereafter until the Executive becomes 100 percent vested in the accrual balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.2.2 Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments commencing with the month following the Normal Retirement Age, paying the annual benefit to the Executive for a period of 10 years. 2.2.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.3 Disability Benefit. If the Executive terminates employment due to Disability prior to Normal Retirement Age, the Company shall pay to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Agreement. 2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the Disability Annual Benefit amount set forth in Schedule A for the Plan Year ending immediately prior to the date in which the Termination of Employment occurs (except during the first Plan Year, the benefit is the amount set forth for Plan Year 1), determined by vesting the Executive in 100 percent of the Accrual Balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.3.2 Payment of Benefit. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments commencing with the month following the Termination of Employment, paying the annual benefit to the Executive for a period of 10 years. 2.3.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.4 Change of Control Benefit. Upon a Change of Control, followed within twelve (12) months by the Executive's Termination of Employment for reasons other than death, Disability or retirement, the Company shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement. 2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the Change of Control Annual Benefit set forth on Schedule A for the Plan Year ending immediately prior to the date in which Termination of Employment occurs (except during the first Plan Year, the benefit is the amount set forth for Plan Year 1), determined by vesting the Executive 100 percent of the Accrual Balance. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of the Early Termination benefit on Schedule A. This benefit is determined by calculating a 10-year fixed annuity from the Accrual Balance, crediting interest on the unpaid balance at an annual rate of 5 percent, compounded monthly. 2.4.2 Payment of Benefit. The Company shall pay the annual benefit amount to the Executive in 12 equal monthly installments commencing with the month following the Normal Retirement Age, paying the annual benefit to the Executive for a period of 10 years. 2.4.3 Benefit Increases. Benefit payments may be increased as provided in Section 2.1.3. 2.4.4 Excess Parachute Payment. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement to the extent the benefit would create an excise tax under the excess parachute rules of Section 280G of the Code. Article 3 Death Benefits 3.1 Death During Active Service. If the Executive dies while in the active service of the Company, the Company shall pay to the Executive's beneficiary the benefit described in this Section 3.1. This benefit shall be paid in lieu of the Lifetime Benefits of Article 2. 3.1.1 Amount of Benefit. The annual benefit under this Section 3.1 is the Normal Retirement Benefit amount described in Section 2.1.1. 3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the beneficiary in 12 equal monthly installments commencing with the month following the Executive's death, paying the annual benefit to the Executive's beneficiary for a period of 10 years. 3.2 Death During Benefit Period. If the Executive dies after any Lifetime Benefit payments have commenced under this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Executive's beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived. 3.3 Death Following Termination of Employment But Before Payment of a Lifetime Benefit Commences. If the Executive is entitled to a Lifetime Benefit under this Agreement, but dies prior to the commencement of said benefit payments, the Company shall pay the same benefit payments to the Executive's beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the month following the date of the Executive's death. Article 4 Beneficiaries 4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate. 4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit. Article 5 General Limitations 5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company terminates the Executive's employment for: (a) Gross negligence or gross neglect of duties; (b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or (c) Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment and resulting in an adverse effect on the Company. 5.2 Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Company shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on an employment application or resume provided to the Company, or on any application for any benefits by the Company to the Executive. Article 6 Claims and Review Procedures 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1. Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2. Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3. Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed. (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2. Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3. Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4. Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5. Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination This Agreement may be amended or terminated only by a written agreement signed by the Company and the Executive. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company" as used in this Agreement shall be deemed to refer to the successor or survivor company. 8.5 Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 8.6 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.7 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim. 8.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.9 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Establishing and revising the method of accounting for the Agreement; (b) Maintaining a record of benefit payments; (c) Establishing rules and prescribing any forms necessary or desirable to administer the Agreement; and (d) Interpreting the provisions of the Agreement. 8.10 Designated Fiduciary. The Company shall be the named fiduciary and plan administrator under this Agreement. It may delegate to others certain aspects of the management and operational responsibilities including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the Executive and the Company have signed this Agreement. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Noah Smith By /s/ Roger K. Cromer - --------------------------------- ------------------------------------- Noah Smith Title President/CEO -------------------------------- EX-10 6 ffw_ex10k.txt CROMER SPLIT DOLLAR AGREEMENT Exhibit 10(k) AMENDMENT TO FIRST FEDERAL SAVINGS BANK OF WABASH SPLIT DOLLAR AGREEMENT THIS AMENDMENT, made and entered into this 30th day of June, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal stock savings bank located in Wabash, Indiana (the "Company"), and Roger K. Cromer (the "Executive") amends and restates the SPLIT DOLLAR AGREEMENT dated September 30, 2002. This Agreement shall append the Split Dollar Endorsement entered into on even date herewith or as subsequently amended, by and between the aforementioned parties. INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to divide the death proceeds of a life insurance policy on the Executive's life. The Company will pay life insurance premiums from its general assets. AGREEMENT The Company and the Executive agree as follows: Article 1 General Definitions The following terms shall have the meanings specified: 1.1 "Insured" means the Executive. 1.2 "Insurer" means each life insurance carrier in which there is a Split Dollar Policy Endorsement attached to this Agreement 1.3 "Normal Retirement Age" means the Executive's 65th birthday. 1.4 "Policy" means the specific life insurance policy issued by the Insurer. 1.5 "Two Times Base Annual Salary" means the current base annual salary of the Executive at the earliest of: (1) the date of the Executive's death; (2) the date of the Executive's Disability; or (3) the Executive's Normal Retirement Date multiplied by a factor of two (2). Article 2 Policy Ownership/Interests 2.1 Company Ownership. The Company is the sole owner of the Policy and shall have the right to exercise all incidents of ownership. The Company shall be the beneficiary of the remaining death proceeds of the Policy after the Interest of the Executive or the Executive's transferee has been paid according to Section 2.2 below. 2.2 Executive's Interest. The Executive shall have the right to designate the beneficiary of Two Times Base Annual Salary. The Executive shall also have the right to elect and change settlement options that may be permitted. However, the Executive, the Executive's transferee or the Executive's beneficiary shall have no rights or interests in the Policy with respect to that portion of the death proceeds designated in this section 2.2 upon the Executive's Termination of Employment. 2.3 Termination of Participation. An Executive's rights under this Agreement shall cease and his or her participation in this Agreement shall terminate if either of the following events occur: (i) if there is a Termination for Cause; or (ii) if the Executive's employment with the Company is terminated for any reason prior to Normal Retirement Age, or (iii) the Executive retires, or (iv) the plan is terminated per Article 7. In the event that the Company decides to maintain the Policy or Policies after the Executive's Termination of Participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds of the Policy or Policies. 2.4 Other Termination. Nothing herein negates the Company's right to amend or terminate this Agreement under Article 7. However, the Company is not obligated to provide any additional resources to maintain the Policy or Policies in full force and effect. In addition, the Company may replace each Policy with a comparable insurance policy to cover the benefit provided under this Agreement and the Company and the Executive shall execute a new Split Dollar Policy Endorsement for each new Policy. Each new Policy or any comparable policy shall be subject to the claims of the Company's creditors. Article 3 Premiums 3.1 Premium Payment. The Company shall pay any premiums due on the Policy. 3.2 Economic Benefit. The Company shall determine the economic benefit attributable to the Executive based on the amount of the current term rate for the Executive's age multiplied by the aggregate death benefit payable to the Executive's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority. 3.3 Imputed Income. The Company shall impute the economic benefit to the Executive on an annual basis. Article 4 Assignment The Executive may assign without consideration all of the Executive's interests in the Policy and in this Agreement to any person, entity or trust. In the event the Executive transfers all of the Executive's interest in the Policy, then all of the Executive's interest in the Policy and in the Agreement shall be vested in the Executive's transferee, who shall be substituted as a party hereunder and the Executive shall have no further interest in the Policy or in this Agreement. Article 5 Insurer The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Agreement. Article 6 Claims Procedure 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1. Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2. Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3. Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed. (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2. Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3. Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4. Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5. Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination 7.1 Amendment or Termination of Agreement. The Company may amend or terminate the Agreement at any time and may amend or terminate an Executive's rights under the Agreement at any time prior to the Executive's death by written notice to the Executive. However, unless otherwise agreed to by the Company and the Executive, this Agreement will automatically terminate upon the Executive's Termination of Employment. Additionally, the Company may sell, surrender, exchange, or transfer the insurance Policy or Policies purchased under the Agreement at any time. If the Company decides to sell, surrender, transfer, or exchange the Policies while this Agreement is in effect, the Company will first give the Executive or the Executive's transferee the option to purchase the Policies for a period of 60 days from written notice of such intention. The purchase price shall be an amount equal to the cash surrender value of the Policies. 7.2 Waiver. An Executive may, in the Executive's sole and absolute discretion, waive his or her rights under the Agreement at any time. Any waiver permitted under this Section 7.2 shall be in writing and delivered to the Board of Directors of the Company. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company and their beneficiaries, survivors, executors, administrators and transferees, and any Policy beneficiary. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company. 8.5 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his or her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand. 8.6 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.7 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Interpreting the provisions of this Agreement; (b) Establishing and revising the method of accounting for this Agreement; (c) Maintaining a record of benefit payments; and (d) Establishing rules and prescribing any forms necessary or desirable to administer this Agreement. 8.8 Named Fiduciary. The Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Roger K. Cromer By: /s/ Timothy A. Sheppard - ------------------------------- -------------------------------- Roger K. Cromer Title: Vice President/Controller EX-10 7 ffw_ex101.txt SHEPPARD SPLIT DOLLAR AGREEMENT Exhibit 10(l) AMENDMENT TO FIRST FEDERAL SAVINGS BANK OF WABASH SPLIT DOLLAR AGREEMENT THIS AMENDMENT, made and entered into this 30th day of June, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal stock savings bank located in Wabash, Indiana (the "Company"), and Tim Sheppard (the "Executive") amends and restates the SPLIT DOLLAR AGREEMENT dated September 30, 2002. This Agreement shall append the Split Dollar Endorsement entered into on even date herewith or as subsequently amended, by and between the aforementioned parties. INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to divide the death proceeds of a life insurance policy on the Executive's life. The Company will pay life insurance premiums from its general assets. AGREEMENT The Company and the Executive agree as follows: Article 1 General Definitions The following terms shall have the meanings specified: 1.1 "Insured" means the Executive. 1.2 "Insurer" means each life insurance carrier in which there is a Split Dollar Policy Endorsement attached to this Agreement 1.3 "Normal Retirement Age" means the Executive's 65th birthday. 1.4 "Policy" means the specific life insurance policy issued by the Insurer. 1.5 "Two Times Base Annual Salary" means the current base annual salary of the Executive at the earliest of: (1) the date of the Executive's death; (2) the date of the Executive's Disability; or (3) the Executive's Normal Retirement Date multiplied by a factor of two (2). Article 2 Policy Ownership/Interests 2.1 Company Ownership. The Company is the sole owner of the Policy and shall have the right to exercise all incidents of ownership. The Company shall be the beneficiary of the remaining death proceeds of the Policy after the Interest of the Executive or the Executive's transferee has been paid according to Section 2.2 below. 2.2 Executive's Interest. The Executive shall have the right to designate the beneficiary of Two Times Base Annual Salary. The Executive shall also have the right to elect and change settlement options that may be permitted. However, the Executive, the Executive's transferee or the Executive's beneficiary shall have no rights or interests in the Policy with respect to that portion of the death proceeds designated in this section 2.2 upon the Executive's Termination of Employment. 2.3 Termination of Participation. A Executive's rights under this Agreement shall cease and his or her participation in this Agreement shall terminate if either of the following events occur: (i) if there is a Termination for Cause; or (ii) if the Executive's employment with the Company is terminated for any reason prior to Normal Retirement Age, or (iii) the Executive retires, or (iv) the plan is terminated per Article 7. In the event that the Company decides to maintain the Policy or Policies after the Executive's Termination of Participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds of the Policy or Policies. 2.4 Other Termination. Nothing herein negates the Company's right to amend or terminate this Agreement under Article 7. However, the Company is not obligated to provide any additional resources to maintain the Policy or Policies in full force and effect. In addition, the Company may replace each Policy with a comparable insurance policy to cover the benefit provided under this Agreement and the Company and the Executive shall execute a new Split Dollar Policy Endorsement for each new Policy. Each new Policy or any comparable policy shall be subject to the claims of the Company's creditors. Article 3 Premiums 3.1 Premium Payment. The Company shall pay any premiums due on the Policy 3.2 Economic Benefit. The Company shall determine the economic benefit attributable to the Executive based on the amount of the current term rate for the Executive's age multiplied by the aggregate death benefit payable to the Executive's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority. 3.3 Imputed Income. The Company shall impute the economic benefit to the Executive on an annual basis. Article 4 Assignment The Executive may assign without consideration all of the Executive's interests in the Policy and in this Agreement to any person, entity or trust. In the event the Executive transfers all of the Executive's interest in the Policy, then all of the Executive's interest in the Policy and in the Agreement shall be vested in the Executive's transferee, who shall be substituted as a party hereunder and the Executive shall have no further interest in the Policy or in this Agreement. Article 5 Insurer The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Agreement. Article 6 Claims Procedure 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2 Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed. (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination 7.1 Amendment or Termination of Agreement. The Company may amend or terminate the Agreement at any time and may amend or terminate an Executive's rights under the Agreement at any time prior to the Executive's death by written notice to the Executive. However, unless otherwise agreed to by the Company and the Executive, this Agreement will automatically terminate upon the Executive's Termination of Employment. Additionally, the Company may sell, surrender, exchange, or transfer the insurance Policy or Policies purchased under the Agreement at any time. If the Company decides to sell, surrender, transfer, or exchange the Policies while this Agreement is in effect, the Company will first give the Executive or the Executive's transferee the option to purchase the Policies for a period of 60 days from written notice of such intention. The purchase price shall be an amount equal to the cash surrender value of the Policies. 7.2 Waiver. An Executive may, in the Executive's sole and absolute discretion, waive his or her rights under the Agreement at any time. Any waiver permitted under this Section 7.2 shall be in writing and delivered to the Board of Directors of the Company. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company and their beneficiaries, survivors, executors, administrators and transferees, and any Policy beneficiary. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company. 8.5 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his or her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand. 8.6 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.7 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Interpreting the provisions of this Agreement; (b) Establishing and revising the method of accounting for this Agreement; (c) Maintaining a record of benefit payments; and (d) Establishing rules and prescribing any forms necessary or desirable to administer this Agreement. 8.8 Named Fiduciary. The Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Tim Sheppard By: /s/ Roger K. Cromer - ------------------------------------ -------------------------------- Tim Sheppard Title: President/CEO EX-10 8 ffw_ex10m.txt SMITH SPLIT DOLLAR AGREEMENT Exhibit 10(m) AMENDMENT TO FIRST FEDERAL SAVINGS BANK OF WABASH SPLIT DOLLAR AGREEMENT THIS AMENDMENT, made and entered into this 30th day of June, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal stock savings bank located in Wabash, Indiana (the "Company"), and Noah Smith (the "Executive") amends and restates the SPLIT DOLLAR AGREEMENT dated September 30, 2002. This Agreement shall append the Split Dollar Endorsement entered into on even date herewith or as subsequently amended, by and between the aforementioned parties. INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to divide the death proceeds of a life insurance policy on the Executive's life. The Company will pay life insurance premiums from its general assets. AGREEMENT The Company and the Executive agree as follows: Article 1 General Definitions The following terms shall have the meanings specified: 1.1 "Insured" means the Executive. 1.2 "Insurer" means each life insurance carrier in which there is a Split Dollar Policy Endorsement attached to this Agreement 1.3 "Normal Retirement Age" means the Executive's 65th birthday. 1.4 "Policy" means the specific life insurance policy issued by the Insurer. 1.5 Two Times Base Annual Salary" means the current base annual salary of the Executive at the earliest of: (1) the date of the Executive's death; (2) the date of the Executive's Disability; or (3) the Executive's Normal Retirement Date multiplied by a factor of two (2). Article 2 Policy Ownership/Interests 2.1 Company Ownership. The Company is the sole owner of the Policy and shall have the right to exercise all incidents of ownership. The Company shall be the beneficiary of the remaining death proceeds of the Policy after the Interest of the Executive or the Executive's transferee has been paid according to Section 2.2 below. 2.2 Executive's Interest. The Executive shall have the right to designate the beneficiary of Two Times Base Annual Salary. The Executive shall also have the right to elect and change settlement options that may be permitted. However, the Executive, the Executive's transferee or the Executive's beneficiary shall have no rights or interests in the Policy with respect to that portion of the death proceeds designated in this section 2.2 upon the Executive's Termination of Employment. 2.3 Termination of Participation. A Executive's rights under this Agreement shall cease and his or her participation in this Agreement shall terminate if either of the following events occur: (i) if there is a Termination for Cause; or (ii) if the Executive's employment with the Company is terminated for any reason prior to Normal Retirement Age, or (iii) the Executive retires, or (iv) the plan is terminated per Article 7. In the event that the Company decides to maintain the Policy or Policies after the Executive's Termination of Participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds of the Policy or Policies. 2.4 Other Termination. Nothing herein negates the Company's right to amend or terminate this Agreement under Article 7. However, the Company is not obligated to provide any additional resources to maintain the Policy or Policies in full force and effect. In addition, the Company may replace each Policy with a comparable insurance policy to cover the benefit provided under this Agreement and the Company and the Executive shall execute a new Split Dollar Policy Endorsement for each new Policy. Each new Policy or any comparable policy shall be subject to the claims of the Company's creditors. Article 3 Premiums 3.1 Premium Payment. The Company shall pay any premiums due on the Policy. 