FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
--------------------------------------------
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 No. 0-27916
FFD FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Ohio 34-1921148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
321 North Wooster Avenue
Dover, Ohio 44622
(Address of principal (Zip Code)
executive office)
Issuer's telephone number: (330) 364-7777
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
As of November 9, 1999, the latest practicable date, 1,417,283 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 15 pages
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INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION 14
SIGNATURES 15
2
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<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 1999 1999
<S> <C> <C>
Cash and due from banks $ 1,172 $ 844
Interest-bearing deposits in other financial institutions 1,420 2,167
------- -------
Cash and cash equivalents 2,592 3,011
Investment securities available for sale - at market 2,900 2,924
Mortgage-backed securities available for sale - at market 10,175 10,978
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $4,614 and $4,907 as of
September 30, 1999 and June 30, 1999 4,480 4,779
Loans receivable - net 90,468 86,417
Loans held for sale 1,027 965
Office premises and equipment - at depreciated cost 1,331 1,364
Federal Home Loan Bank stock - at cost 1,326 1,201
Accrued interest receivable 325 329
Prepaid expenses and other assets 120 209
Prepaid federal income taxes 140 116
------- -------
Total assets $114,884 $112,293
======= =======
LIABILITIES AND SHAREHOLDER' EQUITY
Deposits $ 72,128 $ 72,025
Advances from the Federal Home Loan Bank and other borrowings 26,208 23,616
Accrued interest payable 170 146
Other liabilities 423 250
Deferred federal income taxes 56 52
------- -------
Total liabilities 98,985 96,089
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued - -
Common shares - authorized 5,000,000 shares without par or
stated value, 1,454,750 shares issued - -
Additional paid-in capital 7,798 7,798
Retained earnings - restricted 9,928 9,850
Unrealized losses on securities designated as available for sale,
net of related tax effects (251) (216)
Shares acquired by stock benefit plans (1,207) (1,207)
Less 30,334 and 1,334 shares of treasury stock - at cost (369) (21)
------- -------
Total shareholders' equity 15,899 16,204
------- -------
Total liabilities and shareholders' equity $114,884 $112,293
======= =======
</TABLE>
3
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
(In thousands, except share data)
1999 1998
<S> <C> <C>
Interest income
Loans $1,597 $1,318
Mortgage-backed securities 293 238
Investment securities, interest-bearing
deposits and other 32 69
----- -----
Total interest income 1,922 1,625
Interest expense
Deposits 762 752
Borrowings 302 167
----- -----
Total interest expense 1,064 919
----- -----
Net interest income 858 706
Provision for losses on loans 9 -
----- -----
Net interest income after provision
for losses on loans 849 706
Other income
Gain on sale of loans 5 -
Other operating 33 25
----- -----
Total other income 38 25
General, administrative and other expense
Employee compensation and benefits 285 308
Occupancy and equipment 58 59
Federal deposit insurance premiums 10 9
Franchise taxes 68 70
Data processing 42 36
Other operating 119 88
----- -----
Total general, administrative and other expense 582 570
----- -----
Earnings before income taxes 305 161
Federal income taxes
Current 82 (69)
Deferred 22 124
----- -----
Total federal income taxes 104 55
----- -----
NET EARNINGS $ 201 $ 106
===== =====
EARNINGS PER SHARE
Basic $.15 $.08
=== ===
Diluted $.14 $.08
=== ===
</TABLE>
4
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Net earnings $ 201 $ 106
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (35) 68
---- ----
Comprehensive income $ 166 $ 174
==== ====
Accumulated comprehensive losses $(251) $(216)
==== ====
</TABLE>
5
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<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 201 $ 106
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net 14 9
Amortization of deferred loan origination fees (19) (25)
Depreciation and amortization 34 32
Provision for losses on loans 9 -
(Gain) loss on sale of mortgage loans 1 (1)
Loans originated for sale in the secondary market (814) (2,074)
Proceeds from sale of loans in the secondary market 751 1,660
Federal Home Loan Bank stock dividends (22) (17)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 4 48
Prepaid expenses and other assets 89 67
Accrued interest payable 24 57
Other liabilities 173 206
Federal income taxes
Current (24) (202)
Deferred 22 124
----- -----
Net cash provided by (used in) operating activities 443 (10)
Cash flows provided by (used in) investing activities:
Purchase of investment securities - (1,500)
