UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 Corp.
(Exact name of registrant as specified in its charter)
Delaware 34-1735753
(State of Incorporation) (IRS Employer Identification No.)
724 Boardman-Poland Road, Youngstown, Ohio
(Address of principal executive office)
44512
(Zip Code)
(330) 726-3396
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT OCTOBER 31, 1997
----- --------------------------------------
common stock, $.01 par value 4,114,507
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
--------------------------
1997 June 30,
(Unaudited) 1997
----------- --------
ASSETS
Cash $ 3,989,697 $ 3,631,798
Interest-bearing deposits 3,064,428 6,215,957
Short-term investments - 160,000
------------------------------
TOTAL CASH AND CASH EQUIVALENTS 7,054,125 10,007,755
Securities available for sale 123,815,772 112,036,159
Loans receivable 463,113,503 460,711,635
Interest and dividends receivable on
securities 1,296,292 1,239,988
Interest receivable on loans 2,554,889 2,524,542
Federal Home Loan Bank stock, at cost 4,168,400 4,094,500
Office properties and equipment, net 7,606,157 7,797,721
Other assets 1,364,707 837,075
------------------------------
TOTAL ASSETS $610,973,845 $599,249,375
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $449,042,655 $450,223,793
Securities sold under agreements to
repurchase:
Short-term 19,966,130 7,307,248
Long-term 25,000,000 25,000,000
Borrowed funds 21,200,000 27,455,000
Advance payments by borrowers for taxes
and insurance 1,004,865 2,313,090
Other payables and accrued expenses 11,098,554 4,776,028
------------------------------
TOTAL LIABILITIES 527,312,204 517,075,159
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized 5,000,000 shares; none
outstanding - -
Common stock, $.01 par value:
Authorized 15,000,000 shares; issued
6,630,000 shares, outstanding
4,122,007 shares at September 30, 1997
and 4,144,840 shares at June 30, 1997 66,300 66,300
Additional paid-in capital 64,612,823 64,506,573
Retained earnings, substantially
restricted 75,843,121 74,599,977
Treasury stock, at cost, 2,507,993
shares at September 30, 1997 and
2,485,160 shares at June 30, 1997 (54,017,195) (53,387,258)
Unrealized gain on securities available
for sale, net 778,064 111,796
Common stock purchased by:
Employee Stock Ownership and 401(k)
Plan (3,339,682) (3,441,382)
Recognition and Retention Plans (281,790) (281,790)
------------------------------
TOTAL STOCKHOLDERS' EQUITY 83,661,641 82,174,216
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $610,973,845 $599,249,375
==============================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
September 30,
----------------------
1997 1996
---- ----
INTEREST INCOME
Loans $ 9,906,611 $ 9,486,553
Securities available for sale 1,852,690 1,612,767
Federal Home Loan Bank stock 76,173 67,557
Other interest-earning assets 123,063 42,312
----------------------------
TOTAL INTEREST INCOME 11,958,537 11,209,189
----------------------------
INTEREST EXPENSE
Deposits 5,503,230 5,422,644
Securities sold under agreements
to repurchase:
Short-term 217,055 115,375
Long-term 389,722 -
Borrowed funds 365,069 58,313
----------------------------
TOTAL INTEREST EXPENSE 6,475,076 5,596,332
NET INTEREST INCOME 5,483,461 5,612,857
Provision for loan losses 142,395 154,416
----------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,341,066 5,458,441
----------------------------
NON-INTEREST INCOME
Service charges 169,886 129,172
Gain (loss) on sale of securities
available for sale 48,239 (543,130)
Other 109,600 89,832
----------------------------
TOTAL NON-INTEREST INCOME 327,725 (324,126)
----------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,416,464 1,437,212
Net occupancy and equipment 419,608 418,650
Insurance and bonding 121,253 3,330,263
State and local taxes 275,859 269,524
Other 527,527 467,291
----------------------------
TOTAL NON-INTEREST EXPENSE 2,760,711 5,922,940
----------------------------
INCOME (LOSS) BEFORE FEDERAL INCOME
TAXES 2,908,080 (788,625)
