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 March 31, 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 May 7, 1996, there were 722,060 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 March 31, 1996
and June 30, 1995
Consolidated Condensed Statements of Income for the
three months ended March 31, 1996 and 1995 and the
nine months ended March 31, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1996 and 1995 and the
nine months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 and the nine
months ended March 31, 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)
March 31 June 30
ASSETS: 1996 1995
------------- -------------
<S> <C> <C>
Cash and due from financial institutions ....................... $ 867,476 $ 852,892
Interest-earning deposits in financial institutions - short term 2,319,741 13,041,823
------------- -------------
Cash and cash equivalents ................................. $ 3,187,217 $ 13,894,715
Interest-earning deposits in financial institutions
(cost approximates market value) .......................... 553,380 379,000
Securities available for sale .................................. 20,069,027 4,480,521
Securities held to maturity (fair value) ....................... -- 11,013,307
March 31, 1996 - $ - 0
June 30, 1995 - $ 11,100,000
Mortgage-backed securities available for sale .................. 19,344,962 --
Mortgage-backed securities (fair value) ........................ -- 19,489,202
March 31, 1996 - $ - 0
June 30, 1995 - $ 20,150,000
Stock in Federal Home Loan Bank, at cost ....................... 2,397,600 2,340,400
Loans receivable, net .......................................... 99,365,342 92,474,542
Loans held for sale ............................................ 748,420 213,900
Excess servicing fees receivable ............................... 7,542 18,386
Accrued interest receivable .................................... 1,084,687 972,676
Premises and equipment - net ................................... 1,714,024 1,389,672
Other assets ................................................... 420,031 626,271
------------- -------------
Total Assets .............................................. $148,892,232 $147,292,592
============ ============
(Continued)
<PAGE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS -- Continued
(Unaudited)
March 31 June 30
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits ....................................................... $ 92,130,846 $ 85,929,858
Borrowed funds ................................................. 39,300,000 45,300,000
Advanced payments by borrowers for taxes and insurance ......... 201,895 123,881
Interest Payable and other liabilities ......................... 1,176,482 447,285
------------- -------------
Total Liabilities ........................................... $ 132,809,223 $ 131,801,024
Shareholders' Equity
Preferred stock, $01 par value, 500,000 shares authorized
none issued ................................................. -- --
Common stock, $.01 par value, 2,000,000 shares authorized,
shares issued and outstanding March 31, 1996 - 850,508
June 30, 1995 - 848,396 ..................................... 8,505 8,484
Additional paid-in capital ...................................... 8,064,575 8,007,476
Retained earnings - substantially restricted .................... 9,897,288 9,014,804
Treasury Stock at Cost, 111,332 Shares .......................... (1,745,986) (1,008,836)
Unrealized loss on equity investments ........................... (69,351) (61,618)
Unrealized gains on securities available for sale ............... 319,917 --
Less common stock acquired by:
Employee stock Ownership Plan ............................... (372,321) (412,064)
Management Recognition and Retention Plan ................... (19,618) (56,678)
------------- -------------
Total Shareholders' equity .................................. 16,083,009 15,491,568
------------- -------------
Total Liabilities and Shareholders' Equity ............... $ 148,892,232 $ 147,292,592
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFOFMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans Receivable
Mortgage loans ............................ $ 1,421,329 $ 1,296,812 $ 4,229,953 $ 3,701,408
Consumer and other loans .................. 685,632 453,793 1,927,921 1,290,113
Investment securities ......................... 322,620 241,334 835,649 711,196
Mortgage-backed securities .................... 357,686 362,000 1,074,061 1,089,943
