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:
----------------------------------- -----------------------------------
September 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
----------------------------------------
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 November 9, 2000
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Consolidated Condensed Balance Sheet (unaudited)
September 30, 2000 ...............................................3
Consolidated Condensed Statements of Operations for the
Three and Nine months ended
September 30, 2000 and 1999 (unaudited)...........................4
Consolidated Condensed Statements of Cash Flows for the
Nine months ended September 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
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
September 30, 2000
------------------
Assets (unaudited)
<S> <C>
Cash $ 1,358,158
Interest bearing deposits 4,535,814
Investment securities available for sale 1,581,590
Investment securities held to maturity 6,658,328
Loans receivable, net (net of allowance for loan losses of
$1,480,155) 213,410,680
Accrued interest receivable - Loans 1,459,259
Accrued interest receivable - Securities 95,603
Federal Home Loan Bank of Atlanta stock, at cost 2,500,000
Real estate owned, net 78,715
Property and equipment, net 1,216,279
Prepaid expenses and other assets 4,179,252
Executive supplemental income plan-cash surrender
value life insurance policies 2,690,006
Deferred income taxes 299,051
----------
Total Assets $ 240,062,735
===========
Liabilities and Stockholders' Equity
Deposit accounts $ 170,915,135
Official checks 2,139,393
Federal Home Loan Bank advances 42,500,000
Other borrowings 2,000,000
Advance payments for taxes and insurance 2,889,474
Accrued expenses and other liabilities 4,257,671
-----------
Total Liabilities $ 224,701,673
===========
Stockholders' equity:
Common stock, $.01 par value, 15,000,000 shares authorized;
4,947,911 shares issued and outstanding at September 30, 2000 49,479
Additional paid-in capital 15,977,052
Accumulated deficit (454,130)
Accumulated other comprehensive loss (211,339)
-----------
Total Stockholders' Equity $ 15,361,062
-----------
Total Liabilities and Stockholders' Equity $ 240,062,735
===========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
For Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $4,612,895 3,535,310 12,884,221 9,714,950
Securities 66,720 69,109 222,929 199,531
Interest-bearing deposits and other 111,051 66,327 311,563 210,355
--------- --------- ---------- --------
Total interest income 4,790,666 3,670,746 13,418,713 10,124,836
--------- --------- ---------- ----------
Interest expense:
Deposit accounts 2,531,894 1,818,254 6,815,244 5,100,158
Federal Home Loan Bank advances & other
borrowings 800,491 544,044 2,183,677 1,303,059
--------- --------- ---------- ----------
Total interest expense 3,332,385 2,362,298 8,998,921 6,403,217
--------- --------- ---------- ----------
Net interest income 1,458,281 1,308,448 4,419,792 3,721,619
Provision for loan losses 60,000 60,000 180,000 210,000
--------- --------- ---------- ----------
Net interest income after provision 1,398,281 1,248,448 4,239,792 3,511,619
--------- --------- ---------- ----------
Other income:
Fees and service charges 129,469 164,785 454,000 232,860
Gain on sale of assets 96,688 77,913 153,756 340,945
Other 299,414 60,745 815,774 318,847
--------- --------- ---------- ----------
Total other income 525,571 303,443 1,423,530 892,652
--------- --------- ---------- ----------
Other expenses:
Employee compensation & benefits 820,876 573,491 2,388,152 1,785,315
Occupancy and equipment 255,316 208,405 770,003 646,854
Data processing expense 75,139 55,842 195,259 136,896
Professional fees 72,009 79,809 195,244 197,823
FDIC Insurance 20,933 31,125 61,328 87,980
Other 274,534 212,272 748,026 591,725
--------- --------- ---------- ----------
Total other expenses 1,518,807 1,160,944 4,358,012 3,446,593
--------- --------- ---------- ----------
Income before income tax 405,045 390,947 1,305,310 957,678
Income tax expense 116,110 87,096 388,665 242,178
--------- --------- ---------- ----------
Net income $ 288,935 303,851 916,645 715,500
========= ========= ========== ==========
Per share amounts:
Basic and Diluted Earnings per share .06 .06 .19 .14
Weighted average number of shares outstanding 4,947,911 4,947,911 4,947,911 4,944,391
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
4
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<TABLE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 916,645 715,500
Adjustments to reconcile net income to net cash flows from operations:
Depreciation & amortization of property & equipment 332,428 288,867
Amort. (net) of premiums, fees & disc. on loans & securities 144,272 284,821
Provision for loan losses 180,000 210,000
Gain on sale of assets (153,756) (340,945)
Accretion of stock option expense 32,812 32,812
Deferred income taxes 161,324 337,816
Executive supplemental income plan (87,533) (84,550)
Loans originated or purchased, held for sale (2,046,077) (6,164,671)
Proceeds collected from loan sales 17,464,524 23,353,596
Cash provided by (used for) changes in:
Accrued interest receivable (158,924) (435,564)
Prepaid expenses & other assets (2,955,109) (610,367)
Official checks (839,616) 781,237