FEDERAL INCOME TAX EXPENSE (BENEFIT) 1,005,000 (293,000)
----------------------------
NET INCOME (LOSS) $ 1,903,080 $ (495,625)
============================
EARNINGS (LOSS) PER SHARE $ 0.49 $ (0.10)
============================
CASH DIVIDENDS DECLARED PER SHARE $ 0.20 $ 0.175
============================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Three months ended
September 30,
----------------------
1997 1996
---- ----
Balance at July 1, $82,174,216 $101,920,853
Net income (loss) 1,903,080 (495,625)
Dividends paid, $.175 and $.15 per share,
respectively (659,936) (708,919)
Treasury stock purchased (776,611) -
Stock options exercised 68,100 360,000
Amortization of ESOP and 401(k) expense 101,700 106,080
Amortization of RRP stock awards - 165,750
Tax benefit related to RRP stock awards - 73,964
Tax benefit related to exercise of stock
options 13,155 124,366
Difference between average fair value per
share and cost per share on ESOP and 401(k)
shares committed to be released 171,669 147,584
Change in unrealized gain (loss) on
securities available for sale, net 666,268 534,079
-----------------------------
$83,661,641 $102,228,132
=============================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
September 30,
-----------------------
1997 1996
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,196,872 $ 5,600,489
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available for sale 4,000,000 13,000,000
Proceeds from sales of securities available for sale 7,269,313 977,000
Purchase of securities available for sale (22,030,046) (29,727,595)
Principal receipts on securities available for sale 3,917,708 781,560
Net increase in loans (2,407,415) (10,373,833)
Purchase of office properties and equipment (84,483) (293,941)
Other, net (350,740) 10,000
------------------------------
NET CASH USED IN INVESTING ACTIVITIES (9,685,663) (25,626,809)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (1,141,027) (7,559,381)
Net increase (decrease) in short-term securities sold
under agreements to repurchase 12,658,882 (20,744)
Net increase (decrease) in borrowed funds (6,255,000) 31,455,000
Decrease in advance payments by borrowers for taxes and
insurance (1,308,225) (1,223,533)
Decrease in amounts due to bank (612,058) (1,520,319)
Treasury stock purchases (776,611) -
Dividends paid (659,936) (708,919)
Other, net (370,864) 15,890
------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,535,161 20,437,994
------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,953,630) 411,674
CASH AND CASH EQUIVALENTS
Beginning of period 10,007,755 8,262,397
------------------------------
End of period $ 7,054,125 $ 8,674,071
==============================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation:
The interim consolidated financial statements of the Company include
the accounts of FFY Financial Corp. (FFY or Holding Company) and its wholly-
owned subsidiary First Federal Savings Bank of Youngstown (First Federal or
Bank). All significant intercompany balances have been eliminated in
consolidation.
(b) Basis of Presentation:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. The financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's 1997 Annual Report to Shareholders incorporated by reference into
the Company's 1997 Annual Report on Form 10-K. The interim consolidated
financial statements include all adjustments (consisting of only normal
recurring items) which, in the opinion of management, are necessary for a
fair presentation of the financial position and results of operations for
the periods presented. The results of operations for the interim periods
disclosed herein are not necessarily indicative of the results that may be
expected for a full year.
(c) Earnings Per Share:
Earnings per share is calculated by dividing net income for the period
by the weighted average number of shares of common stock outstanding during
the period. Earnings per share has not been adjusted for the effect of
stock options as the dilutive effect is less than 3 percent in any year.
