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, 2000
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 CORP.
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(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
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---------------------
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. [X]
As of August 24, 2000, the Registrant had 6,702,115 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 24, 2000 was $63.2 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, 2000.
Part III of Form 10-K - Proxy Statement for Annual Meeting of Stockholders
to be held in 2000 (filed on August 18, 2000, as part of the Registration
Statement on Form S-4 of First Place Financial Corp., file no. 333-44108).
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 Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, changes in the relationship between short- and long-term
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.
Item 1. Business
General. FFY Financial Corp. (FFY 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, FFY Bank,
a federally-chartered stock savings bank, and FFY Holdings, Inc. In June
1993, FFY 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 FFY Bank. FFY
Bank operates 11 full service banking facilities and 3 limited banking
facilities in Mahoning and Trumbull Counties, Ohio. At June 30, 2000, the
Company had total consolidated assets of $674.5 million.
The business of the Company consists primarily of the business of FFY Bank.
The holding company structure, however, provides FFY with greater
flexibility than FFY 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
FFY, 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. In May 2000, FFY Holdings, Inc. acquired the minority
interest in its insurance affiliate, FFY Insurance Agency, Ltd. Also in May
2000, FFY Insurance Agency, Ltd. acquired Moreman-Yerian Insurance Agency,
which had an over 100-year history of providing insurance products to
consumers in the Company's market area. FFY Bank provides a variety of
banking services to its customers other than its primary business activities
of making loans and accepting deposits.
On May 23, 2000, the Company and First Place Financial Corp. (First Place),
the holding company for First Federal Savings and Loan Association of
Warren, entered into a definitive agreement (Merger Agreement) to combine in
a merger of equals (the Merger). The Merger Agreement calls for a tax-free
exchange of each outstanding share of FFY common stock for 1.075 shares of
First Place common stock, with cash paid in lieu of fractional shares. In
addition, pursuant to the Merger Agreement, FFY Bank will merge with First
Federal Savings and Loan Association of Warren to become First Place Bank.
The Merger will be accounted for as a purchase and is expected to close in
the fourth quarter of calendar year 2000. The Merger Agreement has been
approved by the boards of directors of both companies. However, it is
subject to certain other conditions, including the approvals of the
shareholders of both companies and the approvals of regulatory authorities.
Market Area. FFY Bank 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 13
other banking offices in Ohio. Eleven of FFY Bank's office locations,
including the main office, are in Mahoning County and three office locations
are in Trumbull County. The Youngstown-Warren area (Mahoning and Trumbull
Counties) makes up the 7th largest metropolitan statistical area in the
State of Ohio.
Mahoning County was once a leading steel producing area, however this
industry experienced significant declines in the total number of persons
employed. 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 area include General Motors Corporation in
Lordstown, Ohio and Delphi Packard Electric Systems 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. FFY Bank's largest component of its gross loan portfolio has
historically been first mortgage loans secured by one- to four-family
residences. FFY Bank originates adjustable-rate mortgage (ARM) loans or
shorter-term fixed rate loans for its own portfolio. FFY Bank also offers 15
and 30 year fixed-rate loans which, if they qualify, are sold on the
secondary market to Federal National Mortgage Corporation (Fannie Mae). To a
lesser extent, FFY Bank sells adjustable-rate loans to Fannie Mae. Multi-
family, commercial, construction and consumer loans with higher yields than
traditional one- to four-family loans are also offered by FFY Bank.
Certain officers of FFY 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 FFY 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.
FFY Bank's loans-to-one-borrower limit is generally 15% of unimpaired
capital and surplus. At June 30, 2000, the maximum amount which FFY Bank
could have lent under this limit to any one borrower and the borrower's
related entities was approximately $7.4 million. The largest lending
relationship at June 30, 2000 totaled $4.1 million which is primarily
secured by a commercial building and rental units. There are 24 other
lending relationships ranging from $1.0 million to $3.1 million with an
aggregate total of $40.4 million. At June 30, 2000, all such loans were
performing in accordance with their terms except for one lending
relationship of three loans with an aggregate outstanding balance of $1.8
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 FFY 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,
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
---------------
One- to four -family $351,425 70.24% $335,064 71.70% $354,202 71.65% $349,053 73.59% $334,307 73.64%
Multi-family 14,367 2.87% 15,579 3.33% 15,659 3.17% 16,294 3.44% 15,934 3.51%
Commercial 44,629 8.92% 35,117 7.51% 28,606 5.79% 30,997 6.53% 29,024 6.39%
Construction and development 32,480 6.49% 28,085 6.01% 23,999 4.85% 23,179 4.88% 22,636 4.99%
--------------------------------------------------------------------------------------------
Total mortgage loans 442,901 88.52% 413,845 88.55% 422,466 85.46% 419,523 88.44% 401,901 88.53%
--------------------------------------------------------------------------------------------
Consumer Loans:
---------------
Deposit account 863 0.17% 1,195 0.26% 1,341 0.27% 1,240 0.26% 1,115 0.25%
Automobile 5,812 1.16% 7,789 1.67% 12,161 2.46% 16,349 3.45% 17,245 3.80%
Home equity 44,437 8.89% 36,470 7.80% 37,912 7.67% 33,269 7.01% 29,783 6.56%
90-day notes 1,816 0.36% 3,416 0.73% 17,677 3.58% 1,323 0.28% 1,441 0.32%
Other 4,501 0.90% 4,635 0.99% 2,791 0.56% 2,646 0.56% 2,479 0.54%
--------------------------------------------------------------------------------------------
Total consumer loans 57,429 11.48% 53,505 11.45% 71,882 14.54% 54,827 11.56% 52,063 11.47%
--------------------------------------------------------------------------------------------
Total loans 500,330 100.00% 467,350 100.00% 494,348 100.00% 474,350 100.00% 453,964 100.00%
====== ====== ====== ====== ======
Less:
-----
Loans in process (10,349) (7,969) (6,557) (7,861) (8,830)
Deferred fees and discount (2,634) (2,455) (2,588) (2,815) (2,905)
Allowance for losses (2,659) (2,645) (2,740) (2,962) (3,439)
Loans available for sale (171) (442) - - -
-------- -------- -------- -------- --------
Total loans receivable, net $484,517 $453,839 $482,463 $460,712 $438,790
======== ======== ======== ======== ========
The following table shows the composition of FFY Bank's loan portfolio by
fixed and adjustable rates at the dates indicated.
