UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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.
(Exact name of registrant as specified in its charter)
Delaware 34-1735753
(State of Incorporation) (IRS Employer Identification No.)
724 Boardman-Poland Road, Youngstown, Ohio
(Address of principal executive office)
44512
(Zip Code)
(330) 726-3396
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT OCTOBER 27, 2000
----- --------------------------------------
common stock, $.01 par value 6,621,913
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------- --------
<S> <C> <C>
Assets
Cash $ 4,944,064 $ 4,543,181
Interest-bearing deposits 6,374,706 6,489,636
------------------------------
TOTAL CASH AND CASH EQUIVALENTS 11,318,770 11,032,817
Securities available for sale 158,422,417 158,136,350
Loans receivable 492,509,792 484,516,963
Loans available for sale 354,275 170,800
Interest and dividends receivable on securities 1,848,583 1,675,487
Interest receivable on loans 3,090,150 2,920,810
Federal Home Loan Bank stock, at cost 5,465,400 5,192,800
Office properties and equipment, net 7,079,152 7,172,439
Other assets 3,948,886 3,656,928
------------------------------
TOTAL ASSETS $684,037,425 $674,475,394
==============================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $439,366,391 $446,048,790
Securities sold under agreements to
repurchase:
Short-term 7,907,312 6,937,905
Long-term 51,300,000 51,300,000
Borrowed funds:
Short-term 28,002,400 17,500,000
Long-term 79,280,000 79,280,000
Advance payments by borrowers for taxes
and insurance 1,084,078 2,347,744
Other payables and accrued expenses 10,350,904 5,865,465
------------------------------
TOTAL LIABILITIES 617,291,085 609,279,904
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized 5,000,000 shares; none
outstanding - -
Common stock, $.01 par value:
Authorized 15,000,000 shares; issued
7,589,366 shares, outstanding 6,621,913
shares at September 30, 2000 and
6,720,115 shares at June 30, 2000 75,894 75,894
Additional paid-in capital 38,579,010 38,456,297
Retained earnings, substantially restricted 51,197,641 50,500,226
Treasury stock, at cost, 967,453 shares at
September 30, 2000 and 869,251 shares at
June 30, 2000 (16,068,892) (14,865,169)
Accumulated other comprehensive loss (4,569,761) (6,415,886)
Common stock purchased by:
Employee Stock Ownership and 401(k) Plan (2,185,762) (2,274,082)
Recognition and Retention Plans (281,790) (281,790)
------------------------------
TOTAL STOCKHOLDERS' EQUITY 66,746,340 65,195,490
------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $684,037,425 $674,475,394
==============================
</TABLE>
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------
2000 1999
---- ----
<S> <C> <C>
Interest Income
Loans $10,309,397 $ 9,526,048
Securities available for sale 2,513,722 2,769,955
Federal Home Loan Bank stock 100,567 90,010
Other interest-earning assets 3,301 19,514
----------------------------
TOTAL INTEREST INCOME 12,926,987 12,405,527
----------------------------
Interest Expense
Deposits 5,164,947 4,861,712
Securities sold under agreements to repurchase:
Short-term 127,539 88,045
Long-term 890,110 747,192
Borrowed funds:
Short-term 391,152 328,287
Long-term 1,308,891 787,807
----------------------------
TOTAL INTEREST EXPENSE 7,882,639 6,813,043
NET INTEREST INCOME 5,044,348 5,592,484
Provision for loan losses 201,677 101,062
----------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,842,671 5,491,422
----------------------------
Non-Interest Income
Service charges 324,557 255,161
Gain on sale of securities available for sale - 1,309
Gain on sale of loans 110,912 59,791
Other 306,430 150,351
----------------------------
TOTAL NON-INTEREST INCOME 741,899 466,612
----------------------------
Non-Interest Expense
Salaries and employee benefits 1,770,190 1,656,457
Net occupancy and equipment 500,623 515,550
Insurance and bonding 72,750 115,891
State and local taxes 216,989 250,208
Other 897,745 797,367
----------------------------
TOTAL NON-INTEREST EXPENSE 3,458,297 3,335,473
----------------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 2,126,273 2,622,561
Income taxes 646,000 781,000
Minority interest in loss of consolidated
subsidiaries (290) (1,857)
----------------------------
NET INCOME $ 1,480,563 $ 1,843,418
