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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _________
Commission file number 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 June 30, 2000
----- --------------
Common Stock, Par Value $.01 1,040,538
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 Balance Sheets
June 30, 2000 and September 30, 1999 1
Consolidated Statements of Income
For Three and Nine Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity
For Nine Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows
For Nine Months Ended June 30, 2000 and 1999 4
Notes to Unaudited Consolidated Financial Statements 5-7
Item 2 Management's Discussion and Analysis of Financial Condition
and Operating Results 8-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
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>
* Submitted only with filing in electronic format
</FN>
============================================================================
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.
============================================================================
Part I. Item I. FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
June 30, 2000 and September 30, 1999
------------------------------------
(unaudited)
June 30, September 30,
2000 1999
-------- -------------
ASSETS
- ------
Cash and due from banks $ 3,326,071 $ 2,472,360
Federal funds sold 8,265,841 4,805,000
----------------------------
Total cash and cash equivalents 11,591,912 7,277,360
Investments in available-for-sale securities
(at fair value) 7,802,809 17,144,442
Investments in held-to-maturity securities
(fair values of $10,752,397 as of June
30, 2000 and $9,631,547 as of September 30,
1999) 10,783,130 9,641,817
Federal Home Loan Bank stock, at cost 720,700 720,700
Loans, net 98,033,425 80,487,395
Premises and equipment 1,998,802 2,023,577
Accrued interest receivable 661,877 729,668
Cooperative Central Bank Reserve Fund Deposit 395,395 395,395
Other assets 343,005 231,928
----------------------------
Total Assets $132,331,055 $118,652,282
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing $ 12,714,307 $ 8,091,418
Interest-bearing 97,048,995 84,794,290
----------------------------
Total deposits 109,763,302 92,885,708
Securities sold under agreements to repurchase 1,019,169 857,727
Advances from Federal Home Loan Bank of Boston 3,372,172 5,431,290
Other liabilities 362,265 218,104
----------------------------
Total Liabilities 114,516,908 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
1,040,538 shares as of June 30, 2000 and 1,175,744 shares
as of September 30, 1999. 14,547 14,547
Paid-in capital 13,866,774 13,907,812
Retained earnings 11,426,112 10,818,456
Unallocated Employee Stock Ownership Plan shares (499,714) (565,853)
Treasury stock (414,212 shares 6/30/00;
279,006 shares 9/30/99) (6,790,306) (4,600,671)
Unearned compensation (291,097) (443,284)
Accumulated other comprehensive income 33,831 128,446
----------------------------
Total stockholders' equity 17,760,147 19,259,453
----------------------------
Total liabilities and stockholders' equity $132,331,055 $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 Nine Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Interest and dividend income:
Interest and fees on loans $1,789,684 $1,459,126 $4,939,273 $4,380,724
Interest and dividends on securities:
Taxable 248,477 282,852 776,704 790,817
Dividends on marketable equity securities 26,779 25,416 77,026 75,708
Dividends on Cooperative Bank Investment
and Liquidity Funds 7,806 41,947 27,871 127,138
Other interest 54,426 68,051 173,488 211,796
----------------------------------------------------
Total interest and dividend income 2,127,172 1,877,392 5,994,362 5,586,183
----------------------------------------------------
Interest expense:
Interest on deposits 872,725 721,889 2,424,908 2,239,442
Interest on securities sold under agreement
to repurchase 14,948 11,343 39,467 36,588
Interest on FHLB advances 47,493 76,304 206,385 244,842
----------------------------------------------------
Total interest expense 935,166 809,536 2,670,760 2,520,872
----------------------------------------------------
Net interest and dividend income 1,192,006 1,067,856 3,323,602 3,065,311
Provision for loan losses 74,000 12,000 104,000 30,000
----------------------------------------------------
Net interest income after provision
for loan losses 1,118,006 1,055,856 3,219,602 3,035,311
----------------------------------------------------
Other income:
Service charges on deposit accounts 30,898 26,530 96,677 79,559
Securities gains, net 81,103 5,982 301,811 73,166
Gains on mortgages sold, net - 31,532 1,711 88,908
Other income 52,474 46,609 164,356 136,682
----------------------------------------------------
Total other income 164,475 110,653 564,555 378,315
----------------------------------------------------
Other expense:
Salaries and employee benefits 391,176 395,636 1,222,314 1,191,069
Occupancy expense 58,280 49,577 155,943 143,107
Equipment expense 46,206 41,717 127,048 121,598
Data processing expense 58,446 61,280 180,683 181,933
Directors' fees 12,450 13,250 37,750 38,950
Legal and professional fees 79,481 41,085 211,724 135,664
Other expenses 160,177 147,483 505,807 390,868
----------------------------------------------------
Total other expenses 806,216 750,028 2,441,269 2,203,189
----------------------------------------------------
Income before income taxes 476,265 416,481 1,342,888 1,210,437
Income taxes 160,190 177,300 488,975 592,000
----------------------------------------------------
Net income $ 316,075 $ 239,181 $ 853,913 $ 618,437
====================================================
Comprehensive income $ 139,396 $ 323,677 $ 759,298 $ 697,297
====================================================
Earnings per common share $ 0.32 $ 0.19 $ 0.84 $ 0.48
====================================================
Earnings per common share, assuming dilution $ 0.30 $ 0.19 $ 0.80 $ 0.47
====================================================
The accompanying notes are an integral part of these
consolidated financial statements.
