-----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, TzJbqKwwXLnKlrEpeTI6EgA4zbZb/NGfuQw36S7ILIgVV2p6d8SP8KAFo22422jt 9yo1XHt0q7oY1/s3rJbVfg== 0000908834-04-000655.txt : 20040924 0000908834-04-000655.hdr.sgml : 20040924 20040924172812 ACCESSION NUMBER: 0000908834-04-000655 CONFORMED SUBMISSION TYPE: ARS PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040924 DATE AS OF CHANGE: 20040924 EFFECTIVENESS DATE: 20040924 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: ARS SEC ACT: 1934 Act SEC FILE NUMBER: 000-21170 FILM NUMBER: 041045709 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 ARS 1 ffw_ars.txt 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 REGISTERED PUBLIC ACCOUNTING FIRM ............... 12 CONSOLIDATED BALANCE SHEETS - JUNE 30, 2004 and 2003................... 13 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED JUNE 30, 2004, 2003 and 2002 ......................... 14 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED JUNE 30, 2004, 2003 and 2002 ......................... 15 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2004, 2003 and 2002 ......................... 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................. 18 DIRECTORS AND EXECUTIVE OFFICERS ...................................... 37 SHAREHOLDER INFORMATION ............................................... 38 - -------------------------------------------------------------------------------- 1. PRESIDENT'S MESSAGE FFW CORPORATION Dear Shareholder: I am pleased to report that FFW Corporation and its subsidiaries, First Federal Savings Bank and FirstFed Financial Inc., enjoyed great success in fiscal year 2004. The financial details are on the following pages, but here are the year's highlights: o FFW Corporation posted record net income for the second consecutive year. Net income for the year ended June 30, 2004, was $2.44 million, or diluted earnings per share of $1.85. That compares to $2.36 million, or $1.74, last year. o First Federal Savings Bank opened its first de novo branch since 1977 on June 21 in Columbia City. The branch was built following our community banking model: ___ Staffing the branch with knowledgeable, local people. ___ Making lending decisions at the branch. ___ Providing full-service banking coupled with convenient services. We are pleased with the response from the community and excited about the future of our newest branch office. o We expanded our Syracuse branch to house a new mortgage and consumer loan officer and a representative from FirstFed Financial. We also completely redecorated the Wabash home office. o First Federal invested in a number of new product and technology upgrades throughout the year to better serve our customers in a timely and accurate manner. The Bank initiatives are the initial results of an evolving management strategy to strengthen shareholder value by (1) extending Bank services to new communities and (2) remaining committed to provide state of the art products and unparalleled service to both consumers and small businesses in those communities. Your management team is committed to enhancing shareholder value and providing attractive returns on your investment. During the past fiscal year we repurchased 37,552 shares of stock at an average price of $21.69. In addition, the $0.64 per share dividend paid in 2004 represents a 6.7% increase over the dividend paid in 2003. We achieved important goals during 2004 and could not have done this without the significant contributions of our employees, officers and directors of the Company who are committed to teamwork and putting the customer first. Their continued commitment to excellence resulted in the Company's record year. As we begin fiscal year 2005, we are excited about the opportunities for growth and will continue to prepare our employees to expand financial sales and services in the markets we serve. Thank you for your support, confidence and trust in our strategies. We will succeed by serving our clients well, executing our strategic plan and building value for our shareholders. Sincerely, Roger K. Cromer President and Chief Executive Officer - -------------------------------------------------------------------------------- 2.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AT OR FOR THE YEAR ENDED JUNE 30: 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- (In Thousands) Financial Condition Data: Total assets $ 239,910 $ 242,771 $ 237,828 $ 231,186 $ 219,037 Loans 138,753 131,319 144,219 153,969 152,771 Securities 82,687 89,637 76,345 60,973 52,026 Deposits 159,252 163,446 158,661 144,630 133,105 Borrowings 55,733 52,038 54,363 62,397 64,168 Equity 22,624 23,640 22,409 21,993 19,615 (In Thousands) Selected Operations Data: Total interest income $ 12,587 $ 13,963 $ 16,022 $ 17,544 $ 16,687 Net interest income 6,558 6,607 6,570 6,786 7,072 Provision for loan losses (780) (1,440) (1,355) (1,715) (1,034) Non-interest income 2,147 2,488 2,305 1,265 1,689 Non-interest expense (5,268) (4,784) (4,804) (4,237) (4,657) Income tax expense (220) (513) (668) (476) (799) -------------- ------------- ------------- ------------ ------------ Net income $ 2,437 $ 2,358 $ 2,048 $ 1,623 $ 2,271 ============= ============ ============ ============ ============ Per Share: Basic earnings per share $ 1.88 $ 1.76 $ 1.48 $ 1.14 $ 1.60 Diluted earnings per share 1.85 1.74 1.47 1.13 1.57 Dividends declared 0.64 0.60 0.56 0.52 0.48 Dividend payout ratio 34.04% 34.09% 37.84% 45.61% 30.00% Other Data: Net interest margin (1) 2.93% 2.98% 2.96% 3.14% 3.38% Average interest-earning assets to average interest-bearing liabilities 1.10x 1.11x 1.13x 1.12x 1.10x Non-performing assets (2) to total assets at end of period .94% 1.13% .90% .70% .13% Equity-to-total assets (end of period) 9.43 9.74 9.42 9.51 8.96 Return on assets (ratio of net income to average total assets) 1.01 1.00 .88 .72 1.04 Return on equity (ratio of net income to average equity) 10.38 10.08 9.24 7.87 11.83 Equity-to-assets ratio (ratio of average equity to average total assets) 9.75 9.90 9.57 9.13 8.76 Number of full-service offices 5 4 4 4 4 (1) Net interest income divided by average interest-earning assets. (2) Includes non-accruing loans, accruing loans delinquent more than 90 days and foreclosed assets. - -------------------------------------------------------------------------------------------------------------------- 3.
