SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-21170
FFW CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 35-1875502
(State or other jurisdiction of incorporation (I.R.S. Employer identification
or organization) or Number)
1205 North Cass Street, Wabash, IN 46992
(Address of principal executive offices)
(260) 563-3185
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
State the number of Shares outstanding of each of the issuer's classes of common
equity, as of the latest date:
As of February 6, 2003, there were 1,346,775 shares of the Registrant's common
stock issued and outstanding.
FFW CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets for December 31, 2002 3
and June 30, 2002
Consolidated Statements of Income and 4
Comprehensive Income for the three and
six months ended December 31, 2002 and 2001.
Consolidated Statements of Cash Flows for the 5
six months ended December 31, 2002 and 2001.
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Items 1-6 15
Signature Page 16
Certifications 17
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
ASSETS : December 31 June 30
2002 2002
------ ------
Cash and due from financial institutions ......................................... $ 5,702,698 $ 6,321,697
Interest-earning deposits in financial institutions - short term ................. 2,354,353 2,996,816
------------- -------------
Cash and cash equivalents ..................................................... 8,057,051 9,318,513
Securities available for sale .................................................... 79,877,910 76,344,629
Loans receivable, net of allowance for loan losses of $2,608,712 at December 31,
2002 and $2,361,241 at June 30, 2002 .......................................... 131,034,762 141,857,794
Federal Home Loan Bank stock, at cost ............................................ 3,400,900 3,400,900
Accrued interest receivable ...................................................... 1,370,733 1,448,182
Premises and equipment-net ....................................................... 2,675,616 2,693,163
Investment in limited partnership ................................................ 377,374 409,974
Cash surrender value of life insurance ........................................... 4,584,051 ---
Goodwill ......................................................................... 975,468 1,022,415
Other assets ..................................................................... 1,236,157 1,332,871
------------- -------------
Total Assets .............................................................. $ 233,590,022 $ 237,828,441
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits .......................................... $ 9,425,420 $ 9,981,667
Savings, NOW and MMDA deposits ................................................ 67,672,209 67,611,581
Other time deposits ........................................................... 84,268,159 81,067,474
------------- -------------
Total Deposits ............................................................ 161,365,788 158,660,722
Federal Home Loan Bank advances ............................................... 45,740,957 54,362,554
Accrued interest payable ...................................................... 127,896 153,571
Accrued expenses and other liabilities......................................... 2,881,426 2,242,805
------------- -------------
Total Liabilities ......................................................... 210,116,067 215,419,652
Shareholders' Equity:
Preferred stock, $.01 par value, 500,000 shares authorized none issued ........ --- ---
Common stock, $.01 par value, 2,000,000 shares authorized, 1,829,828 shares
issued and 1,346,775 shares outstanding at December 31, 2002; 1,829,828
shares issued and 1,367,375 shares outstanding at June 30, 2002 ........... 18,298 18,298
Additional paid-in capital..................................................... 9,345,123 9,345,123
Retained earnings - substantially restricted .................................. 18,496,937 17,711,055
Accumulated other comprehensive income ........................................ 731,673 138,695
Unearned management retention plan shares ..................................... (63,375) (80,961)
Treasury stock at cost, 483,053 shares on December 31, 2002 and
462,453 shares on June 30, 2002 ........................................... (5,054,701) (4,723,421)
------------- -------------
Total Shareholders' Equity ................................................ 23,473,955 22,408,789
------------- -------------
Total Liabilities and Shareholders' Equity ............................ $ 233,590,022 $ 237,828,441
============= =============
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Loans receivable
Mortgage loans ........................................... $ 1,172,763 $ 1,481,273 $ 2,344,886 $ 2,966,908
Consumer and other loans ................................. 1,471,774 1,633,441 3,034,712 3,335,497
Securities
Taxable .................................................. 682,773 810,502 1,431,138 1,660,739