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(unaudited)
-----------
Nine months ended June 30, 2000
-------------------------------
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, 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 27,835 60 27,895
ESOP shares released 66,139 66,139
Recognition and retention plan 89,240 89,240
Distribution of RRP shares (156,587) 156,587 0
Purchase of treasury stock (2,202,713) (2,202,713)
Exercise of stock options and
related tax benefit (1,526) 13,078 11,552
Adjust average balance of
stock in RRP (4,400) (4,400)
Dividends declared ($0.23 per
share) (246,317) (246,317)
Comprehensive income:
Net income 853,913
Net change in unrealized
holding gain on available-
for-sale securities (94,615)
Comprehensive Income 759,298
----------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $14,547 $13,866,774 $11,426,112 $(499,714) $(6,790,306) $(291,097) $ 33,831 $17,760,147
===================================================================================================
Nine months ended June 30, 1999
-------------------------------
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, 1998 $14,547 $13,899,014 $10,204,737 $(654,038) $ (952,668) $(594,417) $324,315 $22,241,490
Employee Stock Ownership Plan 35,962 35,962
ESOP shares released 66,139 66,139
Purchase of shares for
recognition and retention
plan (RRP) (9,558) (9,558)
Recognition and retention plan 86,763 86,763
Distribution of RRP shares (160,691) 160,691
Tax benefit from RRP
Purchase of treasury stock (3,385,060) (3,385,060)
Exercise of stock options and
related tax benefit (3,465) 17,775 14,310
Dividends declared ($.21 per
share) (272,760) (272,760)
Comprehensive income:
Net income 618,437
Net change in unrealized
holding gain on available-
for-sale securities 78,860
Comprehensive Income 697,297
----------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $14,547 $13,857,583 $10,550,414 $(587,899) $(4,319,953) $(443,284) $403,175 $19,474,583
===================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Nine Months Ended
----------------------------
June 30, June 30,
2000 1999
-------- --------
Cash flows from operating activities
Net income $ 853,913 $ 618,437
Adjustments to reconcile net income to net cash
provided by operating activities:
Recognition and retention plan (RRP) 84,840 86,873
Provision for loan loss 104,000 30,000
(Accretion) amortization of investment securities, net (31,383) 101,606
Change in unearned income (115,566) (32,605)
Gain on sales of investment securities, net (301,811) (73,166)
Gain on sales of loans (1,711) (88,908)
Depreciation and amortization 138,119 123,878
Decrease in accrued interest receivable 67,791 30,212
Increase in other assets (36,985) (52,084)
Decrease (increase) in other liabilities 144,161 18,128
Minority interest in subsidiary 54,000 -
----------------------------
Net cash provided by operating activities 959,368 762,371
----------------------------
Cash flows from investing activities
Proceeds from the sale of loans 166,534 7,873,308
Purchase of available-for-sale securities (1,311,029) (9,360,294)
Proceeds from sales of available-for-sale securities 1,350,993 2,782,123
Proceeds from maturities of available-for-sale securities 9,456,690 6,245,319
Purchase of held-to-maturity securities (5,981,471) (5,611,651)
Proceeds from maturities of held-to-maturity securities 4,849,625 5,346,630
Purchase of Federal Home Loan Bank stock - (157,900)
Net increase in loans (17,699,287) (6,851,393)
Capital expenditures (113,344) (77,209)
----------------------------
Net cash provided by (used in) investing activities (9,281,289) 188,933
----------------------------
Cash flows from financing activities:
Dividends paid (246,317) (272,760)
Employee Stock Ownership Plan 27,895 35,962
Purchase of treasury stock (2,202,713) (3,385,060)
Exercise of stock options 11,552 14,310
Unallocated ESOP shares released 66,139 66,139
Net increase in demand deposits, NOW and savings accounts 10,950,471 6,490,006
Net increase (decrease) in time deposits 5,927,123 (195,691)
Purchase of Company shares for RRP - (9,558)
Net increase in securities sold under agreements to repurchase 161,442 9,588
Proceeds from Federal Home Loan Bank advances 18,514,000 4,772,000
Repayments of Federal Home Loan Bank advances (20,573,119) (6,816,690)
----------------------------
Net cash provided by financing activities 12,636,473 708,246
----------------------------
Increase in cash and cash equivalents 4,314,552 1,659,550
Cash and cash equivalents at beginning of period 7,277,360 7,286,578
