10QSB 1 form10qsb41146_11-12.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 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) (219) 563-3185 (Issuer's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Transitional Small Business Disclosure Format (check one): Yes __ No X State the number of Shares outstanding of each of the issuer's classes of common equity, as of the latest date: As of November 2, 2001, there were 1,390,318 shares of the Registrant's common stock issued and outstanding. FFW CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets September 30, 2001 3 and June 30, 2001 Consolidated Statements of Income and 4 Comprehensive Income for the three months ended September 30, 2001 and 2000. Consolidated Statements of Cash Flows for the three 5 months ended September 30, 2001 and 2000. Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations PART II. OTHER INFORMATION Items 1-6 11 Signature Page 12 2 PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED BALANCE SHEETS
(Unaudited) ASSETS : September 30 June 30 ------- 2001 2001 ---- ---- Cash and due from financial institutions ........................................... $ 5,203,155 $ 6,372,538 Interest-earning deposits in financial institutions - short term ................... 7,785,891 2,157,621 ------------- ------------- Cash and cash equivalents .............................................. 12,989,046 8,530,159 Securities available for sale ...................................................... 62,521,651 60,973,088 Loans receivable, net of allowance for loan losses of $1,577,351 at September 30, 2001 and $1,773,194 at June 30, 2001 ................................... 151,701,144 152,195,442 Federal Home Loan Bank stock, at cost .............................................. 3,400,900 3,400,900 Accrued interest receivable ........................................................ 1,399,474 1,479,567 Premises and equipment-net ......................................................... 2,635,250 2,099,125 Investment in limited partnership ................................................ 460,548 480,548 Other assets ....................................................................... 2,233,149 2,027,633 ------------- ------------- Total Assets ............................................... $ 237,341,162 $ 231,186,462 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY: ------------------------------------- Liabilities: Non-interest-bearing demand deposits ............................................... $ 9,534,041 $ 9,161,009 Savings, NOW and MMDA deposits ..................................................... 50,246,764 48,126,243 Other time deposits ................................................................ 85,515,672 87,342,800 ------------- ------------- Total Deposits ......................................................... 145,296,477 144,630,052 Federal Home Loan Bank advances .................................................... 66,387,656 62,396,906 Accrued interest payable ........................................................... 1,075,284 196,840 Accrued expenses and other liabilities ............................................. 2,316,029 1,969,604 ------------- ------------- Total Liabilities ...................................................... 215,075,446 209,193,402 Shareholders' Equity: Preferred stock, $.01 par value, 500,000 shares authorized none issued ............. -- -- Common stock, $.01 par value, 2,000,000 shares authorized, 1,829,828 shares issued and 1,390,345 shares outstanding at September 30, 2001; 1,829,828 shares issued and 1,412,478 shares outstanding at June 30, 2001 ............... 18,298 18,298 Additional paid-in capital ......................................................... 9,336,605 9,336,605 Retained earnings - substantially restricted ....................................... 16,763,807 16,423,161 Accumulated other comprehensive income ........................................... 537,165 330,776 Unearned management retention plan shares .......................................... (46,403) (52,242) Treasury stock at cost, 439,483 shares on September 30, 2001 and 417,350 shares on June 30, 2001 ........................................ (4,343,756) (4,063,538) ------------- ------------- Total Shareholders' Equity ......................................... 22,265,716 21,993,060 ------------- ------------- Total Liabilities and Shareholders' Equity ................. $ 237,341,162 $ 231,186,462 ============= =============
3 PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
Three Months Ended September 30 2001 2000 ---- ---- Interest income: Loans receivable Mortgage loans ................................................................ $ 1,485,635 $ 1,507,412 Consumer and other loans ...................................................... 1,702,056 1,869,445 Securities Taxable ....................................................................... 850,237 849,311 Nontaxable .................................................................... 130,480 112,777 Other interest-earning assets ............................................................. 29,633 29,315 ----------- ----------- Total interest income ......................................................... 4,198,041 4,368,260 Interest expense : Deposits .................................................................................. 