============================
BASIC EARNINGS PER SHARE $ 0.24 $ 0.28
============================
DILUTED EARNINGS PER SHARE $ 0.23 $ 0.27
============================
CASH DIVIDENDS DECLARED PER SHARE $ 0.125 $ 0.125
============================
</TABLE>
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------
2000 1999
---- ----
<S> <C> <C>
Balance at July 1 $65,195,490 $70,116,525
Comprehensive income:
Net income 1,480,563 1,843,418
Change in unrealized holding loss on
securities available for sale, net of
reclassification adjustment and tax effect 1,846,125 (1,833,391)
----------------------------
Comprehensive income 3,326,688 10,027
Dividends paid, $.125 and $.1125 per share,
respectively (783,148) (738,614)
Treasury stock purchased (1,207,938) (3,092,276)
Stock options exercised 2,750 35,930
Amortization of KSOP expense 88,320 92,865
Tax benefit related to exercise of stock options 4,505 34,073
Difference between average fair value
per share and cost per share on KSOP
shares committed to be released 119,673 252,660
----------------------------
Balance at September 30 $66,746,340 $66,711,190
============================
</TABLE>
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
-----------------------
2000 1999
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,530,484 $ 4,985,879
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available for sale 124,124 1,000,000
Proceeds from sales of securities available for sale - 13,820,146
Purchase of securities available for sale - (556,813)
Principal receipts on securities available for sale 2,348,554 2,847,645
Purchase of Federal Home Loan Bank stock (177,400) -
Net increase in loans (8,330,111) (6,692,300)
Purchase of office properties and equipment (165,825) (526,854)
Other, net (38,018) 85,253
------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,238,676) 9,977,077
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (6,651,486) (11,513,501)
Net increase (decrease) short-term securities sold under
agreements to repurchase 969,407 (2,671)
Net increase in short-term borrowed funds 10,502,400 2,103,000
Decrease in advance payments by borrowers for taxes and
insurance (1,263,666) (1,099,886)
Treasury stock purchases (1,207,938) (3,092,276)
Dividends paid (783,148) (738,614)
Proceeds from stock options exercised 2,750 35,930
Other, net 425,826 (540,081)
------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,994,145 (14,848,099)
------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 285,953 114,857
CASH AND CASH EQUIVALENTS
Beginning of period 11,032,817 11,472,806
------------------------------
End of period $ 11,318,770 $ 11,587,663
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments of interest expense $ 5,877,428 $ 5,292,963
Loans originated for sale (5,084,170) (4,014,385)
Proceeds from sales of loans originated for sale 5,011,607 4,171,126
</TABLE>
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation:
The interim consolidated financial statements of the Company include
the accounts of FFY Financial Corp. (FFY) and its wholly-owned
subsidiaries FFY Bank (Bank) and FFY Holdings, Inc. The consolidated
financial statements also include the accounts of FFY Insurance
Agency, Ltd., the insurance affiliate of FFY Holdings, Inc. The
accounts of FFY Holdings, Inc.'s real estate affiliate, ColdwellBanker
FFY Real Estate, are not consolidated since the Company owns
a non-controlling one-third interest. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Basis of Presentation:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. The financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in FFY Financial Corp.'s 2000 Annual Report to
Shareholders incorporated by reference into FFY Financial Corp.'s 2000
Annual Report on Form 10-K. The interim consolidated financial
statements include all adjustments (consisting of only normal
recurring items) which, in the opinion of management, are necessary
for a fair presentation of the financial position and results of
operations for the periods presented. The results of operations for
the interim periods disclosed herein are not necessarily indicative of
the results that may be expected for a full year.
(c) Earnings Per Share:
The computation of basic and diluted earnings per share is shown in
the following table.