Nontaxable ............................................... 244,683 148,073 473,869 278,553
Other interest-earning assets ............................... 15,936 15,020 39,742 44,653
----------- ----------- ----------- -----------
Total interest income .................................... 3,587,929 4,088,309 7,324,347 8,286,350
Interest expense:
Deposits .................................................... 1,218,927 1,571,327 2,533,595 3,294,405
Other ....................................................... 676,130 793,512 1,383,762 1,635,563
----------- ----------- ----------- -----------
Total interest expense ................................... 1,895,057 2,364,839 3,917,357 4,929,968
----------- ----------- ----------- -----------
Net interest income ............................................ 1,692,872 1,723,470 3,406,990 3,356,382
Provision for loan losses ................................... 405,000 450,000 630,000 675,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ............ 1,287,872 1,273,470 2,776,990 2,681,382
Non-interest income:
Net gain (loss) on sale of securities ....................... (641) --- 581 5,000
Net gain on sale of loans ................................... 207,920 101,671 341,806 150,695
Other ....................................................... 439,335 339,206 788,541 681,858
----------- ----------- ----------- -----------
Total non-interest income ................................ 646,614 440,877 1,130,928 837,553
Non-interest expense :
Compensation and benefits ................................... 580,504 527,847 1,160,409 1,054,137
Occupancy and equipment ..................................... 101,501 98,060 201,773 190,863
Data processing expense ..................................... 121,864 113,874 241,225 230,741
Other ....................................................... 363,417 364,334 761,388 710,489
----------- ----------- ----------- -----------
Total non-interest expense ............................... 1,167,286 1,104,115 2,364,795 2,186,230
----------- ----------- ----------- -----------
Income before income taxes ..................................... 767,200 610,232 1,543,123 1,332,705
Income tax expense .......................................... 150,550 170,354 350,733 366,717
----------- ----------- ----------- -----------
Net income ..................................................... $ 616,650 $ 439,878 $ 1,192,390 $ 965,988
=========== =========== =========== ===========
Change in unrealized appreciation (depreciation) on
securities available for sale, net of tax ................... 451,864 (179,136) 592,978 27,253
----------- ----------- ----------- -----------
Comprehensive income ........................................... $ 1,068,514 $ 260,742 $ 1,785,368 $ 993,241
=========== =========== =========== ===========
Earnings per common share :
Basic ....................................................... $ .46 $ .32 $ .88 $ .69
Diluted ..................................................... $ .45 $ .32 $ .87 $ .69
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31
2002 2001
---- ----
Cash flows from operating activities :
Net income .......................................................... $ 1,192,390 $ 965,988
Adjustments to reconcile net income to net cash
from operating activities :
Depreciation and amortization, net of accretion .................. 199,179 60,216
Provision for loan losses ........................................ 630,000 675,000
Increase in cash surrender value of life insurance ............... (84,051) ---
Net (gains) losses on sale of :
Securities available for sale ................................. (581) (5,000)
Loans held for sale ........................................ (341,806) (150,695)
Foreclosed estate owned and repossessed assets ................ 8,481 13,700
Origination of loans held for sale ............................... (26,939,734) (16,398,475)
Proceeds from sale of loans held for sale ........................ 27,208,214 16,549,170
Net change in accrued interest receivable and other
assets ........................................................ 126,523 147,377
Amortization of goodwill ......................................... --- 41,601
Net change in accrued interest payable, accrued
expenses and other liabilities ................................ 630,532 (341,636)
------------ ------------
Total adjustments .......................................... 1,436,757 591,258
------------ ------------
Net cash from operating activities ............................ 2,629,147 1,557,246
Cash flows from investing activities :
Proceeds from :
Sales/calls of securities available for sale ..................... 5,302,317 9,386,600
Maturities of securities available for sale ...................... 150,000 ---
Purchase of securities available for sale ........................... (18,378,436) (16,002,501)
Purchase of life insurance .......................................... (4,500,000) ---