The weighted average number of shares of common stock and common stock
equivalents outstanding during the three months ended September 30, 1997 and
1996 were 3,918,060 and 4,871,529, respectively.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
per Share, which supersedes Accounting Principles Board No. 15, Earnings per
Share, and replaces the presentation of primary and fully diluted earnings
per share with basic and diluted earnings per share. SFAS No. 128 was
issued to simplify the computation of earnings per share and make the U.S.
standard more compatible with the earnings per share standards of other
countries and that of the International Accounting Standards Committee.
SFAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The unaudited pro forma earnings per share of the Company based
on SFAS No. 128 are disclosed in the following table.
Three months ended September 30,
---------------------------------------------------------------------------------------
1997 1996
------------------------------------------ -------------------------------------------
Income Shares Per-Share Income (Loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ------------- ------------- ---------
Basic Earnings (Loss) Per Share
Income (loss) available to
common stockholders $1,903,080 3,782,339 $0.50 $(495,625) 4,728,432 $(0.10)
===== =======
Effect of Dilutive Securities
Stock options - 137,074 - 171,494
------------------------- -------------------------
Diluted Earnings (Loss) Per Share
Income (loss) available to
common stockholders $1,903,080 3,919,413 $0.49 $(495,625) 4,899,926 $(0.10)
=====================================================================================
(d) Reclassifications:
Certain amounts in the 1996 consolidated financial statements have
been reclassified to conform with the 1997 presentation.
(2) EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 129, Disclosure of
Information about Capital Structure. This statement was issued in
conjunction with SFAS No. 128 discussed above and is intended to centralize
capital structure disclosure requirements and to expand the number of
companies subject to the requirements. Since the Company was in compliance
with the existing capital structure disclosure requirements, the impact on
its financial statements is not expected to be material.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards to report changes in equity
that result from transactions and other economic events of the period other
than transactions with owners. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management anticipates the adoption of
SFAS No. 130 will not have a material effect on the Company's consolidated
financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This statement requires
disclosures regarding reportable segments of an enterprise. Information
required to be disclosed includes factors used to identify segments,
selected financial data, profit and loss, revenues and other operating and
non-operating expenses. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Management anticipates the adoption of
SFAS No. 131 will not have a material effect on the Company's consolidated
financial condition or results of operations.
PART I: FINANCIAL INFORMATION
FFY FINANCIAL CORP.
SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following analysis discusses changes in the financial condition
and results of operations at and for the three months ended September 30,
1997 for the Company.
Forward-Looking Statements
When used in this Form 10-Q, 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.
Recent Developments
On September 8, 1997, FFY Holdings, Inc., a wholly owned subsidiary of
the Holding Company, acquired a two-thirds ownership interest in David B.
Robert Real Estate, a real estate brokerage company (Brokerage Company). As
of September 30, 1997, the operations of the Brokerage Company were
immaterial to the operations of the Company.
The Holding Company also plans to invest in a subsidiary that will
offer property and casualty insurance.
Financial Condition
Total assets at September 30, 1997 increased $11.7 million, or 2.0%,
to $611.0 million from $599.2 million at June 30, 1997. The increase was
primarily attributable to increases in securities available for sale and
loans receivable partially offset by a decline in cash and cash equivalents.
The Company's securities portfolio increased $11.8 million, or 10.5%,
and totaled $123.8 million at September 30, 1997 compared to $112.0 million
at June 30, 1997. The increase was due primarily to the purchase of
securities totaling $26.0 million and an increase in market value of
available for sale securities totaling $1.0 million partially offset by
$15.2 million in maturities, sales, principal receipts and premium
amortization. The increase in securities was primarily funded by an
increase in short-term repurchase agreements.
Loan growth was moderate for the three months ended September 30,
1997. Net loans receivable totaled $463.1 million at September 30, 1997, an
increase of $2.4 million, or 0.5%, from $460.7 million at June 30, 1997.
Loan portfolio composition continues to be primarily in one-to-four family
mortgages which represented $1.4 million of the current period increase.