<CAPTION>
June 30,
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- -----------------
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 $149,343 29.85% $165,891 35.50% $217,075 43.91% $260,128 54.84% $268,816 59.21%
Multi-family 2,865 0.57% 3,622 0.78% 3,965 0.80% 3,969 0.84% 3,624 0.79%
Commercial 24,465 4.89% 29,162 6.24% 24,533 4.96% 24,498 5.16% 23,784 5.24%
Construction and
development 28,486 5.69% 25,135 5.38% 21,087 4.27% 23,179 4.88% 22,636 4.99%
--------------------------------------------------------------------------------------------
Total fixed-rate real
estate loans 205,159 41.00% 223,810 47.90% 266,660 53.94% 311,774 65.72% 318,860 70.23%
Consumer - fixed-rate 35,942 7.18% 46,549 9.96% 67,243 13.60% 52,013 10.97% 50,081 11.03%
--------------------------------------------------------------------------------------------
Total fixed-rate loans 241,101 48.18% 270,359 57.86% 333,903 67.54% 363,787 76.69% 368,941 81.26%
--------------------------------------------------------------------------------------------
Adjustable-Rate Loans:
----------------------
Real estate:
One- to four -family 202,082 40.39% 169,173 36.20% 137,127 27.74% 88,925 18.75% 65,491 14.43%
Multi-family 11,502 2.30% 11,957 2.56% 11,694 2.37% 12,325 2.60% 12,310 2.71%
Commercial 20,164 4.03% 5,955 1.27% 4,073 0.82% 6,499 1.37% 5,240 1.16%
Construction and
development 3,994 0.80% 2,950 0.63% 2,912 0.59% - - - -
--------------------------------------------------------------------------------------------
Total adjustable-rate real
estate loans 237,742 47.52% 190,035 40.66% 155,806 31.52% 107,749 22.72% 83,041 18.30%
--------------------------------------------------------------------------------------------
Consumer - adjustable-rate 21,487 4.30% 6,956 1.48% 4,639 0.94% 2,814 0.59% 1,982 0.44%
Total adjustable-rate
loans 259,229 51.82% 196,991 42.14% 160,445 32.46% 110,563 23.31% 85,023 18.74%
--------------------------------------------------------------------------------------------
Total loans 500,330 100.00% 467,350 100.00% 494,348 100.00% 474,350 100.00% 453,964 100.00%
====== ====== ====== ====== ======
Less:
-----
Loans in process (10,349) (7,969) (6,557) (7,861) (8,830)
Deferred fees and discounts (2,634) (2,455) (2,588) (2,815) (2,905)
Allowance for losses (2,659) (2,645) (2,740) (2,962) (3,439)
Loans available for sale (171) (442) - - -
-------- -------- -------- -------- --------
Total loans receivable,
net $484,517 $453,839 $482,463 $460,712 $438,790
======== ======== ======== ======== ========
</TABLE>
The following schedule illustrates the interest rate sensitivity of FFY
Bank's loan portfolio at June 30, 2000. 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
-------------------------------------------------------------------------------
Construction and
One- to 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,
----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2001(1) $ 315 8.41% $ 675 9.95% $ 1,706 9.68% $ 12,547 8.55% $ 3,586 11.22% $ 18,829 9.21%
2002 to
2005 10,155 7.92% 3,794 8.67% 7,050 9.59% 18,207 8.57% 19,160 9.70% 58,366 8.96%
2006 and
following 340,955 7.62% 9,898 8.75% 35,873 8.92% 1,726 8.51% 34,683 10.27% 423,135 7.98%
$351,425 $ 14,367 $ 44,629 $ 32,480 $ 57,429 $500,330
The total amount of loans due after June 30, 2001 which have predetermined
interest rates is $284.6 million, while the total amount of loans due after
such dates which have floating or adjustable interest rates is $196.9
million.
<FN>
--------------------
<F1> Includes overdraft loans.
</FN>
</TABLE>
One- to four -Family Residential Real Estate Lending
The cornerstone of FFY Bank's lending program has been the origination of
loans secured by mortgages on owner-occupied, one- to four -family
residences. FFY Bank has generally limited its real estate loan originations
to properties within its market area. As of June 30, 2000, all one- to four
-family residential loans were located in FFY Bank's market area. FFY Bank
originates both fixed and ARM loans with terms up to 30 years. Fixed-rate
originations are generally affected by market rates, customer preference and
competition. FFY Bank has experienced growth in 7/1-year ARMs which are
fixed for seven years and convert to a one-year ARM in the eighth year. From
an interest-rate risk standpoint, 7/1-year ARMs provide FFY Bank with better
protection against rising rates than 15- and 30-year fixed rate loans, but
less protection than 1-year ARMs. Origination of ARMs is dependent on market
interest rates and customer preferences. At June 30, 2000, $128.7 million,
or 25.7% of FFY Bank's gross loan portfolio consisted of 7/1-year ARMs
compared to $90.8 million, or 19.4% at June 30, 1999 and $52.0 million, or
10.5% at June 30, 1998. Additionally, a significant portion of FFY Bank's
other ARM products are subject to interest adjustments at three-year
intervals. FFY 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 FFY Bank's ARMs are generally limited to 2% at any
adjustment date and 5% over the life of the loan. FFY Bank's ARMs are not
convertible into fixed-rate loans, are not assumable, do not contain
prepayment penalties and do not produce negative amortization.
