-----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, WZq4+aNbVJbpGIksPPEQdV7mPcP1vPNHnLl1iGvK21A/4uiTp0eZa9gdyy3K4eCR srVFysxJhR/VlEaZQ3jFjg== 0000908834-05-000117.txt : 20050214 0000908834-05-000117.hdr.sgml : 20050214 20050214114506 ACCESSION NUMBER: 0000908834-05-000117 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050214 DATE AS OF CHANGE: 20050214 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21170 FILM NUMBER: 05605241 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 10QSB 1 ffw10qsb_0211.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-21170 FFW CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 35-1875502 (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) or Number) 1205 North Cass Street, Wabash, IN 46992 (Address of principal executive offices) (260) 563-3185 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ State the number of Shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of February 11, 2005, there were 1,282,243 shares of the Registrant's common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes ___ No _X_ FFW CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Consolidated Balance Sheets for December 31, 2004 3 and June 30, 2004 Consolidated Statements of Income and 4 Comprehensive Income for the three and six months ended December 31, 2004 and 2003. Consolidated Statements of Cash Flows for the six months 5 ended December 31, 2004 and 2003. Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 9 Item 3. Controls and Procedures 16 PART II. OTHER INFORMATION Items 1-6 17 Signature Page 18 Exhibit Index 19 2
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS : December 31 June 30 2004 2004 ----- ---- Cash and due from financial institutions $ 5,623,262 $ 5,239,955 Interest-earning deposits in other financial institutions - short term 1,545,455 1,299,774 ------- --------- ---------------- Cash and cash equivalents 7,168,717 6,539,729 Securities available for sale 78,571,658 79,070,586 Loans receivable, net of allowance for loan losses of $2,486,912 at December 31, 2004 and $2,569,960 at June 30, 2004 153,850,912 136,086,451 Loans held for sale 164,800 96,600 Federal Home Loan Bank stock, at cost 3,695,800 3,616,600 Accrued interest receivable 1,360,206 1,356,853 Premises and equipment, net 4,166,016 3,965,553 Mortgage servicing rights 530,676 618,793 Cash surrender value of life insurance 5,038,484 4,935,876 Goodwill 975,468 975,468 Other assets 2,154,686 2,647,008 --------- --------- Total Assets $257,677,423 $239,909,517 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Noninterest-bearing deposits $ 13,770,404 $ 10,912,541 Interest-bearing deposits 156,175,787 148,339,452 ----------- ----------- Total Deposits 169,946,191 159,251,993 Federal Home Loan Bank advances 62,593,150 55,733,017 Accrued expenses and other liabilities 1,729,023 2,300,427 --------- --------- Total Liabilities 234,268,364 217,285,437 Shareholders' Equity: Preferred stock, $.01 par; 500,000 shares authorized, none issued --- --- Common stock, $.01 par; 2,000,000 shares authorized; issued: 1,836,328, outstanding: 1,291,792 - December 31, 2004; issued: 1,829,828, outstanding: 1,285,248 - June 30, 2004 18,363 18,298 Additional paid-in capital 9,496,561 9,403,738 Retained earnings 19,830,235 20,872,005 Accumulated other comprehensive income (loss) 565,275 (1,209,167) Unearned management retention plan shares (83,296) (107,816) Treasury stock at cost, shares: 544,536 - December 31, 2004 and 544,580 - June 30, 2004 (6,418,079) (6,352,978) ---------- ---------- Total Shareholders' Equity 23,409,059 22,624,080 ---------- ---------- Total Liabilities and Shareholders' Equity $ 257,677,423 $ 239,909,517 ============= =============
See accompanying notes. 3
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Six Months Ended December 31 December 31 2004 2003 2004 2003 ---- ---- ---- ---- Interest and dividend income : Loans, including fees $ 2,344,916 $ 2,179,033 $ 4,601,058 $4,450,127 Taxable securities 650,962 669,569 1,295,817 1,298,778 Nontaxable securities 214,554 243,749 421,552 496,465 Other interest-earning assets 17,930 12,090 26,320 18,321 ------ ------ ------ ------ Total interest income 3,228,362 3,104,441 6,344,747 6,263,691 Interest expense : Deposits 865,977 905,925 1,684,126 1,841,674 Other 649,526 639,895 1,274,260 1,275,494 ------- ------- --------- --------- Total interest expenses 1,515,503 1,545,820 2,958,386 3,117,168 --------- --------- --------- --------- Net interest income 1,712,859 1,558,621 3,386,361 3,146,523 Provision for loan losses 120,000 210,000 240,000 420,000 ------- ------- ------- ------- Net interest income after provision for loan losses 1,592,859 1,348,621 3,146,361 2,726,523 Non-interest income (loss) : Net gain on sale of securities --- --- --- 3,712 Net gain on sale of loans 42,750 85,204 75,372 355,867 Commission income 51,250 56,026 100,444 91,787 Service charges and fees 317,987 331,395 545,501 488,886 Earnings on life insurance 58,527 73,101 116,816 146,202 Other than temporary impairment on securities (1,804,750) --- (1,804,750) --- Other 31,060 67,909 200,879 84,281 ------ ------ ------- ------ Total non-interest income (loss) (1,303,176) 613,635 (765,738) 1,170,735 Non-interest expense : Compensation and benefits 661,776 582,545 1,316,851 1,161,898 Occupancy and equipment 165,188 105,833 332,903 209,784 Deposit insurance premium 5,793 18,405 11,706 37,331 Regulatory assessment 15,882 16,131 32,681 31,562 Correspondent bank charges 65,307 66,160 130,742 127,127 Data processing expense 114,960 129,303 228,227 257,814 Printing, postage and supplies 41,813 38,018 81,081 76,897 Other 323,665 323,398 650,618 616,726 ------- ------- ------- ------- Total non-interest expense 1,394,384 1,279,793 2,784,809 2,519,139 --------- --------- --------- --------- Income (Loss) before income taxes (1,104,701) 682,463 (404,186) 1,378,119 Income tax expense 111,104 48,378 202,586 142,437 ------- ------ ------- ------- Net income (loss) $(1,215,805) $ 634,085 $(606,772) $ 1,235,682 ============ ========= ========== =========== Change in unrealized appreciation (depreciation) on securities available for sale, net of tax 978,210 16,761 1,774,442 (898,682) ------- ------ --------- --------- Comprehensive income (loss) $ (237,595) $650,846 $ 1,167,670 $337,000 =========== ======== =========== ======== Earnings (loss) per common share : Basic $ (.95) $ .49 $ (.47) $ .95 Diluted $ (.95) $ .48 $ (.47) $ .94
See accompanying notes. 4
PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended December 31 2004 2003 ---- ---- Cash flows from operating activities : Net income (loss) $ (606,772) $ 1,235,682 Adjustments to reconcile net income (loss) to net cash from operating activities : Depreciation and amortization 434,352 483,545 Provision for loan losses 240,000 420,000 Net (gains) losses on sale of : Securities --- (3,712) Loans held for sale (75,372) (355,867) REOs and repossessed assets (51,509) (51,978) Fixed assets (105,124) --- Other than temporary impairment on securities 1,804,750 --- Originations of loans held for sale (3,855,230) (17,863,884) Proceeds from sale of loans held for sale 3,833,118 18,062,549 Increase in cash surrender value of life insurance (102,608) (133,980) Dividends paid as FHLB stock (79,200) (86,600) Amortization of MRP contribution 24,520 15,880 Net change in accrued interest receivable and other assets 141,667 177,612 Net change in accrued interest payable and other liabilities (571,404) (2,082,989) --------- ----------- Net cash from operating activities 1,031,188 (183,742) Cash flows from investing activities : Proceeds from : Sales and calls of securities available for sale 3,700,000 6,540,191 Maturities of securities available for sale 1,000,000 955,000 Sales of REOs and repossessed assets 454,257 321,128 Sale of branch building 115,733 --- Purchase of securities available for sale (6,360,022) (10,189,760) Principal collected on mortgage- backed securities 2,202,126 5,462,020 Net change in loans receivable (18,258,368) (5,072,236) Purchases of premises and equipment, net (403,046) (342,662) --------- --------- Net cash from investing activities (17,549,320) (2,326,319) Cash flows from financing activities : Net change in deposits 10,694,198 (5,195,837) Proceeds from borrowings 27,500,000 22,500,000 Repayment on borrowings (20,639,867) (14,630,412) Purchase of treasury stock (135,900) (393,377) Proceeds from stock options 163,687 60,875 Cash dividends paid (434,998) (414,793) --------- --------- Net cash from financing activities 17,147,120 1,926,456 ---------- --------- Net change in cash and cash equivalents 628,988 (583,605) Beginning cash and cash equivalents 6,539,729 9,824,833 --------- --------- Ending cash and cash equivalents $7,168,717 $9,241,228 ========== ========== Supplemental disclosure of cash flow information Transfer of loans to REO and repossessed assets $ 253,907 $ 906,500
