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, 1999
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 10, 1999 there were 1,438,257 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, 1999
and June 30, 1998
Consolidated Condensed Statements of Income for the 4 three
months and nine months ended March 31, 1999 and 1998.
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1999 and 1998.
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 : March 31, June 30
1999 1998
------------- -------------
<S> <C> <C>
Cash and due from financial institutions ......................................... 2,682,567 $ 4,023,917
Interest-earning deposits in financial institutions - short term .................. 5,488,261 386,435
------------- -------------
Cash and cash equivalents ......................................................... $ 8,170,828 $ 4,410,352
Securities available for sale ..................................................... 52,316,864 50,293,229
Loans receivable, net of allowance for loan losses of $1,608,314 in March
and $982,532 in June ..................................................... 146,656,481 139,393,692
Stock in Federal Home Loan Bank, at cost .......................................... 3,282,000 2,757,200
Accrued interest receivable ....................................................... 1,393,585 1,428,927
Premises and Equipment-net ........................................................ 2,171,318 2,205,458
Investment in limited partnership ................................................. 704,991 704,990
Other assets ...................................................................... 2,441,659 2,117,415
------------- -------------
Total Assets ................................................... $ 217,137,726 $ 203,311,263
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits .............................................. $ 7,625,018 $ 6,935,426
Savings, Now and MMDA deposits .................................................... 54,013,921 51,485,630
Other time deposits ............................................................... 70,148,778 66,835,247
------------- -------------
Total Deposits ........................................................... $ 131,787,717 $ 125,256,303
Federal Home Loan Bank advances ................................................... 63,500,000 56,500,000
Obligation relative to limited partnership .................................. 131,250 300,000
Accrued Interest Payable .......................................................... 753,516 204,036
Accrued expenses and other liabilities ............................................ 1,381,647 1,922,197
------------- -------------
Total Liabilities ........................................................ $ 197,554,130 $ 184,182,536
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<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, 1,779,321 shares
issued and 1,438,257 outstanding at March 31 1999; 1,775,096 shares
issued and1,458,032 shares outstanding at June 30, 1998 ...................... 17,793 17,751
Additional paid-in capital ........................................................ 8,976,216 8,793,133
Retained earnings - substantially restricted ...................................... 13,588,884 12,468,144
Net unrealized depreciation on securities available for sale, net of tax liability
of $142,369 on March 31, 1999 and of $489,649 on ......................... 152,970
June 30, 1998 ............................................................ -- 685,432
Unearned Employee stock Ownership Plan shares ..................................... (102,894) (151,748)
Treasury Stock at cost, 341,064 on March 31, 1999 and 317,064 at
June 30, 1998 ............................................................ (3,049,373) (2,683,985)
------------- -------------
Total Shareholders' equiity ....................................... 19,583,596 19,128,727
Total Liabilities and Shareholders' Equity ...................... $ 217,137,726 $ 203,311,263
============= =============
</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
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Loans Receivable
Mortgage loans ........................... $ 1,494,289 $ 1,616,624 $ 4,633,047 $ 4,798,453
Consumer and other loans ................. 1,570,559 1,211,994 4,653,558 3,303,334
Securities
Taxable .................................. 735,728 718,427 2,226,504 2,247,948
Nontaxable ............................... 108,784 101,516 355,498 310,022
Other Interest-earning assets ..................... 52,706 57,020 138,658 130,170
------------ ------------ ------------ ------------
Total Interest Income .................... $ 3,962,066 $ 3,705,581 $ 12,007,265 $ 10,789,927
Interest Expense :
Deposits .......................................... 1,422,219 1,406,650 4,389,019 4,158,793
Other ............................................. 857,708 772,466 2,697,829 2,191,455
------------ ------------ ------------ ------------
Total Interest Expense ................... $ 2,279,927 $ 2,179,116 $ 7,086,848 $ 6,350,248
Net Interest Income ........................................ 1,682,139 1,526,465 4,920,417 4,439,679
Provision for Loan Losses ......................... 620,000 100,000 860,000 365,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses ........ 1,062,139 1,426,465 4,060,417 4,074,679
Non-interest income :
Net gain on sale of interest-earning assets ....... 771,062 28,545 873,122 71,094
