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, 1997
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, 1997, there were 697,010 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, 1997
and June 30, 1996
Consolidated Condensed Statements of Income for the
three months ended March 31, 1997 and 1996 and the
nine months ended March 31, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1997 and 1996 and the
nine months ended March 31, 1997 and 1996.
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 and the nine
months ended March 31, 1997 and 1996.
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
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS : March 31, June 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash and due from financial institutions ................................ $ 1,038,469 $ 861,553
Interest-earning deposits in financial institutions - short term ........ 1,865,617 1,926,654
------------- -------------
Cash and cash equivalents ...................................... $ 2,904,086 $ 2,788,207
Interest-earning deposits in financial institutions
(cost approximates market value) ............................... -- 362,664
Securities available for sale ........................................... 39,685,487 40,566,384
Loans held for sale, net of unrealized gains and losses ................. -- 423,361
Loans receivable, net of allowance for loan losses of $534,314 in March
and $553,440 in June ........................................... 109,850,484 100,529,412
Stock in Federal Home Loan Bank, at cost ................................ 2,397,600 2,397,600
Accrued interest receivable ............................................. 1,138,291 1,102,611
Premises and Equipment-net .............................................. 1,718,177 1,691,433
Other assets ............................................................ 746,847 605,233
------------- -------------
Total Assets .......................................... $ 158,440,972 $ 150,466,905
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits .................................... $ 3,233,880 $ 3,263,982
Savings, Now and MMDA deposits .......................................... 45,497,464 45,868,695
Other time deposits ..................................................... 49,480,051 43,357,434
------------- -------------
Total Deposits ................................................. $ 98,211,395 $ 92,490,111
Borrowed funds .......................................................... 43,225,468 41,800,000
Accrued Interest Payable ................................................ 562,649 150,492
Accrued expenses and other liabilities .................................. 587,185 568,159
------------- -------------
Total Liabilities .............................................. $ 142,586,697 $ 135,008,762
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<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Shareholders' Equity: March 31, June 30,
1997 1996
------------- -------------
<S> <C> <C>
Preferred stock, $.01 par value, 500,000 shares authorized none issued .. -- --
Common stock, $.01 par value, 2,000,000 shares authorized, 855,542 shares
issued and 697,010 outstanding at March 31, 1997; 853,592 shares
issued and 711,060 shares outstanding at June 30, 1996 ......... 8,555 8,536
Additional paid-in capital .............................................. 8,225,965 8,132,484
Retained earnings - substantially restricted ............................ 10,856,742 10,218,910
Net unrealized depreciation on securities available for sale, net
of tax liability of $ 210,706 on March 31, 1997 and a tax
benefit of $69,436 on June 30, 1996 .......................... . (264,386) (203,283)
Unearned Employee stock Ownership Plan shares ........................... (288,615) (331,189)
Unearned Management Retention Plan share ................................ -- (13,079)
Treasury Stock at Cost, 158,532 and 142,532 common shares at cost,
at March 31, 1997 and June 30, 1996, respectively .............. (2,683,986) (2,354,236)
------------- -------------
Total Shareholders' equity ..................................... 15,854,275 15,458,143
Total Liabilities and Shareholders' Equity ............ $ 158,440,972 $ 150,466,905
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Loans Receivable
Mortgage loans .......................... $1,500,690 $1,421,329 $4,424,597 $4,229,953
Consumer and other loans ................ 824,477 685,632 2,355,419 1,927,921
Securities
Taxable ................................. 622,025 553,712 1,840,360 1,499,728
Nontaxable .............................. 110,822 126,594 347,740 409,982
Other Interest-earning assets .................... 17,277 38,822 58,729 203,413
---------- ---------- ---------- ----------
Total Interest Income ................... $3,075,291 $2,826,089 $9,026,845 $8,270,997
Interest Expense:
Deposits ......................................... 1,193,419 1,096,910 3,564,101 3,247,546
Other ............................................ 605,590 614,474 1,795,687 1,819,581
---------- ---------- ---------- ----------
Total Interest Expense .................. $1,799,009 $1,711,384 $5,359,788 $5,067,127
Net Interest Income ....................................... 1,276,282 1,114,705 3,667,057 3,203,870
Provision for Loan Losses ........................ 35,000 36,153 70,000 48,153
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ....... 1,241,282 1,078,552 3,597,057 3,155,717
