SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission file number 01-13465
Falmouth Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3337685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Davis Straits, Falmouth, MA 02540
(Address of principal executive offices)
(Zip Code)
(508) 548-3500
(Registrant's telephone number including area code)
NA
(Former name, former address and former fiscal year,
if changed from last Report)
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 twelve months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirement 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.
Outstanding at
Class December 31, 1999
- -------------------------------------------------------------
Common Stock, Par Value $.01 1,057,138
Transitional small business disclosure format:
Yes No X
--- ---
FALMOUTH BANCORP, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition 1
December 31, 1999 and September 30, 1999
Consolidated Statements of Income 2
For Three Months Ended December 31, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity 3
For Years Ended September 30,1998 and September 30,1999,
and Three Months Ended December 31, 1999
Consolidated Statements of Cash Flows 4
For Three Months Ended December 31, 1999
Notes To Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition 7-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
(a) Exhibit 27 - Financial Data Schedule*
(b) Reports on 8-K
None
*Submitted only with filing in electronic format
FORWARD LOOKING STATEMENTS
This report contains certain forward looking statements consisting of
estimates with respect to the financial condition, results of operations and
business of the Company and the Bank that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include: changes in general, economic and market conditions, or the
development of an adverse interest rate environment that adversely affects the
interest rate spread or other income anticipated from the Bank's operations
and investments; and the factors described under "Management's Discussion and
Analysis of Financial condition and Results of Operations - Year 2000."
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Part I. Item I.
December 31, 1999 and September 30, 1999
----------------------------------------
December 31, September 30,
1999 1999
-----------------------------
(Unaudited)
ASSETS
Cash and due from banks $ 3,527,672 $ 2,472,360
Federal funds sold 4,284,065 4,805,000
-----------------------------
Total cash and cash equivalents 7,811,737 7,277,360
Investments in available-for-sale securities (at fair value) 12,448,614 17,144,442
Investments in held-to-maturity securities (fair values of $8,353,996
as of December 31, 1999 and $9,631,547 as of September 30, 1999) 8,375,889 9,641,817
Federal Home Loan Bank stock, at cost 720,700 720,700
Loans, net 83,680,700 80,487,395
Premises and equipment 2,009,033 2,023,577
Accrued interest receivable 544,408 729,668
Cooperative Central Bank Reserve Fund Deposit 395,395 395,395
Other assets 229,208 231,928
-----------------------------
Total assets $116,215,684 $118,652,282
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 7,887,121 $ 8,091,418
Interest-bearing 83,544,612 84,794,290
-----------------------------
Total deposits 91,431,733 92,885,708
Securities sold under agreements to repurchase 1,196,848 857,727
Advances from Federal Home Loan Bank of Boston 5,694,827 5,431,290
Other liabilities 343,370 218,104
-----------------------------
Total liabilities 98,666,778 99,392,829
-----------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized 500,000 shares;
none issued
Common stock, par value $.01 per share, authorized 2,500,000 shares;
issued 1,454,750 shares; outstanding 1,057,138 shares as of
December 31, 1999 and 1,175,744 shares as of September 30, 1999 14,547 14,547
Paid-in capital 13,944,798 13,907,812
Retained earnings 11,015,813 10,818,456
Unallocated Employee Stock Ownership Plan shares (543,807) (565,853)
Treasury stock (397,612 shares as of December 31, 1999;
279,006 shares as of September 30, 1999) (6,560,748) (4,600,671)
Unearned compensation (443,284) (443,284)
Accumulated other comprehensive income 121,587 128,446
-----------------------------
Total stockholders' equity 17,548,906 19,259,453
-----------------------------
Total liabilities and stockholders's equity $116,215,684 $118,652,282
=============================
The accompanying notes are an integral part of these consolidated financial
statements.