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. 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. - -------------------------------------------------------------------------------- 4. FINANCIAL CONDITION Total assets decreased $2.9 million during the year to $239.9 million at June 30, 2004. Reductions in cash and cash equivalents of $3.3 million and securities available for sale (AFS) of $10.5 million were partially offset by $10.1 million in loan increases. Total securities AFS decreased from $89.6 million at June 30, 2003 to $79.1 million at June 30, 2004. During fiscal 2004, state and municipal securities decreased from $20.3 million at June 30, 2003 to $16.5 million at June 30, 2004 while mutual funds decreased from $4.3 million to $812,000. Mortgage backed, equity and corporate securities decreased from $48.4 million at June 30, 2003 to $43.7 million at June 30, 2004. Agency securities increased from $16.7 million at June 30, 2003 to $18.1 million at June 30, 2004. The Company has unrealized depreciation of $1.0 million at June 30, 2004 on securities AFS. Net loans increased $10.1 million, or 8.0%, from $126.0 million at June 30, 2003 to $136.1 million at June 30, 2004. The increases in the loan portfolio were comprised primarily of $8.0 million in mortgage loans and $2.9 million in home equity and improvement loans. 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, 2004, total first mortgage loans secured by real estate comprised $95.0 million, or 69.8% of the net loan portfolio. The consumer and other loan portfolio included $18.0 million of home equity and improvement loans, $8.4 million in commercial loans and $17.1 million in automobile and other consumer loans at June 30, 2004. Total deposits decreased $4.2 million, or 2.6%, from $163.4 million at June 30, 2003 to $159.3 million at June 30, 2004. During fiscal 2004, noninterest-bearing accounts decreased $326,000, or 2.9%, and interest-bearing accounts decreased $3.9 million, or 2.5%. Certificates of deposit decreased $4.1 million. Savings and money market accounts decreased $1.2 million while interest-bearing demand deposits increased $1.5 million. 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. FHLB borrowings increased $3.7 million from $52.0 million at June 30, 2003 to $55.7 million at June 30, 2004. Total shareholders' equity decreased $1.0 million to $22.6 million at June 30, 2004. The decrease primarily resulted from decreases of $1.9 million in unrealized appreciation on securities AFS, net of tax, and $691,000 in net increases in treasury stock along with the payment of $831,000 in cash dividends which were partially offset by record net income of $2.4 million. Total non-performing assets decreased to $2.2 million at June 30, 2004 compared to $2.7 million at June 30, 2003. The ratio of non-performing assets to total assets at June 30, 2004 was 0.94% compared to 1.13% at June 30, 2003. Included in non-performing assets at June 30, 2004 were $1.0 million in non-accruing loans and $1.2 million in repossessed assets. Including the non-accruing loans above, as of June 30, 2004 and 2003, there were $9.4 million and $9.6 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, 2004, $4.1 million of loans were classified as special mention, $4.9 million as substandard and $379,000 as doubtful. 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. RESULTS OF OPERATIONS Comparison of Years Ended June 30, 2004 and June 30, 2003 [CHART OMITTED] NET INCOME FROM 2000 TO 2004 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- $2,271 $1,623 $2,048 $2,358 $2,437 - -------------------------------------------------------------------------------- 5. General. Net income for the year ended June 30, 2004 was $2,437,000; an increase of $79,000 compared to net income of $2,358,000 for the year ended June 30, 2003, an increase of 3.3%. The increase was primarily the result of decreases of $660,000 in provisions for loan losses and $293,000 in income tax expense that were partially offset by a $49,000 decrease in net interest income, a $340,000 decrease in noninterest income and a $484,000 increase in noninterest expense. Further details of the changes in these items are discussed below. Net Interest Income. Net interest income was approximately the same at $6.6 million for the years ended June 30, 2004 and 2003. 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 2.93% in 2004 compared to 2.98% in 2003. The net interest margin was relatively 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 2004 was 5.62% compared to 6.30% in 2003. Average earning assets increased 1.0% in 2004, following a 0.2% decrease in 2003. The effective rate on interest-bearing liabilities was 2.96% in 2004, compared to 3.68% in 2003. Provision for Loan Losses. The provision for loan losses decreased $660,000 from fiscal 2003 to $780,000 in fiscal 2004. The decreased amounts provided during the fiscal year were based on management's quarterly analysis of the allowance for loan losses. While the inherent and identified risks of commercial and consumer loans continue to require a high level of provision for loan losses, the necessary provision declined due to decreases in charge-off experience, nonperforming loans and impaired loans. 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 decreased 13.7% from $2.5 million in 2003 to $2.1 million in 2004. Net gains on sales of loans decreased by $553,000, or 54.2%, due to record levels of refinance activity in fiscal 2003. Net gains on sales of securities increased $33,000 from 2003 while commission income increased $27,000. Service charges and fees increased 24.4% or $211,000 over 2003 due primarily to the implementation of an overdraft honors program. Other income decreased $58,000 in 2004 due primarily to reduced gains on the sale of repossessed assets. Noninterest Expense. During 2004, total noninterest expense increased 10.1% from $4.8 million to $5.3 million. Increased expenses included 4.5% in salaries and benefits, 7.0% in data processing, 5.1% in correspondent bank charges and 27.8% in occupancy and equipment due to the purchase of updated computer hardware and software, an addition to our Syracuse branch and the building of our new branch in Columbia City. Other expense increased 41.9% due primarily to increases of $110,000 in professional expense, $108,000 in real estate owned (REO) expense and $158,000 in other expenses. Decreased expenses included $24,000 in deposit insurance premiums, $35,000 in OTS assessments, $24,000 in printing, postage and supplies and $73,000 in amortization of core deposit premiums. Income Tax Expense. Income tax expense was $220,000 in fiscal 2004 compared to $513,000 in fiscal 2003, a decrease of $293,000 or 57.1%. Income taxes decreased due to lower net income before taxes in 2004 and a lower effective tax rate stemming from increased tax exempt income. Additionally, the Bank's state tax expense is lower in fiscal 2004 due to the establishment, effective May 2003, of a domestic operating subsidiary that manages a portion of the Bank's investment portfolio and is located in a state with no income tax. The effective tax rates were 8.3% and 17.9% for the years ended June 30, 2004 and 2003. - -------------------------------------------------------------------------------- 6. 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. 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% decrease 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. 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. - -------------------------------------------------------------------------------- 7.
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------------------------------------------------- ------------------ 2004 2003 2002 ------------------------------- ------------------------------------ -------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ------- -------- ----- (Dollars in Thousands) Interest-earning assets: Loans receivable (1) $132,857 $ 8,975 6.76% $ 133,550 $ 10,165 7.61% $ 148,394 $ 12,015 8.10% Securities (2) (3) 61,694 2,628 4.26 55,266 2,582 4.67 40,350 2,223 5.51 Mortgage-backed securities (3) 26,676 951 3.56 28,233 1,149 4.07 30,134 1,710 5.67 Other interest- bearing deposits 2,787 33 1.17 4,668 67 1.44 3,342 74 2.21 -------- --------- ---------- ---------- ---------- --------- Total interest-earning assets 224,014 12,587 5.62 221,717 13,963 6.30 222,220 16,022 7.23 Other assets 16,625 14,748 9,422 -------- ---------- ---------- Total assets $240,639 $ 236,465 $ 231,642 ======== ========== ========== Interest-bearing liabilities: Money market accounts $ 1,850 $ 18 0.96% $ 2,401 $ 33 1.37% $ 4,335 $ 105 2.42% NOW accounts 9,243 74 0.80 8,086 102 1.26 7,771 129 1.66 Passbook savings accounts 59,753 672 1.12 58,510 1,248 2.13 42,624 1,281 3.01 Certificates of deposit 78,115 2,763 3.54 83,236 3,346 4.02 84,968 4,766 5.61 FHLB advances 54,383 2,502 4.60 47,747 2,626 5.50 57,607 3,171 5.50 -------- --------- ---------- ---------- ---------- --------- Total interest- bearing liabilities 203,344 6,029 2.96 199,980 7,355 3.68 197,305 9,452 4.79 -------- --------- ---- ---------- ---------- ---- ------- --------- ---- Other liabilities 13,826 13,083 12,178 -------- ---------- ---------- Total liabilities 217,170 213,063 209,483 Equity 23,469 23,402 22,159 -------- ---------- ---------- Total liabilities and shareholders' equity $240,639 $ 236,465 $ 231,642 ======== ========= ========== Net interest income/ interest rate spread $ 6,558 2.66% $ 6,608 2.62% $ 6,570 2.44% ========= ==== ========== ==== ========= ==== Net interest margin (4) 2.93% 2.98% 2.96% ==== ==== ==== (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 AFS. (4) Net interest income divided by average interest earning assets.
