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 March 31, 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 May 10, 1999, the latest practicable date, 1,450,633 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 18 pages
<PAGE>
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 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 1,151 $ 1,026
Interest-bearing deposits in other financial institutions 4,857 607
------- ------
Cash and cash equivalents 6,008 1,633
Investment securities available for sale - at market 195 2,655
Investment securities held to maturity - at amortized cost, approximate
market value of $993 as of June 30, 1998 - 977
Mortgage-backed securities available for sale - at market 13,924 5,935
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $5,041 and $6,073 as of
March 31, 1999 and June 30, 1998, respectively 4,996 5,960
Loans receivable - net 82,018 70,990
Office premises and equipment - at depreciated cost 1,383 1,383
Federal Home Loan Bank stock - at cost 1,171 933
Accrued interest receivable 263 279
Prepaid expenses and other assets 206 221
Prepaid federal income taxes 152 -
------- ------
Total assets $110,316 $90,966
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 69,385 $61,956
Securities sold under agreements to repurchase 724 -
Advances from the Federal Home Loan Bank 23,011 12,519
Accrued interest payable 143 94
Other liabilities 554 258
Accrued federal income taxes - 197
Deferred federal income taxes 206 117
------- ------
Total liabilities 94,023 75,141
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 7,857 7,705
Retained earnings - restricted 9,645 9,536
Unrealized gains on securities designated as available for sale,
net of related tax effects 73 140
Shares acquired by stock benefit plans (1,207) (1,411)
Less 5,900 and 9,400 shares of treasury stock at March 31, 1999
and June 30, 1998, respectively - at cost (75) (145)
------- ------
Total shareholders' equity 16,293 15,825
------- ------
Total liabilities and shareholders' equity $110,316 $90,966
======= ======
</TABLE>
3
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
For the nine months For the three months
ended March 31, ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $4,090 $3,489 $1,413 $1,229
Mortgage-backed securities 809 764 292 254
Investment securities, interest-bearing
deposits and other 192 574 64 197
----- ----- ----- -----
Total interest income 5,091 4,827 1,769 1,680
Interest expense
Deposits 2,237 2,081 730 687
Borrowings 678 475 287 210
----- ----- ----- -----
Total interest expense 2,915 2,556 1,017 897
----- ----- ----- -----
Net interest income 2,176 2,271 752 783
Other income
Gain on sale of loans 89 - 21 -
Other operating 86 56 37 21
----- ----- ----- -----
Total other income 175 56 58 21
General, administrative and other expense
Employee compensation and benefits 855 753 278 282
Occupancy and equipment 177 138 62 53
Federal deposit insurance premiums 28 25 10 7
Franchise taxes 198 143 64 70
Data processing 139 104 51 42
Other operating 349 328 107 101
----- ----- ----- -----
Total general, administrative and other expense 1,746 1,491 572 555
----- ----- ----- -----
Earnings before income taxes 605 836 238 249
Federal income taxes
Current 79 292 91 250
Deferred 123 (9) (10) (166)
----- ----- ----- -----
Total federal income taxes 202 283 81 84
----- ----- ----- -----
NET EARNINGS $ 403 $ 553 $ 157 $ 165
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.30 $.41 $.12 $.12
=== === === ===
Diluted $.29 $.40 $.11 $.12
=== === === ===
</TABLE>
4
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the nine months For the three months
ended March 31, ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $403 $553 $157 $165
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (67) 413 (125) 6
--- --- --- ---
Comprehensive income $336 $966 $ 32 $171
=== === === ===
</TABLE>
5
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 403 $ 553
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 28 24
Amortization of deferred loan origination fees (61) (61)
Depreciation and amortization 96 78
Amortization expense of stock benefit plans 394 297
Gain on sale of loans (38) -
Proceeds from sale of loans 6,361 -
Loans originated for sale in the secondary market (6,323) -
Federal Home Loan Bank stock dividends (54) (39)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (32) 29
Prepaid expenses and other assets 15 (73)
Accrued interest payable 49 31
Other liabilities 296 (90)
Federal income taxes
Current (349) (437)
Deferred 123 (9)
------ ------
Net cash provided by operating activities 908 303
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 4,975 12,929
Proceeds from sale of investment securities - 6,430
Purchase of investment securities (1,500) (9,925)
Purchase of mortgage-backed securities (11,633) (1,996)
Principal repayments on mortgage-backed securities 4,441 2,161
Purchase of stock in Federal Home Loan Bank (184) (236)
Loan principal repayments 10,893 10,045
Loan disbursements (21,812) (21,845)
Purchase of office premises and equipment (96) (622)
------ ------
Net cash used in investing activities (14,916) (3,059)
------ ------
Net cash used in operating and investing
activities (subtotal carried forward) (14,008) (2,756)
------ ------
</TABLE>
6
<PAGE>
<TABLE>
FFD Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Net cash used in operating and investing
activities (subtotal brought forward) $(14,008) $(2,756)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 7,429 3,535
Proceeds from securities sold under agreements to repurchase 724 -
Proceeds from Federal Home Loan Bank advances 10,500 11,950
Repayment of Federal Home Loan Bank advances (8) (3,912)
Proceeds from other borrowed money 300 -
Repayment of other borrowed money (300) -
Proceeds from exercise of stock options 32 8
Purchase of treasury shares - (154)
Dividends on common shares (294) (295)
------- ------
Net cash provided by financing activities 18,383 11,132
------- ------
Net increase in cash and cash equivalents 4,375 8,376
Cash and cash equivalents at beginning of period 1,633 4,080
------- ------
Cash and cash equivalents at end of period $ 6,008 $12,456
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 434 $ 625
======= ======
Interest on deposits and borrowings $ 2,866 $ 2,525
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available for
sale, net of related tax effects $ (67) $ 413
======= ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 51 $ -
======= ======
</TABLE>
7
<PAGE>
FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three months ended March 31, 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, 1998. 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 nine and three month periods ended March 31,
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 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
SFAS No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management adopted SFAS No. 130 effective
July 1, 1998, as required, without material impact on the Corporation's
financial statements.
