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 December 31, 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 JANUARY 31, 1998
----- --------------------------------------
common stock, $.01 par value 4,056,376
1
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 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, June 30,
1997 1997
------------ ------------
ASSETS
Cash $ 4,716,950 $ 3,631,798
Interest-bearing deposits 4,036,892 6,215,957
Short-term investments 129,000 160,000
-------------------------------
TOTAL CASH AND CASH EQUIVALENTS 8,882,842 10,007,755
Securities available for sale 125,948,865 112,036,159
Loans receivable 462,683,272 460,711,635
Interest and dividends receivable on
securities 1,420,632 1,239,988
Interest receivable on loans 2,513,773 2,524,542
Federal Home Loan Bank stock, at cost 4,244,500 4,094,500
Office properties and equipment, net 7,710,438 7,797,721
Other assets 1,344,547 837,075
-------------------------------
TOTAL ASSETS $614,748,869 $599,249,375
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $453,858,616 $450,223,793
Securities sold under agreements to
repurchase:
Short-term 13,043,366 7,307,248
Long-term 25,000,000 25,000,000
Borrowed funds 32,000,000 27,455,000
Advance payments by borrowers for
taxes and insurance 2,446,677 2,313,090
Other payables and accrued expenses 4,827,949 4,776,028
-------------------------------
TOTAL LIABILITIES 531,176,608 517,075,159
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
4,070,046 shares at December 31, 1997
and 4,144,840 shares at June 30, 1997 66,300 66,300
Additional paid-in capital 64,750,195 64,506,573
Retained earnings, substantially restricted 77,028,596 74,599,977
Treasury stock, at cost, 2,559,954 shares at
December 31, 1997 and 2,485,160 shares at
June 30, 1997 (55,709,625) (53,387,258)
Unrealized gain on securities available for
sale, net 956,567 111,796
Common stock purchased by:
Employee Stock Ownership and 401(k) Plan (3,237,982) (3,441,382)
Recognition and Retention Plans (281,790) (281,790)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 83,572,261 82,174,216
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $614,748,869 $599,249,375
===============================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
INTEREST INCOME
Loans $ 9,924,236 $ 9,657,521 $19,830,847 $19,144,074
Securities available for sale 1,961,963 1,469,972 3,814,653 3,082,739
Federal Home Loan Bank stock 77,564 68,744 153,737 136,301
Other interest-earning assets 40,612 392,148 163,675 434,460
--------------------------------------------------------------
TOTAL INTEREST INCOME 12,004,375 11,588,385 23,962,912 22,797,574
--------------------------------------------------------------
INTEREST EXPENSE
Deposits 5,377,050 5,511,464 10,880,280 10,934,108
Securities sold under agreements
to repurchase:
Short-term 209,129 101,232 426,184 216,607
Long-term 389,722 - 779,444 -
Borrowed funds 374,908 344,211 739,977 402,524
--------------------------------------------------------------
TOTAL INTEREST EXPENSE 6,350,809 5,956,907 12,825,885 11,553,239
NET INTEREST INCOME 5,653,566 5,631,478 11,137,027 11,244,335
Provision for loan losses 183,861 198,614 326,256 353,030
--------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,469,705 5,432,864 10,810,771 10,891,305
--------------------------------------------------------------
NON-INTEREST INCOME
Service charges 182,500 133,745 352,386 262,917
Gain (loss) on sale of securities
available for sale 51,350 173,454 99,589 (369,676)
Other 48,546 85,840 158,146 175,672
--------------------------------------------------------------
TOTAL NON-INTEREST INCOME 282,396 393,039 610,121 68,913
--------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,485,368 1,578,514 2,901,832 3,015,726
Net occupancy and equipment 423,077 420,094 842,685 838,744
Insurance and bonding 121,579 257,090 242,832 3,587,353
State and local taxes 275,848 269,527 551,707 539,051
Other 518,248 459,199 1,045,775 926,490
--------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 2,824,120 2,984,424 5,584,831 8,907,364
--------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME
TAXES 2,927,981 2,841,479 5,836,061 2,052,854
FEDERAL INCOME TAX EXPENSE 988,000 940,000 1,993,000 647,000
--------------------------------------------------------------
NET INCOME $ 1,939,981 $ 1,901,479 $ 3,843,061 $ 1,405,854
==============================================================
BASIC EARNINGS PER SHARE $ 0.51 $ 0.40 $ 1.02 $ 0.30
==============================================================