3.2 Economic Benefit. The Company shall determine the economic benefit attributable to the Executive based on the amount of the current term rate for the Executive's age multiplied by the aggregate death benefit payable to the Executive's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority. 3.3 Imputed Income. The Company shall impute the economic benefit to the Executive on an annual basis. Article 4 Assignment The Executive may assign without consideration all of the Executive's interests in the Policy and in this Agreement to any person, entity or trust. In the event the Executive transfers all of the Executive's interest in the Policy, then all of the Executive's interest in the Policy and in the Agreement shall be vested in the Executive's transferee, who shall be substituted as a party hereunder and the Executive shall have no further interest in the Policy or in this Agreement. Article 5 Insurer The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Agreement. Article 6 Claims Procedure 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2 Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based; (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed; (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination 7.1 Amendment or Termination of Agreement. The Company may amend or terminate the Agreement at any time and may amend or terminate an Executive's rights under the Agreement at any time prior to the Executive's death by written notice to the Executive. However, unless otherwise agreed to by the Company and the Executive, this Agreement will automatically terminate upon the Executive's Termination of Employment. Additionally, the Company may sell, surrender, exchange, or transfer the insurance Policy or Policies purchased under the Agreement at any time. If the Company decides to sell, surrender, transfer, or exchange the Policies while this Agreement is in effect, the Company will first give the Executive or the Executive's transferee the option to purchase the Policies for a period of 60 days from written notice of such intention. The purchase price shall be an amount equal to the cash surrender value of the Policies. 7.2 Waiver. An Executive may, in the Executive's sole and absolute discretion, waive his or her rights under the Agreement at any time. Any waiver permitted under this Section 7.2 shall be in writing and delivered to the Board of Directors of the Company. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company and their beneficiaries, survivors, executors, administrators and transferees, and any Policy beneficiary. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company. 8.5 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his or her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand. 8.6 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.7 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Interpreting the provisions of this Agreement; (b) Establishing and revising the method of accounting for this Agreement; (c) Maintaining a record of benefit payments; and (d) Establishing rules and prescribing any forms necessary or desirable to administer this Agreement. 8.8 Named Fiduciary. The Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Noah Smith By:/s/ Roger K. Cromer - ------------------------------------ --------------------------------- Noah Smith Title: President/CEO EX-10 9 ffw_exh10n.txt NOONAN SPLIT DOLLAR AGREEMENT Exhibit 10(n) AMENDMENT TO FIRST FEDERAL SAVINGS BANK OF WABASH SPLIT DOLLAR AGREEMENT THIS AMENDMENT, made and entered into this 30th day of June, 2003, by and between FIRST FEDERAL SAVINGS BANK OF WABASH, a Federal stock savings bank located in Wabash, Indiana (the "Company"), and Christine K. Noonan (the "Executive") amends and restates the SPLIT DOLLAR AGREEMENT dated September 30, 2002. This Agreement shall append the Split Dollar Endorsement entered into on even date herewith or as subsequently amended, by and between the aforementioned parties. INTRODUCTION To encourage the Executive to remain an employee of the Company, the Company is willing to divide the death proceeds of a life insurance policy on the Executive's life. The Company will pay life insurance premiums from its general assets. AGREEMENT The Company and the Executive agree as follows: Article 1 General Definitions The following terms shall have the meanings specified: 1.1 "Insured" means the Executive. 1.2 "Insurer" means each life insurance carrier in which there is a Split Dollar Policy Endorsement attached to this Agreement 1.3 "Normal Retirement Age" means the Executive's 65th birthday. 1.4 "Policy" means the specific life insurance policy issued by the Insurer. 1.5 Two Times Base Annual Salary" means the current base annual salary of the Executive at the earliest of: (1) the date of the Executive's death; (2) the date of the Executive's Disability; or (3) the Executive's Normal Retirement Date multiplied by a factor of two (2). Article 2 Policy Ownership/Interests 2.1 Company Ownership. The Company is the sole owner of the Policy and shall have the right to exercise all incidents of ownership. The Company shall be the beneficiary of the remaining death proceeds of the Policy after the Interest of the Executive or the Executive's transferee has been paid according to Section 2.2 below. 2.2 Executive's Interest. The Executive shall have the right to designate the beneficiary of Two Times Base Annual Salary. The Executive shall also have the right to elect and change settlement options that may be permitted. However, the Executive, the Executive's transferee or the Executive's beneficiary shall have no rights or interests in the Policy with respect to that portion of the death proceeds designated in this section 2.2 upon the Executive's Termination of Employment. 2.3 Termination of Participation. An Executive's rights under this Agreement shall cease and his or her participation in this Agreement shall terminate if either of the following events occur: (i) if there is a Termination for Cause; or (ii) if the Executive's employment with the Company is terminated for any reason prior to Normal Retirement Age, or (iii) the Executive retires, or (iv) the plan is terminated per Article 7. In the event that the Company decides to maintain the Policy or Policies after the Executive's Termination of Participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds of the Policy or Policies. 2.4 Other Termination. Nothing herein negates the Company's right to amend or terminate this Agreement under Article 7. However, the Company is not obligated to provide any additional resources to maintain the Policy or Policies in full force and effect. In addition, the Company may replace each Policy with a comparable insurance policy to cover the benefit provided under this Agreement and the Company and the Executive shall execute a new Split Dollar Policy Endorsement for each new Policy. Each new Policy or any comparable policy shall be subject to the claims of the Company's creditors. Article 3 Premiums 3.1 Premium Payment. The Company shall pay any premiums due on the Policy. 3.2 Economic Benefit. The Company shall determine the economic benefit attributable to the Executive based on the amount of the current term rate for the Executive's age multiplied by the aggregate death benefit payable to the Executive's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority. 3.3 Imputed Income. The Company shall impute the economic benefit to the Executive on an annual basis. Article 4 Assignment The Executive may assign without consideration all of the Executive's interests in the Policy and in this Agreement to any person, entity or trust. In the event the Executive transfers all of the Executive's interest in the Policy, then all of the Executive's interest in the Policy and in the Agreement shall be vested in the Executive's transferee, who shall be substituted as a party hereunder and the Executive shall have no further interest in the Policy or in this Agreement. Article 5 Insurer The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Agreement. Article 6 Claims Procedure 6.1 Claims Procedure. A Participant or beneficiary ("claimant") who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows: 6.1.1. Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. 6.1.2. Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.1.3. Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed. (d) An explanation of the Plan's review procedures and the time limits applicable to such procedures, and (e) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a) following an adverse benefit determination on review. 6.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: 6.2.1 Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review. 6.2.2. Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits. 6.2.3. Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered, in the initial benefit determination. 6.2.4. Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60 day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. 6.2.5. Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: (a) The specific reasons for the denial. (b) A reference to the specific provisions of the Plan on which the denial is based. (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and (d) A statement of the claimant's right to bring a civil action under ERISA Section 502 (a). Article 7 Amendments and Termination 7.1 Amendment or Termination of Agreement. The Company may amend or terminate the Agreement at any time and may amend or terminate an Executive's rights under the Agreement at any time prior to the Executive's death by written notice to the Executive. However, unless otherwise agreed to by the Company and the Executive, this Agreement will automatically terminate upon the Executive's Termination of Employment. Additionally, the Company may sell, surrender, exchange, or transfer the insurance Policy or Policies purchased under the Agreement at any time. If the Company decides to sell, surrender, transfer, or exchange the Policies while this Agreement is in effect, the Company will first give the Executive or the Executive's transferee the option to purchase the Policies for a period of 60 days from written notice of such intention. The purchase price shall be an amount equal to the cash surrender value of the Policies. 7.2 Waiver. An Executive may, in the Executive's sole and absolute discretion, waive his or her rights under the Agreement at any time. Any waiver permitted under this Section 7.2 shall be in writing and delivered to the Board of Directors of the Company. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Company and their beneficiaries, survivors, executors, administrators and transferees, and any Policy beneficiary. 8.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America. 8.4 Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company. 8.5 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his or her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand. 8.6 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. 8.7 Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to: (a) Interpreting the provisions of this Agreement; (b) Establishing and revising the method of accounting for this Agreement; (c) Maintaining a record of benefit payments; and (d) Establishing rules and prescribing any forms necessary or desirable to administer this Agreement. 8.8 Named Fiduciary. The Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. EXECUTIVE: COMPANY: First Federal Savings Bank of Wabash /s/ Christine K. Noonan By /s/ Timothy A. Sheppard - -------------------------------------- --------------------------------- Christine K. Noonan Title Vice President/Controller EX-13 10 ffw_ars.txt FFW ANNUAL REPORT EXHIBIT 13 FFW CORPORATION Wabash, Indiana 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, 2003 and 2002.................... 