FFY 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,
FFY Bank established procedures in 1998 to verify employment history and
down payment sources since FFY Bank sells certain qualifying loans to Fannie
Mae. Underwriting standards required by Fannie Mae and other secondary
market investors are generally followed for new loan originations that FFY
Bank retains in its portfolio. During 1999 and 2000, FFY 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, FFY Bank's
personnel streamlined the process for standard home loan requests from
application to closing to less than ten days. The Company's management also
expects to fully implement 24-hour approvals on certain loan originations in
the future. During fiscal year 2000, management implemented a timely loan
pre-approval process in response to competition. Pre-approvals generally
range between 24 and 72 hours.
FFY 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, FFY Bank generally requires private mortgage
insurance in an amount intended to reduce FFY Bank's exposure to 72% of the
appraised value of the underlying collateral. Property securing real estate
loans made by FFY Bank is appraised by staff appraisers of FFY Bank. FFY
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.
FFY 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 FFY
Bank's offices.
Multi-Family Lending
FFY Bank originates multi-family loans, which it holds in its portfolio,
which are primarily secured by apartment buildings. Multi-family loans
generally have shorter maturities than one- to four -family mortgage loans,
although FFY Bank may originate such loans with terms up to 30 years. The
rates charged on multi-family loans are both fixed and adjustable, in which
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 FFY Bank
are performed by either an independent appraiser designated by FFY Bank or
by FFY Bank's staff appraisers at the time the loan is made. All appraisals
on multi-family loans are reviewed by FFY Bank's management. In addition,
FFY 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, 2000, FFY Bank had three multi-family loans with a net book
value in excess of $1.0 million but less than $2.0 million, of which one of
these loans, totaling $1.5 million, was past due. This loan is considered by
management to be a potential problem loan. See "Troubled Debt Restructurings
and Other Loans of Concern" for additional information 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 level 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
FFY Bank 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 both fixed and adjustable. Adjustable-rate commercial real
estate loans are reset to a stated margin over an independent index. Current
year commercial real estate loan originations totaled $12.6 million, of
which 69% had an adjustable rate. 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
FFY Bank are performed by either an independent appraiser designated by FFY
Bank or by FFY Bank's staff appraisers at the time the loan is made. All
appraisals on commercial real estate loans are reviewed by FFY Bank's
management. In addition, FFY 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, 2000, FFY Bank had eight 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.
During fiscal 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. FFY Bank also increased its commercial lending staff during
fiscal year 2000. At June 30, 2000, the Company had $44.6 million in
commercial real estate loans comprising of 8.9% of the gross loan portfolio
compared to $35.1 million, or 7.5% at June 30, 1999 and $28.6 million, or
5.8% 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, which
management believes 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. The performance of this
portfolio, however, will be closely monitored as it grows.
Construction and Development Lending
FFY 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 and commercial real estate and the
development of one- to four-family lots in Ohio. At June 30, 2000, all of
these loans were secured by property located within FFY 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 FFY 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, FFY Bank generally requires private mortgage insurance,
thus reducing FFY Bank's exposure. Residential construction loans are
generally underwritten pursuant to the same guidelines used for originating
permanent residential loans. At June 30, 2000, FFY Bank had $12.3 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 up to 12 months and have terms of 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. At June 30, 2000, FFY
Bank had $8.7 million of construction loans to builders of one- to four-
family residences.
FFY 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. 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, 2000, FFY Bank had $8.8 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 FFY
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, 2000, FFY Bank had $2.1 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 FFY Bank, as well as referrals from existing customers and walk-in
customers. The application process includes a submission to FFY 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 and verification of
construction progress prior to authorizing a construction draw and requires
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, 2000, there were no construction or development loans in excess
of $1.0 million.
Consumer Lending
FFY Bank originates various types of consumer loans including, but not
limited to, home equity and automobile loans. FFY Bank places increasing
emphasis on consumer loans, particularly home equity loans and lines,
because of their attractive yields and shorter terms to maturity. During
fiscal year 2000, home equity credit lines were identified as a growth area
by the Company's management because of the attractive yield and adjustable-
rate feature. At June 30, 2000, adjustable-rate home equity credit lines
totaled $21.2 million compared to $6.6 million at June 30, 1999.
FFY Bank's home equity loans and lines 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 FFY
Bank holds the first lien and 80% if the first mortgage is held by a third
party. At June 30, 2000, FFY Bank held a first lien on approximately 97% of
the properties securing home equity loans and lines. 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 generally 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. FFY Bank's home equity loan portfolio grew from $29.8
million, or 57.2% of gross consumer loans at June 30, 1996 to $44.4 million,
or 77.7% of gross consumer loans at June 30, 2000.
The underwriting standards employed by FFY Bank for consumer loans include a
determination of the applicant's payment history on other debts and 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 FFY Bank's exposure to interest rate risk.