----------------------------
Cash and cash equivalents at end or period $ 11,591,912 $ 8,946,128
============================
Supplemental disclosures
Interest paid $ 2,607,760 $ 2,520,872
============================
Income taxes paid $ 469,011 $ 784,923
============================
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 for the year ended
September 30, 1999. The results of operations for the three-month and nine
month periods ended June 30, 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 - Impact of New Accounting Standard
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133, as amended by SFAS
No. 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. In
management's opinion, SFAS No. 133, when adopted, will not have a material
effect on the Company's consolidated financial statements.
Note 4 - 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 three months and nine months ended June 30, 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:
Income Shares
(Numerator) (Denominator) Amount
----------- ------------- ------
Three Months Ended June 30, 2000
Basic EPS
- ---------
Net income and income available to
common stockholders $316,075 986,336 $0.32
Effect of dilutive securities options and warrants 54,685
-------------------------
Diluted EPS
- -----------
Income available to common stockholders $316,075 1,041,021 $0.30
=========================
Three Months Ended June 30, 1999
Basic EPS
- ---------
Net income and income available to
common stockholders $239,181 1,229,821 $0.19
Effect of dilutive securities options and warrants 20,606
-------------------------
Diluted EPS
- -----------
Income available to common stockholders $239,181 1,250,427 $0.19
=========================
Income Shares
(Numerator) (Denominator) Amount
----------- ------------- ------
Nine Months ended June 30, 2000
Basic EPS
- ---------
Net income and income available to
common stockholders $853,913 1,018,746 $0.84
Effect of dilutive securities options and warrants 45,356
-------------------------
Diluted EPS
- -----------
Income available to common stockholders $853,913 1,064,102 $0.80
=========================
Nine Months Ended June 30, 1999
Basic EPS
- ---------
Net income and income available to
common stockholders $618,437 1,285,161 $0.48
Effect of dilutive securities options and warrants 19,673
-------------------------
Diluted EPS
- -----------
Income available to common stockholders $618,437 1,304,834 $0.47
=========================
Note 5 - Dividends
On May 16, 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 June 9, 2000. 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. 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
to stockholders of record on December 7, 1999.
Note 6 - Recent Developments
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. 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. During the quarter ended June 30, 2000,
the Company repurchased 6,600 shares of its common stock. At June 30, 2000,
the Company had 414,212 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
June 30, 2000, there were 1,040,538 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 law and Falmouth Capital Corporation, a real estate
investment trust.
Comparison of Financial Condition at June 30, 2000 and September 30, 1999.
The Company's total assets increased by $13.7 million or 11.53% for
the nine months ended June 30, 2000, from $118.7 million at September 30,
1999 to $132.3 million at June 30, 2000. Total deposits increased $16.9
million or 18.17%, from $92.9 million at September 30, 1999 to $109.8
million at June 30, 2000. This increase was due, in part, to aggressive
marketing efforts to obtain retail checking accounts, commercial checking
accounts and certificates of deposit in a very competitive environment
created by regional bank mergers. Total net loans were $98.0 million or
89.31% of total deposits at June 30, 2000, as compared to $80.5 million or
86.65% of total deposits at September 30, 1999, representing an increase of
$17.5 million. This increase was due, in part, to the continued strong local
real estate market during the last quarter, and the Bank's commitment to
increase its market share. Investment securities were $19.3 million or
14.59% of total assets at June 30, 2000, as compared to $27.5 million or
23.18% of total assets at September 30, 1999. Investment securities
decreased $8.2 million due, in part, to fund loans, pay down short-term
borrowings, as well as the continuing purchase of treasury shares.
