UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-21638
FFY FINANCIAL CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-1735753
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
724 Boardman-Poland Rd., Youngstown, Ohio 44512
- ----------------------------------------- --------
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (330) 726-3396
____________________
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) 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 requirements for the past 90 days.
YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sect. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of August 29, 1997, the Registrant had 4,117,407 shares of Common Stock
issued and outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the average of the bid and asked price
of such stock as of August 29, 1997 was $83.9 million. (The exclusion from
such amount of the market value of the shares owned by any person shall not
be deemed an admission by the Registrant that such person is an affiliate of
the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Annual Report to Stockholders for the fiscal
year ended June 30, 1997.
Part III of Form 10-K - Proxy Statement for Annual Meeting of Stockholders
to be held in 1997.
PART I
Item 1. Business
FFY Financial Corp. (FFY or Holding Company), is a Delaware corporation
formed in 1993 at the direction of First Federal Savings Bank of Youngstown
(First Federal or Bank). The Holding Company owns all of the common stock of
First Federal which operates 10 full service banking facilities and 2 limited
banking facilities in Mahoning and Trumbull Counties of Ohio. At June 30,
1997, the Holding Company had total consolidated assets of $599.2 million.
The business of the Holding Company currently consists primarily of the
business of First Federal. The holding company structure, however, provides
the Holding Company with greater flexibility than the Bank has to diversify
its business activities, through existing or newly formed subsidiaries (see
"Subsidiary and Other Activities" on page 20 of this report), or through
acquisitions or mergers of both mutual and stock thrift institutions as well
as other companies. Although there are no current arrangements, understandings
or agreements regarding any such acquisitions, the Holding Company is in a
position, subject to regulatory restrictions, to take advantage of any
favorable acquisition opportunities that may arise. First Federal provides a
variety of banking services to its customers other than its primary business
activities of making loans and accepting deposits.
Forward-Looking Statements
When used in this Form 10-K, or, in future filings by the Holding Company with
the Securities and Exchange Commission, in the Holding Company's press releases
or other public or shareholder communications, or in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties including changes in economic conditions in the Bank's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Bank's market area and competition, that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Holding Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Holding Company wishes to advise
readers that the factors listed above could affect the Holding Company's
financial performance and could cause the Holding Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Holding Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Lending Activities
General. The Bank emphasizes the origination of 15 and 20 year fixed- and
adjustable-rate mortgage loans secured by one-to-four family residences and,
to a lesser extent, commercial and multi-family loans with higher yields
than traditional one-to-four family loans. The Bank also emphasizes the
origination of consumer loans with higher yields and shorter durations than
traditional mortgage loans.
All loans that are $350,000 or less must be approved by either the Vice
President in charge of lending or a committee comprised of officers of the
Bank. Loans greater than $350,000 must be approved by the Executive
Committee of the Board of Directors and loans greater than $650,000 must be
approved by the Board of Directors. All loans, once approved, are reviewed
by the Board of Directors.
The Bank's loans-to-one-borrower limit is generally 15% of unimpaired
capital and surplus. At June 30, 1997, the maximum amount which the Bank
could have lent under this limit to any one borrower and the borrower's
related entities was approximately $8.7 million. At June 30, 1997, the Bank
had no loans or groups of loans to related borrowers with outstanding
balances in excess of this amount. The largest lending relationship at June
30, 1997 totaled $6.1 million which is secured by office buildings located
in Ohio. There are 13 other large lending relationships ranging from $1.0
million to $4.2 million for an aggregate total of $28.0 million.
Loan Portfolio Composition. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts
and in percentages (before deductions for loans in process, deferred fees
and discounts and allowances for losses) as of the dates indicated.
June 30,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans:
One-to-four family $349,053 73.59% 334,307 73.64% 308,774 74.45% 293,540 75.58% 267,793 77.73%
Multi-family 16,294 3.44% 15,934 3.51% 15,157 3.65% 12,186 3.14% 8,751 2.54%
Commercial 30,997 6.53% 29,024 6.39% 28,304 6.82% 25,826 6.65% 21,725 6.31%
Development 489 0.10% 676 0.15% 204 0.05% 256 0.07% 452 0.13%
Construction 22,690 4.78% 21,960 4.84% 20,287 4.89% 20,870 5.37% 15,160 4.40%
---------------------------------------------------------------------------------------------
Total real estate loans 419,523 88.44% 401,901 88.53% 372,726 89.86% 352,678 90.81% 313,881 91.11%
---------------------------------------------------------------------------------------------
Consumer Loans:
Deposit account 1,240 0.26% 1,115 0.25% 1,090 0.26% 1,098 0.28% 1,459 0.42%
Automobile 16,349 3.45% 17,245 3.80% 8,380 2.02% 7,287 1.88% 5,180 1.50%
Home equity 33,269 7.01% 29,783 6.56% 29,711 7.17% 25,055 6.45% 21,891 6.36%
Other 3,969 0.84% 3,920 0.86% 2,856 0.69% 2,248 0.58% 2,097 0.61%
---------------------------------------------------------------------------------------------
Total consumer loans 54,827 11.56% 52,063 11.47% 42,037 10.14% 35,688 9.19% 30,627 8.89%
---------------------------------------------------------------------------------------------
Total loans 474,350 100.00% 453,964 100.00% 414,763 100.00% 388,366 100.00% 344,508 100.00%
======= ======= ======= ======= =======
Less:
Loans in process (7,861) (8,830) (6,346) (8,136) (5,980)
Deferred fees and discount (2,815) (2,905) (3,594) (3,987) (3,642)
Allowance for losses (2,962) (3,439) (3,159) (2,801) (2,437)
-------- ------- ------- ------- -------
Total loans receivable, net $460,712 438,790 401,664 373,442 332,449
======== ======= ======= ======= =======
The following table shows the composition of the Bank's loan portfolio by
fixed and adjustable rates at the dates indicated.
June 30,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
One-to-four family $275,258 58.03% 271,557 59.82% 246,036 59.32% 232,521 59.87% 201,704 58.55%
Multi-family 3,969 0.84% 3,624 0.79% 5,256 1.27% 4,700 1.21% 4,653 1.35%
Commercial 24,498 5.16% 23,784 5.24% 23,818 5.74% 21,243 5.47% 16,907 4.91%
Development 489 0.10% 676 0.15% 174 0.04% 256 0.07% 286 0.08%
Construction 22,690 4.78% 21,960 4.84% 20,287 4.89% 20,870 5.37% 15,160 4.40%
---------------------------------------------------------------------------------------------
Total fixed-rate real estate
loans 326,904 68.91% 321,601 70.84% 295,571 71.26% 279,590 71.99% 238,710 69.29%
Consumer - fixed-rate 52,013 10.97% 50,081 11.03% 40,870 9.85% 35,415 9.12% 30,627 8.89%
---------------------------------------------------------------------------------------------
Total fixed-rate loans 378,917 79.88% 371,682 81.87% 336,441 81.11% 315,005 81.11% 269,337 78.18%
Adjustable-Rate Loans:
Real estate:
One-to-four family 73,795 15.56% 62,750 13.82% 62,738 15.13% 61,019 15.71% 66,089 19.18%
Multi-family 12,325 2.60% 12,310 2.71% 9,901 2.39% 7,486 1.93% 4,098 1.19%
Commercial 6,499 1.37% 5,240 1.16% 4,486 1.08% 4,583 1.18% 4,818 1.40%
Development - - - - 30 0.01% - - 166 0.05%
Construction - - - - - - - - - -
---------------------------------------------------------------------------------------------
Total adjustable-rate real
estate loans 92,619 19.53% 80,300 17.69% 77,155 18.61% 73,088 18.82% 75,171 21.82%
Consumer - adjustable-rate 2,814 0.59% 1,982 0.44% 1,167 0.28% 273 0.07% - -
---------------------------------------------------------------------------------------------
Total adjustable-rate loans 95,433 20.12% 82,282 18.13% 78,322 18.89% 73,361 18.89% 75,171 21.82%
---------------------------------------------------------------------------------------------
Total loans 474,350 100.00% 453,964 100.00% 414,763 100.00% 388,366 100.00% 344,508 100.00%
======= ======= ======= ======= =======
Less:
Loans in process (7,861) (8,830) (6,346) (8,136) (5,980)
Deferred fees and discounts (2,815) (2,905) (3,594) (3,987) (3,642)
Allowance for losses (2,962) (3,439) (3,159) (2,801) (2,437)
-------- ------- ------- ------- -------
Total loans receivable, net $460,712 438,790 401,664 373,442 332,449
======== ======= ======= ======= =======
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at June 30, 1997. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which
the contract matures. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
Real Estate
-------------------------------------------------------------------------
Construction and
One-to-four family Multi-family Commercial Development Consumer Total
------------------ ---------------- ---------------- ----------------- ---------------- -----------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Due During
Periods Ending
June 30,
- --------------
1998(1) $ 536 8.62% - - 31 10.56% 2,603 9.36% 2,611 10.92% 5,781 10.00%
1999 702 8.21% - - 674 8.35% 6,193 9.81% 3,597 8.94% 11,166 9.34%
2000 857 8.80% 509 8.50% 18 10.93% 793 8.98% 5,880 9.63% 8,057 9.41%
2001 and 2002 8,715 8.53% 913 9.63% 3,272 8.11% 1,224 9.53% 21,781 8.44% 35,905 8.50%
2003 to 2007 45,404 7.97% 2,986 8.56% 11,568 8.84% - - 17,990 9.50% 77,948 8.47%
2008 to 2012 98,269 7.76% 5,280 9.09% 12,146 9.33% 387(2) 8.00% 2,968 9.51% 119,050 8.02%
2013 and following 194,570 7.98% 6,606 9.04% 3,288 9.33% 11,979(2) 8.02% - - 216,443 8.04%
-------- ------ ------ ------ ------ -------
$349,053 16,294 30,997 23,179 54,827 474,350
======== ====== ====== ====== ====== =======
- --------------------
<F1> Includes overdraft loans.