Net unrealized gain or loss on loans held for sale -- -- -- --
Other ............................................. 274,506 236,960 859,497 680,406
------------ ------------ ------------ ------------
Total Non-Interest Income ................ $ 1,045,568 $ 265,505 $ 1,732,619 $ 751,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31 March 31
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Non-Interest Expense :
Compensation and Benefits ......................... 518,289 467,161 1,560,396 1,369,579
Occupancy and equipment ........................... 92,379 77,463 278,005 239,148
SAIF deposit insurance premiums ................... 30,066 26,961 91,534 84,117
Other ............................................. 607,138 364,828 1,422,351 1,083,196
------------ ------------ ------------ ------------
Total Non-Interest Expense ............... $ 1,247,872 $ 936,413 $ 3,352,286 $ 2,776,040
------------ ------------ ------------ ------------
Income before income taxes ................................. 859,835 755,557 2,440,750 2,050,139
Income Tax Expense ................................ 306,596 257,942 867,299 603,920
------------ ------------ ------------ ------------
Net Income ................................................. $ 553,239 $ 497,615 $ 1,573,451 $ 1,446,219
============ ============ ============ ============
Other Comprehensive Income, Net of Tax:
Unrealized Gain (Loss) on Securities ........ (651,388) 378,643 (532,462) 579,856
Comprehensive Income ....................................... ($ 98,149) $ 876,258 $ 1,040,989 $ 2,026,075
============ ============ ============ ============
Earnings per common and common equivalent shares:
Basic ............................................. $ .39 $ .35 $ 1.10 $ 1.04
Diluted ........................................... $ .39 $ .35 $ 1.08 $ 1.04
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities :
Net Income .............................................. $ 1,573,451 $ 1,446,219
Adjustments to reconcile net income to net cash
from operating activities :
Depreciation and amortization, net of accretion ..... (63,957) (59,761)
Provision for loan losses ........................... 860,000 365,000
Net (gains) losses on sale of :
Securities available for sale .................. (734,835) --
Loans held for sale ........................ (138,287) (90,779)
Foreclosed estate owned and repossessed assets . (32,859) 3,775
Origination of loans held for sale .................. (13,240,945) (6,425,245)
Proceeds from sale of loans held for sale ........... 13,415,703 6,516,024
ESOP expenses ....................................... 235,706 130,603
Amortization of MRP contribution .................... (3,015) --
Net change in accrued interest receivable ........... 35,342 (174,287)
Amortization of goodwill and core deposit intangibles 117,261 123,356
Net change in other assets .......................... (720,915) (582,138)
Net change in accrued interest payable, accrued
expenses and other liabilities ................. 931,611 1,495,206
------------ ------------
Total adjustments ..................... $ 660,810 $ 1,301,754
------------ ------------
Net cash from operating activities ............. $ 2,234,261 $ 2,747,973
Cash flows from investing activities :
Net change in interest-bearing deposits in other
Financial institutions ......................... -- --
Proceeds from :
sales/calls of securities available for sale ... 11,569,123 15,000,000
sales/calls of securities held-to-maturity ..... -- --
Maturities of securities available for sale .... 9,545,000 340,000
Maturities of securities held-to-maturity ...... -- --
Purchase of :
Securities available for sale ............ (23,879,883) (22,379,544)
Federal Home Loan Bank Stock ................... (675,000) (309,600)
Principal collected on mortgage- backed securities .. 433,442 491,007
Net change in loans receivable ...................... (8,797,974) (18,399,173)
Net purchases premises and equipment ............... (110,754) (307,780)
Investment in limited partnership ................... (168,750) (187,500)
Proceeds from sales of other real estate and
Repossessed assets ............................. 879,270 332,144
------------ ------------
Net cash from investing activities ............. $(11,205,526) $(25,420,446)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Nine Months Ended
March 31
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from financing activities :
Net increase in deposits ......................... 6,531,414 7,906,476
Proceeds from short-term borrowings .............. 19,000,000 45,975,956
Payment on short-term borrowings ................. (12,000,000) (38,775,956)
Purchase of Treasury Stock ....................... (365,387) --
Proceeds from exercising of stock options ........ 21,125 135,320
Cash dividends paid .............................. (455,411) (389,007)
------------ ------------
Net cash from financing activities ........ $ 12,731,741 $ 14,852,789
Net increase (decrease) in cash and cash equivalents ......... $ 3,760,476 $ (7,819,684)
Cash and cash equivalents at beginning of period ............. $ 4,410,352 $ 17,120,614
Cash and cash equivalents at end of period ................... $ 8,170,828 $ 9,300,930
============ ============
</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, 1999 and June 30, 1998, and the results of its
operations, for the three and the nine months ended March 31, 1999 and 1998.