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------
2000 1999
---- ----
<S> <C> <C>
Basic earnings per share computation:
Numerator - Net income $1,480,563 $1,843,418
Denominator - Weighted average common
shares outstanding 6,253,857 6,517,822
Basic earnings per share $ 0.24 $ 0.28
Diluted earnings per share computation:
Numerator - Net income $1,480,563 $1,843,418
Denominator - Weighted average common
shares outstanding 6,253,857 6,517,822
Dilutive effect of stock
options 165,911 223,860
Weighted average common
shares and common stock
equivalents 6,419,768 6,741,682
Diluted earnings per share $ 0.23 $ 0.27
</TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
(d) Reclassifications:
Certain amounts in the prior period consolidated financial statements
have been reclassified to conform with the current period's
presentation.
(2) EFFECT OF RECENT FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, that was subsequently amended
by SFAS No. 137, which delayed the original effective date of SFAS No. 133.
This Statement standardizes the accounting for derivative contracts, by
requiring that an entity recognize those items as assets or liabilities in
the statement of financial condition and measure them at fair value. SFAS
No. 137 was effective for the Company on July 1, 2000. Management
determined that the Company did not engage in any hedging activities or
derivative instruments and therefore, the adoption of SFAS No. 137 had no
impact on financial condition or results of operations.
(3) PENDING MERGER
On May 23, 2000, FFY and First Place Financial Corp. (First Place), the
holding company for First Federal Savings and Loan Association of Warren,
entered into a definitive agreement (the 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 by First Place 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 approval
of the shareholders of both companies and the approval of regulatory
authorities.
Included in the Company's results of operations for the three months ended
September 30, 2000 were $118,000 in pre-tax expenses for professional fees
related to the pending Merger with First Place.
PART I: FINANCIAL INFORMATION
FFY FINANCIAL CORP.
SEPTEMBER 30, 2000
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following analysis discusses changes in the Company's financial
condition and results of operations at and for the three months ended
September 30, 2000.
Forward-Looking Statements
When used in this Form 10-Q, or, in future filings by FFY Financial Corp.
with the Securities and Exchange Commission, in FFY Financial Corp.'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, but not limited to, changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, 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 and other factors 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.
Financial Condition
General. Total assets at September 30, 2000 were $684.0 million compared to
$674.5 million at June 30, 2000, an increase of $9.5 million, or 1.4%. The
increase in assets was primarily attributable to growth in the loan
portfolio. Total liabilities at September 30, 2000 were $617.3 million
compared to $609.3 million at June 30, 2000, an increase of $8.0 million, or
1.3%. The increase in liabilities was primarily attributable to increases
in borrowed funds and other liabilities partially offset by a decline in
deposit accounts. The discussion below provides greater detail regarding
significant changes in balance sheet items.
Securities. The Company's securities portfolio totaled $158.4 million at
September 30, 2000, which is comparable to $158.1 million at June 30, 2000.
A decline in the unrealized loss on securities available for sale totaling
$2.8 million for the three-month period, reflecting a decrease in interest
rates, was mostly offset by principal receipts on the Company's mortgage-
backed securities portfolio totaling $2.4 million.
Loans. Net loans receivable, including loans available for sale, increased
$8.2 million, or 1.7%, during the three months ended September 30, 2000, and
totaled $492.9 million at September 30, 2000 compared to $484.7 million at
June 30, 2000.
First mortgage loans at September 30, 2000 totaled $448.5 million, up from
$442.9 million at June 30, 2000, and represented 88.3% of the gross loan
portfolio at September 30, 2000. The increase in first mortgage loans was
primarily in loans secured by one- to four -family residences and commercial
real estate. One- to four -family residential loans totaled $356.6 million,
70.2%, of total gross loans at September 30, 2000, compared to $351.4
million, or 70.2%, of total gross loans at June 30, 2000. The dollar volume
increase in one- to four -family loans was the result of retaining newly-
originated loans in the Bank's portfolio as opposed to selling them in the
secondary market due to current market interest rates. Commercial real
estate loans totaled $47.0 million, or 9.3%, of total gross loans at
September 30, 2000, compared to $44.6 million, or 8.9%, of total gross loans
at June 30, 2000.