8
<PAGE>
FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
3. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 significantly changes
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management organizes the
segments within the enterprise for making operating decisions and assessing
performance. For many enterprises, the management approach will likely
result in more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable segment
than is presently being reported in annual financial statements and also
requires that selected information be reported in interim financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective July 1, 1998,
as required, without material impact on the Corporation's financial
statements.
In June 1998, the FASB issued 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.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. 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.
9
<PAGE>
FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
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
1,352,195 and 1,363,006 for the nine and three month periods ended March 31,
1999. Weighted-average common shares deemed outstanding, which gives effect
to 98,861 unallocated ESOP shares, totaled 1,337,910 and 1,346,082 for the
nine and three month periods ended March 31, 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
1,395,392 and 1,394,389 for the nine and three month periods ended March 31,
1999, and 1,370,258 and 1,384,888 for the nine and three month periods ended
March 31, 1998. Incremental shares related to the assumed exercise of stock
options included in the computation of diluted earnings per share totaled
43,197 and 31,383 for the nine and three month periods ended March 31, 1999,
and 32,348 and 38,806 for the nine and three month periods ended March 31,
1998, respectively.
10
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1998 to March 31, 1999
The Corporation's total assets at March 31, 1999, amounted to $110.3 million, a
$19.4 million, or 21.3%, increase over the total at June 30, 1998. This increase
was funded primarily through an increase in advances from the Federal Home Loan
Bank ("FHLB") of $10.5 million and growth in deposits of $7.4 million.
Investment securities totaled $195,000 at March 31, 1999, a decrease of $3.4
million, or 94.6%, from the total at June 30, 1998, as maturities of $5.0
million during the period were partially offset by purchases of securities
totaling $1.5 million.
Mortgage-backed securities totaled $18.9 million at March 31, 1999, a $7.0
million, or 59.1%, increase over the total at June 30, 1998. This increase
resulted primarily from purchases of $11.6 million, which were partially offset
by principal repayments totaling $4.4 million. Purchases of mortgage-backed
securities during the period were comprised of long-term, variable rate
certificates yielding approximately 6.00%, which were funded by Federal Home
Loan Bank advances with a weighted-average cost of approximately 4.82%.
Loans receivable totaled $82.0 million at March 31, 1999, an increase of $11.0
million, or 15.5%, over the June 30, 1998 total. Loan disbursements during the
period totaled $28.1 million, which were partially offset by principal
repayments of $10.9 million and loans sold in the secondary market totaling $6.3
million. Loan disbursements during the nine months ended March 31, 1999,
increased by $6.3 million, or 28.8%, compared to the origination volume during
the same period in 1998, comprised primarily of loans originated for sale, which
totaled $6.3 million for the nine month period ended March 31, 1999.
The allowance for loan losses totaled $269,000 and $270,000 at March 31, 1999
and June 30, 1998, which represented .33% and .38% of total loans and 527.5% and
329.3% of nonperforming loans at those respective dates. Nonperforming loans
amounted to $51,000 and $82,000 at March 31, 1999, and June 30, 1998,
respectively. Although management believes that its allowance for loan losses at
March 31, 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 $69.4 million at March 31, 1999, a $7.4 million, or 12.0%,
increase over total deposits at June 30, 1998. This increase resulted primarily
from growth in deposits at the new branch office location in New Philadelphia,
Ohio, coupled with management's efforts to obtain moderate growth through
advertising and pricing strategies. Proceeds from deposit growth were used
primarily to fund new loan originations during the period.