- -------------------------------------------------------------------------------- 8. 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, 2004 and 2003, 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, 2004 and June 30, 2003, 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, 2004 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 $ 19,312 $ (7,408) (28)% 8.23% (254) 200 22,575 (4,145) (16) 9.42 (135) 100 25,148 (1,572) (6) 10.30 (47) Static 26,720 10.77 (100) 26,715 (5) (0) 10.65 (12) (1) Expressed in basis points 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
- -------------------------------------------------------------------------------- 9. As illustrated in the table, the Company's NPV declines in a rising interest rate environment. Specifically, the table indicates that, at June 30, 2004, the Company's NPV was $26.7 million (or 11% of portfolio assets). Based upon the assumptions used, an immediate increase in market interest rates of 200 basis points would result in a $4.1 million or 16% decline in NPV and a 135 basis point or 12.5% decline in the Company's NPV ratio to 9.42%. 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, 2004, $71.8 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"), the fair value of securities AFS and the valuation of mortgage servicing rights. - -------------------------------------------------------------------------------- 10. 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. Fair Value of Securities AFS: Securities AFS are carried at fair value, with unrealized holding gains and losses reported separately in accumulated other comprehensive income/(loss), net of tax. The Company obtains market values from a third party on a monthly basis in order to adjust the securities to fair value. As a result of changes in the fair market value of the Company's AFS securities portfolio, other comprehensive income/(loss) net of tax totaled $(1,209,167), $720,765 and $138,695 for 2004, 2003, and 2002, respectively. Additionally, securities AFS are required to be written down to fair value when a decline in fair value is not temporary; therefore, future changes in the fair value of securities could have a significant impact on the Company's operating results. In determining whether a market value decline is other than temporary, management considers the reason for the decline, the extent of the decline and the duration of the decline. As of June 30, 2004, unrealized losses on equity securities (primarily floating rate government sponsored entity preferred stocks) totaled approximately $1.6 million. These losses have not been recognized into income because the securities are of high credit quality (rated AA or higher), management has the intent and ability to hold the investments for the foreseeable future, and the decline in fair value is largely due to the historically low market interest rates at the time the Company's floating rate preferred stocks repriced. The fair value is expected to recover as the securities approach their repricing dates and market rates rise. Should our consideration of these factors change, the Company may be required to record unrealized losses on some or all of these investments in the income statement. Further, future changes in generally accepted accounting principles could require us to record unrealized losses on some or all of these investments in the income statement. 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. The Company periodically obtains an outside appraisal in order to evaluate the Company's mortgage servicing rights asset for impairment. At June 30, 2004, mortgage servicing rights had a carrying value of $619,000. 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. - -------------------------------------------------------------------------------- 11. 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 AFS. 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, 2004. During the year ended June 30, 2004, there was a net decrease of $3.3 million in cash and cash equivalents. Major sources of cash during the year were the sale, call and maturity of securities providing $18.5 million while repayments on securities provided $8.1 million of cash and net increases in FHLB advances provided $3.7 million of cash. 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 a decrease in deposits of $4.2 million, an increase in net loans receivable of $12.9 million, the purchase of $18.9 million in securities AFS and $1.6 million in purchases of premises and equipment, net. 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 AFS and $4.5 million in life insurance contracts and a reduction in FHLB borrowings of $2.3 million. - -------------------------------------------------------------------------------- 12. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders FFW Corporation Wabash, Indiana We have audited the accompanying consolidated balance sheets of FFW Corporation as of June 30, 2004 and 2003 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, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004 and 2003 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2004 in conformity with U.S. generally accepted accounting principles. Crowe Chizek and Company LLC South Bend, Indiana August 19, 2004 - -------------------------------------------------------------------------------- 13.
FFW CORPORATION CONSOLIDATED BALANCE SHEETS June 30, 2004 and 2003 - ------------------------------------------------------------------------------------------------------------------- 2004 2003 ---- ---- ASSETS Cash and due from financial institutions $ 5,239,955 $ 8,235,956 Interest-bearing deposits in other financial institutions 1,299,774 1,588,877 ----------------- ----------------- Total cash and cash equivalents 6,539,729 9,824,833 Securities available for sale (AFS) 79,070,586 89,636,775 Loans receivable, net of allowance for loan losses of $2,569,960 in 2004 and $2,592,092 in 2003 136,086,451 126,018,943 Loans held for sale 96,600 2,707,850 Federal Home Loan Bank stock 3,616,600 3,445,900 Accrued interest receivable 1,356,853 1,388,322 Premises and equipment, net 3,965,553 2,677,102 Mortgage servicing rights 618,793 614,638 Cash surrender value of life insurance 4,935,876 4,718,031 Goodwill 975,468 975,468 Other assets 2,647,008 763,219 ----------------- ----------------- Total assets $ 239,909,517 $ 242,771,081 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 10,912,541 $ 11,238,092 Interest-bearing 148,339,452 152,208,402 ----------------- ----------------- Total deposits 159,251,993 163,446,494 Borrowings 55,733,017 52,038,331 Accrued expenses and other liabilities 2,300,427 3,646,188 ----------------- ----------------- Total liabilities 217,285,437 219,131,013 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 - 2004 and 2003; outstanding: 1,285,248 - 2004 and 1,311,800 - 2003 18,298 18,298 Additional paid-in capital 9,403,738 9,345,123 Retained earnings 20,872,005 19,266,267 Accumulated other comprehensive income (loss) (1,209,167) 720,765 Unearned management retention plan shares (107,816) (48,172) Treasury stock at cost, 544,580 shares - 2004 and 518,028 shares - 2003 (6,352,978) (5,662,213) ------------------ ------------------ Total shareholders' equity 22,624,080 23,640,068 ----------------- ----------------- Total liabilities and shareholders' equity $ 239,909,517 $ 242,771,081 ================= ================= - -------------------------------------------------------------------------------------------------------------------- 14. See accompanying notes.