Proceeds from maturities of investment securities - 500
Purchase of mortgage-backed securities - (4,577)
Principal repayments on mortgage-backed securities 1,059 977
Loan principal repayments 2,793 2,243
Loan disbursements (6,834) (4,818)
Purchase of office premises and equipment (1) (66)
Purchase of Federal Home Loan Bank stock (103) -
----- -----
Net cash used in investing activities (3,086) (7,241)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 103 2,950
Proceeds from Federal Home Loan Bank advances 2,618 4,500
Repayment of Federal Home Loan Bank advances (26) -
Proceeds from other borrowed money - 150
Dividends on common stock (123) (109)
Purchase of treasury stock (348) -
----- -----
Net cash provided by financing activities 2,224 7,491
----- -----
Net increase (decrease) in cash and cash equivalents (419) 240
Cash and cash equivalents at beginning of period 3,011 1,633
----- -----
Cash and cash equivalents at end of period $2,592 $1,873
===== =====
</TABLE>
6
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 106 $133
===== ===
Interest on deposits and borrowings $1,040 $862
===== ===
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (35) $ 68
===== ===
Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 6 $-
===== ===
</TABLE>
7
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FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 1999 and 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not
include information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of FFD Financial Corporation (the
"Corporation") included in the Annual Report on Form 10-KSB for the year
ended June 30, 1999. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a
fair presentation of the financial statements have been included. The
results of operations for the three month period ended September 30, 1999,
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Corporation and First Federal Savings Bank of Dover (the "Savings
Bank"). All significant intercompany items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires entities
to recognize all derivatives in their financial statements as either assets
or liabilities measured at fair value. SFAS No. 133 also specifies new
methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged, and specifies detailed criteria to be met
to qualify for hedge accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other contracts,
unless the underlying of the embedded derivative is clearly and closely
related to the host contract.
8
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FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended September 30, 1999 and 1998
3. Effects of Recent Accounting Pronouncements (continued)
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to
transfer held-to-maturity debt securities to the available-for-sale or
trading category without calling into question their intent to hold other
debt securities to maturity in the future. SFAS No. 133 is not expected to
have a material impact on the Corporation's financial statements.
4. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average common
shares outstanding during the period less shares in the FFD Financial
Corporation Employee Stock Ownership Plan (the "ESOP") that are unallocated
and not committed to be released. Weighted-average common shares deemed
outstanding, which gives effect to 85,744 unallocated ESOP shares, totaled
1,366,726 for the three month period ended September 30, 1999.
Weighted-average common shares deemed outstanding, which gives effect to
98,861 unallocated ESOP shares, totaled 1,346,489 for the three month period
ended September 30, 1998.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,397,612 for the three month period ended September 30, 1999, and 1,401,513
for the three month period ended September 30, 1998. Incremental shares
related to the assumed exercise of stock options included in the computation
of diluted earnings per share totaled 30,886 for the three month period
ended September 30, 1999, and 55,024 for the three month period ended
September 30, 1998, respectively.
9
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1999 to September 30,
1999
The Corporation's total assets at September 30, 1999, amounted to $114.9
million, a $2.6 million, or 2.3%, increase over the total at June 30, 1999. This
increase was funded primarily through an increase in advances from the Federal
Home Loan Bank ("FHLB") and other borrowings of $2.6 million and growth in
deposits of $103,000.
Cash and cash equivalents and investment securities totaled $5.5 million at
September 30, 1999, a decrease of $443,000, or 7.5%, from the total at June 30,
1999, as excess liquidity was used to fund new loan originations during the
quarter.
Mortgage-backed securities totaled $14.7 million at September 30, 1999, a $1.1
million, or 7.0%, decrease from the total at June 30, 1999. This decrease
resulted primarily from principal repayments.