Principal collected on mortgage- backed securities .................. 10,167,506 2,188,418
Net change in loans receivable ...................................... 9,884,857 4,279,303
Net purchases premises and equipment ................................ (77,169) (742,767)
Proceeds from sales of other real estate and
repossessed assets ............................................... 214,635 261,623
------------ ------------
Net cash from investing activities ............................. 2,763,710 (629,324)
Cash flows from financing activities :
Net increase in deposits ............................................ 2,705,066 4,765,486
Proceeds from borrowings ............................................ 3,000,000 26,790,750
Payment on borrowings ............................................... (11,621,597) (33,290,750)
Purchase of treasury stock .......................................... (331,280) (449,280)
Proceeds from stock option exercising ............................... --- 11,120
Cash dividends paid ................................................. (406,508) (375,851)
------------ ------------
Net cash from financing activities ............................ (6,654,319) (2,548,525)
Net increase (decrease) in cash and cash equivalents ................... (1,261,462) (1,620,603)
Cash and cash equivalents at beginning of period ....................... 9,318,513 8,530,159
------------ ------------
Cash and cash equivalents at end of period ............................. $ 8,057,051 $ 6,909,556
============ ============
PART I: FINANCIAL INFORMATION
FFW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include
all the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, the Consolidated Financial Statements contain
all adjustments (consisting only of normal recurring adjustments) necessary to
represent fairly the financial condition of FFW Corporation as of December 31,
2002 and June 30, 2002 and the results of its operations, for the three and
six-months ended December 31, 2002 and 2001. Financial Statement
reclassifications have been made for the prior period to conform to
classifications used as of and for the period ended December 31, 2002.
Operating results for the three and six-months ended December 31, 2002 are
not necessarily indicative of the results that may be expected for the fiscal
year ended June 30, 2003.
(2) New Accounting Pronouncements:
Effective July 1, 2002, the Company adopted new accounting standards for
goodwill and intangible assets, and as a result, reclassified $975,000 of
unidentifiable intangible assets arising from previous acquisitions into
goodwill. Starting on July 1, 2002, goodwill is no longer amortized into expense
but rather reviewed for impairment. The following table reflects net income and
earnings per share as previously reported and adjusted income and earnings per
share for the same period as if the new standard had been adopted in 2001.
Three months ended Six months ended
December 31 December 31
(Dollars in thousands except for per share data) 2002 2001 2002 2001
---- ---- ---- ----
Net income as reported $ 617 $ 440 $ 1,192 $ 966
Add discontinued goodwill expense, net of tax --- 14 --- 28
------- ------- ------- -------
Adjusted net income $ 617 $ 454 $ 1,192 $ 994
======= ======= ======= =======
Basic earnings per share as reported $ 0.46 $ 0.32 $ 0.88 $ 0.69
Diluted earnings per share as reported $ 0.45 $ 0.32 $ 0.87 $ 0.69
Adjusted basic earnings per share $ 0.46 $ 0.33 $ 0.88 $ 0.71
Adjusted diluted earnings per share $ 0.45 $ 0.33 $ 0.87 $ 0.71
Intangible assets at December 31, 2002 subject to amortization are as follows:
Gross Accumulated
(Dollars in thousands) Amount Amortization
------ ------------
Core deposit premium resulting from branch acquisition $ 447 $ 410
Amortization expense for the first six months of fiscal 2003 was $36,000.
The remaining amortization expense is $37,000 and will be expensed in the
remaining six months of fiscal 2003.
Unidentifiable intangible assets have been reclassified to goodwill and
include the following:
Gross Accumulated
(Dollars in thousands) Amount Amortization
------ ------------
1997 Purchase of South Whitley branch $ 1,248 $ 416
2001 Purchase of investment company 160 17
------- -------
$ 1,408 $ 433
======= =======
Impairment testing has revealed that no impairment provision is required.
(3) Earnings Per Share:
Basic earnings per share are calculated solely on weighted-average common
shares outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. For the three and
six-month periods ending December 31, 2002, the weighted average shares
outstanding in calculating basic earnings per share were 1,351,665 and 1,358,086
while the weighted average number of shares for diluted earnings per share were
1,367,487 and 1,373,901. For the three and six-month periods ending December 31,
2001, the weighted average shares outstanding in calculating basic earnings per
share were 1,384,398 and 1,395,091 while the weighted average number of shares
for diluted earnings per share were 1,393,053 and 1,403,744.