FHLB advances totaled $23.0 million at March 31, 1999, a $10.5 million, or
83.8%, increase over June 30, 1998. Proceeds from the increase in borrowings
were primarily used to fund purchases of mortgage-backed securities.
The Savings Bank is required to meet minimum capital standards promulgated by
the Office of Thrift Supervision ("OTS"). At March 31, 1999, the Savings Bank's
regulatory capital was well in excess of such minimum capital requirements.
11
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended March 31, 1999
and 1998
General
The Corporation's net earnings totaled $403,000 for the nine months ended March
31, 1999, a decrease of $150,000, or 27.1%, from the net earnings of $553,000
recorded in the comparable period in 1998. The decrease in net earnings resulted
primarily from a decrease of $95,000 in net interest income and an increase of
$255,000 in general, administrative and other expenses, which were partially
offset by an increase of $119,000 in other income and a decrease of $81,000 in
the provision for federal income taxes.
Net Interest Income
Total interest income increased by $264,000, or 5.5%, to a total of $5.1 million
for the nine months ended March 31, 1999, compared to the nine month period
ended March 31, 1998. Interest income on loans increased by $601,000, or 17.2%,
due primarily to a $14.8 million, or 24.0%, increase in the average loan
portfolio balance outstanding, which was partially offset by a decline in the
weighted-average yield. Interest income on mortgage-backed securities increased
by $45,000, or 5.9%, due primarily to an increase in the average balance
outstanding. Interest income on investment securities and interest-bearing
deposits decreased by $382,000, or 66.6%, due primarily to a decrease of
approximately $3.4 million in the average balance outstanding, coupled with a
decrease in the yield earned on such investments.
Interest expense on deposits increased by $156,000, or 7.5%, for the nine months
ended March 31, 1999, compared to the same period in 1998, due primarily to an
approximate $7.6 million, or 12.9%, increase in the average deposit portfolio
balance outstanding.
Interest expense on borrowings increased by $203,000, or 42.7%, 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 decreased by $95,000, or 4.2%, for the nine months ended
March 31, 1999, compared to the same period in 1998. The interest rate spread
was approximately 2.30% for the nine months ended March 31, 1999, compared to
2.23% for the comparable 1998 period, while the net interest margin decreased to
approximately 2.94% in 1999, compared to 3.30% in 1998.
12
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended March 31, 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 losses on loans 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
the Savings Bank's loan portfolio. As a result of such analysis, management
concluded that the allowance for loan losses was adequate and therefore did not
record a provision for losses on loans during the nine month periods ended March
31, 1999 and 1998. 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 $175,000 for the nine months ended March 31, 1999, an
increase of $119,000 over the 1998 total. The increase was due primarily to
gains on sale of loans totaling $89,000 during the fiscal 1999 period, coupled
with a $30,000, or 53.6%, increase in other operating income. Other operating
income consists primarily of fees generated from ATM transactions, late charges
on loans, safety deposit box rentals and negotiable order of withdrawal ("NOW")
account fees.
General, Administrative and Other Expense
General, administrative and other expense increased by $255,000, or 17.1%, for
the nine months ended March 31, 1999, compared to the same period in 1998. The
increase in general, administrative and other expense resulted primarily from an
increase of $102,000, or 13.5%, in compensation expense as additional personnel
were hired to staff the New Philadelphia branch, coupled with an increase in
stock benefit plan expense, an increase of $39,000, or 28.3%, in occupancy and
equipment expense, primarily related to the New Philadelphia branch and an
increase in Ohio franchise tax totaling $55,000, or 38.5%, year to year.
Federal Income Taxes
The Corporation recorded a provision for federal income taxes totaling $202,000
for the nine months ended March 31, 1999, a decrease of $81,000, or 28.6%, from
the same period in 1998. The decrease resulted primarily from a $231,000, or
27.6%, decrease in earnings before taxes. The effective tax rates were 33.4% and
33.9% for the nine months ended March 31, 1999 and 1998, respectively.
13
<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 March 31, 1999
and 1998
General
The Corporation's net earnings totaled $157,000 for the three months ended March
31, 1999, a decrease of $8,000, or 4.8%, from the net earnings of $165,000
recorded in the comparable period in 1998. The decrease in net earnings resulted
primarily from a decrease of $31,000 in net interest income and an increase of
$17,000 in general, administrative and other expenses, which were offset by an
increase of $37,000 in other income and a decrease of $3,000 in the provision
for federal income taxes.