See accompanying notes. 5 PART I: FINANCIAL INFORMATION FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial condition of FFW Corporation as of December 31, 2004 and June 30, 2004 and the results of its operations, for the three and six months ended December 31, 2004 and 2003. Financial Statement reclassifications have been made for the prior period to conform to classifications used as of and for the period ended December 31, 2004. Operating results for the three and six months ended December 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2005. (2) Earnings Per Share: Basic earnings per share are calculated solely on weighted-average common shares outstanding. Diluted earnings per share reflect the potential dilution of stock options and other common stock equivalents. For the three and six month periods ending December 31, 2004, the weighted average shares outstanding in calculating basic earnings per share were 1,280,602 and 1,279,970 while the weighted average number of shares for diluted earnings per share were also 1,280,602 and 1,279,970. For the three and six month periods ending December 31, 2003, the weighted average shares outstanding in calculating basic earnings per share were 1,290,059 and 1,295,088 while the weighted average number of shares for diluted earnings per share were 1,316,803 and 1,319,572. 6 (3) Stock Based 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.
Three Months Ending Six Months Ending December 31, December 31, 2004 2003 2004 2003 ---- ---- ---- ---- Net income as reported $ (1,215,805) $ 634,086 $ (606,772) $ 1,235,682 Less: Stock-based compensation expense determined under fair value based method 730 5,314 1,460 10,628 -------------- -------------- -------------- --------------- Pro forma net income $ (1,216,535) $ 628,772 $ (608,232) $ 1,225,054 =============== ============================================= Basic earnings (loss) per share as reported $ (.95) $ .49 $ (.47) $ .95 Pro forma basic earnings (loss) per share (.95) .49 (.48) .95 Diluted earnings (loss) per share as reported (.95) .48 (.47) .94 Pro forma diluted earnings (loss) per share (.95) .48 (.48) .93
There were no stock options granted during the six months ended December 31, 2004 or 2003. 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. A newly issued accounting standard, FAS 123R, will require all companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This will apply to awards granted or modified by the Company after the first quarter beginning after December 15, 2005. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted. Existing options that will vest after adoption date are expected to result in additional compensation expense, but the amounts will not be significant, and there will be no significant effect on financial position as total equity will not change. (4) Other Than Temporary Impairment As of December 31, 2004, unrealized losses on equity securities totaled approximately $1.9 million. During the quarter ending December 31, 2004, public disclosures regarding accounting practices at Fannie Mae ("FNMA") and a multi-billion dollar FNMA preferred stock issuance with a substantially different structure and higher yield than previous offerings had a detrimental effect on the fair value of the Company's FNMA and FHLMC preferred stock holdings. As a result of these factors and the duration and level of market values below cost on certain preferred stock issues, management could not forecast full recovery of the fair values in a reasonable time period and concluded that five of the eight preferred stock issues that it owns are other than temporarily impaired and recorded an impairment charge in the amount of $1.8 million. This impairment charge is a 7 capital loss for income tax purposes, and may be deducted only to the extent capital gains are generated within an available carry-forward period. Management evaluated the likelihood that the Company could generate capital gains to allow realization of the tax benefits associated with this capital loss, including consideration of various possible tax planning strategies. Management concluded that it is unlikely the Company would be able to generate significant capital gains in the foreseeable future, and, therefore, a tax benefit has not been recorded in connection with the impairment charge. 8 PART I: ITEM 2 FFW CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The accompanying Consolidated Financial Statements include the accounts of FFW Corporation (the "Company") and its wholly owned subsidiaries, First Federal Savings Bank of Wabash (the "Bank") and FirstFed Financial, Inc ("FirstFed Financial"). All significant inter-company transactions and balances are eliminated in consolidation. The Company's results of operations are primarily dependent on the Bank's net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank's net income is also affected by the level of its non-interest income and non-interest expenses, such as employee compensation and benefits, occupancy expenses, and other expenses. FORWARD-LOOKING STATEMENTS Except for historical information contained herein, the matters discussed in this document, and other information contained in the Company's SEC filings, may express "forward-looking statements." Those "forward-looking statements" may involve risk and uncertainties, including statements concerning future events, performance and assumptions and other statements that are other than statements of historical facts. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Readers are advised that various factors--including, but not limited to, changes in laws, regulations or accounting principles generally accepted in the United States of America; the Company's competitive position within the markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; any unforeseen downturns in the local, regional or national economies--could cause the Company's actual results or circumstances for future periods to differ materially from those anticipated or projected. The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. CRITICAL ACCOUNTING POLICIES Certain of the Company's accounting policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could 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 carrying value of securities available for sale and the valuation of mortgage servicing rights. Allowance for Loan Losses: The ALL is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the ALL balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the ALL may be made for specific loans, but the entire ALL is available for any loan that, in 9 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. Carrying Value of Securities Available For Sale ("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, accumulated other comprehensive income/(loss) net of tax totaled $565,275 at December 31, 2004 and $(1,209,167) at June 30, 2004. 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 December 31, 2004, unrealized losses on equity securities totaled approximately $1.9 million. During the quarter ending December 31, 2004, public disclosures regarding accounting practices at Fannie Mae ("FNMA") and a multi-billion dollar FNMA preferred stock issuance with a substantially different structure and higher yield than previous offerings had a detrimental effect on the fair value of the Company's FNMA and FHLMC preferred stock holdings. As a result of these factors and the duration and level of market values below cost on certain preferred stock issues, management concluded that five of the eight preferred stock issues that it owns are other than temporarily impaired and recorded an impairment charge in the amount of $1.8 million. This impairment charge is a capital loss for income tax purposes, and may be deducted only to the extent capital gains are generated within an available carry-forward period. Management evaluated the likelihood that the Company could generate capital gains to allow realization of the tax benefits associated with this capital loss, including consideration of various possible tax planning strategies. Management concluded that it is unlikely the Company would be able to generate significant capital gains in the foreseeable future, and, therefore, a tax benefit has not been recorded in connection with the impairment charge. Mortgage Servicing Rights: Servicing rights represent 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 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. During the quarter ending December 31, 2004, a $3,000 impairment charge was taken following the receipt of an outside appraisal. The $3,000 impairment charge is presented as a reduction in non-interest income in the financial statements and has been established as a valuation allowance. FINANCIAL CONDITION Total assets were $257.7 million at December 31, 2004, up $17.8 million, or 7.4%, from $239.9 million at June 30, 2004. Growth in net loans receivable of $17.8 million, or 11.6%, was accompanied by a $10.7 million increase in deposits. Net loans receivable increased from $136.1 million at June 30, 2004 to $153.9 million at December 31, 2004. The increases in the loan portfolio were comprised primarily of $14.2 million in nonresidential and commercial loans, $3.7 million in residential mortgages and $1.8 million in home equity and improvement loans. Other consumer and automobile loans decreased $1.9 million. Nonresidential and commercial loans have increased 10 in all of our branch markets. The increase in residential mortgages reflects renewed interest in adjustable rate loans, primarily five year hybrids, which the Company retains on its balance sheet. The Company primarily sells its fixed rate mortgages in the secondary market with terms of 15 years or longer. Loans held for sale increased from $97,000 at June 30, 2004 to $165,000 at December 31, 2004. Total deposits increased to $169.9 million at December 31, 2004. Management will continue to attempt to control the overall increases in interest rates on deposits by targeting certain terms and offering "specials" rather than making across the board increases in interest rates on all deposit products. FHLB advances increased by $6.9 million, or 