SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 May 5, 2003, there were 1,321,800 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 March 31, 2003 3
and June 30, 2002
Consolidated Statements of Income and 4
Comprehensive Income for the three and
nine months ended March 31, 2003 and 2002.
Consolidated Statements of Cash Flows for the 5
nine months ended March 31, 2003 and 2002.
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)
March 31 June 30
2003 2002
------------ ------------
ASSETS :
Cash and due from financial institutions $ 7,855,331 $ 6,321,697
Interest-earning deposits in other financial institutions - short term 1,638,337 2,996,816
------------ ------------
Cash and cash equivalents 9,493,668 9,318,513
Securities available for sale 87,924,883 76,344,629
Loans receivable, net of allowance for loan losses of $2,606,292 at March 31,
2003 and $2,361,241 at June 30, 2002 124,525,925 141,857,794
Federal Home Loan Bank stock, at cost 3,400,900 3,400,900
Accrued interest receivable 1,262,711 1,448,182
Premises and equipment, net 2,685,576 2,693,163
Investment in limited partnership 365,974 409,974
Cash surrender value of life insurance 4,651,041 ---
Other assets 2,337,614 2,355,286
------------ ------------
Total Assets $236,648,292 $237,828,441
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Noninterest-bearing demand deposits $ 12,300,829 $ 9,981,667
Savings, NOW and MMDA deposits 69,622,528 67,611,581
Other time deposits 83,649,175 81,067,474
------------ ------------
Total Deposits 165,572,532 158,660,722
Federal Home Loan Bank advances 44,740,957 54,362,554
Accrued interest payable 704,043 153,571
Accrued expenses and other liabilities 2,283,646 2,242,805
------------ ------------
Total Liabilities 213,301,178 215,419,652
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 1,321,800 shares outstanding at March 31, 2003; 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 18,882,584 17,711,055
Accumulated other comprehensive income 623,992 138,695
Unearned management retention plan shares (55,770) (80,961)
Treasury stock at cost, 508,028 shares on March 31, 2003 and
462,453 shares on June 30, 2002 (5,467,113) (4,723,421)
------------ ------------
Total Shareholders' Equity 23,347,114 22,408,789
------------ ------------
Total Liabilities and Shareholders' Equity $236,648,292 $237,828,441
============ ============
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
2003 2002 2003 2002
---------- ---------- ---------- ----------
Interest income:
Loans receivable
Mortgage loans $1,062,830 $1,316,337 $3,407,716 $4,283,245
Consumer and other loans 1,428,214 1,600,585 4,462,926 4,936,082
Securities
Taxable 636,436 792,255 2,067,574 2,452,994
Nontaxable 256,663 174,810 730,532 453,363
Other interest-earning assets 21,225 13,230 60,967 57,883
---------- ---------- ---------- ----------
Total interest income 3,405,368 3,897,217 10,729,715 12,183,567
Interest expense:
Deposits 1,139,278 1,531,914 3,672,873 4,826,319
Other 613,968 768,369 1,997,730 2,403,932
---------- ---------- ---------- ----------
Total interest expense 1,753,246 2,300,283 5,670,603 7,230,251
---------- ---------- ---------- ----------
Net interest income 1,652,122 1,596,934 5,059,112 4,953,316
Provision for loan losses 460,000 305,000 1,090,000 980,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 1,192,122 1,291,934 3,969,112 3,973,316
Non-interest income:
Net gain (loss) on sale of securities 25,452 92,229 26,033 97,229
Net gain on sale of loans 172,184 193,747 513,990 344,442
Other 489,512 339,439 1,278,053 1,021,297
---------- ---------- ---------- ----------
Total non-interest income 687,148 625,415 1,818,076 1,462,968
Non-interest expense:
Compensation and benefits 572,831 549,410 1,733,240 1,603,547
Occupancy and equipment 103,053 102,071 304,826 292,934
Data processing expense 138,278 117,771 379,503 348,512
Other 388,907 469,762 1,150,295 1,180,251
---------- ---------- ---------- ----------
Total non-interest expense 1,203,069 1,239,014 3,567,864 3,425,244
---------- ---------- ---------- ----------
Income before income taxes 676,201 678,335 2,219,324 2,011,040
Income tax expense 91,738 160,581 442,471 527,298
---------- ---------- ---------- ----------
Net income $ 584,463 $ 517,754 $1,776,853 $1,483,742
========== ========== ========== ==========
Change in unrealized appreciation (depreciation)
on securities available for sale, net of tax (107,681) (509,391) 485,297 (482,138)
---------- ---------- ---------- ----------
Comprehensive income $476,782 $8,363 $2,262,150 $1,001,604
========== ========== ========== ==========
Earnings per common share:
Basic $.44 $.38 $1.32 $1.07
Diluted $.43 $.37 $1.30 $1.06
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31
2003 2002
------------ ------------
Cash flows from operating activities :
Net income $ 1,776,853 $ 1,483,742
Adjustments to reconcile net income to net cash
from operating activities :
Depreciation and amortization, net of accretion 358,631 134,380
Provision for loan losses 1,090,000 980,000
