SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-21170
FFW CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 35-1875502
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification or Number)
1205 North Cass Street, Wabash, IN 46992
(Address of principal executive offices)
(219) 563-3185
(Issuer's telephone number)
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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
State the number of Shares outstanding of each of the issuer's classes of common
equity, as of the latest date:
As of November 12, 1996, there were 702,060 shares of the Registrant's common
stock issued and outstanding.
<PAGE>
FFW CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets September 30, 1996
and June 30, 1996
Consolidated Condensed Statements of Income for the
three months ended September 30, 1996 and 1995 and the
nine months ended September 30, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the
three months ended September 30, 1996 and 1995 and the
nine months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the three
months ended September 30, 1996 and 1995 and the nine
months ended September 30, 1996 and 1995.
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Signature Page
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30
1996 1996
------------- -------------
<S> <C> <C>
ASSETS:
Cash and due from financial institutions .............................. $ 1,233,357 $ 861,553
Interest-earning deposits in financial institutions - short term ...... 3,054,275 1,926,654
------------- -------------
Cash and cash equivalents .................................... $ 4,287,632 $ 2,788,207
Interest-earning deposits in financial institutions
(cost approximates market value) ............................. 24,729 362,664
Securities available for sale ......................................... 40,916,289 40,566,384
Loans held for sale, net of unrealized losses ......................... 431,200 423,361
Loans receivable, net of allowance for loan losses of $493,763
in September and $553,440 in June ............................ 103,024,444 100,529,412
Stock in Federal Home Loan Bank, at cost .............................. 2,397,600 2,397,600
Accrued interest receivable ........................................... 1,154,927 1,102,611
Premises and equipment - net .......................................... 1,709,895 1,691,433
Other assets .......................................................... 604,276 605,233
------------- -------------
Total Assets ................................................. $ 154,550,992 $ 150,466,905
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Noninterest-bearing demand deposits ................................... $ 3,082,378 $ 3,263,982
Savings, Now and MMDA deposits ........................................ 45,116,669 45,868,695
Other time deposits ................................................... 51,465,946 43,357,434
------------- -------------
Total Deposits ............................................... $ 99,664,993 $ 92,490,111
Federal Home Loan Bank advances ....................................... 37,800,000 41,800,000
Accrued interest payable .............................................. 560,539 150,492
Accrued expenses and other liabilities ................................ 1,051,466 568,159
------------- -------------
Total Liabilities ............................................ $ 139,076,998 $ 135,008,762
<PAGE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued)
(Unaudited)
September 30, June 30
1996 1996
------------- -------------
<S> <C> <C>
Shareholders' Equity:
Preferred stock, $.01 par value, 500,000 shares authorized
none issued .................................................. -- --
Common stock, $.01 par value, 2,000,000 shares authorized;
853,592 shares shares issued and 702,060 shares outstanding at
September 30, 1996; 853,592 shares issued and 711,060
shares outstanding at June 30, 1996 .......................... 8,536 8,536
Additional paid-in capital ............................................ 8,156,484 8,132,484
Retained earnings - substantially restricted .......................... 10,193,007 10,218,910
Net unrealized depreciation on securities available for sale, net
of tax benefit of $35,000 on September 30, 1996 and $69,436
on June 30, 1996 ............................................. (15,443) (203,283)
Unearned Employee Stock Option Plan Shares ............................ (331,189) (331,189)
Unearned Management Retention Plan Shares ............................. (6,540) (13,079)
Treasury Stock, 151,532 and 142,532 common shares, at Cost,
at September 30, 1996 and June 30, 1996, respectively ........ (2,530,861) (2,354,236)
------------- -------------
Total Shareholders' equity ................................... 15,473,994 15,458,143
------------- -------------
Total Liabilities and Shareholders' Equity .......... $ 154,550,992 $ 150,466,905
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30
-------------------
1996 1995
---- ----
<S> <C> <C>
Interest Income:
Loans Receivable
Mortgage loans .......................... $ 1,448,240 $ 1,398,597
Consumer and other loans ................ 739,004 591,612
Securities
Taxable ................................. 117,786 476,257
Nontaxable .............................. 593,654 144,020
Other Int-earning assets ......................... 27,636 78,404
