UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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 0-21638
FFY FINANCIAL CORPORATION
-------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-1735753
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
724 Boardman-Poland Rd., Youngstown, Ohio 44512
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(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number, including area code: (330) 726-3396
___________________
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such requirements for the past 90 days.
YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of August 31, 1999, the Registrant had 6,991,165 shares of Common Stock
issued and outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the average of the bid and asked price
of such stock as of August 31, 1999 was $95.1 million. (The exclusion from
such amount of the market value of the shares owned by any person shall not
be deemed an admission by the Registrant that such person is an affiliate of
the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Annual Report to Stockholders for the fiscal
year ended June 30, 1999.
Part III of Form 10-K - Proxy Statement for Annual Meeting of Stockholders
to be held in 1999.
PART I
Forward-Looking Statements
When used in this Form 10-K, or, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or 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 certain risks
and uncertainties including changes in economic conditions in the Bank's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Bank's market area and competition,
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 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 disclaims 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.
Year 2000
Refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Year 2000" contained in the Annual Report of
Stockholders included as Exhibit 13 herein.
Item 1. Business
General. FFY Financial Corp. (FFYF or Company) is a holding company
incorporated under the laws of the State of Delaware and is engaged in the
financial services business through its wholly-owned subsidiaries, First
Federal Savings Bank of Youngstown (First Federal or Bank), a federally
chartered stock savings bank, and FFY Holdings, Inc. In June 1993, the Bank
converted from a federally-chartered mutual savings institution to a stock
savings institution and, as part of the conversion, the Company acquired all
of the outstanding common stock of the Bank. First Federal operates 10 full
service banking facilities and 3 limited banking facilities in Mahoning and
Trumbull Counties, Ohio. At June 30, 1999, the Company had total
consolidated assets of $675.7 million.
The business of the Company currently consists primarily of the business of
First Federal. The holding company structure, however, provides FFYF with
greater flexibility than the Bank has to diversify its business activities,
through existing or newly formed subsidiaries, or through acquisitions or
mergers of both mutual and stock thrift institutions as well as other
companies. In August 1997, FFY Holdings, Inc. was formed, as a wholly-owned
subsidiary of FFYF, for the purpose of investing in entities that offer
expanded financial services to customers. In September 1997 and April 1998,
the Company announced real estate and insurance affiliations through
investments of FFY Holdings, Inc. Currently, there are no arrangements,
understandings or agreements regarding any acquisitions or mergers; however,
the Company is in a position, subject to regulatory restrictions, to take
advantage of any favorable acquisition or merger opportunity that may arise.
First Federal provides a variety of banking services to its customers other
than its primary business activities of making loans and accepting deposits.
Market Area. First Federal conducts operations through its main office in
Youngstown, Ohio, which is located approximately 75 miles northwest of
Pittsburgh, PA and 75 miles southeast of Cleveland, OH, and through its 12
other banking offices in Ohio. Ten of First Federal's office locations,
including the main office, are in Mahoning County and three office locations
are in Trumbull County. Mahoning County is considered to be the Company's
primary market area. The Youngstown-Warren area (Mahoning and Trumbull
Counties) makes up the 7th largest metropolitan statistical area in the
State of Ohio. First Federal also has customers in Columbiana County
although there are no office locations in that county. According to the
latest census information, approximately 591,000 people live in the
Youngstown-Warren area.
Major industries in Mahoning County include light manufacturing,
transportation, health care, as well as retail and wholesale trade and
services. Major industries in Trumbull County and Columbiana County include
manufacturing, trade and services. Major employers in Mahoning County
include Western Reserve Care System, St. Elizabeth Health Center, U.S.
Postal Service, Youngstown City Schools and Youngstown State University.
The largest employers in the tri-county area include General Motors
Corporation in Lordstown, Ohio and Delphi Packard Electric Systems (a
division of General Motors Corporation) in Warren, Ohio, both located in
Trumbull County. The Company's business and operating results could be
significantly affected by changes in general economic conditions, as well as
changes in population levels, unemployment rates, strikes and layoffs.
Lending Activities
General. The largest component of the Bank's gross loan portfolio has
historically been first mortgage loans secured by one- to four-family
residences. As part of the Company's strategy to manage interest rate risk,
the Bank emphasizes the origination of adjustable-rate mortgage (ARM) loans
or shorter-term fixed rate loans for its own portfolio. The Bank also
offers 15 and 30 year fixed-rate loans which, if they qualify, are generally
sold on the secondary market to Fannie Mae. Multi-family, commercial,
construction and consumer loans with higher yields than traditional one- to
four- family loans are also offered by the Bank.
Certain officers of the Bank have individual loan approval authority for
amounts up to $240,000. Loans that are greater than $240,000 and up to
$500,000 must be approved by either the Vice President in charge of lending
or a committee comprised of officers of the Bank. Loans greater than
$500,000 must be approved by the Executive Committee of the Board of
Directors and loans greater than $1 million must be approved by the Board of
Directors. All loans, once approved, are reviewed by the Board of
Directors.
The Bank's loans-to-one-borrower limit is generally 15% of unimpaired
capital and surplus. At June 30, 1999, the maximum amount which the Bank
could have lent under this limit to any one borrower and the borrower's
related entities was approximately $7.7 million. At June 30, 1999, the Bank
had no loans or groups of loans to related borrowers with outstanding
balances in excess of this amount. The largest lending relationship at June
30, 1999 totaled $5.6 million which is primarily secured by office buildings
located in Ohio. There are 23 other lending relationships ranging from $1.1
million to $3.3 million with an aggregate total of $39.2 million. At June
30, 1999, all such loans were performing in accordance with their terms
except for one lending relationship of six loans with an aggregate
outstanding balance of $2.4 million as of the balance sheet date. Refer to
"Troubled Debt Restructurings and Other Loans of Concern" contained herein.
Loan Portfolio Composition. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts
and in percentages (before deductions for loans in process, deferred fees
and discounts and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four -family(1) $335,064 71.70% $354,202 71.65% $349,053 73.59% $334,307 73.64% $308,774 74.45%
Multi-family 15,579 3.33% 15,659 3.17% 16,294 3.44% 15,934 3.51% 15,157 3.65%
Commercial 33,710 7.21% 28,606 5.79% 30,997 6.53% 29,024 6.39% 28,304 6.82%
Construction and
development 28,085 6.01% 23,999 4.85% 23,179 4.88% 22,636 4.99% 20,491 4.94%
------------------------------------------------------------------------------------------------------
Total real estate
loans 412,438 88.25% 422,466 85.46% 419,523 88.44% 401,901 88.53% 372,726 89.86%
------------------------------------------------------------------------------------------------------
Consumer Loans:
Deposit account 1,195 0.26% 1,341 0.27% 1,240 0.26% 1,115 0.25% 1,090 0.26%
Automobile 8,480 1.81% 12,161 2.46% 16,349 3.45% 17,245 3.80% 8,380 2.02%
Home equity 37,877 8.11% 37,912 7.67% 33,269 7.01% 29,783 6.56% 29,711 7.17%
90-day notes 3,416 0.73% 17,677 3.58% 1,323 0.28% 1,441 0.32% 907 0.22%
Other 3,944 0.84% 2,791 0.56% 2,646 0.56% 2,479 0.54% 1,949 0.47%
------------------------------------------------------------------------------------------------------
Total consumer
loans 54,912 11.75% 71,882 14.54% 54,827 11.56% 52,063 11.47% 42,037 10.14%
------------------------------------------------------------------------------------------------------
Total loans 467,350 100.00% 494,348 100.00% 474,350 100.00% 453,964 100.00% 414,763 100.00%
====== ====== ====== ====== ======
Less:
Loans in process (7,969) (6,557) (7,861) (8,830) (6,346)
Deferred fees and
discount (2,455) (2,588) (2,815) (2,905) (3,594)
Allowance for losses (2,645) (2,740) (2,962) (3,439) (3,159)
-------- -------- -------- -------- --------
Total loans
receivable, net(1) $454,281 $482,463 $460,712 $438,790 $401,664
======== ======== ======== ======== ========
___________________
<FN>
<F1> 1999 amount includes $442 in loans available for sale.
</FN>
</TABLE>
The following table shows the composition of the Bank's loan portfolio by
fixed and adjustable rates at the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four
-family(1) $165,529 35.42% $217,075 43.91% $260,128 54.84% $268,816 59.21% $246,036 59.32%
Multi-family 9,610 2.05% 3,965 0.80% 3,969 0.84% 3,624 0.79% 5,256 1.27%
Commercial 27,756 5.94% 24,533 4.96% 24,498 5.16% 23,784 5.24% 23,818 5.74%
Construction and
development 24,665 5.28% 21,087 4.27% 23,179 4.88% 22,636 4.99% 20,461 4.93%
------------------------------------------------------------------------------------------------------
Total fixed-rate
real estate loans 227,560 48.69% 266,660 53.94% 311,774 65.72% 318,860 70.23% 295,571 71.26%
Consumer - fixed-rate 48,328 10.34% 67,243 13.60% 52,013 10.97% 50,081 11.03% 40,870 9.85%
------------------------------------------------------------------------------------------------------
Total fixed-rate
loans 275,888 59.03% 333,903 67.54% 363,787 76.69% 368,941 81.26% 336,441 81.11%
Adjustable-Rate Loans:
Real estate:
One- to four -family 169,535 36.28% 137,127 27.74% 88,925 18.75% 65,491 14.43% 62,738 15.13%
Multi-family 5,969 1.28% 11,694 2.37% 12,325 2.60% 12,310 2.71% 9,901 2.39%
Commercial 5,954 1.27% 4,073 0.82% 6,499 1.37% 5,240 1.16% 4,486 1.08%
Construction and
development 3,420 0.73% 2,912 0.59% - - - - 30 0.01%
------------------------------------------------------------------------------------------------------
Total adjustable-rate
real estate loans 184,878 39.56% 155,806 31.52% 107,749 22.72% 83,041 18.30% 77,155 18.61%
Consumer - adjustable-rate 6,584 1.41% 4,639 0.94% 2,814 0.59% 1,982 0.44% 1,167 0.28%
------------------------------------------------------------------------------------------------------
Total adjustable-rate
loans 191,462 40.97% 160,445 32.46% 110,563 23.31% 85,023 18.74% 78,322 18.89%
------------------------------------------------------------------------------------------------------
Total loans 467,350 100.00% 494,348 100.00% 474,350 100.00% 453,964 100.00% 414,763 100.00%
====== ====== ====== ====== ======
Less:
Loans in process (7,969) (6,557) (7,861) (8,830) (6,346)
Deferred fees and
discounts (2,455) (2,588) (2,815) (2,905) (3,594)
Allowance for losses (2,645) (2,740) (2,962) (3,439) (3,159)
-------- -------- -------- -------- --------
Total loans
receivable, net(1) $454,281 $482,463 $460,712 $438,790 $401,664
======== ======== ======== ======== ========
___________________
<FN>
<F1> 1999 amount includes $442 in loans available for sale.
</FN>
</TABLE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at June 30, 1999. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which
the contract matures. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
------------------------------------------------------------------------
One- to Construction and
four -family Multi-family Commercial Development Consumer Total
---------------- ---------------- ----------------- ---------------- ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Due During
Periods Ending
June 30,
--------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000(1) $ 141 8.36% $ - - $ 100 11.15% $11,312 8.03% $ 5,574 10.38% $ 17,127 8.82%
2001 to 2004 12,830 7.91% 2,370 8.92% 3,487 8.11% 15,871 8.78% 24,195 9.36% 58,753 8.79%
2005 and following 322,093 7.59% 13,209 8.79% 30,123 8.86% 902 6.91% 25,143 9.49% 391,470 7.85%
-------- ------- ------- ------- ------- --------
$335,064 $15,579 $33,710 $28,085 $54,912 $467,350
======== ======= ======= ======= ======= ========
</TABLE>
The total amount of loans due after June 30, 2000 which have predetermined
interest rates is $289.5 million, while the total amount of loans due after
such dates which have floating or adjustable interest rates is $160.7
million.
___________________
[FN]
<F1> Includes overdraft loans.
</FN>
One- to four -family Residential Real Estate Lending
The cornerstone of the Bank's lending program has been the origination of
permanent loans, to be held in its portfolio, secured by mortgages on owner-
occupied, one- to four -family residences. The Bank has generally limited
its real estate loan originations to properties within its market area. As
of June 30, 1999, all one- to four -family residential loans were secured by
properties located in the Bank's market area. The Bank originates both
fixed-rate and ARM loans with terms up to 30 years with its focus primarily
on ARM originations as part of its asset/liability management. The level of
fixed-rate originations is generally affected by market rates, customer
preference and competition. The Bank has been successful in originating
7/1-year ARMs which are fixed for seven years and convert to a one-year ARM
in the eighth year. At June 30, 1999, $90.8 million, or 19.4% of the Bank's
gross loan portfolio consisted of 7/1-year ARMs compared to $52.0 million,
or 10.5% at June 30, 1998 and $15.1 million, or 3.2% at June 30, 1997.
Additionally, a significant portion of the Bank's other ARM products are
subject to interest adjustments at three-year intervals. The Bank's ARM
products generally carry interest rates which are reset to a stated margin
over an independent index. Increases and decreases in the interest rate of
the Bank's ARMs are generally limited to 2% at any adjustment date and 5%
over the life of the loan. The Bank's ARMs are not convertible into fixed-
rate loans, are not assumable, do not contain prepayment penalties and do
not produce negative amortization.
The Bank evaluates both the borrower's ability to make principal and
interest payments and the value of the property that will secure the loan.
In order to comply with standard secondary market underwriting requirements,
First Federal established procedures in 1998 to verify employment history
and down payment sources since the Bank sells qualifying loans to Fannie
Mae. Underwriting standards required by Fannie Mae and other secondary
market investors are also followed for new loan originations that the Bank
retains in its portfolio. Following secondary market underwriting standards
does not significantly affect the timing of closing loans. During 1999, the
Bank increased its loan origination team in order to meet the increased
competition in the Company's market area. To remain competitive in
obtaining loans, the Bank's personnel streamlined the process for standard
home loan requests from application to approval to less than seven days as
compared to up to 21 days before. The Company's management expects to fully
implement 24-hour approvals on certain loan originations in the future.
The Bank originates residential mortgage loans with loan-to-value ratios up
to 97%. On mortgage loans exceeding an 85% loan-to-value ratio at the time
of origination, however, First Federal generally requires private mortgage
insurance in an amount intended to reduce the Bank's exposure to 72% of the
appraised value of the underlying collateral. Property securing real estate
loans made by First Federal is appraised by staff appraisers of the Bank.
The Bank requires evidence of marketable title and lien position on all
loans secured by real property and requires fire and extended coverage
casualty insurance in amounts at least equal to the principal amount of the
loan or the value of improvements on the property, depending on the type of
loan. The Bank may also require flood insurance to protect the property
securing its interest.
Residential mortgage loan originations derive from a number of sources,
including real estate broker referrals, existing borrowers and depositors,
builders and walk-in customers. Loan applications are accepted at all of
the Bank's offices.
Multi-Family Lending
First Federal originates multi-family loans, which it holds in its
portfolio, and primarily include loans secured by apartment buildings.
Multi-family loans generally have shorter maturities than one- to four -
family mortgage loans, although the Bank may originate multi-family loans
with terms up to 30 years. The rates charged on multi-family loans are both
fixed and adjustable. The adjustable-rate loans reset to a stated margin
over an independent index. Multi-family lending rates are typically higher
than rates charged on one- to four -family residential properties. Multi-
family loans are generally written in amounts up to 80% of the lesser of the
appraised value or purchase price of the underlying property.
Appraisals on properties securing multi-family loans originated by the Bank
are performed by either an independent appraiser designated by the Bank or
by the Bank's staff appraisers at the time the loan is made. All appraisals
on multi-family loans are reviewed by the Bank's management. In addition,
the Bank's current underwriting procedures generally require verification of
the borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property.
At June 30, 1999, the Bank had four multi-family loans with a net book value
in excess of $1.0 million but less than $2.0 million. All of these loans
were current at that date. However, one of these multi-family loans,
totaling approximately $1.5 million at June 30, 1999, is considered by
management to be a potential problem loan. See "Troubled Debt
Restructurings and Other Loans of Concern" contained herein for additional
detail regarding this loan.
Multi-family loans generally present a higher level of risk than loans
secured by one- to four -family residences. This greater risk is due to
several factors, including the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased complexity of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans
secured by multi-family properties is typically dependent upon the
successful operation of the related real estate project. If the cash flow
from the project is reduced, the borrower's ability to repay the loan may be
impaired. In some instances, the risk level is mitigated by obtaining
individual guarantees which may increase the amount of collateral supporting
the loan. Despite the risks inherent in multi-family lending, the Company's
history of delinquencies in this portfolio has been minimal.
Commercial Real Estate Lending
First Federal originates commercial real estate loans, which it holds in its
portfolio, and primarily includes loans secured by strip shopping centers,
small office buildings, warehouses, churches and other business properties.
Commercial real estate loans have a maximum term of 30 years; however, they
generally have terms ranging from 10 - 20 years. Rates on commercial real
estate loans are predominantly fixed, based on competitive factors, but to a
lesser extent, the Bank originates adjustable-rate commercial real estate
loans which are reset to a stated margin over an independent index.
Commercial loans are generally written in amounts up to 80% of the lesser of
the appraised value or purchase price of the underlying property.
Appraisals on properties securing commercial real estate loans originated by
the Bank are performed by either an independent appraiser designated by the
Bank or by the Bank's staff appraisers at the time the loan is made. All
appraisals on commercial real estate loans are reviewed by the Bank's
management. In addition, the Bank's current underwriting procedures
generally require verification of the borrower's credit history, income and
financial statements, banking relationships, references and income
projections for the property.
At June 30, 1999, the Bank had seven commercial real estate loans with a net
book value in excess of $1.0 million but less than $2.0 million. All of
these loans were current at that date. However, one of these commercial
real estate loans, totaling approximately $1.2 million at June 30, 1999, is
secured by a strip shopping center where the anchor tenant has, to the best
of management's knowledge, no history of operating profits. This loan has
been classified substandard as of June 30, 1999. See "Troubled Debt
Restructurings and Other Loans of Concern" contained herein.
During fiscal year 1999, commercial real estate lending was identified as a
growth area by the Company's management. Consequently, the Company hired an
experienced commercial lender to specialize in the origination of commercial
mortgage loans. At June 30, 1999, the Company had $33.7 million in
commercial real estate loans comprising of 7.2% of the gross loan portfolio,
compared to $28.6 million, or 5.8% of the gross loan portfolio at June 30,
1998.
Commercial real estate loans generally present a higher level of risk than
loans secured by one- to four -family residences. This greater risk is due
to several factors, including the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased complexity of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans
secured by commercial real estate properties is typically dependent upon the
successful operation of the related real estate project. If the cash flow
from the project is reduced, the borrower's ability to repay the loan may be
impaired. In some instances, the risk level is mitigated by obtaining
individual guarantees which may increase the level of collateral supporting
the loan. The Company will continue its efforts to increase the amount of
commercial real estate loans for its portfolio as these loans generally
offer a better interest rate than typical one- to four -family loans.
Management believes the higher rate justifies the increased credit risk.
Despite the risks inherent in commercial real estate lending, the Company's
history of delinquencies in this portfolio has been minimal, however,
management will closely monitor the performance of this portfolio as
management anticipates its growth.
Construction and Development Lending
The Bank makes loans to individuals for the construction of their
residences, as well as to builders and developers for the construction of
one- to four -family residences, multi-family and commercial real estate and
the development of one- to four -family lots in Ohio. At June 30, 1999, all
of these loans were secured by property located within the Bank's market
area.
Construction loans to individuals for their residences are structured to be
converted to permanent loans at the end of the construction phase, which
typically runs six months. These construction loans have rates and terms
which match any one- to four -family loans then offered by the Bank, except
that during the construction phase, the borrower pays interest only and the
maximum loan-to-value ratio is 90%. On construction loans exceeding an 85%
loan-to-value ratio, First Federal generally requires private mortgage
insurance, thus reducing the Bank's exposure. Residential construction
loans are generally underwritten pursuant to the same guidelines used for
originating permanent residential loans. At June 30, 1999, the Bank had
$10.2 million of construction loans to borrowers intending to live in the
properties upon completion of construction.
Construction loans to builders of one- to four -family residences require
the payment of interest only for the term of the loan, up to 12 months.
These loans may provide for the payment of interest and loan fees from loan
proceeds and carry fixed rates of interest. Currently, loan fees charged on
such loans are approximately $1,250; however, such loan fees may vary from
time to time. At June 30, 1999, the Bank had $6.8 million of construction
loans to builders of one- to four -family residences.
The Bank also makes loans to builders for the purpose of developing one- to
four -family homesites. These loans typically have terms of from one to
three years and carry fixed interest rates. The maximum loan-to-value ratio
is 80% for such loans. Loan fees charged in connection with the origination
of such loans are negotiable; however, they are generally the Bank's cost
plus up to 1% of the loan amount. These loans may provide for the payment
of interest and loan fees from loan proceeds. The principal in these loans
is typically paid down as homesites are sold. At June 30, 1999, the Bank
had $8.3 million of development loans to builders.
Construction loans on multi-family and commercial real estate projects may
be secured by apartments, strip shopping centers, small office buildings,
churches or other property and are structured to be converted to permanent
loans at the end of the construction phase, which generally runs up to 12
months. These construction loans have rates and terms which match any
permanent multi-family or commercial real estate loan then offered by the
Bank, except that during the construction phase, the borrower pays interest
only. These loans generally provide for the payment of interest and loan
fees from loan proceeds. At June 30, 1999, the Bank had $2.8 million of
multi-family and commercial real estate construction loans.
Construction and development loans are obtained principally through
continued business from developers and builders who have previously borrowed
from the Bank, as well as referrals from existing customers and walk-in
customers. The application process includes a submission to the Bank of
accurate plans, specifications and costs of the project to be
constructed/developed. These items are used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus
building).
Because of the uncertainties inherent in estimating development and
construction costs and the market for the project upon completion, it is
relatively difficult to evaluate accurately the total loan funds required to
complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of the project. In addition, management requires pro forma
cash flow analysis and debt service coverage ratios or verification of
construction progress prior to authorizing a construction draw and require
mechanics' lien waivers and other documents to protect and verify its lien
position. Construction and development loans to borrowers other than owner-
occupants also involve many of the same risks discussed above regarding
multi-family and commercial real estate loans and tend to be more sensitive
to general economic conditions than many other types of loans. Also, the
funding of loan fees and interest during the construction phase makes the
monitoring of the progress of the project particularly important, as
customary early warning signals of project difficulties may not be present.
At June 30, 1999, there was one individual construction and development loan
totaling $1.1 million which was current as of that date. There were no
other individual construction and development loans in excess of
$1.0 million.
Consumer Lending
The Bank originates various types of consumer loans including, but not
limited to, home equity and automobile loans. First Federal places
increasing emphasis on consumer loans, particularly home equity loans,
because of their attractive yields and shorter terms to maturity.
The Bank's home equity loans are written so that the total commitment
amount, when combined with the balance of the first mortgage lien, may not
exceed 100% of the appraised value of the property where the Bank holds the
first lien and 80% if the first mortgage is held by a third party. At June
30, 1999, the Bank held a first lien on approximately 95% of the properties
securing home equity loans from the Bank. Closed-end home equity loans are
written with terms of up to ten years and carry fixed rates of interest.
Open-end home equity lines of credit are written for a draw period of 10
years at a variable interest rate of 1% above the prime rate adjusted
monthly. After the draw period, the lines of credit convert into fixed
rate, closed-end loans with terms of up to 10 years, or the lines of credit
can be renewed. The Bank's home equity loan portfolio grew from $29.7
million at June 30, 1995 to $37.9 million at June 30, 1999.
During fiscal year 1996, the Bank began originating automobile loans through
dealerships (indirect auto lending) in an effort to gain a portion of this
market. However, this program was discontinued after approximately 14
months of operation due to the performance of the portfolio. At September
30, 1996, this portfolio had 1,001 loans totaling $12.3 million and has
subsequently dropped to 429 loans totaling $2.7 million at June 30, 1999.
The decline during this time frame was due to both write-offs and principal
receipts. Management has identified potential problem loans that remain in
this portfolio and believes there are adequate reserves at June 30, 1999.
Indirect auto loans tend to be of greater risk than direct auto loans due to
the fact that institutions such as the Bank work with dealers rather than
directly with the customers.
During June 1998, the Bank lent $15.9 million in short-term loans (90-day
notes) to customers to fund their stock subscriptions for a local financial
institution's initial public offering. Throughout the first quarter of
fiscal year 1999, virtually all of these loans were repaid. There is no
prepayment penalty on 90-day notes.
The underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and the
ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is of primary consideration, the
underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount. While consumer
loans other than home equity loans generally involve a higher level of
credit risk than one- to four -family residential loans, consumer loans are
typically made at higher interest rates and for shorter terms. The shorter
term of consumer loans reduces the Bank's exposure to interest rate risk.
Sale of Mortgage Loans
In fiscal year 1998, the Bank began selling originated one- to four -family
fixed-rate mortgage loans to Fannie Mae. Currently, the Bank only sells
fixed-rate 15- and 30-year one- to four -family loans to Fannie Mae. All
mortgage loans, upon commitment, are immediately categorized as either held
for the Bank's portfolio or available for sale. The Bank originated $30.9
million in available-for-sale loans during fiscal year 1999 and sold $30.4
million of such loans at a pretax gain of $720,000. At June 30, 1999, there
was $442,000 in loans available for sale on the Company's balance sheet.
During fiscal year 1998, the Bank originated and sold $5.0 million of loans
originated for sale at a pretax gain of $134,000. The level of mortgage
loan sales is dependent on the amount of saleable loans being originated by
the Bank. Depending on factors such as interest rates, levels of
refinancings and competitive factors in the Company's primary market area,
the amount of mortgage loans ultimately sold can vary significantly.
The Bank retains servicing on the loans sold to Fannie Mae, typically
receiving a servicing fee of 25 basis points, which represents the
difference the coupon rate and the rate passed along to Fannie Mae. The
origination of mortgage loans and the related sales of such loans with
servicing retained provides the Company with additional sources of non-
interest income through loan servicing income and gains on the loans sold.
At June 30, 1999, mortgage servicing rights totaled $330,000 compared to
$48,000 at June 30, 1998. Mortgage loans serviced for others totaled $35.1
million at June 30, 1999 compared to $5.0 million at June 30, 1998.
Loan Origination and Repayment Activities
The following table sets forth the Bank's originations, sales and repayments
of loans for the periods indicated.
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four -family $ 39,258 45,473 31,668
- multi-family 8 586 943
- commercial 682 3,413 995
- construction and development 15,503 2,250 197
Non-real estate - consumer 11,457 4,844 2,395
---------------------------------
Total adjustable rate 66,908 56,566 36,198
---------------------------------
Fixed rate:
Real estate - one- to four -family 22,423 8,834 19,045
- multi-family 1,744 658 314
- commercial 3,422 1,069 2,248
- construction and development 20,210 27,997 29,045
Non-real estate - consumer 35,063 48,728 32,013
---------------------------------
Total fixed rate 82,862 87,286 82,665
---------------------------------
Total loans originated 149,770 143,852 118,863
Principal repayments (121,902) (105,621) (97,840)
Loan sales (30,409) (4,988) -
Decrease in other items, net (725) (795) (638)
---------------------------------
Net increase (decrease) $ (3,266) 32,448 20,385
=================================
</TABLE>
Asset Quality
When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the delinquency by contacting the borrower. In the case of
residential loans, a late notice is generally sent after 15 days past the
due date and collection action is commenced. Written and verbal contacts
are attempted from this point until the account is brought to a current
status. If the delinquency continues, a default letter is generally sent
between 45 and 60 days past due, and if the status does not improve, the
Bank will begin foreclosure action 30 days after the default letter is sent.
Delinquent consumer loans, including home equity loans, are handled in a
similar manner except that late notices are generated between 10 and 15 days
past due and collection action is commenced at that point. If the
delinquency continues and no arrangements are made with the borrower, the
Bank will take appropriate action to protect its interest generally by 60
days past due. This may include repossession, foreclosure or law suit, if
necessary. If repossession of a vehicle occurs, the borrower has the
opportunity to redeem the vehicle prior to sale at public auction by
contacting the Bank and paying delinquencies and other charges associated
with the repossession. The Bank's repossession guidelines comply with the
requirements under the Ohio Revised Code.
The Bank has not experienced significant delinquencies with multi-family,
commercial real estate or commercial real estate construction loans.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 1999, in dollar amounts and as a percentage of
each category of the Bank's loan portfolio. The amounts presented represent
the total remaining principal balances of the related loans, rather than the
actual payment amounts which are overdue.
<TABLE>
<CAPTION>
Loans Delinquent For:
------------------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days and Over
-------------------------- -------------------------- --------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four -family 24 $ 928 0.28% 47 $1,527 0.46% 71 $2,455 0.74%
Multi-family 1 317 2.03% - - - 1 317 2.03%
Commercial 1 95 0.28% - - - 1 95 0.28%
Construction and
development - - - 2 567 1.89% 2 567 1.89%
Consumer 33 140 0.25% 144 145 0.26% 177 285 0.51%
------------- -------------- --------------
Total 59 $1,480 0.32% 193 $2,239 0.48% 252 $3,719 0.80%
============= ============== ==============
</TABLE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. The
Bank's current approach requires that loans be reviewed periodically and any
loan where collectibility of principal is doubtful is placed on non-accrual
status. Loans are also placed on non-accrual status generally when a loan
is more than 90 days delinquent. Payments received on non-accruing loans
are recorded as interest income, or are applied to the principal balance,
depending on an assessment of the collectibility of the principal of the
loan. Loans remain on non-accrual status until generally less than 90 days
delinquent. Troubled debt restructurings involve loans where, due to the
debtor's financial difficulties, modifications are made in the original
terms of the loans (e.g., principal or interest may be forgiven, the term of
the loan may be extended or the interest rate may be reduced below market
rates). A loan is removed from troubled debt restructuring status if it is
current after the 12th month it was restructured and the modifications
originally given are not inconsistent with terms currently provided.
Foreclosed assets include assets acquired in settlement of loans. The
amounts shown do not reflect reserves set up against such assets. See "-
Allowance for Loan Losses."