Consumer loans at September 30, 2000 totaled $59.5 million, up from $57.4
million at June 30, 2000, and represented 11.7% of the gross loan portfolio
at September 30, 2000. The increase in consumer loans was primarily in home
equity loans, which totaled $46.9 million, or 9.2%, of total gross loans at
September 30, 2000, compared to $44.4 million, or 8.9%, of total gross loans
at June 30, 2000.
Loan originations during the three months ended September 30, 2000 totaled
$42.9 million, comparable to $42.7 million for the same prior year period.
Mortgage loans for the purchase, construction or refinance of one- to four -
family homes continued to represent the largest segment of the Bank's loan
originations. During the three months ended September 30, 2000, one- to
four -family loan originations, including the construction of one- to four -
family homes, were $25.3 million, representing 59.1% of total loan
originations.
FFY Bank's secondary market mortgage lending operation originates and sells
qualifying loans to Fannie Mae. FFY Bank sold 57 loans during the three
months ended September 30, 2000, resulting in a pre-tax gain of $111,000.
This compares to sales of 48 loans for a pre-tax gain of $60,000 for the
three months ended September 30, 1999 - see "Results of Operations - Non-
Interest Income", below. Management expects that the secondary market
mortgage lending program will continue as long as market conditions allow it
to be profitable.
Deposits. Deposits decreased $6.6 million, or 1.5%, during the three months
ended September 30, 2000 and totaled $439.4 million at September 30, 2000
compared to $446.0 million at June 30, 2000. Declines in certificate,
passbook and NOW accounts of $4.8 million, $3.7 million and $1.1 million,
respectively, were partially offset by increases of $2.4 million and
$588,000 in money market and other checking accounts, respectively. The net
deposit outflow during the three months ended September 30, 2000 was
primarily funded with increased borrowings. Although market interest rates
slightly declined during the first quarter of fiscal year 2001, the weighted
average cost of deposits was 4.73% at September 30, 2000, a 17 basis point
increase from 4.56% at June 30, 2000. The level of deposit flows and rates
offered during any given period are heavily influenced by factors such as
the general level of interest rates and competition, such as competitors'
deposit specials, money market mutual funds and other investments.
Repurchase Agreements and Borrowed Funds. Short-term repurchase agreements
increased $969,000, or 14.0%, during the three months ended September 30,
2000 and totaled $7.9 million at September 30, 2000 compared to $6.9 million
at June 30, 2000. Long-term repurchase agreements remained constant at
$51.3 million at both September 30, 2000 and June 30, 2000. The weighted
average cost of total repurchase agreements was 6.86% at September 30, 2000
compared to 6.80% at June 30, 2000. Short-term borrowings increased $10.5
million during the three months ended September 30, 2000 and totaled $28.0
million at September 30, 2000 compared to $17.5 million at June 30, 2000.
The increase in short-term borrowings was primarily used to fund net deposit
outflows and the increase in loans receivable. Long-term borrowed funds
remained constant at $79.3 million at both September 30, 2000 and June 30,
2000. The weighted average cost of total borrowings declined from 6.68% at
June 30, 2000 to 6.57% at September 30, 2000 due to declining interest rates
during the first quarter of fiscal year 2001.
Other Liabilities. Other liabilities increased $4.5 million during the
three months ended September 30, 2000 and totaled $10.4 million at September
30, 2000 compared to $5.9 million at June 30, 2000. This increase was
primarily attributable to increases in (i) accrued interest payable on
deposit accounts since interest on most certificates are paid semi-annually
at June 30 and December 31; (ii) accrued and deferred federal income taxes;
and (iii) amounts due to the Bank's official check company, which fluctuates
daily based on activity.
Stockholders' Equity. Total stockholders' equity increased $1.5 million, or
2.4%, during the three months ended September 30, 2000 and totaled $66.7
million at September 30, 2000 compared to $65.2 million at June 30, 2000.
