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 March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 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 March 31, 2000
----- --------------
Common Stock, Par Value $.01 1,047,138
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
March 31, 2000 and September 30, 1999
Consolidated Statements of Income 2
For Three and Six Months Ended March 31, 2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity 3
For Six Months Ended March 31, 2000
Consolidated Statements of Cash Flows 4
For Six Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 5-6
Item 2 Management's Discussion and Analysis of Financial Condition 7-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule*
(b) Reports on 8-K
None
<FN>
<F*> Submitted only with filing in electronic format
</FN>
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.
Part I. Item I. FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, 2000 and September 30, 1999
-------------------------------------
March 31, September 30,
2000 1999
----------- -------------
(unaudited)
ASSETS
- ------
Cash and due from banks $ 3,052,521 $ 2,472,360
Federal funds sold 5,553,091 4,805,000
-----------------------------
Total cash and cash equivalents 8,605,612 7,277,360
Investments in available-for-sale securities
(at fair value) 11,055,732 17,144,442
Investments in held-to-maturity securities
(fair values of $8,084,195 as of March
31, 2000 and $9,631,547 as of September 30,
1999) 8,116,997 9,641,817
Federal Home Loan Bank stock, at cost 720,700 720,700
Loans, net 89,815,063 80,487,395
Premises and equipment 2,023,572 2,023,577
Accrued interest receivable 612,224 729,668
Cooperative Central Bank Reserve Fund Deposit 395,395 395,395
Other assets 192,601 231,928
-----------------------------
Total Assets $121,537,896 $118,652,282
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing $ 10,755,054 $ 8,091,418
Interest-bearing 88,239,434 84,794,290
-----------------------------
Total deposits 98,994,488 92,885,708
Securities sold under agreements to repurchase 1,104,223 857,727
Advances from Federal Home Loan Bank of Boston 3,479,077 5,431,290
Other liabilities 168,450 218,104
-----------------------------
Total Liabilities 103,746,238 99,392,829
-----------------------------
Preferred stockholders' equity in a subsidiary company 54,000 -
-----------------------------
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
1,047,138 shares as of March 31, 2000 and 1,175,744 shares
as of September 30, 1999 14,547 14,547
Paid-in capital 13,827,845 13,907,812
Retained earnings 11,193,280 10,818,456
Unallocated Employee Stock Ownership Plan shares (521,761) (565,853)
Treasury stock (407,612 shares 3/31/00;
279,006 shares 9/30/99) (6,700,066) (4,600,671)
Unearned compensation (286,697) (443,284)
Accumulated other comprehensive income 210,510 128,446
-----------------------------
Total stockholders' equity 17,737,658 19,259,453
-----------------------------
Total liabilities and stockholders' equity $121,537,896 $118,652,282
=============================
The accompanying notes are an integral part of these
consolidated financial statements.
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
Interest and dividend income:
Interest and fees on loans $1,616,717 $1,451,950 $3,149,589 $2,921,598
Interest and dividends on securities:
Taxable 245,232 250,638 528,227 507,965
Dividends on marketable equity securities 25,802 24,411 50,247 50,292
Dividends on Cooperative Bank Investment
and Liquidity Funds 7,717 42,569 20,065 85,191
Other interest 54,636 76,621 119,062 143,745
-------------------------------------------------------
Total interest and dividend income 1,950,104 1,846,189 3,867,190 3,708,791
-------------------------------------------------------
Interest expense:
Interest on deposits 787,216 744,494 1,552,183 1,517,553
Interest on securities sold under agreement
to repurchase 13,373 12,957 24,519 25,245
Interest on FHLB advances 73,237 76,227 158,892 168,538
-------------------------------------------------------
Total interest expense 873,826 833,678 1,735,594 1,711,336
-------------------------------------------------------
Net interest and dividend income 1,076,278 1,012,511 2,131,596 1,997,455
Provision for loan losses 18,000 12,000 30,000 18,000