DILUTED EARNINGS PER SHARE $ 0.50 $ 0.39 $ 0.98 $ 0.29
==============================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.20 $ 0.175 $ 0.40 $ 0.35
==============================================================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Six months ended
December 31,
-----------------------------
1997 1996
----------- ------------
Balance at July 1, $82,174,216 $101,920,853
Net income 3,843,061 1,405,854
Dividends paid, $.375 and $.325 per share,
respectively (1,414,442) (1,536,780)
Treasury stock purchased (2,643,673) (21,175,509)
Stock options exercised 148,490 432,460
Amortization of ESOP and 401(k) expense 203,400 212,160
Amortization of RRP stock awards - 331,500
Tax benefit related to RRP stock awards - 148,298
Tax benefit related to exercise of stock
options 40,890 264,453
Difference between average fair value per
share and cost per share on ESOP and 401(k)
shares committed to be released 375,548 306,884
Change in unrealized gain (loss) on securities
available for sale, net 844,771 1,031,903
-----------------------------
$83,572,261 $83,342,076
=============================
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
December 31,
------------------------------
1997 1996
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,810,113 $ 4,519,714
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available for sale 6,577,605 22,000,000
Proceeds from sales of securities available for sale 17,732,116 38,291,582
Purchase of securities available for sale (45,410,571) (35,527,032)
Principal receipts on securities available for sale 9,004,785 2,652,182
Net increase in loans (2,024,023) (14,663,299)
Purchase of office properties and equipment (420,225) (429,439)
Other, net (350,740) 10,000
------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (14,891,053) 12,333,994
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 3,707,499 4,337,236
Net increase in short-term securities sold under agreements
to repurchase 5,736,118 248,613
Net increase in borrowed funds 4,545,000 23,800,000
Decrease in amounts due to bank (745,873) (1,952,805)
Treasury stock purchases (2,643,673) (21,175,509)
Dividends paid (1,414,442) (1,536,780)
Other, net (228,602) (513,380)
------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,956,027 3,207,375
------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,124,913) 20,061,083
CASH AND CASH EQUIVALENTS
Beginning of period 10,007,755 8,262,397
------------------------------
End of period $ 8,882,842 $ 28,323,480
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments of interest expense $ 12,809,208 $ 11,558,121
Cash payments of income taxes 2,155,000 260,000
See accompanying notes to consolidated financial statements
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
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 subsidiaries First Federal Savings Bank of Youngstown (First Federal
or Bank) and FFY Holdings, Inc. 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:
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. The
Company adopted SFAS No. 128 which is effective for financial statements for
both interim and annual periods ending after December 15, 1997. The prior
year earnings per share information was restated based on SFAS No. 128.
Earnings per share information is disclosed in the following tables for the
three and six months ended December 31, 1997 and 1996, respectively.
Three months ended December 31,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic Earnings Per Share
Income available to
common stockholders $1,939,981 3,771,757 $0.51 $1,901,479 4,739,273 $0.40
===== =====
Effect of Dilutive Securities
Stock options - 140,967 - 142,541
------------------------- -------------------------
Diluted Earnings Per Share
Income available to
common stockholders $1,939,981 3,912,724 $0.50 $1,901,479 4,881,814 $0.39
==============================================================================
Six months ended December 31,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic Earnings Per Share
Income available to
common stockholders $3,843,061 3,777,048 $1.02 $1,405,854 4,733,852 $0.30
===== =====
Effect of Dilutive Securities
Stock options - 138,563 - 142,761
------------------------- -------------------------
Diluted Earnings Per Share
Income available to
common stockholders $3,843,061 3,915,611 $0.98 $1,405,854 4,876,613 $0.29
==============================================================================
(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.