Loan originations during the current quarter totaled $32.0 million
compared to $31.0 million during the quarter ended June 30, 1997. Mortgage
loans for the purchase, construction or refinance of one-to-four family
homes in the Bank's market continued to represent the largest segment of its
loan originations. During the three months ended September 30, 1997, one-
to-four family loan originations were $17.3 million, or 53.9% of total
originations; multi-family residential, commercial real estate and
development loan originations were $5.9 million, or 18.6% of total
originations; and consumer loan originations were $8.8 million, or 27.5% of
total originations.
The Bank has historically been a portfolio lender, however, management
is currently finalizing a secondary market mortgage lending operation
designed to originate and sell qualifying loans to Federal National Mortgage
Association (FNMA) in an effort to access that portion of the mortgage
market that is currently serviced by secondary market lenders. Management
believes that the operational efficiencies existing in the portfolio lending
operations will allow the Bank to be competitive in the secondary market.
Funds not utilized for securities, lending programs or operations are
held in interest-bearing deposits. Cash and cash equivalents declined $3.0
million, or 29.5%, during the current quarter and totaled $7.1 million at
September 30, 1997. This decline was used primarily to fund deposit
outflows and the increase in loans receivable.
Deposits declined $1.2 million, or 0.3%, during the current quarter
and totaled $449.0 million at September 30, 1997 compared to $450.2 million
at June 30, 1997. The decline was due primarily to customers seeking higher
yields in this generally low market interest rate environment. The variety
of deposit products offered by the Bank has allowed it to be competitive in
obtaining funds and to respond with flexibility to changes in consumer
demand. The Bank, however, continues to be susceptible to short-term
fluctuations in deposit flows because customers are generally interest rate
conscious. Passbook and money market accounts declined $3.8 million and
$1.1 million, respectively, whereas NOW and certificate accounts increased
$297,000 and $3.4 million, respectively.
Short-term securities sold under agreements to repurchase (repurchase
agreements) increased $12.7 million during the current quarter and totaled
$20.0 million at September 30, 1997 compared to $7.3 million at June 30,
1997. Funds generated by the increase in short-term repurchase agreements
were used primarily to purchase securities and repay a portion of
borrowings.
Borrowed funds declined $6.3 million during the current quarter and
totaled $21.2 million at September 30, 1997 compared to $27.5 million at
June 30, 1997. The decline in borrowed funds was pursuant to the increase
in short-term repurchase agreements mentioned above. Borrowed funds are
managed within the Company's guidelines for asset/liability management,
profitability and overall growth objectives.
Other payables and accrued expenses increased $6.3 million during the
current quarter and totaled $11.1 million at September 30, 1997 compared to
$4.8 million at June 30, 1997. The increase was primarily due to $4.0 in
securities purchases which settled in October and a $2.3 million increase in
accrued interest on deposits.
Total stockholders' equity increased $1.5 million, or 1.8%, during the
current quarter and totaled $83.7 million at September 30, 1997 compared to
$82.2 million at June 30, 1997. The increase resulted principally from net
income for the three months ended September 30, 1997 of $1.9 million and the
change in unrealized gain on securities available for sale of $666,000.
These increases were partially offset by dividends paid totaling $660,000
and treasury stock purchases totaling $777,000. The treasury stock
purchases were the result of completing, in July 1997, the buyback program
announced in April 1997. On October 14, 1997, the Company announced its
intention to repurchase an additional 5%, or 206,020 shares of its
outstanding common stock in open market transactions beginning October 20,
1997. Book value per share increased from $19.83 per share at June 30, 1997
to $20.30 per share at September 30, 1997.
Results of Operations
Net Interest Income
Net interest income decreased $129,000, or 2.3%, and totaled $5.5
million for the three months ended September 30, 1997 compared to $5.6
million for the same prior year period. This represents a net interest
margin of 3.76% for the current three-month period, down 30 basis points
from 4.06% for the prior three-month period.