Sale of Mortgage Loans
During fiscal year 1998, FFY Bank began originating one- to four-family
fixed-rate mortgage loans for sale to Fannie Mae. Currently, FFY Bank sells
one- to four -family fixed-rate 15- and 30-year loans and, to a lesser
extent, 7/1-year and 3/1-year ARMs to Fannie Mae. All mortgage loans, upon
origination, are categorized as either held for FFY Bank's portfolio or
available-for-sale. FFY Bank originated $14.9 million in available-for-sale
loans during fiscal year 2000 compared to $30.9 million during fiscal year
1999. Originations of available-for-sale loans decreased during fiscal year
2000 due to rising market interest rates. Pre-tax gains on sales of loans
totaled $234,000 for fiscal year 2000 compared to $720,000 for fiscal year
1999. During fiscal year 1998, FFY Bank originated and sold loans totaling
$5.0 million at a pretax gain of $134,000. Depending on factors such as
interest rates, levels of refinancings and competitive factors in the
Company's primary market area, the amount of mortgage loan originations
ultimately sold can vary significantly.
FFY Bank retains servicing on loans sold to Fannie Mae, typically receiving
a servicing fee of 25 basis points, which represents the difference between
the mortgage rate on the loans sold and the yield at which such loans are
sold. Mortgage loans serviced for others totaled $47.3 million at June 30,
2000 compared to $35.1 million at June 30, 1999.
Loan Origination and Repayment Activities
The following table sets forth FFY Bank's originations, sales and repayments
of loans for the periods indicated.
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
2000 1999 1998
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Originations by type:
---------------------
Adjustable rate:
Real estate - one- to four -family $ 49,239 39,258 45,473
- multi-family 136 8 586
- commercial 8,645 682 3,413
- construction and development 8,873 15,503 2,250
Non-real estate - consumer 31,822 11,457 4,844
--------------------------------
Total adjustable rate 98,715 66,908 56,566
--------------------------------
Fixed rate:
Real estate - one- to four -family 21,954 22,423 8,834
- multi-family - 1,744 658
- commercial 3,936 3,422 1,069
- construction and development 17,074 20,210 27,997
Non-real estate - consumer 27,650 35,063 48,728
--------------------------------
Total fixed rate 70,614 82,862 87,286
--------------------------------
Total loans originated 169,329 149,770 143,852
Principal repayments (122,251) (121,902) (105,621)
Loan sales (14,904) (30,409) (4,988)
Principal write-offs and other items, net (1,580) (725) (795)
--------------------------------
Net increase (decrease) $ 30,594 (3,266) 32,448
================================
</TABLE>
Asset Quality
When a borrower fails to make a required payment on a loan, FFY 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 60
and 75 days past due, and if the status does not improve, FFY 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, FFY
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 FFY Bank and paying delinquencies and other charges associated
with the repossession. FFY Bank's repossession guidelines comply with the
requirements under the Ohio Revised Code.
FFY 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, 2000, in dollar amounts and as a percentage of
each category of FFY 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 14 $596 0.17% 42 $2,849 0.81% 56 $3,445 0.98%
Multi-family - - - - - - - - -
Commercial 2 5 0.01% 2 97 0.22% 4 102 0.23%
Construction or
Development - - - - - - - - -
Consumer 22 149 0.26% 25 459 0.80% 47 608 1.06%
------------- --------------- ----------------
Total 38 $750 0.15% 69 $3,405 0.68% 107 $4,155 0.83%
============= =============== ================
</TABLE>
Non-Performing Assets. The table below sets forth the amounts and categories
of non-performing assets in FFY Bank's loan portfolio. FFY Bank 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 4 payments delinquent. Troubled debt
restructurings are instances 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 as a troubled debt restructuring 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,
-----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four -family $2,718 1,421 2,168 2,359 3,617
Multi-family - - - - -
Commercial real estate - - - 110 -
Construction and development - 567 - 4 71
Consumer 411 172 566 782 409
-----------------------------------------------
Total 3,129 2,160 2,734 3,255 4,097
-----------------------------------------------
Troubled debt restructurings:
One- to four -family - 34 575 685 506
Consumer 14 65 15 53 70
-----------------------------------------------
Total 14 99 590 738 576
-----------------------------------------------
Total non-performing loans 3,143 2,259 3,324 3,993 4,673
-----------------------------------------------
Foreclosed assets:
One- to four -family 249 97 - - -
-----------------------------------------------
Total non-performing assets $3,392 2,356 3,324 3,993 4,673
===============================================
Total non-performing assets as a percentage
of total assets 0.50% 0.35% 0.51% 0.67% 0.81%
===============================================
Total non-performing loans as a percentage
of total loans receivable, net 0.70% 0.50% 0.69% 0.87% 1.06%
===============================================
Allowance for loan losses as a percentage
of non-performing assets 78.39% 112.27% 82.43% 74.18% 73.59%
===============================================
</TABLE>
For the year ended June 30, 2000, gross interest income which would have
been recorded had the non-performing loans been current in accordance with
their original terms amounted to approximately $181,000. The amount that was
included in interest income on such loans was $175,000 for the year ended
June 30, 2000.
For the year ended June 30, 2000, gross interest income which would have
been recorded had the troubled debt restructurings been current in
accordance with their original terms amounted to $4,000. The amount that was
included in interest income on such loans was $3,000 for the year ended June
30, 2000.
Troubled Debt Restructurings and Other Loans of Concern. As of June 30,
2000, FFY Bank had $14,000 in net book value of troubled debt restructurings
which were primarily indirect auto loans. The net book value of troubled
debt restructurings at June 30, 1999 totaled $99,000, which were primarily
one- to four -family and indirect auto loans.