1,723,078 1,651,863 Other ..................................................................................... 842,051 984,535 ----------- ----------- Total interest expense ........................................................ 2,565,129 2,636,398 ----------- ----------- Net interest income ................................................................................... 1,632,912 1,731,862 Provision for loan losses ................................................................. 225,000 1,035,000 ----------- ----------- Net interest income after provision for loan losses ................................................... 1,407,912 696,862 Non-interest income : Net gain on sale of securities ............................................................ 5,000 -- Net gain on sale of loans ................................................................. 49,024 8,010 Other ..................................................................................... 342,652 303,103 ----------- ---------- Total noninterest income ...................................................... 396,676 295,093 Noninterest expense : Compensation and benefits ................................................................. 526,290 520,901 Occupancy and equipment ................................................................... 92,803 96,527 Data processing expense ................................................................... 116,867 115,228 Other ..................................................................................... 346,155 340,866 ----------- ----------- Total noninterest expense ..................................................... 1,082,115 1,073,522 ----------- ----------- Income (Loss) before income taxes ..................................................................... 722,473 (81,567) Income tax expense (benefit) .............................................................. 196,363 (46,973) ----------- ----------- Net income (loss) ..................................................................................... $ 526,110 $ (34,594) =========== =========== Comprehensive income .................................................................................. $ 732,499 $ 325,904 =========== =========== Earnings (Losses) per common share : Basic ..................................................................................... $ .37 $ (.02) Diluted ................................................................................... $ .37 $ (.02)
4 PART I: FINANCIAL INFORMATION FFW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended September 30 2001 2000 ---- ---- Cash flows from operating activities: Net income (loss) ..................................................... $ 526,110 $ (34,594) Adjustments to reconcile net income (loss) to net cash from operating activities : Depreciation and amortization, net of accretion .................. 24,327 (12,524) Provision for loan losses ........................................ 225,000 1,035,000 Net (gains) losses on sale of : Securities available for sale ............................. (5,000) 0 Loans held for sale ....................................... (49,024) (8,010) Foreclosed estate owned and repossessed assets ............ 7,980 0 Origination of loans held for sale ............................... (5,110,050) (784,000) Proceeds from sale of loans held for sale ........................ 5,159,074 792,010 Net change in accrued interest receivable and other assets .................................................. (285,878) 228,006 Amortization of goodwill and core deposit intangibles ............ 41,760 39,087 Net change in accrued interest payable, accrued expenses and other liabilities ............................ 1,230,708 1,864,821 ------------ ------------ Total adjustments ............................. 1,238,897 3,154,390 ------------ ------------ Net cash from operating activities ........................ 1,765,007 3,119,796 Cash flows from investing activities: Proceeds from: Sales/calls of securities available for sale .............. 9,386,600 1,750,000 Maturities of securities available for sale ............... 0 95,000 Purchase of securities available for sale ........................ (11,970,180) (212,499) Principal collected on mortgage- backed securities ............... 1,402,844 45,922 Net change in loans receivable ................................... 159,929 (2,482,509) Net purchases premises and equipment ............................. (581,575) (7,533) Investment in limited partnership ................................ 0 (75,000) Proceeds from sales of other real estate and repossessed assets ........................................ 104,769 97,365 ------------ ------------ Net cash from investing activities ........................ (1,497,613) (789,254) Cash flows from financing activities : Net increase in deposits ......................................... 666,425 3,623,161 Proceeds from borrowings ......................................... 25,490,750 20,889,047 Payment on borrowings ............................................ (21,500,000) (22,889,047) Purchase of treasury stock ....................................... (280,218) 0 Proceeds from exercising of stock options ........................ 0 5,000 Cash dividends paid .............................................. (185,464) (187,240) ------------ ------------ Net cash from financing activities ........................ 4,191,493 1,440,921 Net increase (decrease) in cash and cash equivalents .............................. 4,458,887 3,771,463 Cash and cash equivalents at beginning of period .................................. 8,530,159 5,254,418 ------------ ------------ Cash and cash equivalents at end of period ........................................ $ 12,989,046 $ 9,025,881 ============ ============