14 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED JUNE 30, 2003, 2002 and 2001 .......................... 15 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED JUNE 30, 2003, 2002 and 2001 .......................... 16 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2003, 2002 and 2001 .......................... 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................. 18 DIRECTORS AND EXECUTIVE OFFICERS ....................................... 34 SHAREHOLDER INFORMATION ................................................ 35 PRESIDENT'S MESSAGE FFW CORPORATION Dear Shareholder: It is my pleasure to present to you the 2003 Annual Report of FFW Corporation and its wholly-owned subsidiary, First Federal Savings Bank. As you will see by reading the accompanying financial statements, FFW Corporation had a record year for net income and earnings per share. Net income for the year ended June 30, 2003 was $2,358,000, or diluted earnings per share of $1.74, compared to $2,048,000 or $1.47 for 2002. The low interest rate environment increased our refinance activity and new loan commitments. The record earnings can be attributed to the increase in loan volume combined with management's continued efforts to control costs. Your Board of Directors and Officers understand the importance of enhancing shareholder value and providing an acceptable return on your investment. In March 2003, the Corporation completed a 5% stock repurchase program that began in February 2002 and, subsequently, initiated another stock buy back program to purchase up to an additional 5% of outstanding shares. In addition, the $0.60 per share dividend paid in 2003 represents a 7.1% increase over the dividend paid in 2002. To better serve our existing market area we introduced our website at www.ffsbwabash.com and in November 2002 added Internet Banking to our services. Introducing Internet Banking and the optional bill payment service, provides our customers the convenience they deserve, allowing them to bank 24 hours a day. The combination of high quality products and high quality people to deliver these products, also contributes to the profitability of FFW Corporation. I would like to take this opportunity to commend and thank the Officers, staff and Directors of the Company and its subsidiaries for all their hard work. It is through their efforts that the Company had such a successful year. The next fiscal year offers many challenges and opportunities for FFW Corporation. The future interest rate environment poses a challenge for all financial institutions, including First Federal Savings Bank. We continue to face competition from larger banking centers; however, we believe that people want to do business with a local institution that is experienced and can provide solid financial products with unparalleled service. We believe that our efforts to expand into new markets and augment our services will be positive for future growth. We look optimistically to the future, confident that we have built a solid foundation. Thank you, our shareholders, employees, and customers for your continued support and encouragement. 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: 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (In Thousands) Financial Condition Data: Total assets $242,771 $237,828 $231,186 $219,037 $ 217,489 Loans 128,727 141,858 152,195 150,810 151,491 Securities 89,637 76,345 60,973 52,026 51,029 Deposits 163,446 158,661 144,630 133,105 130,401 Borrowings 52,038 54,363 62,397 64,168 66,300 Equity 23,640 22,409 21,993 19,615 19,357 (In Thousands) Selected Operations Data: Total interest income $ 13,963 $ 16,022 $ 17,544 $ 16,687 $ 16,052 Net interest income 6,607 6,570 6,786 7,072 6,686 Provision for loan losses (1,440) (1,355) (1,715) (1,034) (1,010) Non-interest income 2,488 2,305 1,265 1,689 1,990 Non-interest expense (4,784) (4,804) (4,237) (4,657) (4,591) Income tax expense (513) (668) (476) (799) (964) --------- --------- -------- -------- --------- Net income $ 2,358 $ 2,048 $ 1,623 $ 2,271 $ 2,111 ======== ======== ======== ======== ========= Per Share: Basic earnings per share (1) $ 1.76 $ 1.48 $ 1.14 $ 1.60 $ 1.48 Diluted earnings per share (1) 1.74 1.47 1.13 1.57 1.46 Dividends declared (1) 0.60 0.56 0.52 0.48 0.42 Dividend payout ratio 34.09% 37.84% 45.61% 30.00% 28.38% Other Data: Net interest margin (2) 2.98% 2.96% 3.14% 3.38% 3.28% Average interest-earning assets to average interest-bearing liabilities 1.11x 1.13x 1.12x 1.10x 1.12x Non-performing assets (3) to total assets at end of period 1.13% .90% .70% .13% .39% Equity-to-total assets (end of period) 9.74 9.42 9.51 8.96 8.90 Return on assets (ratio of net income to average total assets) 1.00 .88 .72 1.04 .99 Return on equity (ratio of net income to average equity) 10.08 9.24 7.87 11.83 10.68 Equity-to-assets ratio (ratio of average equity to average total assets) 9.90 9.57 9.13 8.76 9.25 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 $4.9 million during the year to $242.8 million at June 30, 2003. This increase was funded by an increase in deposits of $4.8 million. These funds, along with cash from operations and loan repayments, were used to pay down FHLB advances, invest in government agencies, municipals and other securities and purchase bank-owned life insurance. Total securities available for sale increased from $76.3 million at June 30, 2002 to $89.6 million at June 30, 2003. During fiscal 2003, state and municipal securities increased from $17.1 million at June 30, 2002 to $20.3 million at June 30, 2003. Agency securities increased from $12.9 million at June 30, 2002 to $16.7 million at June 30, 2003. Mortgage backed, equity and other securities increased from $46.3 million at June 30, 2002 to $52.6 million at June 30, 2003. The Company has unrealized appreciation of $721,000, net of tax, at June 30, 2003 on securities available for sale. Net loans decreased $13.1 million, or 9.3%, from $141.9 million at June 30, 2002 to $128.7 million at June 30, 2003. The decreases in the loan portfolio were comprised primarily of $7.1 million in automobile and other consumer loans, $3.7 million in commercial loans and $2.1 million in home equity and improvement loans. The decrease in automobile loans since June 2000, from $31.6 million to $15.0 million, reflects the Bank's decision to reduce indirect automobile loan originations. Approximately 70% of the loan portfolio is comprised of first mortgage loans secured by residential and nonresidential real estate located in the Company's market area. At June 30, 2003, total first mortgage loans secured by real estate comprised $89.7 million, or 69.7% of the net loan portfolio. The consumer and other loan portfolio included $15.1 million of home equity and improvement loans, $8.3 million in commercial loans and $18.2 million in automobile and other consumer loans at June 30, 2003. Total deposits increased $4.8 million, or 3.0%, from $158.6 million at June 30, 2002 to $163.4 million at June 30, 2003. During fiscal 2003, noninterest-bearing accounts increased $1.3 million, or 12.6%, and interest-bearing accounts increased $3.5 million, or 2.4%. The increase resulted from increased savings accounts and noninterest- bearing demand deposits. 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 $1.2 million to $23.6 million at June 30, 2003. The increase primarily resulted from net income of $2.4 million and a $582,000 increase in unrealized appreciation on securities available for sale, net of tax, which were offset by cash dividends of $803,000 and $939,000 of treasury stock purchases. RESULTS OF OPERATIONS Comparison of Years Ended June 30, 2003 and June 30, 2002 General. Net income for the year ended June 30, 2003 was $2.4 million; an increase of $311,000 compared to net income of $2.0 million for the year ended June 30, 2002, an increase of 15.2%. The increase was primarily the result of an increase of $183,000 in noninterest income, a $155,000 decrease in income tax expense, a $37,000 increase in net interest income and a $20,000 decrease in noninterest expense. The increase was partially offset by an increase in provisions for loan losses of $85,000. Further details of the changes in these items are discussed below. [GRAPH OMITTED] NET INCOME FROM 1999 TO 2003 1999 2000 2001 2002 2003 $2,111 $2,271 $1,623 $2,048 $2,358 Net Interest Income. Net interest income was approximately the same at $6.6 million for the years ended June 30, 2003 and 2002. The stabilization in net interest income came from interest-earning assets and interest-bearing liabilities repricing similarly throughout the year. 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 2.98% in 2003 compared to 2.96% in 2002. The net interest margin was stable 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 2003 was 6.30% compared to 7.23% in 2002. Average earning assets decreased 0.2% in 2003, following a 2.9% increase in 2002. The effective rate on interest-bearing liabilities was 3.68% in 2003, compared to 4.79% in 2002. Provision for Loan Losses. The provision for loan losses increased $85,000 from fiscal 2002 to $1.4 million in fiscal 2003. The increased 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 8.0% from $2.3 million in 2002 to $2.5 million in 2003. Net gains on sales of securities decreased $203,000 from 2002 while commission income decreased 31.3% or $91,000 from $290,000 in 2002. Net gains on sales of loans increased by $304,000, or 42.6%, due to record levels of refinance activity. Service charges and fees decreased 15.9% or $164,000 over 2002 due primarily to increased amortization of mortgage servicing rights on loans that were refinanced. Other income increased $336,000 in 2003 due primarily to the Bank's investment in life insurance. Noninterest Expense. During 2003, total noninterest expense remained at $4.8 million. The slight decrease of $20,000 was the result of continued cost control and several offsetting increases and decreases. Increased expenses included 5.9% in salaries and benefits, 3.3% in occupancy and equipment, 6.6% in data processing and 14.8% in printing, postage and supplies. Deposit insurance premium expense increased $47,000 while OTS assessment expense increased $19,000. These increases were offset by decreases of 10.1% in correspondent bank charges and 15.0% in other expense. In 2002, other expense included $292,000 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 Effective July 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". Under this statement the Company ceased amortization of goodwill and periodically reviews the asset for impairment. The asset was determined to not be impaired during 2003 and, accordingly, no expense was recorded. In 2002, amortization of goodwill expense was $94,000. Income Tax Expense. Income tax expense was $513,000 in fiscal 2003 compared to $668,000 in fiscal 2002, a decrease of $155,000 or 23.2%. Income taxes decreased in spite of higher net income before taxes in 2003 due to an increase in federally tax exempt municipal securities income and the tax effects of the Bank's investment in life insurance. The effective tax rates were 17.9% and 24.6% for the years ended June 30, 2003 and 2002. 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. 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. 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. Noninterest 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. 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. 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, 2003 and 2002, 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, 2003 and 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, 2003 Change in Interest Rates NPV as % of Portfolio In Basis Net Portfolio Value Value of Assets Points NPV (Rate Shock) $ Amount $ Change % Change Ratio Change (1) ----------- -------- -------- -------- ----- ---------- (Dollars in thousands) 300 $15,868 $(5,662) (26)% 6.71% (191) 200 18,383 (3,147) (15) 7.62 (100) 100 20,300 (1,230) (6) 8.27 (35) Static 21,530 8.62 (100) 21,274 (256) (1) 8.42 (20) (1) Expressed in basis points As of June 30, 2002 Change in Interest Rates NPV as % of Portfolio In Basis Net Portfolio Value Value of Assets 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 illustrated in the table, the Company's NPV declines in a rising interest rate environment. Specifically, the table indicates that, at June 30, 2003, the Company's NPV was $21.5 million (or 9% of portfolio assets). Based upon the assumptions used, an immediate increase in market interest rates of 200 basis points would result in a $3.1 million or 15% decline in NPV and a 100 basis point or 11.6% decline in the Company's NPV ratio to 7.62%. 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. The Company retains the servicing on loans sold in the secondary market. At June 30, 2003, $67.9 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. 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 affect 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. Changes in interest rates and the level of refinance activity can have volatile effects on the carrying value of servicing rights. At June 30, 2003, mortgage servicing rights had a carrying value of $615,000. Off-Balance Sheet Arrangements As of the date of this Annual Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