Accrued expenses & other liabilities (154,287) 3,358,055
---------- ----------
Net cash used by operating acties 12,836,703 21,726,607
---------- ----------
Cash flows from investing activities:
Acquisition of office properties and equipment (454,414) (230,728)
(Purchase) sale of Federal Home Loan Bank stock (540,000) 40,000
Reimbursement of real estate owned costs 79,890 145,179
Addition to real estate owned - 195,231
Proceeds from sale of real estate owned 136,714 910,827
Proceeds from securities available for sale 339,636 -
Principal collected on loans 63,946,789 31,279,462
Loans originated or purchased (106,292,162) (83,663,305)
---------- ----------
Net cash used in investing activities (42,783,547) (51,323,334)
---------- ----------
Cash flows from financing activities:
Increase in deposits, net 17,391,526 20,894,887
Increase in Federal Home Loan Bank advances 7,300,000 5,200,000
Increase in other borrowings 2,000,000 -
Issuance of capital stock, net of stock issuance costs - 17,500
Net increase in advance payments by borrowers for taxes & insurance 2,081,681 1,672,788
---------- ----------
Net cash provided by financing activities 28,773,207 27,785,175
---------- ----------
Decrease in cash and cash equivalents (1,173,637) (1,811,552)
Cash and cash equivalents at beginning of period 7,067,609 7,165,433
---------- ----------
Cash and cash equivalents at end of period $ 5,893,972 5,353,881
========== ==========
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.
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 September 30, 2000, and the
consolidated condensed statements of operations for the three and nine month
periods ended September 30, 2000 and 1999, and the cash flows for the nine month
periods ended September 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 September 30, 2000, the results of operations for the three and nine month
periods ended September 30, 2000 and 1999, and cash flows for the nine month
periods ended September 30, 2000 and 1999. The results of operations for the
three and nine month period ended September 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 nine month periods ended September 30, 2000 was $310,798 and $973,112,
as compared to the three and nine month periods ended September 30, 1999, of
$319,146 and $762,964.
3. New Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments and Liabilities" (FASB 140). This
statement replaces FASB Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." It revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of Statement 125's provisions without reconsideration. This Statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. Implementation of FASB 140 is not
expected to have a significant impact on the financial position or results of
operations of the Company.
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
(continued)
6
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
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
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 September 30, 2000, impaired loans amounted to $3.5 million as compared to
$2.9 million at December 31, 1999. Included in the allowance for loan losses is
$396 thousand related to the impaired loans as compared to $316 thousand at
December 31, 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 nine months of 2000, the average recorded investment in impaired
loans was $2.5 million and $69 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 September 30, 2000, is as follows:
September 30, 2000
------------------
Mortgage Loans:
Permanent conventional:
Commercial $ 20,575,142
Residential 164,750,196
Residential Construction 33,666,015
-----------
Total Mortgage Loans 218,991,353
Commercial loans 1,844,734
Consumer loans 1,590,113
Lines of credit 1,726,785
-----------
(continued)
7
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
Total loans receivable 224,152,985
Net premium on mortgage loans purchased 1,980,228
Deduct:
Unearned loan origination fees, net of direct loan
origination costs 167,047
Undisbursed portion of loans in process 11,075,331
Allowance for loan losses 1,480,155
---------
Loans receivable, net $213,410,680
===========
<TABLE>
5. Allowance for Losses
The following is an analysis of the activity in the allowance for loan losses
for the periods presented:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 1,416,114 1,272,435 1,437,913 1,136,056
Provision for loan losses 60,000 60,000 180,000 210,000
Less Charge-offs - (2,678) (149,881) (24,598)
Plus recoveries 4,041 4,041 12,123 12,340
----------- ---------- --------- ---------
Balance at end of period $ 1,480,155 1,333,798 1,480,155 1,333,798
========= ========= ========= =========
Loans Outstanding $213,410,680 186,710,122 213,410,680 186,710,122
Ratio of charge-offs to Loans Outstanding .0% .001% .07% .01%
Ratio of allowance to Loans Outstanding .69% .71% .69% .71%
</TABLE>
A provision for loan losses is generally charged to operations based upon
management's evaluation of the probable losses in its loan portfolio. During the
quarter ended September 30, 2000, the Company made a provision of $60,000 based
on its evaluation of the loan portfolio, as compared to the provision of $60,000
made in the quarter ended September 30, 1999. 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.
