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 March 31, 1998
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 APRIL 30, 1998
----- ------------------------------------
common stock, $.01 par value 4,054,778
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
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, 1998 June 30, 1997
-------------- -------------
ASSETS
- ------
Cash $ 3,430,246 $ 3,631,798
Interest-bearing deposits 25,297,778 6,215,957
Short-term investments 130,000 160,000
-----------------------------
TOTAL CASH AND CASH EQUIVALENTS 28,858,024 10,007,755
Securities available for sale 134,506,254 112,036,159
Loans receivable 463,898,949 460,711,635
Interest and dividends receivable on securities 1,394,614 1,239,988
Interest receivable on loans 2,464,913 2,524,542
Federal Home Loan Bank stock, at cost 4,322,000 4,094,500
Office properties and equipment, net 7,780,365 7,797,721
Other assets 1,421,612 837,075
-----------------------------
TOTAL ASSETS $644,646,731 $599,249,375
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $451,507,056 $450,223,793
Securities sold under agreements to repurchase:
Short-term 30,974,614 7,307,248
Long-term 51,300,000 25,000,000
Borrowed funds 16,000,000 27,455,000
Advance payments by borrowers for taxes and insurance 1,189,025 2,313,090
Other payables and accrued expenses 9,233,642 4,776,028
-----------------------------
TOTAL LIABILITIES 560,204,337 517,075,159
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 4,054,502 shares at March 31, 1998
and 4,144,840 shares at June 30, 1997 66,300 66,300
Additional paid-in capital 64,957,392 64,506,573
Retained earnings, substantially restricted 78,253,751 74,599,977
Treasury stock, at cost, 2,575,498 shares at
March 31, 1998 and 2,485,160 shares at June 30, 1997 (56,304,301) (53,387,258)
Unrealized gain on securities available for sale, net 887,324 111,796
Common stock purchased by:
Employee Stock Ownership and 401(k) Plan (3,136,282) (3,441,382)
Recognition and Retention Plans (281,790) (281,790)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 84,442,394 82,174,216
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $644,646,731 $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 Nine months ended
March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
INTEREST INCOME
Loans $ 9,925,378 $ 9,546,059 $29,756,225 $28,690,133
Securities available for sale 1,998,196 1,629,984 5,812,849 4,712,721
Federal Home Loan Bank stock 77,263 68,619 231,000 204,921
Other interest-earning assets 73,596 173,568 237,271 608,030
--------------------------------------------------------
TOTAL INTEREST INCOME 12,074,433 11,418,230 36,037,345 34,215,805
--------------------------------------------------------
INTEREST EXPENSE
Deposits 5,227,474 5,466,494 16,107,754 16,400,602
Securities sold under agreements to repurchase:
Short-term 222,732 104,593 648,916 321,201
Long-term 522,420 173,681 1,301,864 173,681
Borrowed funds 344,696 306,429 1,084,673 708,955
--------------------------------------------------------
TOTAL INTEREST EXPENSE 6,317,322 6,051,197 19,143,207 17,604,439
NET INTEREST INCOME 5,757,111 5,367,033 16,894,138 16,611,366
Provision for loan losses 115,284 208,128 441,540 561,158
--------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,641,827 5,158,905 16,452,598 16,050,208
--------------------------------------------------------
NON-INTEREST INCOME
Service charges 162,199 135,037 514,585 404,660
Gain (loss) on sale of securities available for sale 53,912 24,035 153,501 (345,641)
Other 294,188 96,730 548,750 265,696
--------------------------------------------------------
TOTAL NON-INTEREST INCOME 510,299 255,802 1,216,836 324,715
--------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,602,929 1,426,214 4,523,529 4,441,940
Net occupancy and equipment 473,308 395,256 1,330,996 1,234,000
Insurance and bonding 123,414 125,417 369,220 3,712,770
State and local taxes 266,769 269,774 818,476 808,825
Other 589,406 400,023 1,694,852 1,326,512
--------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 3,055,826 2,616,684 8,737,073 11,524,047
--------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 3,096,300 2,798,023 8,932,361 4,850,876
FEDERAL INCOME TAX EXPENSE 1,128,000 887,000 3,121,000 1,534,000
--------------------------------------------------------
NET INCOME $ 1,968,300 $ 1,911,023 $ 5,811,361 $ 3,316,876
========================================================
BASIC EARNINGS PER SHARE $ 0.53 $ 0.48 $ 1.54 $ 0.74
========================================================
DILUTED EARNINGS PER SHARE $ 0.51 $ 0.47 $ 1.49 $ 0.72
========================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.20 $ 0.175 $ 0.60 $ 0.525
========================================================
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)
Nine months ended
March 31,
1998 1997
----------- ------------
Balance at July 1, $82,174,216 $101,920,853
Net income 5,811,361 3,316,876
Dividends paid, $.575 and $.50 per share, respectively (2,157,587) (2,225,537)
Treasury stock purchased (3,374,748) (21,176,586)
Stock options exercised 211,050 526,060