Financial Statement reclassifications have been made for the prior period to
conform to classifications used as of and for the period ended March 31, 1999.
Operating results for the three and nine months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the fiscal
year ended June 30, 1999.
(2) Earnings Per Share of Common Stock
Basic and diluted earning 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). Diluted net income per common share for the third
quarter of 1999 amounted to 39 cents, up 11.4 percent from the 35 cents for the
third quarter of 1999. Diluted net income per share for the first three quarters
of 1999 was $1.08, up 3.8 percent from the $1.04 for the same period a year ago.
(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,
1999, the capital requirements for the Bank under FIRREA and its actual capital
ratios. As of March 31, 1999, the Bank substantially exceeded all current
regulatory capital standards.
<PAGE>
FFW CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Regulatory Actual
Capital Requirement Capital (Bank Only)
--------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Risk-Based ................ $10,920 8.00% $17,258 12.64%
Core Capital .............. 6,413 3.00% 15,655 7.33%
Tangible Capital ......... 3,204 1.50% 15,655 7.33%
</TABLE>
(4) Common Stock Cash Dividends
On February 23, 1999, the Board of Directors of FFW Corporation,
declared a quarterly cash dividend of $.105 per share. The dividend was paid
March 31, 1999 to shareholders of record on March 15, 1999. The payment of the
cash dividend reduced shareholders' equity by $151,139.
<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
- -------------------
The Company's total assets increased $13.8 million, or 6.8%, from
$203.3 million at June 30, 1998 to $217.1 million at March 31, 1999. This
increase was due primarily to funds generated by an increase in advances from
FHLB of $7.0 million. Net loans receivables increased $7.3 million and
securities available-for-sale increased $2 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 $2 million from $50.3
million at June 30, 1998 to $52.3 million at March 31, 1999. 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 $7.3 million, or 6.0% from $139.4
million at June 30, 1998 to $146 million at March 31, 1999. The increase in the
loan portfolio for the nine months resulted, primarily, from an increase in
non-mortgage loans of $13 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 $ 6.5 million or 5.2% from $125.3 million at
June 30, 1998 to $131.8 million at March 31, 1999. For the nine months ended
March 31, 1999, Now and MMDA accounts increased $ 2.5 million or 4.9%. Other
time deposits increased $3.3 million or 5.0%. Management believes that deposit
growth may become more costly with the increased use of specials with higher
interest rates and the competitive nature of the markets we serve.
Total borrowed funds increased $7.0 million from $56.5 million at June
30, 1998 to $63.5 million at March 31, 1999. The increase consisted of new short
term advances from the Federal Home Loan Bank of Indianapolis.
Total shareholders' equity increased $456,000 from $19.1 million at
June 30, 1998 to $19.6 million at March 31, 1999. The increase resulted from net
income of $1.6 million, reduced by a decrease in the market value of
investments, net of tax of $532,000 and $455,000 for the payment of dividends..