Borrowed funds from the Federal Home Loan Bank of Boston have
decreased from $5.4 million at September 30, 1999 to $3.4 million at June
30, 2000. The decrease of $2.0 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 $1.0
million at June 30, 2000. The increase was attributed to the increased
liquidity in selected commercial deposit accounts at June 30, 2000.
Stockholders' equity was $17.8 million at June 30, 2000, as compared
to $19.3 million at September 30, 1999, a decrease of $1.5 million. This
change was primarily the result of an increase in retained earnings of
$608,000, which was off-set by additional treasury shares purchased of $2.2
million under the Company's stock repurchase programs. The ratio of
stockholders equity to total assets was 13.4% at June 30, 2000, and the book
value per share of common stock was $17.07, compared to 16.23% and $16.38,
respectively, at September 30, 1999.
The ratio of the allowance for loan losses to total loans was .68% at
June 30, 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 $104,000 to the allowance during the nine month period ended June
30, 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 June 30, 2000 and 1999
Net Income. The Company's net income for the three months ended June
30, 2000, was $316,000 as compared to $239,000 at June 30, 1999. The
increase in net income of $77,000 was primarily due to an increase in
interest and dividend income of $250,000, an increase in other income of
$53,000, and a decrease in income taxes of $17,000, offset, in part, by an
increase in the provision for loan losses of $62,000, an increase in other
expenses of $56,000, and an increase in interest expenses of $125,000. The
annualized return on average assets (ROA) for the three months ended June
30, 2000 was 1.08%, an increase of 24 basis points as compared to 0.84% for
the same period of the prior year.
Interest and Dividend Income. Total interest and dividend income for
the three months ended June 30, 2000 was $2,127,000, an increase of $250,000
as compared to $1,877,000 for the three-month period ended June 30, 1999.
The increase in interest and dividend income was attributable to the
increase in the loan portfolio that provided an increase in interest and
fees on loans of $331,000, which was off-set by a decrease in debt
securities and dividends on marketable equity securities of $33,000, a
decrease in dividends on Cooperative Bank Investment Fund of $34,000, and a
decrease in other interest of $14,000.
Interest Expense. Total interest expense for the three months ended
June 30, 2000 was $935,000, as compared to $810,000 for the same period of
the prior year, for an increase of $125,000. 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 June 30, 2000 was $1,192,000 as compared to
$1,068,000 for the three months ended June 30, 1999. The increase of
$125,000 was the result of a $250,000 increase in interest and dividend
income primarily due to the active real estate market, offset, in part, with
a $125,000 increase in interest expense. The increase in interest expense
was the result of higher interest rates due to the competitive local market
and the large increase in deposits. The net interest margin for the three
months ended June 30, 2000 was 3.78% a decrease of 11 basis points, as
compared to 3.89% for the three months ended June 30, 1999. The decrease in
net interest margin was primarily the result of increased interest expense.
Provision for loan losses. The Bank added $74,000 to its provision for
loan losses during the quarter ended June 30, 2000 due to its expanding
mortgage portfolio and to maintain an adequate provision to total loan
ratio. 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 June
30, 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 June 30,
2000 was $164,000, as compared to $111,000 for the three months ended June
30, 1999. The $53,000 increase was primarily the result of an increase in
net gains realized from the sale of investment securities of $75,000, an
increase in other income of $6,000, and an increase in service charge income
of $4,000, partially offset by a decrease in gains on mortgages sold of
$32,000.
Operating Expenses. Operating expenses for the three months ended June
30, 2000 were $806,000, as compared to $750,000 for the three months ended
June 30, 1999. The $56,000 increase was primarily due to the combination of
an increase in legal and professional fees of $39,000 from the formation of
the Bank's Real Estate Investment Trust, an increase in other expenses of
$14,000, an increase in occupancy expense of $8,000, and an increase in
equipment expense of $4,000, offset, in part by a decrease in salaries and
employee benefits of $5,000, a decrease in directors' fees of $1,000 and a
decrease in data processing expense of $3,000. The annualized ratio of
operating expenses to average total assets for the three months ended June
30, 2000 was 2.77% as compared to 2.64% for the three-month period ended
June 30, 1999, an increase of 13 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. The Company expects legal and
professional fees for the tax planning will continue until early 2001.