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four -family $1,421 2,168 2,359 3,617 3,405
Multi-family - - - - -
Commercial real estate - - 110 - 67
Construction and development 567 - 4 71 -
Consumer 172 566 782 409 420
--------------------------------------------------
Total 2,160 2,734 3,255 4,097 3,892
--------------------------------------------------
Troubled debt restructurings:
One- to four -family 34 575 685 506 405
Consumer 65 15 53 70 55
--------------------------------------------------
Total 99 590 738 576 460
--------------------------------------------------
Total non-performing loans 2,259 3,324 3,993 4,673 4,352
--------------------------------------------------
Foreclosed assets:
One- to four -family 97 - - - -
--------------------------------------------------
Total non-performing assets $2,356 3,324 3,993 4,673 4,352
==================================================
Total non-performing assets as a
percentage of total assets 0.35% 0.51% 0.67% 0.81% 0.75%
==================================================
Total non-performing loans as a
percentage of total loans
receivable, net 0.50% 0.69% 0.87% 1.06% 1.08%
==================================================
Allowance for loan losses as a
percentage of non-performing assets 112.27% 82.43% 74.18% 73.59% 72.59%
==================================================
</TABLE>
For the year ended June 30, 1999, gross interest income which would have
been recorded had the non-performing loans been current in accordance with
their original terms amounted to approximately $290,000. The amount that
was included in interest income on such loans was $220,000 for the year
ended June 30, 1999.
Troubled Debt Restructurings and Other Loans of Concern. As of June 30,
1999, the Bank had $99,000 in net book value of troubled debt
restructurings. The net book value of troubled debt restructurings at June
30, 1998 totaled $590,000, of which 97% were mortgage loans secured by one-
to four -family residences. The decline in troubled debt restructurings
throughout fiscal year 1999 was primarily attributable to one- to four
- -family loans becoming current.
First Federal has a lending relationship of six loans with an aggregate
outstanding balance of $2.4 million as of June 30, 1999. The primary
borrower has encountered legal problems that may affect his ability to pay.
The largest loan of the six, totaling $1.5 million at June 30, 1999, is
secured by an apartment building in the Company's market area, which was
independently appraised in May 1999 for $2.0 million. The Company has first
lien against the apartment building. This loan was performing according to
its original terms at June 30, 1999 and August 31, 1999.
Willard, Ohio - Strip Shopping Center. In 1987, the Bank originated a $1.6
million construction/permanent loan on a strip shopping center in Willard,
Ohio. The loan had a 9.75% interest rate, a term of 15 years and was to be
amortized over 20 years. In July 1992, the shopping center's sole tenant
vacated the premises after filing for bankruptcy and a new tenant, without
any established operating history, moved in. The new tenant negotiated
lease terms at rates lower than the original tenant, thereby reducing the
revenue to the borrower. As a result, the loan was modified to reduce the
interest rate to 7% until 1997; 7.63% until 2002; and 8% until maturity in
2007. The loan was current under the modified loan terms as of June 30,
1999. The Bank's net book value for the loan at June 30, 1999 was
approximately $1.2 million. This loan was removed from troubled debt
restructurings at June 30, 1994 due to the payment history of the borrower
and the reduction in general market interest rates to the point where the
restructured terms no longer represented concessions. Based on management
review of the tenant's last-provided operating statement, this loan has been
classified as substandard at June 30, 1999.
Classified Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss."
"Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some "loss" if the deficiencies are not corrected. "Doubtful"
assets have the weaknesses of "substandard" assets, with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable. Assets classified as "loss" are those
considered uncollectible and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not
warranted. Assets classified as "loss" must either establish a specific
allowance for loss equal to 100% of that portion of the asset so classified
or to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS and the FDIC, either of which may order the
establishment of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly
reviews the problem loans in its portfolio to determine whether any loans
require classification in accordance with applicable regulations.
Classified assets at June 30, 1999 consisted of 100 loans totaling $4.2
million, or 0.6% of total assets compared to 146 loans totaling $5.0
million, or 0.8% of total assets at June 30, 1998. The decline in
classified assets during fiscal year 1999 was primarily in one- to four -
family mortgage loans. The largest classified asset was $1.2 million at
June 30, 1999 and is discussed above under "Troubled Debt Restructurings and
Other Loans of Concern".
Allowance for Loan Losses. Under federal regulations, when an insured
institution classifies problem assets as either "substandard" or "doubtful",
it is required to establish general allowances for loan losses in an amount
deemed prudent by management. In addition to general valuation allowances,
the Company may establish specific loss reserves against specific assets in
which a loss may be realized. General allowances represent loss allowances
that have been established to recognize the inherent risks associated with
lending activities, but which, unlike specific allowances, have not been
allocated to recognize probable losses on particular problem assets. The
Company's determination as to its classification of assets and the amount of
its specific and general valuation allowances are subject to review by the
Bank's regulators which can order the establishment of additional general or
specific loss allowances.
The allowance for loan losses is a material estimate that is particularly
susceptible to significant changes in the near term and is established
through a provision for loan losses based on management's evaluation of the
risk inherent in the Bank's loan portfolio and the general economy. Such
evaluation, which includes a review of all loans of which full
collectibility may not be reasonably assured, considers among other matters,
the estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition
in providing for an adequate loan loss allowance. Although management
believes it uses the best information available to make such determinations,
future adjustments to reserves may be necessary, and net income could be
significantly affected, if circumstances differ substantially from the
assumptions used in making the initial determinations.
The following table sets forth an analysis of the Bank's allowance for loan
losses at the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,740 2,962 3,439 3,159 2,801
Charge-offs:
One- to four -family (167) (97) (40) (18) (43)
Multi-family - - - (1) (1)
Construction and development (30) - - - -
Consumer (526) (743) (1,159) (58) (16)
-----------------------------------------------------
(723) (840) (1,199) (77) (60)
-----------------------------------------------------
Recoveries:
One- to four -family 9 3 1 18 12
Construction and development 30 - - 2 -
Commercial real estate - - - 2 -
Consumer 95 50 33 10 3
-----------------------------------------------------
134 53 34 32 15
-----------------------------------------------------
Net charge-offs (589) (787) (1,165) (45) (45)
Additions charged to operations 494 565 688 325 403
-----------------------------------------------------
Balance at end of period $2,645 2,740 2,962 3,439 3,159
=====================================================
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.13% 0.17% 0.26% 0.01% 0.01%
=====================================================
Ratio of net charge-offs during
the period to average
non-performing assets 16.67% 20.74% 24.22% 0.94% 1.04%
=====================================================
</TABLE>
When the Bank repossesses mortgaged property it is thereafter classified as
real estate owned. Any gains or losses (realized or reserved for)
thereafter are treated as real estate owned activity, not mortgage loan
activity. At June 30, 1999, the Bank's real estate owned totaled $97,000.
The distribution of the Bank's allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four -family $ 829 71.70% $ 923 71.65% $1,283 73.59% $1,547 73.64% $1,093 74.45%
Multi-family 20 3.33% 19 3.17% 28 3.44% 88 3.51% 53 3.65%
Commercial real estate 676 7.21% 351 5.79% 444 6.53% 773 6.39% 1,704 6.82%
Construction or development 82 6.01% 15 4.85% 45 4.88% 125 4.99% 72 4.94%
Consumer 739 11.75% 1,201 14.54% 787 11.56% 518 11.47% 237 10.14%
Unallocated 299 - 231 - 375 - 388 - - -
-------------------------------------------------------------------------------------------
Total $2,645 100.00% $2,740 100.00% $2,962 100.00% $3,439 100.00% $3,159 100.00%
===========================================================================================
</TABLE>
Investment Activities
First Federal's investment policy is designed to provide a required level of
liquidity and minimize potential losses due to interest rate fluctuations
without incurring undue credit risk. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. The Bank has maintained
liquid assets at levels above the minimum requirements imposed by the OTS
regulations and above levels believed adequate to meet the requirements of
normal operations, including potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that adequate
liquidity is maintained. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability Management"
and "- Liquidity and Cash Flows" in the Annual Report to Stockholders
included as Exhibit 13 herein and "Regulation - Liquidity."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers'
acceptances, repurchase agreements and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.
Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based on asset/liability
management policies, concern for the highest investment quality, liquidity
needs and performance objectives. The Company's investments generally
include U.S. Government securities, federal agency obligations, including
mortgage-backed securities, municipal securities and trust preferred
securities.
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments
on which are passed from the mortgage originators through intermediaries
(generally U.S. Government agencies and government sponsored enterprises)
that pool and repackage the participation interest in the form of securities
to investors such as the Company. The underlying pool of mortgages can be
composed of either fixed-rate or ARM loans. As a result, the interest rate
risk characteristics of the underlying pool of mortgages, as well as
prepayment risk, are passed on to the certificate holder. Mortgage-backed
securities generally yield less than the loans that underlie such securities
due to the cost of payment guarantees or credit enhancements that reduce
credit risk to holders. Mortgage-backed securities are also more liquid
than individual mortgage loans and may be used to collateralize obligations
of the Company. While mortgage-backed securities carry a reduced credit
risk as compared to whole loans, such securities remain subject to the risk
that a fluctuating interest rate environment, along with other factors such
as the geographic distribution of the underlying mortgage loans, may alter
the prepayment rate of such mortgage loans and thereby affect both the
prepayment speed, and value, of such securities. All of the Company's
mortgage-backed securities are available for sale and consist of securities
issued or guaranteed by the Fannie Mae, Freddie Mac and Ginnie Mae. At June
30, 1999, $72.2 million, or 38% of the securities portfolio consisted of
mortgage-backed securities.
The Company has invested a percentage of its securities portfolio in Federal
agency obligations in an attempt to obtain the highest yield possible while
maintaining the flexibility and low credit risk connected with such
investments. Since 1990, the Federal Home Loan Banks (FHLBs), Fannie Mae
and Freddie Mac have offered callable bonds, issued at a yield premium over
U.S. Treasury obligations of a comparable final maturity. The call risk is
considered acceptable to the Company because it provides a higher yield.
The call option would typically be exercised during a declining interest
rate environment, during which time the Company's cost of funds would also
be declining. At June 30, 1999, $33.6 million, or 18% of the securities
portfolio consisted of Federal agency obligations.
Over the past year, the Company has increased its investment in municipal
securities in an attempt to obtain reasonable returns and reduce the
Company's effective tax rate. At June 30, 1999, the Company's tax
equivalent yield on the municipal securities portfolio was 6.72%. For the
year ended June 30, 1999, the Company's effective tax rate was 33.17%
compared to 34.92% for the year ended June 30, 1998, due in part to the
increased investment in municipal securities. At June 30, 1999, municipal
securities totaled $45.0 million, or 24%, of the Company's securities
portfolio, compared to $21.0 million, or 15% of the securities portfolio at
June 30, 1998.
The following table sets forth the composition of the consolidated debt,
equity and other securities, and FHLB stock portfolios at June 30, 1999,
1998 and 1997.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. government securities $ - - $ - - $ 2,005 1.73%
Federal agency obligations(1) 33,957 17.03% 35,049 24.33% 24,975 21.54%
Mortgage-backed securities 74,454 37.33% 81,580 56.63% 75,718 65.29%
State, county and municipal securities 46,707 23.42% 20,778 14.42% 7,416 6.40%
Trust preferred securities 24,581 12.33% - - - -
Asset-backed SLMA's 11,494 5.76% - - - -
Equity securities 1,799 0.90% 637 0.44% 753 0.65%
Other securities 1,602 0.80% 1,517 1.05% 1,000 0.86%
FHLB stock 4,841 2.43% 4,512 3.13% 4,095 3.53%
----------------------------------------------------------------
Total securities and FHLB stock $199,435 100.00% $144,073 100.00% $115,962 100.00%
================================================================
Average remaining life of debt securities 10.57 years 4.66 years 4.72 years
Other interest-earning assets:
Interest-bearing deposits with banks $ 5,245 85.84% $ 5,713 100.00% $ 6,216 97.49%
Short-term investments 865 14.16% - - 160 2.51%
----------------------------------------------------------------
Total $ 6,110 100.00% $ 5,713 100.00% $ 6,376 100.00%
================================================================
Average remaining life or term to
repricing of debt securities and
other interest-earning assets 10.24 years 4.47 years 4.47 years
___________________
<FN>
<F1> Excluding mortgage-backed securities which include Fannie Mae,
Freddie Mac and Ginnie Mae pass-through certificates.
</FN>
</TABLE>
The composition and contractual maturities of the consolidated debt and
other securities portfolios, excluding equity securities and FHLB of
Cincinnati stock, are indicated in the following table.
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------------------------------------
Over Over
One Year 1 thru 5 5 thru 10 Over Total Debt and Other
or Less Years Years 10 Years Securities
-------- -------- --------- -------- --------------------
Book Book Book Book Book Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Federal agency obligations $10,000 17,975 3,982 2,000 33,957 33,644
Mortgage-backed securities - 1,352 8,799 64,303 74,454 72,199
State, county and municipal
securities 160 1,383 19,908 25,256 46,707 44,976
Trust preferred securities - - - 24,581 24,581 24,209
Asset-backed SLMA's - - - 11,494 11,494 11,467
Other - - - 1,602 1,602 1,565
----------------------------------------------------------------------
Total debt and other securities $10,160 20,710 32,689 129,236 192,795 188,060
======================================================================
Weighted average yield(1) 6.41% 6.13% 6.14% 6.38% 6.31%
=========================================================
___________________
<FN>
<F1> Weighted average yield is presented for debt securities only on a
fully taxable equivalent basis using the Company's federal statutory
tax rate of 34%.
</FN>
</TABLE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, maturities, sales and principal
receipts of securities, borrowings, repurchase agreements and operations.
The Bank also has access to advances from the Federal Home Loan Bank (FHLB)
of Cincinnati. Contractual loan payments are a relatively stable source of
funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general market interest rates and economic
conditions. Borrowings may be used on a short-term basis for liquidity
purposes or on a long-term basis to fund asset growth. The Company utilizes
advances from the FHLB of Cincinnati as a source for borrowings. Refer to
Note 7 of the Notes to Consolidated Financial Statements in the Annual
Report to Stockholders included as Exhibit 13 herein for a detail of
advances from the FHLB of Cincinnati.
Deposits. First Federal offers a variety of deposit accounts having a range
of interest rates and terms. The Bank's deposits consist of passbook and
statement savings accounts, NOW and demand accounts (including business
checking and non-interest bearing checking accounts), money market and
certificate accounts. The Bank relies primarily on advertising, competitive
pricing policies, promotions and customer service to attract and retain
these deposits. Management believes the Bank is competitive in the types of
accounts and interest rates it has offered on its deposit products.
Management regularly evaluates the internal cost of funds, surveys rates
offered by the Bank's competitors, review the Company's cash flow
requirements for lending and liquidity and executes rate changes when
necessary as part of its asset/liability management, profitability and
growth objectives. First Federal generally solicits deposits from its
market area.
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank for the dates
indicated and the rates offered as of June 30, 1999. See Note 5 of the
Notes to Consolidated Financial Statements in the Annual Report to
Stockholders included as Exhibit 13 herein for weighted average nominal
rates.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction and Savings Deposits:
Passbook and statement savings
accounts 2.25% $ 92,719 20.27% $ 93,276 21.01% $107,575 23.89%
NOW and demand
accounts 0.00% - 1.74% 36,678 8.02% 34,382 7.74% 31,236 6.94%
Money market
accounts 0.00% - 4.41% 39,448 8.63% 28,059 6.32% 22,822 5.07%
--------------------------------------------------------------------------
Total non-certificates 168,845 36.92% 155,717 35.07% 161,633 35.90%
--------------------------------------------------------------------------
Total Certificates:
3.00% - 3.99% 22,172 4.85% - - - -
4.00% - 4.99% 44,801 9.79% 29,484 6.64% 8,809 1.96%
5.00% - 5.99% 44,646 31.63% 141,125 31.78% 146,339 32.50%
6.00% - 6.99% 69,209 15.13% 109,895 24.75% 124,649 27.69%
7.00% - 7.99% 7,670 1.68% 7,796 1.76% 8,794 1.95%
--------------------------------------------------------------------------
Total certificates 288,498 63.08% 288,300 64.93% 288,591 64.10%
--------------------------------------------------------------------------
Total deposits $457,343 100.00% $444,017 100.00% $450,224 100.00%
==========================================================================
</TABLE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance $444,017 450,224 456,541
Net withdrawals (5,859) (27,340) (28,006)
Interest credited 19,185 21,133 21,689
----------------------------------
Ending balance $457,343 444,017 450,224
==================================
Net increase (decrease) $ 13,326 (6,207) (6,317)
==================================
Percent increase (decrease) 3.00% -1.38% -1.38%
==================================
</TABLE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of June 30, 1999.
<TABLE>
<CAPTION>
0.00% - 4.00% - 5.00% - 6.00% - 7.00% - Percent
3.99% 4.99% 5.99% 6.99% 7.99% Total of Total
------- ------- ------- ------- ------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts maturing
in quarter ending:
September 30, 1999 $15,378 7,145 41,581 13,713 3,832 81,649 28.3%
December 31, 1999 6,794 6,488 32,198 8,657 60 54,197 18.8%
March 31, 2000 - 10,569 8,060 8,324 2,337 29,290 10.1%
June 30, 2000 - 6,495 10,998 6,367 815 24,675 8.6%
September 30, 2000 - 1,568 5,819 4,489 - 11,876 4.1%
December 31, 2000 - 2,269 3,375 2,245 - 7,889 2.7%
March 31, 2001 - - 20,822 1,082 - 21,904 7.5%
June 30, 2001 - 2,875 9,507 1,140 - 13,522 4.7%
September 30, 2001 - 1,117 2,853 303 50 4,323 1.5%
December 31, 2002 - 983 554 3,288 576 5,401 1.9%
March 31, 2002 - 989 128 4,548 - 5,665 2.0%
June 30, 2002 - 1,248 177 6,383 - 7,808 2.7%
September 30, 2002 - 6 - 4,785 - 4,791 1.7%
Thereafter - 3,049 8,574 3,885 - 15,508 5.4%
-------------------------------------------------------------------------------
Total $22,172 44,801 144,646 69,209 7,670 288,498 100.0%
===============================================================================
Percent of total 7.7% 15.5% 50.1% 24.0% 2.7% 100.0%
====================================================================
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1999.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
-------- ------ ------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000 $71,234 46,190 42,469 80,847 240,740
Certificates of deposit greater than
or equal to $100,000 10,415 8,007 11,496 17,840 47,758
--------------------------------------------------------
Total certificates of deposit $81,649 54,197 53,965 98,687 288,498
========================================================
</TABLE>
Subsidiary and Other Activities
First Federal and FFY Holdings, Inc. are wholly-owned subsidiaries of FFYF.
First Federal has one wholly-owned subsidiary - Ardent Service Corporation
(Ardent), which was formed on July 16, 1997 for the purpose of being a 50%
owner of Hedgerows Development, Ltd., a limited liability company formed for
the purpose of constructing, marketing and selling residential condominium
units. Through the June 30, 1999, two condominium units have been sold and
construction of six others are virtually complete and are for sale. FFY
Holdings, Inc. has a two-thirds controlling interest in Daniel W. Landers
Insurance, Ltd. (Landers) and a one-third interest in Coldwell Banker FFY
Real Estate (CBFFY). Landers offers property and casualty insurance and
CBFFY offers real estate services.
Competition
The Company's primary business, through First Federal, of originating loans
and attracting deposits is highly competitive. First Federal competes
actively with other savings and loan associations, commercial banks, credit
unions, mortgage bankers and other financial service entities. The primary
factors in competing for loans are interest rates, loan fees, timing and
quality of service. The primary factors in competing for deposits are
interest rates, customer service and convenience of office locations.
Employees
At August 31, 1999, the Bank had a total of 219 employees, including 63
part-time employees. The Bank's employees are not represented by any
collective bargaining group. Management considers its employee relations to
be good.
Regulation
General. First Federal is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of
the United States Government. Accordingly, First Federal is subject to
broad federal regulation and oversight extending to all of its operations.
First Federal is a member of the Federal Home Loan Bank of Cincinnati and is
subject to certain limited regulation by the Board of Governors of the
Federal Reserve System (Federal Reserve Board). First Federal is a member
of the Savings Association Insurance Fund (SAIF) and the deposits of First
Federal are insured by the FDIC. As a result, the FDIC has certain
regulatory and examination authority over First Federal. Certain of these
regulatory requirements and restrictions are discussed below or elsewhere in
this document.
FFYF, as a savings and loan holding company within the meaning of the Home
Owners Loan Act (HOLA), is subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and
loan holding company, the Bank is subject to certain restrictions in its
dealings with FFYF.
Regulation of Federal Savings Banks. The OTS, as the Bank's primary federal
regulator and chartering authority, and the FDIC, as the insurer of its
deposits, have extensive authority over the operations of savings
associations. As part of this authority, First Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the
OTS and the FDIC. The last regular OTS examinations of First Federal were
as of June 30, 1998 for safety and soundness and April 30, 1997 for
compliance. The last FDIC examination of First Federal was as of June 30,
1990. Under agency scheduling guidelines, it is likely that another
examination by the OTS or the FDIC will be initiated in the near future.
All savings associations are subject to a semi-annual assessment, based upon
the savings association's total assets, to fund the operations of the OTS.
First Federal's OTS assessment for the fiscal year ended June 30, 1999 was
$130,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including First Federal and FFYF.
This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders
and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the
OTS. Except under certain circumstances, public disclosure of final
enforcement actions by the OTS and the FDIC is required.
In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws and regulations, and it is prohibited
from engaging in any activities not permitted by such laws and regulations.
For instance, no savings institution may invest in non-investment grade
corporate debt securities not rated in one of the four highest rating
categories by a nationally recognized rating organization. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of the institution's
regulatory capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. First
Federal is in compliance with the noted restrictions.
First Federal's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and
surplus). At June 30, 1999, First Federal's lending limit under this
restriction was $7.7 million. First Federal is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on matters such as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to
comply with an approved plan will subject the institution to further
enforcement action.
Insurance of Accounts and Regulation by the FDIC. First Federal is a member
of the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits under the SAIF of the FDIC. The FDIC regulations assign
institutions to a particular capital group based on the level of an
institution's capital - "well capitalized", "adequately capitalized" or
"undercapitalized". These three groups are then divided into three
subgroups reflecting varying levels of supervisory concern, from those
institutions considered to be healthy to those which are considered to be of
substantial supervisory concern. The result is nine assessment risk
classifications, with well capitalized, financially sound institutions
paying lower rates than are paid by undercapitalized institutions likely to
pose a risk of loss to the insurance fund absent corrective actions.
Under the Federal Deposit Insurance Act, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC. The Company's management does not
know of any practice, condition or violation that might lead to the
termination of deposit insurance.
Regulatory Capital Requirements. Federally insured savings associations,
such as First Federal, are required to maintain a minimum level of
regulatory capital. Failure to meet minimum capital requirements can
initiate certain mandatory and possible discretionary actions by regulators,
which could have a direct material effect on the Bank's statement of
condition and results of operations. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weights and other factors.
The Bank's capital requirements include tangible capital, core capital and
total risk-based capital. Under the tangible capital requirement, a savings
association must maintain tangible capital in an amount equal to at least
1.5% of adjusted total assets. At June 30, 1999, the Bank had tangible
capital of $51.1 million, or 7.7% of adjusted total assets. Under the core
capital requirement, a savings association must maintain core capital in an
amount equal to at least 3.0% of adjusted total assets. At June 30, 1999,
the Bank had core capital of $53.9 million, or 8.1% of adjusted total
assets. Under the total risk-based capital requirement, a savings
association must maintain core capital equal to at least 4.0% of risk-
weighted assets and total capital equal to at least 8.0% of risk-weighted
assets. At June 30, 1999, the Bank had total risk-based capital of $56.0
million, or 13.9% of risk-weighted assets. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet items,
will be multiplied by a risk weight ranging from 0% to 100% based on the
risk inherent in the type of asset. For example, the OTS has assigned a
risk weight of 50% for prudently underwritten permanent one- to four -family
first lien mortgage loans not more than 90 days delinquent and having a
loan-to-value ratio of not more than 80% at origination unless insured to
such ratio by an insurer approved by Fannie Mae or Freddie Mac. Refer to
Note 8 of the Notes to Consolidated Financial Statements in the Annual
Report to Stockholders included as Exhibit 13 herein regarding compliance
with regulatory capital requirements.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled
institutions. At each successively lower defined capital category, an
institution is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility
in determining how to resolve the problems of the institution. Under the
regulations, an institution shall be deemed to be (i) "well capitalized" if
it has total risk-based capital ratio of 10.0% or more, a Tier-1 risk-based
capital ratio of 6.0% or more, a Tier-1 leverage capital ratio of 5.0% or
more and is not subject to any order or final capital directive to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a
Tier-1 risk-based capital ratio of 4.0% or more, a Tier-1 leverage capital
ratio of 4.0% or more (3.0% under certain circumstances) and does not meet
the definition of "well capitalized"; (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, a Tier-1 risk-based
capital ratio that is less than 4.0% or a Tier-1 leverage capital ratio that
is less than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less
than 6.0%, a Tier-1 risk-based capital ratio that is less than 3.0% or a
Tier-1 leverage capital ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that
is equal to or less than 2.0%. Regulations also specify circumstances under
which a federal banking agency may reclassify a well capitalized institution
as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category. An institution that is
significantly undercapitalized may not be reclassified as critically
undercapitalized. As of June 30, 1998, First Federal believes it qualifies
as a "well capitalized" institution under the prompt corrective action
rules.
Limitations on Dividends and Other Capital Distributions. OTS regulations
impose various restrictions on savings institutions with respect to their
ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged
to the capital account.
Generally, savings institutions, such as the Bank, that before and after the
proposed distribution remain well-capitalized, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus retained net income for the two preceding
years. However, an institution deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the
OTS. The Bank may pay dividends in accordance with this general authority.
Savings institutions proposing to make any capital distribution need not
submit written notice to the OTS prior to such distribution unless they are
a subsidiary of a holding company or would not remain well-capitalized
following the distribution. Savings institutions that do not, or would not
meet their current minimum capital requirements following a proposed capital
distribution or propose to exceed these net income limitations must obtain
OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period based on safety and soundness
concerns.
Liquidity. Refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Cash Flows" contained in
the Annual Report to Stockholders included as Exhibit 13 herein.
Qualified Thrift Lender Test. In order for the Bank to exercise the powers
granted to SAIF-insured institutions and maintain full access to FHLB
advances, it must qualify as a qualified thrift lender (QTL). Under the
HOLA and OTS regulations, a savings institution is required to maintain a
level of qualified thrift investments equal to at least 65% of its portfolio
assets (as defined by statute) on a monthly basis for nine out of 12 months
per calendar year. Qualified thrift investments for purposes of the QTL
test consist primarily of residential mortgages and related investments. As
of June 30, 1999, First Federal met the QTL test and has always met the test
since its effectiveness. At June 30, 1999, First Federal's QTL percentage
was 84.7%.
Community Reinvestment Act. Under the Community Reinvestment Act (CRA),
every FDIC-insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit
needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with the CRA. The
CRA requires the OTS, in connection with the examination of First Federal,
to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as merger or the establishment of a branch, by First
Federal. An unsatisfactory rating may be used as the basis for the denial
of an application by the OTS. The Bank was examined for CRA compliance in
May 1997 and received a rating of "satisfactory".
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on
terms as favorable to the association as transactions with non-affiliates.
In addition, certain of these transactions are restricted to a percentage of
the association's capital. Affiliates of First Federal include FFYF and any
company which is under common control with First Federal. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates. Affiliates do not generally include subsidiaries, however, the
OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions
on loans to such persons and their related interests. Among other things,
such loans must be made on terms substantially the same as for loans to
unaffiliated individuals.
Holding Company Regulation. FFYF is a unitary savings and loan holding
company subject to regulatory oversight by the OTS. As such, FFYF is
required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over FFYF and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be
a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, FFYF generally is not subject
to activity restrictions. If FFYF acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company, and the activities of FFYF and any of its subsidiaries
(other than the Bank or any other SAIF-insured savings association) would
become subject to such restrictions, which generally limit activities to
those related to controlling a savings association, unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If First Federal fails the QTL test, FFYF must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure, FFYF must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are
the activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
FFYF must obtain approval from the OTS before acquiring control of any other
SAIF-insured association. Such acquisitions are generally prohibited if
they result in a multiple savings and loan holding company controlling
savings associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.
Federal Securities Law. The Common Stock of the Company is registered with
the SEC under the Securities Exchange Act of 1934, as amended (Exchange
Act). The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the Exchange Act and
the rules and regulations of the SEC thereunder.
The registration under the Securities Act of the Company's Common Stock does
not cover the resale of such shares. Shares of Common Stock purchased by
persons who are not affiliates of the Company may be resold without
registration. Shares purchased by an affiliate (generally officers,
directors and principal stockholders) of the Company will be subject to the
resale restrictions of Rule 144 under the Securities Act. If the Company
meets the current public information requirements of Rule 144 under the
Securities Act, each affiliate of the Company who complies with the other
conditions of Rule 144 (including those that require the affiliate's sale to
be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed a
limited number of shares in any three-month period.
Federal Reserve System. Regulation D, promulgated by the Federal Reserve
Board, requires all depository institutions to maintain non-interest bearing
reserves at specified levels against their transaction accounts or non-
personal time deposits Checking accounts, NOW accounts and certain other
types of accounts that permit payments or transfers to third parties fall
within the definition of transaction accounts and are subject to Regulation
D reserve requirements, as are any non-personal time deposits including
certain money market deposit accounts. As of June 30, 1999, the Bank was in
compliance with these reserve requirements.
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds,
including FHLB borrowings, before borrowing from the Federal Reserve Bank.
The Bank had no discount window borrowings as of June 30, 1999.
Federal Home Loan Bank System. First Federal is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs, that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the board of
directors of the FHLB. These policies and procedures are subject to the
regulation and oversight of the Federal Housing Finance Board. All advances
from the FHLB are required to be fully secured by sufficient collateral as
determined by the FHLB.
As a member, First Federal is required to purchase and maintain stock in the
FHLB of Cincinnati. At June 30, 1999, First Federal had $4.8 million in
FHLB stock which was in compliance with this requirement. In past years,
First Federal has received substantial dividends on its FHLB stock. For the
year ended June 30, 1999, dividends earned on FHLB of Cincinnati stock by
First Federal totaled $333,000 which represented a $21,000 increase from the
amount of dividends earned in fiscal year 1998.
Under federal law the FHLBs are required to provide funds for the resolution
of troubled savings associations and to contribute to low- and moderately
priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income
housing projects. These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future. These
contributions could also have an adverse effect on the value of FHLB stock
in the future. A reduction in value of First Federal's FHLB stock may
result in a corresponding reduction in First Federal's capital.
