UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 0-27916
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FFD FINANCIAL CORPORATION
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(Exact name of small business issuer as specified in its charter)
Ohio 34-1921148
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
321 North Wooster Avenue, Dover, Ohio 44622
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(Address of principal executive offices)
(330) 364-7777
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: November 9, 2000 - 1,391,383 shares
of common stock
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 14 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 13
SIGNATURES 14
2
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FFD Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 2000 2000
<S> <C> <C>
Cash and due from banks $ 1,409 $ 934
Interest-bearing deposits in other financial institutions 2,542 1,485
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Cash and cash equivalents 3,951 2,419
Investment securities available for sale - at market 2,900 2,875
Mortgage-backed securities available for sale - at market 8,743 9,135
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $3,992 and $4,188 as of
September 30, 2000 and June 30, 2000 3,987 4,189
Loans receivable - net 102,910 102,118
Loans held for sale 820 821
Office premises and equipment - at depreciated cost 1,231 1,253
Real estate acquired through foreclosure 125 -
Federal Home Loan Bank stock - at cost 1,691 1,652
Accrued interest receivable 440 429
Prepaid expenses and other assets 135 181
Prepaid federal income taxes 57 61
Deferred federal income taxes - 14
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Total assets $126,990 $125,147
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 82,101 $ 77,987
Advances from the Federal Home Loan Bank 27,876 30,412
Accrued interest payable 209 202
Other liabilities 411 281
Deferred federal income taxes 54 -
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Total liabilities 110,651 108,882
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 7,850 7,850
Retained earnings - restricted 10,457 10,288
Accumulated comprehensive losses, unrealized losses
on securities designated as available for sale,
net of related tax effects (221) (335)
Shares acquired by stock benefit plans (1,025) (1,028)
Less 63,367 and 42,367 shares of treasury stock - at cost (722) (510)
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Total shareholders' equity 16,339 16,265
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Total liabilities and shareholders' equity $126,990 $125,147
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</TABLE>
3
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FFD Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
(In thousands, except per share data)
2000 1999
<S> <C> <C>
Interest income
Loans $2,021 $1,597
Mortgage-backed securities 272 293
Investment securities, interest-bearing
deposits and other 53 32
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Total interest income 2,346 1,922
Interest expense
Deposits 916 762
Borrowings 471 302
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Total interest expense 1,387 1,064
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Net interest income 959 858
Provision for losses on loans 25 9
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Net interest income after provision
for losses on loans 934 849
Other income
Gain (loss) on sale of loans (7) 5
Other operating 46 33
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Total other income 39 38
General, administrative and other expense
Employee compensation and benefits 251 272
Occupancy and equipment 54 58
Federal deposit insurance premiums 6 10
Franchise taxes 55 68
Data processing 58 42
Other operating 155 132
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Total general, administrative and other expense 579 582
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Earnings before income taxes 394 305
Federal income taxes
Current 123 82
Deferred 9 22
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Total federal income taxes 132 104
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NET EARNINGS $ 262 $ 201
===== =====
EARNINGS PER SHARE
Basic $.20 $.15
=== ===
Diluted $.20 $.14
=== ===
</TABLE>
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FFD Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30,
(In thousands)
2000 1999
<S> <C> <C>
Net earnings $ 262 $ 201
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax of $59 and $(18) in
2000 and 1999, respectively 114 (35)
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Comprehensive income $ 376 $ 166
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Accumulated comprehensive losses $(221) $(251)
==== ====
</TABLE>
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FFD Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 262 $ 201
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 3 14
Amortization of deferred loan origination (fees) costs 5 (19)
Depreciation and amortization 35 34
Provision for losses on loans 25 9
(Gain) loss on sale of mortgage loans (2) 1
Loans originated for sale in the secondary market (475) (814)
Proceeds from sale of loans in the secondary market 478 751
Federal Home Loan Bank stock dividends (39) (22)
Amortization expense of stock benefit plans 3 -
Increase (decrease) in cash due to changes in:
Accrued interest receivable (11) 4
Prepaid expenses and other assets 46 89
Accrued interest payable 7 24
Other liabilities 130 173
Federal income taxes
Current 4 (24)
Deferred 9 22
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Net cash provided by operating activities 480 443
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 739 1,059
Loan principal repayments 4,415 2,793
Loan disbursements (5,362) (6,834)
Purchase of office premises and equipment (13) (1)
Purchase of Federal Home Loan Bank stock - (103)
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Net cash used in investing activities (221) (3,086)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 4,114 103
Proceeds from Federal Home Loan Bank advances - 2,618
Repayment of Federal Home Loan Bank advances (2,536) (26)
Dividends on common stock (93) (123)
Purchase of treasury stock (212) (348)
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Net cash provided by financing activities 1,273 2,224
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Net increase (decrease) in cash and cash equivalents 1,532 (419)
Cash and cash equivalents at beginning of period 2,419 3,011
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Cash and cash equivalents at end of period $3,951 $2,592
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</TABLE>
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FFD Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
(In thousands)
2000 1999
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 120 $ 106
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Interest on deposits and borrowings $1,380 $1,040
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Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 114 $ (35)
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Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 4 $ 6
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Transfers from mortgage loans to real estate acquired
through foreclosure $ 125 $ -
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Unrealized losses on loans held for sale $ (13) $ -
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</TABLE>
7
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FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2000 and 1999
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, 2000. 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, 2000,
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"
or "First Federal"). 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, 2000 and 1999
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. Management adopted SFAS No. 133
effective July 1, 2000, as required, without material impact on the
Corporation's financial statements.