DECEMBER 31, 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 and six months ended December 31,
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
The Company is in the initial stages of converting its computer system to a
new comprehensive software system to run the core banking operation. This
new system will allow the Bank to enhance its current services and virtually
completes the process of making the operating systems Year 2000 compliant.
Management does not anticipate a material financial impact regarding Year
2000 compliance, although no assurance can be given in this regard.
Financial Condition
Total assets at December 31, 1997 increased $15.5 million, or 2.6%, to
$614.7 million from $599.2 million at June 30, 1997. The increase was
primarily attributable to increases in securities available for sale and
loans receivable.
The Company's securities portfolio increased $13.9 million, or 12.4%, and
totaled $125.9 million at December 31, 1997 compared to $112.0 million at
June 30, 1997. The increase was due primarily to the purchase of securities
totaling $46.0 million and an increase in market value of available for sale
securities totaling $1.4 million partially offset by $17.6 million, $6.6
million and $9.0 million in sales, maturities and principal receipts on
mortgage-backed securities, respectively. The increase in securities was
primarily funded by increases in deposits, short-term repurchase agreements
and borrowings.
Net loans receivable totaled $462.7 million at December 31, 1997, an
increase of $2.0 million, or 0.4%, from $460.7 million at June 30, 1997.
This current year growth compares to an increase of $14.5 million, or 3.3%,
for the six months ended December 31, 1996. The decline in growth was due
primarily to potential customers seeking lower rates in this generally low
market interest rate environment. Loan portfolio composition continues to
be primarily in one-to-four family mortgages.
Loan originations during the current six month period totaled $55.0 million
compared to $63.4 million during the same period last year. 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 six months ended December 31, 1997, one-to-four
family loan originations were $30.3 million, or 55.1% of total originations;
multi-family residential, commercial real estate and development loan
originations were $9.0 million, or 16.3% of total originations; and consumer
loan originations were $15.7 million, or 28.6% of total originations. The
Bank's focus on loan originations is currently one-to-four family
adjustable-rate mortgages (ARMs) in an ongoing attempt to reduce interest
rate risk. Adjustable-rate originations totaled $11.1 million, or 20.2% of
total originations during the six months ended December 31, 1997 compared to
$11.2 million, or 17.8% of total originations during the same period last
year.
The Bank has finalized its secondary market mortgage lending operation which
is designed to originate and sell qualifying loans to the 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. There is no material impact from the Bank's secondary
market operation at and for the six months ended December 31, 1997.
Total liabilities at December 31, 1997 increased $14.1 million, or 2.7%, to
$531.2 million from $517.1 million at June 30, 1997. The increase was
attributable to increases in deposits, short-term repurchase agreements and
borrowings which funds were used mainly for the growth in the securities
portfolio.
Deposits increased $3.6 million, or 0.8%, during the current six-month
period and totaled $453.9 million at December 31, 1997 compared to $450.2
million at June 30, 1997. 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. Certificate, NOW and money market
accounts increased $7.1 million, $1.6 million and $2.7 million,
respectively, whereas passbook accounts declined $7.8 million.
Short-term securities sold under agreements to repurchase (repurchase
agreements) increased $5.7 million during the current six-month period and
totaled $13.0 million at December 31, 1997 compared to $7.3 million at June
30, 1997.
Borrowed funds increased $4.5 million during the current six-month period
and totaled $32.0 million at December 31, 1997 compared to $27.5 million at
June 30, 1997. Borrowed funds are managed within the Company's guidelines
for asset/liability management, profitability and overall growth objectives.