Federal Taxation. The following discussion of tax matters is intended to be
a summary of the material tax rules applicable to the Company and does not
purport to be a comprehensive description of all applicable tax rules.
Certain 1996 tax legislation significantly affected thrift institutions such
as the Bank regarding bad debt provisions. Large thrifts, such as the Bank,
were required to switch to the specific charge-off method of Section 166
while small thrifts switched to the reserve method of Section 585 (the
method used by small commercial banks). For the Bank and other large
thrifts, charge-offs are deducted and recoveries are taken into taxable
income as incurred. The legislation eliminated the percentage of taxable
income method for computing additions to the thrift tax bad debt reserves
for tax years beginning after December 31, 1995 which affected the Bank
beginning in fiscal year ended June 30, 1997. The legislation also required
that thrift institutions such as the Bank recapture all or a portion of
their tax bad debt reserves added since the base year. For the Bank, the
base year is June 30, 1988 and the tax bad debt reserves added since that
date were $3.4 million. Beginning in fiscal year 1997, the Bank was
required to recapture the $3.4 million ratably over a six year period.
However, the Bank qualified for a two year postponement due to meeting a
minimum mortgage lending requirement. Recapture began in fiscal year 1999.
As the Bank has previously provided deferred taxes on the recapture amounts,
no additional financial statement tax expense will result from the
recapture.
The base year reserves and the supplemental reserve are not forgiven. These
reserves continue to be subject to the section 593(e) recapture penalty and
are treated as a section 381(c) attribute for purposes of certain corporate
acquisitions. There are other ancillary provisions affected by the repeal
of section 593, most notably the repeal of section 595 which provided
thrifts with special treatment on foreclosure of property securing loans.
Section 595 is repealed for property acquired in taxable years beginning
after December 31, 1995.
Under section 593(e), earnings appropriated for bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay
cash dividends or distributions to the Company without the Bank including
the amount in taxable income, together with an amount deemed necessary to
pay the resulting income tax. Thus, any dividends to the Company that would
reduce amounts appropriated to the Bank's bad debt reserves and deducted for
federal income tax purposes could create a tax liability for the Bank. The
Bank does not intend to pay dividends that would result in a recapture of
its bad debt reserves.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's
regular taxable income (with certain adjustments) and tax preference items,
less any available exemption. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax.
The Company files a consolidated federal income tax return on a fiscal year
basis using the accrual method. Entities included in the consolidated tax
return are FFYF, FFY Holdings, Inc., the Bank and the Bank's subsidiary,
Ardent Service Corp.
The Bank has been audited by the Internal Revenue Service with respect to
federal income tax returns through tax year 1991 and has federal income tax
returns which are open and subject to audit for the tax years 1996 through
1998. With respect to years examined by the IRS, all deficiencies have been
satisfied. In the opinion of management, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of the Company.
For additional information regarding federal taxation, see Note 11 of the
Notes to the Consolidated Financial Statements in the Annual Report to
Stockholders included as Exhibit 13 herein.
Ohio Taxation. As a federally chartered savings bank, the Bank is subject
to an Ohio franchise tax based on its net worth plus certain reserve
amounts. Total net worth for this purpose is reduced by certain exempted
assets. The resultant net worth was taxed at a rate of 1.4% for the 1999
return, which was based on net worth as of June 30, 1998. For the 2000
return and thereafter, the tax rate for financial institutions such as the
Bank will be 1.3% of its net worth plus certain reserve amounts. The Bank's
state franchise tax returns are open and subject to audit for the years 1996
through 1999.
FFYF is subject to the Ohio franchise tax for regular corporations. For its
1999 Ohio franchise tax return, FFYF has elected to be taxed as a qualifying
holding company since it met certain requirements. A qualifying holding
company is exempt from the net worth basis of Ohio franchise tax and is
subject to tax on the net income basis. The rates imposed on FFYF's 1999
Ohio franchise tax return were 5.1% on the first $50,000 of Ohio taxable
income and 8.5% of Ohio taxable income in excess of $50,000. A special
litter tax is also applicable to corporations, such as FFYF, paying tax on
the net income basis. The litter tax is equal to 0.11% of the first $50,000
of Ohio taxable income and 0.22% of Ohio taxable income in excess of
$50,000. FFYF's state franchise tax returns are open and subject to audit
for the years 1996 through 1999.
Delaware Taxation. As a Delaware holding company, FFYF is exempted from
Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware. FFYF is also subject to an
annual franchise tax imposed by the State of Delaware.
Executive Officers of the Company and the Bank
The following table sets forth certain information regarding executive
officers of FFYF and the Bank at June 30, 1999 who are not also directors.
<TABLE>
<CAPTION>
Age at
Name June 30, 1999 Positions Held with Bank and FFYF
---- ------------- ---------------------------------
<S> <C> <C>
Therese Ann Liutkus 40 Treasurer and CFO of the Bank
and FFYF
David S. Hinkle 41 Vice President of the Bank
Mark S. Makoski 49 Vice President of the Bank
J. Craig Carr 51 Vice President, General Counsel
and Secretary of the Bank and FFYF
</TABLE>
The business experience of the executive officers who are not also not
directors is set forth below.
Therese Ann Liutkus - Ms. Liutkus has served as Treasurer of the Bank and
FFYF since January 1996 and March 1996, respectively, as well as Chief
Financial Officer of the Bank and FFYF since October 1996. Ms. Liutkus has
also served as Treasurer of FFY Holdings, Inc. since September 1997. Ms.
Liutkus is responsible for the activities of the securities portfolio and
oversees the accounting functions. After joining the Bank in 1986, Ms.
Liutkus has served as the Bank's Internal Auditor through 1989, and served
as Accounting Manager of the Bank from 1990 to 1995. She earned a BBA
degree in accounting from Cleveland State University, is a Certified Public
Accountant and member of both the American Institute of CPAs and Ohio
Society of CPAs.
David S. Hinkle - Mr. Hinkle has served as Vice President of the Bank since
January 1996. Mr. Hinkle is responsible for overall Bank operations
including information systems (including Year 2000 compliance), check
processing facilities management, purchasing and courier services. He began
his career with the Bank in 1979 as a member of the data processing
department and was appointed an Assistant Treasurer in 1982. He earned a
Bachelor of Science degree in Management in 1981 from Youngstown State
University. Mr. Hinkle is a member of the Board of Directors for Humility
of Mary Information Systems.
Mark S. Makoski - Mr. Makoski has served as Vice President of the Bank since
January 1996. Mr. Makoski is responsible for marketing, sales and deposits
of the Bank. He has served in various capacities since joining the Bank in
1982, including Internal Auditor from 1982 through 1986, Assistant
Treasurer from 1987 through 1991 and Assistant Vice President from 1992
through 1995. He earned a Bachelor of Science degree in Business
Administration from Milligan College in Tennessee. Mr. Makoski is a member
of the Canfield Fair Board, Mahoning County Securities Officers Group and
Austintown Rotary.
J. Craig Carr - Mr. Carr has served as Secretary of the Bank and FFYF since
January 1999, Vice President of the Bank and FFYF since July 1997, Assistant
Vice President of the Bank from 1991 to June 1997 and General Counsel since
joining the Bank in 1974. Mr. Carr has also served as Vice President of FFY
Holdings and Ardent Service Corp. since September 1997. Mr. Carr conducts
the general legal work of the Bank, supervises the in-house title department
and advises and counsels all officers and departments. He earned a Bachelor
of Arts degree in Political Science from Miami University of Ohio and Juris
Doctor Degree from Ohio State University College of Law. Mr. Carr is a
member of the Ohio State and Mahoning County Bar Associations.
Item 2. Properties
The Bank owns its main office building. At June 30, 1999, the Bank owned
six of its branch offices and the remaining seven branch offices, including
three limited service facilities, were leased. As of June 30, 1999, the net
book value of the Bank's investment in premises, equipment and leaseholds,
excluding computer equipment and software, was approximately $6.3 million.
The Company's accounting and record keeping activities are maintained on an
in-house data processing system. The Company owns data processing equipment
it uses for its internal processing needs. The net book value of such data
processing equipment and related software, including the new comprehensive
software system to run the core banking operation (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Year 2000" contained in the Annual Report to Shareholders included as
Exhibit 13 herein) was $942,000 at June 30, 1999.
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Company in the
proceedings, that the resolution of these proceedings should not have a
material effect on the Company's results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30,
1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information under the caption "Market Prices and Dividends Declared" on
page 18 of the 1999 Annual Report to Stockholders which portions attached
hereto as Exhibit 13 is herein incorporated by reference.
Item 6. Selected Financial Data
Pages 4 through 6 of the 1999 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 7 through 19 of the 1999 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Pages 16 and 17 of the 1999 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
Pages 20 through 42 of the 1999 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of FFYF and the Bank
Information regarding the executive officers of FFYF and the Bank who are
not directors is contained in Part I of this Form 10-K and incorporated
herein by reference.
Directors of FFYF and the Bank
Information concerning Directors of FFYF and the Bank is incorporated
herein by reference from the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 1999, a copy of which has been filed
with the Securities and Exchange Commission.
Section 16(a) Beneficial Ownership Reporting Compliance
Information concerning compliance with the reporting requirements of Section
16(a) of the Securities and Exchange Act of 1934 by the Company's directors,
officers and greater than 10% beneficial owners is incorporated herein by
reference from the definitive proxy statement for the Annual Meeting of
Stockholders to be held in 1999, a copy of which has been filed with the
Securities and Exchange Commission.
Under the federal securities laws, Company directors, certain officers and
10% shareholders are required to report to the Securities and Exchange
Commission, by specific due dates, transactions and holdings in the Company
stock. The Company believes that during fiscal year 1999, all of these
filing requirements were satisfied, except for the inadvertent failure to
timely report on Form 4 an option exercise by Director and Vice President
Randy Shaffer. A Form 4 was subsequently filed by Director Shaffer.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1999, a copy of which has been filed with the
Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1999, a copy
of which has been filed with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1999, a copy of which has been
filed with the Securities and Exchange Commission.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The following information appearing in the Company's Annual Report to
Stockholders for the year ended June 30, 1999, is incorporated by reference
in this Annual Report on Form 10-K as Exhibit 13.
Pages in
Annual Report Section Annual Report
- --------------------- -------------
Selected Financial Data and Other Data 4 - 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 19
Common Stock and Related Information 18
Consolidated Statements of Financial Condition as of
June 30, 1999 and 1998 20
Consolidated Statements of Income for Years Ended
June 30, 1999, 1998 and 1997 21
Consolidated Statements of Changes in Stockholders'
Equity for Years Ended June 30, 1999, 1998 and 1997 22 - 23
Consolidated Statements of Cash Flows for Years Ended
June 30, 1999, 1998 and 1997 24
Notes to Consolidated Financial Statements 25 - 41
Independent Auditors' Report 42
With the exception of the aforementioned information, the Company's Annual
Report to Stockholders for the year ended June 30, 1999 is not deemed filed
as part of this Annual Report on Form 10-K.
(a) (2) Financial Statement Schedules
All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Consolidated
Financial Statements.
(a) (3) Exhibits
<TABLE>
<CAPTION>
Reference to
Prior Filing
or Exhibit
Regulation Number
S-K Exhibit Attached
Number Document Herein
- ----------- -------- ------------
<C> <S> <C>
2 Plan of acquisition, reorganization,
arrangement, liquidation or succession None
3(i) Articles of Incorporation *
3(ii) By-Laws 3(ii)
4 Instruments defining the rights of
security holders, including indentures *
9 Voting trust agreement None
10 Material contracts
Executive Compensation Plans and
Arrangements *
Employment Contracts 10(i) - 10(iv)
Recognition and Retention Plan and
Trust Stock Option and Incentive Plan *
11 Statement re: computation of per share
Earnings None
12 Statement re: computation of ratios Not required
13 Annual Report to security holders 13
16 Letter re: change in certifying
Accountant None
18 Letter re: change in accounting
Principles None
21 Subsidiaries of registrant 21
22 Published report regarding matters
submitted to vote of security holders None
23 Consents of experts and counsel 23
24 Power of attorney Not required
27 Financial Data Schedule 27
99 Additional Exhibits - predecessor
accountants' independent auditors' report None
___________________
<FN>
<F*> Filed as exhibits to the Corporation's Form S-1 registration statement
filed on March 12, 1993 (File No. 33-59482) pursuant to Section 5 of
the Securities Act of 1933, as amended. All of such previously filed
documents are hereby incorporated herein by reference in accordance
with Item 601 of Regulation S-K.
</FN>
</TABLE>
(b) Reports on Form 8-K
During the quarter ended on June 30, 1999, the Company filed a report on
Form 8-K on April 21, 1999 announcing third quarter earnings and the regular
quarterly dividend.
SIGNATURES
Pursuant to the requirements of Section 15(d) 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.
FFY Financial Corp.
By: /s/ Jeffrey L. Francis
Jeffrey L. Francis, President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Jeffrey L. Francis /s/ Therese Ann Liutkus
- ----------------------------------- ------------------------------------
Jeffrey L. Francis, President, Therese Ann Liutkus, Treasurer
Chief Executive Officer and and CFO (Principal Financial
Director (Principal Executive and Accounting Officer)
and Operating Officer) Date: September 27, 1999
Date: September 27, 1999
/s/ Randy Shaffer /s/ Myron S. Roh
- ----------------------------------- ------------------------------------
Randy Shaffer, Vice President Myron S. Roh, Chairman of the
and Director Board and Director
Date: September 27, 1999 Date: September 27, 1999
/s/ A. Gary Bitonte /s/ Marie Izzo Cartwright
- ----------------------------------- ------------------------------------
A. Gary Bitonte, Director Marie Izzo Cartwright, Director
Date: September 27, 1999 Date: September 27, 1999
/s/ Henry P. Nemenz /s/ W. Terry Patrick
- ----------------------------------- ------------------------------------
Henry P. Nemenz, Director W. Terry Patrick, Director
Date: September 27, 1999 Date: September 27, 1999
/s/ William A. Russell /s/ Ronald P. Volpe
- ----------------------------------- ------------------------------------
William A. Russell, Director Ronald P. Volpe, Director
Date: September 27, 1999 Date: September 27, 1999
/s/ Robert L. Wagmiller
- -----------------------------------
Robert L. Wagmiller, Director
Date: September 27, 1999
AMENDED AND RESTATED BYLAWS
OF
FFY FINANCIAL CORP.
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
---------------
An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such
place, on such date, and at such time as the Board of Directors shall each
year fix.
Section 2. Special Meetings.
-----------------
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
-------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to
time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and
time thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally
noticed, or if a new record date is fixed for the adjourned meeting, written
notice of the place, date and time of the adjourned meeting shall be given
in conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 4. Quorum.
-------
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present
in person or by proxy, shall constitute a quorum for all purposes, unless or
except to the extent that the presence of a larger number may be required by
law. Where a separate vote by a class or classes is required, a majority of
the shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held
with those present constituting a quorum, then except as otherwise required
by law, those present at such adjourned meeting shall constitute a quorum,
and all matters shall be determined by a majority of the votes cast at such
meeting.
Section 5. Organization.
-------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting.
In the absence of the Secretary of the Corporation, the secretary of the
meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------------------
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of discussion as
seem to him or her in order.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting
(i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation who is entitled to vote with respect thereto
and who complies with the notice procedures set forth in this Section 6(b).
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered or mailed to and received at the principal
executive offices of the Corporation not less than sixty (60) days prior to
the anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more
than twenty days, or delayed by more than sixty days from such anniversary
date, notice by the stockholder to be timely must be so delivered not later
than the close of business on the later of the sixtieth day prior to such
annual meeting or the tenth day following the day on which notice of the
date of the annual meeting was mailed or public announcement of the date of
such meeting is first made. A stockholder's notice to the Secretary shall
set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder who proposed such business, (iii)
the class and number of shares of the Corporation's capital stock that are
beneficially owned by such stockholder and (iv) any material interest of
such stockholder in such business. Notwithstanding anything in these By-
laws to the contrary, no business shall be brought before or conducted at an
annual meeting except in accordance with the provisions of this Section
6(b). The officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at
the direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of stockholders at which directors
are to be elected only (i) by or at the direction of the Board of Directors
or (ii) by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures
set forth in this Section 6(c). Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made by timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered or mailed to and received at the
principal executive offices of the Corporation not less than 60 days prior
to the date of the meeting; provided, however, that in the event that less
than 70 days' notice of the date of the meeting is first given or made to
stockholders by public announcement or mail, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was
mailed or public announcement was first made. Such stockholder's notice
shall set forth (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a director, all information relating
to such person that is required to be disclosed in solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as
to the stockholder giving the notice: (x) the name and address, as they
appear on the Corporation's books, of such stockholder and (y) the class and
number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder. At the request of the Board of Directors, any
person nominated by the Board of Directors for election as a director shall
furnish to the Secretary of the Corporation that information required to be
set forth in a stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the provisions of this
Section 6(c). The officer of the Corporation or other person presiding at
the meeting shall, if the facts so warrant, determine that a nomination was
not made in accordance with such provisions and, if he or she should so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting.
-------------------
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure
established for the meeting. Proxies solicited on behalf of the management
shall be voted as directed by the stockholder or in the absence of such
direction, as determined by a majority of the Board of Directors. No proxy
shall be valid after eleven months from the date of its execution except for
a proxy coupled with an interest.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date
for the meeting, except as otherwise provided herein or in the Certificate
of Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by a stockholder entitled to vote or his or her proxy,
a stock vote shall be taken. Every stock vote shall be taken by ballot,
each of which shall state the name of the stockholder or proxy voting and
such other information as may be required under the procedure established
for the meeting. Every vote taken by ballot shall be counted by an
inspector or inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the
votes cast.
Section 8. Stock List.
-----------
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such
list available for such purposes, at such places, at such times and to such
persons as required by applicable law. The stock transfer books shall be
the only evidence as to the identity of the stockholders entitled to examine
the stock transfer books or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
-------------------------------------------
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders.
Section 10. Inspectors of Election
----------------------
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act
at the meeting or any adjournment thereof and make a written report thereof,
in accordance with applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
------------------------------------------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors
shall be as provided for in the Certificate of Incorporation. The Board of
Directors shall annually elect a Chairman of the Board and a President from
among its members and shall designate, when present, either the Chairman of
the Board or the President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided into three classes,
as nearly equal in number as reasonably possible, with the term of office of
the first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the
conclusion of the annual meeting of stockholders one year thereafter and the
term of office of the third class to expire at the conclusion of the annual
meeting of stockholders two years thereafter, with each director to hold
office until his or her successor shall have been duly elected and
qualified. At each annual meeting of stockholders, commencing with the
first annual meeting, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly
elected and qualified.
No person older than seventy (70) years of age shall be eligible for
election as a new member of the board of directors of the Corporation and no
member of the board of directors of the Corporation shall be eligible for
re-election as a director of the Corporation after he or she has attained
seventy (70) years of age, provided, however, that as long as he or she
shall remain actively engaged in his or her major business or professional
occupation, he or she may be re-elected as a director for a term that does
not extend beyond his or her seventy-fifth (75th) birthday. A retiring or
retired president of the Corporation who is serving as a director following
his or her retirement shall be deemed to be actively engaged in business so
as to qualify for re-election under the provision of the preceding sentence.
Section 2. Vacancies and Newly Created Directorships.
------------------------------------------
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the directors then in office, though less than a quorum,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been elected expires, and until such director's successor shall
have been duly elected and qualified. No decrease in the number of
authorized directors constituting the Board shall shorten the term of any
incumbent director.
Section 3. Regular Meetings.
-----------------
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have
been established by the Board of Directors and publicized among all
directors. A notice of each regular meeting shall not be required.
Section 4. Special Meetings.
-----------------
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole
number) or by the President and shall be held at such place, on such date,
and at such time as they or he or she shall fix. Notice of the place, date,
and time of each such special meeting shall be given to each director by
whom it is not waived by mailing written notice not less than five (5) days
before the meeting or by telegraphing or telexing or by facsimile
transmission of the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 5. Quorum.
-------
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum
for all purposes. If a quorum shall fail to attend any meeting, a majority
of those present may adjourn the meeting to another place, date, or time,
without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------------------
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and
all matters shall be determined by the vote of a majority of the directors
present, except as otherwise provided herein or required by law. Action may
be taken by the Board of Directors without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
Section 8. Powers.
-------
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, including, without limiting the generality of
the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance
with law;
(2) To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable
or non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or
without cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power
to appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not
inconsistent with these By-laws, for the management of the Corporation's
business and affairs.
Section 9. Compensation of Directors.
--------------------------
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, their services as members of
committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
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The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with
such lawfully delegable powers and duties as it thereby confers, to serve at
the pleasure of the Board and shall, for those committees and any others
provided for herein, elect a director or directors to serve as the member or
members, designating, if it desires, other directors as alternate members
who may replace any absent or disqualified member at any meeting of the
committee. Any committee so designated may exercise the power and authority
of the Board of Directors to declare a dividend, to authorize the issuance
of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designated the committee or a supplemental resolution of the Board of
Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the
member or members of the committee present at the meeting and not
disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be
made for notice to members of all meetings; one-third (1/3) of the members
shall constitute a quorum unless the committee shall consist of one (1) or
two (2) members, in which event one (1) member shall constitute a quorum;
and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
Section 3. Nominating Committee.
---------------------
The Board of Directors may appoint a Nominating Committee of the
Board, consisting of not less than three (3) members, one of which shall be
the President if, and only so long as, the President remains in office as a
member of the Board of Directors. The Nominating Committee shall have
authority (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section
6(c)(ii) of Article I of these By-laws in order to determine compliance with
such By-law and (b) to recommend to the Whole Board nominees for election to
the Board of Directors to replace those directors whose terms expire at the
annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
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(a) The Board of Directors as soon as may be practicable
after the annual meeting of stockholders shall choose a President, a
Secretary and a Treasurer and from time to time may choose such other
officers as it may deem proper. The President shall be chosen from among
the directors. Any number of offices may be held by the same person.
(b) The term of office of all officers shall be until the
next annual election of officers and until their respective successors are
chosen, but any officer may be removed from office at any time by the
affirmative vote of a majority of the authorized number of directors then
constituting the Board of Directors.
(c) All officers chosen by the Board of Directors shall
each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV. Such
officers shall also have such powers and duties as from time to time may be
conferred by the Board of Directors or by any committee thereof.
Section 2. President.
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The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the
management and oversight of the administration and operation of the
Corporation's business and general supervisory power and authority over its
policies and affairs. He shall see that all orders and resolutions of the
Board of Directors and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall
be presided over by such officer as has been designated by the Board of
Directors or, in his absence, by such officer or other person as is chosen
at the meeting. The Secretary or, in his absence, the General Counsel of
the Corporation or such officer as has been designated by the Board of
Directors or, in his absence, such officer or other person as is chosen by
the person presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
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The Vice President or Vice Presidents, if any, shall perform the
duties of the President in his absence or during his disability to act. In
addition, the Vice Presidents shall perform the duties and exercise the
powers usually incident to their respective offices and/or such other duties
and powers as may be properly assigned to them from time to time by the
Board of Directors, the Chairman of the Board or the President.
Section 4. Secretary.
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The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other
powers as are usually incident to such offices and/or such other duties and
powers as are properly assigned thereto by the Board of Directors, the
Chairman of the Board or the President.
Section 5. Treasurer.
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The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the
Corporation which has a treasurer or financial officer appointed by the
Board of Directors, and shall keep regular books of account. The funds of
the Corporation shall be deposited in the name of the Corporation by the
Treasurer with such banks or trust companies or other entities as the Board
of Directors from time to time shall designate. He shall sign or
countersign such instruments as require his signature, shall perform all
such duties and have all such powers as are usually incident to such office
and/or such other duties and powers as are properly assigned to him by the
Board of Directors, the Chairman of the Board or the President, and may be
required to give bond, payable by the Corporation, for the faithful
performance of his duties in such sum and with such surety as may be
required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
-----------------------------------------
The Board of Directors may appoint one or more assistant secretaries
and one or more assistants to the Treasurer, or one appointee to both such
positions, which officers shall have such powers and shall perform such
duties as are provided in these By-laws or as may be assigned to them by the
Board of Directors, the Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations
-------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power
to vote and otherwise act on behalf of the Corporation, in person or by
proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which
this Corporation may possess by reason of its ownership of securities in
such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
----------------------
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all
of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
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Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where
a certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is issued
therefore.
Section 3. Record Date.
------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive
payment of any dividend or other distribution or allotment of any rights or
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date on which
the resolution fixing the record date is adopted and which record date shall
not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time
for such other action as hereinbefore described; provided, however, that if
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held,
and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any
rights of change, conversion or exchange of stock or for any other purpose,
the record date shall be at the close of business on the day on which the
Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
---------------------------------------
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as
the Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
------------
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors
may establish.
ARTICLE VI
NOTICES
Section 1. Notices.
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Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing
such notice in the mail, postage paid, by sending such notice by prepaid
telegram or mailgram or by sending such notice by facsimile machine or other
electronic transmission. Any such notice shall be addressed to such
stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when
such notice is received, if hand delivered, or dispatched, if delivered
through the mail, by telegram or mailgram or by facsimile machine or other
electronic transmission, shall be the time of the giving of the notice.
Section 2. Waivers.
--------
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event
for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or
agent. Neither the business nor the purpose of any meeting need be
specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
---------------------
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these By-laws, facsimile signatures of
any officer or officers of the Corporation may be used whenever and as
authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal.
---------------
The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary.
If and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
-----------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of
his or her duties, be fully protected in relying in good faith upon the
books of account or other records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by
any of its officers or employees, or committees of the Board of Directors so
designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation.
Section 4. Fiscal Year.
------------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
-------------
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that
an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this 29th day of September 1998 (the "Commencement
Date"), by and between First Federal Savings Bank of Youngstown (which,
together with any successor thereto which executes and delivers the
assumption agreement provided for in Section 5(a) hereof or which otherwise
becomes bound by all of the terms and provisions of this Agreement by
operation of law, is hereinafter referred to as the "Bank"), and J. CRAIG
CARR (the "Executive").
WHEREAS, the Executive is currently serving as Vice President and
General Counsel of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility
of a change in control of the Bank or of its holding company, FFY Financial
Corporation (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in
the departure or distraction of management personnel to the detriment of the
Bank, the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity
of management of the Bank and to reinforce and encourage the continued
attention and dedication of the Executive to the Executive's assigned duties
without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Company and/or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein, it is AGREED as
follows:
1. Certain Definitions.
--------------------
(a) The term "Change in Control" means (i) any "person," as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who
is temporarily holding securities in connection with such offering, any
trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; (ii) individuals who are
members of the Board on the Commencement Date (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the Commencement Date whose
election was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the nominating committee serving
under an Incumbent Board, shall be considered a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (1) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (2) a merger
or consolidation effected to 'implement a recapitalization of the Company
(or similar transaction) in which no person (as hereinabove defined)
acquires more than 25% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (or any transaction having a similar effect).
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company that are part of the affiliated group (as
defined in Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), without regard to subsection (b) thereof) that includes the
Company, including but not limited to the Bank.
(c) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given,
and in the case of a termination for Good Reason shall not be less than 15
nor more than 60 days from the date such Notice of Termination is given);
provided, however, that if within 15 days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as determined without
regard to this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination,
then the Date of Termination shall be the date on which the dispute is
finally determined, whether by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); and provided, further, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay the Executive the Executive's full salary at the
rate in effect when the notice giving rise to the dispute was given and
continue the Executive as a participant in all benefit and fringe benefit
plans in which the Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Section 1(d).
(d) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or
interference with the Executive's duties, responsibilities or benefits,
including (without limitation) any of the following circumstances unless
such circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given by the Executive in respect
thereof:
(i) a requirement that the Executive be based at any location
not within thirty (30) miles of the current headquarters office or
that his travel requirements for Company or Bank business be
substantially increased or increased beyond a level commensurate with
his position in the Company.
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction in the
frequency with which, or in the nature of the matters with respect to
which such personnel are to report to the Executive, other than as
part of a Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent benefits
or vacation, other than as part of an overall program applied
uniformly and with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities under
this Agreement, as contemplated in Section 5(a) hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 4 hereof (and, if applicable, the
requirements of Section 1(g) hereof), which purported termination
shall not be effective for purposes of this Agreement.
(e) The term "Notice of Termination" means a notice of termination of
the Executive's employment pursuant to Section 7 of this Agreement.
(f) The term "Termination for Cause" means termination of the
employment of the Employee because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. No act or failure to act by the Executive shall
be considered intentional unless the Executive acted or failed to act with
an absence of good faith and without a reasonable belief that his action or
failure to act was in the best interest of the Bank. Notwithstanding the
foregoing, no Termination for Cause shall be deemed to have occurred unless
and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
duly called and held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Executive has engaged in conduct described in
the preceding sentence and specifying the particulars thereof in detail.
This paragraph and this definition of "termination for cause" apply only to
this agreement and do not affect the employment-at-will doctrine in any
other context.
2. Term. The term of this Agreement shall be a period of three (3)
years commencing on the Commencement Date, subject to earlier termination as
provided herein, and will renew for successive one year periods unless the
Board gives notice of non-renewal not less than thirty (30) days prior to
the end of the then current term.
3. Severance Benefits; Regulatory Provisions.
------------------------------------------
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall
terminate his employment for Good Reason, within 24 months following a
Change in Control, the Bank shall (i) pay the Executive his salary through
the Date of Termination at the rate in effect at the time the Notice of
Termination is given, at the time such payments are due; and (ii) pay to the
Executive in a lump sum in cash, within 25 days after the later of the date
of such Change in Control or the Date of Termination, an amount equal to one
hundred percent (100%) of the Executive's base annual salary (not including
any bonus) in effect at the time the Notice of Termination is given, less
the aggregate present value of the payments or benefits, if any, in the
nature of compensation for the benefit of the Executive, arising under any
other plans or arrangements (i.e., not this Agreement) between the Company
or any of the Consolidated Subsidiaries and the Executive, which constitute
"parachute payments" under Section 280G of the Code.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (the "FDIA"),
12 U.S.C. Section 1818(e)(3) and (g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this provision shall not affect any vested rights of the
contracting parties.