FFW CORPORATION CONSOLIDATED STATEMENTS OF INCOME Years ended June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------------------------------------------- 2004 2003 2002 ---- ---- ---- Interest and dividend income Loans, including fees $ 8,975,318 $ 10,165,367 $ 12,015,259 Taxable securities 2,646,995 2,746,864 3,292,147 Nontaxable securities 932,338 984,146 640,238 Other 32,648 67,049 74,235 --------------- --------------- ---------------- Total interest and dividend income 12,587,299 13,963,426 16,021,879 Interest expense Deposits 3,526,692 4,729,382 6,281,203 Borrowings 2,502,172 2,626,504 3,170,538 --------------- --------------- ---------------- Total interest expense 6,028,864 7,355,886 9,451,741 --------------- --------------- ---------------- Net interest income 6,558,435 6,607,540 6,570,138 Provision for loan losses 780,000 1,440,000 1,355,000 --------------- --------------- ---------------- Net interest income after provision for loan losses 5,778,435 5,167,540 5,215,138 Noninterest income Net gains on sales of securities 59,013 26,033 228,817 Net gains on sales of loans 466,925 1,019,519 715,115 Commission 225,573 198,979 289,726 Service charges and fees 1,077,784 866,555 1,030,275 Earnings on life insurance 243,233 235,621 - Other 74,873 141,121 40,509 --------------- --------------- ---------------- Total noninterest income 2,147,401 2,487,828 2,304,442 Noninterest expense Salaries and benefits 2,408,891 2,305,878 2,178,280 Occupancy and equipment 522,087 408,448 395,575 Professional 286,309 192,500 170,218 Marketing 98,790 88,182 70,064 Deposit insurance premium 49,510 73,766 26,469 Regulatory assessment 63,354 98,278 79,390 Correspondent bank charges 254,767 242,427 269,608 Data processing 545,728 510,126 478,492 Printing, postage and supplies 148,265 172,514 150,301 Expense on life insurance 85,125 46,366 - Amortization of core deposit premium - 73,146 167,039 Other 805,576 571,851 818,423 --------------- --------------- ---------------- Total noninterest expense 5,268,402 4,783,982 4,803,859 --------------- --------------- ---------------- Income before income taxes 2,657,434 2,871,386 2,715,721 Income tax expense 220,349 513,126 667,986 --------------- --------------- ---------------- Net income $ 2,437,085 $ 2,358,260 $ 2,047,735 =============== =============== ================ Earnings per share Basic $ 1.88 $ 1.76 $ 1.48 Diluted 1.85 1.74 1.47 - ------------------------------------------------------------------------------------------------------------------- 15. See accompanying notes.
FFW CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2004, 2003 and 2002 - ------------------------------------------------------------------------------------------------------------------------------------ Unearned Accumulated Management Additional Other Retention Total Common Paid-In Retained Comprehensive Plan Treasury Shareholders' Stock Capital Earnings Income (Loss) Shares Stock Equity ----- ------- -------- ------------- ------ ----- ------ Balance at July 1, 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 AFS, 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 - ------------------------------------------------------------------------------------------------------------------------------------ 16. Continued
FFW CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2004, 2003 and 2002 - ------------------------------------------------------------------------------------------------------------------------------------ Unearned Accumulated Management Additional Other Retention Total Common Paid-In Retained Comprehensive Plan Treasury Shareholders' Stock Capital Earnings Income (Loss) Shares Stock Equity ----- ------- -------- ------------- ------ ----- ------ 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 - - - - - (938,782) (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 AFS, 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 Cash dividends - $0.64 per share - - (831,347) - - - (831,347) 4,000 shares purchased under MRP - 49,810 - - (94,850) 45,040 - Issued 7,000 shares on stock options - 8,805 - - - 78,820 87,625 Purchased 37,552 shares - - - - - (814,625) (814,625) Amortization of MRP contribution - - - - 35,206 - 35,206 Net income - - 2,437,085 - - - 2,437,085 Other comprehensive income, net of tax: Unrealized appreciation (depreciation) on securities AFS, net of tax of $(680,462) - - - (1,929,932) - - - ------------ Total other comprehensive income - - - (1,929,932) - - (1,929,932) ------------ Comprehensive income - - - - - - 507,153 ------- ---------- ----------- ----------- --------- ----------- ----------- Balance at June 30, 2004 $18,298 $9,403,738 $20,872,005 $(1,209,167) $(107,816) $(6,352,978) $22,624,080 ======= ========== =========== ============ ========== ============ =========== - ------------------------------------------------------------------------------------------------------------------------------------ 17. See accompanying notes.
FFW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2004, 2003 and 2002 - ------------------------------------------------------------------------------------------------------------------- 2004 2003 2002 ---- ---- ---- Cash flows from operating activities Net income $ 2,437,085 $ 2,358,260 $ 2,047,735 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 827,367 524,281 172,605 Provision for loan losses 780,000 1,440,000 1,355,000 Net (gains) losses on sales of: Securities (59,013) (26,033) (228,817) Loans held for sale (466,925) (1,019,519) (715,115) REOs and repossessed assets (14,016) (47,861) 10,415 Originations of loans held for sale (23,395,205) (52,282,546) (28,102,589) Proceeds from sales of loans held for sale 26,267,651 52,831,522 28,352,376 Increase in cash surrender value of life insurance (217,845) (218,031) - Dividends paid as FHLB stock (170,700) (45,000) - Amortization of MRP contribution 35,206 32,789 28,081 Net change in AIR and other assets (62,288) 120,938 (24,085) Amortization of goodwill & core deposit intangibles - 73,146 167,039 Net change in AIP and other liabilities (1,345,761) 1,249,812 229,932 ---------------- --------------- ---------------- Net cash from operating activities 4,615,556 4,991,758 3,292,577 Cash flows from investing activities Proceeds from: Sales, calls and maturities of securities AFS 18,451,046 10,291,285 27,427,247 Sales of REOs and repossessed assets 962,174 567,086 404,501 Purchase of: Securities AFS (18,930,092) (46,215,848) (47,046,695) Life insurance - (4,500,000) - Principal collected on mortgage-backed securities 8,138,889 23,590,002 4,279,463 Net change in loans receivable (12,891,808) 11,234,726 8,688,445 Purchases of premises and equipment, net (1,572,707) (172,398) (785,496) ---------------- ---------------- ----------------- Net cash from investing activities (5,842,498) (5,205,147) (7,032,535) Cash flows from financing activities Net change in deposits (4,194,501) 4,785,772 14,030,670 Proceeds from borrowings 39,000,000 13,500,000 39,290,750 Repayment of borrowings (35,305,314) (15,824,223) (47,325,102) Proceeds from stock options 87,625 - 84,156 Purchase of treasury stock (814,625) (938,792) (792,322) Cash dividends paid (831,347) (803,048) (759,840) ---------------- ---------------- ---------------- Net cash from financing activities (2,058,162) 719,709 4,528,312 ---------------- --------------- ---------------- Net change in cash and cash equivalents (3,285,104) 506,320 788,354 Beginning cash and cash equivalents 9,824,833 9,318,513 8,530,159 --------------- --------------- ---------------- Ending cash and cash equivalents $ 6,539,729 $ 9,824,833 $ 9,318,513 =============== =============== ================ Supplemental disclosure of cash flow information Cash paid during the period Interest $ 6,031,092 $ 7,388,816 $ 9,495,010 Income taxes 500,000 678,000 718,000 Transfers from loans to REO 2,044,300 456,275 294,203 - ------------------------------------------------------------------------------------------------------------------- 18. See accompanying notes.
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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 interest income derived from origination of commercial and residential real estate loans (see Note 14). Use of Estimates In Preparing Financial Statements: Preparing financial statements in conformity with U.S. generally accepted accounting principles 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 fair value of mortgage servicing rights, 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. 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 AFS when they might be sold before maturity. Securities AFS 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. Restricted stock, such as Federal Home Loan Bank stock, is carried at cost. 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. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. - -------------------------------------------------------------------------------- (Continued) 19. FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. 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. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as special mention, substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. 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 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 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 Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line or other accelerated methods with useful lives ranging from 7 to 39 years. Furniture, fixtures and equipment are depreciated using the straight-line or other accelerated methods with useful lives ranging from 3 to 15 years. 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 $975,468 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, 2004. As of June 30, 2004, 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 term. Any impairment of a grouping is reported as a valuation allowance. - -------------------------------------------------------------------------------- 20. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Stock Compensation: 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.