Loans receivable totaled $91.5 million at September 30, 1999, an increase of
$4.1 million, or 4.7%, over the June 30, 1999 total. Loan disbursements during
the period totaled $7.6 million, which were partially offset by principal
repayments of $2.8 million and loans sold in the secondary market totaling
$752,000. Loan disbursements during the three months ended September 30, 1999,
increased by $756,000, or 11.0%, compared to the origination volume during the
same period in 1998.
The allowance for loan losses totaled $278,000 and $269,000 at September 30,
1999 and June 30, 1999, which represented .30% of total loans and 375.7% and
1,793.3% of nonperforming loans at those respective dates. Nonperforming loans
amounted to $74,000 and $15,000 at September 30, 1999, and June 30, 1999,
respectively. Although management believes that its allowance for loan losses at
September 30, 1999, is adequate based upon the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect the
Corporation's results of operations.
Deposits totaled $72.1 million at September 30, 1999, a $103,000, or .1%,
increase over total deposits at June 30, 1999. FHLB advances and other
borrowings totaled $26.2 million at September 30, 1999, a $2.6 million, or
11.0%, increase over June 30, 1999. Proceeds from the increase in deposits and
borrowings were primarily used to fund loan originations.
The Savings Bank is required to meet minimum capital standards promulgated by
the Office of Thrift Supervision ("OTS"). At September 30, 1999, the Savings
Bank's regulatory capital was well in excess of such minimum capital
requirements.
10
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended September 30,
1999 and 1998
General
The Corporation's net earnings totaled $201,000 for the three months ended
September 30, 1999, an increase of $95,000, or 89.6%, over the net earnings of
$106,000 recorded in the comparable period in 1998. The increase in net earnings
resulted primarily from an increase of $152,000 in net interest income and an
increase of $13,000 in other income which were partially offset by an increase
of $12,000 in general, administrative and other expense and an increase of
$49,000 in the provision for federal income taxes.
Net Interest Income
Total interest income increased by $297,000, or 18.3%, to a total of $1.9
million for the three months ended September 30, 1999, compared to the three
month period ended September 30, 1998. Interest income on loans increased by
$279,000, or 21.2%, due primarily to an increase of approximately $16.9 million,
or 23.4%, in the average loan portfolio balance outstanding. Interest income on
mortgage-backed securities increased by $55,000, or 23.1%, due primarily to an
increase in the average balance outstanding, coupled with a decrease in the
yield earned on such securities. Interest income on investment securities and
interest-bearing deposits decreased by $37,000, or 53.6%, due primarily to a
decrease in the related investment balance and a decrease in the yield earned on
such investments.
Interest expense on deposits increased by $10,000, or 1.3%, for the three months
ended September 30, 1999, compared to the same period in 1998, due primarily to
an approximate $8.7 million increase in the average deposit portfolio balance
outstanding, which was partially offset by a decrease in the average cost of
deposits.
Interest expense on borrowings increased by $135,000, or 80.8%, due primarily to
an increase in the average balance of advances outstanding.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $152,000, or 21.5%, for the three months ended
September 30, 1999, compared to the same period in 1998.
11
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended September 30,
1999 and 1998 (continued)
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical loss experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of First
Federal's loan portfolio. As a result of such analysis, management elected to
record a provision for losses on loans totaling $9,000 during the three month
period ended September 30, 1999. The current quarter provision was predicated
primarily upon growth in the loan portfolio. There can be no assurance that the
loan loss allowance of the Savings Bank will be adequate to cover losses on
nonperforming assets in the future.
Other Income
Other income totaled $38,000 for the three months ended September 30, 1999, an
increase of $13,000, or 52.0%, over the 1998 total. The increase was due
primarily to a $5,000 gain on sale of loans in the 1999 three month period,
coupled with an $8,000, or 32.0%, increase in other operating income.
General, Administrative and Other Expense
General, administrative and other expense totaled $582,000 for the three months
ended September 30, 1999, an increase of $12,000, or 2.1%, compared to the same
period in 1998. The increase in general, administrative and other expense
resulted primarily from an increase of $31,000, or 35.2%, in other operating
expense, which was partially offset by a $23,000, or 7.5%, decrease in employee
compensation and benefits. The increase in other operating expense was comprised
primarily of increases in ATM charges, office supplies and pro-rata increases in
other operating expenses related to the Corporation's overall growth year to
year.
