SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Three Months Ended: Commission File Number:
------------------------------- --------------------------
June 30, 2000 33-27139
FEDERAL TRUST CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-2935028
------------------------------ --------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1211 Orange Avenue
Winter Park, Florida 32789
-----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number: (407) 645-1201
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FEDTRUST CORPORATION
(Former name of registrant)
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 quarterly reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date:
Common Stock, par value $.01 per share 4,947,911
-------------------------------------- ------------------------------
(class) Outstanding at August 10, 2000
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Condensed Balance Sheet (unaudited)
June 30, 2000 ................................................. 3
Consolidated Condensed Statements of Operations for the
Three and Six months ended June 30, 2000 and 1999 (unaudited).. 4
Consolidated Condensed Statements of Cash Flows for the
Six months ended June 30, 2000 and 1999 (unaudited)........... 5
Notes to Consolidated Condensed Financial Statements (unaudited)... 6 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 12 - 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............. 15
Signatures............................................................. 16
2
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<TABLE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
June 30, 2000
--------------
Assets (unaudited)
<S> <C>
Cash $ 2,016,888
Interest bearing deposits 2,967,319
Investment securities available for sale 1,723,972
Investment securities held to maturity 6,623,266
Loans receivable, net (net of allowance for loan losses of
$1,416,114) 214,699,199
Accrued interest receivable - Loans 1,471,262
Accrued interest receivable - Securities 188,288
Federal Home Loan Bank of Atlanta stock, at cost 2,500,000
Real estate owned, net 88,215
Property and equipment, net 1,172,673
Prepaid expenses and other assets 4,093,266
Executive supplemental income plan-cash surrender
value life insurance policies 2,660,874
Deferred income taxes 424,796
-----------
Total Assets $ 240,630,018
===========
Liabilities and Stockholders' Equity
Deposit accounts $ 173,015,736
Official checks 3,307,685
Federal Home Loan Bank advances 41,000,000
Other borrowings 2,000,000
Advance payments for taxes and insurance 1,832,565
Accrued expenses and other liabilities 4,434,705
-----------
Total Liabilities $ 225,590,691
-----------
Stockholders' equity:
Common stock, $.01 par value, 15,000,000 shares authorized;
4,947,911 shares issued and outstanding at June 30, 2000 49,479
Additional paid-in capital 15,966,115
Accumulated deficit (743,065)
Accumulated other comprehensive loss (233,202)
------------
Total Stockholders' Equity $ 15,039,327
-----------
Total Liabilities and Stockholders' Equity $ 240,630,018
===========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
3
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<TABLE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
For Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $4,313,293 3,211,812 8,271,326 6,179,640
Securities 79,626 65,275 156,209 130,422
Interest-bearing deposits and other 107,422 68,390 200,512 144,028
--------- --------- --------- ---------
Total interest income 4,500,341 3,345,477 8,628,047 6,454,090
--------- --------- --------- ---------
Interest expense:
Deposit accounts 2,292,173 1,646,041 4,283,350 3,281,904
Federal Home Loan Bank advances & other
borrowings 726,381 406,068 1,383,186 759,015
--------- --------- --------- ---------
Total interest expense 3,018,554 2,052,109 5,666,536 4,040,919
--------- --------- --------- ---------
Net interest income 1,481,787 1,293,368 2,961,511 2,413,171
Provision for loan losses 60,000 90,000 120,000 150,000
--------- ---------- --------- ----------
Net interest income after provision 1,421,787 1,203,368 2,841,511 2,263,171
--------- ---------- --------- ---------
Other income:
Fees and service charges 171,312 32,740 324,531 68,075
Gain on sale of assets 44,151 122,587 57,068 263,032
Other 290,098 153,035 516,360 258,102
--------- --------- --------- ---------
Total other income 505,561 308,362 897,959 589,209
--------- --------- --------- ---------
Other expenses:
Employee compensation & benefits 800,954 623,342 1,567,276 1,211,824
Occupancy and equipment 260,667 229,746 514,687 438,449
Data processing expense 79,572 43,294 120,120 81,054