Amortization of ESOP and 401(k) expense 305,100 318,240
Amortization of RRP stock awards - 331,500
Tax benefit related to RRP stock awards - 222,493
Tax benefit related to exercise of stock options 82,991 419,712
Difference between average fair value per share and cost per
share on ESOP and 401(k) shares committed to be released 614,483 468,844
Change in unrealized gain (loss) on securities available for
sale, net 775,528 267,664
---------------------------
$84,442,394 $ 84,390,119
===========================
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)
Nine months ended
March 31,
1998 1997
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,316,673 $ 9,252,706
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available for sale 14,727,605 26,000,000
Proceeds from sales of securities available for sale 22,740,102 43,659,205
Purchase of securities available for sale (73,551,693) (80,508,340)
Principal receipts on securities available for sale 16,754,310 5,231,082
Net increase in loans (3,394,078) (16,142,102)
Purchase of office properties and equipment (736,533) (532,795)
Other, net (6,767) 14,461
----------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (23,467,054) (22,278,489)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 1,362,723 (8,524,379)
Net increase in short-term securities sold under agreements to repurchase 23,667,366 2,936,727
Net increase in long-term securities sold under agreements to repurchase 26,300,000 25,000,000
Net increase (decrease) in borrowed funds (11,455,000) 20,300,000
Decrease in amounts due to bank (89,958) (1,293,020)
Net increase (decrease) in advance payments by borrowers
for taxes and insurance (1,124,065) 1,375,844
Treasury stock purchases (3,374,748) (21,176,586)
Dividends paid (2,157,587) (2,225,537)
Other, net (128,081) 6,376
----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,000,650 16,399,425
----------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,850,269 3,373,642
CASH AND CASH EQUIVALENTS
Beginning of period 10,007,755 8,262,397
----------------------------
End of period $ 28,858,024 $ 11,636,039
============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments of interest expense $ 16,891,738 $ 15,577,188
Cash payments of income taxes 3,000,000 260,000
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 nine months ended March 31,
1998 and 1997, respectively.
Three months ended March 31,
1998 1997
----------------------------------------- -----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic Earnings Per Share
Income available to
common stockholders $1,968,300 3,739,554 $0.53 $1,911,023 3,964,334 $0.48
===== =====
Effect of Dilutive Securities
Stock options - 141,217 - 135,156
-------------------------- --------------------------
Diluted Earnings Per Share
Income available to
common stockholders $1,968,300 3,880,771 $0.51 $1,911,023 4,099,490 $0.47
======================================= =======================================
Nine months ended March 31,
1998 1997
----------------------------------------- -----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------------
Basic Earnings Per Share
Income available to
common stockholders $5,811,361 3,765,438 $1.54 $3,316,876 4,461,729 $0.74
===== =====
Effect of Dilutive Securities
Stock options - 139,724 - 140,163
-------------------------- --------------------------
Diluted Earnings Per Share
Income available to
common stockholders $5,811,361 3,905,162 $1.49 $3,316,876 4,601,892 $0.72
======================================= =======================================
(d) Reclassifications:
Certain amounts in the 1997 consolidated financial statements
have been reclassified to conform with the 1998 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.
In March, 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This
statement requires that certain costs related to the development or
purchase of internal-use software be capitalized and amortized over
the estimated useful life of the software. The SOP also requires that
costs related to the preliminary project stage and the post-
implementation/operations stage of an internal-use computer software
development project be expensed as incurred. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998, however, earlier
application is encouraged. Management anticipates the adoption of SOP
98-1 will not have a material effect on the Company's consolidated
financial condition or results of operations.
PART I: FINANCIAL INFORMATION
FFY FINANCIAL CORP.
MARCH 31, 1998
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 nine months ended March 31,
1998 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.
Year 2000 Issues
The Company has been and continues to address Year 2000 issues. The Year
2000 problem focuses on data processing systems and possible processing
difficulties with the change to the Year 2000. The Company's Year 2000
problem resolution process includes such phases as awareness of the problem,
assessment of its complexity, renovation, validation and implementation.
The resolution process includes contacting third party vendors who are
required to provide evidence of their efforts to become Year 2000 compliant.