(continued)
8
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
6. Supplemental Disclosure of Cash Flow and Non-Cash Investing and Financing
Activities
Nine Months Ended September 30,
2000 1999
---- ----
Cash paid during the period for:
Interest expense $ 3,676,350 2,557,966
Income taxes 402,144 -
Supplemental disclosure of non-cash transactions:
Real estate acquired in
settlement of loans - 195,231
<TABLE>
7. Real Estate Owned, Net
The following is an analysis of the activity in real estate acquired through
foreclosure for the periods ended:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 88,215 $ 389,532 295,319 1,107,295
Acquired through foreclosure -- - - 195,231
Add: Capitalized costs (net of
insurance recoveries) - (32,049) (79,890) (145,179)
Less: Sale of real estate 9,500 128,230 136,714 910,827
Less: Chargeoffs - 2,678 - 19,945
------ ------- --------- -------
Balance at end of period $ 78,715 $ 226,575 78,715 226,575
====== ======= ========= =======
8. Investment Securities
At September 30, 2000
---------------------
Book Value Market Value
---------- ------------
<S> <C> <C>
Held to maturity:
FHLB Floating Rate Note, 3.21%, due 7/30/03 $ 6,658,328 6,195,000
========= =========
Available for sale:
FNMA ARM Pool 516140, 7.264%, due 08/01/28 945,671 936,484
FNMA ARM Pool 516141, 8.310%, due 03/01/28 633,095 645,106
--------- ---------
$ 1,578,766 1,581,590
========== =========
</TABLE>
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 September 30,
2000, the bond had a market value of $6,195,000 and gross unrealized pretax
losses of $805,000. 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 September 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 September 30, 2000, the Bank did
not purchase or sell any bonds.
(continued)
9
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
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 September 30, 2000:
Maturity Date Rate Amount Type
------------- ---- ------ ----
12/02/00 6.94% $ 2,500,000 Variable 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 6.45% $42,500,000
===== ==========
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
--------- ---- ------
7/31/00 6.49% $ 47,000,000
8/31/00 6.48% 45,500,000
9/30/00 6.45% 42,500,000
The maximum amount of advances outstanding at any month end during the three
month period ended September 30, 2000, was $47,000,000. During the three and
nine month periods ended September 30, 2000, average advances outstanding
totaled $45.6 million and $41.3 million at average rates of 6.58% and 6.75%,
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 September 30, 2000, was $2,000,000. During the three
and nine month periods ended September 30, 2000, average other borrowings
outstanding totaled $2.0 million and $1.3 million at average rates of 9.91% and
9.66%, 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
(continued)
10
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (unaudited)
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, 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. FTB Financial Services, Inc., which commenced operations
in 1996, engages in the business of selling insurance annuities, stocks and bond
products. The operations of the two subsidiaries are insignificant to the
overall results of the Company.
(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 Company's assets were $240,062,735 at September 30, 2000, a decrease of
$567,283 from the quarter ended June 30, 2000. The decrease in assets was the
result of the Company's decision to slow down growth in order to maintain the
well capitalized position of its subsidiary, Federal Trust Bank. Year to date
the Company's assets have grown $28,785,228, an increase of 14%. At September
30, 2000, stockholders' equity was $15,361,062 (unaudited), with 4,947,911
shares of common stock outstanding.
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 September 30, 2000 and 1999
General. The Company had a net profit for the three month period ended September
30, 2000, of $288,935 or $.06 per share, compared to a net profit of $303,851 or
$.06 per share for the same period in 1999. The decrease in the net profit was
due primarily to an increase in net interest income, an increase in other
income, offset by an increase in other expense and an increase in income taxes.
Interest Income and Expense. Interest income increased by $1,119,920 to
$4,790,666 for the three month period ended September 30, 2000, from $3,670,746
for the same period in 1999. Interest income on loans increased to $4,612,895 in
2000 from $3,535,310 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
decreased by $2,389 for the three month period ended September 30, 2000, over
the same period in 1999, as a result of a decrease in the yield on securities
owned. Other interest and dividends increased $44,724 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.
(continued)
12
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
Interest expense increased $970,087 during the three month period ended
September 30, 2000, to $3,332,385 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 $2,531,894 in 2000 from $1,818,254 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 $800,491
in 2000 from $544,044 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 quarter ended September 30, 2000, management made a
provision for loan losses of $60,000 based on its evaluation of the loan
portfolio, which was the same as the provision made in 1999. During the three
months ended September 30, 2000, there were no charge-offs as compared to
charge-offs of $2,678 for the same period in 1999. There were recoveries of
$4,041 during the three month period ended September 30, 2000, as compared to
net recoveries of $4,041 during the three month period ended September 30, 1999.