2004 2003 2002 ---- ---- ---- Net income as reported $ 2,437,085 $ 2,358,260 $ 2,047,735 Less: Stock-based compensation expense determined under fair value based method 21,256 30,656 35,763 -------------- -------------- -------------- Pro forma net income $ 2,415,829 $ 2,327,604 $ 2,011,972 ============== ============== ============== Basic earnings per share as reported $ 1.88 $ 1.76 $ 1.48 Pro forma basic earnings per share 1.87 1.74 1.46 Diluted earnings per share as reported 1.85 1.74 1.47 Pro forma diluted earnings per share 1.83 1.72 1.45
There were no stock options granted during 2004 or 2003. The pro forma effects of stock options granted during 2002 were computed using option pricing models with the following weighted-average assumptions as of grant date. 2004 2003 2002 ---- ---- ---- Risk-free interest rate - - 5.31% Expected option life in years - - 8 Expected stock price volatility - - 24.00% Dividend yield - - 4.34% 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. Bank Owned 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. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized. 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 $4,936,000 and $4,718,000 as of June 30, 2004 and 2003. - -------------------------------------------------------------------------------- (Continued) 21. FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 (Loss): Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes the net change in net unrealized appreciation (depreciation) on securities AFS, net of tax which is also recognized as a separate component of shareholders' equity. Earnings and Dividends Per Share: Basic earnings per share is based on the net income divided by the weighted average number of shares outstanding during the period. 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 25% are reported by transferring the par value of the stock issued from retained earnings to common stock. Stock dividends for 25% 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. Adoption of New Accounting Standards: During 2004, the Company adopted FASB Statement 143, Accounting for Asset Retirement Obligations, FASB Statement 145, Rescission of FAS Statement 4, 44 and 64, Amendment of FAS Statement 13, and Technical Corrections, FASB Statement 146, Accounting for Costs Associated with Exit or Disposal Activities, FASB Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, FASB Statement 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, FASB Interpretation 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, FASB Interpretation 46, Consolidation of Variable Interest Entities, and the disclosure requirements of EITF Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. Adoption of the new standards did not materially affect the Company's operating results or financial condition. EITF 03-1 contains accounting guidance regarding other-than-temporary impairment on securities that was to take effect for the quarter ended September 30, 2004. However, the effective date of portions of this guidance has been delayed, and more interpretive guidance is to be issued in the near future. The effect of this new and pending guidance on the Company's financial statements is not known, but it is possible this guidance could change management's assessment of other-than-temporary impairment in future periods. - -------------------------------------------------------------------------------- 22. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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, 2004 2003 2002 ---- ---- ---- Basic Earnings Per Share Numerator: Net income $ 2,437,085 $ 2,358,260 $ 2,047,735 Denominator: Weighted average shares outstanding 1,299,814 1,343,441 1,384,704 Less: Average non-vested MRP shares (5,647) (5,772) (4,930) --------------- -------------- --------------- Weighted average shares outstanding 1,294,167 1,337,669 1,379,774 ============== ============== =============== Basic earnings per share $ 1.88 $ 1.76 $ 1.48 ============== ============== =============== Diluted Earnings Per Share Numerator: Net income $ 2,437,085 $ 2,358,260 $ 2,047,735 Denominator: Weighted average shares outstanding for basic earnings per share 1,294,167 1,337,669 1,379,774 Add: Dilutive effects of assumed exercise of stock options and nonvested MRP shares 26,159 16,609 10,985 -------------- -------------- --------------- Weighted average shares and dilutive potential shares outstanding 1,320,326 1,354,278 1,390,759 ============== ============== =============== Diluted earnings per share $ 1.85 $ 1.74 $ 1.47 ============== ============== ===============
Stock options for 4,000 shares of common stock were not considered in computing diluted earnings per common share for 2002 because they were antidilutive. - -------------------------------------------------------------------------------- 23. (Continued)
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES At June 30, securities were as follows: Fair Unrealized Unrealized Value Gains Losses Available for sale - 2004 U.S. government and agency $ 18,056,548 $ 107,780 $ (202,046) State and municipal 16,492,592 592,632 (10,153) Corporate bonds 5,460,462 134,017 - Mortgage backed 26,262,987 103,098 (244,013) Equity 11,986,311 61,500 (1,576,569) Mutual funds 811,686 30,287 (4,130) --------------- -------------- --------------- $ 79,070,586 $ 1,029,314 $ (2,036,911) =============== ============== =============== 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) =============== ============== ==============
Contractual maturities of debt securities at June 30, 2004 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 $ 999,701 Due from one to five years 10,425,657 Due from five to ten years 8,860,995 Due after ten years 19,723,249 Mortgage backed 26,262,987 Equity 11,986,311 Mutual funds 811,686 --------------- $ 79,070,586 =============== Sales/calls of securities AFS for the years ended June 30 were: 2004 2003 2002 ---- ---- ---- Sales $ 5,516,046 $ 2,537,790 $13,145,650 Calls 10,405,000 7,603,495 11,631,600 Gross gains 144,908 26,674 296,417 Gross losses (85,895) (641) (67,600) - -------------------------------------------------------------------------------- 24. (Continued)
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES (Continued) Securities with unrealized losses at June 30, 2004 not recognized in income are as follows: Less than 12 Months ---------12 Months------- ---------or More-------- ----------Total---------- --------- ------- ----- Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Loss Value Loss Value Loss ------------------------- ----- ---- ----- ---- ----- ---- U.S. government and agency $ 9,247,840 $(202,046) $ - $ - $ 9,247,840 $ (202,046) State and municipal 572,500 (10,153) - - 572,500 (10,153) Mortgage backed 21,859,200 (244,013) - - 21,859,200 (244,013) Equity 4,959,975 (50,079) 6,914,386 (1,526,490) 11,874,361 (1,576,569) Mutual funds 103,686 (4,130) - - 103,686 (4,130) ------------- --------- ------------ ------------ ------------- -------------- Total temporarily impaired $ 36,743,201 $(510,421) $ 6,914,386 $ (1,526,490) $ 43,657,587 $ (2,036,911) ============= ========== ============ ============= ============= ==============
Unrealized losses on equities (primarily floating rate agency preferred stocks) have not been recognized into income because the securities are of high credit quality (rate AA or higher), management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to the historically low market interest rates at the time that the Company's floating rate preferred stocks repriced. The fair value is expected to recover as the bonds approach their repricing dates and market rates rise. - -------------------------------------------------------------------------------- 25. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE, NET Loans receivable as of June 30 were as follows: 2004 2003 ---- ---- Mortgage loans Secured by one-to-four family residences (conventional) $ 67,510,985 $ 61,795,830 Secured by other properties (commercial) 26,365,659 24,592,764 Construction 1,827,713 1,570,824 --------------- --------------- 95,704,357 87,959,418 Undisbursed portion of construction loans (651,404) (921,401) Net deferred loan origination fees (60,912) (61,144) ---------------- --------------- Total mortgage loans 94,992,041 86,976,873 Consumer and other loans Automobile 14,413,806 14,976,771 Manufactured home 192,893 135,734 Home equity and improvement 18,017,106 15,138,725 Commercial 8,363,340 8,347,504 Other 2,504,610 3,014,839 --------------- --------------- 43,491,755 41,613,573 Net deferred loan origination costs 172,615 20,589 --------------- --------------- Total consumer and other loans 43,664,370 41,634,162 --------------- --------------- Total loans 138,656,411 128,611,035 Allowance for loan losses (2,569,960) (2,592,092) ---------------- --------------- $ 136,086,451 $ 126,018,943 =============== ===============