-------------------------------------------------------
Net interest income after provision
for loan losses 1,058,278 1,000,511 2,101,596 1,979,455
-------------------------------------------------------
Other income:
Service charges on deposit accounts 28,940 24,129 65,779 53,029
Securities gains, net 125,564 44,471 220,708 67,184
Gains on mortgages sold, net - 57,131 1,711 57,376
Other income 45,451 33,574 111,882 90,073
-------------------------------------------------------
Total other income 199,955 159,305 400,080 267,662
-------------------------------------------------------
Other expense:
Salaries and employee benefits 425,531 395,054 831,138 795,433
Occupancy expense 49,385 51,009 97,663 93,530
Equipment expense 41,727 40,738 80,842 79,881
Data processing expense 63,949 59,129 122,237 120,653
Directors' fees 12,050 13,250 25,300 25,700
Legal and professional fees 66,770 40,633 132,243 94,579
Other expenses 200,536 130,633 345,630 243,385
-------------------------------------------------------
Total other expenses 859,948 730,446 1,635,053 1,453,161
-------------------------------------------------------
Income before income taxes 398,285 429,370 866,623 793,956
Income taxes 136,903 222,100 328,785 414,700
-------------------------------------------------------
Net income $ 261,382 $ 207,270 $ 537,838 $ 379,256
-------------------------------------------------------
Comprehensive income $ 350,305 $ 96,821 $ 619,902 $ 373,620
=======================================================
Earnings per common share $ 0.26 $ 0.16 $ 0.52 $ 0.29
=======================================================
Earnings per common share, assuming dilution $ 0.25 $ 0.16 $ 0.50 $ 0.29
=======================================================
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 Accumulated
Ownership Other
Common Paid-In Retained Plan Treasury Unearned Comprehensive
Stock Capital Earnings Shares Stock Compensation Income Total
------ ------- -------- ----------- -------- ------------ ------------- -----
Balance, September 30, 1997 $ 145,475 $13,651,570 $ 9,334,011 ($741,923) - - $ 416,383 $22,805,516
Employee Stock Ownership Plan 94,566 94,566
ESOP shares released 87,885 87,885
Purchase of shares for
recognition and retention
plan (RRP) (751,433) (751,433)
Recognition and retention plan 158,760 158,760
Distribution of RRP shares (157,016) 157,016 0
Tax benefit from RRP 20,206 20,206
Formation of the Holding
Company, change in par value (130,928) 130,928 0
Purchase of treasury stock (952,668) (952,668)
Dividends declared ($.23 per
share) (314,350) (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 $54,071 (92,068)
Comprehensive income 1,093,008
------------------------------------------------------------------------------------------------
Balance, September 30, 1998 14,547 13,899,014 10,204,737 (654,038) (952,668) (594,417) 324,315 22,241,490
Employee Stock Ownership Plan 49,149 49,149
ESOP shares released 88,185 88,185
Purchased of shares for
recognition and retention
plan (RRP) (9,558) (9,558)
Recognition and retention plan 114,417 114,417
Distribution of RRP shares (160,691) 160,691
Tax benefit from RRP 9,388 9,388
Purchase of treasury stock (3,665,778) (3,665,778)
Exercise of stock options and
related tax benefit (3,465) 17,775 14,310
Dividends declared ($.28 per
share) (355,194) (355,194)
Comprehensive income:
Net income 968,913
Net change in unrealized
holding gain on available-
for-sale securities (195,869)
Comprehensive income 773,044
------------------------------------------------------------------------------------------------
Balance, September 30, 1999 14,547 13,907,812 10,818,456 (565,853) (4,600,671) (443,284) 128,446 19,259,453
Employee Stock Ownership Plan 20,663 60 20,723
ESOP shares released 44,092 44,092
Recognition and retention plan 57,483 57,483
Distribution on RRP shares (156,587) 156,587 0
Purchase of treasury stock (2,112,473) (2,112,473)
Exercise of stock options and
related tax benefit (1,526) 13,078 11,552
Dividends declared ($0.15 per
share) (163,074) (163,074)
Comprehensive income:
Net income 537,838
Net change in unrealized
holding gain On available-
for-sale securities 82,064
Comprehensive income 619,902