Results of Operations - Comparison of the three and nine months ended March31,
1999 and March 31, 1998
General. Net income increased by $55,000 and $127,000 for the three and
nine months ended March 31, 1999 respectively, as compared to the three and nine
months ended March 31, 1998. The increase for the three and nine months ended
March 31, 1999 was primarily the result of increases in net interest income, and
non-interest income offset by an increase in non-interest expense. All of these
items are discussed in greater detail below.
Net Interest Income. Net interest income increased $156,000 or 10.2%
for the three months ended March 31, 1999 and $481,000 or 10.8% for the nine
months ended March 31, 1999 compared to the same in 1998. 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 $256,000 and $1.22
million to $3.96 million and $12.01 million for the three and nine months ended
March 31, 1999 respectively, as compared to the three and nine months ended
March 31, 1998. The increases in interest income for the three and nine months
ended March 31, 1999 were due to continued growth in interest-earning assets
including commercial and consumer loans, as compared to the same periods ended
March 31, 1998. These increased interest-earning assets are the result of
competitive pricing, marketing, and the re-pricing of adjustable-rate loans and
mortgage-backed securities.
<PAGE>
Interest Expense. Interest expense increased $101,000 and $737,000 to
$2.3 million and $7.09 million for the three and nine months ended March 31,
1999 respectively, as compared to the three and nine months ended March 31,
1998. For the three and nine months ended March 31, 1999, the increase in
interest expense was due to an increase in borrowed funds and deposits
outstanding as compared to the same periods in 1998. Interest rates, while
remaining steady have increased the use of higher rate specials to attract
deposits.
Provision for Loan Losses. The provision for loan losses increased
$520,000 to $620,000 for the three months ended December 31, 1999, the provision
increased $495,000 for the nine months ended to $860,000 compared to the same
period in 1998. 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. The increase during the third quarter is based on
increases in our substandard loan classifications.
Non-interest Income. Non-interest income for the three month periods
ended March 31, 1999, and 1998 was $1.05 million and $266,000, respectively, and
for the nine month periods was $1.7 million in 1999 and $752,000 in 1998. For
the nine month period, gain on the sale of interest earning assets increased
1128.1% and deposit account fees increased by 37.6%. The increase in gain on
sale of interest earning assets was a redeemed mortgage back security for
$724,000. Management believes that with the lower interest rates we will see an
increase in the gain on sales of loans to Freddie Mac for the remainder of the
year as compared to last year.
Non-Interest Expense. Non-interest expense for the three month period
ended March 31, 1999, was $1.2 million an increase of 33.3% over the same period
in 1998 and was $3.4 million for the nine month period ended March 31, 1999, and
increase of 20.7% over 1998. For the nine months ended March 31, 1999,
compensation and benefits increased 13.9%, occupancy and equipment increased
16.25% and miscellaneous other expense increased 33.2% compared to the same
period in 1998. The increase in compensation and benefits is due to added
expense from the ESOP. Depreciation on building expenses is primarily the reason
for the increase in occupancy and equipment. Miscellaneous other expense is up
due to increased data processing expense, and non loan charge off expense.
Income Tax Expense. The provision for income taxes for the three month
and nine month periods ended March 31, 1999, was $307,000 and $867,000
respectively, compared to $258,000 and $604,000 for the comparable periods in
1998. The provision for income taxes for the nine months ended March 31, 1999,
is at a rate which management believes approximates the effective rate for the
year. The increase is due to increased taxable income in 1999 compared to 1998.
<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 March 31, 1999, was
$1.6 million or 1.08% of total loans. The June 30, 1998 allowance for loan
losses was $983,000, or 0.7% of total loans. Total loans classified as
substandard, doubtful or loss as of March 31, 1999 were $1.2 million or 0.55% 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>
3/31/99 6/30/98
------- -------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans $270 $713
Accruing Loans Delinquent 90 days or more ...... -- --
Troubled Debt Restructurings ................... --
Foreclosed Assets .............................. 493 160
Total Non-Performing Assets .................... $763 $873
Total Non-Performing Assets as a
Percentage of Total Assets ..................... .35% .43%
</TABLE>
Total non-performing assets decreased $110,000 to $763,000, or .35% of
total assets at March 31, 1999, from $873,000 or .43% of total assets at June
30, 1998. 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 $333,000 due to the repossession of some
REO property.