Professional fees 71,940 70,669 123,235 118,014
FDIC Insurance 20,230 29,315 40,395 56,855
Other 260,920 212,053 473,492 379,453
--------- --------- --------- ---------
Total other expense 1,494,283 1,208,419 2,839,205 2,285,649
--------- --------- --------- ---------
Income before income tax 433,065 303,311 900,265 566,731
Income tax expense 112,983 69,911 272,555 155,082
--------- --------- --------- ---------
Net income $ 320,082 233,400 627,710 411,649
========= ========= ========= =========
Per share amounts:
Basic and Diluted Earnings per share .06 .05 .13 .08
Weighted average number of shares outstanding 4,947,911 4,943,645 4,947,911 4,942,602
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
4
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<TABLE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 627,710 411,649
Adjustments to reconcile net income to net cash flows from operations:
Depreciation & amortization of property & equipment 222,366 194,163
Amort. (net) of premiums, fees & disc. on loans & securities 102,700 220,764
Provision for loan losses 120,000 150,000
Gain on sale of assets (57,068) (263,032)
Accretion of stock option expense 21,875 39,375
Deferred Income Taxes 35,579 247,044
Executive supplemental income plan (58,401) (50,861)
Cash provided by (used for) changes in:
Accrued interest receivable (263,612) (189,462)
Prepaid expenses & other assets (2,844,123) (2,061)
Official checks 328,676 (326,050)
Accrued expenses & other liabilities 22,747 (104,751)
---------- ----------
Net cash (used) provided by operating activities (1,741,551) 326,778
----------- ----------
Cash flows from investing activities:
Acquisition of office properties and equipment (300,746) (74,282)
Purchase of Federal Home Loan Bank stock (540,000) (150,000)
Proceeds collected from loan sales 10,062,659 9,557,010
Reimbursement of real estate owned costs 79,890 113,130
Addition to real estate owned - (195,231)
Proceeds from sale of real estate owned 127,214 782,597
Proceeds from securities available for sale 197,254 -
Principal collected on loans 40,077,801 21,318,715
Loans originated or purchased (78,362,822) (66,640,930)
----------- -----------
Net cash (used in) investing activities (28,658,750) (35,288,991)
------------ -----------
Cash flows from financing activities:
Increase in deposits, net 19,492,127 11,679,413
Increase in Federal Home Loan Bank advances 5,800,000 9,000,000
Increase in other borrowings 2,000,000 10,000,000
Net increase in advance payments by borrowers for taxes & insurance 1,024,772 668,456
----------- ----------
Net cash provided by financing activities 28,316,899 31,347,869
----------- ----------
(Decrease) in cash and cash equivalents (2,083,402) (3,614,344)
Cash and cash equivalents at beginning of period 7,067,609 7,165,433
----------- ----------
Cash and cash equivalents at end of period $ 4,984,207 3,551,089
=========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
5
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
1. General
Federal Trust Corporation ("Federal Trust") is a unitary savings and loan
holding company for Federal Trust Bank ("Bank") a federally-chartered stock
savings bank. Federal Trust and the Bank are collectively referred to as the
"Company". The Company is headquartered in Winter Park, Florida. Federal Trust
is currently conducting business as a unitary savings and loan holding company,
and its principal asset is all of the capital stock of the Bank. As a unitary
holding company, Federal Trust has greater flexibility than the Bank to
diversify and expand its business activities, either through newly formed
subsidiaries or through acquisitions.
The Federal Trust's primary investment is the ownership of the Bank. The Bank is
primarily engaged in the business of attracting deposits from the general public
and using these funds with advances from the Federal Home Loan Bank of Atlanta
("FHLB") to originate one-to-four family residential mortgage loans, residential
consumer loans, multi-family loans, and to a lesser extent, commercial real
estate related SBA loans, commercial loans, and consumer loans and also fund
bulk purchases of one-to-four family residential mortgage loans.
The consolidated condensed balance sheet as of June 30, 2000, and the
consolidated condensed statements of operations for the three and six month
periods ended June 30, 2000 and 1999, and the cash flows for the six month
periods ended June 30, 2000 and 1999, include the accounts and operations of
Federal Trust and all subsidiaries. All material intercompany accounts and
transactions have been eliminated.