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1999 and 1998
---------------------------------------------
1999 1998
-------------------------
(Unaudited) (Unaudited)
Interest and dividend income:
Interest and fees on loans $1,532,873 $1,469,648
Interest and dividends on securities:
Taxable 282,995 257,327
Dividends on marketable equity securities 24,445 25,881
Dividends on Cooperative Bank Investment
and Liquidity Funds 12,347 42,622
Other interest 64,426 67,124
------------------------
Total interest and dividend income 1,917,086 1,862,602
------------------------
Interest expense:
Interest on deposits 764,967 773,059
Interest on securities sold under agreement
to repurchase 11,146 12,288
Interest on FHLB advances 85,654 92,311
------------------------
Total interest expense 861,767 877,658
------------------------
Net interest and dividend income 1,055,319 984,944
Provision for loan losses 12,000 6,000
------------------------
Net interest income after provision
for loan losses 1,043,319 978,944
------------------------
Other income:
Service charges on deposit accounts 36,838 28,900
Securities gains, net 95,143 22,713
Gains on mortgages sold, net 1,711 245
Other income 66,431 56,499
------------------------
Total other income 200,123 108,357
------------------------
Other expense:
Salaries and employee benefits 405,607 400,379
Occupancy expense 48,278 42,521
Equipment expense 39,116 39,143
Data processing expense 58,287 61,524
Directors' fees 13,250 12,450
Legal and professional fees 65,473 53,946
Other expenses 145,093 112,752
------------------------
Total other expenses 775,104 722,715
------------------------
Income before income taxes 468,338 364,586
Income taxes 191,882 192,600
------------------------
Net income $ 276,456 $ 171,986
========================
Comprehensive income $ 269,597 $ 276,798
========================
Earnings per common share $ 0.26 $ 0.13
========================
Earnings per common share, assuming dilution $ 0.24 $ 0.13
========================
The accompanying notes are an integral part of these consolidated financial
statements.
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
Unallocated
Employee Stock
Ownership
Common Paid-In Retained Plan
Stock Capital Earnings Shares
------------------------------------------------------
Balance, September 30, 1997 $145,475 $13,651,570 $ 9,334,011 $(741,923)
Employee Stock Ownership Plan 94,566
ESOP shares released 87,885
Purchase of shares for recognition and
retention plan (RRP)
Recognition and retention plan 158,760
Distribution of RRP shares (157,016)
Tax benefit from RRP 20,206
Formation of the Holding Company,
change in par value (130,928) 130,928
Purchase of treasury stock
Dividends declared ($.23 per share) (314,350)
Comprehensive income:
Net income 1,185,076
Change in net unrealized
holding gain on available-
for-sale securities, net of tax
effect of $54, 071
Comprehensive income
---------------------------------------------------
Balance, September 30, 1998 14,547 13,899,014 10,204,737 (654,038)
Employee Stock Ownership Plan 49,149
ESOP shares released 88,185
Purchased of shares for recognition and
retention plan (RRP)
Recognition and retention plan 114,417
Distribution of RRP shares (160,691)
Tax benefit from RRP 9,388
Purchase of treasury stock
Exercise of stock options and related
tax benefit (3,465)
Dividends declared ($.28 per share) (355,194)
Comprehensive income:
Net income 968,913
Net change in unrealized holding gain
on available-for-sale securities
Comprehensive income
---------------------------------------------------
Balance, September 30, 1999 14,547 13,907,812 10,818,456 (565,853)
Employee Stock Ownership Plan 10,858 60
ESOP shares released 22,046
Recognition and retention plan 27,654
Purchase of treasury stock
Exercise of stock options and related
tax benefit (1,526)
Dividends declared ($0.07 per share) (79,159)
Comprehensive income:
Net income 276,456
Net change in unrealized holding gain
on available-for-sale securities
Comprehensive income
---------------------------------------------------
Balance, December 31, 1999 $ 14,547 $13,944,798 $11,015,813 $(543,807)
====================================================
Accumulated
Other
Treasury Unearned Comprehensive
Stock Compensation Income Total
--------------------------------------------------------
Balance, September 30, 1997 - - $416,383 $22,805,516
Employee Stock Ownership Plan 94,566
ESOP shares released 87,885
Purchase of shares for recognition and
retention plan (RRP) (751,433) (751,433)
Recognition and retention plan 158,760