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.
<PAGE>
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, 1999, the
Company has commitments to originate loans totaling $1.6 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, 1999, the
Bank exceeded all fully phased-in regulatory capital standards.
At March 31, 1999, the Bank's tangible capital was $15.7 million, or
7.33% of adjusted total assets, which is in excess of the 1.5% requirement by
$12.5 million. In addition, at March 31, 1999, the Bank had core capital of
$15.7 million, or 7.33% of adjusted total assets, which exceeds the 3.0%
requirement by $9.2 million. The Bank had risk-based capital of $17.2 million at
March 31, 1999 or 12.64% of risk-adjusted assets which exceeds the 8.0%
risk-based capital requirements by $6.3 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.
YEAR 2000
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that store the year portion of the
date as just two digits (e.g., 98 for 1998). Systems using this two-digit
approach may not be able to determine whether "00" represents the Year 2000 or
1900. The problem, if not corrected, may make those systems fail altogether or,
even worse, allow them to generate incorrect calculations causing a disruption
of normal operations.
In 1997, a comprehensive project plan to address the Year 2000 issue as
it relates to the company's operation was developed, approved by the Board of
Directors and implemented. The scope of the plan includes five phases,
Awareness, Assessment, Renovation, Validation (testing), and Implementation as
defined by federal banking regulatory agencies. A project team was assigned and
consists of key members of management. This team was to assess our systems and
equipment and our vendors to ascertain their readiness and to develop the
overall plan to bring our systems into compliance. Additionally, it was to
assess the readiness of our customers and determine what risk, if any, our key
customers pose to the bank with regards to their Year 2000 readiness. The duties
of the Vice President of Operations were realigned to serve as the Year 2000
Project Manager.
An assessment of the impact of the year 2000 issue on the Company's
computer systems has been completed. The scope of the project also includes
other operational and environmental systems since they may be impacted if
embedded computer chips control the functionality of those systems. From the
assessment, the Company has identified and prioritized those systems deemed to
be mission critical or those that have a significant impact on normal
operations.
The Company relies on third-party vendors and service providers for
much of its data processing capabilities and to maintain its computer systems.
Formal communications with these providers and other external counter parties
were initiated in 1997 to assess the Year 2000 readiness of their products and
services. Their progress in meeting their targeted schedules is being monitored
continually for any indication that they may not be able to address the problems
in time. Thus far, responses indicate that all of the significant providers
currently have compliant versions available or are well into the renovation and
testing phases with completion scheduled for sometime in 1998. However, the
Company can give no guarantee that the systems of these service providers and
vendors on which the Company's systems rely will be timely renovated. Therefore,
the Company is requesting an updated status from our service providers at least
quarterly through 1999.
<PAGE>
Additionally, the Company has implemented a plan to manage the
potential credit risk posed by the impact of the Year 2000 issue on its major
borrowing customers. Formal communications have been initiated, and the
assessment was substantially completed on September 30, 1998. Follow-up letters
and phone calls, at least quarterly, will be an on-going process in 1999 with
the medium and high risk customers. Loan losses attributed to the Year 2000
issue are not anticipated to be material to the Company.
The project team feels that the Company's Year 2000 readiness project
is on schedule. The following table provides a summary of the current status of
the five phases involved and a projected timetable for completion.