4.3%, to $62.6 million at December 31, 2004. Total shareholders' equity increased $785,000 to $23.4 million at December 31, 2004. The increase primarily resulted from a $1.8 million decrease in unrealized depreciation on securities available for sale, net of tax, offsetting a $1.0 million reduction in retained earnings. COMPARISON OF THE THREE AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2004 AND 2003 Net loss for the three and six-month periods ended December 31, 2004 was $1,216,000 and $607,000 compared to net income of $634,000 and $1,236,000 for the equivalent periods in 2003. The three and six-month periods ended December 31, 2004 were primarily affected by a $1.8 million other than temporary impairment charge on FNMA and FHLMC preferred stocks. Management decided to record this charge due to recent public disclosures at FNMA and FHLMC, the duration and level of market values below book cost on these preferred stocks and the December 2004 multi-billion dollar FNMA preferred stock issuance with a substantially different structure and higher yields than previous offerings. These preferred stocks are investment grade securities that have never defaulted on payment to FFW Corporation. The impairment charge had no impact on FFWC's capital since the unrealized losses were already recorded as a mark to market adjustment in other comprehensive income (loss). Since capital is unaffected, the non-cash impairment charge had no effect on the Company's book value per share. As discussed under "Critical Accounting Policies," no tax benefit was recorded on the impairment charge, as the Company does not believe it is likely to realize a tax benefit from the charge. Without this charge, net income for the three and six-month periods ended December 31, 2004 would have been $589,000 and $1,198,000. Without the other than temporary impairment charge, the three and six-month periods ended December 31, 2004 were characterized by higher net interest income, lower provision, lower noninterest income and higher noninterest expense. Without the charge, income before taxes was higher in fiscal 2005 for the three and six-month periods but net income was lower due to a higher effective tax rate in fiscal 2005. Diluted net loss per common share for the second fiscal quarter of 2005 amounted to ($0.95) with the charge. Without the charge, diluted net income for the three-month period ended December 31, 2004 would have been $0.45 compared to $0.48 for the equivalent period in 2004. For the six months ended December 31, 2004, with the charge, diluted net loss per share was ($0.47). Without the charge, diluted earnings per common share would have been $0.92 and $0.94 for the six months ended December 31, 2004 and 2003. Return on average shareholders' equity (ROE) was (20.77)% for the three months and (5.15)% for the six months ended December 31, 2004, compared to 10.96% and 10.61% in 2003. The return on total average assets (ROA) was (1.97)% and (0.49)% for the three and six-month periods ended December 31, 2004, compared to 1.04% and 1.02% in 2003. Without the charge, ROE would have been 9.87% and 10.17% and ROA would have been 0.93% and 0.96% for the three and six-months ended December 31, 2004. 11 NET INTEREST INCOME The net interest income for the three-month period ended December 31, 2004, was $1,714,000 compared to $1,558,000, an increase of 10.0% over the same period in 2003. Accordingly, the Company's net interest margin was 2.91% compared to 2.73% in 2003. The net interest income for the six-month period ended December 31, 2004, was $3,387,000 compared to $3,146,000, an increase of 7.7% over the same period in 2003. Accordingly, the Company's net interest margin was 2.91% compared to 2.78% in 2003. Total average earning assets increased $6.3 and $4.2 million, respectively, for the three and six-month periods ended December 31, 2004, over the comparative periods in 2003. Total average investment securities decreased $7.9 and $8.6 million for the three and six-month periods over one-year ago. Total average loans increased $14.2 and $12.8 million for the three and six-month periods over one-year ago. The yields on total average earning assets were 5.48% and 5.44% for the three-month periods ended December 31, 2004, and 2003 and 5.46% and 5.53% for the six-month periods. The decline in yield for the six month period was due to lower average rates on loans more than offsetting higher average rates on securities and other interest earning assets. The cost of funds on total average interest-bearing liabilities were 2.85% and 2.98% for the three-month periods ended December 31, 2004, and 2003 and 2.81% and 3.03% for the six-month periods. The following tables set forth consolidated information regarding average balances and rates.