Increase in cash surrender value of life insurance (151,041) ---
Net (gains) losses on sale of :
Securities available for sale (26,033) (97,229)
Loans held for sale (513,990) (344,442)
Foreclosed estate owned and repossessed assets (46,225) 4,085
Origination of loans held for sale (40,265,201) (24,692,019)
Proceeds from sale of loans held for sale 40,660,326 24,911,461
Net change in accrued interest receivable and other
assets 271,309 110,049
Amortization of goodwill --- 70,420
Net change in accrued interest payable, accrued
expenses and other liabilities 616,504 254,988
------------ ------------
Total adjustments 1,994,280 1,331,693
------------ ------------
Net cash from operating activities 3,771,133 2,815,435
Cash flows from investing activities :
Proceeds from :
Sales/calls of securities available for sale 10,141,285 16,448,829
Maturities of securities available for sale 150,000 ---
Purchase of securities available for sale (38,341,117) (35,272,222)
Purchase of life insurance (4,500,000) ---
Principal collected on mortgage- backed securities 16,977,070 3,118,979
Net change in loans receivable 15,846,194 8,160,929
Net purchases premises and equipment (132,232) (762,892)
Proceeds from sales of other real estate and
repossessed assets 321,625 362,951
------------ ------------
Net cash from investing activities 462,825 (7,943,426)
Cash flows from financing activities :
Net increase in deposits 6,911,810 8,776,282
Proceeds from borrowings 3,000,000 37,990,750
Payment on borrowings (12,621,597) (41,290,750)
Purchase of treasury stock (743,692) (627,380)
Proceeds from stock option exercising --- 78,287
Cash dividends paid (605,324) (569,937)
------------ ------------
Net cash from financing activities (4,058,803) 4,357,252
Net increase (decrease) in cash and cash equivalents 175,155 (770,739)
Cash and cash equivalents at beginning of period 9,318,513 8,530,159
------------ ------------
Cash and cash equivalents at end of period $ 9,493,668 $ 7,759,420
============ ============
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 March 31, 2003
and June 30, 2002 and the results of its operations, for the three and
nine-months ended March 31, 2003 and 2002. Financial Statement reclassifications
have been made for the prior period to conform to classifications used as of and
for the period ended March 31, 2003.
Operating results for the three and nine-months ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the fiscal
year ended June 30, 2003.
(2) 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
nine-month periods ending March 31, 2003, the weighted average shares
outstanding in calculating basic earnings per share were 1,335,825 and 1,350,774
while the weighted average number of shares for diluted earnings per share were
1,351,750 and 1,366,625. For the three and nine-month periods ending March 31,
2002, the weighted average shares outstanding in calculating basic earnings per
share were 1,375,715 and 1,388,727 while the weighted average number of shares
for diluted earnings per share were 1,382,619 and 1,396,805.
(3) Stock Based Compensation:
Compensation expense under stock options is reported using the intrinsic
value method. No stock-based compensation cost is reflected in net income, as
all options granted had an exercise price equal to or greater than the market
price of the underlying common stock at date of grant. The following table
illustrates the effect on net income and earnings per share if expense was
measured using the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation.
Three Months Ending Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
-------- -------- ---------- ----------
Net income as reported $584,463 $517,754 $1,776,853 $1,483,742
Less: Stock-based compensation
expense determined under fair value
based method 7,664 9,488 22,992 27,004
-------- -------- ---------- ----------
Pro forma net income $576,799 $508,266 $1,753,861 $1,456,738
======== ======== ========== ==========
Basic earnings per share as reported $ .44 $ .38 $ 1.32 $ 1.07
Pro forma basic earnings per share .43 .37 1.30 1.05
Diluted earnings per share as reported .43 .37 1.30 1.06
Pro forma diluted earnings per share .43 .37 1.28 1.04
There were no stock options granted during the nine months ended March 31,
2003. The weighted average fair value of stock options granted during the nine
months ended March 31, 2002 was $2.92. The fair value of options granted during
the nine months ended March 31, 2002 were estimated using an option pricing
model with the following weighted average information as of the grant dates:
2002
--------
Risk free rate of interest 5.31%
Expected option life 8 years
Expected dividend yield 4.34%
Expected volatility 23.65%
In future years, as additional options are granted, the proforma effect on
net income and earnings per share may increase. Stock options are used to reward
directors and certain executive officers and provide them with an additional
equity interest. Options are issued for ten year periods and have varying
vesting schedules.