In the opinion of management of the Company, the accompanying consolidated
condensed financial statements contain all adjustments (principally consisting
of normal recurring accruals) necessary to present fairly the financial position
as of June 30, 2000, the results of operations for the three and six month
periods ended June 30, 2000 and 1999, and cash flows for the six month periods
ended June 30, 2000 and 1999. The results of operations for the three and six
month period ended June 30, 2000, are not necessarily indicative of the results
to be expected for the full year. These statements should be read in conjunction
with the consolidated financial statements included in the Company's Annual
Report on Form 10 - KSB for the year ended December 31, 1999.
2. Comprehensive Income:
The Company's accumulated comprehensive loss is the unrealized loss on
investment securities available for sale. Total comprehensive income for the
three and six month periods ended June 30, 2000 was $338,304 and $662,314, as
compared to the three and six month periods ended June 30, 1999, of $249,696 and
$443,818.
3. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FASB 133). This standard, which is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999, requires all
derivatives be measured at fair value and be recognized as assets and
liabilities in the statement of financial position. FASB 133 sets forth the
accounting for changes in fair value of a derivative depending on the intended
use and designation of the derivative. Implementation of FASB 133 is not
expected to have a significant impact on the financial position or results of
operations of the Company. In June 1999, the Financial Accounting Standards
Board issued FASB 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of The Effective Date of FASB 133", which is a one year
deferral of the application of FASB 133. In June 2000, the Financial Accounting
Standards Board issued FASB 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement No. 133", which
(continued)
6
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FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
amends the accounting and reporting standards of Statement 133 for certain
derivative instruments and certain hedging activities. FASB 133 shall be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.
4. Loans
The Company's policy is to classify all loans 90 days or more past due as
non-performing and not accrue interest on these loans and reverse all accrued
and unpaid interest. When the ultimate collectibility of an impaired loan's
principal is in doubt, wholly or partially, all cash receipts are applied to
principal. When this doubt does not exist, cash receipts are applied under the
contractual terms of the loan agreement first to interest income and then to
principal. Once the recorded principal balance has been reduced to zero, future
cash receipts are applied to interest income, to the extent that any interest
has been forgone. Further cash receipts are recorded as recoveries of any
amounts previously charged off.
At June 30, 2000, impaired loans amounted to $3.1 million as compared to $1.5
million at June 30, 1999. Included in the allowance for loan losses is $362
thousand related to the impaired loans as compared to $208 thousand at June 30,
1999. The Company measures impairment on collateralized loans using the fair
value of the collateral, and on unsecured loans using the present value of
expected future cash flows discounted at the loan's effective interest rate.
In the first six months of 2000, the average recorded investment in impaired
loans was $2.5 million and $57 thousand of interest income was recognized on
loans while they were impaired. All of this income was recognized using a cash
basis method of accounting.
A summary of loans receivable at June 30, 2000, is as follows:
June 30, 2000
Mortgage Loans:
Permanent conventional:
Commercial $ 19,578,019
Residential 169,966,254
Residential Construction 32,320,480
-----------
Total Mortgage Loans 221,864,753
Commercial loans 372,123
Consumer loans 1,443,462
Lines of credit 1,588,833
-----------
Total loans receivable 225,269,171
Net premium on mortgage loans purchased 2,053,402
Deduct:
Unearned loan origination fees, net of direct loan
origination costs 179,485
Undisbursed portion of loans in process 11,027,775
Allowance for loan losses 1,416,114
----------
Loans receivable, net $214,699,199
===========
(continued)
7
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FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
5. Allowance for Losses
The following is an analysis of the activity in the allowance for loan losses
for the periods presented:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 1,501,954 1,191,075 1,437,913 1,136,056
Provision for loan losses 60,000 90,000 120,000 150,000
Less Charge-offs (149,881) (12,681) (149,881) (21,920)
Plus recoveries 4,041 4,041 8,082 8,299
----------- ----------- ----------- -----------
Balance at end of period $ 1,416,114 1,272,435 1,416,114 1,272,435
=========== =========== =========== ===========
Loans Outstanding $ 214,699,199 187,723,565 214,699,199 187,723,565
Ratio of charge-offs to Loans Outstanding .070% .007% .007% .012%
Ratio of allowance to Loans Outstanding .66% .68% .66% .68%
</TABLE>
A provision for loan losses is generally charged to operations based upon
management's evaluation of the potential losses in its loan portfolio. During
the quarter ended June 30, 2000, the Company made a provision of $60,000 based
on its evaluation of the loan portfolio, as compared to the provision of $90,000
made in the quarter ended June 30, 1999. Although the dollar amount of the
provision decreased from the same quarter a year ago and the level of the
allowance for losses decreased as a percentage of loans outstanding, management
believes that the allowance is adequate, primarily as a result of the overall
quality of the loans in the portfolio and the change in the composition of the
portfolio to a higher percentage of residential single family home loans.