The Company will evaluate each vendors' Year 2000 compliance progress and,
if not satisfied, will consider other vendors or other means for obtaining
such products or services. The project is headed by the Company's Vice
President of Operations and consists of members from the Bank's internal
auditing, information systems and facilities departments.
A significant part of Year 2000 compliance was converting the Bank's
financial computer system to a new comprehensive software system to run the
core banking operation. The conversion was successfully completed on April
27, 1998. In addition to being Year 2000 compliant, this new system allows
the Bank to enhance its current services. It was determined that the Bank's
previous financial computer system would be too costly to make Year 2000
compliant and would hinder other program development.
Management does not anticipate that the Company's efforts regarding Year
2000 compliance will have a material impact on the Company's financial
condition, results of operations, liquidity and capital resources, although
no assurance can be given in this regard.
Financial Condition
Total assets at March 31, 1998 increased $45.4 million, or 7.6%, to $644.6
million from $599.2 million at June 30, 1997. The increase was primarily
attributable to increases in cash and cash equivalents, securities available
for sale and loans receivable.
Cash and cash equivalents increased $18.9 million and totaled $28.9 million
at March 31, 1998 from $10.0 million at June 30, 1997. This increase was
attributable to a $17.0 million, 14-day repurchase agreement which funds
were invested in a term deposit at the Federal Home Loan Bank of Cincinnati.
The repurchase agreement matured on April 7, 1998.
Securities available for sale increased $22.5 million, or 20.1%, and totaled
$134.5 million at March 31, 1998 compared to $112.0 million at June 30,
1997. The increase was primarily due to the purchase of securities totaling
$75.7 million and an increase in market value of available for sale
securities totaling $1.2 million partially offset by $22.6 million and $14.7
million in securities sales and maturities, respectively, and $16.8 million
in principal receipts on mortgage-backed securities. Mortgage-backed
securities purchases accounted for $45.3 million of total security purchases
for the current nine month period of which $26.0 million were adjustable
rate. The increase in securities was primarily funded by increases in
short- and long-term repurchase agreements.
Net loans receivable increased $3.2 million, or 0.7%, and totaled $463.9
million at March 31, 1998 compared to $460.7 million at June 30, 1997. This
current year growth is primarily in one-to-four family adjustable-rate
mortgages. Management's effort in minimizing the impact of interest rate
changes is reflected in the increase in adjustable-rate loans, primarily in
the one-to-four family portfolio. Adjustable-rate loans totaled 22.9% of
the gross loan portfolio at March 31, 1998 compared to 20.1% at June 30,
1997. The Bank's loan portfolio composition continues to be primarily in
one-to-four family mortgages representing 73.9% of the gross loan portfolio
at March 31, 1998 compared to 73.6% of the gross loan portfolio at June 30,
1997.
Loan originations during the current nine month period totaled $87.8 million
compared to $87.9 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 area continued to represent the largest segment of its
loan originations. During the nine months ended March 31, 1998, one-to-four
family loan originations, including the construction of one-to-four family
homes, were $51.0 million, or 58.2% of total originations; multi-family
residential, commercial real estate and development loan originations were
$12.1 million, or 13.7% of total originations; and consumer loan
originations were $24.7 million, or 28.1% of total originations. The Bank's
focus on loan originations continues to be one-to-four family adjustable-
rate mortgages in an ongoing attempt to minimize the impact of changing
interest rates. One-to-four family adjustable-rate originations during the
nine month ended March 31, 1998 was $14.3 million, or 28.0% of total one-to-
four family originations compared to $14.7 million, or 26.1% during the same
period last year. Total adjustable-rate originations were $17.9 million, or
20.4% of total originations during the nine months ended March 31, 1998
compared to $17.8 million, or 20.2% of total originations during the same
period last year.
The Bank's secondary market mortgage lending operation, which is designed to
originate and sell qualifying loans to the Federal National Mortgage
Association (FNMA), did not have a material impact at and for the nine
months ended March 31, 1998. Currently, the Bank only sells fixed-rate
loans to FNMA.
Total liabilities at March 31, 1998 increased $43.1 million, or 8.3%, to
$560.2 million from $517.1 million at June 30, 1997. The increase was
primarily attributable to increases in short- and long-term repurchase
agreements which were partially offset by a decline in borrowed funds.
Deposits totaled $451.5 million, an increase of $1.3 million, or 0.3% from
$450.2 million at June 30, 1997.