(e) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank: (1) by the Director of the Office
of Thrift Supervision (the "Director") or his or her designee, at the time
the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained
in Section 13(c) of the FDIA; or (2) by the Director or his or her designee,
at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank
is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be
affected by any such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(g) The Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise. This Agreement shall
not be construed as providing the Executive any right to be retained in the
employ of the Bank or any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement,
the Bank shall deliver to the Executive a written notice of termination,
stating (i) whether such termination constitutes Termination for Cause, and,
if so, setting forth in reasonable detail the facts and circumstances that
are the basis for the Termination for Cause, and (ii) specifying the Date of
Termination. In the event that the Executive desires to terminate his
employment and determines in good faith that he has experienced Good Reason
to terminate his employment, he shall send a written notice to the Bank
stating the circumstances that constitute Good Reason and the Date of
Termination.
The Executive's right to terminate his employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason under this Agreement.
5. No Assignments.
---------------
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation, operation
of law or otherwise) to all or substantially all of the business and/or
assets of the Bank, by an assumption agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank would be
required to perform it if no such succession or assignment had taken place.
Failure of the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Executive to compensation and benefits from
the Bank in the same amount and on the same terms that he would be entitled
to hereunder if he terminated his employment for Good Reason, in addition to
any payments and benefits to which the Executive is entitled under Section 3
hereof. For purposes of implementing the provisions of this Section 5(a),
the date on which any such succession becomes effective shall be deemed the
Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the
Executive, unless otherwise provided herein, all amounts payable hereunder
shall be paid to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation
contained in Section 162(m) of the Code in any calendar year, any such
amounts in excess of such limitation shall be mandatorily deferred with
interest thereon at 7.0% per annum to a calendar year such that the amount
to be paid to the Executive in such calendar year, including deferred
amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all
notices and other communications to any party hereto shall be in writing and
shall be deemed to have been duly given when delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: J. Craig Carr
At the address last appearing
on the personnel records of
the Executive
If to the Bank: First Federal Savings Bank
P.O. Box 3300
724 Boardman-Poland Road
Youngstown, Ohio 44513-3300
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address
shall be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein
otherwise provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of
the State of Ohio to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location
with the Bank, in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the Executive shall be
entitled to seek specific performance of his rights under Section 1(d)
during the pendency of any dispute or controversy arising under or in
connection with this Agreement. Judgment may be entered on the arbitrators'
award in any court having jurisdiction.
13. Reimbursement of Expenses. In the event any dispute should arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to
enforce the terms of this Section 13, or in defending against any action
taken by the Bank, the bank shall reimburse the Executive for all costs and
expenses incurred by the Executive, including reasonable attorney's fees,
arising from such dispute, proceedings or actions, unless a court of
competent jurisdiction renders a final and nonappealable judgment against
the Executive as to the matter in dispute. Reimbursement of the Executive's
expenses shall be paid within ten days of the Executive furnishing to the
Bank written evidence, which may be in the form, among other things of a
canceled check or receipt, of any costs or expenses incurred by the
Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
/s/ Randy Shaffer /s/ Jeffrey L. Francis
- ------------------------- ----------------------------------
Jeffrey L. Francis, President and CEO
EXECUTIVE
/s/ J. Craig Carr
----------------------------------
J. Craig Carr
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this 29th day of September 1998 (the "Commencement
Date"), by and between First Federal Savings Bank of Youngstown (which,
together with any successor thereto which executes and delivers the
assumption agreement provided for in Section 5(a) hereof or which otherwise
becomes bound by all of the terms and provisions of this Agreement by
operation of law, is hereinafter referred to as the "Bank"), and DAVID S.
HINKLE (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of the
Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility
of a change in control of the Bank or of its holding company, FFY Financial
Corporation (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in
the departure or distraction of management personnel to the detriment of the
Bank, the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity
of management of the Bank and to reinforce and encourage the continued
attention and dedication of the Executive to the Executive's assigned duties
without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Company and/or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein, it is AGREED as
follows:
1. Certain Definitions.
--------------------
(a) The term "Change in Control" means (i) any "person," as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who
is temporarily holding securities in connection with such offering, any
trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; (ii) individuals who are
members of the Board on the Commencement Date (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the Commencement Date whose
election was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the nominating committee serving
under an Incumbent Board, shall be considered a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (1) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (2) a merger
or consolidation effected to 'implement a recapitalization of the Company
(or similar transaction) in which no person (as hereinabove defined)
acquires more than 25% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (or any transaction having a similar effect).
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company that are part of the affiliated group (as
defined in Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), without regard to subsection (b) thereof) that includes the
Company, including but not limited to the Bank.
(c) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given,
and in the case of a termination for Good Reason shall not be less than 15
nor more than 60 days from the date such Notice of Termination is given);
provided, however, that if within 15 days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as determined without
regard to this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination,
then the Date of Termination shall be the date on which the dispute is
finally determined, whether by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); and provided, further, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay the Executive the Executive's full salary at the
rate in effect when the notice giving rise to the dispute was given and
continue the Executive as a participant in all benefit and fringe benefit
plans in which the Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Section 1(d).
(d) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or
interference with the Executive's duties, responsibilities or benefits,
including (without limitation) any of the following circumstances unless
such circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given by the Executive in respect
thereof:
(i) a requirement that the Executive be based at any location not
within thirty (30) miles of the current headquarters office or that
his travel requirements for Company or Bank business be substantially
increased or increased beyond a level commensurate with his position
in the Company.
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of personnel
reporting to the Executive or a material reduction in the frequency
with which, or in the nature of the matters with respect to which such
personnel are to report to the Executive, other than as part of a
Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent benefits
or vacation, other than as part of an overall program applied
uniformly and with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities under
this Agreement, as contemplated in Section 5(a) hereof; or
(vii) any purported termination of the Executive's employment that
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4 hereof (and, if applicable, the requirements
of Section 1(g) hereof), which purported termination shall not be
effective for purposes of this Agreement.
(e) The term "Notice of Termination" means a notice of termination of
the Executive's employment pursuant to Section 7 of this Agreement.
(f) The term "Termination for Cause" means termination of the
employment of the Employee because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. No act or failure to act by the Executive shall
be considered intentional unless the Executive acted or failed to act with
an absence of good faith and without a reasonable belief that his action or
failure to act was in the best interest of the Bank. Notwithstanding the
foregoing, no Termination for Cause shall be deemed to have occurred unless
and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
duly called and held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Executive has engaged in conduct described in
the preceding sentence and specifying the particulars thereof in detail.
This paragraph and this definition of "termination for cause" apply only to
this agreement and do not affect the employment-at-will doctrine in any
other context.
2. Term. The term of this Agreement shall be a period of three (3)
years commencing on the Commencement Date, subject to earlier termination as
provided herein, and will renew for successive one year periods unless the
Board gives notice of non-renewal not less than thirty (30) days prior to
the end of the then current term.
3. Severance Benefits; Regulatory Provisions.
------------------------------------------
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall
terminate his employment for Good Reason, within 24 months following a
Change in Control, the Bank shall (i) pay the Executive his salary through
the Date of Termination at the rate in effect at the time the Notice of
Termination is given, at the time such payments are due; and (ii) pay to the
Executive in a lump sum in cash, within 25 days after the later of the date
of such Change in Control or the Date of Termination, an amount equal to one
hundred percent (100%) of the Executive's base annual salary (not including
any bonus) in effect at the time the Notice of Termination is given, less
the aggregate present value of the payments or benefits, if any, in the
nature of compensation for the benefit of the Executive, arising under any
other plans or arrangements (i.e., not this Agreement) between the Company
or any of the Consolidated Subsidiaries and the Executive, which constitute
"parachute payments" under Section 280G of the Code.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (the "FDIA"),
12 U.S.C. Section 1818(e)(3) and (g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this provision shall not affect any vested rights of the
contracting parties.
(e) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank: (1) by the Director of the Office
of Thrift Supervision (the "Director") or his or her designee, at the time
the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained
in Section 13(c) of the FDIA; or (2) by the Director or his or her designee,
at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank
is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be
affected by any such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(g) The Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise. This Agreement shall
not be construed as providing the Executive any right to be retained in the
employ of the Bank or any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement,
the Bank shall deliver to the Executive a written notice of termination,
stating (i) whether such termination constitutes Termination for Cause, and,
if so, setting forth in reasonable detail the facts and circumstances that
are the basis for the Termination for Cause, and (ii) specifying the Date of
Termination. In the event that the Executive desires to terminate his
employment and determines in good faith that he has experienced Good Reason
to terminate his employment, he shall send a written notice to the Bank
stating the circumstances that constitute Good Reason and the Date of
Termination.
The Executive's right to terminate his employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5. No Assignments.
---------------
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation, operation
of law or otherwise) to all or substantially all of the business and/or
assets of the Bank, by an assumption agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank would be
required to perform it if no such succession or assignment had taken place.
Failure of the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Executive to compensation and benefits from
the Bank in the same amount and on the same terms that he would be entitled
to hereunder if he terminated his employment for Good Reason, in addition to
any payments and benefits to which the Executive is entitled under Section 3
hereof. For purposes of implementing the provisions of this Section 5(a),
the date on which any such succession becomes effective shall be deemed the
Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the
Executive, unless otherwise provided herein, all amounts payable hereunder
shall be paid to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation
contained in Section 162(m) of the Code in any calendar year, any such
amounts in excess of such limitation shall be mandatorily deferred with
interest thereon at 7.0% per annum to a calendar year such that the amount
to be paid to the Executive in such calendar year, including deferred
amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all
notices and other communications to any party hereto shall be in writing and
shall be deemed to have been duly given when delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: David S. Hinkle
At the address last appearing
on the personnel records of
the Executive
If to the Bank: First Federal Savings Bank
P.O. Box 3300
724 Boardman-Poland Road
Youngstown, Ohio 44513-3300
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address
shall be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein
otherwise provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Ohio to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location
with the Bank, in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the Executive shall be
entitled to seek specific performance of his rights under Section 1(d)
during the pendency of any dispute or controversy arising under or in
connection with this Agreement. Judgment may be entered on the arbitrators'
award in any court having jurisdiction.
13. Reimbursement of Expenses. In the event any dispute should arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to
enforce the terms of this Section 13, or in defending against any action
taken by the Bank, the bank shall reimburse the Executive for all costs and
expenses incurred by the Executive, including reasonable attorney's fees,
arising from such dispute, proceedings or actions, unless a court of
competent jurisdiction renders a final and nonappealable judgment against
the Executive as to the matter in dispute. Reimbursement of the Executive's
expenses shall be paid within ten days of the Executive furnishing to the
Bank written evidence, which may be in the form, among other things of a
canceled check or receipt, of any costs or expenses incurred by the
Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
/s/ J. Craig Carr /s/ Jeffrey L. Francis
- ----------------- ----------------------
Jeffrey L. Francis,
President and CEO
EXECUTIVE
/s/ David S. Hinkle
-------------------
David S. Hinkle
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is
made and entered into as of this 29th day of September 1998 (the
"Commencement Date"), by and between First Federal Savings Bank of
Youngstown (which, together with any successor thereto which executes and
delivers the assumption agreement provided for in Section 5(a) hereof or
which otherwise becomes bound by all of the terms and provisions of this
Agreement by operation of law, is hereinafter referred to as the "Bank"),
and THERESE ANN LIUTKUS (the "Executive").
WHEREAS, the Executive is currently serving as Treasurer and CFO of
the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control of the Bank or of its holding company,
FFY Financial Corporation (the "Company"), may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management
personnel to the detriment of the Bank, the Company and its stockholders;
and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity
of management of the Bank and to reinforce and encourage the continued
attention and dedication of the Executive to the Executive's assigned duties
without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Company and/or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein, it is AGREED as
follows:
1. Certain Definitions.
--------------------
(a) The term "Change in Control" means (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (other than the Company, any
Consolidated Subsidiaries (as hereinafter defined), any person (as
hereinabove defined) acting on behalf of the Company as underwriter pursuant
to an offering who is temporarily holding securities in connection with such
offering, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the "
beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities; (ii) individuals who are members of the Board on the
Commencement Date (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the Commencement Date whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board or whose nomination for election by the Company's stockholders was
approved by the nominating committee serving under an Incumbent Board, shall
be considered a member of the Incumbent Board; (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than (1) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation
or (2) a merger or consolidation effected to 'implement a recapitalization
of the Company (or similar transaction) in which no person (as hereinabove
defined) acquires more than 25% of the combined voting power of the
Company's then outstanding securities; or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets (or any transaction having a similar effect).
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company that are part of the affiliated group (as
defined in Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), without regard to subsection (b) thereof) that includes
the Company, including but not limited to the Bank.
(c) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given,
and in the case of a termination for Good Reason shall not be less than 15
nor more than 60 days from the date such Notice of Termination is given);
provided, however, that if within 15 days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as determined without
regard to this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination,
then the Date of Termination shall be the date on which the dispute is
finally determined, whether by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); and provided, further, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay the Executive the Executive's full salary at the
rate in effect when the notice giving rise to the dispute was given and
continue the Executive as a participant in all benefit and fringe benefit
plans in which the Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Section 1(d).
(d) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or
interference with the Executive's duties, responsibilities or benefits,
including (without limitation) any of the following circumstances unless
such circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given by the Executive in respect
thereof:
(i) a requirement that the Executive be based at any location not
within thirty (30) miles of the current headquarters office
or that his travel requirements for Company or Bank business
be substantially increased or increased beyond a level
commensurate with his position in the Company.
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of personnel
reporting to the Executive or a material reduction in the
frequency with which, or in the nature of the matters with
respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-wide
reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment that
is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(e) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(f) The term "Termination for Cause" means termination of the
employment of the Employee because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. No act or failure to act by the Executive shall
be considered intentional unless the Executive acted or failed to act with
an absence of good faith and without a reasonable belief that his action or
failure to act was in the best interest of the Bank. Notwithstanding the
foregoing, no Termination for Cause shall be deemed to have occurred unless
and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
duly called and held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Executive has engaged in conduct described in
the preceding sentence and specifying the particulars thereof in detail.
This paragraph and this definition of "termination for cause" apply only
to this agreement and do not affect the employment-at-will doctrine in any
other context.
2. Term. The term of this Agreement shall be a period of three (3)
years commencing on the Commencement Date, subject to earlier termination as
provided herein, and will renew for successive one year periods unless the
Board gives notice of non-renewal not less than thirty (30) days prior to
the end of the then current term.
3. Severance Benefits; Regulatory Provisions.
------------------------------------------
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall
terminate his employment for Good Reason, within 24 months following a
Change in Control, the Bank shall (i) pay the Executive his salary through
the Date of Termination at the rate in effect at the time the Notice of
Termination is given, at the time such payments are due; and (ii) pay to the
Executive in a lump sum in cash, within 25 days after the later of the date
of such Change in Control or the Date of Termination, an amount equal to the
Executive's then current hourly rate multiplied by the average annual number
of paid hours worked by the Executive over the most recent three calendar
years preceeding the year in which Notice of Termination is given, less the
aggregate present value of the payments or benefits, if any, in the nature
of compensation for the benefit of the Executive, arising under any other
plans or arrangements (i.e., not this Agreement) between the Company or any
of the Consolidated Subsidiaries and the Executive, which constitute "
parachute payments" under Section 280G of the Code.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (the "
FDIA"), 12 U.S.C. Section 1818(e)(3) and (g)(1), the Bank's obligations
under this Agreement shall be suspended as of the date of service, unless
stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this provision shall not affect any vested rights of the
contracting parties.
(e) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank: (1) by the Director of the Office
of Thrift Supervision (the "Director") or his or her designee, at the
time the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained
in Section 13(c) of the FDIA; or (2) by the Director or his or her designee,
at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank
is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be
affected by any such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(g) The Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise. This Agreement shall
not be construed as providing the Executive any right to be retained in the
employ of the Bank or any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement,
the Bank shall deliver to the Executive a written notice of termination,
stating (i) whether such termination constitutes Termination for Cause, and,
if so, setting forth in reasonable detail the facts and circumstances that
are the basis for the Termination for Cause, and (ii) specifying the Date of
Termination. In the event that the Executive desires to terminate his
employment and determines in good faith that he has experienced Good Reason
to terminate his employment, he shall send a written notice to the Bank
stating the circumstances that constitute Good Reason and the Date of
Termination.
The Executive's right to terminate his employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason under this Agreement.
5. No Assignments.
---------------
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation, operation
of law or otherwise) to all or substantially all of the business and/or
assets of the Bank, by an assumption agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank would be
required to perform it if no such succession or assignment had taken place.
Failure of the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Executive to compensation and benefits from
the Bank in the same amount and on the same terms that he would be entitled
to hereunder if he terminated his employment for Good Reason, in addition to
any payments and benefits to which the Executive is entitled under Section 3
hereof. For purposes of implementing the provisions of this Section 5(a),
the date on which any such succession becomes effective shall be deemed the
Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the
Executive, unless otherwise provided herein, all amounts payable hereunder
shall be paid to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation
contained in Section 162(m) of the Code in any calendar year, any such
amounts in excess of such limitation shall be mandatorily deferred with
interest thereon at 7.0% per annum to a calendar year such that the amount
to be paid to the Executive in such calendar year, including deferred
amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all
notices and other communications to any party hereto shall be in writing and
shall be deemed to have been duly given when delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Therese Ann Liutkus
At the address last appearing
on the personnel records of
the Executive
If to the Bank: First Federal Savings Bank
P.O. Box 3300
724 Boardman-Poland Road
Youngstown, Ohio 44513-3300
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address
shall be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein
otherwise provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Ohio to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location
with the Bank, in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the Executive shall be
entitled to seek specific performance of his rights under Section 1(d)
during the pendency of any dispute or controversy arising under or in
connection with this Agreement. Judgment may be entered on the arbitrators'
award in any court having jurisdiction.
13. Reimbursement of Expenses. In the event any dispute should arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to
enforce the terms of this Section 13, or in defending against any action
taken by the Bank, the bank shall reimburse the Executive for all costs and
expenses incurred by the Executive, including reasonable attorney's fees,
arising from such dispute, proceedings or actions, unless a court of
competent jurisdiction renders a final and nonappealable judgment against
the Executive as to the matter in dispute. Reimbursement of the Executive's
expenses shall be paid within ten days of the Executive furnishing to the
Bank written evidence, which may be in the form, among other things of a
canceled check or receipt, of any costs or expenses incurred by the
Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
/s/ J. Craig Carr /s/ Jeffrey L. Francis
- ----------------- ----------------------
Jeffrey L. Francis,
President and CEO
EXECUTIVE
/s/ Therese Ann Liutkus
-----------------------
Therese Ann Liutkus
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this 29th day of September 1998 (the "Commencement
Date"), by and between First Federal Savings Bank of Youngstown (which,
together with any successor thereto which executes and delivers the
assumption agreement provided for in Section 5(a) hereof or which otherwise
becomes bound by all of the terms and provisions of this Agreement by
operation of law, is hereinafter referred to as the "Bank"), and MARK S.
MAKOSKI (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of the
Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility
of a change in control of the Bank or of its holding company, FFY Financial
Corporation (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in
the departure or distraction of management personnel to the detriment of the
Bank, the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity
of management of the Bank and to reinforce and encourage the continued
attention and dedication of the Executive to the Executive's assigned duties
without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Company and/or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein, it is AGREED as
follows:
1. Certain Definitions.
--------------------
(a) The term "Change in Control" means (i) any "person," as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who
is temporarily holding securities in connection with such offering, any
trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; (ii) individuals who are
members of the Board on the Commencement Date (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the Commencement Date whose
election was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the nominating committee serving
under an Incumbent Board, shall be considered a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (1) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (2) a merger
or consolidation effected to 'implement a recapitalization of the Company
(or similar transaction) in which no person (as hereinabove defined)
acquires more than 25% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (or any transaction having a similar effect).
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company that are part of the affiliated group (as
defined in Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), without regard to subsection (b) thereof) that includes the
Company, including but not limited to the Bank.
(c) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given,
and in the case of a termination for Good Reason shall not be less than 15
nor more than 60 days from the date such Notice of Termination is given);
provided, however, that if within 15 days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as determined without
regard to this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination,
then the Date of Termination shall be the date on which the dispute is
finally determined, whether by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); and provided, further, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay the Executive the Executive's full salary at the
rate in effect when the notice giving rise to the dispute was given and
continue the Executive as a participant in all benefit and fringe benefit
plans in which the Executive was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Section 1(d).
(d) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or
interference with the Executive's duties, responsibilities or benefits,
including (without limitation) any of the following circumstances unless
such circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given by the Executive in respect
thereof:
(i) a requirement that the Executive be based at any location
not within thirty (30) miles of the current headquarters office or
that his travel requirements for Company or Bank business be
substantially increased or increased beyond a level commensurate with
his position in the Company.
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction in the
frequency with which, or in the nature of the matters with respect to
which such personnel are to report to the Executive, other than as
part of a Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent benefits
or vacation, other than as part of an overall program applied
uniformly and with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities under
this Agreement, as contemplated in Section 5(a) hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 4 hereof (and, if applicable, the
requirements of Section 1(g) hereof), which purported termination
shall not be effective for purposes of this Agreement.
(e) The term "Notice of Termination" means a notice of termination of
the Executive's employment pursuant to Section 7 of this Agreement.
(f) The term "Termination for Cause" means termination of the
employment of the Employee because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. No act or failure to act by the Executive shall
be considered intentional unless the Executive acted or failed to act with
an absence of good faith and without a reasonable belief that his action or
failure to act was in the best interest of the Bank. Notwithstanding the
foregoing, no Termination for Cause shall be deemed to have occurred unless
and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
duly called and held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Executive has engaged in conduct described in
the preceding sentence and specifying the particulars thereof in detail.
This paragraph and this definition of "termination for cause" apply only to
this agreement and do not affect the employment-at-will doctrine in any
other context.
2. Term. The term of this Agreement shall be a period of three (3)
years commencing on the Commencement Date, subject to earlier termination as
provided herein, and will renew for successive one year periods unless the
Board gives notice of non-renewal not less than thirty (30) days prior to
the end of the then current term.
3. Severance Benefits; Regulatory Provisions.
------------------------------------------
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall
terminate his employment for Good Reason, within 24 months following a
Change in Control, the Bank shall (i) pay the Executive his salary through
the Date of Termination at the rate in effect at the time the Notice of
Termination is given, at the time such payments are due; and (ii) pay to the
Executive in a lump sum in cash, within 25 days after the later of the date
of such Change in Control or the Date of Termination, an amount equal to one
hundred percent (100%) of the Executive's base annual salary (not including
any bonus) in effect at the time the Notice of Termination is given, less
the aggregate present value of the payments or benefits, if any, in the
nature of compensation for the benefit of the Executive, arising under any
other plans or arrangements (i.e., not this Agreement) between the Company
or any of the Consolidated Subsidiaries and the Executive, which constitute
"parachute payments" under Section 280G of the Code.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (the "FDIA"),
12 U.S.C. Section 1818(e)(3) and (g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this provision shall not affect any vested rights of the
contracting parties.
(e) All obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Bank: (1) by the Director of the Office
of Thrift Supervision (the "Director") or his or her designee, at the time
the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained
in Section 13(c) of the FDIA; or (2) by the Director or his or her designee,
at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank
is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be
affected by any such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(g) The Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise. This Agreement shall
not be construed as providing the Executive any right to be retained in the
employ of the Bank or any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement,
the Bank shall deliver to the Executive a written notice of termination,
stating (i) whether such termination constitutes Termination for Cause, and,
if so, setting forth in reasonable detail the facts and circumstances that
are the basis for the Termination for Cause, and (ii) specifying the Date of
Termination. In the event that the Executive desires to terminate his
employment and determines in good faith that he has experienced Good Reason
to terminate his employment, he shall send a written notice to the Bank
stating the circumstances that constitute Good Reason and the Date of
Termination.
The Executive's right to terminate his employment for Good Reason
shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason under this Agreement.
5. No Assignments.
---------------
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Bank shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation, operation
of law or otherwise) to all or substantially all of the business and/or
assets of the Bank, by an assumption agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Bank would be
required to perform it if no such succession or assignment had taken place.
Failure of the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Executive to compensation and benefits from
the Bank in the same amount and on the same terms that he would be entitled
to hereunder if he terminated his employment for Good Reason, in addition to
any payments and benefits to which the Executive is entitled under Section 3
hereof. For purposes of implementing the provisions of this Section 5(a),
the date on which any such succession becomes effective shall be deemed the
Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the
Executive, unless otherwise provided herein, all amounts payable hereunder
shall be paid to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive,
the aggregate payments to be made by the Bank under this Agreement and all
other plans or arrangements maintained by the Company or any of the
Consolidated Subsidiaries would exceed the limitation on deductible
compensation contained in Section 162(m) of the Code in any calendar year,
any such amounts in excess of such limitation shall be mandatorily deferred
with interest thereon at 7.0% per annum to a calendar year such that the
amount to be paid to the Executive in such calendar year, including deferred
amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all
notices and other communications to any party hereto shall be in writing and
shall be deemed to have been duly given when delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Mark S. Makoski
At the address last appearing
on the personnel records of
the Executive
If to the Bank: First Federal Savings Bank
P.O. Box 3300
724 Boardman-Poland Road
Youngstown, Ohio 44513-3300
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address
shall be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein
otherwise provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Ohio to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location
with the Bank, in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the Executive shall be
entitled to seek specific performance of his rights under Section 1(d)
during the pendency of any dispute or controversy arising under or in
connection with this Agreement. Judgment may be entered on the arbitrators'
award in any court having jurisdiction.
13. Reimbursement of Expenses. In the event any dispute should arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to
enforce the terms of this Section 13, or in defending against any action
taken by the Bank, the bank shall reimburse the Executive for all costs and
expenses incurred by the Executive, including reasonable attorney's fees,
arising from such dispute, proceedings or actions, unless a court of
competent jurisdiction renders a final and nonappealable judgment against
the Executive as to the matter in dispute. Reimbursement of the Executive's
expenses shall be paid within ten days of the Executive furnishing to the
Bank written evidence, which may be in the form, among other things of a
canceled check or receipt, of any costs or expenses incurred by the
Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: FIRST FEDERAL SAVINGS BANK
/s/ J. Craig Carr /s/ Jeffrey L. Francis
- ------------------------- ----------------------------------
Jeffrey L. Francis, President and CEO
EXECUTIVE
/s/ Mark S. Makoski
----------------------------------
Mark S. Makoski
Exhibit 13
(FFY Logo) FFY Financial Corp.
1999 ANNUAL REPORT
Contents
- --------------------------------------------------------------------------
Financial Highlights 1
President's Letter 2
Selected Consolidated Financial Information 4
Management's Discussion & Analysis 6
Financial Statements 20
Officers & Directors 43
Stockholder Information 44
-----------------------------
Photo of
Board of Directors
-----------------------------
Meet the board of directors of your company who are also introduced
individually throughout this annual report.
In July 1999, the board moved to unite the affiliates of FFY Financial
Corp. under the FFY name. The Company announced that First Federal Savings
Bank of Youngstown will become FFY Bank and Daniel W. Landers Insurance
will become FFY Insurance. Coldwell Banker FFY Real Estate already carries
the FFY name. This common brand name, together with a new logo, will
enhance the recognition of our entities as one.
If you would like additional information regarding any of the FFY
companies, please use the convenient business reply card included within
this annual report.
1999 Financial Highlights
- -----------------------------------------------------------------------------
FFY Financial Corp. and Subsidiaries
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
For the year 1999 1998 Change
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $22,569 22,447 0.54%
Non-interest income 2,550 1,765 44.48%
Net income 8,140 7,729 5.32%
Dividends on common stock 3,102 2,901 6.93%
Average shares outstanding - basic 7,073 7,516 -5.89%
Average shares outstanding - diluted 7,307 7,794 -6.25%
<CAPTION>
Per common share (1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $ 1.15 1.03 11.65%
Diluted earnings per share 1.11 0.99 12.12%
Cash dividends declared per share 0.45 0.40 12.50%
Tangible book value per share 9.81 10.49 -6.48%
Market price at year end 19.00 16.25 16.92%
<CAPTION>
At year end
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $675,691 651,746 3.67%
Loans receivable, net 453,839 482,463 -5.93%
Securities available for sale 190,326 140,793 35.18%
Deposits 457,343 444,017 3.00%
Securities sold under agreements to repurchase 57,918 64,388 -10.05%
Borrowed funds 82,800 33,985 143.64%
Stockholders' equity 70,117 84,216 -16.74%
<CAPTION>
Average for the year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $663,251 618,664 7.21%
Loans receivable, net 465,622 463,118 0.54%
Securities available for sale 167,217 124,764 34.03%
Deposits 447,525 450,768 -0.72%
Securities sold under agreements to repurchase 60,354 49,482 21.97%
Borrowed funds 57,771 24,004 140.67%
Stockholders' equity 79,310 83,315 -4.81%
<CAPTION>
Financial ratios
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average assets 1.23% 1.25% -1.60%
Return on average equity 10.26% 9.28% 10.56%
Efficiency ratio 49.84% 49.08% 1.55%
Operating expense to average assets 1.88% 1.90% -1.05%
Allowance for loan losses to nonperforming assets 112.27% 82.43% 36.20%
<FN>
<F1> On January 19, 1999, the Company announced a 100% stock dividend, which
is equivalent to a two-for-one stock split, that was paid on March 5,
1999 to stockholders of record on February 19, 1999. Accordingly, all
share and per share data have been restated as a result of the stock
dividend.
</FN>
</TABLE>
------------------------------
Photo of
President and CEO
------------------------------
To Our Shareholders
I'm pleased to report that fiscal 1999 was another year of progress
in making your company a better and more competitive organization. Focused
on our commitment to shareholder value, we advanced our affiliate presence
and broadened our traditional product line while improving net income,
earnings per share and return on equity. As I've said previously, we
operate in a very competitive market, and 1999 proved no less competitive
than previous years.
In order to meet this increased competition, over the past year we
increased our loan origination team and their support staff. This increase
in sales and production capacity is a critical element in continuing the
growth in earnings per share and return on equity seen over the past two
years. Our lending staff is fully competent in originating home loans for
our portfolio as well as for sale in the secondary market, providing a
significant competitive advantage over most home lenders in our market. We
also streamlined the process for standard home loan requests to less than
ten days from application to closing. Improvements were also made in our
commercial real estate lending area. While we have originated commercial
real estate mortgages for more than twenty-five years, during 1999 our
ability to compete in this area was enhanced by the addition of an
experienced commercial lender to specialize in the origination of
commercial mortgage loans.
In February 1999, David B. Roberts Real Estate, our real estate
brokerage affiliate, merged with Coldwell Banker United Group to form
Coldwell Banker FFY Real Estate. With nearly 100 sales agents, this entity
holds the number one market position in our home county. The new FFY
Professional Centre became the home base for the growing real estate
venture, affording expansion space for a commercial real estate arm, a loan
originator from our bank, and our insurance affiliate.