6. Supplemental Disclosure of Cash Flow and Non-Cash Investing and Financing
Activities
<TABLE>
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest expense $ 2,369,283 1,573,541
Income taxes 400,000 -
Supplemental disclosure of non-cash transactions:
Real estate acquired in settlement of loans - 195,231
Market Value adjustment - investment securities available for sale:
Market value adjustment - investments 55,482 51,578
Deferred income tax asset 20,878 19,409
------- -------
Unrealized loss on investment securities
available for sale, net $ 34,604 32,169
======= =======
</TABLE>
7. Real Estate Owned, Net
The following is an analysis of the activity in real estate acquired through
foreclosure for the periods ended:
(continued)
8
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<TABLE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 222,104 $ 947,375 295,319 1,107,295
Acquired through foreclosure - 103,651 - 195,231
Add: Capitalized costs (net of
insurance recoveries) (79,890) (55,738) (79,890) (113,130)
Less: Sale of real estate 53,999 597,728 127,214 782,597
Less: Chargeoffs - 8,028 - 17,267
-------- ---------- --------- -----------
Balance at end of period $ 88,215 $ 389,532 88,215 389,532
======== ========== ========= ===========
</TABLE>
8. Investment Securities
At June 30, 2000
Book Value Market Value
Held to maturity:
FHLB Floating Rate Note, 3.21%, due 7/30/03 $ 6,623,266 6,420,313
========= =========
Available for sale:
FNMA ARM Pool 516140, 7.264%, due 08/01/28 1,086,393 1,079,644
FNMA ARM Pool 516141, 8.310%, due 03/01/28 634,746 644,329
--------- ---------
$ 1,721,139 1,723,973
========= ---------
The Company's investment in obligations of U.S. government agencies consists of
one dual indexed bond issued by the Federal Home Loan Bank. At June 30, 2000,
the bond had a market value of $6,420,313 and gross unrealized pretax losses of
$579,687. The bond has a par value of $7,000,000 and pays interest based on the
difference between two indices. The one bond held at June 30, 2000, pays
interest at the 10-year constant maturity treasury ("CMT") rate less six month
LIBOR rate plus a contractual amount of 4.0%. In addition, the Company has two
FNMA Mortgage-backed securities which are backed by adjustable rate mortgage
("ARM") loans. The coupons on these two securities adjust with the underlying
ARM loans. During the quarter ended June 30, 2000, the Bank did not purchase or
sell any bonds.
9. Advances from Federal Home Loan Bank and Other Borrowings
The following is an analysis of the advances from the Federal Home Loan Bank:
Amounts Outstanding at June 30, 2000:
Maturity Date Rate Amount Type
07/05/00 6.26% $ 1,000,000 Fixed rate
12/01/00 5.09% 5,000,000 Fixed rate
12/04/00 6.29% 5,000,000 Fixed rate
12/18/00 6.59% 5,000,000 Fixed rate
01/04/01 6.48% 5,000,000 Fixed rate
03/05/01 5.96% 5,000,000 Fixed rate
03/17/01 6.70% 5,000,000 Fixed rate
06/13/01 7.11% 10,000,000 Fixed rate
----- ----------
Total 6.41% $41,000,000
===== ==========
(continued)
9
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FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
Variable rate advances reprice daily and may be repaid at any time without
penalty. Fixed rate advances incur a prepayment penalty if repaid prior to
maturity, and the interest rate is fixed for the term of the advance.