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------------------------------------------------- ------------------ 2003 2002 2001 ------------------------------- ------------------------------------ -------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ------- -------- ---- (Dollars in Thousands) Interest-earning assets: Loans receivable (1) $133,550 $ 10,165 7.61% $ 148,394 $ 12,015 8.10% $ 154,211 $ 13,467 8.73% Securities (2) (3) 73,277 3,213 4.38 57,399 3,099 5.40 46,736 3,053 6.39 Mortgage-backed securities (3) 10,222 518 5.07 13,085 834 6.64 12,174 872 7.12 Other interest- bearing deposits 4,668 67 1.44 3,342 74 2.21 2,754 152 5.52 -------- --------- ---------- ---------- ---------- --------- Total interest-earning assets 221,717 13,963 6.30 222,220 16,022 7.23 215,875 17,544 8.09 Other assets 14,748 9,422 9,028 -------- ---------- ---------- Total assets $236,465 $ 231,642 $ 224,903 ======== ========== ========== Interest-bearing liabilities: Money market accounts $ 2,401 $ 33 1.37% $ 4,335 105 2.42% $ 4,690 242 5.15 NOW accounts 8,086 102 1.26 7,771 129 1.66 7,398 161 2.18 Passbook savings accounts 58,510 1,248 2.13 42,624 1,281 3.01 34,798 1,326 3.81 Certificates of deposit 83,236 3,346 4.02 84,968 4,766 5.61 83,295 5,265 6.32 FHLB advances 47,747 2,626 5.50 57,607 3,171 5.50 62,585 3,765 6.02 -------- --------- ---------- ---------- ---------- --------- Total interest- bearing liabilities 199,980 7,355 3.68 197,305 9,452 4.79 192,766 10,759 5.58 -------- --------- ---- ------- ---------- ---- ---------- --------- ---- Other liabilities 13,083 12,178 11,502 -------- ---------- ---------- Total liabilities 213,063 209,483 204,268 Equity 23,402 22,159 20,635 -------- ---------- ---------- Total liabilities and shareholders' equity $ 236,465 $ 231,642 $ 224,903 ========= ========== ========== Net interest income/ interest rate spread $ 6,608 2.62% $ 6,570 2.44% $ 6,785 2.51% ========= ==== ========== ==== ========= ==== Net interest margin (4) 2.98% 2.96% 3.14% ==== ==== ==== (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 $2.7 million at June 30, 2003 compared to $2.1 million at June 30, 2002. The ratio of non-performing assets to total assets at June 30, 2003 was 1.13% compared to .90% at June 30, 2002. Included in non-performing assets at June 30, 2003 were $2.6 million in non-accruing loans and $126,000 in repossessed assets. Including the non-accruing loans listed above, as of June 30, 2003 and 2002, there were $9.6 million and $8.7 million 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, 2003, $5.0 million of loans were classified as special mention, $4.0 million as substandard and $631,000 as doubtful. As of June 30, 2002, $5.5 million of loans were classified as special mention, $2.8 million as substandard and $446,000 as doubtful. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits, borrowings, principal and interest payments on loans and 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 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, 2003. During the year ended June 30, 2003, there was a net increase of $506,000 in cash and cash equivalents. Major sources of cash during the year were an increase in deposits of $4.8 million, a decrease in net loans receivable of $11.2 million and the sale, call and maturity of securities provided $10.3 million while repayments on these securities provided $23.6 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 the purchase of $46.2 million in securities available for sale and $4.5 million in life insurance contracts and a reduction in FHLB borrowings of $2.3 million. 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 and the purchase of $25.7 million in securities available for sale. 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, 2003 and 2002 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, 2003. 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, 2003 and 2002 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America. /s/ Crowe Chizek and Company LLC Crowe Chizek and Company LLC South Bend, Indiana August 21, 2003
FFW CORPORATION CONSOLIDATED BALANCE SHEETS June 30, 2003 and 2002 2003 2002 ---- ---- ASSETS Cash and due from financial institutions $ 8,235,956 $ 6,321,697 Interest-bearing deposits in other financial institutions - short-term 1,588,877 2,996,816 ----------------- ----------------- Total cash and cash equivalents 9,824,833 9,318,513 Securities available for sale 89,636,775 76,344,629 Loans receivable, net of allowance for loan losses of $2,592,092 in 2003 and $2,361,241 in 2002 128,726,793 141,857,794 Federal Home Loan Bank stock 3,445,900 3,400,900 Accrued interest receivable 1,388,322 1,448,182 Premises and equipment, net 2,677,102 2,693,163 Mortgage servicing rights asset 614,638 465,327 Cash surrender value of life insurance 4,718,031 - Other assets 1,738,687 2,299,933 ----------------- ----------------- Total assets $ 242,771,081 $ 237,828,441 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 11,238,092 $ 9,981,667 Interest-bearing 152,208,402 148,679,055 ----------------- ----------------- Total deposits 163,446,494 158,660,722 Borrowings 52,038,331 54,362,554 Accrued expenses and other liabilities 3,646,188 2,396,376 ----------------- ----------------- Total liabilities 219,131,013 215,419,652 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 - 2003 and 2002; outstanding: 1,311,800 - 2003 and 1,367,375 - 2002 18,298 18,298 Additional paid-in capital 9,345,123 9,345,123 Retained earnings 19,266,267 17,711,055 Accumulated other comprehensive income 720,765 138,695 Unearned management retention plan shares (48,172) (80,961) Treasury stock at cost, 518,028 shares - 2003 and 462,453 shares - 2002 (5,662,213) (4,723,421) ----------------- ----------------- Total shareholders' equity 23,640,068 22,408,789 ----------------- ----------------- Total liabilities and shareholders' equity $ 242,771,081 $ 237,828,441 ================= ================= See accompanying notes.
FFW CORPORATION CONSOLIDATED STATEMENTS OF INCOME Years ended June 30, 2003, 2002 and 2001 2003 2002 2001 ---- ---- ---- Interest and dividend income Loans, including fees $ 10,165,367 $ 12,015,259 $ 13,467,200 Taxable securities 2,746,864 3,292,147 3,522,670 Nontaxable securities 984,146 640,238 402,370 Other 67,049 74,235 152,053 --------------- --------------- ---------------- Total interest and dividend income 13,963,426 16,021,879 17,544,293 Interest expense Deposits 4,729,382 6,281,203 6,993,703 Borrowings 2,626,504 3,170,538 3,765,075 --------------- --------------- ---------------- Total interest expense 7,355,886 9,451,741 10,758,778 --------------- --------------- ---------------- Net interest income 6,607,540 6,570,138 6,785,515 Provision for loan losses 1,440,000 1,355,000 1,715,000 --------------- --------------- ---------------- Net interest income after provision for loan losses 5,167,540 5,215,138 5,070,515 Noninterest income Net gains/(losses) on sales of securities 26,033 228,817 (14,159) Net gains on sales of loans 1,019,519 715,115 84,601 Commission income 198,979 289,726 186,877 Service charges and fees 866,555 1,030,275 1,001,570 Earnings on life insurance 235,621 - - Other income 141,121 40,509 6,596 --------------- --------------- ---------------- Total noninterest income 2,487,828 2,304,442 1,265,485 Noninterest expense Salaries and benefits 2,305,878 2,178,280 2,021,239 Occupancy and equipment 408,448 395,575 400,707 Deposit insurance premium 73,766 26,469 26,653 Regulatory assessment 98,278 79,390 55,161 Correspondent bank charges 242,427 269,608 272,908 Data processing 510,126 478,492 473,371 Printing, postage and supplies 172,514 150,301 124,085 Amortization of goodwill & core deposit premium 73,146 167,039 162,584 Other expense 899,399 1,058,705 700,221 --------------- --------------- ---------------- Total noninterest expense 4,783,982 4,803,859 4,236,929 --------------- --------------- ---------------- Income before income taxes 2,871,386 2,715,721 2,099,071 Income tax expense 513,126 667,986 475,726 --------------- --------------- ---------------- Net income $ 2,358,260 $ 2,047,735 $ 1,623,345 =============== =============== ================ Earnings per share Basic $ 1.76 $ 1.48 $ 1.14 Diluted 1.74 1.47 1.13 See accompanying notes.
FFW CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2003, 2002 and 2001 Unearned Accumulated Management Additional Other Retention Total Common Paid-In Retained Comprehensive Plan Treasury Shareholders' Stock Capital Earnings Income Shares Stock Equity ----- ------- -------- ------ ------ ----- ------ Balance at July 1, 2000 $18,070 $9,228,128 $15,547,131 $(1,479,969) $(72,354) $(3,626,086) $19,614,920 Cash dividends - $0.52 per share - - (747,316) - - - (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) (456,090) Issued 25,200 shares on stock options 228 106,572 - - - 19,200 126,000 Amortization of MRP contribution - - - - 21,456 - 21,456 Net income - - 1,623,345 - - - 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 - - 1,810,745 ------------ Comprehensive income - - - - - - 3,434,090 ------- ---------- ----------- ----------- -------- ----------- ------------ Balance at June 30, 2001 18,298 9,336,606 16,423,160 330,776 (52,242) (4,063,538) 21,993,060 (Continued)
FFW CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2003, 2002 and 2001 Unearned Accumulated Management Additional Other Retention Total Common Paid-In Retained Comprehensive Plan Treasury Shareholders' Stock Capital Earnings Income Shares Stock Equity ----- ------- -------- ------ ------ ----- ------ Balance at June 30, 2001 18,298 9,336,606 16,423,160 330,776 (52,242) (4,063,538) 21,993,060 Cash dividends - $0.56 per share - - (759,840) - - - (759,840) 4,000 shares purchased under MRP - 16,440 - - (56,800) 40,360 - Purchased 58,260 shares - - - - - (792,322) (792,322) Issued 9,157 shares on stock options - (7,923) - - - 92,079 84,156 Amortization of MRP contribution - - - - 28,081 - 28,081 Net income - - 2,047,735 - - - 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) - - (192,081) ---------- Comprehensive income - - - - - - 1,855,654 ------- ---------- ----------- --------- -------- ----------- ---------- Balance at June 30, 2002 18,298 9,345,123 17,711,055 138,695 (80,961) (4,723,421) 22,408,789 Cash dividends - $0.60 per share - - (803,048) - - - (803,048) Purchased 55,575 shares - - - - - (938,792) (938,792) Amortization of MRP contribution - - - - 32,789 - 32,789 Net income - - 2,358,260 - - - 2,358,260 Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities available for sale, net of tax of $689,198 - - - 582,070 - - --------- Total other comprehensive income - - - 582,070 - - 582,070 ---------- Comprehensive income - - - - - - 2,940,330 ------- ---------- ----------- --------- -------- ----------- ---------- Balance at June 30, 2003 $18,298 $9,345,123 $19,266,267 $ 720,765 $(48,172) $(5,662,213) $23,640,068 ======= ========== =========== ========= ======== =========== =========== See accompanying notes.