Our insurance affiliate, Daniel W. Landers Insurance, completed its
first full year of operation this past April. I'm pleased to report that
this business is proceeding as planned and I look forward to continued
improving performance from both new business and renewing contracts as
well.
In a desire to bring all of our entities, including the bank, under
one umbrella, the board of directors and management made the decision to
change the name of the affiliates to FFY Bank, FFY Insurance and Coldwell
Banker FFY Real Estate. The changeover will be completed by October 1,
1999. With a common brand name and a new recognizable logo, we anticipate
the general public and our customers will come to associate the same high
standards of service from all of our affiliates.
We continue to show improvements in financial performance. Diluted
earnings per share increased 12.1% from $0.99 in fiscal 1998 to $1.11 in
fiscal 1999. Return on equity for this past year was 10.3%, up from 9.3%
in fiscal 1998. These key measures of performance are a major
consideration for decisions by your board of directors and management.
With all the media coverage, it is incumbent on me to comment on our
Year 2000 readiness. Our major conversion of all customer accounting
systems in April 1998 set the stage for our readiness effort. Since then,
virtually all personal computers have been replaced, our networks have been
upgraded and all systems have been diligently tested and contingency plans
have been developed for mission critical applications. In short, we're
prepared for Y2K.
Lastly, I would like to formally thank the staff of the bank and our
affiliates for their contributions to our improved performance this past
year. They worked hard and smart and the results were evident. Our
shareholders should be assured that they can expect the same diligence in
the future.
Sincerely,
/s/ Jeffrey L. Francis
----------------------------------
Jeffrey L. Francis
President and CEO
Selected Consolidated Financial Information
- -----------------------------------------------------------------------------
FFY Financial Corp. and Subsidiaries
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------
Selected Consolidated Financial Condition Data: 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $675,691 651,746 599,249 575,602 576,619
Loans receivable, net 453,839 482,463 460,712 438,790 401,664
Loans available for sale 442 - - - -
Allowance for loan losses 2,645 2,740 2,962 3,439 3,159
Non-performing assets 2,356 3,324 3,993 4,673 4,352
Securities available for sale 190,326 140,793 112,036 109,836 132,341
Securities held to maturity - - - - 11,819
Deposits 457,343 444,017 450,224 456,541 461,979
Short-term repurchase agreements (1) 6,618 13,088 7,307 6,640 -
Long-term repurchase agreements (1) 51,300 51,300 25,000 - -
Short-term borrowed funds 22,800 33,985 27,455 1,200 -
Long-term borrowed funds 60,000 - - - -
Stockholders' equity 70,117 84,216 82,174 101,921 106,400
Years ended June 30,
------------------------------------------------------------
Selected Consolidated Operations Data: 1999 1998 1997 1996 1995
------------------------------------------------------------
Total interest income $ 49,084 48,006 45,925 43,716 42,444
Total interest expense 26,515 25,559 23,823 22,133 19,730
------------------------------------------------------------
Net interest income 22,569 22,447 22,102 21,583 22,714
Provision for loan losses 494 565 688 325 403
------------------------------------------------------------
Net interest income after provision for loan losses 22,075 21,882 21,414 21,258 22,311
Service charges 897 700 563 522 429
Gain (loss) on sale of securities 203 247 (320) 30 (17)
Gain on sale of loans 720 134 - - -
Other non-interest income 730 684 375 548 428
Total non-interest expense (12,495) (11,771) (14,288) (11,991) (11,789)
------------------------------------------------------------
Income before income taxes and minority interest 12,130 11,876 7,744 10,367 11,362
Income tax expense 4,083 4,147 2,420 3,465 3,872
Minority interest in loss of consolidated subsidiaries (93) - - - -
------------------------------------------------------------
Net income $ 8,140 7,729 5,324 6,902 7,490
============================================================
Basic earnings per share (2) $ 1.15 1.03 0.62 0.71 0.69
============================================================
Diluted earnings per share (2) $ 1.11 0.99 0.60 0.68 0.67
============================================================
Cash dividends declared per share (2) $ 0.45 0.40 0.35 0.30 0.25
============================================================
<FN>
<F1> Securities sold under agreements to repurchase.
<F2> Per share figures were restated for years prior to 1999 to reflect a
100% stock dividend, effected in the form of a two-for-one stock split,
declared on January 19, 1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
At or for the years ended June 30,
-----------------------------------------------------------
Selected Financial Ratios and Other Data: 1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (1) 1.23% 1.25% 0.90% 1.20% 1.31%
Return on average equity (2) 10.26% 9.28% 5.73% 6.58% 6.87%
Interest rate spread information:
Average during the period (3) 3.08% 3.19% 3.16% 3.04% 3.28%
End of period (3) 2.99% 2.94% 3.06% 2.95% 2.66%
Net interest margin (3) (4) 3.62% 3.81% 3.89% 3.89% 4.09%
Operating expense to average assets 1.88% 1.90% 2.42% 2.09% 2.06%
Efficiency ratio (5) 49.84% 49.08% 62.01% 52.93% 49.60%
Dividend payout ratio (6) 40.54% 40.40% 58.82% 43.80% 37.59%
Performance Ratios Excluding Affiliates (7):
Return on average assets (1) 1.24% 1.27% 0.90% 1.20% 1.31%
Return on average equity (2) 10.35% 9.41% 5.73% 6.58% 6.87%
Operating expense to average assets 1.82% 1.84% 2.42% 2.09% 2.06%
Efficiency ratio (5) 48.80% 47.92% 62.01% 52.93% 49.60%
Quality Ratios:
Non-performing assets to total assets 0.35% 0.51% 0.67% 0.81% 0.75%
Allowance for loan losses to non-performing
assets 112.27% 82.43% 74.18% 73.59% 72.59%
Allowance for loan losses to gross loans
outstanding 0.58% 0.56% 0.64% 0.77% 0.77%
Capital Ratios:
Equity to total assets at end of period 10.38% 12.92% 13.71% 17.71% 18.45%
Average equity to average assets 11.96% 13.47% 15.71% 18.29% 19.06%
Book value per share (8) $ 9.85 10.50 9.91 10.03 9.80
Tangible book value per share (8) $ 9.81 10.49 9.91 10.03 9.80
Change in book value per share due to SFAS
No. 115 (8) $ (0.40) 0.10 0.01 (0.09) (0.03)
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.13 x 1.15 x 1.17 x 1.21 x 1.22 x
<FN>
<F1> Ratio of net income to average total assets.
<F2> Ratio of net income to average equity.
<F3> Ratio is presented on a fully taxable equivalent basis using the
Company's federal statutory tax rate of 34%.
<F4> Net interest income divided by average interest earning assets -
calculated without consideration of the unrealized gain (loss) on
securities available for sale.
<F5> Ratio is calculated without consideration to goodwill amortization and
gain (loss) on sale of securities.
<F6> Cash dividends per share divided by diluted earnings per share.
<F7> Ratios presented do not include the activity of the Company's real
estate and insurance affiliates which began operations in September
1997 and April 1998, respectively.
<F8> Per share figures were restated for years prior to 1999 to reflect a
100% stock dividend declared on January 19, 1999.
</FN>
</TABLE>
{Logo}
Financial data for the years ended June 30
Return on Average Equity Operating Expense to
Average Assets
1995 6.87% 1995 2.06%
1996 6.58% 1996 2.09%
1997 5.73% 1997 2.42%
1998 9.28% 1998 1.90%
1999 10.26% 1999 1.88%
Diluted Earnings Per Share Cash Dividends Declared
Per Share
1995 $0.67 1995 $0.25
1996 $0.68 1996 $0.30
1997 $0.60 1997 $0.35
1998 $0.99 1998 $0.40
1999 $1.11 1999 $0.45
Notes: Certain 1997 data above would be positively affected without regard
to the one-time SAIF special assessment. Per share figures were
restated for years prior to 1999 to reflect a 100% stock dividend.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
FFY Financial Corp. (FFY or Company) is a unitary savings and loan holding
company incorporated under the laws of Delaware and is engaged in financial
services through its wholly-owned subsidiaries, First Federal Savings Bank
of Youngstown (First Federal or Bank) and FFY Holdings, Inc. First Federal
is a federally chartered savings bank and FFY Holdings, Inc. invests in
entities offering expanded financial services to its customers. In June
1993, First Federal converted from a federally chartered mutual savings bank
to a federally chartered stock savings bank. As part of the conversion, the
Company acquired all of the outstanding common stock of First Federal. FFY
Holdings, Inc., which was formed in August 1997, has a one-third interest in
Coldwell Banker FFY Real Estate and a two-thirds controlling interest in
Daniel W. Landers Insurance Agency, Ltd. Real estate services are offered
through the Company's affiliation with Coldwell Banker FFY Real Estate and
property and casualty insurance is offered through the Company's affiliation
with Daniel W. Landers Insurance Agency, Ltd. On July 12, 1999, the Company
announced that First Federal will officially become FFY Bank on October 1,
1999 and Daniel W. Landers Insurance Agency, Ltd. will become FFY Insurance.
Coldwell Banker FFY Real Estate already carries the FFY name. Expenditures
related to the name change are expected to be approximately $200,000 before
tax.
Management's discussion and analysis of financial condition and results of
operations is intended to facilitate the understanding and assessment of
changes in financial condition and results of operations of the Company. The
following information should be read in conjunction with the financial
statements and notes thereto.
Forward-Looking Statements
When used in this Annual Report, 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 certain risks and uncertainties including
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, 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 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 disclaims 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.
------------------------------
Photo of
FFY Professional Centre
------------------------------
Coldwell Banker FFY Real Estate (formed February 1999 with the merger of
David B. Roberts Real Estate and Coldwell Banker United Group) moved into
the new FFY Professional Centre in order to house their expanding
operation.
Year 2000
The Company's business is highly dependent on the accuracy of computers and
computer programs. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define an applicable
year. Any of a company's hardware, date-driven automated equipment, or
computer programs that have date sensitive software could recognize a date
using "00" as the year 1900 rather than the year 2000. This improper
recognition could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in normal business activities.
The Company's Technology and Facilities Committee is responsible for
monitoring and achieving Year 2000 (Y2K) readiness for the Company and
oversees a Y2K Committee. The Y2K Committee is headed by the Bank's Vice
President of Operations and consists of members from the Bank's internal
audit, information systems and user departments.
Over the past three years, the Company has been addressing the Year 2000
issue. A significant part of Year 2000 readiness was converting the Bank's
financial computer system to a new comprehensive software system to run the
core banking operation. The conversion was successfully completed on April
27, 1998. The new financial computer system has been tested for Year 2000
readiness and the results were successful. Additionally, this new system
allows First Federal to enhance its current services. It was determined that
the Bank's previous financial computer system would be too costly to make
Year 2000 ready and would hinder other program development. Another
significant part of the Company's Year 2000 readiness includes contacting
significant third party vendors who are required to provide evidence of
their efforts to become Year 2000 ready. Management has evaluated each of
the Company's significant vendor's Year 2000 readiness progress and
considers them to be satisfactory. Management plans to have ongoing
communications with such vendors to insure Year 2000 readiness. Although the
Company has been assured of the readiness of its financial computer system
and significant vendors' systems for the Year 2000, the Y2K Committee
continues to test such systems for Year 2000 readiness for further
assurance. Of all third-party vendors and suppliers, perhaps the most
difficult assessment of Year 2000 risks are the utility companies. This risk
is shared by everyone in any geographic area and cannot be accurately
quantified. The Company's contingency plan also addresses the loss of
electrical power and other environmental failures. The Company has and will
continue to inform customers and employees regarding Year 2000 readiness.
The Company's Year 2000 readiness project is substantially complete;
however, continued efforts such as testing, vendor contacts, customer and
employee awareness will continue throughout the Year 2000.
------------------------------
Photo of
Y2K Team
------------------------------
For the past three years, a group of employees has worked to assure that
First Federal Savings Bank of Youngstown is "Y2K OK".
The Company has incurred cash outlays of approximately $882,000 through June
30, 1999, including $429,000 for the new comprehensive software system, in
connection with the Year 2000 readiness project. Management estimated the
total cost of Year 2000 compliance issues would be approximately $1.0
million, which is being funded through operations. The total cost of the
Year 2000 project is not expected to have a material impact on the Company's
results of operations.
The Company faces several risk factors with respect to the Year 2000. For
example, the ability of First Federal's loan customers to repay their
obligations could be adversely affected by business interruptions caused by
Year 2000 problems. The potential impact on First Federal of such problems
has not been determined, but could be significant. The Company is also
vulnerable to its significant vendors' Year 2000 issues with respect to
their major suppliers and their own Year 2000 issues.
The Company has finalized a written contingency plan and members of the Y2K
Committee have been testing and will continue to test this plan until the
Year 2000. The plan was developed for a general failure of the Company's
internal systems and specific contingency plans have been developed for each
critical application and vendor. The Company currently has contingency plans
to replace significant vendors that may have Year 2000 difficulties in
addition to replacing the other vendors or suppliers the Company cannot
test. The Company's contingency plan includes procedures to return to
automated systems after Year 2000 problems, if any, are rectified.
The Company anticipates that higher liquidity needs could result as it
approaches the end of calendar year 1999 and during the early part of
calendar year 2000. The Company's primary goal with regard to liquidity and
cash contingencies related to Y2K is to have enough cash available to meet
customer cash requirements. This is essential to ensure the continuing
viability of First Federal as a financial institution in which our customers
have confidence. The risk of public perception that cash will not be
available is a primary concern and specific issues are related to the level
of anticipated customer withdrawals and the level of loan commitments that
will need to be funded as customers access previously undisbursed lines of
credit. Consequently, the Bank preliminarily intends to use the Federal
Reserve Bank and the Federal Home Loan Bank as sources for liquidity.
The dates and costs of the Year 2000 remediation process are based on
management's best estimates. Management believes that the Company's Year
2000 efforts will be resolved on a timely and cost-efficient basis and does
not anticipate that the Company's additional efforts regarding Year 2000
compliance will have a material impact on its financial condition, results
of operations, liquidity and capital resources. There can be no guarantee,
however, that such estimates and assumptions will be achieved and actual
results could differ materially from those estimates.
Changes in Financial Condition
General. Total assets at June 30, 1999 were $675.7 million compared to
$651.7 million at June 30, 1998, an increase of $24.0 million, or 3.7%. The
increase was primarily growth in the securities portfolio partially offset
by a decline in loans receivable. Total liabilities at June 30, 1999 were
$605.6 million compared to $567.5 million at June 30, 1998, an increase of
$38.1 million, or 6.7%. This increase was primarily attributable to
increases in deposits and long-term borrowings, partially offset by declines
in short-term repurchase agreements, short-term borrowings and other
payables and accrued expenses. These aforementioned fluctuations in assets
and liabilities are described in greater detail below.
Securities Portfolio. The Company's securities portfolio increased $49.5
million, or 35.2%, during fiscal year 1999 and totaled $190.3 million at
June 30, 1999 compared to $140.8 million at June 30, 1998. Security
purchases totaling $128.2 million were partially offset by $35.5 million,
$10.7 million and $26.4 million in sales, maturities and principal receipts
on mortgage-backed securities. Additionally, the value of the securities
portfolio included a net unrealized gain of $1.2 million at June 30, 1998,
and, due to the recent rising interest rate environment, a net
unrealized loss of $4.3 million at June 30, 1999. Management believes that
the decline in fair value is temporary and that there is no impairment of
securities. Security purchases on the Company's Statement of Cash Flows
includes securities that were recorded on the trade date in June 1998, but
did not settle until July 1998. The increase in securities was primarily
funded by increased borrowings as part of management's strategy to maximize
net interest income.
Loan Portfolio. Net loans receivable declined $28.7 million, or 5.9%, and
totaled $453.8 million at June 30, 1999 compared to $482.5 million at June
30, 1998. The decline in the loan portfolio was primarily the result of two
factors. First, during the first quarter of fiscal 1999 there were
repayments of approximately $17.1 million in short-term consumer loans made
to customers in June 1998 to fund their stock subscriptions in a local
financial institution's initial public offering. Second, fixed-rate loans
were sold in the secondary market as opposed to being retained in the Bank's
portfolio in the low interest rate environment that existed for a large part
of fiscal year 1999. Adjustable-rate loans, which the Bank does not
currently sell in the secondary market, continued to grow within the Bank's
loan portfolio. At June 30, 1999, adjustable-rate loans totaled 40.1% of
gross loans compared to 32.5% of gross loans at June 30, 1998. Management's
effort to minimize the impact of interest rate changes on income and net
portfolio value was reflected in the increase in adjustable-rate loans,
primarily in the one- to four -family portfolio. Mortgage loans secured by
one- to four -family residences continued to be the largest component of the
loan portfolio, and represented 71.7 % of the gross loan portfolio at both
June 30, 1999 and 1998. During fiscal year 1999, the Bank began an effort to
increase the commercial loan portfolio to take advantage of the potential
higher rate of return on such a portfolio. Accordingly, the Bank's
commercial first mortgage loans grew from $28.6 million, or 5.8% of the
gross loan portfolio at June 30, 1998 to $33.7 million, or 7.2% of the gross
loan portfolio at June 30, 1999. The Bank anticipates continued growth in
commercial loans.
------------------------------
Photo of
Myron S. Roh
------------------------------
Chairman of the Board of FFY Financial Corp. and First Federal Savings Bank
------------------------------
Photo of
Randy Shaffer
------------------------------
Vice President of FFY Financial Corp. and First Federal Savings Bank
Portfolio loan originations during the year ended June 30, 1999 totaled
$118.9 million, a decrease of $20.0 million, compared to $138.9 million for
the year ended June 30, 1998. The decline in portfolio originations was due
to an increase in originations of loans available for sale during fiscal
year 1999 as well as fiscal year 1998 originations including the $17.1
million in short-term loans disbursed in June 1998 as explained in the
paragraph above. Originations of loans available for sale during the year
ended June 30, 1999 totaled $30.9 million, an increase of $25.9 million
compared to $5.0 million for the year ended June 30, 1998. Overall, total
loan originations increased $5.9 million during fiscal year 1999, which was
mostly attributable to the Bank's secondary market operation. Mortgage loans
for the purchase, construction or refinance of one- to four -family homes in
the Bank's market continued to represent the largest segment of its loan
originations. During fiscal year 1999, one- to four -family loan
originations, including loans for the construction of one- to four -family
homes, were $85.7 million, or 57.2% of total originations, compared to $75.1
million, or 52.2% for fiscal year 1998. All mortgage loans originated by
First Federal during the year were underwritten by the Bank's personnel and
are secured primarily by properties in Mahoning, Trumbull or Columbiana
counties in northeastern Ohio.
------------------------------
Photo of
W. Terry Patrick
------------------------------
Partner
Friedman & Rummell Attorneys at Law
First Federal has historically been a portfolio lender; however, during
fiscal year 1998, management put in place a secondary market mortgage lending
operation designed to originate and sell qualifying loans to the Federal
National Mortgage Association (Fannie Mae). Currently, First Federal only
sells fixed-rate loans to Fannie Mae. During fiscal year 1999, First Federal
sold 390 loans with a principal balance of $31.0 million at a pre-tax gain
of $720,000. During fiscal year 1998, 66 loans were sold with a principal
balance of $5.0 million at a pre-tax gain of $134,000. Management believes
the activity in secondary market mortgage lending may slow in the near term
due to the recent increase in market interest rates. However, management
expects that the secondary market mortgage lending program will continue as
long as market conditions allow it to be profitable.
Deposits. Deposit accounts increased $13.3 million, or 3.0%, and totaled
$457.3 million at June 30, 1999 compared to $444.0 million at June 30, 1998.
Deposit outflows occurred during June 1998 as a result of customers funding
their stock subscriptions in a local financial institution's initial public
offering. However, since June 1998, the Bank has been successful in
obtaining funds, primarily in retail money market accounts. In order to be
competitive in obtaining funds and to respond to changes in consumer demand,
First Federal introduced a new money market product in November 1997 for
customers who are generally interest rate conscious and want to keep their
funds liquid. At June 30, 1999, this new money market product totaled $25.0
million with a weighted average rate of 4.31%, compared to $11.5 million and
a weighted average rate of 4.27% at June 30, 1998. Overall, money market
accounts increased $11.4 million during fiscal year 1999. NOW and
certificate accounts grew $2.3 million and $198,000, respectively, during
fiscal year 1999, whereas passbook accounts declined $558,000. The weighted
average cost of deposits declined 36 basis points during fiscal year 1999,
from 4.63% at June 30, 1998 to 4.27% at June 30, 1999.
Securities Sold Under Agreements to Repurchase. Short-term securities sold
under agreements to repurchase (repurchase agreements) declined $6.5 million
during fiscal year 1999 and totaled $6.6 million at June 30, 1999 compared
to $13.1 million at June 30, 1998. The reduction in short-term repurchase
agreements was due to the maturity of an agreement in February 1999. Long-
term repurchase agreements totaled $51.3 million at both June 30, 1999 and
1998. Repurchase agreements are used to provide funding for the loan and
securities portfolios. At June 30, 1999 and 1998, the weighted average rate
of repurchase agreements was 5.67% and 5.76%, respectively.
Borrowed Funds. Total borrowed funds increased $48.8 million during fiscal
year 1999 and totaled $82.8 million at June 30, 1999 compared to $34.0
million at June 30, 1998. Both short- and long-term borrowed funds consist
of advances from the Federal Home Loan Bank of Cincinnati. The increase
during fiscal year 1999 was primarily used to fund growth in the securities
portfolio. At June 30, 1999 and 1998, the weighted average rate of total
borrowed funds was 5.06% and 5.60%, respectively, representing a 54 basis
point decline. Borrowed funds are managed within the Company's guidelines
for asset/liability management, profitability and overall growth objectives.
Other Liabilities. Other payables and accrued expenses declined $17.2
million from June 30, 1998 and totaled $5.3 million at June 30, 1999. This
decline was primarily attributable to $16.6 million in securities purchased
and recorded on the trade date in June 1998 that did not settle until July
1998.
Stockholders' Equity. Total stockholders' equity declined $14.1 million, or
16.7%, during fiscal year 1999 and totaled $70.1 million at June 30, 1999
compared to $84.2 million at June 30, 1998. This decline resulted
principally from stock repurchases, dividends paid to stockholders and a
decline in market value of available-for-sale securities, net of tax
totaling $17.7 million, $3.1 million and $3.6 million, respectively,
partially offset by net income for fiscal year 1999 totaling $8.1 million
and other increases totaling $2.2 million. Refer to the Consolidated
Statement of Changes in Stockholders' Equity contained in this Annual Report
for additional detail. On January 19, 1999, the Company announced a 100%
stock dividend, which is equivalent to a two-for-one stock split, that was
paid on March 5, 1999 to stockholders of record on February 19, 1999. Refer
to Note 14 of the Notes to Consolidated Financial Statements contained in
this Annual Report for additional explanation of the stock dividend. On
February 16, 1999, the Company announced its intention to repurchase 10%, or
758,936 shares of its then outstanding shares of common stock in open market
transactions over a twelve month period beginning February 23, 1999. As of
the Company's last public announcement on August 4, 1999, 525,607 shares
have been repurchased at an average price of $18.31 per share. At June 30,
1999 and 1998, tangible book value per share was $9.81 and $10.49 per share,
respectively. The ratio of stockholders' equity to total assets at June 30,
1999 was 10.4% compared to 12.9% at June 30, 1998.
------------------------------
Photo of
Ronald P. Volpe, Ph.D.
------------------------------
Professor of Finance
Williamson College of Business Administration
Youngstown State University
------------------------------
Photo of
FFY Employees
------------------------------
Prior to publicly announcing the name change, First Federal hosted a
company gala at which the new name and logo were introduced to employees.
Results of Operations
The Company's results of operations depend primarily on the level of net
interest income, which is the difference, or "spread", between the average
yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities. Interest-earning assets consist primarily of
loans receivable and securities, whereas interest-bearing liabilities
consist primarily of deposits, repurchase agreements and borrowed funds. The
ratio of average interest-earning assets to average interest-bearing
liabilities during fiscal year 1999 was 1.13:1 compared to 1.15:1 during
fiscal year 1998. Net interest income is affected by both changes in the
level of interest rates and changes in the amount and composition of
interest-earning assets and interest-bearing liabilities. Results of
operations are also dependent upon, among other things, the provision for
loan losses, non-interest income, non-interest expense and income taxes.
Comparison of Years Ended June 30, 1999 and 1998
General. The Company recorded net income for the year ended June 30, 1999 of
$8.1 million, an increase of $411,000, or 5.3%, from net income of $7.7
million for the year ended June 30, 1998. Basic and diluted earnings per
share for the year ended June 30, 1999 totaled $1.15 per share and $1.11 per
share, respectively, compared to $1.03 per share and $0.99 per share,
respectively, for the year ended June 30, 1998. This represents an increase
in basic and diluted earnings per share of 11.7% and 12.1%, respectively.
The Company's annualized return on average equity for fiscal year 1999 was
10.26% compared to 9.28% for fiscal year 1998.
Interest Income. Total interest income for the year ended June 30, 1999 was
$49.1 million, an increase of $1.1 million, or 2.2%, compared to $48.0
million for the year ended June 30, 1998. Interest income from loans
declined $738,000, or 1.9%, and totaled $39.0 million for the year ended
June 30, 1999 compared to $39.8 million for year ended June 30, 1998. This
decrease was the result of a 20 basis point decline in the average yield
earned on loans, from 8.59% to 8.39%, partially offset by an increase of
$2.5 million in the average balance of loans outstanding. The average yield
earned on loans declined due to a decrease in market rates for most of the
Company's current fiscal year. Although net loans receivable declined $28.6
million from June 30, 1998 to June 30, 1999, the average balance of loans
receivable increased as mentioned previously. The June 30, 1998 loans
receivable balance included approximately $17.1 million of short-term loans
(see "Loan Portfolio" on page 9) which remained outstanding for part of the
first quarter of fiscal year 1999, thus impacting the average balance for
the current year. Interest income from securities increased $1.9 million, or
25.3%, and totaled $9.5 million for the year ended June 30, 1999 compared to
$7.6 million for the year ended June 30, 1998. This increase was the result
of a $42.5 million increase in the average balance of securities, primarily
Federal agency obligations, municipal securities and trust preferred
securities. The increase in volume of securities was partially offset by a
29 basis point decline in the average yield on securities, from 6.41% to
6.12%. The decline in the weighted average yield was largely the result of
reinvesting proceeds from a high level of loan repayments and prepayments at
lower market rates.
Interest Expense. Interest expense increased $955,000, or 3.7%, and totaled
$26.5 million for the year ended June 30, 1999 compared to $25.6 million for
the year ended June 30, 1998. This increase was primarily due to volume
increases in long-term repurchase agreements and borrowed funds, partially
offset by a rate decline in deposits and, to a lesser extent, volume and
rate declines in short-term repurchase agreements. The average balance of
long-term repurchase agreements and borrowed funds increased $17.1 million
and $30.2 million, respectively. The average cost of interest on deposits
declined 28 basis points, from 4.77% for fiscal year 1998 to 4.49% for
fiscal year 1999. This decline in rate primarily reflects an overall
reduction in market interest rates throughout the Company's 1999 fiscal
year.
Net Interest Income. Net interest income increased $122,000 or 0.5%, and
totaled $22.5 million for the year ended June 30, 1999 compared to $22.4
million for the year ended June 30, 1998. The Company's net interest margin
(net interest income as a percentage of average interest-earning assets) was
3.62% for the year ended June 30, 1999, down 19 basis points from 3.81% for
the year ended June 30, 1998. The Company's net interest margin declined due
mainly to a lower yield earned on loans and securities as well as increased
borrowings, which tend to have a higher cost than core deposits. However,
the Company's net interest margin was positively affected by lower rates
paid on deposits and short-term borrowings.
Provision for Loan Losses. The provision for loan losses totaled $494,000
for the year ended June 30, 1999 compared to $566,000 for the year ended
June 30, 1998. The provision for loan losses reflects management's
evaluation of the underlying credit risk of the Bank's loan portfolio to
adequately provide for probable loan losses inherent in the loan portfolio
as of the balance sheet date. The allowance for loan losses totaled 112.3%
of non-performing assets at June 30, 1999, up from 82.4% at June 30, 1998
due primarily to a 29% decline in non-performing assets. More aggressive
collection efforts contributed to the decline in non-performing assets.
Future additions to the allowance for loan losses will be dependent on a
number of factors including the performance of the Bank's loan portfolio,
the economy, changes in interest rates and the effect of such changes on
real estate values, and inflation. Management believes that the allowance
for loan losses is adequate at June 30, 1999.
Non-Interest Income. Non-interest income totaled $2.6 million for the year
ended June 30, 1999, an increase of $785,000, or 44.5%, compared to $1.8
million for the year ended June 30, 1998. Largely contributing to this
increase was the Bank's secondary market operation which accounted for
$720,000 in gains from loan sales during the current fiscal year compared to
$134,000 in gains from loan sales during the prior fiscal year (see "Loan
Portfolio" on page 9). Service charge income increased 28.1% from $700,000
for the year ended June 30, 1998 to $897,000 for the year ended June 30,
1999 largely due to increased fees on NOW accounts and fees from a loan
extension program.
------------------------------
Photo of
Billboard Advertisement
------------------------------
This outdoor message was posted throughout the Mahoning Valley in mid-July.
Non-Interest Expense. Non-interest expense totaled $12.5 million for the
year ended June 30, 1999, an increase of $724,000, or 6.2%, compared to
$11.8 million for the year ended June 30, 1998. Largely contributing to this
increase were the activities of FFY Holding's insurance affiliate, Daniel W.
Landers Insurance Agency, Ltd. (Landers), which began operations on April 1,
1998, and therefore only had three months activity during the prior fiscal
year. Also contributing to the fiscal year 1999 growth in non-interest
expense was increased depreciation, primarily due to Year 2000 computer-
related purchases, and advertising. In addition, severance pay was awarded
to a long-tenured Company officer in December 1998 as a result of her
retirement. The Company's efficiency ratio totaled 49.8% for the year ended
June 30, 1999 compared to 49.1% for the year ended June 30, 1998.
Income Taxes. Federal income taxes totaled $4.0 million for the year ended
June 30, 1999, a decline of $107,000 compared to $4.1 million for the year
ended June 30, 1998. The decline in federal income taxes resulted from a
reduction in the Company's effective tax rate due to increased income from
tax-exempt securities.
Minority Interest. Minority interest in loss of consolidated subsidiaries
represents the portion of net loss from the real estate and insurance
affiliates not owned by FFY Holdings, Inc.