FFY Bank has three loans to one borrower with an aggregate outstanding
balance of $1.8 million at June 30, 2000. The borrower has admitted to
defrauding several of his clients and was sentenced to prison in 1999. The
largest loan of the three, totaling $1.5 million at June 30, 2000, 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 a
first lien on the apartment building and additionally has the assignment of
rents in the event of default. This loan was 30 days past due at June 30,
2000, but only for a partial payment. Management anticipates, however, this
property will be sold in October 2000 and the entire principal balance will
be collected. This loan was classified "substandard" at June 30, 2000.
FFY Bank has two loans to one borrower with an aggregate outstanding balance
of $640,000 at June 30, 2000. These loans are secured by a golf course that
has cash flow problems. This property was internally appraised in May 2000
for $900,000. FFY Bank's management has been informed that the owner of this
golf course is looking to either sell this property or find a partner
willing to provide funds to renovate and improve the golf course. One loan
is current and the other is 30 days delinquent. These loans are classified
"substandard" at June 30, 2000.
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. For assets classified as "loss", institutions must either
establish a specific allowance for loss equal to 100% of that portion of the
asset so classified or 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, FFY 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, 2000 consisted of 102 loans totaling $7.1 million, or
1.1% of total assets compared to 100 loans totaling $4.2 million, or 0.6% of
total assets June 30, 1999. The increase in classified assets during fiscal
year 2000 was primarily in one- to four -family mortgage loans in addition
to the $1.5 million multi-family loan discussed above at "Troubled Debt
Restructurings and Other Loans of Concern", which was the largest classified
asset at June 30, 2000.
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
Company'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 its 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 FFY Bank's allowance for loan
losses at the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
2000 1999 1998 1997 1996
------ ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,645 2,740 2,962 3,439 3,159
Charge-offs:
One- to four -family (221) (167) (97) (40) (18)
Multi-family - - - - (1)
Construction or development (10) (30) - - -
Consumer (366) (526) (743) (1,159) (58)
----------------------------------------------
(597) (723) (840) (1,199) (77)
----------------------------------------------
Recoveries:
One- to four -family 13 9 3 1 18
Construction or development - 30 - - 2
Commercial real estate - - - - 2
Consumer 122 95 50 33 10
----------------------------------------------
135 134 53 34 32
----------------------------------------------
Net charge-offs (462) (589) (787) (1,165) (45)
Additions charged to operations 476 494 565 688 325
----------------------------------------------
Balance at end of period $2,659 2,645 2,740 2,962 3,439
==============================================
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.10% 0.13% 0.17% 0.26% 0.01%
==============================================
Ratio of net charge-offs during
the period to average
non-performing assets 16.12% 16.67% 20.74% 24.22% 0.94%
==============================================
</TABLE>
When FFY 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, 2000 and 1999, FFY Bank's real estate owned totaled $249,000 and
$97,000, respectively.
The distribution of FFY Bank's allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------ ------------------ ------------------ ------------------ ------------------
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 $1,059 70.24% $ 829 71.70% $ 923 71.65% $1,283 73.59% $1,547 73.64%
Multi-family 258 2.87% 20 3.33% 19 3.17% 28 3.44% 88 3.51%
Commercial real estate 553 8.92% 676 7.21% 351 5.79% 444 6.53% 773 6.39%
Construction or development 193 6.49% 82 6.01% 15 4.85% 45 4.88% 125 4.99%
Consumer 549 11.48% 739 11.75% 1,201 14.54% 787 11.56% 518 11.47%
Unallocated 47 - 299 - 231 - 375 - 388 -
------------------------------------------------------------------------------------------------
Total $2,659 100.00% $2,645 100.00% $2,740 100.00% $2,962 100.00% $3,439 100.00%
================================================================================================
</TABLE>
Investment Activities
FFY Bank'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. FFY 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."
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 federal agency obligations, including mortgage-backed securities,
municipal securities, trust preferred securities and asset-backed SLMA's,
which are student loan government-sponsored agency investments.
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, these 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 the mortgage loans and thereby affect both the prepayment
speed, and value, of the securities. All of the Company's mortgage-backed
securities are available for sale and consist of securities issued or
guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. At June 30, 2000,
$61.7 million, or 39% of the securities portfolio consisted of mortgage-
backed securities.
The Company has invested a percentage of the 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, 2000, $18.2 million, or 12% of the securities
portfolio consisted of Federal agency obligations, including $16.3 million
with a call feature.
The Company has invested a portion of its securities portfolio in municipal
securities in an attempt to obtain reasonable returns and reduce the
Company's effective tax rate. At June 30, 2000, the Company's tax equivalent
yield on the municipal securities portfolio was 6.73%. For the year ended
June 30, 2000, the Company's effective tax rate was 29.29% compared to
33.17% for the year ended June 30, 1999, due in part to the increased
investment income from tax-exempt municipal securities which totaled $2.0
million and $1.3 million, respectively, for fiscal years 2000 and 1999. At
June 30, 2000, municipal securities totaled $41.3 million, or 26% of the
Company's securities portfolio.