Total non-performing loans at September 30, 2000, were $2,987,234 compared to
$1,635,686 at September 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 September 30, 2000 was $1,480,155 or
50% of non-performing loans and .69% of net loans outstanding, versus $1,333,798
at September 30, 1999, or 82% of non-performing loans and .78% of net loans
outstanding.
Total Other Income. Other income increased from $303,443 for the three month
period ended September 30, 1999, to $525,571 for the same period in 2000. The
increase in other income was due to an increase of $238,669 in other
miscellaneous income, an increase of $18,775 in gains on the sale of assets,
offset partially by a decrease of $35,316 in fees and service charges. 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 increase in gains on assets sold was the result of an increase in the amount
of loans sold during the period. The decrease in fees and service charges was
primarily the result of a decrease in servicing fees on loans.
Total Other Expense. Other expense increased to $1,518,807 for the three month
period ended September 30, 2000, from $1,160,944 for the same period in 1999.
Compensation and benefits increased to $820,876 in 2000, from $573,491 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 $46,911 in 2000, to $255,316 due to increases in
office building rent and maintenance expenses. Data Processing expense increased
by $19,297 due to an increase in the number of deposit accounts and loans
accounts . Professional fees decreased by $7,800, as a result of decreased
professional and regulatory fees. FDIC Insurance expense decreased by $10,192,
as a result of a decrease in the insurance premium rate paid on deposits in the
Bank. Other miscellaneous expense increased by $62,262 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.
13
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FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
Comparison of the Nine Month Periods Ended September 30, 2000 and 1999
General. The Company had a net profit for the nine month period ended September
30, 2000, of $916,645 or $.19 per share, compared to a net profit of $715,500 or
$.14 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 $3,293,877 to
$13,418,713 for the nine month period ended September 30, 2000, from $10,124,836
for the same period in 1999. Interest income on loans increased to $12,884,221
in 2000 from $9,714,950 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 $23,398 for the nine month period ended September 30, 2000, over
the same period in 1999, as a result of an increase in the amount of securities
owned. Other interest and dividends increased $101,208 during the same nine
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 $2,595,704 during the nine month period ended
September 30, 2000, to $8,998,921 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 $6,815,244 in 2000 from $5,100,158 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 $2,183,677
in 2000 from $1,303,059 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 nine months ended September 30, 2000, management made a
provision for loan losses of $180,000 based on its evaluation of the loan
portfolio, which was a decrease of $30,000 from the same period in 1999. During
the nine months ended September 30, 2000, charge- offs were $149,881 as compared
to charge-offs of $24,598 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 $12,123 during
the nine month period ended September 30, 2000, as compared to net recoveries of
$12,340 during the nine month period ended September 30, 1999. Total
non-performing loans at September 30, 2000, were $2,987,234 compared to
$1,635,686 at September 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 September 30, 2000 was $1,480,155 or
50% of non-performing loans and .69% of net loans outstanding, versus $1,333,798
at September 30, 1999, or 82% of non-performing loans and .78% of net loans
outstanding.
Total Other Income. Other income increased from $892,652 for the nine month
period ended September 30, 1999, to $1,423,530 for the same period in 2000. The
increase in other income was due to an increase of $221,140, in fees and service
charges, an increase of $496,927 in other miscellaneous income, offset partially
by a decrease of $187,189 in gains on the sale of assets. The increase in fees
14
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FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
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 2,500 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 $4,358,012 for the nine month
period ended September 30, 2000, from $3,446,593 for the same period in 1999.
Compensation and benefits increased to $2,388,152 in 2000, from $1,785,315 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 $123,149 in 2000, to $770,003 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 $58,363 due to an increase in the number of loans serviced an increase in the
number of deposit accounts, and the opening of the mortgage company in
Gainesville. Professional fees decreased by $2,579, as a result of decreased
professional and regulatory fees. FDIC Insurance expense decreased by $26,652,
as a result of a decrease in the insurance premium rate paid on deposits in the
Bank. Other miscellaneous expense increased by $156,301 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, including the opening of the
mortgage company in Gainesville.
15
<PAGE>
FEDERAL TRUST CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
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: November 10, 2000 By: /s/ Aubrey H. Wright, Jr.
---------------------------- -----------------------------------
Aubrey H. Wright, Jr.
Chief Financial Officer and duly
authorized Officer of the Registrant
16
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