<F2> Includes construction loans which the Bank reclassifies as permanent
loans once the construction phase is completed.
The total amount of loans due after June 30, 1998 which have predetermined
interest rates is $373.1 million, while the total amount of loans due after
such date which have floating or adjustable interest rates is $95.5 million.
One-to-Four Family Residential Real Estate Lending
The cornerstone of the Bank's lending program has been the origination of
permanent loans, to be held in its portfolio, secured by mortgages on owner-
occupied, one-to-four family residences. As of June 30, 1997, more than 95%
of these loans were located in the Bank's market area.
Since 1987, the Bank has emphasized 10, 15 and 20 year fixed-rate loans due
to the more rapid amortization of such loans as compared to 30 year fixed-
rate loans. Such loans allow the Bank to broaden the range of products
offered to customers, thereby distinguishing itself from other lenders.
During December 1995, the Bank commenced its offering of "super seven" loans
in an effort to compete with other banks in its market area, especially
banks in Trumbull County, Ohio, which have been successful with such a
product. Super seven loans are fixed for seven years and convert to a
one-year adjustable rate mortgage (ARM) in the eighth year with a maximum
term of 30 years. At June 30, 1997, $15.1 million, or 3.2% of the Bank's
gross loan portfolio consisted of super seven loans.
The Bank also originates one-to-four family residential ARMs which are fully
amortizing loans with contractual maturities of up to 30 years. The
interest rates on substantially all of the ARMs originated by the Bank are
subject to adjustment at three-year intervals. The Bank's ARM products
generally carry interest rates which are reset to a stated margin over an
independent index. Increases and decreases in the interest rate of the
Bank's ARMs are generally limited to 2% at any adjustment date and 5% over
the life of the loan. The Bank's ARMs are not convertible into fixed-rate
loans, are not assumable, do not contain prepayment penalties and do not
produce negative amortization.
The Bank evaluates both the borrower's ability to make principal and
interest payments and the value of the property that will secure the loan.
In the past, First Federal generally did not verify a borrower's employment
history or the source of the down payment enabling the Bank to close a loan
significantly faster than its competitors. However, due to standard
secondary market underwriting requirements, First Federal is currently
establishing procedures to verify employment history and down payment
sources since the Bank anticipates selling certain loans to Federal National
Mortgage Association (FNMA) sometime during the first half of fiscal year
1998. Management has also determined that underwriting standards required by
FNMA and other secondary market investors will be followed for new loans
originated that the Bank retains in its portfolio. Management expects that
compliance with secondary market underwriting standards will not significantly
affect the timing of closing loans.
The Bank originates residential mortgage loans with loan-to-value ratios up
to 95%. On mortgage loans exceeding an 85% loan-to-value ratio at the time
of origination, however, First Federal generally requires private mortgage
insurance in an amount intended to reduce the Bank's exposure to 72% of the
appraised value of the underlying collateral. Property securing real estate
loans made by First Federal is appraised by staff appraisers of the Bank.
The Bank requires evidence of marketable title and lien position on all
loans secured by real property and requires fire and extended coverage
casualty insurance in amounts at least equal to the principal amount of the
loan or the value of improvements on the property, depending on the type of
loan. The Bank may also require flood insurance to protect the property
securing its interest.
Residential mortgage loan originations derive from a number of sources,
including real estate broker referrals, existing borrowers and depositors,
builders and walk-in customers. Loan applications are accepted at all of
the Bank's offices.
Multi-Family and Commercial Real Estate Lending
First Federal originates permanent loans secured by multi-family and
commercial real estate in order to enhance the yield on its assets. The
permanent multi-family and commercial real estate loan portfolio includes
loans secured by strip shopping centers, apartments, small office buildings,
warehouses, churches and other business properties, approximately 86% of
which are located within the Bank's market area.
Permanent multi-family and commercial real estate loans have a maximum term
of 30 years, with most having terms ranging from 10 to 15 years. Rates on
permanent loans are predominantly fixed, based on competitive factors. To a
lesser extent, the Bank originates adjustable rate loans which generally
carry interest rates which are reset to a stated margin over an independent
index. Multi-family loans and commercial real estate loans are generally
written in amounts of up to 75% of the appraised value of the property, and
borrowers are generally personally liable for all or part of the indebtedness.
However, none of the loans comprising the Bank's second largest lending
relationship of $4.2 million are subject to any personal guarantees.
Appraisals on properties securing multi-family and commercial real estate
loans originated by the Bank are performed by either an independent
appraiser designated by the Bank or by the Bank's staff appraisers at the
time the loan is made. All appraisals on multi-family and commercial real
estate loans are reviewed by the Bank's management. In addition, the Bank's
current underwriting procedures generally require verification of the
borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property.
At June 30, 1997, the Bank had two multi-family or commercial real estate
loans, each with a net book value in excess of $2.0 million, and six other
multi-family or commercial real estate loans, each with a net book value in
excess of $1.0 million but less than $2.0 million. All of these loans were
current at that date. However, one of these commercial real estate loans,
totaling approximately $1.3 million at June 30, 1997, is secured by a strip
shopping center where the anchor tenant has no established sales history.
This loan has been classified substandard as of June 30, 1997. See "- Asset
Quality - Troubled Debt Restructurings," "- Other Loans of Concern,"
"- Classified Assets" and "- Allowance for Loan Losses."
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one-to-four family residences. This
greater risk is due to several factors, including the concentration of
principal in a limited number of loans and borrowers, the effects of general
economic conditions on income producing properties and the increased
complexity of evaluating and monitoring these types of loans. Furthermore,
the repayment of loans secured by multi-family and commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if
leases are not obtained or renewed, or a bankruptcy court modifies a lease
term, or a major tenant is unable to fulfill its lease obligations), the
borrower's ability to repay the loan may be impaired.
Construction and Development Lending
The Bank makes construction loans to individuals for the construction of
their residences, as well as to builders and developers for the construction
of one-to-four family residences and commercial real estate and the
development of one-to-four family lots in Ohio. At June 30, 1997, all of
these loans were secured by property located within the Bank's market area.
Construction loans to individuals for their residences are structured to be
converted to permanent loans at the end of the construction phase, which
typically runs six months. These construction loans have rates and terms
which match any one-to-four family loans then offered by the Bank, except
that during the construction phase, the borrower pays interest only and the
maximum loan to value ratio is 90%. On construction loans exceeding an 85%
loan-to-value ratio, First Federal generally requires private mortgage
insurance, thus reducing the Bank's exposure. Residential construction
loans are generally underwritten pursuant to the same guidelines used for
originating permanent residential loans. At June 30, 1997, the Bank had
$12.2 million of construction loans to borrowers intending to live in the
properties upon completion of construction.
Construction loans to builders of one-to-four family residences require the
payment of interest only for up to 12 months and have terms of up to 12
months. These loans may provide for the payment of interest and loan fees
from loan proceeds and carry fixed rates of interest. Loan fees charged in
connection with the origination of such loans range from 1% of the loan
amount to a maximum of $2,000. At June 30, 1997, the Bank had $6.4 million
of construction loans to builders of one-to-four family residences.
The Bank also makes loans to builders for the purpose of developing one-to-
four family homesites. These loans typically have terms of from one to
three years and carry fixed interest rates. The maximum loan-to-value ratio
is 75% for such loans. Loan fees charged in connection with the origination
of such loans generally range from 1% to 2% of the loan amount. These loans
may provide for the payment of interest and loan fees from loan proceeds.
The principal in these loans is typically paid down as homesites are sold.
At June 30, 1997, the Bank had $3.2 million of development loans to
builders.
Construction loans on commercial real estate projects may be secured by
strip shopping centers, apartments, small office buildings, churches or
other property and are structured to be converted to permanent loans at the
end of the construction phase, which generally runs up to 12 months. These
construction loans have rates and terms which match any permanent multi-
family or commercial real estate loan then offered by the Bank, except that
during the construction phase, the borrower pays interest only. These loans
generally provide for the payment of interest and loan fees from loan
proceeds. At June 30, 1997, the Bank had $865,000 of commercial real estate
construction loans.
Construction and development loans are obtained principally through
continued business from developers and builders who have previously borrowed
from the Bank, as well as referrals from existing customers and walk-in
customers. The application process includes a submission to the Bank of
accurate plans, specifications and costs of the project to be
constructed/developed. These items are used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus
building).
Because of the uncertainties inherent in estimating development and
construction costs and the market for the project upon completion, it is
relatively difficult to evaluate accurately the total loan funds required to
complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of the project. In addition, management requires pro forma
cash flow analysis and debt service coverage ratios or verification of
construction progress prior to authorizing a construction draw and require
mechanics' lien waivers and other documents to protect and verify its lien
position. Construction and development loans to borrowers other than owner-
occupants also involve many of the same risks discussed above regarding
multi-family and commercial real estate loans and tend to be more sensitive
to general economic conditions than many other types of loans. Also, the
funding of loan fees and interest during the construction phase makes the
monitoring of the progress of the project particularly important, as
customary early warning signals of project difficulties may not be present.
At June 30, 1997, there were no construction and development loans in an
amount greater than $1.0 million.
Consumer Lending
The Bank originates various types of consumer loans including, but not
limited to, home equity and automobile loans. Since 1990, First Federal has
placed increasing emphasis on consumer loans, particularly home equity
loans, because of their attractive yields and shorter terms to maturity.
The Bank's home equity loans are written so that the total commitment
amount, when combined with the balance of the first mortgage lien, may not
exceed 100% of the appraised value of the property where the Bank holds the
first lien and 80% if the first mortgage is held by a third party. At June
30, 1997, the Bank held a first lien on approximately 93% of the properties
securing home equity loans from the Bank. Closed-end home equity loans are
written with terms of up to ten years and carry fixed rates of interest.