Total stockholders' equity increased $1.4 million, or 1.7%, during the
current six-month period and totaled $83.6 million at December 31, 1997
compared to $82.2 million at June 30, 1997. The increase resulted
principally from net income for the six months ended December 31, 1997 of
$3.8 million and the change in unrealized gain on securities available for
sale of $845,000. These increases were partially offset by dividends paid
totaling $1.4 million and treasury stock purchases totaling $2.6 million.
On October 20, 1997, the Company announced its intention to repurchase 5%,
or 206,020 of its then outstanding shares of common stock in open market
transactions over a twelve month period. As of January 30, 1998, 77,000
shares have been repurchased at an average cost of $31.58 per share. Book
value per share increased from $19.83 per share at June 30, 1997 to $20.53
per share at December 31, 1997.
Average Balances, Interest Rates and Yields
The following table presents for the three months ended December 31, 1997
and 1996 average balance sheets, the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as
the interest expense on the average interest-bearing liabilities, and the
resultant costs, expressed both in dollars and rates. Average balances are
daily average balances. Interest on non-accruing loans has been included in
the table to the extent received.
Three months ended December 31,
--------------------------------------------------------------------------
($ in thousands) 1997 1996
------------------------------------ ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (4) Balance Paid Rate (4)
----------- -------- -------- ----------- -------- --------
Interest-Earning Assets:
Loans receivable (1) $462,841 $ 9,924 8.58% $452,285 $ 9,657 8.54%
Securities available for sale (2) (3) 119,894 2,055 6.93% 92,747 1,501 6.48%
FHLB Stock 4,220 78 7.39% 3,886 69 7.10%
Other 3,181 41 5.16% 31,516 392 4.98%
--------------------- ---------------------
Total interest-earning assets (2) $590,136 $12,098 8.22% $580,434 $11,619 8.01%
===================== =====================
Interest-Bearing Liabilities:
Demand and NOW deposits $ 56,245 $ 331 2.35% $ 54,950 $ 343 2.50%
Savings deposits 101,552 684 2.69% 110,434 833 3.02%
Certificate accounts 291,655 4,362 5.98% 287,379 4,336 6.04%
Securities sold under agreements to
repurchase:
Short-term 14,784 209 5.65% 6,794 101 5.95%
Long-term 25,000 390 6.24% - - -
Short-term borrowings 26,058 375 5.76% 25,035 344 5.50%
--------------------- ---------------------
Total interest-bearing liabilities $515,294 $ 6,351 4.93% $484,592 $ 5,957 4.92%
===================== =====================
Net interest income 5,747 5,662
Less fully taxable equivalent adjustment (94) (31)
------- -------
Net interest income per statement of income $ 5,653 $ 5,631
======= =======
Net interest rate spread 3.29% 3.09%
==== ====
Net earning assets $ 74,842 $ 95,842
======== ========
Net yield on average
interest-earning assets (2) 3.90% 3.90%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 1.15x 1.20x
======= =======
<FN>
<F1> Calculated net of deferred loan fees, loan discounts, loan in process
and loss reserves.
<F2> Yield is calculated without consideration of the unrealized gain 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%.
<F4> Annualized.
</FN>
The following table presents for the six months ended December 31, 1997 and
1996 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.
