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 December 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 [ ] No [ X ]
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 February 13, 1998 there were 1,449,532 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 December 31, 1997 and
June 30, 1997
Consolidated Condensed Statements of Income for the three
months ended December 31, 1997 and 1996 and the six months
ended December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the three
months ended December 31, 1997 and 1996 and the six months
ended December 31, 1997 and 1996.
Consolidated Statements of Cash Flows for the three months
ended December 31, 1997 and 1996 and the six months ended
December 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
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS: December 31 June 30
1997 1997
------------- -------------
<S> <C> <C>
Cash and due from financial institutions ....................................... $ 635,898 $ 1,620,716
Interest-earning deposits in financial institutions - short term ............... 5,833,399 15,499,898
------------- -------------
Cash and cash equivalents ............................................. $ 6,469,297 $ 17,120,614
Interest-earning deposits in financial institutions
(cost approximates market value) ...................................... -- --
Securities available for sale .................................................. 47,347,334 40,449,698
Loans held for sale, net of unrealized gains and losses ........................ -- --
Loans receivable, net of allowance for loan losses of $723,142 in December
and $571,751 in June .................................................. 128,222,423 114,158,745
Stock in Federal Home Loan Bank, at cost ....................................... 2,707,200 2,397,600
Accrued interest receivable .................................................... 1,510,230 1,123,623
Premises and Equipment-net ..................................................... 2,007,660 1,926,910
Investment in limited partnership ......................................... 749,952 749,952
Other assets
2,283,474 2,128,339
------------- -------------
Total Assets ................................................. $ 191,297,570 $ 180,055,481
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits ........................................... $ 8,033,588 $ 5,751,478
Savings, Now and MMDA deposits ................................................. 47,756,017 50,529,826
Other time deposits ............................................................ 60,316,083 59,837,170
------------- -------------
Total Deposits ........................................................ $ 116,105,688 $ 116,118,474
Federal Home Loan Bank advances ................................................ 52,675,956 44,800,000
Obligation relative to limited partnership ................................ 525,000 712,500
Accrued Interest Payable ....................................................... 170,183 157,521
Accrued expenses and other liabilities ......................................... 3,636,119 1,125,700
------------- -------------
Total Liabilities ..................................................... $ 173,112,946 $ 162,914,195
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued)
(Unaudited)
December 31 June 30
1997 1997
------------- -------------
<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; 1,760,146 shares
issued and 1,443,082 outstanding at December 31, 1997; 1,739,532 shares
issued and 1,422,468 shares outstanding at June 30, 1997 .............. 8,801 8,698
Additional paid-in capital ..................................................... 8,591,532 8,439,565
Retained earnings - substantially restricted ................................... 11,809,433 11,119,378
Net unrealized depreciation on securities available for sale, net
of tax liability of $210,706 on December 31, 1997 and a tax
benefit of $ 69,436 on June 30, 1997........................................ 703,396 502,183
Unearned Employee stock Ownership Plan shares .................................. (244,553) (244,553)
Treasury Stock at Cost, 317,064 common shares at cost,
at December 31, 1997 and June 30, 1997, respectively .................. (2,683,985) (2,683,985)
------------- -------------
Total Shareholders' equity ............................................ 18,184,624 17,141,286
Total Liabilities and Shareholders' Equity ................... $ 191,297,570 $ 180,055,481
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Loans Receivable
Mortgage loans .......................... $1,600,395 $1,475,668 $3,181,829 $2,923,907
Consumer and other loans ................ 1,094,804 791,937 2,091,341 1,530,941
Securities
Taxable ................................. 767,562 624,681 1,529,521 1,218,335