Other Int-earning assets ...................... 38,822 31,825 203,413 83,184
----------- ----------- ----------- -----------
Total interest income ..................... $ 2,826,089 $ 2,385,764 $ 8,270,997 $ 6,875,844
Interest Expense:
Deposits ...................................... 1,096,910 964,898 3,247,546 2,758,048
Other ......................................... 614,474 494,471 1,819,581 1,301,125
----------- ----------- ----------- -----------
Total Interest Expense .................... $ 1,711,384 $l,459,369 $ 5,067,127 $ 4,059,173
Net Interest Income ............................... 1,114,705 926,395 3,203,870 2,816,671
Provision for Loan Losses ..................... 36,153 6,000 48,153 27,718
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 1,078,552 920,395 3,155,717 2,788,953
Non-interest income:
Net gain on sale of interest-earning assets ... 28,169 -- 127,257 (4,855)
Net unrealized gain or loss on loans held
for sale .................................. -- -- -- 18,105
Other ......................................... 113,837 96,443 349,008 321,476
----------- ----------- ----------- -----------
Total Non Int-income ...................... $ 142,006 $ 96,443 $ 476,265 $ 334,726
(Continued)
<PAGE>
<CAPTION>
PART I: FINANCIAL INFOFMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME -- Continued
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Non-Interest Expense:
Compensation and Benefits ..................... 294,893 276,877 884,763 851,513
Occupancy and equipment ....................... 56,420 46,866 199,161 140,137
SAIF deposit insurance premiums ............... 60,019 51,971 177,165 161,322
Other ......................................... 221,792 198,375 638,156 587,861
----------- ----------- ----------- -----------
Total Non-Interest Expense ................ $ 633,124 $ 574,089 $ 1,899,245 $ 1,740,833
Income before income taxes ........................ 587,434 442,749 1,732,737 1,382,846
Income Tax Expense ............................ 193,965 132,312 576,487 413,686
----------- ----------- ----------- -----------
Net Income ........................................ $ 393,469 $ 310,437 $ 1,156,250 $ 969,160
----------- ----------- ----------- -----------
Earnings per common and common
equivalent shares:
Primary, ...................................... $ .53 $ .41 $ 1.53 $ 1.30
Fully Diluted ................................. $ .53 $ .41 $ 1.53 $ 1.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
1996 1995 1996 199S
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Beginning Balance ............................... $ 14,527,091 $ 14,983,985 $ 14,272,804 $ 14,434,720
Common Stock at .01 Par Value 2,000,000 shares
authorized issued and outstanding
March 31, 1996-- 850,508;
June 30, 1995-- 846,396 ..................... -- -- 21 13
Additional Paid-in Capital ...................... 12,000 12,000 57,099 48,827
Treasury Stock at Cost 19,682 Shares for the
three-month period and 38,682 shares for the
nine-month period ended March 31,1996 ....... (378,129) -- (737,151) --
Cash Dividends of
$.12 and $.11 per share for the three-month
periods and $ .36 and $ .33 per share for the
nine-month periods ended 1996 and 1995 ...... (88,701) (85,100) (273,767) (255,158)
Amortization of ESOP Contribution ............... -- -- 39,743 37,100
Amortization of MRP Contribution ................ 6,539 15,261 37,061 71,940
Net change in unrealized depreciation on
equity securities available for sale ........ (16,381) 94,914 (7,732) 24,895
Net change in unrealized gain and losses on
investment available for sale ............... (325,269) -- 319,917 --
Net Income for Period(s) ........................ 393,469 310,437 1,156,250 969,160
------------ ------------ ------------ ------------
Ending Balance .................................. $ 16,083,009 $ 15,331,497 $ 16,083,009 $ 15,331,497
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income ......................................... $ 393,469 $ 310,437 $ 1,156,250 $ 969,160
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization, net of accretion ... 38,885 34,493 97,089 103,345
Net (gain) loss on sale/call
of interest-earning assets .................... (35,620) -- (141,718) 44,000
Unrealized gain on loans held for sale ............ -- -- -- (18,106)
Net loss (gain) on sale of real estate owned
and fixed assets ............................... 347 (3,947) 49,432 (13,191)
Origination of loans held for sale ................ (2,801,435) -- (5,666,450) (224,650)