Distribution of RRP shares 157,016 0
Tax benefit from RRP 20,206
Formation of the Holding Company,
change in par value 0
Purchase of treasury stock (952,668) (952,668)
Dividends declared ($.23 per share) (314,350)
Comprehensive income:
Net income
Change in net unrealized
holding gain on available-
for-sale securities, net of tax
effect of $54, 071 (92,068)
Comprehensive income 1,093,008
--------------------------------------------------------
Balance, September 30, 1998 (952,668) (594,417) 324,315 22,241,490
Employee Stock Ownership Plan 49,149
ESOP shares released 88,185
Purchased of shares for recognition and
retention plan (RRP) (9,558) (9,558)
Recognition and retention plan 114,417
Distribution of RRP shares 160,691
Tax benefit from RRP 9,388
Purchase of treasury stock (3,665,778) (3,665,778)
Exercise of stock options and related
tax benefit 17,775 14,310
Dividends declared ($.28 per share) (355,194)
Comprehensive income:
Net income
Net change in unrealized holding gain
on available-for-sale securities (195,869)
Comprehensive income 773,044
--------------------------------------------------------
Balance, September 30, 1999 (4,600,671) (443,284) 128,446 19,259,453
Employee Stock Ownership Plan 10,918
ESOP shares released 22,046
Recognition and retention plan 27,654
Purchase of treasury stock (1,973,155) (1,973,155)
Exercise of stock options and related
tax benefit 13,078 11,552
Dividends declared ($0.07 per share) (79,159)
Comprehensive income:
Net income
Net change in unrealized holding gain
on available-for-sale securities (6,859)
Comprehensive income 269,597
--------------------------------------------------------
Balance, December 31, 1999 $(6,560,748) $ (443,284) $121,587 $17,548,906
========================================================
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1999 and 1998
-----------------------------------------------------
1999 1998
--------------------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net income $ 276,456 $ 171,986
Adjustments to reconcile net income to net cash
provided by operating activities:
Recognition and retention plan (RRP) 27,654 27,216
Provision for loan loss 12,000 6,000
(Accretion) amortization of investment securities, net (19,129) 7,442
Change in unearned income (11,062) (3,882)
Net gains on sales of loans (1,711) (245)
Gain on sales of investment securities, net (95,143) (22,713)
Depreciation and amortization 42,493 40,157
(Increase) decrease in accrued interest receivable 185,260 (2,773)
(Increase) decrease in other assets 18,025 (28,273)
Increase (decrease) in other liabilities 125,290 (85,881)
--------------------------
Net cash provided by operating activities 560,133 109,034
--------------------------
Cash flows from investing activities
Proceeds from sales of loans 61,711 614,245
Purchase of available-for-sale securities (730,009) (3,635,000)
Proceeds from sales of available-for-sale securities 825,010 580,247
Proceeds from maturities of available-for-sale securities 4,691,779 2,792,735
Purchase of held-to-maturity securities (995,004)
Proceeds from maturities of held-to-maturity securities 2,262,124 1,094,640
Net increase in loans (3,254,243) (2,586,298)
Capital expenditures (27,949) (27,489)
--------------------------
Net cash used in investing activities 2,833,419 (1,166,920)
--------------------------
Cash flows from financing activities:
Dividends paid (79,159) ( 94,918)
Employee Stock Ownership Plan 10,858 12,344
Purchase of treasury stock (1,973,155) (258,578)
Unallocated ESOP shares released 22,046 22,047
Proceeds from exercise of stock options 11,552 10,620
Net increase (decrease) in demand deposits, NOW and savings accounts (3,135,966) 2,335,993
Net increase (decrease) in time deposits 1,681,993 181,968
Net increase (decrease in securities sold under agreements
to repurchase 339,121 318,289
Proceeds from Federal Home Loan Bank advances 14,442,000 1,268,000
Repayments of Federal Home Loan Bank advances (14,178,464) (3,079,196)
--------------------------
Net cash provided by financing activities (2,859,174) 716,569
--------------------------
Increase (decrease) in cash and cash equivalents 534,378 (341,317)
Cash and cash equivalents at beginning of period 7,277,359 7,286,578
--------------------------
Cash and cash equivalents at end or period $ 7,811,737 $ 6,945,261
==========================
Supplemental disclosures
Interest paid $ 861,767 $ 887,658
Income taxes paid 130,200 310,947
The accompanying notes are an integral part of these consolidated financial
statements.