------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ 14,547 $13,827,845 $11,193,280 ($521,761) ($6,700,066) ($286,697) $ 210,510 $17,737,658
================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Six Months Ended
----------------------------
March 31, March 31,
2000 1999
--------- ---------
Cash flows from operating activities
Net income $ 537,838 $ 379,256
Adjustments to reconcile net income to net cash
provided by operating activities:
Recognition and retention plan (RRP) 57,483 54,432
Provision for loan loss 30,000 18,000
(Accretion) amortization of investment securities, net (29,906) 62,893
Change in unearned income (27,407) (19,974)
Gain on sales of investment securities, net (220,708) (67,184)
Gain on sales of loans (1,711) (57,736)
Depreciation and amortization 87,322 80,815
(Increase) decrease in accrued interest receivable 117,444 (39,563)
(Increase) decrease in other assets (4,491) 54,190
Decrease in other liabilities (49,592) (222,710)
Minority interest in subsidiary 54,000 -
----------------------------
Net cash provided by operating activities 550,272 242,419
----------------------------
Cash flows from investing activities
Proceeds from the sale of loans 166,534 4,024,074
Purchase of available-for-sale securities (1,127,633) (6,438,879)
Proceeds from sales of available-for-sale securities 1,156,351 726,549
Proceeds from maturities of available-for-sale securities 6,432,052 4,385,695
Purchase of held-to-maturity securities (2,986,154) (2,505,795)
Proceeds from maturities of held-to-maturity securities 4,515,409 3,807,341
Purchase of Federal Home Loan Bank stock - (157,900)
Net increase in loans (9,495,084) (3,179,073)
Capital expenditures (87,317) (57,555)
----------------------------
Net cash provided by (used in) investing activities (1,425,842) 604,457
----------------------------
Cash flows from financing activities:
Dividends paid (163,074) (182,338)
Employee Stock Ownership Plan 20,663 25,866
Purchase of treasury stock (2,112,473) (1,274,847)
Exercise of stock options 11,552 17,775
Unallocated ESOP shares released 44,092 44,093
Net increase in demand deposits, NOW and savings accounts 2,920,522 3,569,388
Net increase (decrease) in time deposits 3,188,258 (203,523)
Net increase in securities sold under agreements to repurchase 246,496 102,245
Proceeds from Federal Home Loan Bank advances 16,529,000 2,821,000
Repayments of Federal Home Loan Bank advances (18,481,214) (4,964,093)
----------------------------
Net cash provided by (used in) financing activities 2,203,822 (44,434)
----------------------------
Increase in cash and cash equivalents 1,328,252 802,442
Cash and cash equivalents at beginning of period 7,277,360 7,286,578
----------------------------
Cash and cash equivalents at end or period $ 8,605,612 $ 8,089,020
----------------------------
Supplemental disclosures
Interest paid $ 1,735,594 $ 1,711,336
----------------------------
Income taxes paid $ 256,838 $ 793,651
----------------------------
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 March 31,
2000 and September 30, 1999. The results of operations for the three-month
period ended March 31, 2000 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 March 31, 2000 and 1999
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 March 31, 2000
Basic EPS
- ---------
Net income and income available to
common stockholders $261,382 996,525 $0.26
Effect of dilutive securities options and warrants 58,416
--------------------------
Diluted EPS
- -----------
Income available to common stockholders $261,382 1,054,941 $0.25
==========================
Quarter Ended March 31, 1999
Basic EPS
- ---------
Net income and income available to
common stockholders $207,270 1,292,256 $0.16
Effect of dilutive securities options and warrants 15,475
--------------------------
Diluted EPS
- -----------
Income available to common stockholders $207,270 1,307,731 $0.16
==========================
Note 4 - Dividends
On February 15, 2000 the Board of Directors of the Company declared a
quarterly cash dividend of $0.08 per share of common stock, which was paid
to stockholders of record on March 10, 2000.
Note 5 - Recent Developments
During the quarter ended March 31, 2000, the Company repurchased
10,000 shares of its common stock. At March 31, 2000, the Company had
407,612 treasury shares.