FFW Corp Three Months Ending (Dollars in thousands) 12/31/2004 12/31/2003 Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate - ------------------------ ------- -------- ----- ------- -------- ---- Loans $147,627 $2,345 6.30% $133,436 $2,179 6.50% Securities 82,637 866 4.14% 90,884 913 4.01% Other interest-earning assets 3,333 18 2.14% 3,002 12 1.59% -------- ------ -------- ------ Total interest-earning assets 233,597 3,229 5.48% 227,322 3,104 5.44% Non interest-earning assets: Cash and due from 6,110 6,217 Allowance for loan losses (2,511) (2,429) Other non interest-earning assets 14,013 11,820 --------- -------- Total assets $251,209 $242,930 ========= ======== Interest-bearing liabilities: Interest-bearing deposits $152,782 866 2.25% $148,221 906 2.43% HLB advances 57,919 649 4.45% 57,997 640 4.39% --------- ------ -------- ----- Total interest-bearing liabilities 210,701 1,515 2.85% 206,218 1,546 2.98% --------- ------ -------- ----- Non interest-bearing deposit accounts 14,174 11,039 Other non interest-bearing liabilities 2,660 2,681 ---------- ------- Total liabilities 227,535 219,938 Shareholders' equity 23,674 22,992 ---------- ------- Total liabilities and shareholders' equity $251,209 $242,930 ========== ======== Net interest income $ 1,714 $ 1,558 ======= ======= Net interest margin 2.91% 2.73% ==== ====
12
FFW Corp Six Months Ending (Dollars in thousands) 12/31/2004 12/31/2003 Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate - ------------------------ ------- -------- ----- ------- -------- ---- Loans $144,663 $4,601 6.31% $131,835 $4,450 6.71% Securities 82,696 1,718 4.10% 91,341 1,795 3.93% Other interest-earning assets 2,728 26 1.89% 2,706 18 1.32% -------- ------ -------- ------ Total interest-earning assets 230,087 6,345 5.46% 225,882 6,263 5.53% Non interest-earning assets: Cash and due from 6,024 6,242 Allowance for loan losses (2,562) (2,490) Other non interest-earning assets 14,062 11,694 -------- -------- Total assets $247,611 $241,328 ======== ======== Interest-bearing liabilities: Interest-bearing deposits $150,898 1,684 2.21% $149,492 1,842 2.45% FHLB advances 57,652 1,274 4.38% 54,902 1,275 4.62% -------- ------ -------- ------ Total interest-bearing liabilities 208,550 2,958 2.81% 204,394 3,117 3.03% -------- ------ -------- ------ Non interest-bearing deposit accounts 13,272 11,025 Other non interest-bearing liabilities 2,417 2,748 -------- -------- Total liabilities 224,239 218,167 Shareholders' equity 23,372 23,161 -------- -------- Total liabilities and shareholders' equity $247,611 $241,328 ======== ======== Net interest income $ 3,387 $ 3,146 ======= ======= Net interest margin 2.91% 2.78% ==== ====
PROVISION FOR LOAN LOSSES The provision for loan losses was $120,000 and $240,000 for the three and six-month periods ended December 31, 2004 and $210,000 and $420,000 for the same periods in 2003. Changes in the provision for loan losses are attributable to management's analysis of the adequacy of the allowance for loan losses (ALL) to address probable and incurred losses. Net charge-offs of $321,000 and $323,000 have been recorded for the three and six- month periods ended December 31, 2004, compared to $9,000 and $365,000 of net charge-offs for the same period in 2003. The ALL was $2,487,000 or 1.59% of portfolio loans at December 31, 2004 compared $2,688,000 or 1.89% at September 30, 2004 and $2,570,000 or 1.89% at June 30, 2004. Non-performing loans, which include non-accruing loans and accruing loans delinquent more than 90 days, were $950,000 at December 31, 2004 compared to $1.1 million at September 30, 2004, $1.0 million at June 30, 2004 and $2.5 million at December 31, 2003. The Company establishes an ALL based on an evaluation of risk factors in the loan portfolio and changes in the nature and volume of its loan activity. This evaluation includes, among other factors, the level of the Company's classified and non-performing assets and their estimated value, the economic outlook and the resulting impact on real estate and other values in the Company's primary market area, regulatory issues and historical loan loss experience. Although management believes it uses the best information available to 13 determine the ALL, unforeseen market conditions or other unforeseen events could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the