----------- -----------
Total Interest Income ................... $ 2,926,320 $ 2,688,890
Interest Expense:
Deposits ......................................... 1,169,388 1,060,504
Federal Home Loan Bank Advances .................. 589,203 598,131
Total Interest Expense .................. $ 1,758,591 $ 1,658,635
Net Interest Income ....................................... 1,167,729 1,030,255
Provision for Loan Losses ........................ 20,000 6,000
----------- -----------
Net interest income after provision for loan losses ....... 1,147,729 1,024,255
Noninterest income :
Net realized gains on sales/calls of
interest-earning assets ................ 10,728 17,938
Net unrealized gain or loss on loans held for sale -- --
Other income .................................... 147,721 121,412
----------- -----------
Total Non-Int Income .................... $ 158,449 $ 139,350
Non-Interest Expense :
Salaries and employee benefits ................... 339,047 296,120
Occupancy and equipment expense .................. 64,486 95,977
SAIF deposit insurance premium ................... 623,249 58,456
Other expense .................................... 230,979 208,760
----------- -----------
Total Non-Interest Expense .............. $ 1,257,761 $ 659,313
----------- -----------
<PAGE>
<CAPTION>
Income before income taxes ................................ 48,417 504,292
Income Tax Expense ............................... (30,988) 165,870
----------- -----------
Net Income ................................................ $ 79,405 $ 328,422
=========== ===========
Earnings per common and common equivalent shares :
Primary .......................................... $ .11 $ .44
Fully Diluted .................................... $ .11 $ .44
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended
September 30
----------------------------
1996 1995
---- ----
<S> <C> <C>
Beginning Balance - June 30 .................................................. $ 14,527,091 $ 15,491,568
Common Stock at .01 Par Value 2,000,000 shares authorized issued
and outstanding September 30, 1996 -- 853,592;
September 30, 1995 -- 850,508 -- 21
Additional Paid-in Capital .................................................... 24,000 33,099
Treasury Stock purchase at Cost 9,000 Shares for the three-month period
September 30, 1996 and 0 shares for the three-month
period ended September 30, 1995 ...................................... (176,625) --
Cash Dividends of:
$.15 per share for 1996 and $.12 per share for 1995 ................. (105,309) (93,343)
Amortization of ESOP Contribution ............................................. -- --
Amortization of MRP Contribution ............................................. 6,539 15,262
Net change in unrealized depreciation on securities available for sale ........ 187,840 41,315
Net Income for Period(s) ...................................................... 79,405 338,422
----------- ------------
Ending Balance ................................................................ $15,473,993 $ 15,826,344
=========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities :
Net Income ............................................................ $ 79,405 $ 338,423
Adjustments to reconcile net income to net cash provided by operating
activities :
Depreciation and amortization, net of accretion ................... 44,449 25,273
Provision for loan losses .......................................... 20,000 6,000
Net realized (gains) loss on sale/call of interest-earning assets .. (13,679) (21,599)
Unrealized gain on loans held for sale ........................ -- --
Net loss (gain) on sale of real estate owned repossessed assets
and fixed assets ............................................. (8,273) 45,887
Origination of loans held for sale ................................ (1,400,221) (1,353,215)
Proceeds from sale of loans held for sale ......................... 1,407,339 1,407,339
ESOP expense ...................................................... 24,000 12,000
Amortization of MRP contribution .................................. 6,539 15,262
Net change in accrued interest receivable ......................... (52,316) (23,763)
Net change in other assets ........................................ (225,181) 77,244
Net change in accrued interest payable, accrued expenses and
other liabilities ............................................ 893,354 381,015
----------- -----------
Total adjustments ........................................ 696,005 571,443
----------- -----------
Net cash from operating activities ........................... 775,410 909,866
Cash flows from investing activities :
Net change in interest-bearing deposits in other financial
institutions ................................................ 337,935 --
Proceeds from:
sales/calls of securities available or sale .................. -- 25,000
sales/calls of securities held-to-maturity ................... -- --
maturities of securities available for sale .................. 330,000 --
maturities of securities held-to-maturity .................... -- 200,000
Purchase of:
securities available for sale ................................ (546,485) (58,360)
Federal Home Loan Bank Stock ................................. -- --
Principal collected on mortgage-backed securities ..................... 159,042 217,461
Net change in loans receivable ........................................ (2,516,310) (2,288,106)