Proceeds from sale of loans held for sale ......... 2,344,635 -- 5,214,369 1,552,908
Provision for loan losses ......................... 36,153 6,000 48,153 27,718
Amortization of MRP's ............................. 6,539 15,261 37,061 71,941
Amortization of ESOP cost related to SOP93-6 ...... 12,000 12,000 36,000 36,000
Increase in accrued interest receivable ........... (51,897) (54,480) (112,011) (96,342)
(Increase) decrease in other assets ............... (55,184) (74,880) 135,822 (92,617)
Increase (Decrease) in accrued interest payable
and other liabilities .......................... 443,217 450,721 492,737 412,441
Reduction of obligation under ESOP ................ -- -- 39,742 37,100
------------ ------------ ------------ ------------
Total adjustments .............................. ($ 62,360) $ 385,168 $ 230,226 $ 1,840,547
------------ ------------ ------------ ------------
Net cash from operating activities ............. $ 331,109 $ 695,605 $ 1,386,476 $ 2,809,707
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits
in financial institutions ......................... 185,565 -- (174,380) --
Proceeds from sales/calls of securities available
for sale .......................................... 409,000 -- 1,199,723 --
Proceeds from sales/calls of securities
held-to-maturity .................................. -- 80,000 500,000 595,692
Proceeds from maturities of securities available
for sale .......................................... 250,000 -- 250,000 --
Proceeds from maturities of securities
held-to-maturity .................................. -- 270,000 300,000 470,000
Purchase of securities available for sale .......... (1,569,848) (81,526) (6,689,391) (483,122)
Purchase of Federal Home Loan Bank Stock ........... -- (25,000) (57,200) (25,000)
Principal collected on mortgage-backed
securities ........................................ 205,588 145,931 594,665 503,499
Net increase in loans .............................. (2,116,086) (2,797,890) (6,938,953) (10,602,547)
Proceeds from sale of premises, furniture and
equipment ......................................... -- -- 840 --
Purchase of premises, furniture and
equipment ......................................... (21,698) (7,736) (446,298) (31,353)
Proceeds from sales of other real estate ........... 15,653 18,347 77,815 116,743
------------ ------------ ------------ ------------
Net cash from investing activities ..................... ($ 2,641,826) ($ 2,397,874) ($11,383,179) ($ 9,456,088)
<PAGE>
<CAPTION>
PART 1: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits ........................ 3,428,744 2,400,250 6,200,988 3,100,506
Proceeds from short-term borrowings ............. 5,500,000 2,891,962 19,000,000 5,885,670
Payment on short-term borrowings ................ (6,000,000) (1,384,750) (25,000,000) (1,384,750)
Increase in advances from borrowers for taxes
and insurance .................................. 74,957 69,128 78,014 70,387
Purchase of Treasury Stock ...................... (378,128) -- (737,150) --
Proceeds from exercising of stock options ....... -- -- 21,120 12,840
Cash dividends paid ............................ (88,701) (85,100) (273,767) (255,158)
Net cash from financing activities ............. $ 2,536,872 $ 999,528 ($ 710,795) $ 7,429,495
Net increase (decrease) in cash and cash equivalents $ 226,155 ($ 702,741) ($10,707,498) $ 783,114
Cash and cash equivalents at beginning of period .... $ 2,961,062 $ 3,569,126 $ 13,894,715 $ 2,083,271
Cash and cash equivalents at end of period .......... $ 3,187,217 $ 2,866,385 $ 3,187,217 $ 2,866,385
------------ ------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during quarter for
Interest ....................................... $ 1,333,257 $ 1,107,012 $ 4,678,221 $ 3,678,823
Income Taxes ................................... $ 168,100 $ 165,000 $ 383,100 $ 455,000
Noncash investing activities transfers from:
Investment securities to securities
available-for-sale ........................... -- -- -- 3,975,931
Investment securities to securities
held-to-maturity ............................. -- -- -- 12,453,807
Securities held-to-maturity to
securities available-for-sale ................ -- -- 29,301,698 --
</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 March 31, 1996 and June 30, 1995, and the results of its
operations, changes in shareholders' equity for the three and nine months ended
March 31, 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 March 31, 1996.