Comparison of Years Ended June 30, 1998 and 1997
General. Net income for the year ended June 30, 1998 totaled $7.7 million,
an increase of $2.4 million from net income of $5.3 million for the year
ended June 30, 1997. This increase was largely attributable to the one-time
Savings Association Insurance Fund (SAIF) special assessment of $2.0
million, net of taxes, recorded in fiscal year 1997. Basic and diluted
earnings per share for the year ended June 30, 1998 totaled $1.03 per share
and $0.99 per share, respectively, compared to $0.62 per share and $0.60 per
share, respectively, for the year ended June 30, 1997.
Net Interest Income. Net interest income increased $346,000, or 1.6%, and
totaled $22.4 million for the year ended June 30, 1998 compared to $22.1
million for the year ended June 30, 1997. The net interest margin for the
years ended June 30, 1998 and 1997 was 3.81% and 3.89%, respectively.
Although net interest income increased over fiscal year 1997, the net
interest margin dropped 8 basis points due mainly to a higher average
outstanding balance of repurchase agreements and borrowings during fiscal
year 1998 that were used to fund the growth in the loan and securities
portfolios. These sources of funds tend to have a higher cost than core
deposits.
Interest income from loans increased $1.4 million, or 3.6%, and totaled
$39.8 million for the year ended June 30, 1998 compared to $38.4 million for
year ended June 30, 1997. This increase was the result of an increase of
$11.2 million in the average balance of loans outstanding and a 9 basis
point increase in the average yield on loans, from 8.50% to 8.59%, despite a
relatively flat yield curve throughout the year. The average yield on loans
increased due to growth in the consumer loan portfolio, primarily home
equity loans and short-term notes, which tend to have higher interest rates
than traditional mortgage loans.
Interest income from securities increased $1.0 million, or 16.3%, and
totaled $7.6 million for the year ended June 30, 1998 compared to $6.6
million for the year ended June 30, 1997. This increase was the result of a
$22.1 million increase in the average balance of securities. The increase in
the average balance of securities was partially offset by a 10 basis point
decline in the average yield on securities, from 6.51% to 6.41%. The decline
in the weighted average yield was largely the result of a decline in the
yield on mortgage-backed securities caused by high loan prepayments over the
last six months of fiscal year 1998, primarily loan refinances due to the
low interest rate environment.
Interest expense increased $1.8 million, or 7.3%, and totaled $25.6 million
for the year ended June 30, 1998 compared to $23.8 million for the year
ended June 30, 1997. Interest expense increased due to more repurchase
agreements and borrowings partially offset by a decline in interest on
deposit accounts. Interest expense on short- and long-term repurchase
agreements increased $389,000 and $1.5 million, respectively, mainly due to
volume, to fund the growth in securities and loans. Interest expense on
borrowed funds increased $280,000, primarily due to volume. Interest expense
on deposits declined $417,000, or 1.9%, as a result of a decrease in the
average balance of interest-bearing deposits totaling $3.3 million from
$450.2 million at June 30, 1997 to $446.9 million at June 30, 1998 and a 6
basis point decrease in the average cost on deposits from 4.82% to 4.76%.
Provision for Loan Losses. The provision for loan losses declined $122,000
from $688,000 for the year ended June 30, 1997 and totaled $566,000 for the
year ended June 30, 1998. This decline reflected management's evaluation of
the underlying credit risk of First Federal's loan portfolio to adequately
provide for probable loan losses inherent in the loan portfolio as of the
balance sheet date. The allowance for loan losses totaled 82.4% of non-
performing assets at June 30, 1998, up from 74.2% and 73.6% at June 30, 1997
and 1996, respectively.
Non-Interest Income. Total non-interest income increased $1.1 million over
the year ended June 30, 1997 and totaled $1.8 million for the year ended
June 30, 1998. Service charges totaled $700,000 for the year ended June 30,
1998, an increase of $137,000, or 24.3%, compared to the year ended June 30,
1997 due to increases in fees associated with NOW accounts, automated teller
machines and debit cards. Sales of securities available for sale resulted in
a $246,000 gain for the year ended June 30, 1998 compared to a $320,000 loss
for the year ended June 30, 1997. The 1997 fiscal year loss was the result
of securities sold to fund a stock repurchase program (tender offer) in late
calendar year 1996. Other non-interest income increased $443,000 over the
year ended June 30, 1997 and totaled $818,000 for the year ended June 30,
1998, primarily reflecting the activities of FFY Holdings, Inc., which
include real estate brokerage services and insurance sales through its two
respective affiliations. Also contributing to the fiscal year 1998 increase
was a gain on sale of loans from First Federal's secondary market mortgage
operation which began in January 1998.
------------------------------
Photo of
A. Gary Bitonte, MD
------------------------------
Medical Consultant
Private Investments
Non-Interest Expense. Non-interest expense declined $2.5 million, or 17.6%,
from the year ended June 30, 1997 and totaled $11.8 million for the year
ended June 30, 1998. This decline was primarily due to fiscal year 1997
expenses that included the one-time SAIF assessment of $3.0 million.
Partially offsetting the SAIF assessment were expenses related to the
activities of FFY Holding's real estate and insurance affiliates and
increased professional services at the Bank. The Company's efficiency ratio
totaled 49.1% for the year ended June 30, 1998 compared to 62.0% (or 48.9%
without the effect of the SAIF assessment) for the year ended June 30, 1997.
Income Taxes. Federal income taxes increased $1.7 million over the year
ended June 30, 1997 and totaled $4.1 million for the year ended June 30,
1998. The increase in federal income taxes was due to the increase in net
income before tax resulting from the SAIF assessment recorded in the fiscal
year 1997 and the difference in the gain/loss on sale of securities.
The following table presents for the periods indicated average balance
sheets, the total dollar amount of interest income from average interest-
earning assets and the resultant yields, as well as the interest expense on
the average interest-bearing liabilities, and the resultant costs, expressed
both in dollars and rates. Average balances for all years presented are
daily average balances. Interest on non-accruing loans has been included in
the table to the extent received.
Average Balances, Interest Rates and Yields
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (1) $465,622 39,047 8.39% $463,118 39,785 8.59% $451,872 38,417 8.50%
Securities available
for sale, net (2) (3) 167,217 10,163 6.12% 124,764 7,916 6.41% 102,661 6,708 6.51%
FHLB Stock 4,677 333 7.12% 4,284 312 7.28% 3,935 279 7.09%
Other 3,343 151 4.52% 5,556 287 5.17% 13,356 676 5.06%
-------- ------ -------- ------ -------- ------
Total
interest-earning
assets (2) 640,859 49,694 7.77% 597,722 48,300 8.10% 571,824 46,080 8.05%
------ ------ ------
Noninterest-earning
assets 22,392 20,942 19,764
-------- -------- --------
Total assets $663,251 $618,664 $591,588
======== ======== ========
Interest-Bearing
Liabilities:
NOW accounts $ 63,148 1,613 2.55% $ 54,962 1,399 2.55% $ 53,259 1,355 2.54%
Savings accounts 92,049 2,091 2.27% 100,125 2,683 2.68% 110,177 3,302 3.00%
Certificate accounts 292,328 16,413 5.61% 291,841 17,200 5.89% 286,796 17,042 5.94%
Short-term repurchase
agreements 9,054 450 4.97% 15,241 872 5.72% 7,916 483 6.10%
Long-term repurchase
agreements 51,300 2,974 5.80% 34,241 2,043 5.97% 9,077 559 6.16%
Short-term borrowings 27,596 1,451 5.26% 24,004 1,362 5.67% 19,619 1,082 5.52%
Long-term borrowings 30,175 1,523 5.05% - - - - - -
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities 565,650 26,515 4.69% 520,414 25,559 4.91% 486,844 23,823 4.89%
------ ------ ------
Noninterest-bearing
liabilities (4) 18,291 14,935 11,807
-------- ------ -------
Total liabilities 583,941 535,349 498,651
Stockholders' equity 79,310 83,315 92,937
-------- ------ -------
Total liabilities
and equity $663,251 $618,664 $591,588
======== ======== ========
Net interest income 23,179 22,741 22,257
Less fully taxable
equivalent adjustment (610) (294) (155)
------ -------- ------
Net interest income per
statement of income 22,569 22,447 22,102
====== ======== ======
Net interest rate spread 3.08% 3.19% 3.16%
===== ===== =====
Net earning assets $ 75,209 $ 77,308 $ 84,980
======== ======== ========
Net yield on average
interest-earning
assets (2) 3.62% 3.81% 3.89%
===== ===== =====
Average interest-earning
assets to average
interest-bearing
liabilities 1.13 x 1.15 x 1.17 x
====== ======== ======
<FN>
<F1> Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.
<F2> Yield is calculated without consideration of the unrealized gain (loss)
on securities available for sale.
<F3> Interest is presented on a fully taxable equivalent basis using the
Company's federal statutory tax rate of 34%.
<F4> Includes noninterest-bearing checking accounts.
</FN>
</TABLE>
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (changes in volume multiplied by old
rate) and (ii) changes in rate (changes in rate multiplied by old volume).
For purposes of this table, changes attributable to both rate and volume,
which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.
Rate/Volume Analysis
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
-------------------------------- -----------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 210 (948) (738) 960 408 1,368
Securities (1) 2,620 (373) 2,247 1,313 (105) 1,208
FHLB stock 28 (7) 21 26 7 33
Other (103) (33) (136) (404) 15 (389)
----------------------------------------------------------------------
Total interest-earning assets $2,755 (1,361) 1,394 1,895 325 2,220
======================================================================
Interest-bearing liabilities:
NOW accounts $ 214 - 214 44 - 44
Savings accounts (204) (388) (592) (285) (334) (619)
Certificate accounts 29 (816) (787) 301 (143) 158
Short-term repurchase agreements (319) (103) (422) 421 (32) 389
Long-term repurchase agreements 991 (60) 931 1,502 (18) 1,484
Short-term borrowings 193 (104) 89 250 30 280
Long-term borrowings 1,523 - 1,523 - - -
----------------------------------------------------------------------
Total interest-bearing
liabilities $2,427 (1,471) 956 2,233 (497) 1,736
======================================================================
Net interest income (1) $ 438 484
====== =====
<FN>
<F1> Presented on a fully taxable equivalent basis.
</FN
</TABLE>
------------------------------
Photo of
Lending Specialists
------------------------------
First Federal's experienced lending specialists offer both residential and
commercial real estate loans to customers.
Asset/Liability Management
Asset/liability management is the measurement and analysis of the Company's
exposure to changes in the interest rate environment. Management analyzes
the effects of interest rate changes on net portfolio value and net interest
income over specified periods of time by evaluating the Company's mix of
interest-earning assets and interest-bearing liabilities in varied interest
rate environments. The Company manages this risk on a continuing basis
through the use of a number of strategies as an ongoing part of its business
plan. The objective of the Company's asset/liability management is to
maintain consistent growth in net interest income within the Company's
policy guidelines. Management considers interest rate risk to be the
Company's most significant market risk.
Income simulation techniques and net portfolio value analysis are used to
determine the Company's sensitivity to changes in interest rates. The models
are based on actual cash flows and repricing characteristics for on and off
balance sheet instruments, and incorporate market-based assumptions
regarding the impact of changing interest rates on certain assets and
liabilities. Actual results will differ from simulated results due to
timing, magnitude and frequency of interest rate changes. Actual results may
also differ due to changes in market conditions and management strategies.
------------------------------
Photo of
Robert L. Wagmiller
------------------------------
Partner/Principal of
Hill, Barth & King, Inc.
The income simulation modeling employed by the Company measures changes in
net interest income over the next 12- and 24-month periods resulting from
hypothetical rising and declining interest rates. Key assumptions used in
this model include (i) reinvestment of security and mortgage cash flows,
(ii) loan prepayment speeds, (iii) reinvestment of certificate of deposit
maturities and (iv) deposit pricing strategies. As of June 30, 1999, the
Company's simulation modeling indicated that with a 200 basis point (bp)
increase in interest rates, the Company's net interest income would be 2.08
percent and 6.75 percent less than if rates remained constant over the next
12- and 24-month periods, respectively. As of the same date and a 200bp
decrease in interest rates, the Company's net interest income would be 0.08
percent more and 4.47 percent less than if rates remained constant over the
next 12- and 24-month periods, respectively. The percentage changes in net
interest income are within the acceptable range established by the Company's
board of directors in both a rising and falling rate environment.
------------------------------
Photo of
Marie Izzo Cartwright
------------------------------
Vice President
Glimcher Properties Limited Partnership
The Bank measures the effect of interest rate changes on its net portfolio
value (NPV), which is the difference between the market value of the Bank's
assets and liabilities, under different interest rate scenarios. Changes in
NPV are measured using interest rate shocks rather than changes in interest
rates over a period of time as are assumed with the income simulation model.
At June 30, 1999, the Bank's NPV ratio, using interest rate shocks ranging
from a 300bp rise in rates to a 300bp decline in rates are shown in the
following table:
Net Portfolio Value
(Bank only)
<TABLE>
<CAPTION>
Basis Point
Change in 6/30/99
Rates NPV Ratio
----------- ---------
<C> <C>
+300 5.26%
+200 7.03%
+100 8.66%
Base 10.24%
-100 10.59%
-200 11.36%
-300 11.95%
</TABLE>
A significant part of First Federal's asset/liability management focuses on
originating adjustable-rate mortgage loans (ARMs). ARM originations totaled
56.3%, 37.2% and 28.4% of portfolio originations in fiscal years 1999, 1998
and 1997, respectively. Largely contributing to the continued growth in ARM
originations over the past two fiscal years was the Bank's 7/1-year ARM
product. This product, where the interest rate is fixed for seven years and
adjusts every year thereafter, accounted for 47.4% and 32.4% of total
adjustable-rate loans at June 30, 1999 and 1998, respectively. At June 30,
1999, loans with an adjustable rate feature totaled $191.5 million, or 40.1%
of the gross loan portfolio compared to $160.4 million, or 32.5% of the
gross loan portfolio at June 30, 1998. In addition to the 7/1-year ARM,
growth in the Bank's adjustable rate loans is also attributable to the
Bank's secondary market operation, which is currently designed to sell
fixed-rate mortgage loans to Fannie Mae, thus decreasing the Bank's exposure
to interest rate risk and provide income from sales and servicing.
Additionally, the servicing asset hedges the Bank against rising rates, as
it becomes more valuable in a rising rate environment, offsetting the
decline in the value of other longer term assets in a rising rate
environment.
In order to consolidate its customer base and reduce interest rate risk
while maintaining adequate returns, First Federal has increased its
investment in consumer loans over the past several years. While consumer
loans are believed to have a greater risk of default than mortgage loans,
consumer loans are typically much shorter in duration than mortgage loans
which serves to reduce interest rate risk. Management intends to continue to
expand the Bank's consumer loan portfolio over the next several years.
Over the past three fiscal years, the Company increased its investments in
adjustable-rate securities in an attempt to reduce interest rate risk. At
June 30, 1999, the market value of adjustable-rate securities totaled $46.1
million, or 24.2% of the total securities portfolio compared to a market
value of $694,000, or 0.6% of the total securities portfolio at June 30,
1996.
The Company's management may, at times, place greater emphasis on maximizing
net interest margin rather than merely concentrating on interest rate risk
depending on the relationship between short- and long-term interest rates,
market conditions and consumer preference. Management believes that
increased net income resulting from a moderate contrast between the maturity
of its assets and liabilities can provide high enough returns to justify the
increased risk exposure during periods of stable interest rates. Management
has established limits on the amount of its interest rate risk exposure.
There can be no assurance, however, that management's efforts to limit
interest rate risk will be successful.
------------------------------
Photo of
Jeffrey L. Francis
------------------------------
President and CEO of
FFY Financial Corp. and First Federal Savings Bank
Liquidity and Cash Flows
In general terms, liquidity is a measurement of the Company's ability to
meet its cash needs. The Company's objective in liquidity management is to
maintain the ability to meet loan commitments, purchase securities or to
repay deposits and other liabilities in accordance with their terms without
an adverse impact on current or future earnings. The Company's principal
sources of funds are deposits, amortization and prepayments of loans,
maturities, sales and principal receipts of securities, borrowings,
repurchase agreements and operations.
Federal regulations require the Bank to maintain minimum levels of liquid
assets in each calendar quarter of not less than 4% of either (i) its
liquidity base at the end of the preceding quarter, or (ii) the average
daily balance of its liquidity base during the preceding quarter. The Bank's
liquidity exceeded the applicable liquidity requirement at June 30, 1999 and
1998. Simply meeting the liquidity requirement does not automatically mean
the Bank has sufficient liquidity for a safe and sound operation.
Regulations also include a separate requirement that each thrift must
maintain sufficient liquidity to ensure its safe and sound operation. Thus,
adequate liquidity may vary depending on the Bank's overall asset/liability
structure, market conditions, the activities of competitors, and the
requirements of its own deposit and loan customers. Management believes
the Bank's liquidity is sufficient.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and securities
and (iv) the objective of its asset/liability management program. Along with
its liquid assets, the Bank has additional sources of liquidity available
including, but not limited to, the ability to obtain deposits by offering
above-market interest rates and access to advances from the Federal Home
Loan Bank.
------------------------------
Photo of
William A. Russell
------------------------------
President
Canteen Services of Steel Valley, Inc.
The primary investing activities of the Company are originating loans and
purchasing securities. The fiscal year 1999 decline in loans receivable
provided $29.2 million, whereas fiscal year 1998 increases in loans
receivable used $21.6 million and $22.1 million, respectively, during fiscal
years 1998 and 1997. Growth in the Company's securities portfolio used $72.0
million, $11.5 million and $1.4 million, respectively, during fiscal years
1999, 1998 and 1997. Generally, during periods of declining interest rates,
the Bank would be expected to experience increased loan prepayments, which
would likely be reinvested at lower interest rates. During periods of
increasing interest rates, loan prepayments would be expected to decline,
reducing funds available for investment at higher interest rates.
The primary financing activities of the Company are deposits, repurchase
agreements and borrowings. The fiscal year 1999 increase in deposit accounts
provided $10.7 million, whereas declines in deposit accounts used $6.1
million during both fiscal years 1998 and 1997. Repurchase agreements used
$6.5 million during fiscal year 1999 and provided $32.1 million and $25.7
million, respectively, during fiscal years 1998 and 1997. Borrowed funds
provided $48.8 million, $6.5 million and $26.3 million, respectively, during
fiscal years 1999, 1998 and 1997.
Capital Resources
Office of Thrift Supervision (OTS) regulations require savings institutions
to maintain certain minimum levels of regulatory capital. An institution
that fails to comply with its regulatory capital requirements must obtain
OTS approval of a capital plan and can be subject to a capital directive and
certain restrictions on its operations. At June 30, 1999, the minimum
capital regulations require savings institutions to have tangible capital to
total tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1)
capital to total adjusted tangible assets of 3.0%; and a minimum ratio of
total capital (core capital and supplementary capital) to risk weighted
assets of 8.0%, of which 4.0% must be core capital.
Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on an institution's financial statements. The
regulations establish a framework for the classification of savings
institutions into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Generally, an institution is considered well capitalized
if it has a core (Tier 1) capital ratio of at least 5.0% (based on average
total assets); a core (Tier 1) risk-based capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.0%.
------------------------------
Photo of
Henry P. Nemenz
------------------------------
President
H.P. Nemenz Food Stores, Inc.
------------------------------
Photo of
Executive Staff
------------------------------
The executive staff of First Federal Savings Bank of Youngstown (l to r):
Jeffrey L. Francis, Joseph R. Sainato, Mark Makoski, Randy Shaffer, J.
Craig Carr, Therese Ann Liutkus, Timm B. Schreiber and David S. Hinkle
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors.
At June 30, 1999, the Bank met all capital adequacy requirements to which it
is subject. Further, the most recent OTS notification categorized the Bank
as a well-capitalized institution under the prompt corrective action
regulations. There have been no conditions or events since that notification
that management believes have changed the Bank's capital classification.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the
change in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of the Bank's
operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Market Prices and Dividends Declared
The common stock of FFY Financial Corp. trades on The Nasdaq Stock Market
under the symbol "FFYF". As of July 31, 1999, there were 7,078,865 shares
outstanding held by approximately 1,328 stockholders of record (not
including the number of persons or entities holding stock in nominee or
street name through various brokerage firms). The table below
shows the reported high and low trade prices of the common stock and cash
dividends per share declared during the years ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
June 30, 1999: High Low Dividends
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First quarter $18 11/16 $13 1/8 $0.1125
Second quarter 17 3/4 13 1/4 0.1125
Third quarter 18 7/8 16 3/4 0.1125
Fourth quarter 19 - 16 7/8 0.1125
June 30, 1998:
--------------------------------------------------------
First quarter $14 7/16 $12 3/4 $0.10
Second quarter 16 9/16 13 13/16 0.10
Third quarter 18 - 15 15/16 0.10
Fourth quarter 17 5/8 16 3/16 0.10
</TABLE>
Quarterly Earnings Summary
- -----------------------------------------------------------------------------
FFY Financial Corp. and Subsidiaries
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Quarter ended fiscal 1999 September 30 December 31 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $12,161 12,384 12,241 12,297
Total interest expense 6,711 6,742 6,522 6,539
------------------------------------------------------
Net interest income 5,450 5,642 5,719 5,758
Provision for loan losses 125 124 131 114
------------------------------------------------------
Net interest income
after provision for
loan losses 5,325 5,518 5,588 5,644
Service charges 198 218 217 264
Gain (loss) on sale of securities
available for sale 64 (7) 54 91
Gain on sale of loans 112 277 202 129
Other non-interest income 243 194 113 179
Non-interest expense (3,126) (3,138) (3,048) (3,182)
------------------------------------------------------
Income before income taxes
and minority interest 2,816 3,062 3,126 3,125
Income tax expense 931 1,029 1,086 1,037
Minority interest in gain (loss)
of consolidated subsidiaries - - (106) 12
------------------------------------------------------
Net income $ 1,885 2,033 2,146 2,076
======================================================
Basic earnings per share $ 0.26 (1) 0.28 0.31 0.31
======================================================
Diluted earnings per share $ 0.25 (1) 0.27 0.30 0.30
======================================================
<CAPTION>
Quarter ended fiscal 1998 September 30 December 31 March 31 June 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $11,958 12,004 12,074 11,969
Total interest expense 6,475 6,351 6,317 6,416
------------------------------------------------------
Net interest income 5,483 5,653 5,757 5,553
Provision for loan losses 142 184 115 124
------------------------------------------------------
Net interest income
after provision for
loan losses 5,341 5,469 5,642 5,429
Service charges 170 183 162 186
Gain on sale of securities
available for sale 48 51 54 93
Gain on sale of loans - 2 31 101
Other non-interest income 110 143 263 168
Non-interest expense (2,761) (2,920) (3,056) (3,033)
------------------------------------------------------
Income before income
taxes 2,908 2,928 3,096 2,944
Income tax expense 1,005 988 1,128 1,026
------------------------------------------------------
Net income $ 1,903 1,940 1,968 1,918
======================================================
Basic earnings per share (1)
$ 0.25 0.26 0.26 0.26
======================================================
Diluted earnings
per share (1) $ 0.24 0.25 0.25 0.25
======================================================
<FN>
<F1> Per share figures were restated to reflect a 100% stock dividend,
effected in the form of a two-for-one stock split, declared on
January 19, 1999.
Note: Certain amounts in the 1999 and 1998 quarterly earnings data have
been reclassified to conform with the presentation of the Selected
Consolidated Financial Information included in this Annual Report.
</FN>
</TABLE>
FFY Financial Corp. and Subsidiaries
Consolidated Financial Statements
June 30, 1999 and 1998
(With Independent Auditors' Report Thereon)
FFY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Cash $ 5,362,745 4,362,127
Interest-bearing deposits 5,245,061 5,713,055
Short-term investments 865,000 -
------------------------------
Total cash and cash equivalents 11,472,806 10,075,182
Securities available for sale 190,325,599 140,793,201
Loans receivable, net of allowance for loan losses of
$2,645,132 and $2,740,169, respectively 453,839,111 482,463,396
Loans available for sale 441,500 -
Interest and dividends receivable on securities 1,953,940 1,421,574
Interest receivable on loans 2,707,846 2,698,117
Federal Home Loan Bank stock, at cost 4,841,200 4,511,500
Office properties and equipment, net 7,218,640 7,920,660
Other assets 2,890,372 1,862,863
------------------------------
Total assets $675,691,014 651,746,493
==============================
Liabilities and Stockholders' Equity
------------------------------------
Deposits $457,342,802 444,017,422
Securities sold under agreements to repurchase:
Short-term 6,617,747 13,088,323
Long-term 51,300,000 51,300,000
Borrowed funds:
Short-term 22,800,000 33,985,000
Long-term 60,000,000 -
Advance payments by borrowers for taxes and insurance 2,221,976 2,621,514
Other payables and accrued expenses 5,291,964 22,518,533
------------------------------
Total liabilities 605,574,489 567,530,792
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares,
none outstanding - -
Common stock, $.01 par value; authorized 15,000,000 shares,
issued 7,589,366 and 6,630,000 shares, respectively 75,894 66,300
Additional paid-in capital 38,092,628 65,118,141
Retained earnings, substantially restricted 46,243,673 79,428,438
Treasury stock, at cost (467,987 and 2,619,010 shares,
respectively) (8,551,484) (57,893,563)
Accumulated other comprehensive income (loss) (2,816,864) 812,737
Common stock purchased by:
Employee Stock Ownership and 401(k) Plan (2,645,532) (3,034,562)
Recognition and Retention Plans (281,790) (281,790)
------------------------------
Total stockholders' equity 70,116,525 84,215,701
------------------------------
Total liabilities and stockholders' equity $675,691,014 651,746,493
==============================
</TABLE>
See accompanying notes to financial statements.
FFY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans $39,046,983 39,785,064 38,417,621
Securities available for sale 9,552,383 7,622,185 6,552,936
Federal Home Loan Bank stock 333,072 312,213 278,841
Other interest-earning assets 151,179 286,969 675,843
---------------------------------------------
Total interest income 49,083,617 48,006,431 45,925,241
---------------------------------------------
Interest expense:
Deposits 20,116,405 21,282,008 21,699,053
Securities sold under agreements to repurchase:
Short-term 449,923 871,761 483,448
Long-term 2,974,050 2,043,340 559,167
Borrowed funds:
Short-term 1,451,527 1,361,933 1,082,015
Long-term 1,522,577 - -
---------------------------------------------
Total interest expense 26,514,482 25,559,042 23,823,683
---------------------------------------------
Net interest income 22,569,135 22,447,389 22,101,558
Provision for loan losses 494,438 565,521 687,642
---------------------------------------------
Net interest income after provision for
loan losses 22,074,697 21,881,868 21,413,916
---------------------------------------------
Noninterest income:
Service charges 897,011 700,445 563,443
Gain (loss) on sale of securities available for sale 203,317 246,473 (320,290)
Gain on sale of loans 720,153 134,211 -
Other 729,529 683,847 375,217
---------------------------------------------
Total noninterest income 2,550,010 1,764,976 618,370
---------------------------------------------
Noninterest expense:
Salaries and employee benefits 6,456,173 6,076,824 5,883,557
Net occupancy and equipment 2,043,578 1,805,939 1,644,858
Insurance and bonding 478,923 493,752 3,839,783
State and local taxes 993,634 1,077,154 1,085,987
Other 2,522,740 2,316,964 1,834,158
---------------------------------------------
Total noninterest expense 12,495,048 11,770,633 14,288,343
---------------------------------------------
Income before income taxes and
minority interest 12,129,659 11,876,211 7,743,943
Income tax expense:
Federal 4,040,000 4,147,000 2,420,000
State 43,000 - -
Minority interest in loss of consolidated subsidiaries (93,446) - -
---------------------------------------------
Net income $ 8,140,105 7,729,211 5,323,943
=============================================
Basic earnings per share $ 1.15 1.03 0.62
=============================================
Diluted earnings per share $ 1.11 0.99 0.60
=============================================
</TABLE>
See accompanying notes to consolidated financial statements.