Nine Months Ended June 30, 2000 and 1999
Net Income. The Company's net income for the nine months ended June 30,
2000 was $854,000 as compared to $618,000 at June 30, 1999, an increase of
38.08% or $235,000. Total interest and dividend income increased $408,000, or
7.30% due, primarily, to increased loan activity. This gain was off set, in
part, by increases in interest expense and operating costs. Security gains
net, amounted to $302,000 for the nine months ended June 30, 2000, as
compared to $73,000 for nine months ended June 30, 1999, an increase of
$229,000. The current economic environment has facilitated Bank management's
goal to increase mortgage loans funded by investment securities and a growth
in deposits.
Interest and Dividend Income. Total interest and dividend income for
the nine months ended June 30, 2000 was $6.0 million, an increase of $408,000
as compared to $5.6 million for the nine month period ended June 30, 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
$559,000. This was offset by a decrease in income on investment securities of
$13,000, a $99,000 decrease in dividends on the Co-operative Bank Investment
Fund, and a decrease in other interest of $39,000. Management expects income
derived from loan assets to continue to increase in the form of interest and
fees on loans, with interest on investments remaining relatively constant.
Interest Expense. Interest expense for the nine months ended June 30,
2000 was $2.7 million, which includes $206,000 in interest on FHLB advances,
an increase of $150,000 from $2.5 million for the nine months ended June 30,
1999. There was a $185,000 increase in interest on deposits and a $36,000
decrease in interest on borrowed funds. Additional borrowings may be utilized
as an interim source of loan funding; however, it is not expected to be
necessary.
Net Interest and Dividend Income. Net interest income for the nine-
month period ended June 30, 2000 was $3.3 million as compared to $3.1 million
for the nine months ended June 30, 1999. The net interest margin for the nine
months ended June 30, 2000 was 3.78%, a decrease of 11 basis points as
compared to 3.89% for the nine months ended June 30, 1999. The annualized
return on average assets (ROA) for the nine-month period ended June 30, 2000
was 1.08%, an increase of 24 basis points, as compared to .84% for the same
period of the prior year. The reason for the increase in the ROA was
primarily due to the growth of the loan portfolio during the period.
Provision for Loan Losses. The Bank added $104,000 to its allowance for
loan loss account for the nine months ended June 30, 2000, to compensate for
the increase in the dollar growth of the loan portfolio. Management believes
the provision to be adequate and commensurate with the level of credit risk.
Other Income. Other income for the nine-month period ended June 30,
2000 was $565,000 as compared to $378,000 for the nine months ended June 30,
1999. The $186,000 increase is primarily the result of $302,000 in securities
gains net, on the sale of investment securities taken during the nine months
ended June 30, 2000, as compared to $73,000 for the nine months ended June
30, 1999. The period ended June 30, 2000 also showed $2,000 in gains on the
sale of loans. There was $89,000 in gains on the sale of loans for the same
period of the previous year.
Operating Expenses. Operating expenses for the nine months ended June
30, 2000 were $2.4 million as compared to $2.2 million for the nine months
ended June 30, 1999. The $238,000 increase was primarily due to an increase
in salaries and employee benefits of $31,000, an increase in other operating
expenses of $115,000, an increase of legal and professional fees of $76,000,
an increase in equipment expense of $5,000 and an increase in occupancy
expenses of $13,000, partially off-set by a decrease in data processing
expense of $1,000 and a decrease in director's fees of $1,000. 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 nine months ended June 30, 2000 was 2.77% as
compared to 2.64% for the nine-month period ended June 30, 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 June 30,
2000 was 25.66%.
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 June 30, 2000, regulatory liquidity totaled $29.0 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
Federal Home Loan Bank of Boston (FHLB). At June 30, 2000, the Bank had
outstanding advances from the FHLB of Boston in the amount of $3.4 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 June 30, 2000, the Bank had $7.9 million in outstanding residential
and commercial commitments to originate loans, as well as $13.8 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 $41.1 million at June 30, 2000. Based on historical experience,
management believes that a significant portion of such deposits will remain
with the Bank.
At June 30, 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
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: August 11, 2000 By: /s/ Santo P. Pasqualucci
---------------------- ------------------------
Santo P. Pasqualucci
President and Chief Executive
Officer
Date: August 11, 2000 By: /s/ George E. Young, III
---------------------- ------------------------
George E. Young, III
Vice President and Chief
Financial Officer
20