Non-interest income:
Net gain on sale of interest-earning assets ...... 7,225 28,169 37,451 127,257
Net unrealized gain or loss on loans held for sale -- -- -- --
Other ............................................ 149,705 113,837 438,015 349,008
---------- ---------- ---------- ----------
Total Non-Interest Income ............... $ 156,930 $ 142,006 $ 475,466 $ 476,265
<PAGE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Non-Interest Expense:
Compensation and Benefits ........................ 356,472 294,893 1,040,752 884,763
Occupancy and equipment .......................... 63,519 56,420 200,502 199,161
SAIF deposit insurance premiums .................. 15,925 60,019 699,464 177,165
Other ............................................ 293,985 225,554 788,125 649,442
---------- ---------- ---------- ----------
Total Non-Interest Expense .............. $ 729,901 $ 636,886 $2,728,843 $1,910,531
---------- ---------- ---------- ----------
Income before income taxes ................................ 668,311 583,672 1,343,680 1,721,451
Income Tax Expense ............................... 221,331 190,203 390,678 565,201
---------- ---------- ---------- ----------
Net Income ................................................ $ 446,980 $ 393,469 $ 953,002 $1,156,250
========== ========== ========== ==========
Earnings per common and common equivalent shares :
Primary .......................................... $ .64 $ .53 $ 1.36 $ 1.53
Fully Diluted .................................... $ .64 $ .53 $ 1.35 $ 1.53
</TABLE>
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Beginning Balance .................................... $ 16,116,609 $ 16,479,481 $ 15,458,143 $ 15,491,568
Common Stock at .01 Par Value 2,000,000 shares
authorized issued and outstanding
March 31, 1997 -- 855,542;
March 31, 1996 -- 850,508 ................... 20 -- 20 21
Additional Paid-in Capital ........................... 45,480 12,000 93,480 57,099
Treasury Stock at Cost - 7,000 and 19,682 shares for
the three-month periods and 16,000 and
38,682 shares for the nine-month periods
ended 1997 and 1996 ......................... (153,125) (378,129) (329,750) (737,151)
Cash Dividends of:
$.15 and $.12 per share for the three-month
periods and $ .45 and $ .36 per share for the
nine-month periods ended 1997 and 1996 ...... (104,552) (88,701) (315,170) (273,767)
Amortization of ESOP Contribution .................... -- -- 42,574 39,743
Amortization of MRP Contribution ..................... -- 6,539 13,079 37,061
Net change in unrealized depreciation on equity
securities available for sale ............... (497,137) (341,650) (61,103) 312,185
Net Income for Period(s) ............................. 446,980 393,469 953,002 1,156,250
------------ ------------ ------------ ------------
Ending Balance ....................................... $ 15,854,275 $ 16,083,009 $ 15,854,275 $ 16,083,009
============ ============ ============ ============
</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,
------------------------------- ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income ........................................... $ 446,980 $ 393,469 $ 953,002 $ 1,156,250
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization, net of accretion .. 14,169 38,885 72,978 97,089
Provision for loan losses ........................ 35,000 36,153 70,000 48,153
Net realized gains on sale/call of interest-
earning assets .............................. (9,990) (35,620) (43,616) (141,718)
Net losses on sale of repossessed assets, real
estate owned and fixed assets ............... (2,146) 347 242 49,432
Origination of loans held for sale ............... (556,725) (2,801,435) (2,697,414) (5,666,450)
Proceeds from sale of loans held for sale ........ 721,265 2,344,635 3,167,033 5,214,369
ESOP expenses .................................... 26,000 12,000 116,573 75,742
Amortization of MRP contribution ................. -- 6,539 13,079 37,061
Net change in accrued interest receivable ........ (6,260) (51,897) (35,681) (112,011)
Net change in other assets ....................... 360,691 (55,184) (316,292) 135,822
Net change in accrued interest payable, accrued
expenses and other liabilities .............. 252,570 518,174 431,183 570,751
------------ ------------ ------------ ------------
Total adjustments .................. $ 834,574 $ 12,597 $ 778,085 $ 308,240
------------ ------------ ------------ ------------
Net cash from operating activities .......... $ 1,281,554 $ 406,066 $ 1,731,087 $ 1,464,490
Cash flows from investing activities:
Net change in interest-bearing deposits in other
financial institutions ...................... -- 185,565 362,664 (174,380)
Proceeds from :
sales/calls of securities available for sale 300,000 409,000 375,000 1,199,723
sales/calls of securities held-to-maturity .. -- -- -- 500,000
maturities of securities available for sale . 195,000 250,000 575,000 250,000
maturities of securities held-to-maturity ... -- -- -- 300,000
Purchase of :
securities available for sale ............... (45,908) (1,569,848) (642,497) (6,689,391)
Federal Home Loan Bank Stock ................ -- -- -- (57,200)
Principal collected on mortgage- backed
securities .................................. 128,844 205,588 455,980 594,665
Net change in loans receivable ................... (2,626,276) (2,116,086) (9,392,350) (6,938,953)
............