5 FFW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting only of normal recurring adjustments) necessary to represent fairly the financial condition of FFW Corporation as of September 30, 2001 and June 30, 2001 and the results of its operations, for the three months ended September 30, 2001 and 2000. Financial Statement reclassifications have been made for the prior period to conform to classifications used as of and for the period ended September 30, 2001. Operating results for the three months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2002. 6 PART II 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 of Wabash, 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 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. COMPARISON OF THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 Net income for the three-month period ended September 30, 2001 was $526,000 compared to a net loss of $(35,000) for the equivalent period in 2000. This substantial increase of $561,000 was primarily the result of an $810,000 decrease in the provision for loan loss for the period ended September 30, 2001 compared to September 30, 2000. Diluted net income per common share was $0.37 for the three-month period ended September 30, 2001 compared to diluted net loss per common share of $(0.02) for the equivalent period in 2000. Return on average shareholders' equity was 9.45% for the three months ended September 30, 2001, compared to (0.69)% in 2000. The return on total average assets was 0.91% for the three months ended September 30, 2001, compared to (0.06)% in 2000. 7 NET INTEREST INCOME The net interest income for the three-month period ended September 30, 2001, was $1,633,000 compared to $1,732,000, a decrease of 5.7% over the same period in 2000, resulting in a net yield of 2.94% compared to 3.26% in 2000. Total average earning assets increased by $9.7 million for the three-month period ended September 30, 2001, over the comparative period in 2000. Total average investment securities increased $10.5 million for the three-month period over one-year ago. Total average loans decreased $2.3 million for the three-month period over one-year ago. The yields on total average earning assets were 7.57% and 8.12% for the three-month periods ended September 30, 2001, and 2000. The following tables set forth consolidated information regarding average balances and rates.
FFW Corp Three Months Ending (In Thousands) 9/30/2001 9/30/2000 ----------------------------------- ---------------------------------- Average Average Average Average Interest-earning assets: Balance Interest Rate Balance Interest Rate ------------------------ ------- -------- -------- ------- -------- -------- Loans $151,646 $3,187 8.34% $153,910 $3,377 8.71% Securities 65,676 981 5.99% 55,130 962 6.63% Other interest-earning assets 3,265 30 3.65% 1,893 30 6.29% -------- ------ --------- ----- Total interest-earning assets 220,587 4,198 7.57% 210,933 4,369 8.12% Non interest-earning assets Cash and due from 4,818 4,410 Allowance for loan losses (1,750) (1,990) Other non interest-earning assets 5,896 6,988 -------- -------- Total assets $229,551 $220,341 ======== ======== Interest-bearing liabilities: Interest-bearing deposits $135,737 1,723 5.04% $125,155 1,652 5.24% FHLB advances 60,072 842 5.56% 63,958 985 6.11% -------- ------ --------- ----- Total interest-bearing liabilities 195,809 2,565 5.20% 189,113 2,637 5.53% -------- ------ --------- ----- Non interest-bearing deposit accounts 9,535 9,213 Other non interest-bearing liabilities 2,116 2,327 -------- --------- Total liabilities 207,460 200,653 Shareholders' equity 22,091 19,688 -------- --------- Total liabilities and shareholders equity $229,551 $220,341 ======== ======== Net interest income $ 1,633 $1,732 ======= ====== Net interest margin 2.94% 3.26% ===== =====
8 PROVISION FOR LOAN LOSSES The provision for loan losses was $225,000 for the three-month period ended September 30, 2001 and $1,035,000 for the same period in 2000. The substantial difference between the three-month periods is due to an additional $900,000 provision taken in the period ending September 30, 2000 on loans to a single borrower. Changes in the provision for loan losses are attributed to management's analysis of the adequacy of the allowance for loan losses to address recognizable and currently estimated losses. Net charge-offs of $421,000 have been recorded for the three-month period ended September 30, 2001, compared to $99,000 of net charge-offs for the same period in 2000. The allowance for loan losses was $1,577,000 or 1.04% of net loans as of September 30, 2001, compared to $1,773,000 or 1.17% of net loans at June 30, 2001. The Company establishes an allowance for loan losses 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 national outlook which may tend to inhibit economic activity and depress real estate and other values in the Company's primary market area, regulatory issues and historical loan loss experience. Accordingly, the calculation of the adequacy of loan losses is not based directly on the level of non-performing