Nontaxable .............................. 105,097 119,132 208,506 236,918
Other Interest-earning assets .................... 10,950 13,816 73,149 41,452
---------- ---------- ---------- ----------
Total Interest Income ................... $3,578,808 $3,025,234 $7,084,346 $5,951,553
Interest Expense:
Deposits ......................................... 1,365,681 1,201,293 2,752,142 2,370,681
Other ............................................ 743,723 600,895 1,418,989 1,190,097
---------- ---------- ---------- ----------
Total Interest Expense .................. $2,109,404 $1,802,188 $4,171,131 $3,560,778
Net Interest Income ....................................... 1,469,404 1,223,046 2,913,215 2,390,775
Provision for Loan Losses ........................ 65,000 15,000 265,000 35,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ....... 1,404,404 1,208,046 2,648,215 2,355,775
Non-interest income:
Net gain on sale of interest-earning assets ...... 26,309 19,498 42,549 30,226
Net unrealized gain or loss on loans held for sale -- -- -- --
Other ............................................ 225,895 140,588 443,445 288,309
---------- ---------- ---------- ----------
Total Non-Interest Income ............... $ 252,204 $ 160,086 $ 485,994 $ 318,535
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31 December 31
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Non-Interest Expense:
Compensation and Benefits ........................ 459,880 345,233 902,417 684,280
Occupancy and equipment .......................... 81,072 72,497 161,685 136,982
SAIF deposit insurance premiums .................. 29,993 60,289 57,157 683,539
Other ............................................ 358,570 263,161 718,368 494,140
---------- ---------- ---------- ----------
Total Non-Interest Expense .............. $ 929,515 $ 741,180 $1,839,627 $1,998,941
---------- ---------- ---------- ----------
Income before income taxes ................................ 727,093 626,952 1,294,582 675,369
Income Tax Expense ............................... 248,468 200,335 345,978 169,347
---------- ---------- ---------- ----------
Net Income ................................................ $ 478,625 $ 426,617 $ 948,604 $ 506,022
========== ========== ========== ==========
Earnings per common and common equivalent shares:
Basic ............................................ $ .34 $ .32 $ .68 $ .38
Diluted .......................................... $ .34 $ .31 $ .66 $ .36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Beginning Balance ......................................... $ 17,610,488 $ 15,473,993 $ 17,141,286 $ 15,458,143
Common Stock at .01 Par Value 2,000,000 shares
authorized issued and outstanding
December 31, 1997 -- 1,443,082;
December 31, 1996 -- 1,390,120 ................... 67 -- 103 --
Additional Paid-in Capital ................................ 102,873 24,000 151,967 48,000
Treasury Stock at Cost - no shares for
the three-month periods and -0- and
9,000 shares for the six-month periods
ended 1997 and 1996 .............................. -- -- -- (176,625)
Cash Dividends of:
$0.09 and $0.075 share for the three-month
periods and $0.18 and $0.15 per share for the
six-month periods ended 1997 and 1996 ............ (129,877) (105,309) (258,549) (210,618)
Amortization of ESOP Contribution ......................... -- 42,574 -- 42,574
Amortization of MRP Contribution .......................... -- 6,540 -- 13,079
Net change in unrealized depreciation on equity
securities available for sale .................... 122,447 248,194 201,213 436,034
Net Income for Period(s) .................................. 478,626 426,617 948,604 506,022
------------ ------------ ------------ ------------
Ending Balance ............................................ $ 18,184,624 $ 16,116,609 $ 18,184,624 $ 16,116,609
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income .............................................. $ 478,626 $ 426,617 $ 948,604 $ 506,022
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization, net of accretion ..... (22,552) 14,360 (38,719) 58,809
Provision for loan losses ........................... 65,000 15,000 265,000 35,000
Net (gains) losses on sale of :
Securities available for sale .................. -- 514 -- 514
Loans held for sale ............................ (35,463) (20,461) (57,372) (34,140)
Foreclosed estate owned and repossessed assets . 5,586 10,661 4,187 2,388
Origination of loans held for sale .................. (1,770,558) (1,238,451) (3,710,838) (2,140,689)
Proceeds from sale of loans held for sale ........... 1,806,021 1,536,412 3,768,210 2,445,768
ESOP expenses ....................................... 36,000 66,573 49,000 90,573
Amortization of MRP contribution .................... -- 6,540 -- 13,079