FALMOUTH BANCORP, INC.AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
The financial statements of Falmouth Bancorp, Inc. (the "Company") and
its subsidiaries presented herein are unaudited and should be read in
conjunction with the financial statements of the Company as of December 31,
1999 and September 30, 1999. The results of operations for the three month
period ended December 31, 1999 are not necessarily indicative of the results
to be expected for the full year. All material intercompany balances and
transactions have been eliminated in consolidation. In the opinion of
management, the financial statements reflect all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
results for the interim periods.
Note 2 - Accounting Policies
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and prevailing practices within the
banking industry. The interim financial information should be read in
conjunction with the Company's 1999 Annual Report contained on Form 10-KSB.
Management is required to make estimates and assumptions that affect
amounts reported in the financial statements. Actual results could differ
significantly from those estimates.
Note 3 - Earnings per Share
In February 1997, the FASB issued Statement 128 "Earnings Per Share."
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share," and
specifies the computation, presentation and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. It replaces the presentation of primary EPS with the
presentation of basic EPS, and replaces fully diluted EPS with diluted EPS.
It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures, and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS calculation.
EPS for the quarter ended December 31, 1999 and 1998 have been calculated
according to the guidelines of Statement 128. ESOP shares are only considered
outstanding for earnings per share calculations when they are committed to be
released.
Reconciliation of the numerators and the denominators of the basic and
diluted per share comparisons for net income are as follows:
(Numerator) (Denominator) Amount
------------------------------------
Quarter ended December 31, 1999
Basic EPS
- ---------
Net income and income available to
common stockholders $276,456 1,073,376 $.26
Effect of dilutive securities options and warrants 59,851
-----------------------
Diluted EPS
- -----------
Income available to common stockholders $276,456 1,133,227 $.24
=======================
Quarter Ended December 31, 1998
Basic EPS
- ---------
Net income and income available to
common stockholders $171,986 1,333,561 $.13
Effect of dilutive securities options and warrants 22,424
-----------------------
Diluted EPS
- -----------
Income available to common stockholders $171,986 1,355,985 $.13
=======================
Note 4 - Dividends
On November 17, 1999, the Board of Directors of the Company declared a
quarterly cash dividend of $0.07 per share of common stock which was paid on
December 21, 1999.
Note 5 - Recent Developments
On December 13, 1999, the Company announced its most recent stock
repurchase program which authorizes the Company to repurchase into treasury
stock up to 53,545 additional shares, or five percent of its outstanding
shares of common stock. During the quarter ended December 31, 1999, the
Company repurchased 118,606 shares of its common stock. At December 31, 1999,
the Company had 397,612 treasury shares.
Management's Discussion and
Analysis of Financial Condition and Operating Results
Part I. Item 2.
General
Falmouth Bancorp, Inc. (the "Company" or "Bancorp"), a Delaware
corporation, is the holding company for Falmouth Co-operative Bank (the "Bank"
or "Falmouth"), a Massachusetts chartered stock co-operative bank. At December
31, 1999, there were 1,057,138 shares outstanding. The Company's stock trades
on the American Stock Exchange under the symbol "FCB".