In September 2000 the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but
carries over most of the provisions of SFAS No. 125 without reconsideration.
SFAS No. 140 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001. The
Statement is effective for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and collateral
for fiscal years ending after December 15, 2000. SFAS No. 140 is not
expected to have a material effect on the Corporation's financial position
or results of operations.
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 75,026 unallocated ESOP shares, totaled
1,332,973 for the three month period ended September 30, 2000.
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.
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
1,337,480 for the three month period ended September 30, 2000, and 1,397,612
for the three month period ended September 30, 1999. Incremental shares
related to the assumed exercise of stock options included in the computation
of diluted earnings per share totaled 4,507 and 30,886 for the three month
periods ended September 30, 2000 and 1999, respectively.
Options to purchase 3,552 shares of common stock with a weighted-average
exercise price of $11.75 were outstanding at September 30, 2000, but were
excluded from the computation of common share equivalents during the three
months ended September 30, 2000, because their exercise prices were greater
than the average market price of the common shares.
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, 2000 to September 30,
2000
The Corporation's total assets at September 30, 2000, amounted to $127.0
million, a $1.8 million, or 1.5%, increase over the total at June 30, 2000. This
increase was funded primarily through growth in deposits of $4.1 million, which
was partially offset by a $2.5 million decrease in advances from the Federal
Home Loan Bank ("FHLB").
Cash and cash equivalents and investment securities totaled $6.9 million at
September 30, 2000, an increase of $1.6 million, or 29.4%, over the total at
June 30, 2000.
Mortgage-backed securities totaled $12.7 million at September 30, 2000, a
$594,000, or 4.5%, decrease from the total at June 30, 2000. This decrease
resulted primarily from principal repayments.
Loans receivable, including loans held for sale, totaled $103.7 million at
September 30, 2000, an increase of $791,000, or .8%, over the June 30, 2000
total. Loan disbursements during the period totaled $5.8 million, which were
partially offset by principal repayments of $4.4 million and loans sold in the
secondary market of $476,000. Loans secured primarily by commercial real estate,
which amounted to $32.6 million at September 30, 2000 and $30.7 million at June
30, 2000, accounted for most of the growth in the loan portfolio. Nonresidential
real estate lending is generally considered to involve a higher degree of risk
than residential real estate lending due to the relatively larger loan amounts
and the effects of general economic conditions on the successful operation of
income-producing properties. The Savings Bank has endeavored to reduce such risk
by evaluating the credit history and past performance of the borrower, the
location of the real estate, the quality of the management constructing and
operating the property, the debt service ratio, the quality and characteristics
of the income stream generated by the property and appraisals supporting the
property's valuation.
The allowance for loan losses totaled $400,000 and $375,000 at September 30,
2000 and June 30, 2000, which represented .39% and .36% of total loans and
187.79% and 166.67% of nonperforming loans at those respective dates.
Nonperforming loans amounted to $213,000 and $225,000 at September 30, 2000, and
June 30, 2000, respectively. Although management believes that its allowance for
loan losses at September 30, 2000, 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 $82.1 million at September 30, 2000, a $4.1 million, or 5.3%,
increase over total deposits at June 30, 2000. FHLB advances totaled $27.9
million at September 30, 2000, a $2.5 million, or 8.3%, decrease from June 30,
2000. Proceeds from the increase in deposits were primarily used to fund the
repayment of FHLB advances and loan originations.
The Savings Bank is required to meet minimum capital standards promulgated by
the Office of Thrift Supervision ("OTS"). At September 30, 2000, the Savings
Bank's regulatory capital was well in excess of such minimum capital
requirements.