Net change in accrued interest receivable ........... (196,288) 22,895 (386,607) (29,421)
Amortization of goodwill and core deposit intangibles 41,119 -- 82,237 --
Net change in other assets .......................... (179,330) (451,802) (392,699) (676,983)
Net change in accrued interest payable, accrued
expenses and other liabilities ................. 1,607,480 2,419,052 (714,741) 178,613
------------ ------------ ------------ ------------
Total adjustments ..................... $ 1,357,015 $ (752,500) $ 2,001,451 $ (56,489)
------------ ------------ ------------ ------------
Net cash from operating activities ............. $ 1,835,641 $ (325,883) $ 2,950,055 $ 449,533
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31 December 31
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Net change in interest-bearing deposits in other
financial institutions ......................... -- 24,729 -- 362,664
Proceeds from :
sales/calls of securities available for sale ... 3,000,000 75,000 8,000,000 75,000
sales/calls of securities held-to-maturity ..... -- -- -- --
maturities of securities available for sale .... 255,000 50,000 300,000 380,000
maturities of securities held-to-maturity ...... -- -- -- --
Purchase of :
securities available for sale .................. (50,347) (50,104) (15,106,469) (596,589)
Federal Home Loan Bank Stock ................... (309,600) -- (309,600) --
Principal collected on mortgage- backed securities .. 173,547 168,094 327,627 327,136
Net change in loans receivable ...................... (8,523,480) (4,249,764) (14,328,678) (6,766,074)
Net purchases premises and equipment ................ (151,187) (10,310) (159,583) (61,165)
Investment in limited partnership ................... -- (187,500) --
Proceeds from sales of other real estate and
repossessed assets ............................. 36,190 78,606 155,140 196,340
------------ ------------ ------------ ------------
Net cash from investing activities ... $ (5,569,877) $ (3,913,749) $(21,309,063) $ (6,082,688)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended Six Months Ended
December 31 December 31
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from financing activities :
Net (decrease) increase in deposits ............ 1,165,629 (1,779,066) (12,786) 5,395,816
Proceeds from short-term borrowings ............ 32,975,956 9,500,000 43,475,956 9,500,000
Payment on short-term borrowings ............... (27,100,000) (4,000,000) (35,600,000) (8,000,000)
Purchase of Treasury Stock ..................... -- -- -- (176,625)
Proceeds from exercising of stock options ...... 66,940 -- 103,070 --
Cash dividends paid ............................ (129,877) (105,309) (258,549) (210,618)
------------ ------------ ------------ ------------
Net cash from financing activities ....... $ 6,978,648 $ 3,615,625 $ 7,707,691 $ 6,508,573
Net increase (decrease) in cash and cash equivalents ....... $ 3,244,412 $ (624,007) $(10,651,317) $ 875,418
Cash and cash equivalents at beginning of period ........... $ 3,224,885 $ 4,287,632 $ 17,120,614 $ 2,788,207
Cash and cash equivalents at end of period ................. $ 6,469,297 $ 3,663,625 $ 6,469,297 $ 3,663,625
============ ============ ============ ============
Supplemental disclosure of cash flow information :
Cash paid during quarter for:
Interest ................................. $ 2,579,747 $ 2,194,134 $ 4,165,071 $ 3,542,163
Income Taxes ............................. $ 340,000 $ 315,000 $ 390,000 $ 376,000
Non-cash investing activities transfers from:
</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 December 31, 1997 and June 30, 1997, and the results of its
operations, changes in shareholders' equity for the three and six months ended
December 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 December 31, 1997.
Operating results for the three and six months ended December 31, 1997
are not necessarily indicative Of the results that may be expected for the
fiscal year ended June 30, 1998.
(2) Earnings Per Share of Common Stock
Basic and diluted earnings per share are computed under a new
accounting standard effective in the quarter ended December 31, 1997. All prior
amounts have been restated to be comparable. Basic earnings per share is based
on net income (less preferred dividends) divided by the weighted average number
of shares outstanding during the period. Diluted earnings per share shows the
dilutive effect of additional common shares issuable under stock options (and
convertible securities).
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, 169,000 shares of the Company's Common Stock are reserved for issuance, of
which the Company has granted options on 152,884 shares. As of December 31,
1997, 66,738 exercisable options of the Company's Common Stock remain
un-exercised.