This increase resulted principally from net income for the three months
ended September 30, 2000 totaling $1.5 million and an increase in market
value of available-for-sale securities, net of tax, totaling $1.8 million.
These increases were partially offset by $1.2 million and $783,000 in stock
repurchases and dividends paid to stockholders, respectively, during the
same three-month period.
Results of Operations
Comparison of the Three Months Ended September 30, 2000 and 1999
General. The Company recorded net income for the three months ended
September 30, 2000 of $1.5 million, a decrease of $363,000, or 19.7%, from
net income of $1.8 million for the three months ended September 30, 1999.
Diluted earnings per share for the three months ended September 30, 2000
were $0.23, a 14.8% decline from diluted earnings per share of $0.27 for the
three months ended September 30, 1999. The current period was negatively
impacted by merger-related expenses and a valuation allowance, which are
explained in greater detail below.
Interest Income. Total interest income for the three months ended September
30, 2000 was $12.9 million, an increase of $521,000, or 4.2% compared to
$12.4 million for the three months ended September 30, 1999. Interest
income from loans totaled $10.3 million for the three months ended September
30, 2000, an increase of $783,000, or 8.2%, compared to $9.5 million for the
three months ended September 30, 1999. The increase in interest from loans
was the result of a $32.5 million increase in the average balance of loans
outstanding and a 9 basis point increase in yield earned. A $256,000, or
9.3%, decline in interest income from securities partially offset the
increase in interest income from loans. The decline in interest income from
securities was the result of a $25.4 million decline in the average balance
of securities partially offset by a 38 basis point increase in yield earned
on the securities portfolio.
Interest Expense. Total interest expense for the three months ended
September 30, 2000 was $7.9 million, an increase of $1.1 million, or 15.7%
compared to $6.8 million for the three months ended September 30, 1999.
This increase in interest expense was primarily the result of higher market
interest rates for the September 2000 quarter as compared to the September
1999 quarter. Additionally, the average balance of repurchase agreements
and borrowed funds increased as a result of funds needed to provide for the
increase in loans receivable in addition to the decline in deposits from
September 30, 1999 to September 30, 2000.
Interest expense from deposit accounts totaled $5.2 million, an increase of
$303,000, or 6.2%, compared to $4.9 million for the three months ended
September 30, 1999. The increased interest expense from deposit accounts
was primarily due to a 41 basis point increase in rate paid on deposits,
which was partially offset by a $13.7 million decline in average deposit
balances. Interest expense from long-term repurchase agreements totaled
$890,000 for the three months ended September 30, 2000, an increase of
$143,000 compared to $747,000 for the three months ended September 30, 1999.
The increased interest expense from long-term repurchase agreements was due
to a 112 basis point increase in rate. Interest expense from long-term
borrowed funds totaled $1.3 million for the three months ended September 30,
2000, an increase of $521,000 compared to $788,000 for the three months
ended September 30, 1999. The increased interest expense from long-term
borrowed funds was due to both a $19.3 million increase in average balance
and a 135 basis point increase in rate.
Net Interest Income. Net interest income for the three months ended
September 30, 2000 totaled $5.0 million, a decline of $548,000, or 9.8%,
compared to $5.6 million for the three months ended September 30, 1999. The
Company's net interest margin declined 35 basis points, from 3.54% for the
quarter ended September 30, 1999 to 3.19% for the quarter ended September
30, 2000, primarily reflecting increased cost of funds.
Provision for Loan Losses. The provision for loan losses totaled $202,000
for the three months ended September 30, 2000 compared to $101,000 for the
three months ended September 30, 1999. The provision for loan losses
reflects management's evaluation of the underlying credit risk of FFY Bank's
loan portfolio to adequately provide for probable loan losses inherent in
the loan portfolio as of the balance sheet date. The ratio of allowance for
loan losses to non-performing assets was 70.1% at September 30, 2000, down
from 78.4% at June 30, 2000, primarily due to increases in non-accrual loans
and real estate owned. The Company's management analyzes the adequacy of
the allowance for loan losses regularly through reviews of the performance
of the loan portfolio, economic conditions, changes in interest rates and
the effect of such changes on real estate values and changes in the
composition of the loan portfolio. Future additions to the allowance for
loan losses will be dependent on these factors. Management believes that
the allowance for loan losses is adequate at September 30, 2000.