PART I: ITEM 2
FFW CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The accompanying Consolidated Financial Statements include the accounts of
FFW Corporation (the "Company") and its wholly owned subsidiaries, First Federal
Savings Bank of Wabash (the "Bank") and FirstFed Financial, Inc ("FirstFed
Financial"). All significant inter-company transactions and balances are
eliminated in consolidation. The Company's results of operations are primarily
dependent on the Bank's net interest margin, which is the difference between
interest income on interest-earning assets and interest expense on
interest-bearing liabilities. The Bank's net income is also affected by the
level of its non-interest income and non-interest expenses, such as employee
compensation and benefits, occupancy expenses, and other expenses.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed
in this document, and other information contained in the Company's SEC filings,
may express "forward-looking statements." Those "forward-looking statements" may
involve risk and uncertainties, including statements concerning future events,
performance and assumptions and other statements that are other than statements
of historical facts. The Company wishes to caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the date
made. Readers are advised that various factors--including, but not limited to,
changes in laws, regulations or accounting principles generally accepted in the
United States of America; the Company's competitive position within the markets
served; increasing consolidation within the banking industry; unforeseen changes
in interest rates; any unforeseen downturns in the local, regional or national
economies--could cause the Company's actual results or circumstances for future
periods to differ materially from those anticipated or projected.
The Company does not undertake - and specifically declines any obligation -
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are important to the portrayal
of the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Facts and circumstances that could effect these judgments
include, but without limitation, changes in interest rates, in the performance
of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan
losses, ("ALL") and the valuation of mortgage servicing rights.
Allowance for Loan Losses: The ALL is a valuation allowance for probable
- ----------------------------- incurred credit losses, increased by the provision
for loan losses and decreased by charge-offs less recoveries. Management
estimates the ALL balance required using past loan loss experience, the nature
and volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. Allocations
of the ALL may be made for specific loans, but the entire ALL is available for
any loan that, in management's judgment, should be charged-off. Loan losses are
charged against the ALL when management believes the uncollectibility of a loan
balance is confirmed.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for small-balance loans of similar nature such
as residential mortgage and consumer loans, and on an individual loan basis for
other loans. If a loan is impaired, a portion of the ALL is allocated so that
the loan is reported, net, at the present value of estimated future cash flows
using the loan's existing rate or at the fair value of collateral if repayment
is expected solely from the collateral.
Mortgage Servicing Rights: Servicing rights represent both purchased rights and
- -------------------------- the allocated value of servicing rights retained on
loans sold. Servicing rights are expensed in proportion to, and over the period
of, estimated net servicing revenues. Impairment is evaluated based on the fair
value of the rights, using groupings of the underlying loans as to interest
rates and then, secondarily, as to geographic and prepayment characteristics.
Any impairment of a grouping is reported as a valuation allowance. As of
December 31, 2002, mortgage servicing rights had a carrying value of $539,000.
COMPARISON OF THREE AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2002 AND 2001
Net income for the three-month and six-month periods ended December 31,
2002 was $617,000 and $1,192,000 compared to net income of $440,000 and $966,000
for the equivalent periods in 2001. The increases of $177,000 and $226,000 for
the three and six-month periods were primarily the result of increased gain on
sale of loans, a lower provision for loan losses and other non-interest income
combined with a lower effective tax rate due to increased nontaxable income for
the periods ended December 31, 2002 compared to December 31, 2001.
Diluted earnings per common share were $0.45 for the three-month period
ended December 31, 2002 compared to diluted earnings per common share of $0.32
for the equivalent period in 2001. For the comparable six-month periods, diluted
earnings per common share were $0.87 in 2002 and $0.69 in 2001. Return on
average shareholders' equity was 10.52% for the three months and 10.28% for the
six-months ended December 31, 2002, compared to 7.78% and 8.61% in 2001. The
return on total average assets was 1.04% and 1.00% for the three and six-month
periods ended December 31, 2002, compared to 0.76% and 0.84% in 2001.