The Company's sole business activity is ownership of the Bank. The
Company also makes investments in long and short-term marketable securities
and other liquid investments. The business of the Bank consists of attracting
deposits from the general public and local businesses and using these funds to
originate primarily residential and commercial real estate loans located in
Falmouth, Massachusetts and surrounding areas and to invest in United States
Government and Agency securities. To a lesser extent, the Bank engages in
various forms of consumer and home equity lending. The Bank's business
strategy is to operate as a profitable community bank dedicated to financing
home ownership, small business, and consumer needs in its market area and to
provide personal, high quality service to its customers. The Bank has two
subsidiaries, Falmouth Securities Corporation, a Massachusetts corporation,
which was established solely for the purpose of acquiring and holding
investments which are permissible for banks to hold under Massachusetts law
and Falmouth Capital Corporation, a real estate investment trust.
Comparison of Financial Condition at December 31, 1999 and September 30, 1999.
The Company's total assets decreased by $2.5 million or 2.05% for the
three months ended December 31, 1999, from $118.7 million at September 30,
1999 to $116.2 million at December 31, 1999. Total deposits decreased $1.5
million or 1.57%, from $92.9 million at September 30, 1999 to $91.4 million
at December 31, 1999. This decrease was due, in part, to seasonal withdrawals
from retail and commercial checking accounts during the period. Total net
loans were $83.7 million or 91.52% of total deposits at December 31, 1999, as
compared to $80.5 million or 86.65% of total deposits at September 30, 1999,
representing a increase of $3.2 million. This increase is due, in part, to
the continued strong local real estate market and the Bank's commitment to
increase market share. Investment securities were $21.6 million or 18.57%
of total assets at December 31, 1999, as compared to $27.5 million or 23.18%
of total assets at September 30, 1999. Investment securities decreased $5.9
million due, in part, to cash flows to fund loans and savings withdrawals.
The Bank's current dollar cost averaging program for the purchase of equity
securities, established in March 1999, will be completed in February 2000. To
date, the program has generated net securities gains of approximately $521,000
and expanded its equity securities holdings by $1.2 million for the nine
months ended December 31, 1999.
Borrowed funds from the Federal Home Loan Bank of Boston have increased
from $5.4 million at September 30, 1999 to $5.7 million at December 31, 1999.
The increase of $300,000 was utilized, primarily, to maintain liquidity in the
pre-Year 2000 time frame.
Stockholders' equity was $17.5 million at December 31, 1999, as compared
to $19.3 million at September 30, 1999, a decrease of $1.8 million. This
change was primarily the result of an increase in retained earnings of
$198,000, which was off-set by an increase in treasury shares purchased of
$2.0 million under the Company's stock repurchase programs. The ratio of
stockholders equity to total assets was 15.10% at December 31, 1999, and the
book value per share of common stock was $16.60, compared to 16.23% and
$16.38, respectively, at September 30, 1999.
The ratio of the allowance for loan losses to total loans was .70% at
December 31, 1999. Management believes the allowance will be adequate based
upon, among other things, past loss experience, prevailing economic
conditions, and the level of credit risk in the loan portfolio. However, the
Bank may periodically provide additional provisions as deemed necessary to
maintain a sufficient allowance for the loan loss to total loan ratio. The
Bank added $12,000 to the allowance during the three month period ended
December 31, 1999. The Bank plans to continue to set aside additional
specific reserves for commercial loans and large residential mortgages.
Comparison of Operating Results
Three Months Ended December 31, 1999 and 1998.
Net Income. The Company's net income for the three months ended
December 31, 1999 was $276,000 as compared to $172,000 for the three months
ended December 31, 1998. The increase in net income of $104,000 was
primarily due to an increase in other income of $92,000 and an increase in
interest and dividend income of $54,000 and a decrease in interest expense of
$16,000, off-set in part with an increase in other expenses of $52,000. The
annualized return on average assets (ROA) for the three months ended December
31, 1999 was 0.94%, an increase of 33 basis points, as compared to 0.61% for
the same period of the prior year. The $92,000 increase in other income was
due primarily to a $72,000 increase in net securities gains, which were part
of the Bank's equity securities dollar cost averaging program.