Net purchases premises and equipment ............. (62,183) (21,698) (123,348) (445,458)
Proceeds from sales of other real estate and
repossessed assets .......................... 56,671 15,653 253,011 77,815
------------ ------------ ------------ ------------
Net cash from investing activities . $ (2,053,852) $ (2,641,826) $ (8,136,540) $(11,383,179)
</TABLE>
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits ...................... 325,468 3,428,744 5,721,284 6,200,988
Proceeds from short-term borrowings ........... 6,925,468 5,500,000 16,425,468 19,000,000
Payment on short-term borrowings .............. (7,000,000) (6,000,000) (15,000,000) (25,000,000)
Purchase of Treasury Stock .................... (153,125) (378,128) (329,750) (737,150)
Proceeds from exercising of stock options ..... 19,500 -- 19,500 21,120
Cash dividends paid ........................... (104,552) (88,701) (315,170) (273,767)
------------ ------------ ------------ ------------
Net cash from financing activities ...... $ 12,759 $ 2,461,915 $ 6,521,332 $ (788,809)
Net increase (decrease) in cash and cash equivalents ...... $ (759,539) $ 226,155 $ 115,879 $(10,707,498)
Cash and cash equivalents at beginning of period .......... $ 3,663,625 $ 2,961,062 $ 2,788,207 $ 13,894,715
Cash and cash equivalents at end of period ................ $ 2,904,086 $ 3,187,217 $ 2,904,086 $ 3,187,217
============ ============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during quarter for:
Interest ................................ $ 1,416,813 $ 1,333,257 $ 4,958,976 $ 4,678,221
Income Taxes ............................ $ 50,000 $ 168,100 $ 426,000 $ 383,100
Non-cash investing activities transfers from:
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, 1997 and June 30, 1996, and the results of its
operations, changes in shareholders' equity for the three and nine months ended
March 31, 1997 and 1996. Financial Statement reclassifications have been made
for the prior period to conform to classifications used as of and for the period
ended March 31, 1997.
Operating results for the three and nine months ended March 31, 1997
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 and nine month periods ended March 31,
1997 and 1996. Weighted average number of shares used in the earnings per share
computations were 666,177 for the three-month period ended March 31, 1997 and
671,156 for the nine-month period ended March 31, 1997.
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 72,442 shares. As of March 31, 1997,
options on 61,900 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,
1997, the capital requirements for the Bank under FIRREA and its actual capital
ratios. As of March 31, 1997, the Bank substantially exceeded all current
regulatory capital standards.
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<TABLE>
<CAPTION>
Regulatory Actual
Capital Requirement Capital (Bank Only)
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Risk-Based ........................ $ 7,161 8.00% $13,277 14.83%
Core Capital ...................... 4,672 3.00% 12,743 8.18%
Tangible Capital .................. 2,336 1.50% 12,743 8.18%
</TABLE>
(4) Common Stock Cash Dividends
On February 25, 1997, the Board of Directors of FFW Corporation, declared a
quarterly cash dividend of $.15 per share. The dividend was paid March 31, 1997
to shareholders of record on March 15, 1997. The payment of the cash dividend
reduced shareholders' equity by $104,552.
<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 1997. 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 January 1, 1997 the company hired a commercial loan officer with 8
years of commercial loan experience. This development of a new loan and deposit
market should further position the bank as the predominate local bank in each of
the markets which we serve.
On February 24, 1997 the Company announced the intended acquisition of
deposits and certain assets associated with the branch of NBD Bank N.A. in South
Whitley, Indiana. The acquisition of this branch should result in an increase in
deposits of approximately $18 million. While, there are no loans in this
purchase, it will expand our market presence in a contiguous county, which is
closer to the expanding Ft. Wayne market.
<PAGE>
This expansion will also allow the company to better utilize our excess
capital for growth and provide a higher return for our shareholders once the
transaction is closed. We anticipate the transaction to be completed sometime in
June 1997.
The Company's total assets increased $8.0 million, or 5.3%, from $150.5
million at June 30, 1996 to $148.9 million at March 31, 1997. This increase was
due primarily to funds generated by an increase in deposits of $5.7 million and
borrowings from FHLB of $1.4 million. Net loans receivables increased $9.3
million and securities available-for-sale decreased $881,000. All of which
contributed to an increase in cash and cash equivalents of $116,000. Loan demand
and liquidity needs may result in additional borrowings if deposits and loan
growth remain at current levels.