Net purchases premises, and equipment ................................. (50,855) (358,141)
Proceeds from sales of other real estate and repossessed assets ....... 117,734 36,600
----------- -----------
Net cash used in investing activities ............... ($2,168,939) ($2,225,546)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
September 30
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities :
Net change in deposits ...................... 7,174,882 1,150,145
Proceeds from short-term borrowings ......... -- --
Payment on short-term borrowings ............ (4,000,000) (10,500,000)
Proceeds from exercising of stock options ... -- 21,120
Purchase of Treasury Stock .................. (176,625) --
Cash dividends paid ......................... (105,309) (93,343)
Net cash from financing activities ...... 2,892,948 (9,422,078)
------------ ------------
Net change in cash and cash equivalents .............. 1,499,425 (10,737,758)
Cash and cash equivalents at beginning of period ..... 2,788,207 13,894,715
------------ ------------
Cash and cash equivalents at end of period ........... $ 4,287,632 $ 3,156,957
============ ============
Supplemental disclosure of cash flow information :
Cash paid during quarter for:
Interest ................................ $ 1,348,029 $ 1,333,318
Income Taxes ............................ $ 61,000 $ --
Noncash investing activities transfers from :
Investment securities to securities
available-for-sale ................ -- --
Investment securities to securities
held-to-maturity .................. -- --
Securities held-to-maturity to
securities available-for-sale ..... -- --
</TABLE>
<PAGE>
FFW CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the Consolidated Condensed Financial
Statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to represent fairly the financial condition of FFW
Corporation as of September 30, 1996 and June 30, 1996, and the results of its
operations, changes in shareholders' equity for the three months ended September
30, 1996 and 1995. Financial Statement reclassifications have been made for the
prior period to conform to classifications used as of and for the period ended
September 30, 1996.
Operating results for the three months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ended June 30, 1997.
(2) Earnings Per Share of Common Stock
Earnings per share of Common Stock is computed by dividing net income
for the period by the weighted average number of common stock and common stock
equivalents outstanding during the three month periods ended September 30, 1996
and 1995. Weighted average number of shares used in the earnings per share
computations were 674,975 for the three-month period ended September 30, 1996.
On October 26, 1993, the shareholders of the Company ratified the
adoption of the Company's 1992 Stock Option and Incentive Plan and the
Management Recognition Plan and Trusts ("MRP"). Pursuant to the Stock Option
Plan, 84,500 shares of the Company's Common Stock are reserved for issuance, of
which the Company has granted options on 68,442 shares. As of September 30,
1996, options on 59,850 shares of the Company's Common Stock remain unexercised.
(3) Regulatory Capital Requirements
Pursuant to the Financial Institution Reform, Recovery, and Enforcement
Act of l989 ("FIRREA"), savings institutions must meet three separate minimum
capital-to-asset requirements. The following table summarizes, as of September
30, 1996, the capital requirements for the Bank under FIRREA and its actual
capital ratios. As of September 30, 1996, the Bank substantially exceeded all
current regulatory capital standards.
<PAGE>
<TABLE>
<CAPTION>
Regulatory Actual
Capital Requirement Capital (Bank Only)
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Risk-Based ................ $ 6,717 8.00% $12,352 15.21%
Core Capital .............. 4,539 3.00% 11,861 7.84%
Tangible Capital .......... 2,270 1.50% 11,861 7.84%
</TABLE>
(4) Common Stock Cash Dividends
On August 27, 1996, the Board of Directors of FFW Corporation, declared a
quarterly cash dividend of $.15
per share. The dividend was paid September 30, 1996 to shareholders of record on
September 15, 1996. The payment of the cash dividend reduced shareholders'
equity by $105,309.
(5) New accounting Standards
In March 1995 , the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. The Statement requires review of such assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
adopted SFAS No. 121 effective July 1, 1996. The adoption had no material effect
on the Company's financial position or results of operations.
The FASB issued SFAS No. 122. Accounting for Mortgage Servicing Rights, in May
1995. This Statement changes the accounting, for mortgage servicing rights
retained by the loan originator. Under this Statement, an entity that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values. Under current practice, all such costs are assigned to the loan.
The costs allocated to mortgage servicing rights are to be recorded as a
separate asset and amortized in proportion to, and over the life of, the net
servicing income. The carrying value of the mortgage servicing rights are to be
periodically evaluated for impairment. The Statement became effective for the
Company as of July 1, 1996. The adoption of SFAS No. 122 did not have a material
effect on the Company's financial position or results of operations.