FFW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2003, 2002 and 2001 2003 2002 2001 ---- ---- ---- Cash flows from operating activities Net income $ 2,358,260 $ 2,047,735 $ 1,623,345 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 524,281 172,605 (2,743) Provision for loan losses 1,440,000 1,355,000 1,715,000 Net (gains) losses on sales of: Securities (26,033) (228,817) 14,159 Loans held for sale (1,019,519) (715,115) (84,601) REOs and repossessed assets (47,861) 10,415 5,524 Originations of loans held for sale (52,282,546) (28,102,589) (10,081,738) Proceeds from sales of loans held for sale 52,831,522 28,352,376 10,166,339 Increase in cash surrender value of life insurance (218,031) - - Amortization of MRP contribution 32,789 28,081 21,456 Net change in accrued interest receivable and other assets 120,938 (24,085) 428,575 Amortization of goodwill and core deposit intangibles 73,146 167,039 162,584 Net change in accrued interest payable and other liabilities 1,249,812 229,932 91,474 --------------- --------------- ---------------- Net cash from operating activities 5,036,758 3,292,577 4,059,374 Cash flows from investing activities Proceeds from: Sales, calls and maturities of securities available for sale 10,291,285 27,427,247 18,313,604 Sales of REOs and repossessed assets 567,086 404,501 632,014 Purchase of: Securities available for sale (46,215,848) (47,046,695) (25,652,052) FHLB stock (45,000) - - Life insurance (4,500,000) - - Principal collected on mortgage-backed securities 23,590,002 4,279,463 1,574,615 Net change in loans receivable 11,234,726 8,688,445 (3,986,875) Purchases of premises and equipment, net (172,398) (785,496) (267,349) Investment in limited partnership - - (75,000) --------------- --------------- ---------------- Net cash from investing activities (5,250,147) (7,032,535) (9,461,043) Cash flows from financing activities Net change in deposits 4,785,772 14,030,670 11,525,452 Proceeds from borrowings 13,500,000 39,290,750 57,000,000 Repayment of borrowings (15,824,223) (47,325,102) (58,770,636) Proceeds from stock options - 84,156 126,000 Purchase of treasury stock (938,792) (792,322) (456,090) Cash dividends paid (803,048) (759,840) (747,316) ---------------- --------------- ---------------- Net cash from financing activities 719,709 4,528,312 8,677,410 --------------- --------------- ---------------- Net change in cash and cash equivalents 506,320 788,354 3,275,741 Beginning cash and cash equivalents 9,318,513 8,530,159 5,254,418 --------------- --------------- ---------------- Ending cash and cash equivalents $ 9,824,833 $ 9,318,513 $ 8,530,159 =============== =============== ================ Supplemental disclosure of cash flow information Cash paid during the period Interest $ 7,388,816 $ 9,495,010 $ 10,847,619 Income taxes 678,000 718,000 353,000 See accompanying notes.
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 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. Also included in the consolidated financial statements is Wabash Investments, Inc., a wholly-owned subsidiary of the Bank, which is a Nevada corporation that manages a portion of the Bank's investment portfolio. All intercompany transactions and balances are 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 14). 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, 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. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 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. Effective July 1, 2002, the Company adopted new accounting standards for intangible assets, and as a result, reclassified $975,000 of unidentifiable intangible assets arising from previous acquisitions into goodwill. On July 1, 2002, the Company also discontinued the amortization of goodwill into expense and began reviewing goodwill for impairment. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. Management has determined that the Company's goodwill is not impaired as of June 30, 2003. Core deposit intangibles are amortized on an accelerated basis over 10 years. As of June 30, 2003, core deposit intangibles were fully amortized. (see Note 7) 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. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Compensation: Compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.
2003 2002 2001 ---- ---- ---- Net income as reported $ 2,358,260 $ 2,047,735 $ 1,623,345 Less: Stock-based compensation expense determined under fair value based method 30,656 35,763 35,033 -------------- -------------- -------------- Pro forma net income $ 2,327,604 $ 2,011,972 $ 1,588,312 ============== ============== ============== Basic earnings per share as reported $ 1.76 $ 1.48 $ 1.14 Pro forma basic earnings per share 1.74 1.45 1.12 Diluted earnings per share as reported 1.74 1.47 1.13 Pro forma diluted earnings per share 1.72 1.44 1.10
There were no stock options granted during 2003. The pro forma effects of stock options granted during 2002 and 2001 were computed using option pricing models with the following weighted-average assumptions as of grant date. 2003 2002 2001 ---- ---- ---- Risk-free interest rate - 5.31% 5.21% Expected option life in years - 8 10 Expected stock price volatility - 24.00% 26.00% Dividend yield - 4.34% 3.11% In future years, as additional options are granted, the proforma effect on net income and earnings per share may increase. Stock options are used to reward directors and certain executive officers and provide them with an additional equity interest. Options are issued for ten year periods and have varying vesting schedules. Life Insurance Plans: The Company purchased bank owned life insurance during the year ended June 30, 2003. Life insurance plans are provided for certain executive officers on a split dollar basis. The Company is the owner of the split dollar policies. The officers are entitled to a sum equal to two times the employee's annual salary at death, if actively employed. The Company is entitled to the remainder of the death proceeds. The employees have the right to designate a beneficiary(s) to receive their share of the proceeds payable upon death. The cash surrender value of these life insurance policies, life insurance policies related to the Company's Salary Continuation Plan and other bank owned life insurance policies totaled approximately $4,718,000 as of June 30, 2003. 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 13. 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. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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. Newly Issued But Not Yet Effective Accounting Standards: The Financial Accounting Standards Board (FASB) recently issued two new accounting standards, Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, and Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities. Management determined that, upon adopting the new standards, they will not materially affect the Company's operating results or financial condition. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 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, 2003 2002 2001 ---- ---- ---- Basic Earnings Per Share Numerator: Net income $ 2,358,260 $ 2,047,735 $ 1,623,345 ============== ============== =============== Denominator: Weighted average shares outstanding 1,343,441 1,384,704 1,423,731 Less: Average non-vested MRP shares (5,772) (4,930) (5,218) -------------- -------------- --------------- Weighted average shares outstanding 1,337,669 1,379,774 1,418,513 ============== ============== =============== Basic earnings per share $ 1.76 $ 1.48 $ 1.14 ============== ============== =============== Diluted Earnings Per Share Numerator: Net income $ 2,358,260 $ 2,047,735 $ 1,623,345 ============== ============== =============== Denominator: Weighted average shares outstanding for basic earnings per share 1,337,669 1,379,774 1,418,513 Add: Dilutive effects of assumed exercise of stock options and nonvested MRP shares 16,609 10,985 16,735 -------------- -------------- --------------- Weighted average shares and dilutive potential shares outstanding 1,354,278 1,390,759 1,435,248 ============== ============== =============== Diluted earnings per share $ 1.74 $ 1.47 $ 1.13 ============== ============== ===============
(Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 3 - SECURITIES At June 30, securities were as follows: Fair Value Gains Losses Available for sale - 2003 U.S. government and agency $ 16,696,863 $ 527,628 $ - State and municipal 20,263,498 1,329,986 - Corporate bonds 7,234,718 265,268 (5,000) Mortgage backed 28,356,127 334,907 (80,619) Equity 12,802,004 177,501 (971,179) Mutual funds 4,283,565 91,791 (67,486) --------------- -------------- --------------- $ 89,636,775 $ 2,727,081 $ (1,124,284) =============== ============== ============== 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) =============== ============== ==============
Contractual maturities of debt securities at June 30, 2003 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 $ 2,608,250 Due from one to five years 12,236,649 Due from five to ten years 4,989,107 Due after ten years 24,361,073 Mortgage backed 28,356,127 Equity 12,802,004 Mutual funds 4,283,565 --------------- $ 89,636,775 =============== Sales/calls of securities available for sale for the years ended June 30 were: 2003 2002 2001 ---- ---- ---- Sales $ 2,537,790 $ 13,145,650 $ 3,442,356 Calls 7,603,495 11,631,600 13,806,248 Gross gains 26,674 296,417 13,624 Gross losses (641) (67,600) (27,783) (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 4 - LOANS RECEIVABLE, NET Loans receivable as of June 30 were as follows: 2003 2002 ---- ---- Mortgage loans Secured by one-to-four family residences (conventional) $ 64,503,680 $ 65,657,658 Secured by other properties (commercial) 24,592,764 21,877,315 Construction 1,570,824 2,746,126 --------------- --------------- 90,667,268 90,281,099 Undisbursed portion of construction loans (921,401) (678,953) Net deferred loan origination fees (61,144) (48,641) --------------- --------------- Total mortgage loans 89,684,723 89,553,505 Consumer and other loans Automobile 14,976,771 21,965,552 Manufactured home 135,734 164,123 Home equity and improvement 15,138,725 17,232,172 Commercial 8,347,504 12,040,688 Other 3,014,839 3,122,198 --------------- --------------- 41,613,573 54,524,733 Net deferred loan origination costs 20,589 140,797 --------------- --------------- Total consumer and other loans 41,634,162 54,665,530 Allowance for loan losses (2,592,092) (2,361,241) --------------- --------------- $ 128,726,793 $ 141,857,794 =============== ===============