FFY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common stock
---------------------- Additional
Shares paid-in
outstanding Amount capital
----------- ------ ----------
<S> <C> <C> <C>
Balance at June 30, 1996 5,081,198 $66,300 63,529,201
Comprehensive income:
Net income - - -
Change in unrealized holding gain
(loss) on securities
available for sale, net - - -
-------------------------------------
Comprehensive income - - -
Dividends paid, $.675 per share - - -
Treasury stock purchased (994,210) - -
Stock options exercised 59,352 - (532,457)
Common stock used to exercise options (1,500) - -
Amortization of KSOP expense - - -
Amortization of RRP stock awards - - -
Tax benefit related to RRP stock awards - - 296,657
Tax benefit related to exercise
of stock options - - 575,301
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released - - 637,871
-------------------------------------
Balance at June 30, 1997 4,144,840 66,300 64,506,573
Comprehensive income:
Net income - - -
Change in unrealized holding gain on
securities available for sale, net - - -
-------------------------------------
Comprehensive income - - -
Dividends paid, $.775 per share - - -
Treasury stock purchased (167,543) - -
Stock options exercised 33,693 - (396,676)
Amortization of KSOP expense - - -
Tax benefit related to exercise
of stock options - - 152,987
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released - - 855,257
-------------------------------------
Balance at June 30, 1998 4,010,990 66,300 65,118,141
Comprehensive income:
Net income - - -
Change in unrealized holding gain
(loss) on securities available
for sale, net - - -
-------------------------------------
Comprehensive income - - -
Distribution of 100% stock dividend 4,010,990 9,594 (27,525,112)
Dividends paid, $.4375 per share - - -
Treasury stock purchased (1,008,899) - -
Stock options exercised 108,298 - (720,004)
Amortization of KSOP expense - - -
Tax benefit related to exercise
of stock options - - 295,643
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released - - 923,960
-------------------------------------
Balance at June 30, 1999 7,121,379 $75,894 38,092,628
=====================================
<CAPTION>
Common stock
purchased by
Accumulated --------------------------
Other Employee Recognition
Comprehen- Stock Own- and
Retained Treasury sive Income ership and Retention
Earnings Stock (Loss) 401(k) Plan Plans Total
-------- -------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 72,165,978 (28,492,183) (869,461) (3,865,692) (613,290) 101,920,853
Comprehensive income:
Net income 5,323,943 - - - - 5,323,943
Change in unrealized holding gain
(loss) on securities
available for sale, net - - 981,257 - - 981,257
--------------------------------------------------------------------------------------
Comprehensive income 5,323,943 - 981,257 - - 6,305,200
Dividends paid, $.675 per share (2,889,944) - - - - (2,889,944)
Treasury stock purchased - (25,982,802) - - - (25,982,802)
Stock options exercised - 1,125,977 - - - 593,520
Common stock used to exercise options - (38,250) - - - (38,250)
Amortization of KSOP expense - - - 424,310 - 424,310
Amortization of RRP stock awards - - - - 331,500 331,500
Tax benefit related to RRP stock awards - - - - - 296,657
Tax benefit related to exercise
of stock options - - - - - 575,301
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released - - - - - 637,871
--------------------------------------------------------------------------------------
Balance at June 30, 1997 74,599,977 (53,387,258) 111,796 (3,441,382) (281,790) 82,174,216
Comprehensive income:
Net income 7,729,211 - - - - 7,729,211
Change in unrealized holding gain on
securities available for sale, net - - 700,941 - - 700,941
--------------------------------------------------------------------------------------
Comprehensive income 7,729,211 - 700,941 - - 8,430,152
Dividends paid, $.775 per share (2,900,750) - - - - (2,900,750)
Treasury stock purchased - (5,239,911) - - - (5,239,911)
Stock options exercised - 733,606 - - - 336,930
Amortization of KSOP expense - - - 406,820 - 406,820
Tax benefit related to exercise
of stock options - - - - - 152,987
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released - - - - - 855,257
--------------------------------------------------------------------------------------
Balance at June 30, 1998 79,428,438 (57,893,563) 812,737 (3,034,562) (281,790) 84,215,701
Comprehensive income:
Net income 8,140,105 - - - - 8,140,105
Change in unrealized holding gain
(loss) on securities available
for sale, net - - (3,629,601) - - (3,629,601)
--------------------------------------------------------------------------------------
Comprehensive income 8,140,10 - (3,629,601) - - 4,510,504
Distribution of 100% stock dividend (38,222,741) 65,738,259 - - - -
Dividends paid, $.4375+A59 per share+A39 (3,102,129) - - - - (3,102,129)
Treasury stock purchased - (17,675,478) - - - (17,675,478)
Stock options exercised - 1,279,298 - - - 559,294
Amortization of KSOP expense - - - 389,030 - 389,030
Tax benefit related to exercise
of stock options - - - - - 295,643
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released - - - - - 923,960
--------------------------------------------------------------------------------------
Balance at June 30, 1999 46,243,673 (8,551,484) (2,816,864) (2,645,532) (281,790) 70,116,525
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
FFY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,140,105 7,729,211 5,323,943
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,135,772 969,042 909,632
Amortization and accretion 344,464 381,801 406,691
Increase (decrease) in accrued federal income taxes (1,323,643) (487,987) 153,039
Deferred federal income taxes 1,593,000 261,000 696,000
Net (gain) loss on sale of securities (203,317) (246,473) 320,290
Gain on sale of loans (720,153) (134,211) -
Loans originated held for sale (30,855,271) (4,988,080) -
Proceeds from sales of loans originated for sale 31,128,924 5,077,069 -
Provision for loan losses 494,438 565,521 687,642
Federal Home Loan Bank stock dividend (329,700) (304,700) (270,400)
(Increase) decrease in interest receivable (542,095) (355,161) 393,880
Tax benefits related to employee plans 295,643 152,987 871,958
Other, net 1,205,683 1,043,628 742,199
------------------------------------------------
Net cash provided by operating activities 10,363,850 9,663,647 10,234,874
------------------------------------------------
Cash flows from investing activities:
Proceeds from maturity of securities available for sale 10,697,077 16,727,605 30,000,000
Proceeds from sales of securities available for sale 35,698,278 41,929,782 44,044,024
Purchase of securities available for sale (144,809,607) (99,324,173) (83,710,035)
Purchase of Federal Home Loan Bank stock - (112,300) (50,300)
Principal receipts on securities available for sale 26,370,997 29,165,393 8,308,925
Net (increase) decrease in loans 29,154,107 (21,563,866) (22,119,550)
Purchase of office properties and equipment (554,064) (1,136,981) (747,167)
Increase in investment in real estate development joint venture (128,639) (766,241) -
Other, net (59,115) (6,017) 14,466
------------------------------------------------
Net cash used in investing activities (43,630,966) (35,086,798) (24,259,637)
------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 13,371,715 (6,138,251) (6,138,675)
Net increase (decrease) in securities sold under agreements to repurchase:
Short-term (6,470,576) 5,781,075 667,695
Long-term - 26,300,000 25,000,000
Net increase (decrease) in short-term borrowed funds (11,185,000) 6,530,000 26,255,000
Proceeds from long-term borrowings 60,000,000 - -
Treasury stock purchases (17,675,478) (5,239,911) (25,982,802)
Dividends paid (3,102,129) (2,900,750) (2,889,944)
Proceeds from stock options exercised 559,294 336,930 555,270
Increase (decrease) in amounts due to bank (368,059) 695,939 (1,551,024)
Other, net (465,027) 125,546 (145,399)
------------------------------------------------
Net cash provided by financing activities 34,664,740 25,490,578 15,770,121
Net increase in cash and cash equivalents 1,397,624 67,427 1,745,358
Cash and cash equivalents at beginning of year 10,075,182 10,007,755 8,262,397
------------------------------------------------
Cash and cash equivalents at end of year $ 11,472,806 10,075,182 10,007,755
================================================
Supplemental disclosure of cash flow information:
Cash payments of interest expense $ 25,377,616 25,095,614 23,716,934
Cash payments of federal income taxes 3,475,000 4,150,000 780,000
================================================
Supplemental schedule of non-cash investing activities:
Real estate acquired through foreclosure $ 936,116 643,725 479,854
Real estate sales by loan issuance 742,543 543,500 455,400
================================================
</TABLE>
See accompanying notes to consolidated financial statements.
FFY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the
accounts of FFY Financial Corp. (FFY or Holding Company) and its
wholly owned subsidiaries, First Federal Savings Bank of
Youngstown (First Federal or Bank) and FFY Holdings, Inc. The
consolidated financial statements also include the accounts of
First Real Estate, Ltd. and Daniel W. Landers Insurance Agency,
Ltd., affiliates of which FFY Holdings, Inc. has a two-thirds
controlling interest. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Basis of Presentation
---------------------
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. The
preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and the
disclosure of contingent assets and liabilities at the date of
the consolidated statement of financial condition and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with
maturities of three months or less to be cash equivalents. Cash
equivalents include interest-bearing deposits and short-term
investments.
(d) Securities
----------
Management determines the appropriate classification of
securities at the time of purchase. Debt and equity securities,
including mortgage-backed securities, are classified as
available for sale and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a
component of accumulated other comprehensive income (loss), net
of tax. Available-for-sale securities are those which management
may decide to sell, if needed, for liquidity, asset/liability
management, or other reasons. Gains or losses on the sale of
securities are recognized using the specific identification
method. A decline in the fair value of any security below cost
that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the
security. Premiums and discounts are amortized or accreted over
the life of the related security as an adjustment to yield using
the interest method. Dividends and interest income are
recognized when earned.
(e) Loans and Related Fees and Costs
--------------------------------
Loans receivable originated with the intent to hold to maturity
are carried at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees. Interest on
loans is accrued and credited to income as earned. The accrual
of interest is discontinued generally when a loan is more than
90 days delinquent or otherwise doubtful of collection. Such
interest ultimately collected is credited to income in the
period of recovery. Loans are returned to accrual status when
both principal and interest are current, and the loan is deter
mined to be performing in accordance with the applicable loan
terms.
Loan origination fees and certain direct loan origination costs
are deferred, and the net amounts are amortized as an adjustment
of the related loan's yield. The Bank is amortizing these
amounts using the interest method over the contractual life of
the related loans.
The Company currently sells loans to Federal National Mortgage
Association in the secondary market and delivers shortly after
funding. Mortgage loans held for sale are carried at the lower
of cost or market value, determined on a net aggregate basis.
Mortgage servicing rights associated with loans originated and
sold, where servicing is retained, are capitalized and included
in other assets in the statement of financial condition. The
servicing rights capitalized are amortized in proportion to and
over the period of estimated servicing income. Management
measures impairment of servicing rights based on prepayment
trends and external market factors. Any impairment is recorded
as a valuation allowance. The Company accounts for mortgage
servicing rights under Statement of Financial Accounting
Standards (SFAS) No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. The
adoption of SFAS No. 125 on January 1, 1997 did not have a
material impact on the Company's financial condition or results
of operations.
(f) Provision for Loan Losses
-------------------------
The allowance for loan losses is maintained at a level adequate
to absorb probable losses inherent in the loan portfolio as of
the balance sheet date. The provision for loan losses charged
to expense is based on management's judgment taking into
consideration past experience, current and estimated future
economic conditions, known and inherent risks in the loan
portfolio, and the estimated value of underlying collateral.
While management uses the best information available to make
these evaluations, future adjustments to the allowance may
become necessary if economic conditions change substantially
from the assumptions used in making the evaluations.
Additionally, various regulatory agencies, as an integral part
of their examination process, periodically review the allowance
for loan losses. Such agencies may require the recognition of
additions to the reserve based on their judgments of information
available to them at the time of their examination.
Management considers a loan impaired when, based on current
information and events, it is probable that the Company will be
unable to collect all amounts of principal and interest under
the original terms of the loan agreement. Significant factors
impacting management's judgment in determining when a loan is
impaired include an evaluation of compliance with repayment
program, condition of collateral, deterioration in financial
strength of the borrower or any case when the expected future cash
payments may be less than the recorded amount. Since the Bank's
loans are primarily collateral dependent, measurement of
impairment is based on the fair value of the collateral.
Management excludes large groups of smaller balance homogeneous
loans such as residential mortgages and consumer loans which are
collectively evaluated.
(g) Office Properties and Equipment
-------------------------------
Land is carried at cost. Office properties and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line method over the estimated useful
lives of the assets. Estimated lives are 10 to 40 years for
office properties, including improvements, and 3 to 10 years for
equipment. Leasehold improvements are depreciated using the
straight-line method over the terms of the related leases.
(h) Repurchase Agreements
---------------------
The Bank enters into sales of securities under agreements to
repurchase securities of the same agency bearing the identical
contract rate and similar remaining weighted average maturities
as the original securities that result in approximately the same
market yield.
(i) Income Taxes
------------
The Company files a consolidated federal income tax return.
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized as income or expense in the
period that includes the enactment date.
(j) Earnings Per Share
------------------
Basic earnings per share of common stock for the years ended
June 30, 1999, 1998 and 1997 have been determined by dividing
net income for the year by the weighted average number of shares
of common stock outstanding during the year. Diluted earnings
per share of common stock for the years ended June 30, 1999,
1998 and 1997 have been determined by dividing net income for
the year by the weighted average number of shares of common
stock outstanding during the year adjusted for the dilutive
effect of outstanding stock options. Total shares outstanding
for earnings per share calculation purposes have been reduced by
the KSOP shares that have not been committed to be released. In
addition, weighted average common and common equivalent shares
have been restated to reflect a 100% stock dividend, effected in
the form of a two-for-one stock split, declared on January 19,
1999. The computation of basic and diluted earnings per share
is shown in the table below.
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Basic earnings per share computation:
Numerator - Net income $8,140,105 7,729,211 5,323,943
Denominator -
Weighted average common shares
outstanding 7,072,607 7,515,890 8,650,456
Basic earnings per share $ 1.15 1.03 0.62
====================================
Diluted earnings per share computation:
Numerator - Net income $8,140,105 7,729,211 5,323,943
Denominator -
Weighted average common shares
outstanding 7,072,607 7,515,890 8,650,456
Dilutive effect of stock options 234,046 278,162 277,182
------------------------------------
Weighted average common shares and
common stock equivalents 7,306,653 7,794,052 8,927,638
Diluted earnings per share $ 1.11 0.99 0.60
====================================
</TABLE>
(k) Effect of New Financial Accounting Standards
--------------------------------------------
On July 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standard No. 130, Reporting
Comprehensive Income. This Statement establishes standards for
reporting and display of comprehensive income and its
components. Comprehensive income consists of net income and
other comprehensive income, which for the Company is comprised
entirely of unrealized holding gains and losses on securities
available-for-sale, net of the related tax effect. As permitted
by SFAS No. 130, the Company has elected to disclose the
components of comprehensive income in the Consolidated
Statements of Changes in Stockholders' Equity. Other
comprehensive income (loss) for the years ended June 30, 1999,
1998 and 1997 was ($5,500,601), $1,062,941 and $1,486,257,
respectively. The related tax (expense) benefit for the years
ended June 30, 1999, 1998 and 1997 was $1,871,000, ($362,000)
and ($505,000), respectively.
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
requires public business enterprises to report certain financial
and descriptive information about operating segments. This
statement also establishes standards for related disclosures
about products and services, any major customers, and geographic
areas in which an enterprise operates. SFAS No. 131 is effective
for financial statements for periods beginning after December
15, 1997. The Company determined that the adoption of SFAS No.
131 has no effect on its consolidated financial statements as
the Company's operations are managed and performance is
evaluated on a corporate-wide basis. Accordingly, all of the
Company's operations are considered by management to be
aggregated in one reportable operating segment.
In February 1998, the FASB issued SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, an
Amendment of FASB Statements No. 87, 88 and 106. This statement
amends disclosure requirements with respect to pensions and
other postretirement benefits. It does not change any of the
current guidance on measurement or recognition related to these
areas. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997. The Company's adoption of SFAS No. 132
on July 1, 1998 had no effect on its consolidated statements of
financial condition or income since it only addresses disclosure
requirments.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement
standardizes the accounting for derivative contracts, by
requiring that an entity recognize those items as assets or
liabilities in the statement of financial condition and measure
them at fair value. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Management is currently
evaluating the effects SFAS No. 133 will have on the Company's
financial condition or results of operations.
In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained after Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
SFAS No. 134 is an amendment of FASB Statement No. 65, which
established accounting and reporting standards for certain
activities on mortgage banking enterprises and other enterprises
that conduct operations that are substantially similar to the
primary operations of a mortgage banking enterprise. SFAS No.
134 is effective for the first fiscal quarter beginning after
December 15, 1998. Currently, this statement does not affect the
Company.
(l) Reclassifications
-----------------
Certain amounts in the prior year consolidated financial
statements have been reclassified to conform with the current
year's presentation.
(2) Securities
----------
A summary of securities available for sale is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1999
Federal agency obligations $ 33,957,204 37,454 (350,690) 33,643,968
Mortgage-backed securities 74,454,008 13,833 (2,268,422) 72,199,419
Municipal securities 46,707,415 251,106 (1,982,949) 44,975,572
Trust preferred securities 24,581,418 9,339 (381,382) 24,209,375
Asset-backed SLMA's 11,493,465 - (26,215) 11,467,250
Equity securities 1,798,791 509,914 (43,290) 2,265,415
Other securities 1,602,162 - (37,562) 1,564,600
--------------------------------------------------------
Totals $194,594,463 821,646 (5,090,510) 190,325,599
========================================================
June 30, 1998
Federal agency obligations $ 35,049,270 234,661 (1,374) 35,282,557
Mortgage-backed securities 81,580,115 150,652 (287,033) 81,443,734
Municipal securities 20,778,093 310,930 (39,747) 21,049,276
Equity securities 637,000 622,156 - 1,259,156
Other securities 1,516,986 261,674 (20,182) 1,758,478
--------------------------------------------------------
Totals $139,561,464 1,580,073 (348,336) 140,793,201
========================================================
</TABLE>
The amortized cost and fair values of debt securities available
for sale at June 30, 1999, by contractual maturity, are shown
below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Equity
securities do not have a contractual maturity.
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
--------- ----------
<S> <C> <C>
Within one year $ 10,159,931 10,174,124
After one year through five years 20,710,421 20,295,499
After five years through ten years 32,689,599 32,269,389
After ten years 129,235,721 125,321,172
$192,795,672 188,060,184
</TABLE>
The weighted average tax-equivalent annual yield of securities
available for sale at June 30, 1999 and 1998 was 6.32% and
6.28%, respectively.
Gross proceeds from sales of securities available for sale
during the years ended June 30, 1999, 1998 and 1997 totaled
$35,698,278; $41,929,782; and $44,044,024, respectively. Gross
realized gains and losses on sales of securities available for
sale totaled $385,137 and $181,820, respectively, during the
year ended June 30, 1999; $324,487 and $78,014, respectively,
during the year ended June 30, 1998; and $133,222 and $453,512,
respectively, during the year ended June 30, 1997.
(3) Loans Receivable
----------------
Following is a summary of loans receivable at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
First mortgage loans:
Secured by one-to-four family residences $335,064,165 354,202,256
Secured by other properties 15,579,362 15,658,952
Commercial 33,710,361 28,606,137
Construction and development loans,
primarily residential 28,084,891 23,998,473
---------------------------
412,438,779 422,465,818
Consumer and other loans:
Automobile 8,479,939 12,161,179
Home equity 37,876,768 37,911,516
90-day notes 3,416,013 17,677,306
Other 5,139,029 4,132,170
---------------------------
54,911,749 71,882,171
---------------------------
467,350,528 494,347,989
Less:
Undisbursed loans in process 7,969,623 6,556,642
Net deferred loan origination fees 2,455,162 2,587,782
Allowance for loan losses 2,645,132 2,740,169
Loans available for sale 441,500 -
---------------------------
13,511,417 11,884,593
---------------------------
$453,839,111 482,463,396
===========================
Weighted average annual yield at year-end 8.05% 8.21%
</TABLE>
Activity in the allowance for loan losses for the years ended June 30,
1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $2,740,169 2,961,810 3,439,305
Provision charged to operations 494,438 565,521 687,642
Charge-offs (723,383) (839,704) (1,198,867)
Recoveries 133,908 52,542 33,730
---------------------------------------
Balance at end of year $2,645,132 2,740,169 2,961,810
=======================================
</TABLE>
Real estate owned, troubled debt restructurings, and nonaccrual loans,
as well as the related impact on income in the accompanying
consolidated statements of income, were immaterial for 1999, 1998 and
1997. At June 30, 1999 and 1998, non-accrual loans consisted primarily
of one-to-four family residences and amounted to $2,160,290 and
$2,733,572, respectively. At June 30, 1999, the recorded investment in
loans which have been identified as being impaired totaled $1,591,754.
No valuation allowance has been recorded on impaired loans since the
fair value of the underlying collateral exceeds the recorded
investment on an individual loan by loan basis. Average impaired loans
for the year ended June 30, 1999 totaled $1,606,423. Impaired loans
were immaterial at June 30, 1998.
Mortgage loans serviced for others are not included in the
accompanying consolidated statements of financial condition. The
outstanding principal balance of loans serviced for others totaled
$35,050,912 and $4,970,433 at June 30, 1999 and 1998, respectively.
Capitalized net mortgage servicing rights totaled $329,602 and $48,065
at June 30, 1999 and 1998, respectively.
In the normal course of business, the Bank extends loans to directors
and executive officers of the Company and their affiliates. All of
these loans were made on substantially the same terms as loans to
other individuals and businesses of comparable creditworthiness. The
aggregate balance of loans greater than $60,000 was $99,000 and
$569,000 at June 30, 1999 and 1998, respectively.
(4) Office Properties and Equipment
-------------------------------
Following is a summary of office properties and equipment by major
classifications as of June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 1,617,581 1,617,581
Buildings 8,513,962 8,486,417
Furniture and equipment 2,663,168 2,662,966
Computer equipment and software 3,621,618 3,535,201
Automobiles 132,578 113,679
Leasehold improvements 402,322 401,822
--------------------------
16,951,229 16,817,684
Less accumulated depreciation and amortization 9,732,589 8,897,024
--------------------------
$ 7,218,640 7,920,660
==========================
</TABLE>
(5) Deposits
--------
Following is an analysis of interest-bearing deposits, which consist
of various savings and certificate accounts with varying interest
rates, as of June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
Account type ---------------------- ----------------------
and stated interest rate Amount % Amount %
------------------------ ------ --- ------ ---
<S> <C> <C> <C> <C>
NOW accounts, up to 2.23% $ 36,677,860 8.02 $ 34,381,993 7.74
Money market accounts, up
to 4.41% 39,448,435 8.63 28,058,912 6.32
Passbook accounts, 2.25 % to 2.50% 92,719,043 20.27 93,276,617 21.01
------------------------------------------------
168,845,338 36.92 155,717,522 35.07
Certificate accounts:
3.00% to 3.99% 22,172,077 4.85 - -
4.00% to 4.99% 44,800,820 9.79 29,483,863 6.64
5.00% to 5.99% 144,645,834 31.63 141,125,055 31.78
6.00% to 6.99% 69,208,919 15.13 109,895,025 24.75
7.00% to 7.99% 7,669,814 1.68 7,795,957 1.76
------------------------------------------------
288,497,464 63.08 288,299,900 64.93
------------------------------------------------
$457,342,802 100.00 $440,017,422 100.00
================================================
</TABLE>
At June 30, 1999 and 1998, scheduled maturities of certificate
accounts are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Less than 12 months $189,811,007 65.79 $163,691,247 56.78
13 to 24 months 55,191,248 19.13 67,829,342 23.53
25 to 36 months 23,196,762 8.04 19,414,656 6.73
37 to 48 months 12,246,369 4.25 18,091,111 6.27
49 to 60 months 6,517,036 2.26 15,967,370 5.54
Over 60 months 1,535,042 0.53 3,306,174 1.15
------------------------------------------------
$288,497,464 100.00 $288,299,900 100.00
================================================
</TABLE>
The 1999 amounts above include callable certificate accounts totaling
$8,556,305 with a weighted average rate of 6.91%. Due to a decline in
current market rates, management has decided to exercise their call
options, which will extend through September 29, 1999.
Following is a summary of certificate accounts of $100,000 or more by
remaining maturities at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Three months or less $10,414,553 6,597,782
Over three to six months 8,007,383 11,476,932
Over six to twelve months 11,495,888 10,700,606
Over twelve months 17,840,509 19,775,033
-------------------------
$47,758,333 48,550,353
=========================
</TABLE>
At June 30, 1999 and 1998, certificate accounts included $1,543,897
and $1,524,648, respectively, in customer deposits for which federal
agency obligations and/or mortgage-backed securities were pledged as
collateral in an amount equal to the certificate account balances. The
weighted average rate of the certificate accounts was 5.51% and 5.45%,
respectively, at June 30, 1999 and 1998. The certificates at June 30,
1999 for which securities are pledged are scheduled to mature from
January 2000 to April 2002.
Interest expense on deposits for the years ended June 30, 1999, 1998
and 1997 is summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NOW accounts $ 476,884 636,915 620,759
Money market accounts 1,136,095 762,231 734,075
Passbook accounts 2,090,725 2,683,094 3,302,590
Certificate accounts 16,412,701 17,199,768 17,041,629
-----------------------------------------
$20,116,405 21,282,008 21,699,053
=========================================
</TABLE>
The weighted average interest rate on deposits was 4.27% and 4.63% at
June 30, 1999 and 1998, respectively.
(6) Securities Sold Under Agreements to Repurchase
----------------------------------------------
At June 30, 1999 and 1998, securities sold under agreements to
repurchase were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Short-term:
Repurchase agreements $ 6,617,747 13,088,323
Federal agency obligations pledged as collateral:
Book value, including accrued interest 10,236,120 15,376,953
Market value, including accrued interest 10,237,604 15,490,196
Average balance outstanding during the year 9,054,035 15,240,783
Maximum amount outstanding at any month-end 13,448,884 22,656,754
Weighted average interest rate 5.02% 5.76%
Long-term:
Repurchase agreements $51,300,000 51,300,000
Mortgage-backed securities pledged as collateral:
Book value, including accrued interest 61,469,494 56,146,814
Market value, including accrued interest 59,782,455 55,984,488
Average balance outstanding during the year 51,300,000 34,241,398
Maximum amount outstanding at any month-end 51,300,000 51,300,000
Weighted average interest rate 5.76% 5.76%
</TABLE>
Short- and long-term repurchase agreements are treated as financings,
and the obligations to repurchase securities sold are reflected as a
liability in the consolidated statements of financial condition. The
pledged securities, although held in safekeeping outside the Bank,
remain in the asset accounts. A summary of individual long-term
repurchase agreements at June 30, 1999 and 1998 with respect to
maturity and call dates is summarized in the table below. The call
dates renew every three months and are at the option of the buyer.
<TABLE>
<CAPTION>
Maturity Earliest call 1999 1998
-------- ------------- ---- ----
<S> <C> <C> <C>
2/19/02 2/19/00 $25,000,000 25,000,000
1/16/03 1/16/01 10,000,000 10,000,000
3/19/01 9/19/99 16,300,000 16,300,000
</TABLE>
(7) Borrowed Funds
--------------
Borrowed funds at June 30, 1999 and 1998 consist of advances from the
Federal Home Loan Bank (FHLB).
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ -------- ------ --------
<S> <C> <C> <C> <C>
Advances from the FHLB of Cincinnati
with maturities less than one year:
Line of credit advances $ - - $ 2,985,000 6.02%
Repo-based advances 22,800,000 4.92% 31,000,000 5.56%
-----------------------------------------------
$22,800,000 4.92% $33,985,000 5.60%
===============================================
</TABLE>
<TABLE>
<CAPTION>
1999
-----------------------
Weighted
Maturity Average
Date Amount Rate
-------- ------ --------
<S> <C> <C> <C>
Advances from the FHLB of Cincinnati
with maturities greater than one year:
LIBOR-based advance 8/26/00 $25,000,000 4.89%
Convertible fixed-rate advance 12/3/03 10,000,000 4.40%
Convertible fixed-rate advance 5/14/09 25,000,000 5.61%
---------------------
$60,000,000 5.11%
=====================
</TABLE>
The FHLB line of credit advances have either fixed or adjustable
rates. Repo-based advances have 30-day fixed-rate terms and require
interest payments at maturity. The LIBOR-based advance is tied to the
3-month LIBOR plus 16 basis points and is adjusted quarterly. The
$10 million convertible fixed-rate advance can be converted, at the
option of the FHLB of Cincinnati, to a 3-month LIBOR-based advance on
December 3, 1999. The $25 million fixed-rate advance can be converted,
at the option of the FHLB of Cincinnati, to a 3-month LIBOR-based
advance on May 14, 2004. There were no long-term advances outstanding
at June 30, 1998. All advances from the FHLB of Cincinnati are secured
by a blanket mortgage collateral agreement for 150% of outstanding
advances, amounting to $124.2 million.
(8) Compliance with Regulatory Capital Requirements
-----------------------------------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Office of Thrift Supervision (OTS) regulations require savings
institutions to maintain certain minimum levels of regulatory capital.
An institution that fails to comply with its regulatory capital
requirements must obtain OTS approval of a capital plan and can be
subject to a capital directive and certain restrictions on its
operations. At June 30, 1999, the minimum regulatory capital
regulations require institutions to have equity capital to total
tangible assets of 1.5% ; a minimum leverage ratio of core (Tier 1)
capital to total adjusted tangible assets of 3.0% ; and a minimum
ratio of total capital (core capital and supplementary capital) to
risk weighted assets of 8.0% , of which 4.0% must be core capital.
The most recent notification from the OTS categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions
or events since that notification that management believes have
changed the institution's category.
The following is a reconciliation of the Bank's GAAP and Regulatory
capital, and a summary of the Bank's actual capital ratios compared
with the OTS minimum bank capital adequacy requirements and their
requirements for classification as well capitalized at June 30, 1999
and 1998:
<TABLE>
<CAPTION>
Tier-1 Tier-1 Total
Equity Core Risk-Based Risk-Based
June 30, 1999 Capital Capital Capital Capital
------------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C>
GAAP capital $ 51,063,276 51,063,276 51,063,276 51,063,276
Accumulated losses on certain securities
available for sale, net 3,140,221 3,140,221 3,140,221
General loan valuation allowances - - 2,380,434
Other (329,602) (329,602) (565,575)
Regulatory capital 53,873,895 53,873,895 56,018,356
-----------------------------------------
Total assets 661,204,894
------------
Adjusted total assets 665,870,977
-----------
Risk-weighted assets 404,152,959 404,152,959
--------------------------
Actual capital ratio 7.72% 8.09% 13.33% 13.86%
Minimum capital adequacy requirements 1.50% 3.00% 8.00%
Regulatory capital category:
Well capitalized - equal to
or greater than 5.00% 6.00% 10.00%
<CAPTION>
Tier-1 Tier-1 Total
Equity Core Risk-Based Risk-Based
June 30, 1998 Capital Capital Capital Capital
------------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C>
GAAP capital $ 53,382,413 53,382,413 53,382,413 53,382,413
Accumulated gains on certain securities
available for sale, net (37,549) (37,549) (37,549)
General loan valuation allowances - - 2,037,651
Other (48,565) (48,565) (517,443)
-----------------------------------------
Regulatory capital 53,296,299 53,296,299 54,865,072
-----------------------------------------
Total assets 629,186,295
------------
Adjusted total assets 629,278,873
-----------
Risk-weighted assets 383,853,411 383,853,411
--------------------------
Actual capital ratio 8.48% 8.47% 13.88% 14.29%
Minimum capital adequacy requirements 1.50% 3.00% 8.00%
Regulatory capital category:
Well capitalized - equal to
or greater than 5.00% 6.00% 10.00%
</TABLE>
(9) Pension Plan
------------
The Bank had a defined benefit pension plan that covered substantially
all of its employees. On November 15, 1996, the Board of Directors
approved the termination of the pension plan due to significantly high
retirement cost. Upon termination, all participants in the plan became
fully vested. During 1998, the plan assets were distributed to the
participants in the pension plan.
Components of net pension cost for the years ended June 30, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost - benefits earned during
the period $ - 52,471
Interest cost on projected benefit obligation 50,820 114,296
Expected return on plan assets 8,589 (86,732)
Net amortization and deferral (832) (42,229)
Effects of settlement and curtailment (192,125) 85,016
---------------------
Net periodic pension cost (credit) $(133,548) 122,822
=====================
</TABLE>
Assumptions used in the accounting for the pension plan were as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Weighted average discount rate:
Preretirement N/A 6.00%
Postretirement N/A 5.56%
Expected long-term rate of return on assets N/A 7.00%
</TABLE>
(10) SAIF Special Assessment
-----------------------
On June 30, 1997, the President signed into law an omnibus
appropriations act for fiscal year 1997 that included, among other
things, the recapitalization of the Savings Association Insurance Fund
(SAIF) in a section entitled the Deposit Insurance Funds Act of 1996.