determination. In addition, a determination by the Company's main operating subsidiary, the Bank, as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS which may order the establishment of additional general or specific reserve allowances. It is management's opinion that the ALL is adequate to absorb existing losses in the loan portfolio as of December 31, 2004. NON-INTEREST INCOME Non-interest income (loss) for the three-month period ended December 31, 2004 was ($1.2) million with the $1.8 million other than temporary impairment charge on certain FNMA and FHLMC preferred stocks mentioned above. Without the charge, non-interest income for the three and six-month periods ended December 31, 2004 would have been $502,000 and $1,039,000 compared to $614,000 and $1,171,000 for the same periods in 2003. Without the charge, the three-month decrease of $132,000 from the prior period was a result of decreases of $42,000 in gain on sale of loans, $15,000 in earnings on life insurance, $37,000 in other non-interest income, $13,000 in service charges and fees and $5,000 in commission income. Without the charge, the six-month results for fiscal 2005 were $132,000 less due to decreases of $4,000 in gain on sale of securities, $280,000 in gain on sale of loans, $29,000 in earnings on the cash surrender value of bank owned life insurance that were partially offset by increases of $9,000 in commission income, $57,000 in service charges and fees and $117,000 in other non-interest income. The increase in other non-interest income includes $105,000 from the sale of the Bank's previous North Manchester, IN branch. NON-INTEREST EXPENSE Non-interest expense for the three-month period ended December 31, 2004, was $1,394,000, an increase of $115,000, or 9.0%, compared to the same period in 2003. For the six-month period ended December 31, 2004, non-interest expense was $2,785,000, an increase of $266,000, or 10.5%. Comparing the six-month periods, all areas of non-interest expense were higher except for deposit insurance premiums and data processing expense. The largest increases, $155,000 or 13.3% in compensation and benefits and $123,000 or 58.7% in occupancy and equipment, stem from the addition of our fifth full service branch, located in Columbia City, IN, in late June 2004 and increased depreciation of computer hardware and software purchased over the last year. FFW Corporation is investigating the possibility of de-listing its stock and de-registering with the Securities and Exchange Commission ("SEC"). This strategy would reduce future expenses associated with SEC reporting requirements, as well as NASDAQ filing fees, but would also result in the Company's common stock no longer being quoted on the NASDAQ Small Cap Market. In order to de-register, the Company must first have fewer than 300 shareholders of record. The Company currently has approximately 314 shareholders of record. The Company's shares trade infrequently and residents of Indiana hold many shares. Therefore, it is management's belief that any negative impact on the liquidity of the shares as a result of a de-registering and de-listing would be minimal. INCOME TAXES The provisions for income taxes for the three and six-month periods ended December 31, 2004 are not affected by the $1.8 million other than temporary impairment charge since no deferred tax asset was setup in regard to this charge. The provisions for income taxes for the three and six-month periods ended December 31, 2004, 14 were $111,000 and $203,000 compared to $48,000 and $142,000 for the same periods in 2003. The increase in provision is partially due to slightly higher income before taxes without the $1.8 million charge. The provision increase is also due to a higher effective tax rate stemming from decreased nontaxable securities income and decreased nontaxable income from the cash surrender value of bank owned life insurance. Without the charge, the Company's effective tax rate was 14.46% for the six months ended December 31, 2004 compared to 11.53% at December 31, 2003. REGULATORY CAPITAL REQUIREMENTS The Bank is required to maintain specific amounts of regulatory capital pursuant to regulations of the OTS. At December 31, 2004, the Bank exceeded all regulatory capital standards as is shown in the following table.