NET INTEREST INCOME
The net interest income for the three-month period ended December 31, 2002,
was $1,693,000 compared to $1,723,000, a decrease of 1.7% over the same period
in 2001, resulting in a net interest margin of 3.05% compared to 3.12% in 2001.
The net interest income for the six-month period ended December 31, 2002, was
$3,407,000 compared to $3,356,000, an increase of 1.5% over the same period in
2001, resulting in a net interest margin of 3.02% compared to 3.03% in 2001.
Total average earning assets increased $2,120,000 and $4,661,000,
respectively, for the three-month and six-month periods ended December 31, 2002,
over the comparative periods in 2001. Total average investment securities
increased $15,202,000 and $14,548,000 for the three-month and six-month periods
over one-year ago. Total average loans decreased $14,796,000 and $12,161,000 for
the three-month and six-month periods over one-year ago. The yields on total
average earning assets were 6.45% and 7.43% for the three-month periods ended
December 31, 2002, and 2001 and 6.49% and 7.50% for the six-month periods.
The following tables set forth consolidated information regarding average
balances and rates.
FFW Corp
Three Months Ending
(Dollars in thousands)
12/31/02 12/31/01
Average Average Average Average
Interest-earning assets: Balance Interest Rate Balance Interest Rate
- ------------------------ ------- -------- ----- ------- -------- ----
Loans $135,402 $2,645 7.75% $150,198 $3,115 8.23%
Securities 81,150 927 4.59% 65,948 958 5.86%
Other interest-earning assets 5,001 16 1.27% 3,287 15 1.81%
-------- ------ -------- ------
Total interest-earning assets 221,553 3,588 6.45% 219,433 4,088 7.43%
Non interest-earning assets:
- ----------------------------
Cash and due from 5,676 5,372
Allowance for loan losses (2,396) (1,640)
Other non interest-earning assets 11,474 5,828
-------- --------
Total assets $236,307 $228,993
======== ========
Interest-bearing liabilities:
- -----------------------------
Interest-bearing deposits $151,414 1,219 3.19% $136,251 1,571 4.57%
FHLB advances 48,168 676 5.57% 57,814 794 5.45%
-------- ------ -------- ------
Total interest-bearing liabilities 199,582 1,895 3.77% 194,065 2,365 4.83%
-------- ------ -------- ------
Non interest-bearing deposit accounts 10,338 9,649
Other non interest-bearing liabilities 3,136 2,846
-------- --------
Total liabilities 213,056 206,560
Shareholders' equity 23,251 22,433
-------- ---------
Total liabilities and shareholders equity $236,307 $228,993
======== ========
Net interest income $1,693 $ 1,723
====== =======
Net interest margin 3.05% 3.12%
===== =====
FFW Corp
Six Months Ending
(Dollars in thousands)
12/31/02 12/31/01
Average Average Average Average
Interest-earning assets: Balance Interest Rate Balance Interest Rate
- ------------------------ ------- -------- ----- ------- -------- ----
Loans $138,761 $5,380 7.69% $150,922 $6,302 8.28%
Securities 80,360 1,905 4.75% 65,812 1,939 5.92%
Other interest-earning assets 5,550 40 1.43% 3,276 45 2.72%
-------- ------ -------- ------
Total interest-earning assets 224,671 7,325 6.49% 220,010 8,286 7.50%
Non interest-earning assets
Cash and due from 5,236 5,095
Allowance for loan losses (2,393) (1,695)
Other non interest-earning assets 9,062 5,862
-------- --------
Total assets $236,576 $229,272
======== ========
Interest-bearing liabilities:
- -----------------------------
Interest-bearing deposits $151,444 2,534 3.32% $135,994 3,294 4.80%
FHLB advances 49,448 1,384 5.55% 58,943 1,636 5.51%
-------- ------ -------- ------
Total interest-bearing liabilities 200,892 3,918 3.87% 194,937 4,930 5.02%
-------- ------ -------- ------
Non interest-bearing deposit accounts 9,989 9,592
Other non interest-bearing liabilities 2,692 2,481
-------- --------
Total liabilities 213,573 207,010
Shareholders' equity 23,003 22,262
-------- --------
Total liabilities and shareholders equity $236,576 $229,272
======== ========
Net interest income $3,407 $3,356
====== ======
Net interest margin 3.02% 3.03%
===== =====
PROVISION FOR LOAN LOSSES
The provision for loan losses was $405,000 and $630,000 for the three and