Amounts Outstanding at:
Month-end Rate Amount
4/30/00 6.20% $ 43,800,000
5/31/00 6.19% 40,000,000
6/30/00 6.41% 41,000,000
The maximum amount of advances outstanding at any month end during the three
month period ended June 30, 2000, was $43,800,000. During the three and six
month periods ended June 30, 2000, average advances outstanding totaled $44.3
million and $43.3 million at average rates of 6.30% and 6.20%, respectively.
Advances from the FHLB are collateralized by a blanket pledge of eligible assets
in an amount required to be maintained so that the estimated value of such
eligible assets exceeds at all times, approximately 133% of the outstanding
advances, and a pledge of all FHLB stock owned by the Bank.
The maximum amount of other borrowings outstanding at any month end during the
three month period ended June 30, 2000, was $2,000,000. During the three and six
month periods ended June 30, 2000, average other borrowings outstanding totaled
$1.3 million and $1.0 million at average rates of 8.61% and 8.62%, respectively.
10. Supervision
Federal Trust and the Bank are subject to extensive regulation, supervision and
examination by the OTS, their primary federal regulator, by the FDIC with regard
to the insurance of deposit accounts and, to a lesser extent, the Federal
Reserve. Such regulation and supervision establishes a comprehensive framework
of activities in which a savings and loan holding company and its financial
institution subsidiary may engage and is intended primarily for the protection
of the Savings Association Insurance Fund administered by the FDIC and
depositors.
On October 3, 1994, Federal Trust and the Bank voluntarily entered into
individual Cease and Desist Orders (collectively, the "Orders") with the OTS.
Federal Trust's Order focused on operating expenses and its financial
relationship with the Bank. The Bank's Order required it to institute and adhere
to programs and policies designed to strengthen its overall lending practices,
primarily in regard to underwriting procedures and credit risk. The Bank's Order
also directed the control of its operating expenses and restricted the payment
of dividends to Federal Trust.
Pursuant to the Orders, both Federal Trust and the Bank established Compliance
Committees that met monthly to review, in detail, the terms of the Orders to
ensure that the Holding Company and the Bank were in compliance with their
respective Orders. Following the Rights and Community Offering in December 1997,
Federal Trust formally requested that the OTS rescind the Bank's growth
restrictions and the Orders. On March 12, 1998, the OTS rescinded the growth
restrictions and on June 1, 1998 the OTS rescinded the Orders.
At the present neither Federal Trust nor the Bank are operating under any
extraordinary regulatory restrictions, agreements or orders.
11. Branching
On June 23, 1998, the Bank filed an application with the OTS for permission to
open a branch office in Sanford,
(continued)
10
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
Florida. Sanford is located in Seminole County and the proposed branch office is
approximately 15 miles northeast of the Bank's main office in Winter Park,
Florida. On August 7, 1998, the Bank received approval from OTS to open the
branch and on October 30, 1998 the branch opened for business with four
employees.
12. Subsidiaries
On May 19, 1999, the Bank incorporated a new subsidiary, Vantage Mortgage
Service Center, Inc. ("VMSC"). On June 1, 1999, Federal Trust acquired the fixed
assets, consisting of furniture, fixtures and equipment, of Vantage Mortgage
Associates, Inc., a non-affiliated company, located in Gainesville, Florida for
6,364 shares of Federal Trust common stock. Federal Trust contributed the fixed
assets to the Bank, who in turn contributed the fixed assets to VMSC. VMSC is
engaged primarily in the origination and sale of residential mortgage loans and
all of the officers and employees of Vantage Mortgage Associates, Inc. accepted
employment with VMSC. The operations of the two subsidiaries are insignificant
to the overall results of the Company.