The following table presents for the periods indicated average balance
sheets, the total dollar amount of interest income from average interest-
earning assets and the resultant yields, as well as the interest expense on
the average interest-bearing liabilities, and the resultant costs, expressed
both in dollars and rates. Average balances are daily average balances.
Interest on non-accruing loans has been included in the table to the extent
received.
Three months ended September 30,
------------------------------------------------------------------------
1997 1996
---------------------------------- ---------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- -------- ------ ----------- -------- ------
Interest-Earning Assets:
Loans receivable (1) $ 461,862 $ 9,907 8.58% $444,081 $ 9,487 8.55%
Securities available for sale (2) (3) 115,378 1,908 6.65% 104,809 1,650 6.22%
FHLB Stock 4,144 76 7.34% 3,834 67 6.99%
Other 9,178 123 5.36% 3,255 42 5.16%
---------------------- ---------------------
Total interest-earning assets (2) $ 590,562 $12,014 8.15% $555,979 $11,246 8.07%
====================== =====================
Interest-Bearing Liabilities:
Demand and NOW deposits $ 54,412 $ 328 2.41% $ 55,036 $ 348 2.53%
Savings deposits 105,413 797 3.02% 112,775 852 3.02%
Certificate accounts 293,511 4,378 5.97% 284,503 4,223 5.94%
Securities sold under agreements
to repurchase:
Short-term 15,767 217 5.51% 8,164 115 5.63%
Long-term 25,000 390 6.24% - - -
Short-term borrowings 25,446 365 5.74% 4,291 58 5.41%
Long-term borrowings - - - - - -
---------------------- ---------------------
Total interest-bearing liabilities $ 519,549 $ 6,475 4.99% $464,769 $ 5,596 4.82%
====================== =====================
Net interest income 5,539 5,650
Less fully taxable equivalent adjustment (55) (37)
------- -------
Net interest income per statement of income $ 5,484 $ 5,613
======= =======
Net interest rate spread 3.16% 3.25%
===== =====
Net earning assets $ 71,013 $ 91,210
========= ========
Net yield on average
interest-earning assets (2) 3.76% 4.06%
===== =====
Average interest-earning assets to
average interest-bearing liabilities 1.14 1.20
======= =======
<FN>
<F1> Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.
<F2> Yield is calculated without consideration of the unrealized gain (loss)
on securities available for sale.
<F3> Interest is presented on a fully taxable equivalent basis using the
Company's federal statutory tax rate of 34%.
</FN>
Interest income on loans totaled $9.9 million for the three months
ended September 30, 1997, up $420,000, or 4.4%, from $9.5 million for the
three months ended September 30, 1996. This increase was a result of a
$17.8 million increase in the average balance of loans outstanding,
reflecting continued loan growth, and a 3 basis point increase in the
average yield on loans, from 8.55% to 8.58%.
Income from securities totaled $1.9 million for the three months ended
September 30, 1997, up $240,000, or 14.9%, from $1.6 million for the three
months ended September 30, 1996. This increase was the result of a $10.6
million increase in the average balance of securities and a 43 basis point
increase in the average yield on securities, from 6.22% to 6.65%.
Interest expense on deposits totaled $5.5 million for the three months
ended September 30, 1997, up $81,000, or 1.5%, from $5.4 million for the
three months ended September 30, 1996. The increase was the result of a
$1.0 million increase in the average balance of deposits and a 6 basis point
increase in the average rate of deposits, from 4.80% to 4.86%.
Interest expense on short- and long-term repurchase agreements totaled
$607,000 for the three months ended September 30, 1997, up $492,000 from
$115,000 for the three months ended September 30, 1996. The increase was
the result of a $7.6 million increase in the average balance of short-term
repurchase agreements partially offset by a 12 basis point decline in the
average cost of short-term repurchase agreements, from 5.63% to 5.51%. The
average balance and rate of long-term repurchase agreements for the three
months ended September 30, 1997 was $25.0 million and 6.24%, respectively.