Non-Interest Income. Non-interest income totaled $742,000 for the three
months ended September 30, 2000, an increase of $275,000, or 59.0%, compared
to $467,000 for the three months ended September 30, 1999. Service fee
income increased $69,000 comparing the three-month periods, mainly from NOW,
passbook and commercial checking accounts. Gains from sales of loans
increased $51,000 comparing the three month periods, reflecting an increase
in both the number of loans sold and the average balance of loans sold.
Additionally, FFY Bank offered slightly-higher interest rates than its
market area on its loan products during the three months ended September 30,
2000 as compared to the three months ended September 30, 1999. Gross
profits from the Company's insurance affiliate, FFY Insurance, increased
$215,000 comparing the quarter ended September 30, 2000 to the quarter ended
September 30, 1999. This increase reflects the following three items, (i)
FFY Insurance's acquisition of Moreman-Yerian Insurance Agency in May 2000;
(ii) FFY Insurance's purchase of the minority interest in May 2000; and
(iii) additional revenues from insurance policy renewals in addition to new
customers. Partially offsetting the aforementioned increases was a $95,000
impairment charge on the Company's investment in Hedgerows Development,
Ltd., the condominium development company in which the Company has a 50%
ownership interest. The valuation allowance was the result of a decline in
market value on the condominiums not yet sold.
Non-Interest Expense. Non-interest expense totaled $3.4 million for the
three months ended September 30, 2000, an increase of $123,000, or 3.7%,
compared to $3.3 million for the three months ended September 30, 1999. The
quarter ended September 30, 2000 included $118,000 in merger expenses
relating to the pending merger of equals with First Place Financial Corp.
The September 2000 quarter also included an additional $160,000 in expenses
from FFY Insurance, primarily relating to the acquisition of Moreman-Yerian
Insurance Agency. Increased expenses from FFY Insurance mainly included
salaries and, to a lesser extent, occupancy and other expenses. Partially
offsetting the aforementioned increases was $196,000 in name change expenses
recorded during the September 30, 1999 quarter. On July 12, 1999, the
Company announced a name change for its subsidiaries/affiliates to better
reflect a single identity for the banking, insurance and real estate lines
of business the Company operates.
Income Taxes. Federal income taxes totaled $646,000 for the three months
ended September 30, 2000, a decline of $135,000 compared to $781,000 for the
three months ended September 30, 1999. The decline in federal income taxes
resulted primarily from a decline in net income before taxes.
Effect of New Accounting Standards
Refer to Note 2 of the Notes to Consolidated Financial Statements contained
in this report.
Liquidity and Cash Flows
In general terms, liquidity is a measurement of the Company's ability to
meet its cash needs. The Company's objective in liquidity management is to
maintain the ability to meet loan commitments, purchase securities or to
repay deposits and other liabilities in accordance with their terms without
an adverse impact on current or future earnings. The Company's principal
sources of funds are deposits, amortization and prepayments of loans,
maturities, sales and principal receipts of securities, borrowings,
repurchase agreements and operations.
Federal regulations require FFY Bank to maintain minimum levels of liquid
assets in each calendar quarter of not less than 4% of either (i) its
liquidity base at the end of the preceding quarter, or (ii) the average
daily balance of its liquidity base during the preceding quarter. FFY
Bank's liquidity exceeded the applicable liquidity requirement at September
30, 2000 and 1999. Simply meeting the liquidity requirement does not
automatically mean FFY Bank has sufficient liquidity for a safe and sound
operation. Regulations also include a separate requirement that each thrift
must maintain sufficient liquidity to ensure its safe and sound operation.
Thus, adequate liquidity may vary depending on FFY Bank's overall
asset/liability structure, market conditions, the activities of competitors,
and the requirements of its own deposit and loan customers. Management
believes FFY Bank's liquidity is sufficient.