<PAGE>
All share and per share data have been adjusted to reflect a 100%
common stock dividend declared December 15, 1997 and paid December 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings Per Share
Net Income ............................................ $ 478,625 $ 426,617 $ 948,604 $ 506,022
Weighted average common shares outstanding ............ 1,394,785 1,344,058 1,388,329 1,346,620
Basic Earnings Per Share ......................... $ .34 $ .32 $ .68 $ .38
Earnings Per Share Assuming Dilution
Net Income ............................................ $ 478,625 $ 426,617 $ 948,604 $ 506,022
Weighted average common shares outstanding ............ 1,394,785 1,344,058 1,388,329 1,346,620
Add: dilutive effects of assumed exercises
Incentive stock options .......................... 26,447 31,501 49,877 60,879
---------- ---------- ---------- ----------
Weighted average and dilutive common shares outstanding 1,421,232 1,375,559 1,438,206 1,407,499
Diluted Earnings Per Share ...................... $ .34 $ .31 $ .66 $ .36
</TABLE>
(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 December
31, 1997, the capital requirements for the Bank under FIRREA and its actual
capital ratios. As of December 31, 1997, the Bank substantially exceeded all
current regulatory capital standards.
<TABLE>
<CAPTION>
Regulatory Actual
Capital Requirement Capital(Bank Only)
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Risk-Based ................ $ 8,818 8.00% $13,281 12.05%
Core Capital .............. $ 5,594 3.00% $12,580 6.75%
Tangible Capital .......... $ 2,797 1.50% $12,580 6.75%
</TABLE>
(4) Common Stock Cash Dividends
On November 28, 1997, the Board of Directors of FFW Corporation,
declared a quarterly cash dividend of $.15 per share. The dividend was paid
December 31, 1997 to shareholders of record on December 15, 1997. The payment of
the cash dividend reduced shareholders' equity by $129,877.
<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 level of its non-interest expenses, such as employee compensation and
benefits, occupancy expenses, and other expenses also affects the Bank's net
income.
Forward-Looking Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or shareholder communications, and in oral statements
made with the approval of an authorized executive officer, the words or phrases
"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 risks and
uncertainties, including but not limited to changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, all or some of which 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 and
are subject to the above-stated qualifications in any event. The Company wishes
to advise readers that the factors listed above 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 $9.3 million, or 5.1%, from $182.0
million at September 30, 1997 to $191.3 million at December 31, 1997. This
increase was due primarily to an increase in net loan receivable of $8.5
million. The growth in loan receivables was funded with an increase of
borrowings from FHLB of $5.9 million, an increase in deposits of $1.2 million
and a decrease in securities available for sale of $3.1 million. Loan demand and
liquidity needs may result in additional borrowing if deposits and loan growth
remain at current levels.
<PAGE>
Total securities available-for-sale decreased $3.1 million from $50.5
million at September 30, 1997 to $47.3 million at December 31, 1997. The
decrease was primarily the result of calls on 2 government agency bonds totaling
$3.0 million. The available-for-sale portfolio consists primarily of municipal
securities, government agencies and mortgage backed securities.
Net loan receivables increased $8.5 million, or 7.1%, from $119.8
million at September 30, 1997 to $128.2 million at December 31, 1997. The
increase in the loan portfolio resulted primarily from an increase in mortgage
loans of $3.0 million and non-mortgage loans of $5.0 million. Management,
consistent with its asset/liability objectives, will continue to sell newly
originated fixed-rate mortgage loans with terms to maturity of greater than 15
years.
Total deposits increased $1.2 million or 1.0% from $114.9 million at
September 30, 1997 to $116.1 million at December 31, 1997. This increase was
primarily the result of interest posted to accounts at the end of the quarter.
For the quarter ended December 31, 1997, passbook accounts decreased $1.3
million, or 3.0%, and certificates of deposit increased $2.2 million or 3.8%.
Management believes that deposit growth may be difficult to maintain at prior
years levels as deposit customers look for alternative investment opportunities
with higher yields.