Effective December 17, 1999, the Falmouth Co-operative Bank
established a subsidiary, Falmouth Capital Corporation, a Real Estate
Investment Trust, as part of managing its tax plan.
Part I. Item 2. Management's Discussion and
Analysis of Financial Condition and Operating Results
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 March 31, 2000, there were 1,047,138 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 that are
permissible for banks to hold under Massachusetts's law and Falmouth
Capital Corporation, a real estate investment trust.
Comparison of Financial Condition at March 31, 2000 and September 30, 1999.
The Company's total assets increased by $2.9 million or 2.44% for the
six months ended March 31, 2000, from $118.7 million at September 30, 1999
to $121.6 million at March 31, 2000. Total deposits increased $6.1 million
or 6.58%, from $92.9 million at September 30, 1999 to $99.0 million at
March 31, 2000. This increase was due, in part, to marketing efforts to
obtain retail and commercial checking accounts as well as a limited
offering of one-year certificates of deposit accounts at competitive rates.
Net loans were $89.8 million or 90.73% of total deposits at March 31, 2000,
as compared to $80.5 million or 86.65% of total deposits at September 30,
1999, representing an increase of $9.3 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 $19.9
million or 16.37% of total assets at March 31, 2000, as compared to $27.5
million or 23.18% of total assets at September 30, 1999. Investment
securities decreased $7.6 million due, in part, to fund loans, pay down
short-term borrowings, as well as to purchase treasury shares.
Borrowed funds from the Federal Home Loan Bank of Boston have
decreased from $5.4 million at September 30, 1999 to $3.5 million at March
31, 2000. The decrease of $1.9 million was the result of utilizing maturing
securities to repay debt. The securities had been scheduled to mature and
provide liquidity, if needed, in early 2000.
Securities sold under an agreement to repurchase (sweep accounts for
commercial depositors) increased from $858,000 at September 30, 1999 to
$1.1 million at March 31, 2000. The increase was attributed to the
increased liquidity in selected commercial deposit accounts at March 31,
2000.
Stockholders' equity was $17.7 million at March 31, 2000, as compared
to $19.3 million at September 30, 1999, a decrease of $1.6 million. This
change was primarily the result of an increase in retained earnings of
$375,000, which was off-set by treasury shares purchased of $2.1 million
under the Company's stock repurchase programs. The ratio of stockholders
equity to total assets was 14.6% at March 31, 2000, and the book value per
share of common stock was $16.94, compared to 16.23% and $16.38,
respectively, at September 30, 1999.
The ratio of the allowance for loan losses to total loans was .69% at
March 31, 2000. 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 $30,000 to the allowance during the six month period ended
March 31, 2000. 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 March 31, 2000 and 1999
Net Income. The Company's net income for the three months ended
March 31, 2000, was $261,000 as compared to $207,000 at March 31, 1999.
The increase in net income of $54,000 was primarily due to an increase in
interest and dividend income of $104,000, an increase in other income of
$41,000, and a decrease in income taxes of $85,000, offset, in part, by an
increase in other expenses of $130,000, and an increase in interest
expenses of $40,000. The annualized return on average assets (ROA) for the
three months ended March 31, 2000 was 0.90%, an increase of 17 basis
points, as compared to 0.73% for the same period of the prior year.
Interest and Dividend Income. Total interest and dividend income for
the three months ended March 31, 2000 was $1,950,000, an increase of
$104,000 as compared to $1,846,000 for the three-month period ended March
31, 1999. The increase in interest and dividend income was attributable to
the increase in the loan portfolio that provided an increase in interest
and fee income of $165,000 and dividends on marketable equity securities
of $2,000, which was off-set by a decrease in interest and dividends on
securities of $6,000, a decrease in dividends on Cooperative Bank
Investment funds of $35,000, and a decrease in other interest of $22,000.
Interest Expense. Total interest expense for the three months ended
March 31, 2000 was $874,000, as compared to $834,000 for the same period of
the prior year, for an increase of $40,000. This was the result of
increased deposits as well as slightly higher interest rates.