Interest and Dividend Income. Total interest and dividend income for
the three months ended December 31, 1999 was $1,917,000 an increase of
$54,000, as compared to $1,863,000 for the three month period ended December
31, 1998. The increase in interest and dividend income was attributable, in
part, to the loan portfolio which provided an increase in interest and fee
income of $63,000. Additionally, there was an increase in interest and
dividend income of $24,000 for the same period. This was, in part, off-set by
a decrease in dividends on Cooperative Bank Investment of $30,000 and a
decrease in other interest of $3,000. The investment in the Cooperative Bank
Investment Fund was reduced by approximately $2.5 million during the
previous six months, resulting in the decrease in dividends on the fund
during the three months ended December 31, 1999.
Interest Expense. Total interest expense for the three months ended
December 31, 1999 was $862,000, as compared to $878,000 for the same period
of the prior year, for a decrease of $16,000.
Net Interest and Dividend Income. Net interest and dividend income
for the three month period ended December 31, 1999 was $1,055,000 as compared
to $985,000 for the three months ended December 31, 1998. The increase of
$70,000 was the result of a $55,000 increase in interest and dividend income
coupled with a decrease in interest expense. The net interest margin for the
three months ended December 31, 1999 was 3.84%, an increase of 23 basis
points, as compared to 3.61% for the three months ended December 31, 1998.
The increase in net interest margin was primarily the result of an increase
in interest income coupled with a decrease in interest expense.
Provision for Loan Losses. The Bank added $12,000 to its provision
for loan losses during the quarter ended December 31, 1999, to maintain
sufficient reserves for the loan loss to total loan ratio. Management
believes that, although the provision is deemed adequate based on its
delinquency and loan loss record, additional provisions may be added from
time to time as the loan portfolio expands by loan type and volume, including
the expansion of the commercial loan portfolio. As of December 31, 1999, the
Bank had one $3,000 consumer loan classified as loss and no loans classified
as doubtful.
Other Income. Other income for the three month period ended December
31, 1999 was $200,000, as compared to $108,000 for the three months ended
December 31, 1998. The $92,000 increase was primarily the result of an
increase in net gains realized from the sale of investment securities of
$72,000, as well as an increase in service charge income of $8,000, an
increase in net gains on the sale of mortgages of $2,000 and an increase in
other income of $10,000.
Operating Expenses. Operating expenses for the three months ended
December 31, 1999 were $775,000, as compared to $723,000 for the three months
ended December 31, 1998. The $52,000 increase was primarily due to the
combination of an increase in salaries and employee benefits of $6,000, an
increase in occupancy expense of $5,000, an increase in legal and
professional costs of $11,000, an increase in other expenses of $32,000,
combined with a decrease in data processing fees of $3,000. Other operating
expenses increased, in part due to the Bank's increased marketing efforts as
well as other costs, such as printing and supplies, associated with the
Bank's efforts in the Year 2000 (Y2K) project during the period. The
annualized ratio of operating expenses to average total assets for the three
months ended December 31, 1999 was 2.63%, as compared to 2.56% for the three
month period ended December 31, 1998, an increase of 7 basis points..
Liquidity and Capital Resources
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgaged-backed securities, maturities of
investments and interest-bearing deposits, and funds provided from
operations. While scheduled repayments of loans and mortgage-backed
securities and maturities of investment securities are predictable sources
of funds, deposit flows and loan prepayments are greatly influenced by the
general level of interest rates, economic conditions and competition. The
Bank uses its liquidity resources principally to fund existing and future
loan commitments, to fund net deposit outflows, to invest in other interest-
earning assets, to maintain liquidity, and to meet operating expenses.
The Bank is required to maintain adequate levels of liquid assets.
This guideline, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Bank has historically maintained a level of liquid assets
in excess of regulatory requirements. The Bank's liquidity ratio at
December 31, 1999 was 28.48%.