<PAGE>
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, SFAS No. 123 encourages, but does not require, entities to use a
fair value based method to account for stock-based compensation plans. If the
fair value accounting encouraged by SFAS No. 123 is not adopted, entities must
disclose the pro forma effect on net income and on earnings per common share had
the fair value accounting been adopted. The Company has elected to not adopt
SFAS No. 123. However, the Company will provide any required proforma
disclosures in any future complete financial statements. The proforma
disclosures are not required in noncomplete interim financial statements.
<PAGE>
PART II
FFW CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The accompanying Consolidated Financial Statement includes the account
of FFW Corporation (the "Company") and its wholly owned subsidiaries, First
Federal Savings Bank of Wabash(the "Bank") and FirstFed Financial of Wabash,
Inc. All significant inter-company transactions and balances are eliminated in
consolidation. The Company's results of operations are primarily dependent on
the Bank's net interest margin, which is the difference between interest income
on interest-earning assets and interest expense on interest-bearing liabilities.
The Bank's net income is also affected by the level of its non-interest
expenses, such as employee compensation and benefits, occupancy expenses, and
other expenses.
Forward - Looking Statements
When used in this Form 10 - Q and in future filings by the Company with
Securities and Exchange Commission, in the Company's press release or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrase "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward - looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company wishes to caution readers
not to place undue reliance on any such forward - looking statements, which
speak only as of the date made. The Company wishes to advise readers that the
factors listed below could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially from
any opinions or statements expressed with respect to future periods in any
current statements.
The Company does not undertake - and specifically declines any
obligation - to publicly release the result of any revisions which may be made
to any forward - looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Financial Condition
On September 30, 1996 the SAIF recapitalization bill was signed into
law. First Federal's portion of the one time assessment amounted to $337,800 net
of tax. If the one-time assessment had not occurred The Company would have had
earnings for the quarter of $417,200 or $ .62 per share, as compared to $338,422
or $ .44 per share for quarter ended September 30, 1995. Going forward our
future FDIC premiums will drop to .064% per $100 in deposits. This should
increase the net income of the Company by approximately $87,500 per year net of
taxes.
<PAGE>
The Company's total assets increased $4.1 million, or 2.7%, from $150.5
million at June 30, 1996 to $154.6 million at September 30, 1996. This increase
was due primarily to funds generated by an increase in deposits of $7.2 million
and a decrease in borrowings from FHLB of $4.0 million. Net loans receivable
increased $2.5 million and securities available-for-sale increased $350,000. All
of which contributed to a increase in cash and cash equivalents of $1.5 million.
Loan demand and liquidity needs may result in additional borrowings if deposits
and loan growth remain at current levels.
Mortgage-backed securities increased $23,500, or .1% from $18.5 million
at June 30, 1996 to $18.6 million at September 30, 1996. The increase was due to
an increase in the fair value of the portfolio of $184,300, which was offset by
the repayment of principal of $159,000.
Net loans receivable increased $2.5 million, or 2.5% from $100.5
million at June 30, 1996 to $103.0 million at September 30, 1996. The increase
in the loan portfolio for the quarter resulted, primarily, from an increase in
non-mortgage loans of $1.9 million due to an increase in origination's.
Management, consistent with its asset/liability objectives, will continue to
sell all of its newly originated fixed-rate mortgage loans with terms to
maturity greater than 15 years.
Total deposits increased $7.2 million or 7.8% $92.5 million at June 30,
1996 to $99.7 million at September 30, 1996. For the quarter ended September 30,
1996, passbook accounts decreased $752,000 or 1.6% while certificates of deposit
increased $8.1 million or 18.7%. Management believes that deposit growth may
become more costly with the increase in interest rates and the competitive
nature of the markets we serve.
Total borrowed funds decreased $4.0 million from $41.8 million at June
30, 1996 to $37.8 million at September 30, 1996. The decrease consisted of
repayments of advances from the Federal Home Loan Bank of Indianapolis.
Total shareholders' equity increased $16,000 from $15.5 million at June
30, 1996 to $15.5 million at September 30, 1996. The increase resulted from net
income of $79,000 for the three months ended September 30, 1996 and the net of
tax effect of the unrealized gains on securities available-for-sale of
$188,0000. Which were reduced for the same period by $105,300 for the payment of
dividends and the repurchase of 38,682 shares of FFW stock at a cost of
$176,600.