Net Interest Income
Total interest income increased by $89,000, or 5.3%, to a total of $1.8 million
for the three months ended March 31, 1999, compared to the three month period
ended March 31, 1998. Interest income on loans increased by $184,000, or 15.0%,
due primarily to an increase of approximately $14.4 million in the average loan
portfolio balance outstanding. Interest income on mortgage-backed securities
increased by $38,000, or 15.0%, 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 $133,000, or 67.5%, 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 $43,000, or 6.3%, for the three months
ended March 31, 1999, compared to the same period in 1998, due primarily to an
approximate $8.9 million increase in the average deposit portfolio balance
outstanding.
Interest expense on borrowings increased by $77,000, or 36.7%, 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 decreased by $31,000, or 4.0%, for the three months ended
March 31, 1999, compared to the same period in 1998.
14
<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 March 31, 1999
and 1998 (continued)
Provision for Losses on Loans
Management concluded that the allowance for loan losses was adequate and
therefore did not record a provision for losses on loans during the three month
periods ended March 31, 1999 and 1998. 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 $58,000 for the three months ended March 31, 1999, an
increase of $37,000 over the 1998 total. The increase was due primarily to a
$21,000 gain on sale of loans in the 1999 three month period, coupled with a
$16,000, or 76.2%, increase in other operating income.
General, Administrative and Other Expense
General, administrative and other expense increased by $17,000, or 3.1%, for the
three months ended March 31, 1999, compared to the same period in 1998. The
increase in general, administrative and other expense resulted primarily from an
increase of $9,000, or 17.0%, in occupancy and equipment expense due to
additional depreciation related to newly purchased office premises and equipment
and pro-rata increases in other expenses due to the Corporation's overall growth
year to year.
Federal Income Taxes
The Corporation recorded a provision for federal income taxes totaling $81,000
for the three months ended March 31, 1999, a decrease of $3,000, or 3.6%, from
the same period in 1998. The decrease resulted primarily from an $11,000, or
4.4%, decrease in earnings before taxes. The effective tax rates were 34.0% and
33.7% for the three months ended March 31, 1999 and 1998, respectively.
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 is
addressing the potential problems associated with the possibility that the
computers that control or operate the 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.
15
<PAGE>
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
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; however, a
more likely scenario is that Intrieve's system will be down for several days or
weeks upon arrival of Year 2000. The plan, therefore, primarily addresses action
to deal with the latter possibility rather than with a catastrophic event. The
Savings Bank has the ability to process transactions manually, if necessary. The
Savings Bank does not consider contingency planning to be a static process;
therefore, the plan will be amended to address a catastrophic event if testing
results indicate greater concern.
Management of the Savings Bank has developed an estimate of expenses that are
reasonably likely to be incurred by the Savings Bank in connection with this
issue; however, the Savings Bank does not expect to incur significant expense to
implement the necessary corrective measures. The Savings Bank has expended less
than $10,000 through March 31, 1999, in connection with its year 2000 compliance
program. No assurance can be given, however, that significant expense will not
be incurred in future periods. In the event that the Savings Bank is ultimately
required to purchase replacement computer systems, programs and equipment, or
incur substantial expense to make the Savings Bank's current systems, programs
and equipment Year 2000 compliant, the Savings Bank's net earnings and financial
condition could be adversely affected.
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.
16
<PAGE>
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 nine
months ended March 31, 1999.
17
<PAGE>
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: May 14, 1999 By: /s/Robert R. Gerber
------------------------------ -----------------------------
Robert R. Gerber
President and
Principal Financial Officer
Date: May 14, 1999 By: /s/Charles A. Bradley
------------------------------ -----------------------------
Charles A. Bradley
Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,151
<INT-BEARING-DEPOSITS> 4,857
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,119
<INVESTMENTS-CARRYING> 4,996
<INVESTMENTS-MARKET> 5,041
<LOANS> 82,018
<ALLOWANCE> 269
<TOTAL-ASSETS> 110,316
<DEPOSITS> 69,385
<SHORT-TERM> 724
<LIABILITIES-OTHER> 903
<LONG-TERM> 23,011
0
0
<COMMON> 0
<OTHER-SE> 16,293
<TOTAL-LIABILITIES-AND-EQUITY> 110,316
<INTEREST-LOAN> 4,090
<INTEREST-INVEST> 809
<INTEREST-OTHER> 192
<INTEREST-TOTAL> 5,091
<INTEREST-DEPOSIT> 2,237
<INTEREST-EXPENSE> 2,915
<INTEREST-INCOME-NET> 2,176
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,746
<INCOME-PRETAX> 605
<INCOME-PRE-EXTRAORDINARY> 403
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
<YIELD-ACTUAL> 2.94
<LOANS-NON> 31
<LOANS-PAST> 20
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 270
<CHARGE-OFFS> 1
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 269
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 269
</TABLE>