Open-end home equity lines of credit are written for a draw period of 10
years at a variable interest rate of 1% above the prime rate adjusted
monthly. After the draw period, the lines of credit convert into fixed
rate, closed-end loans with terms of up to 10 years, or the lines of credit
can be renewed.
During fiscal year 1996, the Bank began originating automobile loans through
dealerships (indirect auto lending) in an effort to gain a portion of this
market. However, this program was discontinued after approximately 14
months of operation due to the performance and potential returns of the
portfolio. Underwriting standards were tightened in mid-September 1996
in response to the performance of the portfolio. At September 30, 1996,
this portfolio had 1,001 loans totaling $12.3 million and has subsequently
dropped to 857 loans totaling $8.9 million at June 30, 1997. The decline
was due to both write-offs and principal receipts. Management has
identified potential problem loans that remain in this portfolio and
believes there are adequate reserves at June 30, 1997. Indirect auto loans
tend to be of greater risk than direct auto loans due to the fact that
institutions such as the Bank work with dealers rather than directly with the
customers.
Pursuant to the discontinuance of the indirect auto loan program, the Bank
began its own auto loan promotion in May 1997, offering potential customers
reduced rates, no processing fees, rebates and anti-theft devices. As of
July 31, 1997, the Bank disbursed $1.2 million through 134 loans as a result
of the promotion. The promotion is expected to last until the end of October
1997.
The underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and ability
to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. While consumer loans other than home
equity loans generally involve a higher level of credit risk than one-to-four
family residential loans, consumer loans are typically made at higher interest
rates and for shorter terms. The shorter term of consumer loans reduces the
Bank's exposure to interest rate risk.
Loan Origination and Repayment Activities
The following table sets forth the loan origination and repayment activities
of the Bank for the periods indicated. The Bank has not sold loans in the
secondary market.
Year ended June 30,
------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Originations by type:
Adjustable rate:
Real estate - one-to-four family $ 19,712 11,613 9,894
- multi-family 943 1,922 1,728
- commercial 995 654 -
- construction or development 197 451 481
Non-real estate - consumer 2,395 2,320 1,421
------------------------------
Total adjustable rate 24,242 16,960 13,524
Fixed rate:
Real estate - one-to-four family 31,001 48,235 30,482
- multi-family 314 677 761
- commercial 2,248 2,136 1,099
- construction or development 29,045 27,413 27,011
Non-real estate - consumer 32,013 34,790 25,736
------------------------------
Total fixed rate 94,621 113,251 85,089
------------------------------
Total loans originated 118,863 130,211 98,613
Principal repayments (97,840) (91,206) (72,694)
Increase (decrease) in other items, net (638) 196 478
------------------------------
Net increase $ 20,385 39,201 26,397
==============================
Asset Quality
When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the delinquency by contacting the borrower. In the case of
residential loans, a late notice is generated between 15 to 30 days past
the due date and collection action is commenced. Written and verbal
contacts are attempted from this point until the account is brought to a
current status. If the delinquency continues, a default letter is generally
sent between 60 and 90 days and if the status does not improve, the Bank
will begin foreclosure action between 90 and 120 days past due.
Delinquent consumer loans are handled in a similar manner except that late
notices are generated between 10 to 15 days past due and collection action
is commenced at that point. If the delinquency continues and no
arrangements are made with the borrower, the Bank will take appropriate
action to protect its interest generally by 60 days past due. This may
include repossession, foreclosure or law suit, if necessary. If
repossession occurs, the borrower has the opportunity to redeem the vehicle
prior to sale at public auction by contacting the Bank any paying charges
and delinquencies associated with the repossession. The Bank's repossession
guidelines comply with the requirements under the Ohio Revised Code.
The Bank has not had significant experience with delinquent multi-family,
commercial real estate or commercial real estate construction loans.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 1997, in dollar amounts and as a percentage of
each category of the Bank's loan portfolio. The amounts presented represent
the total remaining principal balances of the related loans, rather than the
actual payment amounts which are overdue.
Loans Delinquent For:
------------------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days and Over
-------------------------- -------------------------- --------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
Real Estate:
One-to-four family 50 $1,915 0.55% 69 2,348 0.67% 119 4,263 1.22%
Multi-family - - - - - - - - -
Commercial - - - 1 110 0.35% 1 110 0.35%
Construction or
development 2 132 0.57% 1 4 0.02% 3 136 0.59%
Consumer 43 473 0.86% 39 483 0.88% 82 956 1.74%
------------- ------------- -------------
Total 95 $2,520 0.53% 110 2,945 0.62% 205 5,465 1.15%
============= ============= =============
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. The
Bank's current approach requires that loans be reviewed periodically and any
loan where collectibility of principal is doubtful is placed on non-accrual
status. Loans are also placed on non-accrual status when the loan becomes
90 days delinquent. Payments received on non-accruing loans are recorded
as interest income, or are applied to the principal balance, depending on an
assessment of the collectibility of the principal of the loan. Loans remain
on non-accrual status until generally less than 90 days delinquent. Troubled
debt restructurings are instances where, due to the debtor's financial
difficulties, modifications are made in the original terms of the loans (e.g.,
principal or interest may be forgiven, the term of the loan may be extended or
the interest rate may be reduced below market rates). Loans remain as troubled
debt restructurings until they are current for 12 consecutive months and the
modifications originally given are not inconsistent with terms currently
provided. Foreclosed assets include assets acquired in settlement of loans.
The amounts shown do not reflect reserves set up against such assets. See
"- Allowance for Loan Losses."
June 30,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Non-accruing loans:
One-to-four family $2,359 3,617 3,405 3,463 4,440
Multi-family - - - 4 4
Commercial real estate 110 - 67 - 153
Construction or development 4 71 - - -
Consumer 782 409 420 404 380
----------------------------------------------
Total 3,255 4,097 3,892 3,871 4,977
----------------------------------------------
Troubled debt restructurings:
One-to-four family 685 506 405 879 138
Commercial real estate - - - - 1,428
Consumer 53 70 55 144 -
----------------------------------------------
Total 738 576 460 1,023 1,566(1)
----------------------------------------------
Total non-performing loans 3,993 4,673 4,352 4,894 6,543
----------------------------------------------
Foreclosed assets:
One-to-four family - - - 36 28
----------------------------------------------
Total non-performing assets $3,993 4,673 4,352 4,930 6,571
==============================================
Total non-performing assets as a percentage
of total assets 0.67% 0.81% 0.75% 0.84% 1.15%
==============================================
Total non-performing loans as a percentage
of total loans receivable, net 0.87% 1.06% 1.08% 1.32% 1.97%
==============================================
Allowance for loan losses as a percentage
of non-performing assets 74.18% 73.59% 72.59% 56.82% 37.09%
==============================================
- --------------------
<F1> Approximately $1.4 million of this total relates to one loan, see
"Troubled Debt Restructurings".
For the year ended June 30, 1997, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $495,000. The amount that was included in
interest income on such loans was $428,000 for the year ended June 30, 1997.
For the year ended June 30, 1997, gross interest income which would have
been recorded had the troubled debt restructurings been current in
accordance with their original terms amounted to $48,000. The amount that
was included in interest income on such loans was $45,000 for the year ended
June 30, 1997.
Troubled Debt Restructurings. As of June 30, 1997, the Bank had $738,000 in
net book value of troubled debt restructurings, approximately 93% of which
were mortgage loans secured by one-to-four family residences. The largest
outstanding balance of mortgage loans categorized as troubled debt
restructuring was approximately $84,000 at June 30, 1997.
Willard, Ohio - Strip Shopping Center. In 1987, the Bank originated a $1.6
million construction/permanent loan on a strip shopping center in Willard,
Ohio. The loan had a 9.75% interest rate, a term of 15 years and was to be
amortized over 20 years. In July 1992, the shopping center's sole tenant
vacated the premises after filing for bankruptcy and a new tenant, without
any established operating history, moved in. The new tenant negotiated
lease terms at rates lower than the original tenant, thereby reducing the
revenue to the borrower. As a result, the loan was modified to reduce the
interest rate to 7% until 1997; 7.63% until 2002; and 8% until maturity in
2007. The loan was current under the modified loan terms as of June 30,
1997. The Bank's net book value for the loan at June 30, 1997 was
approximately $1.3 million. This loan was removed from troubled debt
restructurings at June 30, 1994 due to the payment history of the borrower
and the reduction in general market interest rates to the point where the
restructured terms no longer represented concessions. The Bank's management
reviews the tenant's operating statement annually and has classified this
loan as substandard at June 30, 1997 based on their review.
Classified Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An
asset is considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have
all of the weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions,
and values, "highly questionable and improbable." Assets classified as
"loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss
reserve is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of that portion of
the asset so classified or to charge off such amount. An institution's
determination as to the classification of its assets and the amount of its
valuation allowances is subject to review by the OTS and the FDIC, either of
which may order the establishment of additional general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly
reviews the problem loans in its portfolio to determine whether any loans
require classification in accordance with applicable regulations.
Classified assets at June 30, 1997 consisted of 231 loans totaling $6.8
million, or 1.1% of total assets compared to 183 loans totaling $5.7
million, or 1.0% of total assets at June 30, 1996. The largest classified
asset was $1.3 million at June 30, 1997 and is discussed above under
"Troubled Debt Restructurings".
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of all loans of
which full collectibility may not be reasonably assured, considers among
other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate loan loss allowance.
Although management believes it uses the best information available to make
such determinations, future adjustments to reserves may be necessary, and
net income could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial
determinations. At June 30, 1997, the Bank had an allowance for loan losses
of $3.0 million, which was equal to 43.7% of classified assets and 74.2% of
non-performing assets. See Notes 1(g) and 3 of the Notes to Consolidated
Financial Statements in the Annual Report to Stockholders, included as
Exhibit 13 herein.
The following table sets forth an analysis of the Bank's allowance for loan
losses at the dates indicated.