<TABLE>
<CAPTION>
PROJECT PHASE % COMPLETED PROJECTED COMPLETION
- ------------- ----------- --------------------
<S> <C> <C>
Awareness 100%
Assessment 100%
Renovation 100%
Validation 90% June 30, 1999
Implementation 90% June 30, 1999
</TABLE>
The estimated total cost of the Year 2000 project is estimated to be
between $100,000 and $150,000. The total amount expended on the project through
March 31, 1999 is $88,263 of which $25,000 was related to four training
workshops with our data processor and Arthur Anderson, a national consulting/CPA
firm, and the creation of a test bank using 5% of our data base. And $36,412 was
associated with the cost of replacement software, and $25,825 involved hardware
upgrades and replacement of 23 computers with the remaining $1,026 used to
initiate our Customer awareness Program.
First Federal Savings Bank began a Customer Awareness Program in March
of 1999. A brochure on Y2K was produced by First Federal and mailed to all
demand deposit customers with their statements, returned with mail payment
books, certificate of deposit notices, etc., and placed in all lobbies for
distribution to customers. Additional brochures and a Y2K lobby promotion is
currently being planned for August and September, 1999.
Funds have been provided from our normal operating budget and costs are
expensed as they are incurred.
The total cost to the Company of these Year 2000 readiness activities
has not been, and is not anticipated to be, material to its financial position
or results or operations in any given year.
No specific other projects have been deferred due to this project. Much
of the work done within this project is an acceleration of work that would have
been done in the normal course of business.
The costs and timetable in which the Company plans to complete the Year
2000 readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third-party readiness plans and other
factors. The Company can make no guarantee that these estimates will be achieved
and actual results could differ from such plans.
<PAGE>
Based upon current information related to the progress of its major
vendors and service providers, management has determined that the Year 2000
issue will not pose significant operational problems for its computer systems.
This determination is based on the ability of those vendors and service
providers to renovate, in a timely manner, the products and services on which
the Company's systems rely. However, the Company can give no guarantee that the
systems of these suppliers will be renovated in a timely manner.
Realizing that some disruption may occur despite its best efforts, the
Company is in the process of developing contingency plans for each critical
system in the event that one or more of those systems fail. While this is an
ongoing process, the Company expects to have the plan substantially documented
by June 30, 1999.
<PAGE>
Part II - Other Information
---------------------------
As of December 31, 1998, management is not aware of any current
recommendations by regulatory authorities which, if they were to be implemented,
would have or are reasonably likely to have a material adverse effect on the
Company's liquidity, capital resources or operations.
Item 1 - Legal Proceedings
-----------------
Not Applicable.
Item 2 - Changes in Securities
---------------------
Not Applicable.
Item 3 - Defaults upon Senior Securities
-------------------------------
Not Applicable.
Item 4 - Submission of Matters to a vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5 - Other Information
-----------------
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
Not Applicable
<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
May 12, 1999 /S/Nicholas M. George
---------------------
Nicholas M. George
President and Chief
Executive Officer
May 12, 1999 /S/Roger K. Cromer
------------------
Roger K. Cromer
Treasurer and Chief
Financial
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,683
<INT-BEARING-DEPOSITS> 5,488
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,317
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 148,265
<ALLOWANCE> 1,608
<TOTAL-ASSETS> 217,138
<DEPOSITS> 131,788
<SHORT-TERM> 63,500
<LIABILITIES-OTHER> 2,266
<LONG-TERM> 0
0
0
<COMMON> 18
<OTHER-SE> 19,566
<TOTAL-LIABILITIES-AND-EQUITY> 217,138
<INTEREST-LOAN> 9,287
<INTEREST-INVEST> 2,582
<INTEREST-OTHER> 138
<INTEREST-TOTAL> 12,007
<INTEREST-DEPOSIT> 4,389
<INTEREST-EXPENSE> 7,087
<INTEREST-INCOME-NET> 4,920
<LOAN-LOSSES> 860
<SECURITIES-GAINS> 873
<EXPENSE-OTHER> 3,352
<INCOME-PRETAX> 2,441
<INCOME-PRE-EXTRAORDINARY> 2,441
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,573
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 3.24
<LOANS-NON> 270
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 983
<CHARGE-OFFS> 315
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 1,608
<ALLOWANCE-DOMESTIC> 1,184
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 424
</TABLE>