The Act included a provision where all insured depository institutions
would be charged a one-time special assessment on their SAIF
assessable deposits as of March 31, 1995. The Bank recorded a pretax
charge of $3,010,964, which represented 65.7 basis points of the March
31, 1995 assessable deposits. This charge was recorded upon enactment
on September 30, 1996, and later paid on November 27, 1996.
(11) Income Taxes
------------
Federal income tax expenses include current and deferred amounts as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $2,447,000 3,886,000 1,724,000
Deferred 1,593,000 261,000 696,000
------------------------------------
Federal income tax expense 4,040,000 4,147,000 2,420,000
Deferred federal tax expense (benefit)
on unrealized gains (losses) on
securities available for sale (1,871,000) 362,000 505,000
------------------------------------
$2,169,000 4,509,000 2,925,000
====================================
</TABLE>
Actual federal income tax expense differed from the amounts computed
by applying the federal income tax rate of 35% to income before
federal income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Expected income
tax expense at
statutory rate $4,263,037 35.00% $4,156,674 35.00% $2,710,380 35.00%
Other (223,037) (1.83) (9,674) (0.08) (290,380) (3.75)
-------------------------------------------------------------------
Actual federal tax
expense $4,040,000 33.17% $4,147,000 34.92% $2,420,000 31.25%
===================================================================
</TABLE>
The net tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at June 30, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 842,000 768,000
Employee benefits 128,000 113,000
Bad debts reserves 899,000 932,000
Interest on nonaccrual loans 40,000 49,000
Other 54,000 57,000
-----------------------
Total gross deferred tax assets 1,963,000 1,919,000
-----------------------
Deferred tax liabilities:
FHLB stock dividends 950,000 838,000
Basis difference in fixed assets 172,000 213,000
Excess of tax reserves over base year amounts 961,000 1,153,000
Unrealized appreciation on securities
available for sale 166,000 419,000
Other 185,000 45,000
-----------------------
Total gross deferred tax liabilities 2,434,000 2,668,000
-----------------------
Net deferred tax liability $ 471,000 749,000
=======================
</TABLE>
A valuation allowance is established to reduce the deferred tax asset
if it is more likely than not that the related tax benefits will not
be realized. In management's opinion, it is more likely than not that
the tax benefits will be realized; consequently, no valuation
allowance has been established as of June 30, 1999 and 1998.
Retained earnings at June 30, 1999 includes approximately $17,254,000
for which no provision for federal income tax has been made. These
amounts represent allocations of income to bad debt deductions for tax
purposes only. These qualifying and nonqualifying base year reserves
and supplemental reserves will be recaptured into income in the event
of certain distributions and redemptions. Such recapture would create
income for tax purposes only, which would be subject to the then
current corporate income tax rate.
Recapture would not occur upon the reorganization, merger, or
acquisition of the Bank, nor if the Bank is merged or liquidated tax-
free into a bank or undergoes a charter change. If the Bank fails to
qualify as a bank or merges into a nonbank entity, these reserves will
be recaptured into income.
The favorable reserve method previously afforded to thrifts was
repealed for tax years beginning after December 31, 1995. Large
thrifts must switch to the specific charge-off method of Section 166.
In general, a thrift is required to recapture its qualifying and
nonqualifying reserves in excess of its qualifying and nonqualifying
base year reserves. As the Bank has previously provided deferred taxes
on the recapture amount, no additional financial statement tax expense
should result from this legislation.
(12) Commitments, Contingencies, and Credit Risk
-------------------------------------------
In the normal course of business, the Bank is party to financial
instruments with off-balance sheet risk to meet the financing needs of
its customers and to minimize exposure to fluctuations in interest
rates. These financial instruments primarily include commitments to
extend credit and unused lines of credit. Currently the Bank does not
enter into forward contracts for future delivery of residential
mortgage loans. These instruments involve elements of credit risk and
interest rate risk in excess of the amount recognized in the con-
solidated statements of financial condition. The Bank's exposure to
credit loss in the event of nonperformance by the other party to the
commitment is represented by the contractual amount of the commitment.
The Bank uses the same credit policies in making commitments as it
does for on-balance sheet instruments. Interest rate risk on
commitments to extend credit results from the possibility that
interest rates may have moved unfavorably from the position of the
Bank since the time the commitment was made.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates of 30 to
180 days or other termination clauses and may require payment of a
fee. Since some of the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. Following is a table of financial instruments whose
contract amounts represent credit risk:
<TABLE>
<CAPTION>
Amount Interest rates
------ --------------
<S> <C> <C>
June 30, 1999:
Fixed rate mortgage loans $11,650,570 6.75 - 10.00%
Variable rate mortgage loans 2,517,155 6.63 - 9.00%
Fixed rate commercial loans 3,200,000 8.00 - 8.25%
Variable rate commercial loans 192,857 9.00%
Fixed rate consumer loans 1,740,389 6.05 - 15.00%
Commercial lines of credit 2,700,000 8.25 - 8.75%
Undisbursed lines and letters of credit 8,195,471 8.13 - 18.00%
-----------
$30,196,442
===========
June 30, 1998:
Fixed rate mortgage loans $12,099,824 6.88 - 10.00%
Variable rate mortgage loans 2,434,541 6.63 - 8.50%
Fixed rate consumer loans 2,058,147 6.50 - 15.00%
Variable rate consumer loans 60,000 9.50%
Undisbursed lines of credit 4,083,442 9.50 - 18.00%
-----------
$20,735,954
===========
</TABLE>
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained by the Bank upon extension of
credit is based on management's credit evaluation of the applicant.
Collateral held is generally single-family residential real estate.
The Bank's primary lending area is in Mahoning, Trumbull and
Columbiana counties in the state of Ohio. Accordingly, the ultimate
collectibility of a substantial portion of the loan portfolio is
susceptible to changes in market conditions in that area.
In the ordinary course of business, the Company has various
outstanding commitments and contingent liabilities that are not
reflected in the accompanying consolidated financial statements. In
addition, the Company is a defendant in certain claims and legal
actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material
adverse effect on the consolidated financial statements of the
Company.
(13) Director and Employee Plans
---------------------------
(a) Stock Option and Incentive Plan
-------------------------------
FFY sponsors a stock option and incentive plan for the benefit
of directors and employees of the Company. The number of shares
of common stock authorized under the plan is 1,326,000, equal to
10% of the total number of shares issued in the conversion
adjusted for the 100% stock dividend in 1999. Directors and
employees of the Bank vest in options issued over a two and one-
half year period beginning with the date of grant. The option
exercise price must be at least 100% of the fair value of the
common stock on the date of the grant, and the option term
cannot exceed 10 years. Outstanding options can be exercised
over a 10-year period from the date of the grant.
Following is activity under the plan during the years ended
June 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Options outstanding, beginning of year 463,704 531,090 629,904
Exercised at $5.00 per share (108,298) (67,386) (118,704)
Granted 39,780 - 19,890
--------------------------------
Options outstanding, end of year 395,186 463,704 531,090
================================
Exercisable:
At $5.00 per share 334,216 439,814 507,200
From $11.59 to $13.81 per share 34,450 23,890 7,962
Options available for grant, end of year 218,768 258,548 258,548
================================
</TABLE>
The Company applies Accounting Principles Board (APB) No. 25 for
its stock option and incentive plan. Accordingly, no
compensation cost has been recognized. Had compensation cost for
this plan been determined consistent with SFAS No. 123, the
Company's net income and earnings per share pro forma amounts
for the years ended June 30, 1999, 1998 and 1997 would be as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net income $8,140 8,108 7,729 7,715 5,324 5,309
Basic earnings per share $ 1.15 1.15 1.03 1.03 0.62 0.61
Diluted earnings per share $ 1.11 1.11 0.99 0.99 0.60 0.59
==========================================================
</TABLE>
The above results may not be representative of the effects of
SFAS No. 123 on net income for future years.
The Company applied the Black-Scholes option pricing model to
determine the fair value of each option granted. Below is a
summary of the assumptions used in the calculation:
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
---- -------- ----
<S> <C> <C> <C>
Dividend yield 2.59 - 2.92% 2.59 - 2.92% 2.59 - 2.92%
Expected volatility 13.34% 13.34% 13.34%
Risk-free interest rate 4.62 - 6.49% 5.55 - 6.54% 5.55 - 6.54%
Expected option life 5.26 - 6.67 years 7.14 - 7.21 years 7.14 - 7.21 years
</TABLE>
(b) Employee Stock Ownership and 401(k) Plan
----------------------------------------
In June 1993, the Company established the FFY Financial Corp.
Employee Stock Ownership Plan (ESOP) for the benefit of its
employees. The ESOP covers substantially all employees with more
than one year of employment and who have attained the age of 21.
The ESOP borrowed $5,304,000 from FFY and purchased 1,060,800
shares (adjusted for the 100% stock dividend) in conjunction
with the Bank's conversion. Effective January 1, 1997, the
Company amended the ESOP to include 401(k) provisions under
Section 401(k) of the Internal Revenue Code, thus forming the
FFY Financial Corp. Employee Stock Ownership and 401(k) Plan
(KSOP). The eligibility requirements of the KSOP did not change
pursuant to the amendment. Under the 401(k) provisions of the
KSOP, employees may elect to make pretax contributions of up to
15% of compensation as defined in the plan document. The Company
matches up to 6% of employee compensation in the form of stock
from the shares that are committed to be released to
participants for that year. The remaining shares after the
401(k) match are released to participants' accounts using the
shares allocated method. Dividends on allocated and unallocated
shares are used for debt service.
The Company follows SOP 93-6, Employers' Accounting for Employee
Stock Ownership Plans which requires that (1) compensation cost
be recognized based on the fair value of the KSOP shares when
committed to be released; (2) dividends on unallocated shares
used for debt service do not reduce compensation expense and are
not considered dividends for financial reporting purposes; and
(3) KSOP shares that have not been committed to be released are
not considered outstanding for purposes of computing earnings
per share.
KSOP compensation expense for the years ended June 30, 1999,
1998 and 1997 totaled $1,138,068, $1,131,374 and $976,059,
respectively. The fair value of unearned KSOP shares at June 30,
1999 and 1998 totaled $10,053,014 and $9,862,320, respectively.
Following is a summary of KSOP shares at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Allocated 531,694 453,888
Unallocated 529,106 606,912
----------------------
1,060,800 1,060,800
======================
</TABLE>
(c) Recognition and Retention Plans (RRPs)
--------------------------------------
The Company and the Bank have a Recognition and Retention Plan
(RRP), formed in conjunction with the Bank's conversion in 1993.
Pursuant to the RRP, 477,360 shares of common stock were awarded
to directors and certain officers and were earned over a 31/2 year
period through December 1996, except for 3,318 shares that were
forfeited due to the retirement of a director in October 1996.
The aggregate purchase price of these shares, initially recorded
as a reduction of stockholders' equity, were amortized into
compensation expense as RRP participants became fully vested. At
June 30, 1999, there were 56,358 unawarded and unvested shares
in the RRP and are reflected as a reduction of stockholders'
equity. RRP expense for the years ended June 30, 1999, 1998
and 1997 was $-0-, $-0-, and $331,500, respectively.
(14) Stockholders' Equity
--------------------
On January 19, 1999, the Company announced a 100% stock dividend,
which is equivalent to a two-for-one stock split, that was paid on
March 5, 1999 to stockholders of record on February 19, 1999. The
Company used its then 2.8 million treasury shares and issued an
additional 959,366 shares to pay for the stock dividend. Proper
accounting treatment to record these transactions warranted the
decline in additional paid-in-capital and retained earnings, but did
not affect total stockholders' equity. Additionally, all share and per
share data have been restated as a result of the stock dividend.
In accordance with federal regulations, at the time the Bank converted
from a federal mutual savings bank to a federal stock savings bank,
the Bank restricted a portion of retained earnings by establishing a
liquidation account. The liquidation account is maintained for the
benefit of eligible account holders who continue to maintain their
accounts at the Bank. The liquidation account is reduced annually to
the extent that eligible account holders have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible account holder is entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts
then held. Under current regulations, the Bank is not permitted to pay
dividends on its stock if the effect would reduce its regulatory
capital below the liquidation account.
New OTS regulations allow well run, healthy thrift institutions that
satisfy certain criteria to make cash dividends without having to
notify their federal regulator. Previously, all thrifts had to give
OTS notice or apply to the agency to make a distribution. The new
rule updates and streamlines OTS' capital distribution rule and makes
it more consistent with those of other federal regulators. During the
years ended June 30, 1999, 1998 and 1997, the Bank paid cash dividends
to the Holding Company as shown:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
May 16, 1997 $4,500,000
October 16, 1997 1,630,583
January 23, 1998 1,577,312
April 13, 1998 1,713,029
July 15, 1998 1,609,984
July 20, 1998 3,400,000
October 15, 1998 1,563,763
January 15, 1999 1,735,963
April 12, 1999 1,872,575
May 20, 1999 750,000
</TABLE>
At June 30, 1999, dividends payable from the Bank to the Holding
Company totaled $1,818,329.
After the dividends, the Bank's regulatory capital exceeds all of the
fully phased-in capital requirements imposed by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 as well as
the aforementioned liquidation account.
Unlike the Bank, the Holding Company is not subject to these
regulatory restrictions on the payment of dividends to its
stockholders. However, the source of future dividends may depend upon
dividends from the Bank.
(15) Fair Value of Financial Instruments
-----------------------------------
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No.
107, Disclosures About Fair Value of Financial Instruments. The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 11,472,806 11,472,806 10,075,182 10,075,182
Securities available for sale 190,325,599 190,325,599 140,793,201 140,793,201
Loans receivable 453,839,111 460,997,000 482,463,396 490,430,000
Loans available for sale 441,500 441,500 - -
Federal Home Loan Bank stock 4,841,200 4,841,200 4,511,500 4,511,500
Accrued interest receivable 4,661,786 4,661,786 4,119,691 4,119,691
Liabilities:
Deposits:
Certificate accounts 288,497,464 290,809,000 288,299,900 290,971,000
Other deposit accounts 168,845,338 168,845,338 155,717,522 155,717,522
Securities sold under
agreements to repurchase:
Short-term 6,617,747 6,617,747 13,088,323 13,088,323
Long-term 51,300,000 51,213,000 51,300,000 51,884,000
Borrowed funds:
Short-term 22,800,000 22,800,000 33,985,000 33,985,000
Long-term 60,000,000 59,944,000 - -
Accrued interest payable 2,251,666 2,251,666 1,064,546 1,064,546
</TABLE>
The fair value estimates are based on the following methods and
assumptions:
* Cash and cash equivalents. The carrying amounts of cash and cash
equivalents approximate their fair value.
* Securities available for sale. Fair values for securities are
based on quoted market prices or dealer quotes; where such
quotes are not available, fair values are based on quoted market
prices of comparable instruments.
* Loans receivable. The fair values of loans receivable are
estimated using a discounted cash flow calculation that applies
estimated discount rates reflecting the credit and interest rate
risk inherent in the loans to homogeneous categories of loans
with similar financial characteristics. Loans are segregated by
types, such as residential mortgage, commercial and consumer.
Each loan category is further segmented into fixed and
adjustable rate interest terms.
* Loans available for sale. The fair values of loans available
for sale are based on quoted market prices of similar loans
sold. At June 30, 1999, the carrying amount of loans available
for sale approximates its fair value.
* Federal Home Loan Bank stock. This item is valued at cost, which
represents redemption value and approximates fair value.
* Accrued interest receivable. The carrying amount of accrued
interest receivable approximates its fair value.
* Deposits. The fair values of fixed maturity certificate accounts
are estimated using a discounted cash flow calculation that
applies interest rates currently offered for deposits of similar
remaining maturities. The fair values of other deposit accounts
(passbook, NOW and money market accounts) equal their carrying
values.
* Short-term securities sold under agreements to repurchase. The
carrying amount of short-term securities sold under agreements
to repurchase approximates its fair value.
* Long-term securities sold under agreements to repurchase. Fair
value is estimated using a discounted cash flow calculation that
applies interest rates currently available to the Bank for debt
with similar terms and maturity.
* Short-term borrowed funds. Short-term borrowed funds reprice
frequently; therefore, the carrying amount approximates its fair
value.
* Long-term borrowed funds. Fair value is estimated using a
discounted cash flow calculation that applies interest rates
currently available to the Bank for debt with similar terms and
maturity.
* Accrued interest payable. The carrying amount of accrued
interest payable approximates its fair value.
* Off-balance sheet instruments. The fair value of commitments is
estimated using the fees currently charged to enter similar
agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. For fixed-
rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed
rates. The fair value of undisbursed lines of credit is based
on fees currently charged for similar agreements or on estimated
cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date. The carrying amount
and fair value of off-balance sheet instruments is not
significant as of June 30, 1999 and 1998.
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the Bank's
long-term relationships with depositors and the benefit that results
from low-cost funding provided by deposit liabilities. In addition,
significant assets which are not considered financial instruments and
are, therefore, not a part of the fair value estimates include office
properties and equipment.
(16) Condensed Parent-Company-Only Financial Statements
--------------------------------------------------
The following condensed statements of financial condition as of
June 30, 1999 and 1998, and related condensed statements of income and
cash flows for the years ended June 30, 1999, 1998 and 1997 for FFY
Financial Corp. should be read in conjunction with the consolidated
financial statements and the notes thereto.
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition 1999 1998
------------------------------------------- ---- ----
<S> <C> <C>
Assets:
Cash $ 142,257 106,443
Short-term investments 865,000 895,000
---------------------------
Total cash and cash equivalents 1,007,257 1,001,443
Securities available for sale 11,060,613 21,827,325
Loans receivable 1,900,000 -
Note receivable - KSOP 3,094,000 3,447,600
Equity in net assets of the Bank 51,063,276 53,382,413
Interest receivable on investments 98,905 236,393
Dividend receivable from Bank 1,818,329 5,009,984
Other assets 563,496 607,155
---------------------------
Total assets $70,605,876 85,512,313
===========================
Liabilities and stockholders' equity:
Other liabilities $ 489,351 1,296,612
Stockholders' equity 70,116,525 84,215,701
---------------------------
Total liabilities and stockholders' equity $70,605,876 85,512,313
===========================
<CAPTION>
Condensed Statements of Income 1999 1998 1997
------------------------------ ---- ---- ----
<S> <C> <C>
Income:
Equity in earnings of the Bank and subsidiary $ 6,840,653 6,389,428 4,091,892
Interest income 1,302,593 1,587,602 2,143,876
Gain (loss) on sale of securities 331,433 266,002 (98,314)
--------------------------------------------
Total income 8,474,679 8,243,032 6,137,454
Expenses:
State and local taxes 50,720 116,271 167,882
Other 199,854 181,550 177,629
--------------------------------------------
Total expenses 250,574 297,821 345,511
--------------------------------------------
Income before income taxes 8,224,105 7,945,211 5,791,943
Income taxes 84,000 216,000 468,000
--------------------------------------------
Net income $ 8,140,105 7,729,211 5,323,943
============================================
<CAPTION>
Condensed Statements of Cash Flows 1999 1998 1997
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,140,105 7,729,211 5,323,943
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of the Bank and subsidiary (6,840,653) (6,389,428) (4,091,892)
Amortization and accretion 48,389 77,419 70,246
(Increase) decrease in interest receivable 71,435 (85,268) 449,649
Other, net (235,261) (191,303) 780
--------------------------------------------
Net cash provided by operating activities 1,184,015 1,140,631 1,752,726
--------------------------------------------
Cash flows from investing activities:
Proceeds from:
Maturity of securities available for sale - - 10,000,000
Sales of securities available for sale 17,388,127 13,648,851 28,254,806
Purchase of securities available for sale (7,690,267) (14,101,273) (23,875,482)
Principal receipts on securities available for sale - 595,851 441,346
Net increase in loans receivable (1,900,000) - -
KSOP loan repayment 353,600 353,600 353,600
Dividend from the Bank 10,932,286 4,920,924 4,500,000
Loan to subsidiary (33,500) (686,500) -
Other - (500) -
--------------------------------------------
Net cash provided by investing activities 19,050,246 4,730,953 19,674,270
--------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (17,675,478) (5,239,911) (25,982,802)
Dividends paid (3,102,129) (2,900,750) (2,889,944)
Proceeds from stock options exercised 559,294 336,930 555,270
Other (10,134) (19,866) -
--------------------------------------------
Net cash used in financing activities (20,228,447) (7,823,597) (28,317,476)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,814 (1,952,013) (6,890,480)
Cash and cash equivalents at beginning of year 1,001,443 2,953,456 9,843,936
--------------------------------------------
Cash and cash equivalents at end of year $ 1,007,257 1,001,443 2,953,456
============================================
Supplemental schedule of noncash investing activities:
Dividend receivable from Bank $ 1,818,329 5,009,984 -
============================================
</TABLE>
Independent Auditors' Report
The Board of Directors
FFY Financial Corp.:
We have audited the accompanying consolidated statements of financial
condition of FFY Financial Corp. and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFY
Financial Corp. and subsidiaries as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
Cleveland, Ohio
August 4, 1999
<TABLE>
<CAPTION>
Officers and Directors
- ----------------------
<S> <S> <S> <S>
Board of Directors of Board of Directors of Officers of First Officers of First
FFY Financial Corp. and FFY Holdings, Inc. Federal Savings Bank Federal Savings Bank
First Federal Savings Bank Of Youngstown of Youngstown, continued
Bank of Youngstown
A. Gary Bitonte, MD Jeffrey L. Francis Jeffrey L. Francis Janet Byrne
Medical Consultant President and CEO President and CEO Assistant Secretary
Private Investments of FFY Financial Corp. and
First Federal Savings Bank Therese Ann Liutkus, CPA Christine Chasko
Marie Izzo Cartwright of Youngstown Treasurer and CFO Assistant Controller
Vice President
Glimcher Properties Mark Makoski J. Craig Carr Richard Curry
Limited Partnership Vice President of First Federal Vice President, General Assistant Secretary
Savings Bank of Youngstown Counsel and Secretary
Janice S. Elias
Jeffrey L. Francis Henry P. Nemenz David S. Hinkle Assistant Treasurer
President and CEO President Vice President
of FFY Financial Corp. and H.P. Nemenz Food Stores, Inc. Dominic Mancini
First Federal Savings Bank Mark Makoski Assistant Secretary
of Youngstown W. Terry Patrick Vice President
Partner, Friedman & Rummell Jill Mayfield
Henry P. Nemenz Attorneys at Law Joseph R. Sainato Assistant Treasurer
President Vice President
H.P. Nemenz Food Stores, Inc. Myron S. Roh Frank Pasquale
Chairman of the Board of Timm B. Schreiber Assistant Secretary
W. Terry Patrick FFY Financial Corp. and Vice President
Partner, Friedman & Rummell First Federal Savings Bank Thomas J. Roberts
Attorneys at Law of Youngstown and Randy Shaffer Assistant Secretary
President and Treasurer Vice President
Myron S. Roh Scholl Choffin Co. Cheryl J. Taraszewski
Chairman of the Board of Jeffrey L. DeRose, CPA Assistant Treasurer
FFY Financial Corp. and Robert L. Wagmiller Controller
First Federal Savings Bank Partner/Principal of Jeanne G. Yankle
of Youngstown and Hill, Barth & King, Inc. Robert Adema Assistant Treasurer
President and Treasurer Assistant Vice President
Scholl Choffin Co. Jerome D. Zetts
Robert Campolito Assistant Treasurer
William A. Russell Officers of Assistant Vice President
President FFY Financial Corp.
Canteen Service of Steel Jane Hutchins
Valley, Inc. Jeffrey L. Francis Assistant Vice President Officers of
President and CEO FFY Holdings, Inc.
Randy Shaffer Jon Schmied
Vice President of Therese Ann Liutkus, CPA Assistant Vice President Jeffrey L. Francis
FFY Financial Corp. and Treasurer and CFO President
First Federal Savings Bank Dennis Sell
of Youngstown Randy Shaffer Assistant Vice President Therese Ann Liutkus, CPA
Vice President Treasurer
Ronald P. Volpe, Ph.D. Joanne Harrold
Professor of Finance J. Craig Carr Internal Auditor J. Craig Carr
Williamson College of Vice President, Vice President and
Business Administration General Counsel and Marilyn Burrows Secretary
Youngstown State University Secretary Assistant Treasurer
Randy Shaffer
Robert L. Wagmiller Vice President
Partner/Principal of
Hill, Barth & King, Inc.
</TABLE>
Annual Report on Form 10-K
A copy of the Annual Report on Form 10-K filed with the Securities and
Exchange Commission will be available September 28, 1999 without charge upon
written request to:
Therese Ann Liutkus, CPA
Treasurer and CFO
FFY Financial Corp.
724 Boardman-Poland Road
P.O. Box 3300
Youngstown, Ohio 44513
Phone: (330) 726-3396
Fax: (330) 758-1356
E-mail: [email protected]
Web page: www.ffybank.com
Annual Meeting
The Annual Meeting of Stockholders of FFY Financial Corp. will be held at
10:00 a.m. on Wednesday, October 20, 1999 at:
The Holiday Inn
7410 South Avenue
Youngstown, Ohio 44512
Stockholder Services
Fifth Third Bank serves as transfer agent for FFY Financial Corp.'s shares.
Communications regarding change of address, transfer of shares, lost
certificates or dividend reinvestment should be sent to:
Fifth Third Bank
Corporate Trust Operations
38 Fountain Square Plaza
Mail Drop 1090F5
Cincinnati, Ohio 45263
(800) 837-2755
Market Makers
McDonald & Company Securities, Inc.
Herzog, Heine, Geduld, Inc.
Sandler O'Neill & Partners
Keefe, Bruyette & Woods, Inc.
Friedman, Billings, Ramsey & Co.
Stifel Nicholaus & Co.
Spear, Leeds & Kellogg
Parker/Hunter Inc.
Affiliations
Coldwell Banker FFY Real Estate, Ltd.
1275 Boardman-Poland Road
Youngstown, Ohio 44514
Phone: (330) 757-0777
Fax: (330) 726-1931
E-mail: [email protected]
Daniel W. Landers Insurance Agency, Ltd.
700 Boardman-Poland Road
Youngstown, Ohio 44512
Phone: (330) 726-4636
Fax: (330) 726-4635
E-mail: [email protected]
First Federal Savings Bank of Youngstown Office Locations
- ---------------------------------------------------------
Phone Number (330) 726-3396 connects all offices except Howland (330)
856-5566
Main Office 724 Boardman-Poland Road
P.O. Box 3300
Youngstown, Ohio 44513-3300
Branch Offices Downtown Canfield
25 Market Street, Suite 3 2 South Broad Street
Youngstown, Ohio 44503 Canfield, Ohio 44406
Westside Canfield Drive-up
4390 Mahoning Avenue 352 W. Main Street
Youngstown, Ohio 44515 Canfield, Ohio 44406
Southside Cornersburg
3900 Market Street 3516 S. Meridian Road
Youngstown, Ohio 44512 Youngstown, Ohio 44511
Northside New Middletown
600 Gypsy Lane 10416 Main Street
Youngstown, Ohio 44505 New Middletown, Ohio 44442
Logan Way Howland Loan Office
4423 Logan Way 5000 E. Market Street, Suite 16
Youngstown, Ohio 44505 Warren, Ohio 44484
Poland FFY Professional Building
30 South Main Street 1275 Boardman-Poland Road
Poland, Ohio 44514 Youngstown, Ohio 44514
Personal Photos:
Page 8-Y2k Committee (left to right)
Janice Elias, Michele Barnett, Rick Thomas, Jeff DeRose, Jill Mayfield,
Dominic Mancini, Lynn Kegley, Bob Campolito, Debbie Seinkner, Tom Scott,
Judy Pabst.
Page 15- Real Estate Lending Group (left to right)
Dominic Mancini, Dennis Sell, Randy Shaffer, Robert Adema, Timm B. Schreiber
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage Incorporation
of or
Parent Subsidiary Ownership Organization
------ ---------- ---------- -------------
<S> <C> <C> <C>
FFY Financial Corp. First Federal 100% Federal
Savings Bank
of Youngstown
FFY Financial Corp. FFY Holdings, Inc. 100% Ohio
FFY Holdings, Inc. First Real Estate, Ltd. 67% Ohio
FFY Holdings, Inc. Daniel W. Landers 67% Ohio
Insurance Agency, Ltd.
FFY Holdings, Inc. Coldwell Banker 33% Ohio
FFY Real Estate
First Federal Ardent Service 100% Ohio
Savings Bank Corporation
of Youngstown
Ardent Service Hedgerows 50% Ohio
Corporation Development, Ltd.
</TABLE>
KPMG LLP
[Letterhead]
Independent Auditors' Consent
The Board of Directors
FFY Financial Corporation:
We consent to incorporation by reference in the Registration Statement No.
33-85088 on Form S-8 of FFY Financial Corporation of our report dated
August 4, 1999, relating to the consolidated statements of financial
condition of FFY Financial Corporation and subsidiaries as of June 30, 1999
and 1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
June 30, 1999, which report appears in the June 30,
1999 annual report on Form 10-K of FFY Financial Corporation.
/s/ KPMG LLP
Cleveland, Ohio
September 23, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,362,745
<INT-BEARING-DEPOSITS> 5,245,061
<FED-FUNDS-SOLD> 865,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 190,325,599
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 454,280,611
<ALLOWANCE> 2,645,132
<TOTAL-ASSETS> 675,691,014
<DEPOSITS> 457,342,802
<SHORT-TERM> 29,417,747
<LIABILITIES-OTHER> 7,513,940
<LONG-TERM> 111,300,000
0
0
<COMMON> 75,894
<OTHER-SE> 70,040,631
<TOTAL-LIABILITIES-AND-EQUITY> 675,691,014
<INTEREST-LOAN> 39,046,983
<INTEREST-INVEST> 9,885,455
<INTEREST-OTHER> 151,179
<INTEREST-TOTAL> 49,083,617
<INTEREST-DEPOSIT> 20,116,405
<INTEREST-EXPENSE> 26,514,482
<INTEREST-INCOME-NET> 22,569,135
<LOAN-LOSSES> 494,438
<SECURITIES-GAINS> 203,317
<EXPENSE-OTHER> 12,495,048
<INCOME-PRETAX> 12,129,659
<INCOME-PRE-EXTRAORDINARY> 8,140,105
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,140,105
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 3.62
<LOANS-NON> 2,160,290
<LOANS-PAST> 0
<LOANS-TROUBLED> 99,262
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,740,169
<CHARGE-OFFS> 723,383
<RECOVERIES> 133,908
<ALLOWANCE-CLOSE> 2,645,132
<ALLOWANCE-DOMESTIC> 2,645,132
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 774,025
</TABLE>