(The remainder of this page left intentionally blank)
(continued)
11
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
Overview
When used in this document, or in the documents incorporated by reference
herein, the words "anticipate", "believe", "estimate", "may", "intend" and
"expect" and similar expressions identify forward-looking statements. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
herein. It should be recognized that the factors that could cause future results
to vary materially from current expectations include, but are not limited to,
changes in interest rates, competition by other financial institutions,
legislation and regulatory changes, and changes in the economy generally and in
business conditions in the market in which the Bank operates.
Federal Trust Corporation ("Federal Trust"), is a unitary savings and loan
holding company for Federal Trust Bank ("Bank"). Federal Trust and the Bank are
collectively referred to herein as the "Company". The Bank is currently the only
active subsidiary of Federal Trust. The Bank has two active subsidiaries:
Vantage Mortgage Service Center, Inc., a mortgage brokerage business, and FTB
Financial Services, Inc., a financial products brokerage business.
Currently, Federal Trust has no salaried employees and its corporate
headquarters are the same as the Bank's main office. Employees of the Bank
perform all necessary functions needed by Federal Trust, which in turn
reimburses the Bank for the time spent on holding company business.
The common stock of Federal Trust is traded on the NASDAQ SmallCap Market under
the symbol "FDTR".
Results of Operations
Comparison of the Three-Month Periods Ended June 30, 2000 and 1999
General. The Company had a net profit for the three-month period ended June 30,
2000, of $320,082 or $.06 per share, compared to a net profit of $233,400 or
$.05 per share for the same period in 1999. The increase in the net profit was
due primarily to an increase in net interest income, an increase in other
income, offset partially by an increase in other expense.
Interest Income and Expense. Interest income increased by $1,154,864 to
$4,500,341 for the three-month period ended June 30, 2000, from $3,345,477 for
the same period in 1999. Interest income on loans increased to $4,313,293 in
2000 from $3,211,812 in 1999, primarily as a result of an increase in the
average amount of loans outstanding and an increase in the average yield earned
on loans. The increase in the average yield earned on loans is the result of the
overall increase in loan rates. Interest income on the securities portfolio
increased by $14,351 for the three-month period ended June 30, 2000, over the
same period in 1999, as a result of an increase in the yield on securities
owned. Other interest and dividends increased $39,032 during the same
three-month period in 2000 from 1999, as a result of an increase in the average
volume of other interest-bearing assets and an increase in the rates earned.
Management expects the rates earned on the portfolio to fluctuate with general
market conditions.
Interest expense increased $966,445 during the three-month period ended June 30,
2000, to $3,018,554 from the same period in 1999 due to an increase in the
amount of deposits and borrowings and an increase in interest rates. Interest on
deposits increased to $2,292,173 in 2000 from $1,646,041 in 1999, as a result of
an increase in the amount of, and the rates paid on, deposits. Interest on FHLB
advances and Other Borrowings increased to $726,381 in 2000 from $406,068 in
1999, as a result of an increase in the average amount of, and an increase
(continued)
12
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
in the interest rates paid on, advances and other borrowings outstanding.
Management expects to continue to use FHLB advances and other borrowings as a
liability management tool.
Provisions for Loan Losses. A provision for loan losses is generally charged to
operations based upon management's evaluation of the losses in its loan
portfolio. During the quarter ended June 30, 2000, management made a provision
for loan losses of $60,000 based on its evaluation of the loan portfolio, which
was a decrease of $30,000 from the same period in 1999. During the three months
ended June 30, 2000, charge-offs were $149,881 as compared to charge-offs of
$12,681 for the same period in 1999. The increase in charge-offs was primarily
attributable to one loan for $110,000 which was charged off during the quarter.
This loan had been in litigation for several years and the Company concluded
that is was less costly to charge it off rather than to continue the litigation.
There were recoveries of $4,041 during the three-month period ended June 30,
2000, as compared to net recoveries of $4,041 during the three-month period
ended June 30, 1999. Total non- performing loans at June 30, 2000, were
$2,795,468 compared to $1,372,999 at June 30, 1999. The increase in
non-performing loans was attributable to the growth of the loan portfolio, as
well as the addition of over 2,500 loans to the portfolio of loans serviced for
others. The combined increase in the number of loans serviced resulted in the
servicing department falling somewhat behind in collecting delinquent loans, but
additional staff has been added to this department and non-performing loans has
been decreasing as a result. The allowance for loan losses at June 30, 2000 was
$1,416,114 or 51% of non-performing loans and .66% of net loans outstanding,
versus $1,272,435 at June 30, 1999, or 93% of non-performing loans and .68% of
net loans outstanding.