Six months ended December 31,
--------------------------------------------------------------------------
($ in thousands) 1997 1996
------------------------------------ ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (4) Balance Paid Rate (4)
----------- -------- -------- ----------- -------- --------
Interest-Earning Assets:
Loans receivable (1) $462,351 $19,831 8.58% $448,183 $19,144 8.54%
Securities available for sale (2) (3) 117,636 3,962 6.79% 98,778 3,152 6.34%
FHLB Stock 4,182 154 7.36% 3,860 136 7.05%
Other 6,180 164 5.31% 17,385 434 4.99%
--------------------- ---------------------
Total interest-earning assets (2) $590,349 $24,111 8.18% $568,206 $22,866 8.04%
===================== =====================
Interest-Bearing Liabilities:
Demand and NOW deposits $ 55,329 $ 659 2.38% $ 54,993 $ 691 2.51%
Savings deposits 103,483 1,481 2.86% 111,605 1,685 3.02%
Certificate accounts 292,583 8,740 5.97% 285,941 8,558 5.99%
Securities sold under agreements to
repurchase:
Short-term 15,275 426 5.58% 7,479 217 5.80%
Long-term 25,000 780 6.24% - - -
Short-term borrowings 25,752 740 5.75% 14,663 402 5.48%
--------------------- ---------------------
Total interest-bearing liabilities $517,422 $12,826 4.96% $474,681 $11,553 4.87%
===================== =====================
Net interest income 11,285 11,313
Less fully taxable equivalent adjustment (148) (69)
------- -------
Net interest income per statement of income $11,137 $11,244
======= =======
Net interest rate spread 3.22% 3.17%
==== ====
Net earning assets $ 72,927 $ 93,525
======== ========
Net yield on average
interest-earning assets (2) 3.83% 3.98%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 1.14x 1.20x
======= =======
<FN>
<F1> Calculated net of deferred loan fees, loan discounts, loan 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%.
<F4> Annualized.
</FN>
Results of Operations
Comparison of the Three and Six Months Ended December 31, 1997 and 1996
The Company recorded net income of $1.9 million, or $0.50 per share on a
diluted basis, for the three months ended December 31, 1997. This compares
to net income of $1.9 million, or $0.39 per diluted share for the three
months ended December 31, 1996. For the six months ended December 31, 1997,
the Company reported net income of $3.8 million, or $0.98 per share on a
diluted basis. This compares to net income of $1.4 million, or $0.29 per
diluted share for the same prior year period. The $2.4 million increase for
the six months ended December 31, 1997 over the same period in 1996 is
primarily due to the one-time SAIF special assessment of $3.0 million
recorded in September 1996.
Interest income totaled $12.0 million for the three months ended December
31, 1997 compared to $11.6 million for the three months ended December 31,
1996, an increase of $416,000 or 3.6%. For the six months ended December
31, 1997, interest income totaled $24.0 million compared to $22.8 million
for the same prior year period representing an increase of $1.2 million or
5.1%. The increase in interest income for the three and six months ended
December 31, 1997 over the same prior periods was due mainly to larger
average balances and yields earned on loans and securities during the
current year.
Interest expense totaled $6.4 million for the three months ended December
31, 1997 compared to $6.0 million for the three months ended December 31,
1996, an increase of $394,000 or 6.6%. For the six months ended December
31, 1997, interest expense totaled $12.8 million compared to $11.6 million
for the same prior year period representing and increase of $1.2 million or
11.0%. The increase in interest expense for the three months ended December
31, 1997 over the same prior year period was due mainly to larger average
balances in short- and long-term repurchase agreements partially offset by
declines in the average outstanding balances and rates paid on deposits.
The increase in interest expense for the six months ended December 31, 1997
over the same prior year period was due mainly to larger average outstanding
balances in short- and long-term repurchase agreements and borrowed funds.
Funds generated from increases in repurchase agreements and borrowed funds
were primarily used to purchase securities.
Net interest income increased $22,000, or 0.4%, and totaled $5.7 million for
the three months ended December 31, 1997 compared to the same prior year
three-month period. The net interest margin was 3.90% for both the current
and prior year three-month period. Net interest income declined $107,000,
or 1.0%, and totaled $11.1 million for the six months ended December 31,
1997 compared to the same prior year six-month period. The net interest
margin was 3.83% for the six months ended December 31, 1997, down 15 basis
points from 3.98% for the six months ended December 31, 1996.
The provision for loan losses totaled $184,000 and $326,000 for the three
and six months ended December 31, 1997, respectively, compared to $199,000
and $353,000 for the same periods 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
74.8% and 74.2% of non-performing assets at December 31, 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 December 31, 1997.