Total borrowed funds increased $5.9 million from $46.8 million at
September 30, 1997 to $52.7 million at December 31, 1997. The increase consisted
of new borrowings from the Federal Home Loan Bank of Indianapolis.
Total shareholders' equity increased $469,200 from $17.1 million at
September 30, 1997 to $17.6 million at December 31, 1997. The increase was due
to the quarterly net income of $478,600 and the unrealized appreciation of
securities held for sale, net of tax, of $122,400, which was partially offset by
the quarterly payment of dividends of $129,900.
Results of Operations - Comparison of the Three and Six Months Ended
December 31, 1997 and December 31, 1996
General Net income increased by $52,000 and $442,600 for the three and
six months ended December 31, 1997 respectively, as compared to the three and
six months ended December 31, 1996. The increase for the three months ended
December 31, 1997 was primarily the result of increases in net interest income.
The increase for six months ended December 31, 1997 was primarily the result of
decreased SAIF premiums of $626,400. All of these items are discussed in greater
detail below.
Net Interest Income Net interest income increased $52,000, or 12.2% to
$478,600 from $426,600 for the quarter ended December 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.
Interest Income Interest income increased $554,000 and $1.1 million to
$3.6 million and $7.1 million for the three and six months ended December 31,
1997 respectively, as compared to the three and six months ended December 31,
1996. The increases in interest income for the three and six months ended
December 31, 1997 were due to continued growth in interest-earning assets
including mortgage loans, commercial and consumer loans and investments, as
compared to the same periods ended December 31, 1996. These increased
interest-earning assets are the result of competitive pricing, marketing, and
the repricing of adjustable-rate loans and mortgage-backed securities.
<PAGE>
Interest Expense Interest expense increased $307,000 and $610,000 to
$2.1 million and $4.2 million for the three and six months ended December 31,
1997 respectively, as compared to the three and six months ended December 31,
1996. The increase in interest expense was due to an increase in borrowed funds
and deposits outstanding as compared to the same periods in 1996. If interest
rates remain at or near current levels, management anticipates the rate of shift
to certificates from passbook accounts will decrease as the difference between
rates paid on new certificates and passbooks contracts.
Provision for Loan Losses The provision for loan losses increased
$50,000 and $230,000 for the three and six months ended December 31, 1997
respectively, as compared to the three and six months ended December 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 six month periods
reflect the growth in the balances of non-mortgage loans and to a lesser extent
the increase in 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, 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 $92,000 and
$167,000 to $252,000 and $486,000 for the three and six months ended December
31, 1997 respectively, as compared to the three and six months ended December
31, 1996. The increases were, primarily, attributed to increased fee and other
income of $85,000 and $154,000 for the three and six months ended December 31,
1997, as compared to 1996. Gain on sale of loans increased by $7,000 and $13,000
for the three and six months ended December 31, 1997, as compared to 1996.
Management believes that with the decline of interest rates, we will continue to
see an increase in sales of loans to Freddie Mac for the remainder of the year
as compared to last year. This should result in increased gain on sales of
loans.
Non-Interest Expense Non-interest expense increased $189,000 to
$930,000 for the three months ended December 31, 1997, as compared to the three
months ended December 31, 1996. The increase for the three months ended December
31, 1997, was due to increased staffing, and the amortization of goodwill for
our new branch in South Whitley, which was purchased from NBD Bank.
Non-interest expense decreased $159,000 to $1.8 million for the six
months ended December 31, 1997, as compared to the six months ended December 31,
1996. This decrease was primarily due to the reduction in the SAIF premiums of
$627,000 in 1997 compared to 1996. This decrease was partially offset with
higher staffing cost and goodwill amortization of our new branch in South
Whitley.
Income Tax Expense Income tax expense increased $48,000 and $177,000 to
$248,000 and $346,000 for the three and six months ended December 31, 1997
respectively, as compared to the three and six months ended December 31, 1996.
The increase was due to an increase in taxable income for the three and six
months ended December 31, 1997, and the tax effect of the one time SAIF
assessment, which lowered taxes, for the three and six months ended December 31,
1996.