Year Ended June 30,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Balance at beginning of period $ 3,439 3,159 2,801 2,437 600
Charge-offs:
One-to-four family (40) (18) (43) (40) (81)
Multi-family - (1) (1) - -
Consumer (1,159) (58) (16) (13) (13)
-------------------------------------------
(1,199) (77) (60) (53) (94)
-------------------------------------------
Recoveries:
One-to-four family 1 18 12 6 15
Construction or development - 2 - - -
Commercial real estate - 2 - - -
Consumer 33 10 3 2 8
-------------------------------------------
34 32 15 8 23
-------------------------------------------
Net charge-offs (1,165) (45) (45) (45) (71)
Additions charged to operations 688 325 403 409 1,908
-------------------------------------------
Balance at end of period $ 2,962 3,439 3,159 2,801 2,437
===========================================
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.26% 0.01% 0.01% 0.01% 0.02%
===========================================
Ratio of net charge-offs during
the period to average non-
performing assets 24.22% 0.94% 1.04% 0.65% 1.05%
===========================================
When the Bank repossesses mortgaged property it is thereafter classified as
real estate owned. Any gains or losses (realized or reserved for)
thereafter are treated as real estate owned activity, not mortgage loan
activity. At June 30, 1997, the Bank had no real estate owned.
The distribution of the Bank's allowance for loan losses at the dates
indicated is summarized as follows:
June 30,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
One-to-four family $1,283 73.59% 1,547 73.64% 1,093 74.45% 781 75.58% 717 77.73%
Multi-family 28 3.44% 88 3.51% 53 3.65% 1 3.14% 1 2.54%
Commercial real estate 444 6.53% 773 6.39% 1,704 6.82% 1,459 6.65% 1,033 6.31%
Construction or development 45 4.88% 125 4.99% 72 4.94% - 5.44% 250 4.53%
Consumer 787 11.56% 518 11.47% 237 10.14% 166 9.19% 92 8.89%
Unallocated 375 - 388 - - - 394 - 344 -
-----------------------------------------------------------------------------------------------
Total $2,962 100.00% 3,439 100.00% 3,159 100.00% 2,801 100.00% 2,437 100.00%
===============================================================================================
Investment Activities
First Federal must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. The Bank has maintained
liquid assets at levels above the minimum requirements imposed by the OTS
regulations and above levels believed adequate to meet the requirements of
normal operations, including potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that adequate
liquidity is maintained. At June 30, 1997, the Bank's liquidity ratio
(liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 5.1%. The Bank's level of liquidity is a result of
management's asset/liability strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" and "- Liquidity and Capital Resources" in the Annual Report to
Stockholders included as Exhibit 13 herein and "Regulation - Liquidity."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers'
acceptances, repurchase agreements and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.
Generally, the investment policy of the Holding Company and Bank is to
invest funds among various categories of investments and maturities based on
asset/liability management policies, concern for the highest investment
quality, liquidity needs and performance objectives. It is the Holding
Company's and Bank's general policy to purchase securities which are U.S.
Government securities and federal agency obligations, including mortgage-
backed securities. At June 30, 1997, $102.6 million, or 91.5% of the
investment securities portfolio was made up of U.S. Government securities
and federal agency obligations.
The Holding Company and Bank have invested a percentage of their securities
portfolio in Federal agency obligations in an attempt to obtain the highest
yield possible while maintaining the flexibility and low credit risk
connected with such investments. Since 1990, the Federal Home Loan Banks
(FHLBs), the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC) have offered callable bonds, issued
at a yield premium over U.S. Treasury obligations of a comparable final
maturity. The call risk is considered acceptable to the Bank because it
provides a higher yield. The call option would typically be exercised
during a declining interest rate environment, during which time the Bank's
cost of funds would also be declining. At June 30, 1997, the Holding
Company and Bank held callable Federal agency obligations with a face value
of $19.0 million.
During the current fiscal year, the Holding Company and Bank purchased
mortgage-backed securities with a face value of $66.2 million of which $28.2
million were adjustable-rate securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" in the Annual Report to Stockholders included as Exhibit 13
herein. Management believes mortgage-backed securities offer improved
yields compared to other debt securities in the Company's investment portfolio
without an undue increase in credit or interest rate risk. At June 30, 1997,
mortgaged-backed securities totaled $75.7 million, or 67.5% of the securities
portfolio and 12.6% of total assets. The mortgage-backed securities portfolio
consists of government agency pass-through certificates that provide the
certificate holder a guarantee of timely payments of interest, whether or not
collected.
Mortgage-backed securities generally yield less than the loans that underlie
such securities due to the cost of payment guarantees or credit enhancements
that reduce credit risk to holders. Mortgage-backed securities are also
more liquid than individual mortgage loans and may be used to collateralize
obligations of the Bank. While mortgage-backed securities carry a reduced
credit risk as compared to whole loans, such securities remain subject to
the risk that a fluctuating interest rate environment, along with other
factors such as the geographic distribution of the underlying mortgage
loans, may alter the prepayment rate of such mortgage loans and thereby
affect both the prepayment speed, and value, of such securities. The short
maturity of the Bank's portfolio is designed to minimize that risk.
The following table sets forth the composition of the consolidated debt,
equity and other securities, and FHLB stock portfolios at June 30, 1997,
1996 and 1995.
June 30,
----------------------------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------------------ ----------------- -----------------
(Dollars in Thousands)
Debt securities:
U.S. government securities $ 2,005 1.73% 37,011 32.20% 64,429 43.48%
Federal agency obligations(1) 24,975 21.54% 53,003 46.12% 68,174 46.00%
Mortgage-backed securities(2) 75,718 65.29% 16,398 14.27% 11,819 7.98%
State, county and municipal bonds 7,416 6.40% 4,263 3.71% - -
Equity securities 753 0.65% 478 0.42% 244 0.16%
Other securities 1,000 0.86% - - - -
FHLB stock 4,095 3.53% 3,774 3.28% 3,524 2.38%
---------------------------------------------------------
Total securities and FHLB stock $115,962 100.00% 114,927 100.00% 148,190 100.00%
=========================================================
Average remaining life of debt securities excluding
equity and other securities and FHLB stock 4.72 years 4.67 years 2.31 years
Other interest-earning assets:
Interest-bearing deposits with banks $ 6,216 97.49% 4,888 100.00% 4,855 50.84%
Short-term investments 160 0.03% - - 4,695 49.16%
---------------------------------------------------------
Total $ 6,376 100.00% 4,888 100.00% 9,550 100.00%
=========================================================
Average remaining life or term to repricing of debt
securities and other interest-earning assets excluding
equity and other securities and FHLB stock 4.47 years 4.47 years 2.17 years
- --------------------
<F1> Excluding mortgage-backed securities which include FNMA, FHLMC, and
GNMA pass-through certificates.
<F2> At June 30, 1995, mortgage-backed securities were classified as held
to maturity. See Note 1(d) of the Notes to Consolidated Financial
Statements in the Annual Report to Stockholders included as Exhibit 13
herein.
The composition and contractual maturities of the consolidated debt and
other securities portfolios, excluding equity securities and FHLB of
Cincinnati stock, are indicated in the following table.
June 30, 1997
-----------------------------------------------------------------
Over Over
One Year 1 thru 5 5 thru 10 Over Total Debt and Other
or Less Years Years 10 Years Securities
-------- -------- --------- -------- --------------------
Book Book Book Book Book Market
Value Value Value Value Value Value
-------- -------- --------- -------- -------- ---------
(Dollars in Thousands)
U.S. government securities $ 2,005 - - - 2,005 2,000
Federal agency obligations 10,979 5,998 7,998 - 24,975 24,882
Mortgage-backed securities 628 10,170 7,068 57,852 75,718 75,674
State, county and municipal
securities - 1,322 3,712 2,382 7,416 7,476
Other - - - 1,000 1,000 1,099
---------------------------------------------------------------
Total debt securities $13,612 17,490 18,778 61,234 111,114 111,131
===============================================================
Weighted average yield(1) 5.76% 6.30% 7.06% 7.24% 6.88%
==== ==== ==== ==== ====
- --------------------
<F1> Weighted average yield is presented for debt securities only on a
fully taxable equivalent basis using the Company's federal statutory
tax rate of 34%.
Sources of Funds
General. The Bank's primary sources of funds are deposits, amortization and
prepayment of loans, maturities, sales and principal receipts of securities,
borrowings, repurchase agreements and operations. The Bank maintains a line
of credit with the Federal Home Loan Bank of Cincinnati if funds are required
beyond the Bank's ability to generate them internally. See Note 7 of the
Notes to Consolidated Financial Statements in the Annual Report to
Stockholders included as Exhibit 13 herein.
Deposits. First Federal offers a variety of deposit accounts having a wide
range of interest rates and terms. The Bank's deposits consist of passbook
and statement savings accounts, NOW accounts, money market and certificate
accounts. The Bank relies primarily on advertising, competitive pricing
policies and customer service to attract and retain these deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management" in the Annual Report to
Stockholders included as Exhibit 13 herein for a discussion of the Bank's
current pricing policies. First Federal generally solicits deposits from its
market area.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The Bank manages the pricing of its deposits in keeping with
its asset/liability management, profitability and growth objectives. Based
on its experience, the Bank believes that its passbook, NOW and money market
accounts are relatively stable sources of deposits although they decreased an
aggregate total of $7.8 million, or 4.6% from the prior year. The ability of
the Bank to attract and maintain certificate deposits, and the rates paid on
these deposits, has been and will continue to be significantly affected by
market conditions.
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank for the dates
indicated and the rates offered as of June 30, 1997. See Note 5 of the
Notes to Consolidated Financial Statements in the Annual Report to
Stockholders included as Exhibit 13 herein for weighted average nominal
rates.