Activity in the allowance for loan losses for the years ended June 30 was as follows: 2003 2002 2001 ---- ---- ---- Beginning balance $ 2,361,241 $ 1,773,194 $ 1,961,318 Provision for loan losses 1,440,000 1,355,000 1,715,000 Charge-offs (1,529,259) (1,232,425) (2,191,984) Recoveries 320,110 465,472 288,860 ------------ ------------ ------------ Ending balance $ 2,592,092 $ 2,361,241 $ 1,773,194 ============ ============ ============ (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 4 - LOANS RECEIVABLE, NET (Continued) Information regarding impaired loans was as follows for the years ended June 30: 2003 2002 2001 ---- ---- ---- Year end loans with no allowance for loan losses allocated $ - $ - $ - Year end loans with allowance for loan losses allocated 1,951,334 1,486,204 2,141,236 Amount of allowance allocated 517,209 405,320 492,328 Average of impaired loans during the year 1,845,155 1,807,605 1,823,017 Interest income recognized during impairment 103,305 34,955 99,656 Cash-basis interest income recognized 95,693 23,902 92,330 Nonperforming loans were as follows for the years ended June 30: 2003 2002 2001 ---- ---- ---- (In thousands) Loans past due over 90 days still on accrual $ - $ - $ - Nonaccrual loans 2,616 1,942 1,319
Nonperforming loans and impaired loans are defined differently. Nonperforming loans include both individually classified impaired loans and smaller balance homogeneous loans that are collectively evaluated for impairment. A loan is impaired when full payment under the loan terms is not expected. Some loans may be included in both categories, whereas other loans may only be included in one category. NOTE 5 - LOAN SERVICING Mortgage loans serviced for others are not reported as assets in the balance sheets. These loans totaled $67,906,000 and $51,044,000 at June 30, 2003 and 2002. Related escrow deposit balances were $259,000 and $108,000 at June 30, 2003 and 2002. NOTE 6 - PREMISES AND EQUIPMENT, NET Premises and equipment at June 30 were as follows: 2003 2002 ---- ---- Land $ 480,121 $ 480,121 Buildings 2,881,987 2,928,821 Furniture, fixtures and equipment 1,110,249 1,056,603 ---------------- ---------------- Total cost 4,472,357 4,465,545 Accumulated depreciation (1,795,255) (1,772,382) ---------------- ---------------- $ 2,677,102 $ 2,693,163 ================ ================ (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 7 - GOODWILL The carrying amount of goodwill was $975,000 at June 30, 2003 and 2002. Goodwill is no longer amortized starting July 1, 2002. The effect of not amortizing goodwill is summarized as follows for the years ending June 30:
2003 2002 2001 ---- ---- ---- Net income as reported $ 2,358,260 $ 2,047,735 $ 1,623,345 Add back: goodwill amortization, net of tax - 56,712 54,021 -------------- --------------- -------------- Adjusted net income $ 2,358,260 $ 2,104,447 $ 1,677,366 ============== =============== ============== Basic earnings per share as reported $ 1.76 $ 1.48 $ 1.14 Diluted earnings per share as reported 1.74 1.47 1.13 Adjusted basic earnings per share 1.76 1.53 1.18 Adjusted diluted earnings per share 1.74 1.51 1.17
NOTE 8 - DEPOSITS Deposit accounts individually exceeding $100,000 totaled approximately $36,015,000 and $36,023,000 at June 30, 2003 and 2002. At June 30, 2003, stated maturities of certificates of deposit for the years ended June 30 were: 2004 $ 41,940,142 2005 18,824,745 2006 6,215,145 2007 3,790,120 Thereafter 10,987,968 ---------------- $ 81,758,120 ================ NOTE 9 - OTHER BORROWINGS Federal Home Loan Bank (FHLB) advances totaled $52,038,331 and $54,362,554 at June 30, 2003 and 2002. The majority of the advances carry fixed interest rates ranging from 4.12% to 7.94% as of June 30, 2003 and the scheduled maturities during the years ended June 30 were as follows: 2004 $ 12,500,000 2005 4,979,964 2006 - 2007 - 2008 2,979,964 Thereafter 31,578,403 ---------------- $ 52,038,331 ================ The Bank also maintains a $1,000,000 overdraft line of credit agreement with the FHLB which terminates on June 2, 2004. As of June 30, 2003 and 2002, 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, 2003, collateral of approximately $64.8 million is pledged to the FHLB to secure advances outstanding. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 10 - 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, 2002, the latest actuarial valuation, plan assets exceeded the actuarially determined value of total vested benefits. For the years ending June 30, 2003 2002, and 2001, administrative pension expenses were $4,000, 9,000 and $3,000. As of June 30, 2002 and 2001, the plan had reached its full funding limitation for Internal Revenue Code purposes and a contribution was not required. The Company, however, does anticipate a contribution expense in 2004. Contributions may also be required in future years. 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 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. Additionally, the Company may contribute up to 4% of each participant's compensation regardless of the participant's personal contributions to their 401(k) account depending on earnings and other benefit expenses. Expenses under this plan were $67,000, $55,000 and $41,000 for 2003, 2002 and 2001. 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 stock appreciation rights 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 2003, 2002 and 2001. 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, 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 Granted - - - - Exercised - - - ----------- Outstanding, June 30, 2003 57,597 $11.38 - 18.50 $13.51 ===========
The weighted average remaining contractual life of options outstanding at June 30, 2003 was approximately seven years. Stock options exercisable at June 30, 2003, 2002 and 2001 totaled 37,293, 23,016 and 16,349 at a weighted average exercise price of $14.27, $14.96 and $13.73. As of June 30, 2003, 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 $31,000 and $26,000 at June 30, 2003 and 2002 has been accrued for these obligations. The expense for these plans was $6,000 for 2003, 2002 and 2001. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 10 - EMPLOYEE BENEFITS (continued) Employee Stock Ownership Plan (ESOP): 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. 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 and included in the ESOP when it was terminated. 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: 2003 2002 2001 ---- ---- ---- Allocated (including shares committed to be released) - 128,300 128,300 Shares contributed and allocated - - 8,000 Shares withdrawn from the plan by participants - (69,442) (45,774) Termination of plan - (58,858) - ------------- ------------- ------------- Total ESOP shares held in the plan - - 90,526 ============= ============= =============
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 $33,000, $28,000 and $21,000 was recorded for these plans for the years ended June 30, 2003, 2002 and 2001. Salary Continuation Plan: On January 1, 2003, the Company implemented a Salary Continuation Plan (Plan) for certain executive officers. The Company is recording an expense equal to the projected present value of the payments due after retirement based on the participants' vesting schedules and projected remaining years of service. The accrued liability for this plan as of June 30, 2003 was approximately $29,000 which equals the expense recorded during the year ended June 30, 2003. NOTE 11 - INCOME TAXES Income tax expense for the years ended June 30 was: 2003 2002 2001 ---- ---- ---- Federal Current $ 514,237 $ 493,854 $ 396,096 Deferred (149,013) (12,137) (53,288) ------------ ------------ ------------ 365,224 481,717 342,808 State Current 162,019 190,315 162,667 Deferred (14,117) (4,046) (29,749) ------------ ------------ ------------ 147,902 186,269 132,918 ------------ ------------ ------------ Income tax expense $ 513,126 $ 667,986 $ 475,726 ============ ============ ============ (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 11 - INCOME TAXES (continued) Income tax expense differed from amounts computed using the U.S. federal income tax rate of 34% as follows: 2003 2002 2001 ---- ---- ---- Income taxes at 34% statutory rate $ 976,271 $ 923,345 $ 713,684 Tax effect of: Tax-exempt income (305,067) (196,285) (138,466) State tax, net of federal income tax effect 97,615 122,938 87,725 Earnings on life insurance (74,131) - - Dividends received deduction (119,022) (124,096) (100,755) Low income housing credits (79,999) (91,496) (88,724) Other 17,459 33,580 2,262 ------------ ------------ ------------ Total income tax expense $ 513,126 $ 667,986 $ 475,726 ============ ============ ============ Components of the net deferred tax liability as of June 30 are: 2003 2002 2001 ---- ---- ---- Deferred tax assets: Bad debts $ 996,799 $ 864,224 $ 634,833 Deferred compensation 12,206 10,313 8,921 Core deposit intangible 105,466 86,585 119,111 Deferred loan fees 15,948 - - General business credit carry forward 60,310 - - Other 51,745 56,287 66,641 ------------ ------------ ------------ 1,242,474 1,017,409 829,506 Deferred tax liabilities: Accretion (111,202) (110,821) (56,331) Net deferred loan costs - (35,487) (97,441) Mortgage servicing rights (241,699) (179,184) - FHLB stock dividend (34,526) - - Appreciation on securities available for sale (882,032) (192,834) (216,867) ------------ ------------ ------------ (1,269,459) (518,326) (370,639) Valuation allowance - - - ------------ ------------ ------------ Net deferred tax asset (liability) $ (26,985) $ 499,083 $ 458,867 ============ ============ ============
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, 2003 and 2002. 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. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 12 - 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 To Be Well Minimum Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of June 30, 2003 Total Capital $ 21,119 14.48% $ 11,671 8.00% $ 14,589 10.00% Tier I (Core) Capital 19,286 13.22% 5,835 4.00% 8,753 6.00% (to risk weighted assets) Tier I (Core) Capital 19,286 8.12% 9,505 4.00% 11,882 5.00% (to adjusted total assets) Tier I (Core) Capital 19,286 8.24% 9,361 4.00% 11,701 5.00% (to average assets) As of June 30, 2002 Total Capital $ 20,359 13.58% $ 11,985 8.00% $ 14,994 10.00% Tier I (Core) Capital 18,480 12.32% 5,998 4.00% 8,997 6.00% (to risk weighted assets) Tier I (Core) Capital 18,480 7.88% 9,375 4.00% 11,719 5.00% (to adjusted total assets) Tier I (Core) Capital 18,480 8.07% 9,157 4.00% 11,446 5.00% (to average assets)
Regulations of the Office of Thrift Supervision (OTS) limit the amount of dividends and other capital distributions that may be paid by a savings institution without prior approval of the OTS. 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 OTS's prompt corrective action regulations, following the proposed distribution. Accordingly, at June 30, 2003, approximately $2,115,000 of the Bank's retained earnings was potentially available for distribution to the Company. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 13 - 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:
2 0 0 3 2 0 0 2 ------- ------- Fixed Variable Fixed Variable Rate Rate Rate Rate Commitments to make loans $ 2,407,200 $ 946,400 $1,313,700 $ 2,053,500 Unused lines of credit - 17,111,700 - 14,744,000 Standby letters of credit - 2,424,100 - 1,430,000 -------------- ------------- ------------- -------------- $ 2,407,200 $ 20,482,200 $ 1,313,700 $ 18,227,500 ============== ============= ============= ==============