The Company did not enter into long-term repurchase agreements during the
three months ended September 30, 1996.
Interest expense on borrowed funds totaled $365,000 for the three
months ended September 30, 1997, up $307,000 from $58,000 for the three
months ended September 30, 1996. The increase was the result of a $21.2
million increase in the average balance of borrowed funds and a 33 basis
point increase in the average cost of borrowed funds, from 5.41% to 5.74%.
Provision for Loan Losses
The provision for loan losses totaled $142,000 for the three months
ended September 30, 1997 compared to $154,000 for the same period last year
based on management's continuing assessment of the loan portfolio and
management's desire to maintain the allowance for loan losses at a level
considered adequate to provide for probable future loan losses. The Bank's
allowance for loan losses totaled 72.2% and 74.2% of non-performing assets
at September 30, 1997 and June 30, 1997, respectively. Future additions to
the allowance for loan losses will be dependent on a number of factors,
including the performance of the Bank's loan portfolio, the economy, changes
in interest rates and the effect of such changes on real estate values,
inflation and the view of regulatory authorities toward adequate reserve
levels. Management believes that the allowance for loan losses is adequate
at September 30, 1997.
Non-Interest Income
Non-interest income totaled $328,000 for the three months ended
September 30, 1997 compared to a loss of $324,000 for the three months ended
September 30, 1996. The difference is primarily due to a gain on sale of
securities totaling $48,000 during the current three-month period and a loss
on sale of securities totaling $543,000 during the same prior year period.
On September 30, 1996, management decided to sell $28.8 million in available
for sale securities for liquidity or reinvestment purposes. The Company
recorded a loss on sale of securities for the write-down to fair value for
other-than-temporary impairment when the decision to sell such securities
was made.
Non-Interest Expense
Non-interest expense totaled $2.8 million for the three months ended
September 30, 1997, a decline of $3.1 million from $5.9 million for the
three months ended September 30, 1996. The decline was primarily
attributable to the one-time SAIF assessment of $3.0 million recorded on
September 30, 1996.
Income Tax Expense
Federal income tax expense totaled $1.0 million for the three months
ended September 30, 1997 compared to a benefit of ($293,000) for the three
months ended September 30, 1996. The increase is primarily the result of
the impairment loss on securities and the one-time SAIF assessment mentioned
above.
Effect of New Accounting Standards
Refer to Note 2 of the Notes to Consolidated Financial Statements
contained in this report.
Liquidity
In general terms, liquidity is a measurement of the Company's ability
to meet its cash needs. For example, the Company's objective is to maintain
the ability to meet loan commitments, purchase securities or to repay
deposits and other liabilities in accordance with their terms without an
adverse impact on current or future earnings. The Company's principal
sources of funds are deposits, amortization and prepayments of loans,
maturities, sales and principal receipts of securities, borrowings,
repurchase agreements and operations.
Federal regulations require the Bank to maintain minimum levels 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 may vary from time to time depending
on economic conditions and savings flows of all savings institutions.
Currently, the minimum liquid asset ratio is 5%. In addition, short-term
liquid assets currently must constitute at least 1% of the Bank's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed for violations of either liquid asset ratio
requirement. At September 30, 1997 and 1996, the Bank was in compliance
with both requirements, with overall liquid asset ratios of 7.2% and
10.3%, respectively, and short-term liquid asset ratios of 4.8% and 4.0%,
respectively. The reduction in the Bank's liquidity from 10.3% at September
30, 1996 to 7.2% at September 30, 1997 was due primarily to an increase
in the loan portfolio and increased borrowings, including repurchase
agreements, that were used to purchase mortgage-backed securities with
maturities greater than five years.