June 30,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Transaction and Savings Deposits:
Passbook and Statement Savings
Accounts 3.00% $107,575 23.89% 114,247 25.03% 118,880 25.73%
NOW and Non-Interest Bearing
Accounts 0.00% - 2.50% 31,236 6.94% 28,168 6.17% 27,195 5.89%
Money Market
Accounts 0.00% - 3.00% 22,822 5.07% 27,031 5.92% 30,809 6.67%
-----------------------------------------------------------
Total Non-Certificates 161,633 35.90% 169,446 37.12% 176,884 38.29%
-----------------------------------------------------------
Total Certificates:
3.00% - 3.99% - - - - 2,008 0.43%
4.00% - 4.99% 8,809 1.96% 27,815 6.09% 49,533 10.72%
5.00% - 5.99% 146,339 32.50% 134,702 29.50% 69,649 15.08%
6.00% - 6.99% 124,649 27.69% 68,145 14.93% 99,190 21.47%
7.00% - 7.99% 8,794 1.95% 56,433 12.36% 59,094 12.79%
8.00% - 9.99% - - - - 5,621 1.22%
-----------------------------------------------------------
Total Certificates 288,591 64.10% 287,095 62.88% 285,095 61.71%
-----------------------------------------------------------
Total Deposits $ 450,224 100.00% 456,541 100.00% 461,979 100.00%
===========================================================
The following table sets forth the savings flows at the Bank during the
periods indicated. Net increase (decrease) refers to the amount of deposits
and interest credited during a period less the amount of withdrawals during
the period.
Year Ended June 30,
--------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Opening balance $456,541 461,979 456,134
Deposits 491,637 432,473 440,657
Withdrawals (519,643) (459,984) (454,307)
Interest credited 21,689 22,073 19,495
-------------------------------
Ending balance 450,224 456,541 461,979
===============================
Net increase (decrease) (6,317) (5,438) 5,845
===============================
Percent increase (decrease) -1.38% -1.18% 1.28%
===============================
The following table shows rate and maturity information for the Bank's
certificates of deposit as of June 30, 1997.
0.00% - 5.00% - 6.00% - 7.00% - Percent
4.99% 5.99% 6.99% 7.99% Total of Total
------- ------- ------- ------- ----- --------
(Dollars in Thousands)
Certificate accounts maturing
in quarter ending:
- -----------------------------
September 30, 1997 $8,809 32,332 5,490 - 46,631 16.2%
December 31, 1997 - 22,906 3,045 147 26,098 9.1%
March 31, 1998 - 23,368 8,637 1,654 33,659 11.7%
June 30, 1998 - 13,334 12,244 940 26,518 9.2%
September 30, 1998 - 12,514 3,636 99 16,249 5.6%
December 31, 1998 - 10,698 1,005 - 11,703 4.1%
March 31, 1999 - 3,532 28,007 207 31,746 11.0%
June 30, 1999 - 8,730 10,047 - 18,777 6.5%
September 30, 1999 - 4,376 6,962 1,188 12,526 4.3%
December 31, 1999 - 2,336 7,485 49 9,870 3.4%
March 31, 2000 - 2,703 8,403 2,255 13,361 4.6%
June 30, 2000 - 1,739 6,723 744 9,206 3.2%
September 30, 2000 - 46 2,940 - 2,986 1.0%
Thereafter - 7,725 20,025 1,511 29,261 10.1%
-------------------------------------------------------------
Total $8,809 146,339 124,649 8,794 288,591 100.0%
=============================================================
Percent of total 3.1% 50.7% 43.2% 3.0% 100.0%
===================================================
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1997.
Maturity
------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
-------- ------ ------- --------- -----
(Dollars in Thousands)
Certificates of deposit less than $100,000 $36,051 23,593 48,283 133,400 241,327
Certificates of deposit greater than
or equal to $100,000 10,579 2,505 11,895 22,285 47,264
-----------------------------------------------------
Total certificates of deposit $46,630 26,098 60,178 155,685 288,591
=====================================================
Subsidiary and Other Activities
The Bank was the only subsidiary of the Holding Company at June 30, 1997. On
August 12, 1997, FFY Holdings, Inc. was formed for the purpose of being the
holding company for various types of entities the Holding Company may use to
diversify its business activities. On September 8, 1997, the Holding Company
announced the establishment of a new real estate brokerage company in
affiliation with a local real estate firm. The new company, called First Real
Estate Ltd., is located approximately two miles from the Company's main office.
FFY Holdings, Inc. is a wholly-owned subsidiary of the Holding Company. The
Bank had no subsidiaries at June 30, 1997. On July 16, 1997, Ardent Service
Corporation was formed for the purpose of being a 50% owner of Hedgerows
Development, Ltd., a limited liability company formed for the purpose of
constructing, owning and marketing of residential condominium units. Ardent
is a wholly-owned subsidiary of the Bank. Management does not expect that FFY
Holdings, Inc. or Ardent Service Corporation will have a material impact to
the financial condition or results of operations of the Company.
Competition
First Federal's business of originating loans and attracting deposits is
highly competitive. First Federal competes actively with other savings and
loan associations, national and state banks, commercial banks, credit
unions, mortgage bankers and other financial service entities.
Regulation
General. First Federal is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of
the United States Government. Accordingly, First Federal is subject to
broad federal regulation and oversight extending to all its operations.
First Federal is a member of the Federal Home Loan Bank of Cincinnati and is
subject to certain limited regulation by the Board of Governors of the
Federal Reserve System (Federal Reserve Board). First Federal is a member
of the Savings Association Insurance Fund (SAIF) and the deposits of First
Federal are insured by the FDIC. As a result, the FDIC has certain
regulatory and examination authority over First Federal.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS, as the Bank's primary
federal regulator and chartering authority, and the FDIC, as the insurer of
its deposits, have extensive authority over the operations of savings
associations. As part of this authority, First Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the
OTS and the FDIC. The last regular OTS examinations of First Federal were
as of March 31, 1997 for safety and soundness and April 30, 1997 for
compliance. The last FDIC examination of First Federal was as of June 30,
1990. Under agency scheduling guidelines, it is likely that another
examination by the OTS or the FDIC will be initiated in the near future.
All savings associations are subject to a semi-annual assessment, based upon
the savings association's total assets, to fund the operations of the OTS.
First Federal's OTS assessment for the fiscal year ended June 30, 1997 was
$123,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including First Federal and the
Holding Company. This enforcement authority includes, among other things,
the ability to assess civil money penalties, to issue cease-and-desist or
removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated for violations of laws and regulations
and unsafe or unsound practices. Other actions or inactions may provide the
basis for enforcement action, including misleading or untimely reports filed
with the OTS. Except under certain circumstances, public disclosure of
final enforcement actions by the OTS and the FDIC is required.
In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws and regulations, and it is prohibited
from engaging in any activities not permitted by such laws and regulations.
For instance, no savings institution may invest in non-investment grade
corporate debt securities not rated in one of the four highest rating
categories by a nationally recognized rating organization. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of the institution's
regulatory capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. First
Federal is in compliance with the noted restrictions.
First Federal's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and
surplus). At June 30, 1997, First Federal's lending limit under this
restriction was $8.7 million. First Federal is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on matters such as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to
comply with an approved plan will subject the institution to further
enforcement action.
Insurance of Accounts and Regulation by the FDIC. First Federal is a member
of the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and
to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines
by regulation or order to pose a serious risk to the FDIC. The FDIC also
has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and
may terminate the deposit insurance of an institution if it determines that
the institution has engaged or is engaging in unsafe or unsound practices,
or is in an unsafe or unsound condition. See Note 10 of the Notes to
Consolidated Financial Statements in the Annual Report to Stockholders
included as Exhibit 13 herein for a discussion of the SAIF special
assessment.
The FDIC's deposit insurance premiums are assessed semi-annually based on
(i) the probability that the institution will cause a loss to the Bank
Insurance Fund (BIF) or to the SAIF, (ii) the likely amount of the loss and
(iii) the revenue needs of the appropriate fund. The FDIC lowered the rates
on assessments paid to the SAIF and widened the spread of rates in order to
avoid collecting more than needed to maintain the SAIF's capitalization at
1.25% of aggregate insured deposits. The current SAIF premium schedule
ranges from 0% to .27% of deposits, down from .23% to .31% of deposits as a
result of the SAIF special assessment and is the same as the schedule
applicable to BIF-insured deposits. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at least 5%, a
ratio of Tier 1 or core capital to risk-weighted assets (Tier 1 risk-based
capital) of at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy pay the lowest premium while institutions that are less
than adequately capitalized (i.e., core and Tier 1 risk-based capital ratios
of less than 4% or a risk-based capital ratio of less than 8%) and
considered of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions are made by the FDIC for each
quarterly assessment period. Based on its regulatory capital as of June 30,
1997, the Bank qualified as a "well capitalized" institution, and is not
currently assessed deposit insurance premiums. All FDIC insured
institutions are, however, subject to an assessment on deposits to fund the
repayment of obligations issued in the 1980's to help resolve the thrift
crisis. The current assessment for SAIF-insured deposits is 6.48 basis points
and 1.30 basis points for BIF-insured deposits. These assessments are subject
to change based upon the level of BIF and SAIF deposits. Beginning no later
than the year 2000, the assessment is anticipated to be about 2.5 basis
points for both BIF- and SAIF-insured institutions as a result of BIF-
insured institutions fully participating in the assessment.
The FDIC is authorized to increase assessment rates if it determines that
the reserve ratio of the SAIF will be less than the designated reserve ratio
of 1.25% of SAIF insured deposits. In setting these increased assessments,
the FDIC must seek to restore the reserve ratio to that designated reserve
level, or such higher reserve ratio as established by the FDIC. In
addition, the FDIC may impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason
deemed necessary by the FDIC.
Regulatory Capital Requirements. Federally insured savings associations,
such as First Federal, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement
and a risk-based capital requirement applicable to such savings
associations. These capital requirements must be generally as stringent as
the comparable capital requirements for national banks. The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital
generally includes common stockholders' equity and retained income, and
certain noncumulative perpetual preferred stock and related income. In
addition, all intangible assets, other than a limited amount of purchased
mortgage servicing rights, must be deducted from tangible capital. At June
30, 1997, the Bank did not have any intangible assets.