six-month periods ended December 31, 2002 and $450,000 and $675,000 for the same
periods in 2001. Changes in the provision for loan losses are attributed to
management's analysis of the adequacy of the allowance for loan losses (ALL) to
address recognizable and currently estimated losses. Net charge-offs of $63,000
and $383,000 have been recorded for the three and six-month periods ended
December 31, 2002, compared to $126,000 and $547,000 of net charge-offs for the
same period in 2001. For the three and six-month periods ended December 31,
2002, gross charge-offs were $198,000 and $614,000. The ALL was $2,609,000 or
1.99% of net loans as of December 31, 2002 compared to $2,267,000 or 1.66% of
net loans at September 30, 2002 and $2,361,000 or 1.66% of net loans at June 30,
2002. Non-performing loans, which includes non-accruing loans and accruing loans
delinquent more than 90 days, were $2,883,000 at December 31, 2002 compared to
$1,981,000 at September 30, 2002 and $1,943,000 at June 30, 2002. The increase
in non-performing loans for the quarter ended December 31, 2002 is composed
primarily of two commercial loan relationships totaling $887,000. Based on an
analysis of the collateral on these loans, management believes that the reserves
currently allocated in the ALL on these loans are adequate to absorb the
currently estimated potential losses on these loans.
The Company establishes an ALL based on an evaluation of risk factors in
the loan portfolio and changes in the nature and volume of its loan activity.
This evaluation includes, among other factors, the level of the Company's
classified and non-performing assets and their estimated value, the economic
outlook and the resulting impact on real estate and other values in the
Company's primary market area, regulatory issues and historical loan loss
experience. Although management believes it uses the best information available
to determine the ALL, unforeseen market conditions or other unforeseen events
could result in adjustments and net earnings could be significantly affected if
circumstances differ substantially from the assumptions used in making the
determination. In addition, a determination by the Company's main operating
subsidiary, First Federal, as to the classification of its assets and the amount
of its valuation allowances is subject to review by the OTS which may order the
establishment of additional general or specific reserve allowances. It is
management's opinion that the ALL is adequate to absorb existing losses in the
loan portfolio as of December 31, 2002.
NONINTEREST INCOME
Non-interest income for the three-month and six-month periods ended
December 31, 2002 was $647,000 and $1,131,000 compared to $441,000 and $838,000
for the periods in 2001. The six-month increase of $293,000 from the prior
period is composed primarily of $191,000 from gain on sale of loans compared to
the period ended December 31, 2001. Included in the gain on sale of loans for
the six months ended December 31, 2002 is $73,000 of income recorded for
mortgage servicing right assets. In other noninterest income, commission income
fell by $80,000 due to lower annuity and life insurance sales while other
income, fees and charges grew $186,000 over the comparable six-month period.
Other income also benefited from an $84,000 increase in the cash surrender value
of bank owned life insurance that was not present in the six-month period ended
December 31, 2001.
NONINTEREST EXPENSE
Non-interest expense for the three-month period ended December 31, 2002,
was $1,167,000, an increase of $63,000, or 5.7%, compared to the same period in
2001 and was $2,365,000 for the six-month period ended December 31, 2002, an
increase of $179,000, or 8.2%. For the six-month period ended December 31, 2002,
compensation and employee benefits increased 10.1%, occupancy and equipment
expense increased 5.7%, data processing expense increased 4.5% and other
noninterest expense increased 7.2% over the same period in 2001. Compensation
and employee benefit expense increased due to increased staffing, increased
health insurance expense and a higher percentage of employees using the benefit
plans.