Capital Resources
Federal regulations require savings institutions to maintain certain
minimum levels of regulatory capital. Regulations require tangible capital
divided by total adjusted assets to be at least 1.5%. The regulations also
require core capital divided by total adjusted assets to be at least 3.0%,
and risk-based capital divided by risk-weighted assets must be at least
8.0%. The regulations define tangible, core and risk-based capital as well
as total adjusted assets and risk-weighted assets.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19,
1992. The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically undercapitalized." To be considered "well capitalized", an
institution must generally have a leverage capital ratio of at least 5%, a
Tier-1 risk-based capital ratio of at least 6%, and a total risk-based
capital ratio of at least 10%.
At September 30, 1997, the Bank was in compliance with regulatory
capital requirements and is considered "well capitalized" as set forth
below:
Core/ Tier-1 Total
Equity Tangible Leverage Risk-Based Risk-Based
(dollars in thousands) Capital Capital Capital Capital Capital
------- -------- -------- ---------- ----------
GAAP Capital $ 57,536 $ 57,536 $ 57,536 $ 57,536 $ 57,536
Unrealized appreciation or gain on
securities available for sale, net (289) (289) (289) (289)
General loan valuation allowances - - - 2,475
Other - - - (92)
-----------------------------------------------
Regulatory capital 57,247 57,247 57,247 59,630
Total assets 592,108
Adjusted total assets 591,891 591,891
Risk-weighted assets 345,282 345,282
------------------------------------------------------------
Capital ratio 9.7% 9.7% 9.7% 16.6% 17.3%
Regulatory capital category
Well capitalized - equal to or
greater than 5.0% 6.0% 10.0%
------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in information about market risk that
was provided in the 1997 Annual Report to Shareholders, which was
incorporated by reference into the Company's 1997 Annual Report on Form 10-
K.
PART II: OTHER INFORMATION
FFY FINANCIAL CORP.
SEPTEMBER 30, 1997
Item 1. Legal Proceedings
FFY is not a party to any material legal proceeding before any court
or regulatory authority, administrative agency or other tribunal. Further,
FFY is not aware of the threat of any such proceeding.
As part of its ordinary course of business, First Federal is a party
to several lawsuits involving a variety of claims, including the collection
of delinquent accounts. No litigation is pending or, to First Federal's
knowledge, threatened in which the Bank faces potential loss or exposure
which would have a material impact on its financial condition or results of
operations. First Federal is not involved in any administrative or judicial
proceeding under any Federal, State or Local provisions which have been
enacted or adopted relating to the protection of the environment.
Item 2. Changes in Securities
None to be reported.
Item 3. Defaults on Senior Securities
None to be reported.
Item 4. Submission of Matters to a Vote of Security Holders
On October 15, 1997, FFY Financial Corp. held its annual meeting of
stockholders. The matters approved by stockholders at the annual meeting
and the number of votes cast for, against or withheld (as well as the number
of abstentions and broker non-votes) as to each matter are set forth below.
Election of Directors for a three-year term:
BROKER
NAME FOR WITHHELD NON-VOTES
- ---- --- -------- ---------
Marie Izzo Cartwright 3,249,063 53,626 -0-
Henry P. Nemenz 3,280,298 22,391 -0-
W. Terry Patrick 3,251,449 51,239 -0-
Ratification of the Appointment of Auditors for a one-year term:
BROKER
NAME FOR AGAINST ABSTAIN NON-VOTES
- ---- --- ------- ------- ---------
KPMG Peat Marwick LLP 3,272,755 18,270 11,663 -0-
Item 5. Other Information
None to be reported.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K
On July 24, 1997, the Registrant announced earnings of $5.3 million,
or $1.19 per share for the year ended June 30, 1997 and approval of the
regular quarterly dividend of $.175 per share.
Pursuant the requirements 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.
Date: November 14, 1997 By: /s/ Jeffrey L. Francis
Jeffrey L. Francis
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ Therese Ann Liutkus
Therese Ann Liutkus
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)