Fixed rate loan commitments at June 30, 2003 were at current rates, ranging primarily from 4.50% to 8.00%. Variable rate loan commitments, unused lines of credit and standby letters of credit at June 30, 2003 were at current rates ranging from 4.25% to 9.50% for loan commitments, 4.25% to 12.00% 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 certain 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, 2003, the Bank had invested $750,000 and had recorded equity in the operating loss of the limited partnership of $46,000, $71,000 and $81,000 for the years ended June 30, 2003, 2002 and 2001. At both June 30, 2003 and 2002, the obligation due to the limited partnership was $0. The Bank receives 3% of the eligible tax credits. For the years ended June 30, 2003, 2002 and 2001, the Bank received approximately $80,000, $91,000 and $89,000 in tax credits. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001 NOTE 14 - 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 50% 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 15 - 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, 2002 $ 1,607,498 New loans 557,071 Repayments (624,313) Other changes (6,467) ------------ Balance - June 30, 2003 $ 1,533,789 ============ Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS Presented below are condensed financial statements for the parent company, FFW Corporation. CONDENSED BALANCE SHEETS June 30, 2003 and 2002 2003 2002 ---- ---- ASSETS Cash and cash equivalents $ 130,549 $ 556,731 Investment in Bank subsidiary 21,269,077 19,650,259 Investment in non-bank subsidiary 413,880 395,678 Securities available for sale 1,976,702 1,901,442 Other assets 26,390 59,819 --------------- ---------------- Total assets $ 23,816,598 $ 22,563,929 =============== ================ LIABILITIES Accrued expenses and other liabilities $ 176,530 $ 155,140 SHAREHOLDERS' EQUITY Common stock 18,298 18,298 Additional paid-in capital 9,345,123 9,345,123 Retained earnings 19,266,267 17,711,055 Accumulated other comprehensive income 720,765 138,695 Unearned employee MRP (48,172) (80,961) Treasury stock (5,662,213) (4,723,421) ---------------- ---------------- Total shareholders' equity 23,640,068 22,408,789 --------------- ---------------- Total liabilities and shareholders' equity $ 23,816,598 $ 22,563,929 =============== ================
CONDENSED STATEMENTS OF INCOME For the years ended June 30, 2003, 2002 and 2001 2003 2002 2001 ---- ---- ---- Interest income $ 105,396 $ 88,056 $ 105,072 Gain (loss) on the sale of securities available for sale 15,591 (67,600) - Dividend income 1,300,000 1,815,000 740,000 Other income 6,975 - - ----------- ---------- ---------- 1,427,962 1,835,456 845,072 Operating expense 186,874 196,859 162,612 Equity in undistributed income of subsidiaries Bank 1,068,138 257,423 909,403 Non-bank 10,569 57,597 15,290 ----------- ---------- ---------- Income before income taxes 2,319,795 1,953,617 1,607,153 Income tax expense (benefit) (38,465) (94,118) (16,192) ---------- ---------- ---------- Net income $2,358,260 $2,047,735 $1,623,345 ========== ========== ==========
(Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENTS OF CASH FLOWS For the years ended June 30, 2003, 2002 and 2001 2003 2002 2001 ---- ---- ---- Cash flows from operating activities Net income $ 2,358,260 $ 2,047,735 $ 1,623,345 Adjustments to reconcile net income to net cash from operating activities Equity in undistributed income of subsidiaries (1,078,707) (315,020) (924,693) Loss on the sale of securities (15,591) 67,600 - Other 36,759 157,109 (126,458) --------------- -------------- --------------- Net cash from operating activities 1,300,721 1,957,424 572,194 Cash flows from investing activities Proceeds from sales of securities 274,205 1,061,625 - Maturities of securities available for sale - 238,921 565,000 Purchase of securities available for sale (259,268) (1,312,050) (171,690) --------------- -------------- --------------- Net cash from investing activities 14,937 (11,504) 393,310 Cash flows from financing activities Proceeds from stock options - 84,156 126,000 Purchase of treasury stock (938,792) (792,322) (456,090) Cash dividends paid (803,048) (759,841) (747,316) --------------- -------------- --------------- Net cash from financing activities (1,741,840) (1,468,007) (1,077,406) --------------- -------------- --------------- Net change in cash and cash equivalents (426,182) 477,913 (111,902) Beginning cash and cash equivalents 556,731 78,818 190,720 --------------- -------------- --------------- Ending cash and cash equivalents $ 130,549 $ 556,731 $ 78,818 =============== ============== ===============
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 12). (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 17 - 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. 2 0 0 3 2 0 0 2 ------- ------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (In thousands) (In thousands) Cash and cash equivalents $ 9,825 $ 9,825 $ 9,319 $ 9,319 Securities available for sale 89,637 89,637 76,345 76,345 Loans receivable, net 128,727 133,237 141,858 146,468 Federal Home Loan Bank stock 3,446 3,446 3,401 3,401 Accrued interest receivable 1,388 1,388 1,448 1,448 Mortgage servicing rights asset 615 615 465 465 Cash surrender value of life insurance 4,718 4,718 - - Noninterest-bearing deposits (11,238) (11,238) (9,982) (9,982) Interest-bearing deposits (152,208) (155,362) (148,679) (150,103) Borrowings (52,038) (57,971) (54,363) (57,725) Accrued interest payable (121) (121) (154) (154)
For purposes of the above disclosures of estimated fair value, the following assumptions were used as of June 30, 2003 and 2002. The estimated fair values for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable, mortgage servicing rights asset, cash surrender value of life insurance, noninterest-bearing deposits and accrued interest payable are 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, 2003 and 2002 applied for the time period until the loans are assumed to reprice or be paid. The estimated fair value for mortgage servicing rights is based on groupings of the underlying loans as to interest rates as well as their geographic and prepayment characteristics. 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, 2003 and 2002, 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, 2003 and 2002, 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, 2003 and 2002 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. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003, 2002 and 2001
NOTE 18 - OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows: 2003 2002 2001 ---- ---- ---- Net change in net unrealized appreciation (depreciation) on securities available for sale Net unrealized appreciation (depreciation) arising during the year $ 1,297,301 $ 12,703 $ 2,983,764 Reclassification adjustments for (gains) losses included in net income (26,033) (228,817) 14,159 -------------- -------------- ---------------- Net change in net unrealized appreciation (depreciation) on securities available for sale 1,271,268 (216,114) 2,997,923 Tax expense (benefit) 689,198 (24,033) 1,187,178 -------------- -------------- ---------------- Total other comprehensive income (loss) $ 582,070 $ (192,081) $ 1,810,745 ============== ============== ================ (Continued)
DIRECTORS AND EXECUTIVE OFFICERS 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, John N. Philippsen FirstFed Financial of Wabash Thomas L. Frank Chief Financial Officer Comptroller, B. Walter & Company The Ford Meter Box Co. Comptroller and Part Owner, Walter Dimension Co. OFFICERS FFW CORPORATION FIRST FEDERAL SAVINGS FIRSTFED FINANCIAL, INC BANK OF WABASH 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 President and Chief Executive President Officer Officer Wayne W. Rees Christine K. Noonan Christine K. Noonan Secretary Secretary Senior Vice President, Chief Operations Officer and Timothy A. Sheppard Timothy A. Sheppard Secretary Treasurer Treasurer and Chief Accounting Officer Timothy A. Sheppard Vice President, 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 June 30, 2003 there were approximately 290 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, 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 Sept. 30, 2002 16.20 14.40 .15 Dec. 31, 2002 16.95 15.35 .15 March 31, 2003 17.45 15.86 .15 June 30, 2003 20.20 17.22 .15 DIVIDENDS - -------------------------------------------------------------------------------- FFW Corporation declared and paid dividends of $0.60 per share for fiscal year 2003. The Board of Directors intends to continue payment of quarterly cash dividends, dependent on the results of operations and financial condition of FFW Corporation and other factors. ANNUAL MEETING OF SHAREHOLDERS - -------------------------------------------------------------------------------- The Annual Meeting of Shareholders of FFW Corporation will be held at 2:30 p.m, October 28, 2003 at the executive offices 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 agent 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 Rd. 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 LLC 330 E. Jefferson Blvd. South Bend, IN 46624 EX-21 11 ffw_ex21.txt FFW SUBSIDIARIES Exhibit 21
SUBSIDIARIES OF THE REGISTRANT Jurisdiction Percent of Parent Subsidiary of Incorporation Ownership FFW Corporation First Federal Savings Bank of Wabash Federal 100% FFW Corporation FirstFed Financial, Inc. Indiana 100% First Federal Savings Bank of Wabash Wabash Investments, Inc. Nevada 100% Wabash Investments, Inc. Wabash Holdings, Inc. Nevada 100% Wabash Holdings, Inc. Wabash Portfolio, LLC Nevada 99% Wabash Investments, Inc. Wabash Portfolio, LLC Nevada 1% The financial statements of FFW Corporation are consolidated with those of its subsidiaries.
EX-23 12 ffw_ex23.txt AUDITORS CONSENT 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 21, 2003, 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, 2003. /s/ Crowe Chizek and Company LLC Crowe Chizek and Company LLC South Bend, Indiana September 26, 2003 EX-31 13 ffw_exh311.txt CROMER CERTIFICATION Exhibit 31(1) 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 29, 2003 /s/ Roger K. Cromer -------------------------------------- Roger K. Cromer President and Chief Executive Officer EX-31 14 ffw_ex312.txt SHEPPARD CERTIFICATION Exhibit 31(2) CERTIFICATION I, Timothy A. Sheppard, certify that: I have reviewed this annual report on Form 10-KSB of FFW Corporation; 1. Based on my knowledge, this 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 report; 2. Based on my knowledge, the financial statements, and other financial information included in this 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 report. 3. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 4. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 29, 2003 /s/ Timothy A. Sheppard ------------------------------------ Timothy A. Sheppard Treasurer EX-32 15 ffw_ex32.txt CERTIFICATION Exhibit 32 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 FFW Corporation. Signed this 26th day of September, 2003. /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) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to FFW Corporation and will be retained by FFW Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----