At June 30, 1997, First Federal had tangible capital of $55.3 million, or
9.6% of adjusted total assets, which is approximately $46.6 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets. As a result of
the prompt corrective action provisions of FDICIA discussed below, however,
a savings association must maintain a core capital ratio of at least 4% to
be considered adequately capitalized unless its supervisory condition is
such to allow it to maintain a 3% ratio. At June 30, 1997, First Federal
had no intangibles which were subject to these tests.
At June 30, 1997, First Federal had core capital equal to $55.3 million, or
9.6% of adjusted total assets, which is $38.0 million above the minimum
leverage ratio requirement of 3% in effect on that date.
The OTS risk-based capital requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital
consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general loan and lease
valuation allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only
to the extent of core capital. At June 30, 1997, First Federal had $2.6
million of general loss reserves, which was less than 1.25% of risk-weighted
assets.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight ranging
from 0% to 100% based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently
underwritten permanent one-to-four family first lien mortgage loans not more
than 90 days delinquent and having a loan-to-value ratio of not more than
80% at origination unless insured to such ratio by an insurer approved by
FNMA or FHLMC.
On June 30, 1997, First Federal had total risk-based capital of $58.0
million and risk-weighted assets of $340.1 million (including converted off-
balance sheet assets); or total capital of 17.0% of risk-weighted assets.
This amount was $30.7 million above the 8% requirement in effect on that
date.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the
present value of its assets. This exposure is a measure of the potential
decline in the portfolio value of a savings association, greater than 2% of
the present value of its assets, based upon a hypothetical 200 basis point
increase or decrease in interest rates (whichever results in a greater
decline). Net portfolio value is the present value of expected cash flows
from assets, liabilities and off-balance sheet contracts. The rule provides
for a two quarter lag between calculating interest value risk and
recognizing any deduction from capital. The OTS announced that it will
delay the effectiveness of the rule until it evaluates the implementation of
the process by which savings associations may appeal an interest rate risk
deduction determination. Any savings association with less than $300
million in assets and a total capital ratio in excess of 12% is exempt from
this requirement unless the OTS determines otherwise. The Bank does not
anticipate that this final rule will affect its ability to meet its
regulatory capital requirements.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against associations that fail to meet
capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally
defined to be one with less than either a 4% core capital ratio, a 4% Tier 1
risk-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another
institution, establish a branch or engage in any new activities, and
generally may not make capital distributions. The OTS is authorized to
impose the additional restrictions, discussed below, that are applicable to
significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter
into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must
be made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a
forced merger or acquisition of the association. An association that
becomes "critically undercapitalized" (i.e., a tangible capital ratio of 2%
or less) is subject to further mandatory restrictions on its activities in
addition to those applicable to significantly undercapitalized associations.
In addition, the OTS must appoint a receiver (or conservator with the
concurrence of the FDIC) for a savings association, with certain limited
exceptions, within 90 days after it becomes critically undercapitalized.
Any undercapitalized association is also subject to the general enforcement
authority of the OTS and the FDIC, including the appointment of a
conservator or a receiver.
Any undercapitalized association is also subject to other possible
enforcement actions by the OTS or the FDIC. Such actions could include a
capital directive, a cease-and-desist order, civil money penalties, the
establishment of restrictions on all aspects of the association's operations
or the appointment of a receiver or conservator or a forced merger into
another institution.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such
category if the institution is engaged in unsafe or unsound practices or is
in an unsafe or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Federal may have a substantial adverse effect on First Federal's operations
and profitability. Holding Company shareholders do not have preemptive
rights, and therefore, if the Holding Company is directed by the OTS or the
FDIC to issue additional shares of Common Stock, such issuance may result in
the dilution in the percentage of ownership of the Holding Company of
existing stockholders. As of June 30, 1997, First Federal believes it
qualifies as a well capitalized institution under the prompt corrective
action rules.
Limitations on Dividends and Other Capital Distributions. OTS regulations
impose various restrictions or requirements on associations with respect to
their ability to pay dividends or make other distributions of capital. OTS
regulations prohibit an association from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount required to be
maintained for the liquidation account established in connection with its
mutual to stock conversion. See Note 14 of the Notes to Consolidated
Financial Statements in the Annual Report to Stockholders included as
Exhibit 13 herein.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers
and other transactions charged to the capital account (see "-Regulatory
Capital Requirements").
Generally, Tier 1 associations, which are associations that before and after
the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater
of 100% of net income for the year-to-date plus 50% of the amount by which
the lesser of the association's tangible, core or risk-based capital exceeds
its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, or the amount authorized for
a Tier 2 association. However, a Tier 1 association deemed to be in need of
more than normal supervision by the OTS may be downgraded to a Tier 2 or
Tier 3 association as a result of such a determination. First Federal meets
the requirements for a Tier 1 association and has not been notified of a
need for more than normal supervision. Tier 2 associations, which are
associations that before and after the proposed distribution meet their
current minimum capital requirements, may make capital distributions of up
to 75% of net income over the most recent four quarter period.
Tier 3 associations (which are associations that do not meet current minimum
capital requirements) that propose to make any capital distribution and Tier
2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make
any capital distribution need only submit written notice to the OTS 30 days
prior to such distribution. As a subsidiary of the Holding Company, First
Federal is required to give the OTS 30 days' notice prior to declaring any
dividend on its stock. The OTS may object to the distribution during that
30-day period based on safety and soundness concerns. See "- Regulatory
Capital Requirements."
On May 16, 1997, after notifying the OTS, the Bank paid a $4.5 million cash
dividend to the Holding Company. See Note 14 of the Notes to Consolidated
Financial Statements in the Annual Report to Stockholders included as
Exhibit 13 herein. Commencing November 20, 1996 the Holding Company
announced a Modified Dutch Auction Tender Offer (Tender Offer) to buy up to
1.5 million shares between $24.00 and $26.00 per share. On December 31, 1996,
the Holding Company completed the Tender Offer and purchased 808,000 shares
at $26.00 per share. On April 15, 1997, the Holding Company announced its
intention to repurchase 5% of its then outstanding shares of common stock.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered
structure and the safe-harbor percentage limitations. Under the proposal, a
savings association may make a capital distribution without notice to the
OTS (unless it is a subsidiary of a holding company) provided that it has a
CAMEL 1 or 2 rating, is not in troubled condition (as defined by regulation)
and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution, but do not meet the other noted requirements, must notify the
OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions
that do not exceed 50% of the institution's excess regulatory capital plus
net income to date during the calendar year. A savings association may not
make a capital distribution without prior approval of the OTS and the FDIC
if it is undercapitalized before, or as a result of, such a distribution.
As under the current rule, the OTS may object to a capital distribution if
it would constitute an unsafe or unsound practice. No assurance may be
given as to whether or in what form the regulations may be adopted. The
Bank does not anticipate that these regulations, as proposed, will affect
its ability to make capital distributions.
Liquidity. All savings associations, including First Federal, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. This liquid
asset ratio requirement may vary from time to time (between 4% and 10%)
depending upon economic conditions and savings flows of all savings
associations. At the present time, the minimum liquid asset ratio is 5%.
For a discussion of what the Bank includes in liquid assets and the proposed
lower minimum liquid asset requirement, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" contained in the Annual Report to Stockholders included
as Exhibit 13 herein.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's
average daily balance of net withdrawable deposit accounts and current
borrowings. Penalties may be imposed upon associations for violations of
either liquid asset ratio requirement. At June 30, 1997, First Federal was
in compliance with both requirements, with an overall liquid asset ratio of
5.1% and a short-term liquid assets ratio of 2.6%.
Accounting. An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment,
sale or trading) with appropriate documentation. First Federal is in
compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which may be
made more stringent then GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance
and inherent risk and that financial reports must incorporate any other
accounting regulations or orders prescribed by the OTS. First Federal is in
compliance with these amended rules.
Qualified Thrift Lender Test. All savings associations, including First
Federal, are required to meet a qualified thrift lender (QTL) test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (which consists of
total assets less intangibles, properties used to conduct the savings
association's business and liquid assets not exceeding 20% of total assets)
in qualified thrift investments on a monthly average for nine out of every
12 months on a rolling basis. Such assets primarily consist of residential
housing related loans and investments. At June 30, 1997, First Federal met
the test and has always met the test since its effectiveness. At June 30,
1997, First Federal's QTL percentage was 91.2%.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains
a QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer
to the Bank Insurance Fund (BIF). If such an association has not yet
requalified or converted to a national bank, its new investments and
activities are limited to those permissible for both a savings association
and a national bank, and it is limited to national bank branching rights in
its home state. In addition, the association is immediately ineligible to
receive any new FHLB borrowings and is subject to national bank limits for
payment of dividends. If such association has not requalified or converted
to a national bank within three years after the failure, it must divest of
all investments and cease all activities not permissible for a national
bank. In addition, it must repay promptly any outstanding FHLB borrowings,
which may result in prepayment penalties. If any association that fails the
QTL test is controlled by a holding company, then within one year after the
failure, the holding company must register as a bank holding company and
become subject to all restrictions on bank holding companies. See "-
Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act (CRA),
every FDIC-insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit
needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with the CRA. The
CRA requires the OTS, in connection with the examination of First Federal,
to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as merger or the establishment of a branch, by First
Federal. An unsatisfactory rating may be used as the basis for the denial
of an application by the OTS.
Federal banking agencies, including the OTS, have recently revised the CRA
regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the
past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was examined for
CRA compliance in March 1997 and received a rating of satisfactory.
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on
terms as favorable to the association as transactions with non-affiliates.
In addition, certain of these transactions are restricted to a percentage of
the association's capital. Affiliates of First Federal include the Holding
Company and any company which is under common control with First Federal.
In addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the
securities of most affiliates. Affiliates do not generally include
subsidiaries, however, the OTS has the discretion to treat subsidiaries of
savings associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions
on loans to such persons and their related interests. Among other things,
such loans must be made on terms substantially the same as for loans to
unaffiliated individuals.
Holding Company Regulation. The Holding Company is a unitary savings and
loan holding company subject to regulatory oversight by the OTS. As such,
the Holding Company is required to register and file reports with the OTS
and is subject to regulation and examination by the OTS. In addition, the
OTS has enforcement authority over the Holding Company and its non-savings
association subsidiaries which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Holding Company generally
is not subject to activity restrictions. If the Holding Company acquires
control of another savings association as a separate subsidiary, it would
become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than the Bank or any
other SAIF-insured savings association) would become subject to such
restrictions, which generally limit activities to those related to
controlling a savings association, unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.
If First Federal fails the QTL test, the Holding Company must obtain the
approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those
approved for multiple savings and loan holding companies or their
subsidiaries. In addition, within one year of such failure the Holding
Company must register as, and will become subject to, the restrictions
applicable to bank holding companies. The activities authorized for a bank
holding company are more limited than are the activities authorized for a
unitary or multiple savings and loan holding company. See "- Qualified
Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are
generally prohibited if they result in a multiple savings and loan holding
company controlling savings associations in more than one state. However,
such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings
association.
Federal Securities Law. The stock of the Holding Company is registered with
the SEC under the Securities Exchange Act of 1934, as amended (Exchange
Act). The Holding Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may
not be resold without registration or unless sold in accordance with certain
resale restrictions. If the Holding Company meets specified current public
information requirements, each affiliate of the Holding Company is able to
sell in the public market, without registration, a limited number of shares
in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At June 30, 1997, First Federal was in compliance with
these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds,
including FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. First Federal is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs, that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the board of
directors of the FHLB. These policies and procedures are subject to the
regulation and oversight of the Federal Housing Finance Board. All advances
from the FHLB are required to be fully secured by sufficient collateral as
determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, First Federal is required to purchase and maintain stock in the
FHLB of Cincinnati. At June 30, 1997, First Federal had $4.1 million in
FHLB stock which was in compliance with this requirement. In past years,
First Federal has received substantial dividends on its FHLB stock. Over
the past five fiscal years, such dividends have averaged 6.2% and were 7.1%
for fiscal year 1997.
Under federal law the FHLBs are required to provide funds for the resolution
of troubled savings associations and to contribute to low- and moderately
priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income
housing projects. These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future. These
contributions could also have an adverse effect on the value of FHLB stock
in the future. A reduction in value of First Federal's FHLB stock may
result in a corresponding reduction in First Federal's capital.
For the year ended June 30, 1997, dividends paid by the FHLB of Cincinnati
to First Federal totaled $279,000 which represented a $21,000 increase from
the amount of dividends received in fiscal year 1996. The $73,900 dividend
received for the quarter ended June 30, 1997 reflects an annualized rate of
7.25%.
Federal and State Taxation. Certain 1996 tax legislation significantly
effected thrift institutions such as the Bank regarding bad debt provisions.
Large thrifts (see below) were required to switch to the specific charge-off
method of Section 166 while small thrifts switched to the reserve method of
Section 585 (the method used by small commercial banks). Under the specific
charge-off method for large thrifts, charge-offs are deducted and recoveries
are taken into taxable income as incurred. The legislation eliminated the
percentage of taxable income method for computing additions to the thrift
tax bad debt reserves for tax years beginning after December 31, 1995 which
effected First Federal beginning in fiscal year ended June 30, 1997.
The legislation also required that thrift institutions such as the Bank
recapture all or a portion of their tax bad debt reserves added since the
base year. For the Bank, the base year is June 30, 1988 and the tax bad
debt reserves added since that date were $3.4 million. The amount of the
reserves to be recaptured depends upon whether the institution is considered
a large institution for tax purposes. A small thrift is required to
recapture the portion of its reserves that exceeds the greater of (1) the
experience method reserve computed as if the thrift had always been a small
bank, or (2) the lesser of the qualifying and non-qualifying base year
reserves or the contracted base year reserves. As the Bank has previously
provided deferred taxes on the recapture amounts, no additional financial
statement tax expense will result from the recapture. The opening tax bad
debt reserve for a small thrift for the first taxable year beginning after
December 31, 1995 is the greater of the two amounts described in (1) and (2)
above. A small thrift that switches to the section 585 experience method
must make an annual addition to its reserve for bad debts. Under the
repealed section 593, a thrift was not required to make a minimum addition
to its reserve for any taxable year.
An institution is considered large if the quarterly average of the
institution's (or the consolidated group's) total assets exceeds $500
million for the year. The Bank is considered a large institution and is
required to recapture the excess of its bad debt reserves beginning in
fiscal year 1997 ratably over a six year period. However, postponement of
the recapture is possible for a two year period and will generally allow
institutions, such as the Bank, to suspend such recapture for the first two
years. In order to postpone the bad debt reserve recapture, the Bank must
meet a minimum level of mortgage lending activity for those years. The
level of mortgage lending activity needed to qualify for this suspension is
the institution's average mortgage lending activity for the six taxable
years preceding June 30, 1997. For this purpose, only home purchase and
home improvement loans qualify (refinancing and home equity loans do not
qualify) and financial institutions can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation.
For fiscal year 1997, the Bank qualified for postponement of the bad debt
recapture.
The base year reserves and the supplemental reserve are not forgiven. These
reserves continue to be subject to the section 593(e) recapture penalty and
are treated as a section 381(c) attribute for purposes of certain corporate
acquisitions. There are other ancillary provisions affected by the repeal
of section 593, most notably the repeal of section 595 which provides
thrifts with special treatment on foreclosure of property securing loans.
Section 595 is repealed for property acquired in taxable years beginning
after December 31, 1995.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's
regular taxable income (with certain adjustments) and tax preference items,
less any available exemption. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax.
The Holding Company and Bank file consolidated federal income tax returns on
a fiscal year basis using the accrual method of accounting.
The Bank has been audited by the Internal Revenue Service with respect to
federal income tax returns through tax year 1991 and has federal income tax
returns which are open and subject to audit for the tax years 1994 through
1996. With respect to years examined by the IRS, all deficiencies have been
satisfied. In the opinion of management, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of the Company.
For additional information regarding federal taxation, see Note 11 of the
Notes to the Consolidated Financial Statements in the Annual Report to
Stockholders included as Exhibit 13 herein.
Ohio Taxation. As a federally chartered savings bank, the Bank is subject
to an Ohio franchise tax based on its net worth plus certain reserve
amounts. Total net worth for this purpose is reduced by certain exempted
assets. The resultant net worth was taxed at a rate of 1.5% for the 1997
return, which was based on net worth as of June 30, 1996. The Bank's state
franchise tax returns are open and subject to audit for the years 1994
through 1997.
The Holding Company is subject to the Ohio franchise tax on holding
companies of financial institutions. The tax imposed is the greater of the
tax on net worth after adjustments to exclude the portion attributable to
the financial institution or the tax on net income. The tax on net income
is computed on federal taxable income adjusted to exclude distributions from
the financial institution, and subject to certain other adjustments. The
rate of tax differs for the net worth and net income computations and can
include a surtax if based on net income and an add-on litter tax under
either method. The Company's state franchise tax returns are open and
subject to audit for the years 1994 through 1997.
Recent Ohio legislation will change the computation of tax and the rate of
tax for future years for both financial institutions and holding companies.
Delaware Taxation. As a Delaware holding company, the Holding Company is
exempted from Delaware corporate income tax but is required to file an
annual report with and pay an annual fee to the State of Delaware. The
Holding Company is also subject to an annual franchise tax imposed by the
State of Delaware.
Employees
At August 29, 1997, the Bank had a total of 209 employees, including 55
part-time employees. The Bank's employees are not represented by any
collective bargaining group. Management considers its employee relations to
be good.
Executive Officers of the Holding Company and the Bank
The following table sets forth certain information regarding executive
officers of the Holding Company and the Bank at June 30, 1997 who are not
also directors.
Age at Positions Held with Bank
Name June 30, 1997 and Holding Company
---- ------------- ------------------------
Therese Ann Liutkus 38 Treasurer and CFO of the Bank
and the Holding Company
David S. Hinkle 39 Vice President of the Bank
Mark S. Makoski 47 Vice President of the Bank
J. Craig Carr 49 General Counsel and Assistant
Vice President of the Bank
The business experience of the executive officers who are not also not
directors is set forth below.
Therese Ann Liutkus - Ms. Liutkus has served as Treasurer of the Bank and
Holding Company since January 1996 and March 1996, respectively, as well as
Chief Financial Officer of the Bank and Holding Company since October 1996.
Ms. Liutkus is responsible for the activities of the securities portfolios
and oversees the accounting functions. After joining the Bank in 1986, Ms.
Liutkus has served as the Bank's Internal Auditor through 1989, and served
as Accounting Manager of the Bank from 1990 to 1995. She earned a BBA
degree in accounting from Cleveland State University is a Certified Public
Accountant and member of both the American Institute of CPAs and Ohio
Society of CPAs.
David S. Hinkle - Mr. Hinkle has served as Vice President of the Bank since
January 1996. Mr. Hinkle is responsible for overall Bank operations
including information systems, check processing facilities management,
purchasing and courier services. He began his career with the Bank in 1979
as a member of the data processing department and was appointed an Assistant
Treasurer in 1982. He earned a Bachelor of Science degree in Management in
1981 from Youngstown State University. Mr. Hinkle is a member of the Board
of Directors for Humility of Mary Information Systems.
Mark S. Makoski - Mr. Makoski has served as Vice President of the Bank since
January 1996. Mr. Makoski is responsible for marketing, sales and deposits
of the Bank. He has served in various capacities since joining the Bank in
1982, including Internal Auditor from 1982 through 1986, Assistant
Treasurer from 1987 through 1991 and Assistant Vice President from 1992
through 1995. He earned a Bachelor of Science degree in Business
Administration from Milligan College in Tennessee. Mr. Makoski belongs to
the Canfield Fair Board, Mahoning County Securities Officers Group and
Austintown Rotary.