Activity in the allowance for loan losses for the years ended June 30 was as follows: 2004 2003 2002 ---- ---- ---- Beginning balance $ 2,592,092 $ 2,361,241 $ 1,773,194 Provision for loan losses 780,000 1,440,000 1,355,000 Charge-offs (1,110,835) (1,529,259) (1,232,425) Recoveries 308,703 320,110 465,472 ------------ ------------ ------------ Ending balance $ 2,569,960 $ 2,592,092 $ 2,361,241 ============ ============ ============ - -------------------------------------------------------------------------------- 26. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 4 - LOANS RECEIVABLE, NET (Continued) Information regarding impaired loans was as follows for the years ended June 30:
2004 2003 2002 ---- ---- ---- Year end loans with no allowance for loan losses allocated $ - $ - $ - Year end loans with allowance for loan losses allocated 604,793 1,951,334 1,486,204 Amount of allowance allocated 239,386 517,209 405,320 Average of impaired loans during the year 1,213,485 1,845,155 1,807,605 Interest income recognized during impairment 78,797 103,305 34,955 Cash-basis interest income recognized 69,003 95,693 23,902
Nonperforming loans were as follows for the years ended June 30: 2004 2003 2002 ---- ---- ---- (In thousands) Loans past due over 90 days still on accrual $ - $ - $ - Nonaccrual loans 1,025 2,616 1,942 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. - -------------------------------------------------------------------------------- 27. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 5 - LOAN SERVICING Loans serviced for others are not reported as assets in the balance sheets. These loans totaled $75,734,000 and $67,906,000 at June 30, 2004 and 2003. Related escrow deposit balances were $207,000 and $259,000 at June 30, 2004 and 2003. Activity for capitalized mortgage servicing rights for the years ended June 30 follows: 2004 2003 2002 ---- ---- ---- Servicing rights: Beginning of year $ 614,638 $ 465,327 $ - Additions 205,728 470,543 657,977 Amortized to expense (201,573) (321,232) (192,650) ------------ ------------ ------------ End of year $ 618,793 $ 614,638 $ 465,327 =========== =========== =========== As of June 30, 2004 and 2003 the carrying value of mortgage servicing rights approximated fair value. The Company has not recorded any valuation allowances for mortgage servicing rights. NOTE 6 - PREMISES AND EQUIPMENT, NET Premises and equipment at June 30 were as follows: 2004 2003 ---- ---- Land $ 694,841 $ 480,121 Construction in progress 785,660 - Buildings 3,135,221 2,881,987 Furniture, fixtures and equipment 1,198,551 1,110,249 --------------- --------------- Total cost 5,814,273 4,472,357 Accumulated depreciation (1,848,720) (1,795,255) ---------------- --------------- $ 3,965,553 $ 2,677,102 =============== =============== NOTE 7 - GOODWILL The carrying amount of goodwill was $975,468 at June 30, 2004 and 2003. 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:
2004 2003 2002 ---- ---- ---- Net income as reported $ 2,437,085 $ 2,358,260 $ 2,047,735 Add back: goodwill amortization, net of tax - - 56,712 -------------- --------------- -------------- Adjusted net income $ 2,437,085 $ 2,358,260 $ 2,104,447 ============== =============== ============== Basic earnings per share as reported $ 1.88 $ 1.76 $ 1.48 Diluted earnings per share as reported 1.85 1.74 1.47 Adjusted basic earnings per share 1.88 1.76 1.53 Adjusted diluted earnings per share 1.85 1.74 1.51 - -------------------------------------------------------------------------------------------------------------- 28. (Continued)
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 8 - DEPOSITS Deposit accounts individually exceeding $100,000 totaled approximately $36,997,000 and $36,015,000 at June 30, 2004 and 2003. At June 30, 2004, stated maturities of certificates of deposit for the years ended June 30 were: 2005 $ 30,518,435 2006 18,122,941 2007 10,522,642 2008 11,169,437 2009 7,276,844 ---------------- $ 77,610,299 ================ NOTE 9 - BORROWINGS Federal Home Loan Bank (FHLB) advances totaled $55,733,017 and $52,038,331 at June 30, 2004 and 2003. The advances are a mix of variable rate, fixed rate bullet, fixed rate amortizing and putable advances. The advances carry interest rates ranging from 4.59% to 7.22% for fixed rate bullet, 5.05% to 6.27% for fixed rate amortizing and 4.50% to 6.88% for putable advances while the Company's variable advances were at a rate of 1.61% as of June 30, 2004. The scheduled maturities during the years ended June 30 were as follows: 2005 $ 21,392,513 2006 - 2007 - 2008 2,892,513 2009 7,000,000 Thereafter 24,447,991 ---------------- $ 55,733,017 ================ The Bank also maintains a $1,000,000 overdraft line of credit agreement with the FHLB which terminates on June 7, 2005. As of June 30, 2004 and 2003, 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, 2004, collateral of approximately $79.0 million is pledged to the FHLB to secure advances outstanding. - -------------------------------------------------------------------------------- 29. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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, 2003, the latest actuarial valuation, the actuarially determined value of total vested benefits exceeded plan assets and a contribution and expense of $55,000 was required for fiscal 2004. During 2003 and 2002, the fair value of plan assets exceeded the actuarially determined value of total vested benefits; therefore, no expense was recorded during 2003 and 2002. For the years ending June 30, 2004 2003, and 2002, administrative pension expenses were $4,000, $4,000 and 9,000. 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 50% 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 $59,000, $67,000 and $55,000 for 2004, 2003 and 2002. 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 $27,000 and $31,000 at June 30, 2004 and 2003 has been accrued for these obligations. The expense for these plans was $4,000 in 2004 and $6,000 for 2003 and 2002. 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 $35,000, $33,000 and $28,000 was recorded for these plans for the years ended June 30, 2004, 2003 and 2002. 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 2004, 2003 and 2002. - -------------------------------------------------------------------------------- 30. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 10 - EMPLOYEE BENEFITS (continued) 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, 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 Granted - - - - Exercised (7,000) 11.38 - 13.38 12.52 ------------ Outstanding, June 30, 2004 50,597 $11.38 - 18.50 13.65 ===========
The weighted average remaining contractual life of options outstanding at June 30, 2004 was approximately six years. Stock options exercisable at June 30, 2004, 2003 and 2002 totaled 41,570, 37,293 and 23,016 at a weighted average exercise price of $14.01, $14.27 and $14.96. As of June 30, 2004, 87,668 options remain available for future grants. 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. 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: 2004 2003 2002 ---- ---- ---- Allocated (including shares committed to be released) - - 128,300 Shares contributed and allocated - - - Shares withdrawn from the plan by participants - - (69,442) Termination of plan - - (58,858) ------------- ------------- ------------- Total ESOP shares held in the plan - - - ============= ============= =============