Non-interest income totaled $282,000 for the three months ended December 31,
1997 compared to $393,000 for the same period last year. For the six months
ended December 31, 1997, non-interest income totaled $610,000 compared to
$69,000 for the same prior year period. The $111,000 decline for the three
months ended December 31, 1997 was primarily the result of a decline in gain
on sale of securities. The $541,000 increase for the six months ended
December 31, 1997 was primarily the result of an other-than-temporary
impairment loss on securities recorded in the prior fiscal year. On
September 30, 1996, management decided to sell $28.8 million in available
for sale securities for liquidity or reinvestment purposes and the Company
recorded a loss on sale of securities when the decision to sell such
securities was made. Increases in service fees for NOW accounts, automated
teller machines and debit cards also contributed to the increase for the six
months ended December 31, 1997.
Non-interest expense totaled $2.8 million for the three months ended
December 31, 1997 compared to $3.0 million for the same period last year.
For the six months ended December 31, 1997, non-interest expense totaled
$5.6 million compared to $8.9 million for the same prior year period. The
three month decline of $160,000 was primarily attributable to lower deposit
insurance premiums as a result of the one-time SAIF assessment. The six
month decline of $3.3 million was primarily attributable to the SAIF
assessment of $3.0 million recorded on September 30, 1996.
Federal income tax expense totaled $988,000 for the three months ended
December 31, 1997 compared to $940,000 for the same period last year. For
the six months ended December 31, 1997, federal income tax expense totaled
$2.0 million compared to $647,000 for the same prior year period. The six-
month 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.
New federal regulations, which became effective November 24, 1997, require
the Bank to maintain minimum levels of liquid assets in each calendar
quarter of not less than 4% of either (i) its liquidity base at the end of
the preceding quarter, or (ii) the average daily balance of its liquidity
base during the preceding quarter. The new federal regulations decreased
the minimum liquidity requirement from 5%, removed the 1% short-term
liquidity requirement, expanded categories of liquid assets and reduced the
liquidity base. The Bank's liquidity substantially exceeded the applicable
liquidity requirement at December 31, 1997. Simply meeting the liquidity
requirement does not automatically mean the Bank has sufficient liquidity
for a safe and sound operation. The new final rule includes a separate
requirement that each thrift must maintain sufficient liquidity to ensure
its safe and sound operation. Thus, adequate liquidity may vary depending
on the Bank's overall asset/liability structure, market conditions, the
activities of competitors, and the requirements of its own deposit and loan
customers. Management believes the Bank's liquidity is sufficient.
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 December 31, 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 $ 56,154 $ 56,154 $ 56,154 $ 56,154 $ 56,154
Unrealized appreciation or gain on
securities available for sale, net (204) (204) (204) (204)
General loan valuation allowances - - - 2,224
Other (2) (2) (2) (126)
--------------------------------------------------
Regulatory capital 55,948 55,948 55,948 58,048
Total assets 596,856
Adjusted total assets 596,721 596,721
Risk-weighted assets 348,691 348,691
----------------------------------------------------------------
Capital ratio 9.4% 9.4% 9.4% 16.0% 16.6%
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 from 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.
DECEMBER 31, 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 October 14, 1997, the Registrant announced
earnings of $1.9 million, or $0.49 per share for the quarter ended September
30, 1997 and an increase in the regular quarterly dividend from $0.175 per
share to $0.20 per share. The Registrant announced its intention to become
a collection of businesses that will provide real estate and financial
services, including a real estate brokerage company that was announced on
September 8, 1997 and an insurance company that will offer property and
casualty insurance. The Registrant also announced its intention to
repurchase 5%, or 206,020 of its outstanding shares of common stock in open
market transactions over a twelve month period beginning October 20, 1997.
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: February 13, 1998 By: /s/ Jeffrey L. Francis
Jeffrey L. Francis
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 1998 By: /s/ Therese Ann Liutkus
Therese Ann Liutkus
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)