Minimum To Be Well Minimum Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ------ As of December 31, 2004 Total Risk-Based Capital $ 21,229 12.88%$ 13,187 8.00% $ 16,484 10.00% Tier I (Core) Capital 19,163 11.63% 6,593 4.00% 9,890 6.00% (to risk weighted assets) Tier I (Core) Capital 19,163 7.54% 10,169 4.00% 12,711 5.00% (to adjusted total assets)
15 PART I: ITEM 3 FFW CORPORATION CONTROLS AND PROCEDURES As of the end of the fiscal quarter covered by this report, an evaluation was carried out under the supervision and with the participation of FFW Corporation's management, including our Chief Executive Officer and Chief Financial Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Accounting Officer have concluded that the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by FFW Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Accounting Officer have concluded that there were no significant changes in FFW Corporation's internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 16 Part II - Other Information As of December 31, 2004, management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have or are reasonably likely to have a material adverse effect on the Company's liquidity, capital resources or operations. Item 1 - Legal Proceedings Not Applicable. Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds On March 25, 2003, the Board of Directors approved the repurchase of 5% of the Company's outstanding shares of common stock, or 66,090 such shares, on the open market. The program had no expiration date. As of December 31, 2004, the Company had repurchased 53,552 shares pursuant to this repurchase program, leaving 12,538 shares subject to the plan. Item 3 - Defaults Upon Senior Securities Not Applicable. Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable. Item 5 - Other Information Not Applicable Item 6 - Exhibits (a) Exhibits 31(1) Certification required by 17 C.F.R. ss. 240.13a-14(a) 31(2) Certification required by 17 C.F.R. ss. 240.13a-14(a) 32 Certification pursuant to 18 U.S.C. ss. 1350 (b) Reports on Form 8-K Form 8-K for 1st Fiscal Quarter Earnings Release filed on October 28, 2004. 17 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FFW CORPORATION Registrant Date: February 11, 2005 By: /s/ Roger K. Cromer ------------------------------ ------------------------------- Roger K. Cromer President and Chief Executive Officer Date: February 11, 2005 By: /s/ Timothy A. Sheppard ------------------------------ ------------------------------- Timothy A. Sheppard Treasurer and Chief Accounting Officer 18 EXHIBIT INDEX Exhibit No. Description of Exhibit Page 31(1) Certification required by 17 C.F.R. ss. 240.13a-14(a) 17 31(2) Certification required by 17 C.F.R. ss. 240.13a-14(a) 18 32 Certification pursuant to 18 U.S.C. ss. 1350 19 19 EX-31 2 ex311_0211.txt CROMER CERTIFICATION Exhibit 31(1) CERTIFICATION I, Roger K. Cromer, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of FFW Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2005 /s/ Roger K. Cromer ----------------------------------- Roger K. Cromer President and Chief Executive Officer EX-31 3 ex312_0211.txt SHEPPARD CERTIFICATION Exhibit 31(2) CERTIFICATION I, Timothy A. Sheppard, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of FFW Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2005 /s/ Timothy A. Sheppard --------------------------------- Timothy A. Sheppard Treasurer EX-32 4 ex32_0211.txt SOX CERTIFICATION Exhibit 32 CERTIFICATION By signing below, each of the undersigned hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, (i) this Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2004 ("Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (ii) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of FFW Corporation. Signed this 11th day of February, 2005. FFW CORPORATION Registrant Date: February 11, 2005 By: /s/ Roger K. Cromer ---------------------- ------------------------------- Roger K. Cromer President and Chief Executive Officer Date: February 11, 2005 By: /s/ Timothy A. Sheppard ---------------------- ------------------------------- Timothy A. Sheppard Treasurer and Chief Accounting Officer A signed original of this written statement required by Section 906 has been provided to FFW Corporation and will be retained by FFW Corporation and forwarded to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----