J. Craig Carr - Mr. Carr has served as General Counsel since joining the
Bank in 1974 and Assistant Vice President of the Bank since 1991. Mr. Carr
was promoted to Vice President of the Bank and Holding Company in July 1997.
Mr. Carr conducts the general legal work of the Bank, supervises the in-
house title department and advises and counsels all officers and
departments. He earned a Bachelor of Arts degree in Political Science from
Miami University of Ohio and Juris Doctor Degree from Ohio State University
College of Law. Mr. Carr is a member of the Ohio State and Mahoning County
Bar Associations.
Item 2. Properties
The Bank owns its main office building. At June 30, 1997, the Bank owned
six of its branch offices and the remaining six branch offices, including
two limited service facilities, were leased. As of June 30, 1997, the net
book value of the Bank's investment in premises, equipment and leaseholds,
excluding computer equipment and software, was approximately $7.0 million.
The Bank maintains an on-line data base of depositor and borrower customer
information as well as loan origination software. The net book value of the
data processing and computer equipment and software utilized by the Bank at
June 30, 1997 was $785,000.
Item 3. Legal Proceedings
First Federal is involved as plaintiff or defendant in various legal actions
arising in the normal course of business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing First Federal in
the proceedings, that the resolution of these proceedings should not have a
material effect on the Bank's results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30,
1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information under the caption "Stock Price Information" on the inside back
cover of the 1997 Annual Report to Stockholders which portions attached hereto
as Exhibit 13 is herein incorporated by reference.
Item 6. Selected Financial Data
Pages 4 and 5 of the 1997 Annual Report to Stockholders which portions attached
hereto as Exhibit 13 are herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 6 through 19 of the 1997 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Pages 14 through 16 of the 1997 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
Pages 21 through 44 of the 1997 Annual Report to Stockholders which portions
attached hereto as Exhibit 13 are herein incorporated by reference.
The independent auditors' report of Hill, Barth & King, Inc. dated August 4,
1995 is herein incorporated by reference as Exhibit 99.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
On February 13, 1996, Hill, Barth & King, Inc. was dismissed as the Holding
Company's independent accountants. Their accountant's report on the
financial statements for each of the years ended June 30, 1994 and 1995 was
unqualified and did not contain an adverse opinion or a disclaimer opinion,
or qualification or modification as to uncertainty, audit scope, or
accounting principles. The decision to dismiss Hill, Barth & King, Inc. was
approved by the Board of Directors upon recommendation by the audit
committee of the Board of Directors.
During the fiscal years ended June 30, 1994 and June 30, 1995, and the
subsequent interim period from July 1, 1995 through February 13, 1996, there
were no disagreements with Hill, Barth & King, Inc. on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which, if not resolved to the satisfaction of
Hill, Barth & King, Inc., would have caused it to make reference to the
subject matter of the disagreements in connection with its report.
Additionally, there were no disagreements with Hill, Barth & King, Inc.
regarding any of these matters, either those resolved to their satisfaction
or those not resolved to their satisfaction.
None of the events listed in Item 304(a)(1)(v)(A) through (D) of Regulation
S-K occurred during the fiscal years ended June 30, 1994 or June 30, 1995,
or the subsequent interim period from July 1, 1995 through February 13,
1996.
Pursuant to Item 304(a)(3) of Regulation S-K, the Holding Company has
provided Hill, Barth & King, Inc. with a copy of the disclosures contained
in this document and has requested that Hill, Barth & King, Inc. furnish the
Holding Company a letter addressed to the Securities and Exchange Commission
stating whether it agrees with the statements made herein and, if not,
stating the respects in which it does not agree. Hill, Barth & King, Inc.'s
letter is attached as an exhibit to this report.
On February 13, 1996, KPMG Peat Marwick LLP was engaged as FFY Financial
Corp.'s independent accountants. During the fiscal years ended June 30,
1994 and 1995 and the subsequent interim period from July 1, 1995 through
February 13, 1996, there was no consultation with KPMG Peat Marwick LLP
regarding: (i) application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on FFY Financial Corp.'s financial statements; or (ii) any
matter that was the subject of a disagreement (as defined in paragraph
304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in
paragraph 304(a)(1)(v) of Regulation S-K).
PART III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of the Holding Company and the Bank
Information regarding the executive officers of the Holding Company and the
Bank who are not directors is contained in Part I of this Form 10-K and
incorporated herein by reference.
Directors of the Holding Company and the Bank
Information concerning Directors of the Holding Company and the Bank is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, a copy of which has been
filed with the Securities and Exchange Commission.
Section 16(a) Beneficial Ownership Reporting Compliance
Information concerning compliance with the reporting requirements of Section
16(a) of the Securities and Exchange Act of 1934 by the Holding Company's
directors, officers and greater than 10% beneficial owners is incorporated
herein by reference from the definitive proxy statement for the Annual
Meeting of Stockholders to be held in 1997, a copy of which has been filed
with the Securities and Exchange Commission.
Under the federal securities laws, Holding Company directors, certain
officers and 10% shareholders are required to report to the Securities and
Exchange Commission, by specific due dates, transactions and holdings in the
Holding Company stock. The Bank believes that during fiscal year 1997, all
of these filing requirements were satisfied, except for the inadvertent
omission of the acquisition of shares through the dividend reinvestment plan
by Directors Bitonte, Patrick and Shaffer, which omissions have been
subsequently corrected.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997, a copy of which has been filed with the
Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1997, a copy
of which has been filed with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, a copy of which has been
filed with the Securities and Exchange Commission.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The following information appearing in the Holding Company's Annual Report
to Stockholders for the year ended June 30, 1997, is incorporated by
reference in this Annual Report on Form 10-K as Exhibit 13.
Annual Report Section Pages in Annual Report
- --------------------- ----------------------
Common Stock and Related Information Inside back cover
Selected Financial Data and Other Data Pages 4 - 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations Pages 6 - 19
Consolidated Statements of Financial Condition as of
June 30, 1997 and 1996 Page 22
Consolidated Statements of Income for Years Ended
June 30, 1997, 1996 and 1995 Page 23
Consolidated Statements of Changes in Stockholders'
Equity for Years Ended June 30, 1997, 1996 and 1995 Page 24
Consolidated Statements of Cash Flows for Years Ended
June 30, 1997, 1996 and 1995 Page 25
Notes to Consolidated Financial Statements Pages 26 - 43
Independent Auditors' Report Page 44
With the exception of the aforementioned information, the Holding Company's
Annual Report to Stockholders for the year ended June 30, 1997 is not deemed
filed as part of this Annual Report on Form 10-K.
(a) (2) Financial Statement Schedules
All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Consolidated
Financial Statements.
(a) (3) Exhibits
Reference to
Prior Filing
or Exhibit
Regulation Number
S-K Exhibit Attached
Number Document Herein
- ----------- -------- ------------
2 Plan of acquisition, reorganization,
arrangement, liquidation or succession None
3(i) Articles of Incorporation *
3(ii) By-Laws *
4 Instruments defining the rights of security holders,
including indentures *
9 Voting trust agreement None
10 Material contracts
Executive Compensation Plans and Arrangements *
Employment Contracts *
Recognition and Retention Plan and Trust Stock
Option and Incentive Plan *
11 Statement re: computation of per share earnings None
12 Statement re: computation of ratios Not required
13 Annual Report to security holders 13
16 Letter re: change in certifying accountant 16
18 Letter re: change in accounting principles None
21 Subsidiaries of registrant 21
22 Published report regarding matters submitted to vote
of security holders None
23 Consents of experts and counsel 23.1 and 23.2
24 Power of attorney Not required
27 Financial Data Schedule 27
99 Additional Exhibits - predecessor accountants'
independent auditors' report 99
- --------------------
<F*> Filed as exhibits to the Corporation's Form S-1 registration statement
filed on March 12, 1993 (File No. 33-59482) pursuant to Section 5 of
the Securities Act of 1933, as amended. All of such previously filed
documents are hereby incorporated herein by reference in accordance
with Item 601 of Regulation S-K.
(b) Reports on Form 8-K
During the quarter ended on June 30, 1997, the Holding Company filed a
report on Form 8-K on April 15, 1997 announcing third quarter earnings and a
stock repurchase program.
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FFY Financial Corp.
By: /s/ Jeffrey L. Francis
-----------------------------------
Jeffrey L. Francis, President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Jeffrey L. Francis /s/ Therese Ann Liutkus
- ------------------------------------- --------------------------------------
Jeffrey L. Francis, President, Therese Ann Liutkus, Treasurer and CFO
Chief Executive Officer and Director (Principal Financial and Accounting
(Principal Executive and Operating Officer)
Officer)
Date: September 26, 1997 Date: September 26, 1997
/s/ Randy Shaffer /s/ Myron S. Roh
- ------------------------------------- --------------------------------------
Randy Shaffer, Vice President and Myron S. Roh, Chairman of the Board
Director and Director
Date: September 26, 1997 Date: September 26, 1997
/s/ W. Terry Patrick /s/ Ronald P. Volpe
- ------------------------------------- --------------------------------------
W. Terry Patrick, Director Ronald P. Volpe, Director
Date: September 26, 1997 Date: September 26, 1997
/s/ Daniel J. Mirto /s/ A. Gary Bitonte
- ------------------------------------- --------------------------------------
Daniel J. Mirto, Director A. Gary Bitonte, Director
Date: September 26, 1997 Date: September 26, 1997
/s/ Marie Izzo Cartwright /s/ Jack R. Brownlee
- ------------------------------------- --------------------------------------
Marie Izzo Cartwright, Director Jack R. Brownlee, Director
Date: September 26, 1997 Date: September 26, 1997
/s/ Henry P. Nemenz
- -------------------------------------
Henry P. Nemenz, Director
Date: September 26, 1997