Results of Operations - Comparison of the Quarters Ended September 30,
1996 and September 30, 1995
General. Net income decreased by $249,000 for the three months ended
September 30, 1996 respectively, as compared to the three months ended September
30, 1995. The decrease for the three months ended September 30, 1996 was the
result of the recognition of the SAIF insurance fund's one time assessment of
$556,200 before taxes. All of these items are discussed in greater detail below.
Net Interest Income. Net interest income increased $137,500 or 13.3% to
$1.1 million from $1.1 million for the quarter ended September 30, 1996 and 1995
respectively. This was primarily the result of an increase in average
interest-earning assets which exceeded the increase in average interest-bearing
liabilities.
<PAGE>
Interest Income. Interest income increased $237,400 to $2.9 million
from $2.7 million for the quarter ended September 30, 1996 and 1995
respectively. The increases in interest income for the three months ended
September 30, 1996 were due to continued growth in interest-earning assets
including mortgage loans, commercial and consumer loans and investment, as
compared to the same periods ended September 30, 1995. These increased
interest-earning assets are the result of competitive pricing, marketing, and
the repricing of adjustable-rate loans and mortgage-backed securities.
Interest Expense. Interest expense increased $100,000 to $1.8 million
from $1.7 million for the quarter ended September 30, 1996 and 1995
respectively. The increase in interest expense was due to an increase in
deposits outstanding as compared to the same periods in 1995. Interest rates,
while declining in the secondary markets have been flat in our local market
areas. If interest rates remain at or near current levels, management
anticipates the rate of shift to certificates from passbook accounts will
continue. Thereby raising our interest expense cost, as the difference between
rates paid on existing certificates and passbooks expands.
Provision for Loan Losses. The provision for loan losses increased
$14,000 to $20,000 from $6,000 for the quarter ended September 30, 1996 and 1995
respectively. The loan loss provisions are based on management's quarterly
analysis of the allowance for loan losses. The provisions for the three and nine
month periods reflect an increase in non-mortgage lending and the inherent
riskiness and the number of these loans as compared to 1-4 family mortgage
loans. The company will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic and regulatory conditions dictate. Although the Company maintains its
allowance for loan losses at a level which is deemed consistent with the level
of risk in the portfolio, economic conditions, etc. there can be no assurance
that future losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required in future periods.
Non-interest Income. Non-interest income increased by $19,000 to
$158,000 from $139,000 for the quarter ended September 30, 1996 and 1995
respectively. The increase was the result of increased other income of $26,000
which was offset by a decrease of $7,000 in gain on sales of loans to the
Federal Home Loan Mortgage Corporation for the quarter ended September 30, 1996.
Management believes that with the falling interest rates we will see a increase
in the gain on sales of loans to Freddie Mac for the remainder of the year as
compared to the prior year.
Non-Interest Expense. Non-interest expense increased $598,000 to $1.3
million from $659,000 for the quarter ended September 30, 1996 and 1995
respectively. For the quarter ended September 30, 1996, compensation and
benefits expenses increased by $43,000, SAIF insurance expense increased by
$565,000, other expenses increased $22,000, which were partially offset by a
decrease in occupancy expense of $31,500 as compared to the quarter ended
September 30, 1995. Compensation and benefit expense increases were due to
increased staff. The SAIF insurance increase was due to the one time assessment
incurred, as a result of legislation signed, on September 30, 1996 for the
recapitalization of the SAIF insurance fund, which insures deposits in member
thrifts and banks. Increases in other expenses are due to costs related to data
processing, and other professional services. Office occupancy decreased due to
the completion of our new office in Syracuse as compared to last year when we
had a expense for the old facility.
<PAGE>
Income Tax Expense. Income tax expense decreased $219,000 from $166,000
for the quarter ended September 30, 1996 as compared to the quarter ended
September 30, 1995. This decrease resulted in a tax credit of $31,000 which
should be reversed out during the course of the remaining fiscal year. This tax
expenses decrease is a direct result of expensing the one time assessment for
the SAIF insurance fund.