Operating results for the three and nine months ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 1996.
(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 and nine month periods ended March 31,
1996 and 1995. Weighted average number of shares used in the earnings per share
computations were 708,737 for the three-month period ended March 31, 1996 and
727,102 for the nine-month period ended March 31, 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 March 31, 1996,
options on 62,934 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 March 31,
1996, the capital requirements for the Bank under FIRREA and its actual capital
ratios. As of March 31, 1996, the Bank substantially exceeded all current
regulatory capital standards.
<PAGE>
<TABLE>
<CAPTION>
Regulatory Actual
---------- ------
Capital Requirement Capital (Bank Only)
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Risk-Based ........................ $6,221 8.00% $11,829 15.21%
Core Capital ...................... 4,328 3.00% 11,302 7.83%
Tangible Capital .................. 2,164 1.50% 11,302 7.83%
</TABLE>
(4) Common Stock Cash Dividends
On February 27, 1996, the Board of Directors of FFW Corporation, declared a
quarterly cash dividend of $.12 per share. The dividend was paid March 31, 1996
to shareholders of record on March 15, 1996. The payment of the cash dividend
reduced shareholders' equity by $88,701.
<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
The Company's total assets increased $1.6 million, or 1.1%, from $147.3
million at June 30, 1995 to $148.9 million at March 31, 1996. This increase was
due primarily to funds generated by an increase in deposits of $6.2 million and
a decrease in borrowings from FHLB of $6.0 million. Net loans receivables
increased $6.9 million and securities available-for-sale increased $4.6 million.
All of which contributed to a decrease in cash and cash equivalents of $10.7
million. Loan demand and liquidity needs may result in additional borrowings if
deposits and loan growth remain at current levels.
<PAGE>
Total securities available-for-sale increased $15.6 million from $4.5
million at June 30, 1995 to $20.1 million at March 31, 1996. This increase was
primarily the result of the reclassification of held-to-maturity securities to
available-for-sale of $10.2 million in December 1995 and the purchases of $5.4
million in securities.
The available-for-sale portfolio consists primarily of municipal securities,
government agencies and to a lesser extent mutual funds and FNMA preferred
stock. Held-to-maturity securities decreased from $11.0 million at June 30, 1995
to $0 million at December 31, 1995 due to the reclassification of $10.2 million
of the held-to-maturity securities to available-for-sale and the maturity or
call of $800,000 of held-to-maturity securities.
Mortgage-backed securities decreased $144,240, or .7% and $585,000, or
3.0% from $19.5 million at June 30, 1995 and $19.9 million at December 31, 1995
respectively, to $19.3 million at March 31, 1996. The decrease from December to
March was due primarily to the repayment of principal of $206,000 and the
reduction in the fair value of the portfolio of $379,000.
Net loans receivable increased $6.9 million, or 7.5% and $2.1 million
or 2.1%, from $92.5 million at June 30, 1995 and $97.3 million at December 31,
1995 respectively to $99.4 million at March 31, 1996. The increase in the loan
portfolio for the quarter resulted, primarily, from an increase in non-mortgage
loans of $1.8 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 of 15 years or
longer.
Total deposits increased $6.2 million or 7.2% and $3.4 million or 3.9%
from $85.9 million at June 30, 1995 and $88.7 million at December 31, 1995 to
$92.1 million at March 31, 1996. For the quarter ended March 31, 1996, passbook
accounts increased $2.6 million or 6.5% while certificates of deposit increased
$600,000 or 1.4%. 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 $6.0 million from $45.33 million at June
30, 1995 to $39.3 million at March 31, 1996. The decrease consisted of
repayments of advances from the Federal Home Loan Bank of Indianapolis.