INCOME TAXES
The provision for income taxes for the three-month and six-month periods
ended December 31, 2002, was $151,000 and $351,000 compared to $170,000 and
$367,000 in 2001. The provision for income taxes dropped despite higher income
before taxes for the three and six months ended December 31, 2002 due to a lower
effective tax rate stemming from increased nontaxable securities income and
nontaxable income from the cash surrender value of bank owned life insurance
purchased in September 2002. The provision for income taxes for the three months
ended December 31, 2002, is at a rate which management believes approximates the
effective rate for the year ending June 30, 2003.
REGULATORY CAPITAL REQUIREMENTS
The Bank is required to maintain specific amounts of regulatory capital
pursuant to regulations of the OTS. At December 31, 2002, the Bank exceeded all
regulatory capital standards as is shown in the following table.
Minimum
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2002
Total Risk-Based Capital $ 20,916 14.58% $ 11,473 8.00% $14,341 10.00%
Tier I (Core) Capital 19,113 13.33% 5,736 4.00% 8,605 6.00%
(to risk weighted assets)
Tier I (Core) Capital 19,113 8.35% 9,159 4.00% 11,448 5.00%
(to adjusted total assets)
PART I: ITEM 3
FFW CORPORATION
CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing date of this report, an
evaluation was carried out under the supervision and with the participation of
FFW Corporation's management, including our Chief Executive Officer and Chief
Financial Accounting Officer, of the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934). Based on their evaluation, our Chief
Executive Officer and Chief Financial Accounting Officer have concluded that the
Company's disclosure controls and procedures are, to the best of their
knowledge, effective to ensure that information required to be disclosed by FFW
Corporation in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Subsequent to the date of their evaluation, our Chief Executive Officer and
Chief Financial Accounting Officer have concluded that there were no significant
changes in FFW Corporation's internal controls or in other factors that could
significantly affect its internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Part II - Other Information
As of December 31, 2002, management is not aware of any current
recommendations by regulatory authorities which, if they were to be implemented,
would have or are reasonably likely to have a material adverse effect on the
Company's liquidity, capital resources or operations.
Item 1 - Legal Proceedings
-----------------
Not Applicable.
Item 2 - Changes in Securities
---------------------
Not Applicable.
Item 3 - Defaults upon Senior Securities
-------------------------------
Not Applicable.
Item 4 - Submission of Matters to a vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5 - Other Information
-----------------
Not Applicable.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
Not Applicable.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FFW CORPORATION
Registrant
Date: February 7, 2003 /S/ Roger K. Cromer
------------------------------- ---------------------------------------
Roger K. Cromer
President and Chief Executive Officer
Date: February 7, 2003 /S/ Timothy A. Sheppard
-------------------------------- ---------------------------------------
Timothy A. Sheppard
Treasurer and Chief Accounting Officer
CERTIFICATION
By signing below, each of the undersigned hereby certifies pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to his knowledge, (i) this Quarterly Report on Form 10-QSB for the
quarterly period ended December 31, 2002 ("Report") fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 and (ii)
the information contained in this Report fairly presents, in all material
respects, the financial condition and results of operations of FFW Corporation.
Signed this 7th day of February, 2003.
/s/ Roger K. Cromer
----------------------------------------------
Roger K. Cromer
President and Chief Executive Officer
/s/ Timothy A. Sheppard
----------------------------------------------
Timothy A. Sheppard
Treasurer and Chief Accounting Officer
CERTIFICATION
I, Roger K. Cromer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of FFW Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 7, 2003 /S/ Roger K. Cromer
-----------------------------------
President/Chief Executive Officer
CERTIFICATION
I, Timothy A. Sheppard, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of FFW Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 7, 2003 /S/ Timothy A. Sheppard
--------------------------------------------
Treasurer/Chief Financial Accounting Officer