10
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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,
2000 and 1999
General
The Corporation's net earnings totaled $262,000 for the three months ended
September 30, 2000, an increase of $61,000, or 30.3%, over the net earnings of
$201,000 recorded in the comparable period in 1999. The increase in net earnings
resulted primarily from an increase of $101,000 in net interest income and an
increase of $1,000 in other income, which were offset by an increase of $16,000
in the provision for losses on loans and an increase of $28,000 in the provision
for federal income taxes.
Net Interest Income
Total interest income increased by $424,000, or 22.1%, to a total of $2.3
million for the three months ended September 30, 2000, compared to the three
month period ended September 30, 1999. Interest income on loans increased by
$424,000, or 26.5%, due primarily to an increase of approximately $13.9 million,
or 15.5%, in the average loan portfolio balance outstanding, coupled with a 68
basis point increase in the yield. Interest income on mortgage-backed securities
decreased by $21,000, or 7.2%, due primarily to a decrease in the average
balance outstanding. Interest income on investment securities and
interest-bearing deposits increased by $21,000, or 65.6%, due primarily to a
$584,000, or 9.8%, increase in the weighted-average outstanding balance coupled
with a 109 basis point increase in the yield earned on such investments.
Interest expense on deposits increased by $154,000, or 20.2%, for the three
months ended September 30, 2000, compared to the same period in 1999, due
primarily to an approximate $8.0 million, or 11.1%, increase in the average
deposit portfolio balance outstanding, coupled with a 35 basis point increase in
the average cost of deposits.
Interest expense on borrowings increased by $169,000, or 56.0%, due to a $4.2
million, or 17.0%, increase in the average balance of advances outstanding
coupled with a 162 basis point increase in the cost of such funds.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $101,000, or 11.8%, for the three months ended
September 30, 2000, compared to the same period in 1999.
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 $25,000 during the three month
period ended September 30, 2000, an increase of $16,000 compared to the same
period in 1999. The current quarter provision was predicated primarily upon
growth in the portfolio of loans secured by nonresidential real estate. 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.
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,
2000 and 1999 (continued)
Other Income
Other income totaled $39,000 for the three months ended September 30, 2000, an
increase of $1,000, or 2.6%, over the 1999 total. The increase was due primarily
to a $13,000, or 39.4%, increase in NOW account service fees and income from
late charges, which was partially offset by a $12,000 decrease in gain on sale
of loans year to year.
General, Administrative and Other Expense
General, administrative and other expense totaled $579,000 for the three months
ended September 30, 2000, a decrease of $3,000, or .5%, compared to the same
period in 1999. The decrease in general, administrative and other expense
resulted primarily from a $21,000, or 7.7%, decrease in employee compensation
and benefits, which was partially offset by $23,000, or 17.4%, increase in other
operating expense. The decrease in employee compensation and benefits was due
primarily to a reduction in staffing levels coupled with a reduction in employee
benefits costs year to year. The increase in other operating expenses included
approximately $13,000 in fees paid for outsourcing of compliance and other
consulting services. The remaining increase of $10,000, or 7.6%, was comprised
primarily of 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 $132,000
for the three months ended September 30, 2000, an increase of $28,000, or 26.9%,
over the same period in 1999. The increase resulted primarily from an $89,000,
or 29.2%, increase in earnings before taxes. The effective tax rates were 33.5%
and 34.1% for the three months ended September 30, 2000 and 1999, respectively.
12
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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
On October 17, 2000, the Annual Meeting of the Corporation's
Shareholders was held. Each of the four directors nominated were
elected to terms expiring in 2002 by the following votes:
For Withheld
Stephen R. Clinton 1,189,091 27,127
Robert R. Gerber 1,194,387 21,831
Richard J. Herzig 1,186,673 29,545
Enos L. Loader 1,194,821 21,397
One other matter was submitted to the shareholders, for which the
following votes were cast:
Ratification of the appointment of Grant Thornton LLP as independent
auditors of the Corporation for the fiscal year ended June 30, 2001.
For: 1,203,865 Against: 6,903 Abstain: 5,450
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27: Financial data schedule for the three
months ended September 30, 2000.
(b) Reports on Form 8-K: On October 20, 2000, an 8-K under
Item 5 was filed to report certain
management position changes at FFD
Financial Corporation.
13
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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 10, 2000 By: /s/Trent Troyer
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Trent Troyer
President
Date: November 10, 2000 By: /s/Robert R. Gerber
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Robert R. Gerber
Chief Financial Officer
14