Total securities available-for-sale decreased $881,000 from $40.6
million at June 30, 1996 to $39.7 million at March 31, 1997. This decrease was
primarily the result of repayments due to maturities/calls and decrease in
portfolio value due to increasing interest rates. The available-for-sale
portfolio consists primarily of municipal securities, government agencies,
mortgage-backed securities and to a lesser extent mutual funds and FNMA
preferred stock.
Net loans receivable increased $9.3 million, or 9.3% and $2.6 million
or 2.4%, from $100.5 million at June 30, 1996 and $107.3 million at December 31,
1996 respectively to $109.9 million at March 31, 1997. The increase in the loan
portfolio for the quarter resulted, primarily, from an increase in non-mortgage
loans of $2.4 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 $5.7 million or 6.2% and $325,000 or .3% from
$92.5 million at June 30, 1996 and $97.9 million at December 31, 1996 to $98.2
million at March 31, 1997. For the quarter ended March 31, 1997, Savings, Now
and MMDA accounts increased $1.0 million or 2.1% while certificates of deposit
decreased $1.1 million or 2.1%. Management believes that deposit growth may
become more costly with the increase in interest rates and the competitive
nature of the markets we serve. However, this cost increase should be reduced
with our acquisition of the NBD Bank N. A. branch in South Whitley, Indiana.
This acquisition will almost double our DDA/NOW account balances and increase
our lower cost passbook balances. This should help us reduce the need for higher
cost certificates and FHLB advances.
Total borrowed funds increased $1.4 million from $41.8 million at June
30, 1996 to $43.2 million at March 31, 1997. The increase consisted of new short
term advances from the Federal Home Loan Bank of Indianapolis.
Total shareholders' equity increased $400,000 from $15.5 million at
June 30, 1996 to $15.9 million at March 31, 1997. The increase resulted from net
income of $953,000 for the nine months ended March 31, 1997, which was reduced
for the same period by $315,000 for the payment of dividends and the repurchase
of 16,000 shares of FFW stock at a cost of $329,750.
<PAGE>
Results of Operations - Comparison of the Three and Nine Months Ended
March 31, 1997 and March 31, 1996
General. Net income increased by $54,000 and decreased $203,000 for the
three and nine months ended March 31, 1997 respectively, as compared to the
three and nine months ended March 31, 1997. The increase for the three months
ended March 31, 1997 was primarily the result of increases in net interest
income. The decrease for the nine months ended was primarily the result of the
one time SAIF assessment of $337,800 net of taxes. All of these items are
discussed in greater detail below.
Net Interest Income. Net interest income increased $162,000 or 14.5%
and $441,000 or 14.0% for the three and nine months ended March 31, 1997 and
1996 respectively. This was primarily the result of an increase in average
interest-earning assets which exceeded the increase in average interest-bearing
liabilities, and a corresponding increase in the spread earned.
Interest Income. Interest income increased $249,000 and $756,000 to
$3.1 million and $9.0 million for the three and nine months ended March 31, 1997
respectively, as compared to the three and nine months ended 11 March 31, 1996.
The increases in interest income for the three and nine months ended March 31,
1997 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, 1996. These increased interest-earning assets are the
result of competitive pricing, marketing, and the re-pricing of adjustable-rate
loans and mortgage-backed securities.
Interest Expense. Interest expense increased $88,000 and $293,000 to
$1.8 million and $5.4 million for the three and nine months ended March 31, 1997
respectively, as compared to the three and nine months ended March 31, 1996. For
the three months ended March 31, 1997, the increase in interest expense was due
to an increase in borrowed funds and deposits outstanding as compared to the
same periods in 1997. 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
$1,000 and 22,000 for the three and nine months ended March 31, 1997,
respectively as compared to the three and nine months ended March 31, 1996. 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. With the
expansion into commercial lending the company will continue to increase its
allowance for loan losses and make future additions to the allowance through the
provision for loan losses as loan growth, 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.
<PAGE>
Non-interest Income. Non-interest income increased by $15,000 and $0 to
$157,000 and $476,000 for the three and nine months ended March 31, 1997
respectively, as compared to the three and nine months ended March 31, 1996. The
increase was the result of increased other income which was offset by reduced
gain on sales of loans to the Federal Home Loan Mortgage Corporation of $21,000
and $90,000 for the three and nine months ended March 31, 1997 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.