Non-Performing Assets and Allowance for Loan Losses. The allowance for
loan losses is calculated based upon an evaluation of pertinent factors
underlying the types and qualities of the Company's loans. Management considers
such factors as the repayment status of a loan, the estimated net realizable
value of the underlying collateral, the borrower's ability to repay the loan,
current and anticipated economic conditions which might affect the borrower's
ability to repay the loan and the Company's past statistical history concerning
charge-offs. The Company's allowance for loan losses as of September 30, 1996,
was $493,760 or 0.5% of total loans. The June 30, 1996 allowance for loan losses
was $553,4400, or 0.55% of total loans. Total loans classified as substandard,
doubtful or loss as of September 30, 1996 were $1.1 million, or 0.7% of total
assets. Management has considered non-performing assets and total classified
assets in establishing the allowance for loan losses.
The ratio of non-performing assets to total assets is one indicator of
the exposure to credit risk. Non-performing assets of the Company consist of
non-accruing loans, accruing loans delinquent 90 days or more, and foreclosed
assets which have been acquired as a result of foreclosure or deed-in-lieu of
foreclosure.
Total non-performing assets increased $148,000 to $240,000, or .16% of
total assets at September 30, 1996, from $92,000 or .06% of total assets at June
30, 1996. The increase in non-performing assets was due to little or no payments
by certain chronic slow paying borrowers. This has prompted us to have a more
aggressive collection policy toward our consumer loan portfolio and has resulted
in a corresponding increase in reposed assets. Foreclosed assets increased
$25,000 due to the foreclosure on three auto loans.
<TABLE>
<CAPTION>
09/30/96 6/30/96
-------- -------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ..................................... $122 $ 65
Accruing Loans Delinquent 90 days or more .............. 11 --
Troubled Debt Restructurings ........................... 55 --
Foreclosed Assets ...................................... 52 27
Total Non-Performing Assets ............................ $240 $ 92
Total Non-Performing Assets as a
Percentage of Total Assets ............................. .16% .06%
</TABLE>
<PAGE>
Liquidity and Capital Resources. The Company's primary sources of funds
are deposits, principal and interest payments on loans and mortgage-backed
securities, FHLB Indianapolis advances and funds provided by operations. While
scheduled loan and mortgage-backed security repayments and maturity of
short-term investments are a relatively predictable source of funds, deposit
flows are greatly influenced by general interest rates, economic conditions,
competition and, most recently, the restructuring occurring in the thrift
industry. Current Office of Thrift Supervision regulations require the Bank to
maintain cash and eligible investments in an amount equal to at least 5.0% of
customer accounts and short-term borrowings to assure its ability to meet
demands for withdrawals and repayment of short-term borrowings. As of September
30, 1996, the Bank's liquidity ratio of 8.21%, exceeds the minimum regulatory
requirements.
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposits and loan commitments,
maintain is liquidity and meet operating expenses. At September 30, 1996, the
Company has commitments to originate loans totaling $2.4 million. The Company
considers its liquidity and capital resources to be adequate to meet its
foreseeable short- and long-term needs. The Company expects to be able to fund
or refinance, on a timely basis, its material commitments and long-term
liabilities.
Regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percent of risk-adjusted assets, a
leverage ratio of core capital to total adjusted assets, and a tangible capital
ratio expressed as a percent of total adjusted assets. As of September 30, 1996,
the Bank exceeded all fully phased-in regulatory capital standards.
At September 30, 1996, the Bank's tangible capital was $11.9 million,
or 7.8% of adjusted total assets, which is in excess of the 1.5% requirement by
$9.6 million. In addition, at September 30, 1996, the Bank had core capital of
$11.9 million, or 7.8% of adjusted total assets, which exceeds the 3.0%
requirement by $7.3 million. The Bank had risk-based capital of $12.4 million at
September 30, 1996 or 14.7% of risk-adjusted assets which exceeds the 8.0%
risk-based capital requirements by $5.6 million.
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only 13 those savings associations
rated a composite one (the highest rating) under the MACRO rating system for
savings associations will be permitted to operate at or near the regulatory
minimum leverage ratio of 3.0%. All other savings associations will be required
to maintain a minimum leverage ratio of 3.0% at least an additional 100 to 200
basis points. The OTS will assess each individual savings association through
the supervisory process on a case-by-case basis to determine the applicable
requirement. No assurance can be given as to the final form of any such
regulation, the date of its effectiveness or the requirement applicable to the
Bank. As a result of the prompt corrective action provisions of federal law
discussed below, however, a savings association must maintain a core capital
ratio of at least 4.0% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3.0% ratio.