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 March 31, 2003, mortgage servicing
rights had a carrying value of $584,000.
COMPARISON OF THREE AND NINE-MONTH PERIODS ENDED MARCH 31, 2003 AND 2002
Net income for the three-month and nine-month periods ended March 31, 2003
was $584,000 and $1,777,000 compared to net income of $518,000 and $1,484,000
for the equivalent periods in 2002. The increases of $66,000 and $293,000 for
the three and nine-month periods were primarily the result of increased
non-interest income combined with a lower effective tax rate due to increased
nontaxable income for the periods ended March 31, 2003 compared to March 31,
2002.
Diluted earnings per common share were $0.43 for the three-month period
ended March 31, 2003 compared to diluted earnings per common share of $0.37 for
the equivalent period in 2002. For the comparable nine-month periods, diluted
earnings per common share were $1.30 in 2003 and $1.06 in 2002. Return on
average shareholders' equity was 10.04% for the three months and 10.20% for the
nine-months ended March 31, 2003, compared to 9.47% and 8.89% in 2002. The
return on total average assets was 1.00% and 1.00% for the three and nine-month
periods ended March 31, 2003, compared to 0.91% and 0.86% in 2002.
NET INTEREST INCOME
The net interest income for the three-month period ended March 31, 2003,
was $1,652,000 compared to $1,597,000, an increase of 3.4% over the same period
in 2002, resulting in a net interest margin of 3.06% compared to 2.91% in 2002.
The net interest income for the nine-month period ended March 31, 2003, was
$5,059,000 compared to $4,953,000, an increase of 2.1% over the same period in
2002, resulting in a net interest margin of 3.03% compared to 3.00% in 2002.
Total average earning assets decreased $1,810,000 for the three-month
period and increased $2,504,000 for the nine-month period ended March 31, 2003,
over the comparative periods in 2002. Total average investment securities
increased $11,578,000 and $13,558,000 for the three-month and nine-month periods
over one-year ago. Total average loans decreased $18,041,000 and $14,121,000 for
the three-month and nine-month periods over one-year ago. The yields on total
average earning assets were 6.30% and 7.13% for the three-month periods ended
March 31, 2003, and 2002 and 6.43% and 7.38% for the nine-month periods.
The following tables set forth consolidated information regarding average
balances and rates.
FFW Corp
Three Months Ending
(Dollars in thousands)
3/31/2003 3/31/2002
Average Average Average Average
Interest-earning assets: Balance Interest Rate Balance Interest Rate
- ------------------------ -------- -------- ------- -------- -------- ------
Loans $129,260 $2,491 7.82% $147,301 $2,917 8.03%
Securities 83,711 893 4.40% 72,133 967 5.48%
Other interest-earning assets 7,521 21 1.13% 2,868 13 1.84%
-------- ------ -------- ------
Total interest-earning assets 220,492 3,405 6.30% 222,302 3,897 7.13%
Non interest-earning assets:
Cash and due from 5,389 5,245
Allowance for loan losses (2,546) (1,992)
Other non interest-earning assets 11,000 6,231
-------- --------
Total assets $234,335 $231,786
======== ========
Interest-bearing liabilities:
- -----------------------------
Interest-bearing deposits $152,935 1,139 3.02% $140,515 1,532 4.42%
FHLB advances 44,906 614 5.55% 57,185 768 5.45%
-------- ------ -------- ------
Total interest-bearing liabilities 197,841 1,753 3.59% 197,700 2,300 4.72%
-------- ------ -------- ------
Non interest-bearing deposit accounts
10,442 9,859
Other non interest-bearing liabilities 2,419 2,058
-------- --------
Total liabilities 210,702 209,617
Shareholders' equity 23,633 22,169
-------- --------
Total liabilities and shareholders' equity $234,335 $231,786
======== ========
Net interest income $1,652 $1,597
====== ======
Net interest margin 3.06% 2.91%
==== ====
FFW Corp
Nine Months Ending
(Dollars in thousands)
3/31/2003 3/31/2002
Average Average Average Average
Interest-earning assets: Balance Interest Rate Balance Interest Rate
- ------------------------ -------- -------- ------- -------- -------- ------
Loans $135,594 $7,871 7.73% $149,715 $9,219 8.20%
Securities 81,477 2,798 4.63% 67,919 2,906 5.77%
Other interest-earning assets 6,207 61 1.31% 3,140 58 2.46%
-------- ------ -------- ------
Total interest-earning assets 223,278 10,730 6.43% 220,774 12,183 7.38%
Non interest-earning assets:
Cash and due from 5,287 5,145
Allowance for loan losses (2,444) (1,794)
Other non interest-earning assets 9,708 5,985
-------- --------
Total assets $235,829 $230,110
======== ========
Interest-bearing liabilities:
- -----------------------------
Interest-bearing deposits $151,941 3,673 3.22% $137,501 4,826 4.68%
FHLB advances 47,934 1,998 5.55% 58,357 2,404 5.49%