Non-Interest Expense. Non-interest expense increased $93,000 and
$818,000 to $730,000 and $2.7 million for the three and nine months ended March
31, 1997 respectively, as compared to the three and nine months ended March 31,
1996. For the three months ended March 31, 1997, compensation and benefits
expenses increased by $62,000; other expenses increased by $68,000; SAIF
insurance premiums decreased $44,000 as compared to the three months ended March
31, 1997. For the nine months ended March 31, 1997, compensation and benefit
expense increased $156,000 due to increased clerical and officer staff due to
increased growth. Other expenses increased by $139,000 due to cost related to
the planned acquisition of NBD branch, being named business of the year in
Wabash, increased data processing cost and a contribution in the way of a
neighborhood tax credit purchase for the Wabash downtown revitalization. SAIF
deposit premiums increased $522,000 due to the one time assessment paid as
compared to the nine months ended March 31, 1996.
Income Tax Expense. Income tax expense increased $31,000 and decreased
$174,000 to $221,000 and $391,000 for the three and nine months ended March 31,
1997 respectively, as compared to the three and nine months ended March 31,
1996. The decrease was due to the tax effect of the one time SAIF assessment for
the nine months ended March 31, 1997.
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, 1997, was
$534,000 or 0.5% of total loans. The December 31, 1996 allowance for loan losses
was $532,000, or 0.5% of total loans. Total loans classified as substandard,
doubtful or loss as of March 31, 1997 were $1.0 million or 0.9% 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.
<PAGE>
<TABLE>
<CAPTION>
03/31/97 12/31/96
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ................................. $315 $101
Accruing Loans Delinquent 90 days or more .......... -- --
Troubled Debt Restructurings
Foreclosed Assets .................................. 40 50
Total Non-Performing Assets ........................ $355 $180
==== ====
Total Non-Performing Assets as a
Percentage of Total Assets ......................... 22% .11%
</TABLE>
Total non-performing assets increased $175,000 to $355,000, or .22% of total
assets at March 31, 1997, from $180,000 or .11% of total assets at December 31,
1996. The increase in non-performing assets was primarily due to the addition of
one loan for $196,000 that has since been paid current. Foreclosed assets
decreased $10,000 due to the disposal of several repossessed vehicles.
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,
1997, the Bank's liquidity ratio of 9.15%, 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, 1997, the
Company has commitments to originate loans totaling $2.2 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, 1997, the
Bank exceeded all fully phased-in regulatory capital standards.
<PAGE>
At March 31, 1997, the Bank's tangible capital was $12.7 million, or
8.2% of adjusted total assets, which is in excess of the 1.5% requirement by
$10.4 million. In addition, at March 31, 1997, the Bank had core capital of
$12.7 million, or 8.2% of adjusted total assets, which exceeds the 3.0%
requirement by $8.0 million. The Bank had risk-based capital of $13.3 million at
March 31, 1997 or 14.8% of risk-adjusted assets which exceeds the 8.0%
risk-based capital requirements by $6.1 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.
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 March 31, 1997, 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
Not Applicable
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, 1997.
(i) A Form 8-K was filed on January 30, 1997 announcing the
annual earnings for the quarter ended December 31, 1996.
(ii) A Form 8-K was filed on February 27, 1997 announcing that a
quarterly dividend was declared on February 25, 1997, payable
March 31, 1997 to record holders on March 15, 1997.
(iii) A Form 8-K was filed on February 27, 1997 announcing that a
definitive agreement had been signed for the acquisition of a
NBD Bank N.A. branch in South Whitley, Indiana.
<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 7, 1997 /s/Nicholas M. George
---------------------
Nicholas M. George
President and Chief
Executive Officer
Date: May 7, 1997 /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-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,038
<INT-BEARING-DEPOSITS> 1,866
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,685
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 110,385
<ALLOWANCE> 534
<TOTAL-ASSETS> 158,441
<DEPOSITS> 98,211
<SHORT-TERM> 43,225
<LIABILITIES-OTHER> 1,150
<LONG-TERM> 0
0
0
<COMMON> 9
<OTHER-SE> 15,845
<TOTAL-LIABILITIES-AND-EQUITY> 158,441
<INTEREST-LOAN> 6,780
<INTEREST-INVEST> 2,188
<INTEREST-OTHER> 59
<INTEREST-TOTAL> 9,027
<INTEREST-DEPOSIT> 3,564
<INTEREST-EXPENSE> 5,360
<INTEREST-INCOME-NET> 3,667
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 37
<EXPENSE-OTHER> 2,729
<INCOME-PRETAX> 1,344
<INCOME-PRE-EXTRAORDINARY> 953
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 953
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 2.67
<LOANS-NON> 315
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 685
<ALLOWANCE-OPEN> 532
<CHARGE-OFFS> 41
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 534
<ALLOWANCE-DOMESTIC> 520
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14
</TABLE>