The following table sets forth the composition of the consolidated debt,
equity and other securities, and FHLB stock portfolios at June 30, 2000,
1999 and 1998.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------------------ ------------------ ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Federal agency obligations(1) $ 18,966 10.96% $ 33,957 17.03% $ 35,049 24.33%
Mortgage-backed securities 65,298 37.73% 74,454 37.33% 81,580 56.63%
State, county and municipal securities 44,928 25.97% 46,707 23.42% 20,778 14.42%
Trust preferred securities 24,587 14.21% 24,581 12.33% - -
Asset-backed SLMA's 11,568 6.68% 11,494 5.76% - -
Equity securities 894 0.52% 1,799 0.90% 637 0.44%
Other securities 1,617 0.93% 1,602 0.80% 1,517 1.05%
FHLB stock 5,193 3.00% 4,841 2.43% 4,512 3.13%
----------------------------------------------------------------
Total securities and FHLB stock $173,051 100.00% $199,435 100.00% $144,073 100.00%
================================================================
Average remaining life of debt securities 10.93 Years 10.57 years 4.66 years
Other interest-earning assets:
Interest-bearing deposits with banks $ 6,490 100.00% 5,245 85.84% $ 5,713 100.00%
Short-term investments - - 865 14.16% - -
----------------------------------------------------------------
Total $ 6,490 100.00% $ 6,110 100.00% $ 5,713 100.00%
================================================================
Average remaining life or term to repricing of debt
securities and other interest-earning assets 10.52 years 10.24 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, 2000
---------------------------------------------------------------------
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 Fair
Value Value Value Value Value Value
-------- -------- --------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Federal agency obligations $ - 14,969 1,997 2,000 18,966 18,242
Mortgage-backed securities 290 4,504 3,980 56,524 65,298 61,689
State, county and municipal
securities - 904 16,933 27,091 44,928 41,329
Trust preferred securities - - - 24,587 24,587 23,196
Asset-backed SLMA's - - 4,973 6,595 11,568 11,370
Other - - - 1,617 1,617 1,438
------------------------------------------------------------------
Total debt and other securities $290 20,377 27,883 118,414 166,964 157,264
==================================================================
Weighted average yield(1) 5.92% 6.13% 6.16% 6.78% 6.59%
=======================================================
<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. FFY 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.
FFY 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. FFY Bank offers a variety of deposit accounts having a range of
interest rates and terms. FFY 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. FFY Bank relies primarily on advertising, competitive
pricing policies, promotions and customer service to attract and retain
these deposits. Management believes FFY 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 FFY Bank's competitors, reviews 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. FFY Bank 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 FFY Bank for the dates
indicated and the rates as of June 30, 2000. 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,
--------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
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% $ 82,610 18.52% $ 92,719 20.27% $ 93,276 21.01%
NOW and demand
accounts 0.00% - 1.74% 38,732 8.68% 36,678 8.02% 34,382 7.74%
Money market
accounts 0.00% - 5.27% 47,137 10.57% 39,448 8.63% 28,059 6.32%
------------------------------------------------------------------
Total non-certificates 168,479 37.77% 168,845 36.92% 155,717 35.07%
------------------------------------------------------------------
Total Certificates:
-------------------
3.00% - 3.99% 121 0.03% 22,172 4.85% - -
4.00% - 4.99% 51,125 11.46% 44,801 9.79% 29,484 6.64%
5.00% - 5.99% 106,361 23.85% 144,646 31.63% 141,125 31.78%
6.00% - 6.99% 95,383 21.38% 69,209 15.13% 109,895 24.75%
7.00% - 7.99% 24,580 5.51% 7,670 1.68% 7,796 1.76%
------------------------------------------------------------------
Total certificates 277,570 62.23% 288,498 63.08% 288,300 64.93%
------------------------------------------------------------------
Total deposits $446,049 100.00% $457,343 100.00% $444,017 100.00%
==================================================================
</TABLE>
The following table sets forth the savings flows at FFY Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------
2000 1999 1998
-------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance $457,343 444,017 450,224
Net withdrawals (30,558) (5,859) (27,340)
Interest credited 19,264 19,185 21,133
--------------------------------
Ending balance 446,049 457,343 444,017
================================
Net increase (decrease) $(11,294) 13,326 (6,207)
================================
Percent increase (decrease) -2.47% 3.00% -1.38%
================================
</TABLE>
The following table shows rate and maturity information for FFY Bank's
certificates of deposit as of June 30, 2000.
<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, 2000 $ 2 20,444 24,816 7,839 - 53,101 19.2%
December 31, 2000 117 10,666 8,743 18,995 - 38,521 13.9%
March 31, 2001 - 3,787 29,086 14,048 - 46,921 16.9%
June 30, 2001 - 5,601 14,424 12,435 114 32,574 11.7%
September 30, 2001 - 2,332 4,517 8,620 9,000 24,469 8.8%
December 31, 2001 - 1,435 1,136 4,169 955 7,695 2.8%
March 31, 2002 2 1,904 1,033 6,039 - 8,978 3.2%
June 30, 2002 - 1,260 1,341 6,184 561 9,346 3.4%
September 30, 2002 - 767 2,213 3,948 125 7,053 2.5%
December 31, 2002 - - 1,753 2,291 96 4,140 1.5%
March 31, 2003 - 71 3,534 425 1,099 5,129 1.8%
June 30, 2003 - 2 2,301 504 356 3,163 1.1%
September 30, 2003 - 32 1,675 55 - 1,762 0.6%
Thereafter - 2,824 9,789 9,831 12,274 34,718 12.6%
------------------------------------------------------------------------
Total $121 51,125 106,361 95,383 24,580 277,570 100.0%
========================================================================
Percent of total 0.0% 18.4% 38.3% 34.4% 8.9% 100.0%
========================================================================
</TABLE>
The following table indicates the amount of FFY Bank's certificates of
deposit by time remaining until maturity as of June 30, 2000.
<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 $39,998 20,581 63,906 85,640 210,125
Certificates of deposit greater than
or equal to $100,000 13,103 17,940 15,589 20,813 67,445
-----------------------------------------------------
Total certificates of deposit $53,101 38,521 79,495 106,453 277,570
=====================================================
</TABLE>
Subsidiary and Other Activities
FFY Bank and FFY Holdings, Inc. are wholly-owned subsidiaries of FFY. FFY
Bank has one wholly-owned subsidiary - Ardent Service Corporation, 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. FFY
Holdings, Inc. has a one-third interest in Coldwell Banker FFY Real Estate
(CBFFY) and a 100% interest in FFY Insurance Agency, Ltd. FFY Holdings
acquired the minority interest in FFY Insurance in May 2000. CBFFY offers
real estate services and FFY Insurance offers property and casualty
insurance.