Liquidity management is both a daily and long-term responsibility of
management. FFY Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and securities
and (iv) the objective of its asset/liability management program. Along
with its liquid assets, FFY Bank has additional sources of liquidity
available including, but not limited to, the ability to obtain deposits by
offering above-market interest rates and access to advances from the Federal
Home Loan Bank.
The primary investing activities of the Company are originating loans and
purchasing securities. For the three months ended September 30, 2000, an
increase in FFY Bank's loan portfolio used $8.3 million, whereas a decline
in the securities portfolio provided $2.5 million. For the three months
ended September 30, 1999, an increase in FFY Bank's loan portfolio used $6.7
million, whereas a decline in the securities portfolio provided $17.1
million. Generally, during periods of declining interest rates, FFY Bank
would be expected to experience increased loan prepayments, which would
likely be reinvested at lower interest rates. During periods of increasing
interest rates, loan prepayments would be expected to decline, reducing
funds available for investment at higher interest rates.
The primary financing activities of the Company are deposits, repurchase
agreements and borrowings. For the three months ended September 30, 2000, a
decline in deposit accounts used $6.7 million, whereas increases in
repurchase agreements and borrowed funds provided $969,000 and $10.5
million, respectively. For the three months ended September 30, 1999, a
decline in deposits used $11.5 million, whereas an increase in borrowed
funds provided $2.1 million.
Capital Resources
Office of Thrift Supervision (OTS) regulations require savings institutions
to maintain certain minimum levels of regulatory capital. An institution
that fails to comply with its regulatory capital requirements must obtain
OTS approval of a capital plan and can be subject to a capital directive and
certain restrictions on its operations. At September 30, 2000, the minimum
capital regulations require savings institutions to have tangible capital to
total tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1)
capital to total adjusted tangible assets of 3.0%; and a minimum ratio of
total capital (core capital and supplementary capital) to risk weighted
assets of 8.0%, of which 4.0% must be core capital.
Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on an institution's financial statements. The
regulations establish a framework for the classification of savings
institutions into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Generally, an institution is considered well capitalized
if it has a core (Tier 1) capital ratio of at least 5.0% (based on average
total assets); a core (Tier 1) risk-based capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors.
At September 30, 2000, FFY Bank met all capital adequacy requirements to
which it was subject. Further, the most recent OTS notification categorized
FFY Bank as a well-capitalized institution under the prompt corrective
action regulations. There have been no conditions or events since that
notification that management believes have changed FFY Bank's capital
classification.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in information about market risk from that
provided in the 2000 Annual Report to Shareholders, which was incorporated
by reference into FFY Financial Corp.'s 2000 Annual Report on Form 10-K.
PART II: OTHER INFORMATION
FFY FINANCIAL CORP.
SEPTEMBER 30, 2000
Item 1. 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 2. Changes in Securities
None to be reported.
Item 3. Defaults on Senior Securities
None to be reported.
Item 4. Submission of Matters to a Vote of Security Holders
None to be reported.
Item 5. Other Information
None to be reported.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits: Exhibit 27 - Financial Data Schedule.
B. Reports on Form 8-K:
* On July 18, 2000, the Registrant announced the approval of the
regular quarterly dividend of 12.5 cents per share. The
Registrant also announced its Annual Meeting of Stockholders to
be held on November 15, 2000. Also included in the July 18,
2000 Form 8-K filing, the Registrant announced on May 24, 2000
that it entered into a definitive merger agreement with First
Place Financial Corp. to combine in a merger of equals.
* On August 4, 2000, the Registrant announced earnings of $7.4
million, or $1.12 per diluted share for its fiscal year ended
June 30, 2000 and earnings of $1.6 million, or $.24 for its
fourth quarter ended June 30, 2000.
Pursuant the requirements 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.
Date: November 13, 2000 By: /s/ Jeffrey L. Francis
-------------------------------
Jeffrey L. Francis
President and Chief Executive
Officer (Principal Executive
Officer)
Date: November 13, 2000 By: /s/ Therese Ann Liutkus
-------------------------------
Therese Ann Liutkus
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