Federal Income Taxes
The Corporation recorded a provision for federal income taxes totaling $104,000
for the three months ended September 30, 1999, an increase of $49,000, or 89.1%,
over the same period in 1998. The increase resulted primarily from a $144,000,
or 89.4%, increase in earnings before taxes. The effective tax rates were 34.1%
and 34.2% for the three months ended September 30, 1999 and 1998, respectively.
12
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters
As with all providers of financial services, the Savings Bank's operations are
heavily dependent on information technology systems. The Savings Bank has
addressed the potential problems associated with the possibility that the
computers that control or operate the Savings Bank's information technology
system and infrastructure may not be programmed to read four-digit date codes
and, upon arrival of the year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or to generate erroneous data.
As part of the awareness and assessment phases of its action plan related to the
Year 2000 problem, management identified the operating systems that it considers
critical to the on-going operations of the Savings Bank. Of the systems that the
Savings Bank identified as mission-critical, the most significant is the on-line
core account processing system performed by a third party service provider,
Intrieve, Inc. ("Intrieve"). Intrieve has converted its hardware to a new Year
2000 compliant system. The Savings Bank's conversion to this new system was
completed during the fourth calendar quarter of 1998. Intrieve successfully
performed Year 2000 proxy testing with several of its larger users during early
October 1998. The Savings Bank performed final testing of its unique equipment
configuration and communications link to Intrieve during November 1998.
The Savings Bank has developed a contingency plan in case the mission-critical
systems are not successfully renovated in a timely manner or if they actually
fail at Year 2000 critical dates. The contingency plan states that the Savings
Bank deems the likelihood of failure of Intrieve's efforts to renovate Year 2000
changes to the on-line core account processing system to be remote. The plan
primarily addresses action to deal with the possibility that Intrieve's system
will be down for several days or weeks upon arrival of Year 2000. The Savings
Bank has the ability to process transactions manually, if necessary, or can
utilize off-line computer processes for a period of time until the Intrieve
system would be available.
The Savings Bank has expended less than $10,000 through September 30, 1999, in
connection with its year 2000 compliance program, and management does not
anticipate additional significant expenditures.
In addition to possible expense related to its own systems, the Savings Bank
could incur losses if loan payments are delayed due to Year 2000 problems
affecting any major borrowers in the Savings Bank's primary market area. Because
the Savings Bank's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses and the Savings Bank's primary
market area is not significantly dependent upon one employer or industry, the
Savings Bank does not expect any significant or prolonged difficulties that will
affect net earnings or cash flow.
13
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FFD Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibits:
27 Financial data schedule for the three
months ended September 30, 1999.
14
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FFD Financial Corporation
SIGNATURES
Pursuant to the requirements 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.
Date: November 12, 1999 By: /s/Robert R. Gerber
------------------------- ------------------------------
Robert R. Gerber
President and
Principal Financial Officer
Date: November 12, 1999 By: /s/Larry D. Browning
------------------------- ------------------------------
Larry D. Browning
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,172
<INT-BEARING-DEPOSITS> 1,420
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,075
<INVESTMENTS-CARRYING> 4,480
<INVESTMENTS-MARKET> 4,614
<LOANS> 90,468
<ALLOWANCE> 278
<TOTAL-ASSETS> 114,884
<DEPOSITS> 72,128
<SHORT-TERM> 0
<LIABILITIES-OTHER> 649
<LONG-TERM> 26,208
0
0
<COMMON> 0
<OTHER-SE> 15,899
<TOTAL-LIABILITIES-AND-EQUITY> 114,884
<INTEREST-LOAN> 1,597
<INTEREST-INVEST> 325
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,922
<INTEREST-DEPOSIT> 762
<INTEREST-EXPENSE> 1,064
<INTEREST-INCOME-NET> 858
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 582
<INCOME-PRETAX> 305
<INCOME-PRE-EXTRAORDINARY> 201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201
<EPS-BASIC> .15
<EPS-DILUTED> .14
<YIELD-ACTUAL> 3.10
<LOANS-NON> 74
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 269
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 278
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 278
</TABLE>