<PAGE>
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 December 31, 1997,
was $723,000 or 0.6% of total loans. The September 30, 1997 allowance for loan
losses was $726,000, or 0.6% of total loans. Total loans classified as
substandard, doubtful or loss as of December 31, 1997 were $1.4 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.
<TABLE>
<CAPTION>
12/31/97 09/30/97
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ................................. $428 $290
Accruing Loans Delinquent 90 days or more .......... -- --
Troubled Debt Restructurings ....................... -- --
Foreclosed Assets .................................. 173 44
---- ----
Total Non-Performing Assets ........................ $601 $334
==== ====
Total Non-Performing Assets as a
Percentage of Total Assets ................ .31% .18%
</TABLE>
Total non-performing assets increased to $601,000, or .31% of total
assets at December 31, 1997, compared to $334,000 or .18% of total assets at
September 30, 1997. The increase of $267,000 in non-performing assets was
primarily due to a greater number of auto loans being repossessed and put on
non-accrual status. Management believes these increased numbers are a result of
the overall increase in auto and consumer lending over the last year, and as
such, we have increased our loan loss allowance accordingly.
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 banking and
thrift industries. Current Office of Thrift Supervision regulations require the
Bank to maintain cash and eligible investments in an amount equal to at least
4.0% of customer accounts and short-term borrowings to assure its ability to
meet demands for withdrawals and repayment of short-term borrowings. As of
December 31, 1997, the Bank's liquidity ratio of 8.32% exceeds the minimum
regulatory requirements.
<PAGE>
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposits, loan commitments,
maintain liquidity and meet operating expenses. At December 31, 1997, the
Company has commitments to originate loans totaling $2.0 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 December 31, 1997, the Bank exceeded all fully phased-in
regulatory capital standards.
At December 31, 1997, the Bank's tangible capital was $12.6 million, or
6.8% of adjusted total assets, which is in excess of the 1.5% requirement by
$9.8 million. In addition, at December 31, 1997, the Bank had core capital of
$12.6 million, or 6.8% of adjusted total assets, which exceeds the 3.0%
requirement by $7.0 million. The Bank had risk-based capital of $12.2 million at
December 31, 1997, or 12.1% of risk-adjusted assets which exceeds the 8.0%
risk-based capital requirements by $4.5 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 was July 1, 1996. 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 December 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 December 31, 1997.
(i) A Form 8-K was filed on November 30, 1997 announcing the
quarterly earnings for the quarter ended September 30, 1997.
(ii) A Form 8-K was filed on November 30, 1997 announcing that a
quarterly dividend was declared on September 4, 1997,
payable September 30, 1997.
(iii)A Form 8-K was filed on November 28, 1997 announcing that a
quarterly cash dividend and a 100% stock dividend was
declared on November 26, 1997, payable December 31, 1997.
<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: February 13, 1998 By: /S/Nicholas M. George
----------------------
Nicholas M. George
President and Chief
Executive Officer
Date: February 13, 1998 By: /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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 635
<INT-BEARING-DEPOSITS> 5,833
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,347
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 128,946
<ALLOWANCE> 723
<TOTAL-ASSETS> 191,298
<DEPOSITS> 116,106
<SHORT-TERM> 52,676
<LIABILITIES-OTHER> 4,331
<LONG-TERM> 0
0
0
<COMMON> 9
<OTHER-SE> 18,176
<TOTAL-LIABILITIES-AND-EQUITY> 191,298
<INTEREST-LOAN> 2,695
<INTEREST-INVEST> 873
<INTEREST-OTHER> 11
<INTEREST-TOTAL> 3,579
<INTEREST-DEPOSIT> 1,366
<INTEREST-EXPENSE> 2,109
<INTEREST-INCOME-NET> 1,469
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 930
<INCOME-PRETAX> 727
<INCOME-PRE-EXTRAORDINARY> 727
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 2.66
<LOANS-NON> 428
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 972
<ALLOWANCE-OPEN> 728
<CHARGE-OFFS> 72
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 723
<ALLOWANCE-DOMESTIC> 720
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3
</TABLE>