- -------------------------------------------------------------------------------- 31. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 10 - EMPLOYEE BENEFITS (continued) 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, 2004 and 2003 was approximately $88,000 and $29,000 with expense of $59,000 and $29,000 recorded during the years ended June 30, 2004 and 2003. NOTE 11 - INCOME TAXES Income tax expense for the years ended June 30 was: 2004 2003 2002 ---- ---- ---- Federal Current $ 286,741 $ 519,715 $ 493,854 Deferred 18,362 (154,491) (12,137) ------------ ------------ ------------ 305,103 365,224 481,717 State Current - 162,019 190,315 Deferred (84,754) (14,117) (4,046) ------------- ------------ ------------ (84,754) 147,902 186,269 ------------- ------------ ------------ Income tax expense $ 220,349 $ 513,126 $ 667,986 ============ ============ ============ Income tax expense differed from amounts computed using the U.S. federal income tax rate of 34% as follows:
2004 2003 2002 ---- ---- ---- Income taxes at 34% statutory rate $ 903,528 $ 976,271 $ 923,345 Tax effect of: Tax-exempt income (306,922) (305,067) (196,285) State tax, net of federal income tax effect (55,938) 97,615 122,938 Earnings on life insurance (74,067) (74,131) - Dividends received deduction (122,389) (119,022) (124,096) Low income housing credits (77,680) (79,999) (91,496) Other (46,183) 17,459 33,580 ------------- ------------ ------------ Total income tax expense $ 220,349 $ 513,126 $ 667,986 ============ ============ ============
- -------------------------------------------------------------------------------- 32. (Continued)
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 11 - INCOME TAXES (continued) Components of the net deferred tax liability as of June 30 are: 2004 2003 2002 ---- ---- ---- Deferred tax assets: Bad debts $ 990,977 $ 996,799 $ 864,224 Deferred compensation 10,278 12,206 10,313 Core deposit intangible 91,927 105,466 86,585 Deferred loan fees - 15,948 - General business credit carry forward 197,540 60,310 - State net operating loss carry forward 27,952 - - Other 5,622 - - ------------ ------------ ------------ 1,324,296 1,190,729 961,122 Deferred tax liabilities: Accretion (118,724) (111,202) (110,821) Net deferred loan costs (43,073) - (35,487) Mortgage servicing rights (238,607) (241,699) (179,184) FHLB stock dividend (83,179) (34,526) - Prepaid expenses (63,763) - - Appreciation on debt securities AFS (201,570) (882,032) (192,834) Other - (92,564) (92,960) ------------ ------------ ------------ (748,916) (1,362,023) (611,286) Valuation allowance - - - ------------ ------------ ------------ Net deferred tax asset (liability) $ 575,380 $ (171,294) $ 349,836 ============ ============ ============
The general business credit carry forward includes $88,000 of alternative minimum tax credits and $110,000 of low income housing credits. The alternative minimum tax credits can be carried forward indefinitely and the low income housing credits expire in 2023 and 2024. The state net operating loss carry forward expires in 2024. 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, 2004 and 2003. If the Bank was liquidated or otherwise ceased to be a bank or if tax laws were to change, the $393,000 would be recorded as expense. NOTE 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. - -------------------------------------------------------------------------------- (Continued) 33. FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 12 - REGULATORY MATTERS (continued) 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, 2004 Total Capital $20,638 13.60% $ 12,138 8.00% $ 15,172 10.00% (to risk weighted assets) Tier I (Core) Capital 18,733 12.35% 6,069 4.00% 9,103 6.00% (to risk weighted assets) Tier I (Core) Capital 18,733 7.90% 9,485 4.00% 11,856 5.00% (to adjusted total assets) Tangible capital to tangible assets 18,733 7.90% 3,557 1.50% N/A As of June 30, 2003 Total Capital $21,119 14.48% $ 11,671 8.00% $ 14,589 10.00% (to risk weighted assets) 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) Tangible capital to tangible assets 19,286 8.12% 3,564 1.50% N/A
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, 2004, approximately $2,060,000 of the Bank's retained earnings was potentially available for distribution to the Company. - -------------------------------------------------------------------------------- 34. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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 4 2 0 0 3 ------- ------- Fixed Variable Fixed Variable Rate Rate Rate Rate Commitments to make loans $ 683,206 $ 6,325,677 $ 2,407,200 $ 946,400 Unused lines of credit - 19,487,104 - 17,111,700 Standby letters of credit - 1,111,841 - 2,424,100 -------------- ------------- ------------- -------------- $ 683,206 $ 26,924,622 $ 2,407,200 $ 20,482,200 ============== ============= ============= ==============
Fixed rate loan commitments at June 30, 2004 were at current rates, ranging primarily from 6.00% to 8.00%. Variable rate loan commitments, unused lines of credit and standby letters of credit at June 30, 2004 were at current rates ranging from 4.75% to 8.00% for loan commitments, 4.25% to 9.50% for unused lines of credit, and primarily at the national prime rate of interest plus 100 to 300 basis points for standby letters of credit. Since commitments to make loans and to fund unused lines of credit, loans in process and standby letters of credit may expire without being used, the amounts do not necessarily represent future cash commitments. In addition, commitments are agreements to lend to a customer as long as there is no violation of any condition established in the contract. The maximum exposure to credit loss in the event of nonperformance by the other party is the contractual amount of these instruments. The same credit policy is used to make such commitments as is used for loans receivable. Under employment agreements with one of its officers, certain events leading to separation from the Company could result in a lump sum cash payment. Under employment agreements with 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, 2004, the Bank had invested $750,000 and had recorded equity in the operating loss of the limited partnership of $51,000, $46,000 and $71,000 for the years ended June 30, 2004, 2003 and 2002. At both June 30, 2004 and 2003, the obligation due to the limited partnership was $0. The Bank receives 3% of the eligible tax credits. For the years ended June 30, 2004, 2003 and 2002, the Bank received approximately $78,000, $80,000 and $91,000 in tax credits. - -------------------------------------------------------------------------------- 35. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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, 2003 $ 1,533,789 New loans 80,250 Repayments (188,747) Other changes (39,760) ------------- Balance - June 30, 2004 $ 1,385,532 ============ Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period. - -------------------------------------------------------------------------------- 36. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS Presented below are condensed financial statements for the parent company, FFW Corporation. CONDENSED BALANCE SHEETS June 30, 2004 and 2003 2004 2003 ---- ---- ASSETS Cash and cash equivalents $ 1,057,350 $ 130,549 Investment in Bank subsidiary 19,861,504 21,269,077 Investment in non-bank subsidiary 451,659 413,880 Securities AFS 1,297,851 1,976,702 Other assets 20,984 26,390 ----------- ----------- Total assets $22,689,348 $23,816,598 =========== =========== LIABILITIES Accrued expenses and other liabilities $ 65,268 $ 176,530 SHAREHOLDERS' EQUITY Common stock 18,298 18,298 Additional paid-in capital 9,403,738 9,345,123 Retained earnings 20,872,005 19,266,267 Accumulated other comprehensive income (1,209,167) 720,765 Unearned employee MRP (107,816) (48,172) Treasury stock (6,352,978) (5,662,213) ------------ ------------ Total shareholders' equity 22,624,080 23,640,068 ----------- ----------- Total liabilities and shareholders' equity $22,689,348 $23,816,598 =========== =========== - -------------------------------------------------------------------------------- 37. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME For the years ended June 30, 2004, 2003 and 2002 2004 2003 2002 ---- ---- ---- Interest income $ 78,081 $ 105,396 $ 88,056 Gain (loss) on the sale of securities AFS 86,745 15,591 (67,600) Dividend income 1,800,000 1,300,000 1,815,000 Other income - 6,975 - ---------- ---------- ---------- 1,964,826 1,427,962 1,835,456 Operating expense 167,596 186,874 196,859 Equity in undistributed income of subsidiaries Bank 497,625 1,068,138 257,423 Non-bank 43,362 10,569 57,597 ---------- ---------- ---------- Income before income taxes 2,338,217 2,319,795 1,953,617 Income tax expense (benefit) (98,868) (38,465) (94,118) ----------- ---------- ---------- Net income $2,437,085 $2,358,260 $2,047,735 ========== ========== ========== - -------------------------------------------------------------------------------- 38. (Continued)
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENTS OF CASH FLOWS For the years ended June 30, 2004, 2003 and 2002 2004 2003 2002 ---- ---- ---- Cash flows from operating activities Net income $ 2,437,085 $ 2,358,260 $ 2,047,735 Adjustments to reconcile net income to net cash from operating activities Equity in undistributed income of subsidiaries (540,987) (1,078,707) (315,020) Loss (Gain) on the sale of securities (86,745) (15,591) 67,600 Other 40,863 36,759 157,109 --------------- -------------- --------------- Net cash from operating activities 1,850,216 1,300,721 1,957,424 Cash flows from investing activities Proceeds from sales of securities 634,932 274,205 1,061,625 Maturities of securities AFS - - 238,921 Purchase of securities AFS - (259,268) (1,312,050) --------------- -------------- --------------- Net cash from investing activities 634,932 14,937 (11,504) Cash flows from financing activities Proceeds from stock options 87,625 - 84,156 Purchase of treasury stock (814,625) (938,792) (792,322) Cash dividends paid (831,347) (803,048) (759,841) ---------------- -------------- --------------- Net cash from financing activities (1,558,347) (1,741,840) (1,468,007) ---------------- -------------- --------------- Net change in cash and cash equivalents 926,801 (426,182) 477,913 Beginning cash and cash equivalents 130,549 556,731 78,818 --------------- -------------- --------------- Ending cash and cash equivalents $ 1,057,350 $ 130,549 $ 556,731 =============== ============== =============== 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).
- -------------------------------------------------------------------------------- 39. (Continued) FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- 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 4 2 0 0 3 ------- ------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- (In thousands) (In thousands) Cash and cash equivalents $ 6,540 $ 6,540 $ 9,825 $ 9,825 Securities AFS 79,071 79,071 89,637 89,637 Loans receivable, net 136,086 138,147 126,019 130,529 Loans held for sale 97 98 2,708 2,735 Federal Home Loan Bank stock 3,617 3,617 3,446 3,446 Accrued interest receivable 1,357 1,357 1,388 1,388 Noninterest-bearing deposits (10,913) (10,913) (11,238) (11,238) Interest-bearing deposits (148,339) (148,818) (152,208) (155,362) Borrowings (55,733) (58,266) (52,038) (57,971) Accrued interest payable (118) (118) (121) (121) For purposes of the above disclosures of estimated fair value, the following assumptions were used as of June 30, 2004 and 2003. The estimated fair values for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable, noninterest-bearing deposits and accrued interest payable are considered to approximate cost. The estimated fair value for securities AFS 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, 2004 and 2003 applied for the time period until the loans are assumed to reprice or be paid. The estimated fair value for interest-bearing deposits as well as borrowings is based on estimates of the rate the Bank would pay on such liabilities at June 30, 2004 and 2003, 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, 2004 and 2003, 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, 2004 and 2003 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. - -------------------------------------------------------------------------------- 40. (Continued)
FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2004, 2003 and 2002 - -------------------------------------------------------------------------------- NOTE 18 - OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows: 2004 2003 2002 ---- ---- ---- Net change in net unrealized appreciation (depreciation) on securities available for sale Net unrealized appreciation (depreciation) arising during the year $ (2,551,381) $ 1,297,301 $ 12,703 Reclassification adjustments for (gains) included in net income (59,013) (26,033) (228,817) --------------- -------------- ---------------- Net change in net unrealized appreciation (depreciation) on securities available for sale (2,610,394) 1,271,268 (216,114) Tax expense (benefit) (680,462) 689,198 (24,033) --------------- -------------- ---------------- Total other comprehensive income (loss) $ (1,929,932) $ 582,070 $ (192,081) =============== ============== ================
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DIRECTORS AND EXECUTIVE OFFICERS BOARD OF DIRECTORS Wayne W. Rees Thomas L. Frank Roger K. Cromer Owner and Publisher Executive Vice President and President and Chief Executive The Paper of Wabash County, Inc. Controller, B. Walter & Company Officer, FFW Corporation Controller and Part Owner, Walter President and Chief Executive J. Stanley Myers Dimension Co. Officer, First Federal Savings Owner and Operator Bank of Wabash Servisoft Water Conditioning, Inc. Ronald D. Reynolds Chairman of the Board, Owner, J.M. Reynolds Oil Co. Inc. FirstFed Financial of Wabash Joseph W. McSpadden Vice President and Part Owner John N. Philippsen Beauchamp & McSpadden Chief Financial Officer The Ford Meter Box Co. OFFICERS FFW CORPORATION FIRST FEDERAL SAVINGS BANK OF FIRSTFED FINANCIAL, INC WABASH J. Stanley Myers J. Stanley Myers 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 J. Stanley Myers Timothy A. Sheppard Timothy A. Sheppard Secretary Treasurer and Chief Financial Vice President and Officer Chief Financial Officer Timothy A. Sheppard Treasurer Melissa A. Rekeweg Noah T. Smith Secretary Vice President, Commercial Loans Sonia Niccum Vice President, Mortgage Loans Melissa A. Rekeweg Secretary and Assistant Vice President, Deposit Operations Deborah Abraham Vice President, Loan Operations
- -------------------------------------------------------------------------------- 42. 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, 2004 there were approximately 270 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, 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 Sept. 30, 2003 21.80 18.36 .16 Dec. 31, 2003 23.40 20.25 .16 March 31, 2004 26.12 20.14 .16 June 30, 2004 24.09 21.81 .16 DIVIDENDS - -------------------------------------------------------------------------------- FFW Corporation declared and paid dividends of $0.64 per share for fiscal year 2004. 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 26, 2004 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 FinancialOfficer FFW Corporation 1205 N. Cass Street P.O. Box 259 Wabash, Indiana 46992 - -------------------------------------------------------------------------------- 43. 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 Columbia City 526 W. Connexion Way. P.O. Box 289 Columbia City, IN 46725 (260) 248-2265 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 - -------------------------------------------------------------------------------- 44. -----END PRIVACY-ENHANCED MESSAGE-----