Total shareholders' equity increased $600,000 from $15.5 million at
June 30, 1995 to $16.1 million at March 31, 1996. The increase resulted from net
income of $1.2 million for the nine months ended March 31, 1996 and the net of
tax effect of the unrealized gains on securities available-for-sale of
$320,0000. Which were reduced for the same period by $274,000 for the payment of
dividends and the repurchase of 38,682 shares of FFW stock at a cost of
$737,000.
Results of Operations - Comparison of the Three and Nine Months Ended
March 31, 1996 and March 31, 1995
General. Net income increased by $83,000 and $187,000 for the three and
nine months ended March 31, 1996 respectively, as compared to the three and nine
months ended March 31, 1995. The increase for the three and nine months ended
March 31, 1996 was primarily the result of increases in net interest income. All
of these items are discussed in greater detail below.
<PAGE>
Net Interest Income. Net interest income increased $188,000 or 20.3%
and $388,000 or 13.7% for the three and nine months ended March 31, 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.
Interest Income. Interest income increased $440,000 and $1.4 million to
$2.8 million and $8.3 million for the three and nine months ended March 31, 1996
respectively, as compared to the three and nine months ended March 31, 1995.
The increases in interest income for the three and nine months ended March 31,
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 March 31, 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 $252,000 and $1.0 million
to $1.7 million and $5.1 million for the three and nine months ended March 31,
1996 respectively, as compared to the three and nine months ended March 31,
1995. For the three months ended March 31, 1995, the increase in interest
expense was due to an increase in borrowed funds and deposits outstanding as
compared to the same periods in 1995. Interest rates, while declining during the
first six months, have seen a increase that will probably continue through the
remainder of this fiscal year. 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
$30,000 for the three months ended March 31, 1996 and increased $20,400 for the
nine months ended March 31, 1996, as compared to the three and nine months ended
March 31, 1995. 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 $46,000 and
$142,000 to $142,000 and $476,000 for the three and nine months ended March 31,
1996 respectively, as compared to the three and nine months ended March 31,
1995. The increases were the result of increased gain on sales of loans to the
Federal Home Loan Mortgage Corporation of $28,000 and $114,000 for the three and
nine months ended March 31, 1996 respectively. Management believes that with the
rise of interest rates we will see a decrease in the gain on sales of loans to
Freddie Mac for the remainder of the year as compared to earlier in the year.
<PAGE>
Non-Interest Expense. Non-interest expense increased $59,000 and
$158,000 to $633,000 and $1.9 million for the three and nine months ended March
31, 1996 respectively, as compared to the three and nine months ended March 31,
1995. For the three months ended March 31, 1996, compensation and benefits
expenses increased by $18,000; other expenses increased by $23,000 as compared
to the three months ended March 31, 1995. For the nine months ended March 31,
1996, compensation and benefit expense increased $33,000 due to increased staff;
other expenses increased by $50,000; office occupancy increased $59,000 due to
our new office in Syracuse as compared to the nine months ended March 31, 1995.
Increases in other expenses for the three and nine month periods are due to
costs related to data processing, and other professional services.
Income Tax Expense. Income tax expense increased $62,000 and $163,000
to $194,000 and $576,000 for the three and nine months ended March 31, 1996
respectively, as compared to the three and nine months ended March 31, 1995. The
increase was due to a higher percentage of taxable income for the three and nine
months ended March 31, 1996.
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 March 31, 1996, was
$527,000 or 0.5% of total loans. The December 31, 1995 allowance for loan losses
was $512,000, or 0.5% of total loans. Total loans classified as substandard,
doubtful or loss as of March 31, 1996 were $651,000, or 0.4% 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.