Competition
The Company's primary business, through FFY Bank, of originating loans and
attracting deposits is highly competitive. FFY Bank competes actively with
other savings and loan associations, national and state 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 July 31, 2000 FFY Bank had a total of 219 employees, including 65 part-
time employees. FFY Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
Regulation
General. FFY Bank 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, FFY Bank is subject to broad federal
regulation and oversight extending to all of its operations. FFY Bank 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). FFY Bank is a member of the Savings Association
Insurance Fund (SAIF) and the deposits of FFY Bank are insured by the FDIC.
As a result, the FDIC has certain regulatory and examination authority over
FFY Bank. Certain of these regulatory requirements and restrictions are
discussed below or elsewhere in this document.
FFY, 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, FFY Bank is subject to certain restrictions in its
dealings with FFY.
Insurance of Accounts and Regulation by the FDIC. FFY Bank 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.
Regulatory Capital Requirements. Federally insured savings associations,
such as FFY Bank, 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 FFY Bank's statement of condition and results of
operations.
FFY 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, 2000, FFY Bank had tangible
capital of $49.3 million, or 7.4% 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, 2000,
FFY Bank had core capital of $55.4 million, or 8.3% 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, 2000, FFY Bank had total risk-based capital of $57.9
million, or 12.7% of risk-weighted assets. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet items,
are multiplied by a risk weight ranging from 0% to 100% based on the risk
inherent in the type of asset. 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, 2000, FFY Bank 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 accounts.
Generally, savings institutions, such as FFY 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. FFY 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. The OTS may object to the distribution during
the 30-day notice period based on safety and soundness concerns. 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.
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 FFY 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 every 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, 2000, FFY Bank met the QTL test and has always met the test
since its effectiveness. At June 30, 2000, FFY Bank's QTL percentage was
85.4%.
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 FFY Bank, 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 a merger or the establishment of a branch, by FFY
Bank. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS. FFY Bank was examined for CRA compliance in April
2000 and received a rating of "satisfactory".
Holding Company Regulation. As a unitary savings and loan holding company,
FFY generally is not subject to activity restrictions. If FFY acquires
control of another savings association as a separate subsidiary, it would
become a multiple savings and loan holding company, and the activities of
FFY and any of its subsidiaries (other than FFY 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 FFY Bank fails the QTL test, FFY 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, FFY 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."
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.
Federal Home Loan Bank System. FFY Bank 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, FFY Bank is required to purchase and maintain stock in the FHLB
of Cincinnati. At June 30, 2000, FFY Bank had $5.2 million in FHLB stock
which was in compliance with this requirement. In past years, FFY Bank has
received substantial dividends on its FHLB stock. For the year ended June
30, 2000, dividends paid by the FHLB of Cincinnati to FFY Bank totaled
$363,000 which represented a $29,000 increase from the amount of dividends
received in fiscal year 1999.
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 FFY Bank's FHLB stock may result in a
corresponding reduction in FFY Bank'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 FFY Bank regarding bad debt provisions. Large thrifts, such as FFY 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 FFY 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 FFY Bank
beginning in fiscal year ended June 30, 1997. The legislation also required
that thrift institutions such as FFY Bank recapture all or a portion of
their tax bad debt reserves added since the base year. For FFY 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, FFY Bank was required
to recapture the $3.4 million ratably over a six year period. However, FFY
Bank qualified for a two year postponement due to meeting a minimum mortgage
lending requirement. Recapture began in fiscal year 1999. As FFY 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 provides 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 FFY Bank to pay
cash dividends or distributions to the Company without FFY 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 FFY Bank's bad debt reserves and deducted for
federal income tax purposes could create a tax liability for FFY Bank. FFY
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 FFY 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. FFY 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 1997 through 1999. 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 9 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, FFY 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 1.3% for the 2000 return, which
was based on net worth as of June 30, 1999. FFY Bank's state franchise tax
returns are open and subject to audit for the years 1997 through 2000.
FFY is subject to the Ohio franchise tax on regular corporations. For its
2000 Ohio franchise tax return, FFY 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 FFY's 2000 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 FFY, 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. FFY's
state franchise tax returns are open and subject to audit for the years 1997
through 2000.
Delaware Taxation. As a Delaware holding company, FFY 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. FFY is also subject to an
annual franchise tax imposed by the State of Delaware.
Executive Officers of the Company, FFY Bank and FFY Holdings, Inc.
The following table sets forth certain information regarding executive
officers of FFY, FFY Bank and FFY Holdings, Inc. at June 30, 2000 who are
not also directors.
<TABLE>
<CAPTION>
Age at Positions Held with FFY, FFY Bank
Name June 30, 2000 and FFY Holdings, Inc.
---- ------------- ---------------------------------
<S> <C> <C>
Therese Ann Liutkus 41 Treasurer and CFO of FFY and FFY
Bank; Treasurer of FFY Holdings, Inc.
David S. Hinkle 42 Vice President of FFY Bank
Mark S. Makoski 50 Vice President of FFY Bank
J. Craig Carr 52 Vice President, General Counsel
and Secretary of FFY and FFY Bank;
Vice President and Secretary of
FFY Holdings, Inc.