Under the requirements of federal law all the federal banking agencies,
including the OTS, must revise their risk-based capital requirements to ensure
that such requirements account for interest rate risk, concentration of credit
risk and the risks of non-traditional activities, and that they reflect the
actual performance of and expected loss on multi-family loans.
<PAGE>
The OTS had adopted a final rule that requires every savings
association with more than normal interest rate risk to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the market value
of its assets. This exposure is a measure of the potential decline in the market
value of portfolio equity of a savings association, greater than 2%, based upon
a hypothetical 200 basis point increase or decrease in interest rates (whichever
results in a greater decline) affecting on-and off-balance sheet assets and
liabilities. The effective date of the new requirement is July 1, 1994. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. It is anticipated that since the Bank has less than $300 million in
assets, and a risk-based capital ratio in excess of 12%, it will be exempt from
this rule.
<PAGE>
Part II - Other Information
As of September 30, 1996, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have or
are reasonably likely to have a material adverse effect on the Company's
liquidity, capital resources or operations.
Item 1 - Legal Proceedings
Not Applicable.
Item 2 - Changes in Securities
Not Applicable.
Item 3 - Defaults upon Senior Securities
Not Applicable.
Item 4 - Submission of Matters to a vote of Security Holders
<PAGE>
The Annual Meeting of Shareholders (the "Meeting") of FFW Corporation
was held on October 22, 1996. The matters approved by shareholders at the
Meeting and the number of votes cast for, against or withheld (as well as the
number of abstentions and broker non-votes) as to each matter are set below:
<TABLE>
<CAPTION>
NUMBER OF VOTES
----------------------
PROPOSAL For Withheld
-------- --- --------
<S> <C> <C>
Election of the following Directors for a
three-year term
Nicholas M. George ................. 514,355 590
J. Stanley Myers ................... 514,455 490
Thomas L. Frank .................... 514,455 490
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Ratification of Crowe Chizek as auditors for
the fiscal year ending June 30, 197 ....... 553,685 25 150
</TABLE>
Item 5 - Other Information
FDIC INSURANCE FUND RESOLUTION SIGNED INTO LAW SEPTEMBER 30, 1996
The deposit insurance recapitalization bill for the Savings Association
Insurance Fund (SAIF) was signed by the President late on September 30, 1996.
The bill provided for the capitalization of the SAIF deposit insurance fund. The
passage of the bill requires that most thrifts and certain banks pay .657% per
$100 in a one time assessment based on deposits of March 31, 1995. The Bank's
special assessment amounted to $556,208 before taxes. Starting January 1, 1997
we should see our deposit insurance cost drop to .064% from .23% per $100 of
deposits.
Item 5 - Exhibits and Reports on Form 8-K
(a) Exhibits
Not Applicable
(b) The following is a description of the Form 8-K's filed during
the quarter ended September 30, 1996.
(i) A Form 8-K was filed on August 29, 1996 announcing the
year end income results for fiscal year end June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
FFW CORPORATION
Registrant
Date: November 12, 1996 /S/ Nicholas M. George
--------------------------
Nicholas M. George
President and Chief
Executive Officer
Date: November 12, 1996 /S/ Charles E. Redman
-------------------------
Charles E. Redman
Treasurer and Chief Financial
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,233
<INT-BEARING-DEPOSITS> 3,079
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,916
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 103,949
<ALLOWANCE> 494
<TOTAL-ASSETS> 154,551
<DEPOSITS> 99,665
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,612
<LONG-TERM> 37,800
0
0
<COMMON> 9
<OTHER-SE> 15,465
<TOTAL-LIABILITIES-AND-EQUITY> 154,551
<INTEREST-LOAN> 2,187
<INTEREST-INVEST> 711
<INTEREST-OTHER> 28
<INTEREST-TOTAL> 2,926
<INTEREST-DEPOSIT> 1,169
<INTEREST-EXPENSE> 589
<INTEREST-INCOME-NET> 1,168
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 1,258
<INCOME-PRETAX> 48
<INCOME-PRE-EXTRAORDINARY> 79
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<YIELD-ACTUAL> 2.60
<LOANS-NON> 122
<LOANS-PAST> 11
<LOANS-TROUBLED> 55
<LOANS-PROBLEM> 1,802
<ALLOWANCE-OPEN> 553
<CHARGE-OFFS> 93
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 494
<ALLOWANCE-DOMESTIC> 486
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8
</TABLE>