Net Interest and Dividend Income. Net interest and dividend income
for the three-month period ended March 31, 2000 was $1,076,000 as compared
to $1,013,000 for the three months ended March 31, 1999. The increase of
$63,000 was the result of a $104,000 increase in interest and dividend
income, offset, in part, with a $40,000 increase in interest expense. The
net interest margin for the three months ended March 31, 2000 was 3.72%, a
decrease of 4 basis points, as compared to 3.76% for the three months ended
March 31, 1999. The decrease in net interest margin was primarily the
result of increased interest expense.
Provision for loan losses. The Bank added $18,000 to its provision
for loan losses during the quarter ended March 31, 2000. Management
believes that, although the provision is deemed adequate based on its
delinquency and loan loss history, 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. At March 31,
2000, the bank has recorded a consumer loan loss of $2,000, one consumer
loan of $3,000 classified as loss, and no loans classified as doubtful.
Other Income. Other income for the three-month period ended March
31, 2000 was $200,000, as compared to $159,000 for the three months ended
March 31, 1999. The $41,000 increase was primarily the result of an
increase in net gains realized from the sale of investment securities of
$82,000, an increase in other income of $11,000, and an increase in service
charge income of $5,000, partially offset by a decrease in gains on
mortgages sold of $57,000.
Operating Expenses. Operating expenses for the three months ended
March 31, 2000 were $860,000, as compared to $730,000 for the three months
ended March 31, 1999. The $130,000 increase was primarily due to the
combination of an increase in salaries and employee benefits of $31,000, an
increase in legal and professional costs of $26,000, an increase in other
expenses of $70,000, an increase in data processing fees of $5,000, and an
increase in equipment expense of $1,000, offset, in part by a decrease in
occupancy expense of $2,000 and a decrease in directors' fees of $1,000.
The annualized ratio of operating expenses to average total assets for the
three months ended March 31, 2000 was 2.95%, as compared to 2.56% for the
three-month period ended March 31, 1999, an increase of 39 basis points.
The increase in other operating expenses was due, primarily, to the
formation of a Real Estate Investment Trust, a subsidiary of the Falmouth
Co-operative Bank, as part of the Company's tax management planning.
Six Months Ended March 31, 2000 and 1999
Net Income. The Company's net income for the six months ended March
31, 2000 was $538,000 as compared to $379,000 at March 31, 1999, an increase
of 41.96% or $159,000. Total interest and dividend income increased
$158,000, or 4.26% due, primarily, to increased loan activity. This gain was
off set by increases in interest expense and operating costs. Security gains
net, amounted to $221,000 for the six months ended March 31, 2000, as
compared to $67,000 for six months ended March 31, 1999, an increase of
$154,000. The current economic environment has facilitated Bank management's
goal to increase mortgage loans funded by investment securities and low cost
borrowings.
Interest and Dividend Income. Total interest and dividend income for
the six months ended March 31, 2000 was $3.9 million, an increase of $158,000
as compared to $3.7 million for the six month period ended March 31, 1999.
The increase in interest and dividend income is attributable to growth in the
loan portfolio that provided for an increase in interest and fee income of
$228,000. This was partially offset by an increase in income on investment
securities of $20,000, a $65,000 decrease in dividends on the Co-operative
Bank Investment Fund, and a decrease in other interest of $25,000. Management
expects income derived from loan assets to continue to increase in the form
of interest, fees and gains on the sale of loans, with interest on
investments remaining relatively constant.
Interest Expense. Interest expense for the six months ending March 31,
2000 was $1.7 million, which includes $159,000 in interest on FHLB advances,
an increase of $25,000 from $1.7 million for the six months ended March 31,
1999. There was a $35,000 increase in interest on deposits and a $10,000
decrease in interest on borrowed funds. Additional interim borrowings may be
utilized as a source of loan funding; however it is not expected to be
necessary.