</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 FFY and FFY
Bank since January 1996 and March 1996, respectively, as well as Chief
Financial Officer of FFY and FFY Bank 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 portfolios and
oversees the accounting functions. After joining FFY Bank in 1986, Ms.
Liutkus served as FFY Bank's Internal Auditor through 1989, and served as
Accounting Manager of FFY Bank from 1990 to 1995. She earned a BBA degree in
accounting from Cleveland State University and 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 FFY Bank since
January 1996. Mr. Hinkle is responsible for overall FFY Bank operations
including information systems, check processing, facilities management,
purchasing and courier services. He began his career with FFY 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.
Mark S. Makoski - Mr. Makoski has served as Vice President of FFY Bank since
January 1996. Mr. Makoski is responsible for marketing, sales and deposits
of FFY Bank. He has served in various capacities since joining FFY 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 Youngstown-Warren Area
Chamber of Commerce.
J. Craig Carr - Mr. Carr has served as Secretary of FFY and FFY Bank since
January 1999, Vice President of FFY and FFY Bank since July 1997, Assistant
Vice President of FFY Bank from 1991 to June 1997 and General Counsel since
joining FFY Bank in 1974. Mr. Carr has also served as Vice President and
Secretary of FFY Holdings, Inc. and Ardent Service Corp. since September
1997. Mr. Carr conducts the general legal work of FFY 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
At June 30, 2000, FFY Bank owned its main office building and five of its
branch office buildings. The remaining eight branch office buildings,
including three limited service facilities, were leased. As of June 30,
2000, the net book value of FFY Bank's investment in premises, equipment and
leaseholds, excluding computer equipment and software, was approximately
$6.2 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 was $1.0 million at June 30, 2000.
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,
2000.
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 2000 Annual Report to Stockholders which is attached hereto
as Exhibit 13 is herein incorporated by reference.
Item 6. Selected Financial Data
Pages 4 through 6 of the 2000 Annual Report to Stockholders which is
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 2000 Annual Report to Stockholders which is
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Pages 15 and 16 of the 2000 Annual Report to Stockholders which is attached
hereto as Exhibit 13 are herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
Pages 20 through 41 of the 2000 Annual Report to Stockholders which is
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 FFY, FFY Bank and FFY Holdings, Inc.
Information regarding the executive officers of FFY, FFY Bank and FFY
Holdings, Inc. who are not directors is contained in Part I of this Form 10-
K and incorporated herein by reference.
Directors of FFY, FFY Bank and FFY Holdings, Inc.
Information concerning Directors of FFY, FFY Bank and FFY Holdings, Inc. is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 2000, 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 2000, 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 2000, all of these
filing requirements were satisfied.
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 2000, 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 2000, 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 2000, 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, 2000, is incorporated by reference
in this Annual Report on Form 10-K as Exhibit 13.
<TABLE>
<CAPTION>
Pages in
Annual Report Section Annual Report
--------------------- -------------
<S> <C>
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, 2000 and 1999 20
Consolidated Statements of Income for Years Ended
June 30, 2000, 1999 and 1998 21
Consolidated Statements of Changes in Stockholders'
Equity for Years Ended June 30, 2000, 1999 and 1998 22 - 23
Consolidated Statements of Cash Flows for Years Ended
June 30, 2000, 1999 and 1998 24
Notes to Consolidated Financial Statements 25 - 40
Independent Auditors' Report 41
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With the exception of the aforementioned information, the Company's Annual
Report to Stockholders for the year ended June 30, 2000 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
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<CAPTION>
Reference to
Prior Filing
or Exhibit
Regulation Number
S-K Exhibit Attached
Number Document Herein
----------- -------- ------------
<C> <C> <C>
2 Plan of acquisition, reorganization,
arrangement, liquidation or succession *
3(i) Articles of Incorporation **
3(ii) By-Laws **
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 10.1
Recognition and Retention Plan and Trust
Stock Option and Incentive Plan 10.2
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>
--------------------
* Filed as an exhibit to the Corporation's Current Report on Form 8-K
dated May 23, 2000 , and incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
** 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>
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(b) Reports on Form 8-K
During the quarter ended on June 30, 2000, the Company filed the following
reports on Form 8-K:
On April 18, 2000, the Company announced third quarter earnings and
the regular quarterly dividend.
On May 23, 2000, the Company announced that it entered into a
definitive merger agreement with First Place Financial Corp. to
combine in a merger of equals.
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.
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<S> <C>
/s/ Jeffrey L. Francis /s/ Therese Ann Liutkus
----------------------------- -----------------------------------
Jeffrey L. Francis, President, Therese Ann Liutkus, Treasurer and CFO
Chief Executive Officer and Director (Principal Financial and Accounting Officer)
(Principal Executive and Operating Officer) Date: September 13, 2000
Date: September 13, 2000
/s/ Randy Shaffer /s/ W. Terry Patrick
----------------------------- -----------------------------------
Randy Shaffer, Vice President and W. Terry Patrick, Chairman of the Board
Director and Director
Date: September 13, 2000 Date: September 13, 2000
/s/ A. Gary Bitonte /s/ Marie Izzo Cartwright
----------------------------- -----------------------------------
A. Gary Bitonte, Director Marie Izzo Cartwright, Director
Date: September 13, 2000 Date: September 13, 2000
/s/ Samuel A. Roth /s/ William A. Russell
----------------------------- -----------------------------------
Samuel A. Roth, Director William A. Russell, Director
Date: September 13, 2000 Date: September 13, 2000
/s/ Ronald P. Volpe /s/ Robert L. Wagmiller
----------------------------- -----------------------------------
Ronald P. Volpe, Director Robert L. Wagmiller, Director
Date: September 13, 2000 Date: September 13, 2000
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