-------- ------ -------- ------
Total interest-bearing liabilities 199,875 5,671 3.78% 195,858 7,230 4.92%
-------- ------ -------- ------
Non interest-bearing deposit accounts 10,140 9,681
Other non interest-bearing liabilities 2,601 2,340
-------- --------
Total liabilities 212,616 207,879
Shareholders' equity 23,213 22,231
-------- --------
Total liabilities and shareholders' equity $235,829 $230,110
======== ========
Net interest income $5,059 $4,953
====== ======
Net interest margin 3.03% 3.00%
==== ====
PROVISION FOR LOAN LOSSES
The provision for loan losses was $460,000 and $1,090,000 for the three and
nine-month periods ended March 31, 2003 and $305,000 and $980,000 for the same
periods in 2002. 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 $462,000
and $845,000 have been recorded for the three and nine-month periods ended March
31, 2003, compared to $176,000 and $723,000 of net charge-offs for the same
period in 2002. For the three and nine-month periods ended March 31, 2003, gross
charge-offs were $506,000 and $1,120,000. The ALL was $2,606,000 or 2.09% of net
loans as of March 31, 2003 compared to $2,609,000 or 1.99% of net loans at
December 31, 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 $2,714,000 at March 31, 2003 compared to
$2,883,000 at December 31, 2002 and $1,943,000 at June 30, 2002. Two commercial
loan relationships totaling $2,056,000 accounted for over 75% of non-performing
loans for the quarter ended March 31, 2003. 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, the Bank, 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 March 31, 2003.
NON-INTEREST INCOME
Non-interest income for the three-month and nine-month periods ended March
31, 2003 was $687,000 and $1,818,000 compared to $625,000 and $1,463,000 for the
same periods in 2002. The nine-month increase of $355,000 from the prior period
is composed of $257,000 in other non-interest income and $170,000 from gain on
sale of loans compared to the period ended March 31, 2002. In other non-interest
income, commission income fell by $92,000 due to lower annuity and life
insurance sales while other income, fees and charges grew $349,000 over the
comparable nine-month period. Other income benefited from a $151,000 increase in
the cash surrender value of bank owned life insurance that was not present in
the nine-month period ended March 31, 2002.
NON-INTEREST EXPENSE
Non-interest expense for the three-month period ended March 31, 2003, was
$1,203,000, a decrease of $36,000, or 2.9%, compared to the same period in 2002
and was $3,568,000 for the nine-month period ended March 31, 2003, an increase
of $143,000, or 4.2%. For the nine-month period ended March 31, 2003,
compensation and employee benefits increased 8.1%, occupancy and equipment
expense increased 4.1%, data processing expense increased 8.9% and other
non-interest expense decreased 2.5% over the same period in 2002. For the
three-month period ended March 31, 2003, compensation and employee benefits
increased 4.3%, occupancy and equipment expense increased 1.0%, data processing
expense increased 17.4% and other non-interest expense decreased 17.2% over the
same period in 2002. Other non-interest expense decreased from the prior year
due primarily to a one-time adjustment related to serviced loans incurred in
2002.
INCOME TAXES
The provisions for income taxes for the three-month and nine-month periods
ended March 31, 2003, were $92,000 and $442,000 compared to $161,000 and
$527,000 for the same periods in 2002. The provision for income taxes dropped
despite higher income before taxes for the nine months ended March 31, 2003 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
nine months ended March 31, 2003, 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 March 31, 2003, 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 March 31, 2003
Total Risk-Based Capital $21,155 14.90% $11,358 8.00% $14,197 10.00%
Tier I (Core) Capital 19,370 13.64% 5,679 4.00% 8,518 6.00%
(to risk weighted assets)
Tier I (Core) Capital 19,370 8.33% 9,298 4.00% 11,623 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 March 31, 2003, 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
--------------------------------
(a) Exhibits - Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1) April 23, 2003 - Third Fiscal Quarter Earnings Release
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: May 9, 2003 /S/ Roger K. Cromer
---------------- -----------------------------------
Roger K. Cromer
President and Chief
Executive Officer
Date: May 9, 2003 /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: May 9, 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: May 9, 2003 /s/ Timothy A. Sheppard
--------------------------------------------
Treasurer/Chief Financial Accounting Officer