loans. Although management believes it uses the best information available to determine the allowances, unforeseen market conditions or other unforeseen events could result in adjustments and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the determination. In addition, a determination by the Company's main operating subsidiary, First Federal, as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision, (OTS), which may order the establishment of additional general or specific reserve allowances. It is management's opinion that the allowance for loan losses is adequate to absorb existing losses in the loan portfolio as of September 30, 2001. NON-INTEREST INCOME Non-interest income for the three-month periods ended September 30, 2001 and 2000 was $397,000 and $295,000, respectively. This $102,000 increase from the prior period is composed primarily of increased gain on sale of loans, $41,000 higher, and increased commission income from FirstFed Financial, $42,000 higher, compared to the period ending September 30, 2000. NON-INTEREST EXPENSE Non-interest expense for the three-month period ended September 30, 2001, was $1,082,000, an increase of $8,000, or 0.8%, compared to the same period in 2000. For the three-month period ended September 30, 2001, compensation and employee benefits increased 1.0%, occupancy and equipment expense decreased 3.9%, data processing expense increased 1.4% and other non-interest expense increased 1.6% over the same period in 2000. INCOME TAXES The provision for income taxes for the three-month period ended September 30, 2001, was $196,000. This compares to a tax benefit of $(47,000) for the comparable period in 2000. The provision for income taxes for the three months ended September 30, 2001, is at a rate which management believes approximates the effective rate for the year ending June 30, 2002. 9 REGULATORY CAPITAL REQUIREMENTS The Bank is required to maintain specific amounts of regulatory capital pursuant to regulations of the OTS. At September 30, 2001, 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 September 30, 2001 Total Risk-based Capital $ 19,445 12.78% $ 12,176 8.00% $ 15,221 10.00% Tier I (Core) Capital 17,876 11.74% 6,088 4.00% 9,132 6.00% (to risk weighted assets) Tier I (Core) Capital 17,876 7.64% 9,361 4.00% 11,702 5.00% (to adjusted total assets)
Impact of New Accounting Standards In June 2001, the Financial Accounting Standards Board "FASB" issued Statement of Financial Accounting Standards "SFAS" No. 141, "Business Combinations." SFAS No. 141 requires all business combinations within its scope to be accounted for using the purchase method, rather than the pooling of interests method. The provisions of this statement apply to all business combinations initiated after June 30, 2001. The adoption of this statement will only have an impact on our financial statements if we enter into a business combination. Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses the accounting for such assets arising from prior and future business combinations. Upon the adoption of this statement, goodwill arising from business combinations will no longer be amortized, but rather will be assessed regularly for impairment, with any such impairment recognized as a reduction to earnings in the period identified. Other identified intangible assets, such as core deposit intangible assets, will continue to be amortized over their estimated useful lives. We are required to adopt this statement on July 1, 2002. Management has not yet determined the impact of the pending adoption of this new pronouncement. 10 Part II - Other Information --------------------------- As of September 30, 2001, management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have or are reasonably likely to have a material adverse effect on the Company's liquidity, capital resources or operations. Item 1 - Legal Proceedings ----------------- Not Applicable. Item 2 - Changes in Securities --------------------- Not Applicable. Item 3 - Defaults upon Senior Securities ------------------------------- Not Applicable. Item 4 - Submission of Matters to a vote of Security Holders --------------------------------------------------- The Annual Meeting of Shareholders (the "Meeting") of FFW Corporation was held on October 23, 2001. The matters approved by shareholders at the Meeting and the number of votes cast for, against or withheld (as well as the number of abstentions and broker non-votes) as to each matter are set below:
PROPOSAL NUMBER OF VOTES -------- --------------- FOR WITHHELD --- -------- Election of the following Directors for a three-year term Roger K. Cromer..................................... 974,279 142,520 Joseph W. McSpadden................................. 973,029 143,770 FOR AGAINST ABSTAIN --- ------- ------- Ratification of Crowe, Chizek and Company LLP as auditors for the fiscal year ending June 30, 2002............ 1,114,899 100 1,800
Item 5 - Other Information ----------------- Not Applicable Item 6 - Exhibits and Reports on Form 8-K -------------------------------- Not Applicable 11 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FFW CORPORATION Registrant Date: November 12, 2001 /S/ Roger K. Cromer -------------------------------------- Roger K. Cromer President and Chief Executive Officer Date: November 12, 2001 /S/ Timothy A. Sheppard --------------------------------------- Timothy A. Sheppard Treasurer and Chief Accounting Officer 12