A major portion of the Bank's liquidity consists of short-term
securities obligations. The level of these assets is dependent on the
Bank's operating, investing, lending and financing activities during any
given period. At December 31, 1999, regulatory liquidity totaled $97.1
million. The primary investing activities of the Bank include origination
of loans and the purchase of investment securities.
Liquidity management is both a daily and long-term function of
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank believes that it could borrow additional funds from the
FHLB of Boston. At December 31, 1999, the Bank had outstanding advances
from the FHLB of Boston in the amount of $5.7 million in short and long-term
borrowings. As these advances mature, they will be repaid or re-written as
longer term matched borrowings which will assist the match of rate sensitive
assets to rate sensitive liabilities.
At December 31, 1999, the Bank had $6.6 million in outstanding
residential and commercial commitments to originate loans, as well as $13.1
million in unadvanced loan commitments. If the Bank anticipates that it may
not have sufficient funds available to meet its current loan commitments it
may commence further matched borrowing from the Federal Home Loan Bank of
Boston. Certificates of deposit which are scheduled to mature in one year
or less totaled $36.8 million at December 31, 1999. Based on historical
experience, management believes that a significant portion of such deposits
will remain with the Bank.
At December 31, 1999 the Bank exceeded all of its regulatory
capital requirements.
Year 2000
The following is a "Year 2000 Readiness Disclosure" made in accordance with
the Federal Year 2000 Information and Readiness Disclosure Act. Pub. L. No
105-271.
Many of the "Year 2000" issues are now behind us. Commonly referred to
as "Y2K", the anticipated problems were complex and required time and
resources to identify, correct and test hardware and software systems prior
to the "event weekend" of January 1, 2000. Preparing our systems to function
normally in the year 2000 was one of our top priorities in 1999. The Bank,
through its Year 2000 Steering Committee, created a Year 2000 Plan which
included five phases of review, testing and implementation. These phases
were Awareness, Assessment, Renovation, Validation, and Implementation. The
Steering Committee adopted its formal Year 2000 Plan in March 1998 and was
successful in accomplishing its mission. To date, no year 2000 bugs have
been identified.
The year 2000 Plan was followed, reviewed and updated on year 2000
issues as they were identified. In June 1998, the Bank adopted its Year 2000
Test Plan. The goal of the Test Plan was to provide testing guidance on all
critical applications. It was necessary to provide reasonable assurance
that the applications identified would function normally in the next millennium.
Although the Bank believes that no new Y2K issues will materialize,
continued awareness and ongoing monitoring will allow us to keep abreast of
any situations that may arise. The inherent risks presented by the Year
2000 date change could not be predicted with any certainty. Items such as
data processing and transmission and communications services out of its
control could have materially effected the Bank's operations. To date,
however, the Bank has not been materially effected by any year 2000 issurs,
both within and outside of its control.
As of December 31, 1999, the Bank had incurred direct costs of
approximately $100,000 related to the Y2K project. This included system
upgrades, compensation and consumer awareness projects. One time combined
hardware and software upgrades costs of $36,000 were capitalized. A
significant portion of these costs were incremental and did not divert the
redeployment of internal resources from other activities. All costs were
borne out of the Company's operating cash flow.
OTHER INFORMATION
Part II.
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule*
(b) Reports on 8-K
None
* Submitted only with filing in electronic format.
Falmouth Bancorp, Inc. is a publicly owned bank holding company and the
parent corporation of Falmouth Co-operative Bank, a Massachusetts chartered
stock co-operative bank offering traditional products and services. The
Bank conducts business through its main office located at 20 Davis Straits,
Falmouth, Massachusetts 02540, and its two branch locations in North and East
Falmouth. The telephone number is (508) 548-3500.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FALMOUTH BANCORP, INC.
(Registrant)
Date: February 3, 2000 By: /s/ Santo P. Pasqualucci
----------------- ------------------------
Santo P. Pasqualucci
President and Chief
Executive Officer
Date: February 3, 2000 By: /s/ George E. Young, III
---------------- ------------------------
George E. Young, III
Vice President and
Chief Financial Officer