Net Interest and Dividend Income. Net interest income for the six-
month period ending March 31, 2000 was $2.1 million as compared to $2.0
million for the six months ended March 31, 1999. The net interest margin for
the six months ended March 31, 2000 was 3.78%, an increase of 9 basis points
as compared to 3.69% for the six months ended March 31, 1999. The annualized
return on average assets (ROA) for the six month period ended March 31, 2000
was .92%, an increase of 25 basis points, as compared to .67% for the same
period of the prior year. The primary reason for the decrease in the ROA was
primarily due to the growth of assets in the loan portfolio during the
period.
Provision for Loan Losses. The Bank added $30,000 to its allowance for
loan loss account for the six months ended March 31, 2000, to compensate for
the increase in the dollar amount of the loan portfolio. Management believes
the provision to be adequate and believes the level of credit risk to be
comparable to the prior reporting period.
Other Income. Other income for the six-month period ending March 31,
2000 was $400,000 as compared to $268,000 for the six months ended March 31,
1999. The $132,000 increase is primarily the result of $67,000 in securities
gains net, on the sale of investment securities taken during the six months
ended March 31, 1999, as compared to $221,000 for the six months ended March
31, 2000. Sales have been made and gains were taken on several equity
securities when the market was favorable to do so. The period ended March
31, 2000 also showed $2,000 in gains on the sale of loans. There was $57,000
in gains on the sale of loans for the same period of the previous year.
Operating Expenses. Operating expenses for the six months ended March
31, 2000 were $1.6 million as compared to $1.5 million for the six months
ended March 31, 1999. The $182,000 increase was primarily due to an increase
in salaries and employee benefits of $36,000, an increase in other operating
expenses of $103,000, an increase of legal and professional fees of $37,000
an increase in data processing expense of $1,000 and an increase in occupancy
and equipment expenses of $5,000. The increase on legal & professional fees
and other operating expenses were primarily the result of the formation of
the Bank's Real Estate Investment Trust as part of the Bank's tax planning.
The ratio of annualized operating expenses to average total assets for the
six months ended March 31, 2000 was 2.79% as compared to 2.56% for the six-
month period ended March 31, 1999.
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 March
31, 2000 was 26.48%.
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 March 31, 2000, regulatory liquidity totaled $102.4
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 March 31, 2000, the Bank had outstanding advances
from the FHLB of Boston in the amount of $3.5 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 March 31, 2000, the Bank had $9.6 million in outstanding
residential and commercial commitments to originate loans, as well as $14.0
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 that are scheduled to mature
in one year or less totaled $38.6 million at March 31, 2000. Based on
historical experience, management believes that a significant portion of
such deposits will remain with the Bank.
At March 31, 2000 the Bank exceeded all of its regulatory capital
requirements.
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
The Company held its Annual Meeting of Stockholders ("Meeting")
on January 18, 2000. All of the proposals submitted to
stockholders and the tabulation of votes for each proposal is as
follows:
1. Election of two candidates to the Board of Directors to
serve for a three-year term.
The number of votes cast with respect to this matter were as
follows:
Nominee For % Withhold %
------- --- - -------- -
James A. Keefe 887,305 94.7 44,879 5.3
Robert H. Moore 888,156 94.8 44,028 5.2
2. Ratification of the appointment of Shatswell, MacLeod & Co.,
P.C. as independent auditors for the fiscal year ending
September 30, 2000.
For % Against % Abstain %
--- - ------- - ------- -
920,830 78.0 6,928 0.6 4,426 0.4
3. Authorization of the Board of Directors, in its discretion,
to direct the vote of proxies upon such matters incident to the
conduct of the Annual Meeting, and adjournment or postponement
thereof, including, without limitation, a motion to adjourn the
Annual Meeting.
For % Against % Abstain %
--- - ------- - ------- -
916,438 77.6 7,528 0.7 8,218 0.8
Item 5. Other Information
The Bank as formed a Real Estate Investment Trust as part of its
tax plan.
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: May 9, 2000 By: /s/ Santo P. Pasqualucci
------------------ ------------------------
Santo P. Pasqualucci
President and Chief Executive
Officer
Date: May 9, 2000 By: /s/ George E. Young, III
------------------ ------------------------
George E. Young, III
Vice President and Chief Financial
Officer