Total Other Income. Other income increased from $308,362 for the three-month
period ended June 30, 1999, to $505,561 for the same period in 2000. The
increase in other income was due to an increase of $138,572 in fees and service
charges, an increase of $137,063 in other miscellaneous income, offset partially
by a decrease of $78,436 in gains on the sale of assets. The increase in fees
and service charges was primarily the result of an increase in servicing fees on
loans and increased fees on deposit accounts. During the third quarter of 1999
the Company began servicing approximately 2,800 loans that are owned by other
companies. The increase in other miscellaneous income was attributable primarily
to increased other loan income, resulting from an increase in the amount of
loans originated. The decrease in gains on assets sold was the result of a
decrease in the amount of loans sold during the period.
Total Other Expense. Other expense increased to $1,494,283 for the three-month
period ended June 30, 2000, from $1,208,419 for the same period in 1999.
Compensation and benefits increased to $800,954 in 2000, from $623,342 in 1999
due to an increase in staff in the loan department and also the addition of the
mortgage company owned by the Bank in Gainesville, Florida. Occupancy and
equipment expense increased by $30,921 in 2000, to $260,667 due to increases in
office building rent and maintenance expenses, and the opening of the mortgage
company in Gainesville in June 1999. Data Processing expense increased by
$36,278 due to an increase in the number of loans serviced, and an increase in
the number of deposit accounts. Professional fees increased by $1,271, as a
result of increased professional and regulatory fees, resulting primarily from
the growth of the Company. FDIC Insurance expense decreased by $9,085, as a
result of a decrease in the insurance premium rate paid on deposits in the Bank.
Other miscellaneous expense increased by $48,867 due primarily to increases in
loan expenses related to the increased number of loans originated by the Company
and increases in general and administrative expenses resulting from the growth
of the Company during the year.
Comparison of the Six-Month Periods Ended June 30, 2000 and 1999
General. The Company had a net profit for the six-month period ended June 30,
2000, of $627,710 or $.13 per share, compared to a net profit of $411,649 or
$.08 per share for the same period in 1999. The increase in the
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FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
net profit was due primarily to an increase in net interest income, an increase
in other income, offset partially by an increase in other expense.
Interest Income and Expense. Interest income increased by $2,173,957 to
$8,628,047 for the six-month period ended June 30, 2000, from $6,454,090 for the
same period in 1999. Interest income on loans increased to $8,271,326 in 2000
from $6,179,640 in 1999, primarily as a result of an increase in the average
amount of loans outstanding and an increase in the average yield earned on
loans. The increase in the average yield earned on loans is the result of the
overall increase in loan rates. Interest income on the securities portfolio
increased by $25,787 for the six-month period ended June 30, 2000, over the same
period in 1999, as a result of an increase in the yield on securities owned.
Other interest and dividends increased $56,484 during the same six-month period
in 2000 from 1999, as a result of an increase in the average volume of other
interest-bearing assets and an increase in the rates earned. Management expects
the rates earned on the portfolio to fluctuate with general market conditions.
Interest expense increased $1,625,617 during the six-month period ended June 30,
2000, to $5,666,536 from the same period in 1999 due to an increase in the
amount of deposits and borrowings and an increase in interest rates. Interest on
deposits increased to $4,283,350 in 2000 from $3,281,904 in 1999, as a result of
an increase in the amount of, and the rates paid on, deposits. Interest on FHLB
advances and Other Borrowings increased to $1,383,186 in 2000 from $759,015 in
1999, as a result of an increase in the average amount of, and an increase in
the interest rates paid on, advances and other borrowings outstanding.
Management expects to continue to use FHLB advances and other borrowings as a
liability management tool.