<TABLE>
<CAPTION>
03/31/96 12/31/95
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ..................................... $ 67 $112
Accruing Loans Delinquent 90 days or more .............. -- --
Troubled Debt Restructurings ........................... -- --
Foreclosed Assets ...................................... 18 7
---- ----
Total Non-Performing Assets ............................ $ 85 $119
==== ====
Total Non-Performing Assets as a
Percentage of Total Assets ............................. .06% .08%
</TABLE>
Total non-performing assets decreased $34,000 to $85,000, or .06% of total
assets at March 31, 1996, from $119,000 or .08% of total assets at December 31,
1995. The decrease in non-performing assets was primarily due to loan payoffs
and principal repayments on previously non-performing loans during the quarter.
Foreclosed assets increased $11,000 due to the foreclosure on three auto loans.
<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 March 31,
1996, the Bank's liquidity ratio of 7.60%, 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 March 31, 1996, the
Company has commitments to originate loans totaling $2.9 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 March 31, 1996, the Bank
exceeded all fully phased-in regulatory capital standards.
At March 31, 1996, the Bank's tangible capital was $11.3 million, or 7.8% of
adjusted total assets, which is in excess of the 1.5% requirement by $9.1
million. In addition, at March 31, 1996, the Bank had core capital of $11.3
million, or 7.8% of adjusted total assets, which exceeds the 3.0% requirement by
$7.0 million. The Bank had risk-based capital of $11.8 million at March 31, 1996
or 15.2% 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 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.
Part II - Other Information
As of March 31, 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 - Other Information
FDIC INSURANCE FUND RESOLUTION PENDING IN CONGRESS
The deposit insurance recapitalization bill for the Savings Association
Insurance Fund (SAIF) is nearly dead in Congress. The bill has been held hostage
to the partisan politics and strong lobbying by the banking lobby to kill it.
The likelihood of passage grows more remote as it appears, unlikely that a
separate bill can be passed on it's own accord. However, if the bill should some
how be passed in the form proposed late last year the Bank's special assessment
would amount to approximately $452,000 to $478,000, after taxes. If this
assessment takes place we should see our deposit insurance cost drop to .04 from
.23 per $100 of deposits.
<PAGE>
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 March 31, 1996.
(i) A Form 8-K was filed on February 14, 1996 announcing the
annual earnings for the quarter ended December 31, 1995.
(ii) A Form 8-K was filed on March 27, 1996 announcing that a
quarterly dividend was declared on February 27, 1996,
payable March 31, 1996 to record holders on March 15, 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: May 15, 1996 /S/ Nicholas M. George
-------------------------------------
Nicholas M. George
President and Chief Executive Officer
Date: May 15, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 867
<INT-BEARING-DEPOSITS> 2,873
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,414
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 100,641
<ALLOWANCE> 527
<TOTAL-ASSETS> 148,892
<DEPOSITS> 92,131
<SHORT-TERM> 39,300
<LIABILITIES-OTHER> 1,378
<LONG-TERM> 0
0
0
<COMMON> 9
<OTHER-SE> 16,074
<TOTAL-LIABILITIES-AND-EQUITY> 148,892
<INTEREST-LOAN> 6,158
<INTEREST-INVEST> 1,910
<INTEREST-OTHER> 203
<INTEREST-TOTAL> 8,336
<INTEREST-DEPOSIT> 3,248
<INTEREST-EXPENSE> 5,067
<INTEREST-INCOME-NET> 3,269
<LOAN-LOSSES> 48
<SECURITIES-GAINS> 127
<EXPENSE-OTHER> 1,899
<INCOME-PRETAX> 1,733
<INCOME-PRE-EXTRAORDINARY> 1,156
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,156
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 2.30
<LOANS-NON> 67
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 584
<ALLOWANCE-OPEN> 484
<CHARGE-OFFS> 57
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 527
<ALLOWANCE-DOMESTIC> 512
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15
</TABLE>