Provisions for Loan Losses. A provision for loan losses is generally charged to
operations based upon management's evaluation of the losses in its loan
portfolio. During the six months ended June 30, 2000, management made a
provision for loan losses of $120,000 based on its evaluation of the loan
portfolio, which was a decrease of $30,000 from the same period in 1999. During
the six months ended June 30, 2000, charge- offs were $149,881 as compared to
charge-offs of $21,920 for the same period in 1999. The increase in charge- offs
was primarily attributable to one loan for $110,000 which was charged off during
the second quarter. This loan had been in litigation for several years and the
Company concluded that is was less costly to charge it off rather than to
continue the litigation. There were recoveries of $8,082 during the six-month
period ended June 30, 2000, as compared to net recoveries of $8,299 during the
six-month period ended June 30, 1999. Total non- performing loans at June 30,
2000, were $2,795,468 compared to $1,372,999 at June 30, 1999. The increase in
non-performing loans was attributable to the growth of the loan portfolio, as
well as the addition of over 2,500 loans to the portfolio of loans serviced for
others. The combined increase in the number of loans serviced resulted in the
servicing department falling somewhat behind in collecting delinquent loans, but
additional staff has been added to this department and non-performing loans has
been decreasing as a result. The allowance for loan losses at June 30, 2000 was
$1,416,114 or 51% of non-performing loans and .66% of net loans outstanding,
versus $1,272,435 at June 30, 1999, or 93% of non-performing loans and .68% of
net loans outstanding.
Total Other Income. Other income increased from $589,209 for the six-month
period ended June 30, 1999, to $897,959 for the same period in 2000. The
increase in other income was due to an increase of $256,456 in fees and service
charges, an increase of $258,258 in other miscellaneous income, offset partially
by a decrease of $205,964 in gains on the sale of assets. The increase in fees
and service charges was primarily the result of an increase in servicing fees on
loans and increased fees on deposit accounts. During the third quarter of 1999
the Company began servicing approximately 2,800 loans that are owned by other
companies. The increase in other miscellaneous income was attributable primarily
to increased other loan income, resulting from an increase in the amount of
loans originated. The decrease in gains on assets sold was the result of a
decrease in the amount of loans sold during the period.
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Total Other Expense. Other expense increased to $2,839,205 for the six-month
period ended June 30, 2000, from $2,285,649 for the same period in 1999.
Compensation and benefits increased to $1,567,276 in 2000, from $1,211,824 in
1999 due to an increase in staff in the loan department and the addition of the
mortgage company owned by the Bank in Gainesville, Florida. Occupancy and
equipment expense increased by $76,238 in 2000, to $514,687 due to increases in
office building rent and maintenance expenses, the opening of a loan production
office in New Smyrna Beach, Florida in March 1999, and the opening of the
mortgage company in Gainesville in June 1999. Data Processing expense increased
by $39,066 due to an increase in the number of loans serviced, and an increase
in the number of deposit accounts. Professional fees increased by $5,221, as a
result of increased professional and regulatory fees, resulting primarily from
the growth of the Company. FDIC Insurance expense decreased by $16,460, as a
result of a decrease in the insurance premium rate paid on deposits in the Bank.
Other miscellaneous expense increased by $94,039 due primarily to increases in
loan expenses related to the increased number of loans originated by the Company
and increases in general and administrative expenses resulting from the growth
of the Company during the year.
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 26, 2000, Registrant held its Annual Meeting of Shareholders at which the
following matters were voted upon:
1. Election of Directors: Votes For Votes Withheld
Three Year Term:
Kenneth W. Hill 3,904,635 16,757
2. Selection of KPMG, LLP as independent auditor for the year ending December
31, 2000:
Votes For Votes Against Votes Abstained
3,906,570 28,530 11,306
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused the report to be signed on its behalf by the undersigned
thereunto duly authorized.
FEDERAL TRUST CORPORATION
(Registrant)
Date: August 14, 2000 By: /s/ Aubrey H. Wright, Jr.
-------------------------
Aubrey H. Wright, Jr.
Chief Financial Officer and duly
authorized Officer of the Registrant
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