Short-term securities sold under agreements to repurchase (repurchase
agreements) increased $23.7 million during the current nine month period and
totaled $31.0 million at March 31, 1998 compared to $7.3 million at June 30,
1997. The $23.7 million increase is mainly attributable to a $17.0 million,
14-day repurchase agreement that matured April 7, 1998. The remaining $6.7
million increase was used to fund a portion of the securities growth.
Long-term repurchase agreements increased $26.3 million during the current
nine month period and totaled $51.3 million at March 31, 1998 compared to
$25.0 million at June 30, 1997. During the current quarter, the Bank
entered into a 5-year, $10.0 million repurchase agreement and a 3-year,
$16.3 million repurchase agreement. The buyer has an option to call the 5-
year agreement after the first three years and every quarter thereafter.
For the 3-year agreement, the buyer has an option to call after one year and
every quarter thereafter. The proceeds from these additional funds were
used to purchase securities and refinance borrowed funds at a lower rate.
Borrowed funds declined $11.5 million during the current nine month period
and totaled $16.0 million at March 31, 1998 compared to $27.5 million at
June 30, 1997. The decline was attributable to refinancing such debt with
the increase in long-term repurchase agreements mentioned above. Borrowed
funds are managed within the Company's guidelines for asset/liability
management, profitability and overall growth objectives.
Total stockholders' equity increased $2.2 million, or 2.8%, during the
current nine-month period and totaled $84.4 million at March 31, 1998
compared to $82.2 million at June 30, 1997. The increase resulted
principally from net income for the nine months ended March 31, 1998 of $5.8
million, the change in unrealized gain on securities available for sale of
$776,000 and ESOP accounting pursuant to SOP 93-6 of $614,000. These
increases were partially offset by dividends paid totaling $2.2 million and
treasury stock purchases totaling $3.4 million. On October 20, 1997, FFY
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 April 21, 1998, 81,800 shares have been repurchased at an
average cost of $31.76 per share and 124,220 shares remain to be
repurchased. Book value per share increased from $19.83 per share at June
30, 1997 to $20.83 per share at March 31, 1998. Tangible book value per
share at March 31, 1998 was $20.81 per share.
Average Balances, Interest Rates and Yields
The following table presents for the three months ended March 31, 1998 and
1997 average balance sheets, the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the
interest expense on the average interest-bearing liabilities, and the
resultant costs, expressed both in dollars and rates. Average balances are
daily average balances. Interest on non-accruing loans has been included in
the table to the extent received.
Three months ended March 31,
($ in thousands) 1998 1997
---------------------------------- ----------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(4) Balance Paid Rate(4)
------------------------------------------------------------------------
Interest-Earning Assets:
Loans receivable(1) $461,441 $ 9,925 8.60% $453,058 $ 9,546 8.43%
Securities available for sale(2)(3) 128,925 2,064 6.48% 100,670 1,667 6.63%
FHLB Stock 4,297 77 7.17% 3,953 69 6.98%
Other 5,317 73 5.49% 13,494 173 5.13%
--------------------- ---------------------
Total interest-earning assets(2) $599,980 $12,139 8.11% $571,175 $11,455 8.02%
===================== =====================
Interest-Bearing Liabilities:
Demand and NOW deposits $ 56,118 $ 353 2.52% $ 54,559 $ 332 2.43%
Savings deposits 97,690 601 2.46% 109,599 811 2.96%
Certificate accounts 293,745 4,273 5.82% 291,938 4,324 5.92%
Securities sold under agreements to repurchase:
Short-term 15,806 223 5.64% 7,265 104 5.73%
Long-term 35,665 522 5.85% 11,310 174 6.15%
Short-term borrowings 24,377 345 5.66% 22,597 306 5.42%
--------------------- ---------------------
Total interest-bearing liabilities $523,401 6,317 4.83% $497,268 6,051 4.87%
============---------- ============---------
Net interest income 5,822 5,404
Less fully taxable equivalent adjustment (65) (37)
------- -------
Net interest income per statement of income $ 5,757 $ 5,367
======= =======
Net interest rate spread 3.28% 3.15%
==== ====
Net earning assets $ 76,579 $ 73,907
======== ========
Net yield on average
interest-earning assets(2) 3.89% 3.79%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 1.15x 1.15x
======= =======
- --------------------
<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.
The following table presents for the nine months ended March 31, 1998 and
1997 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.
Nine months ended March 31,
($ in thousands) 1998 1997
---------------------------------- ----------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(4) Balance Paid Rate(4)
----------- -------- ------- ----------- -------- -------
Interest-Earning Assets:
Loans receivable(1) $462,048 $29,756 8.59% $449,808 $28,690 8.50%
Securities available for sale(2)(3) 121,398 5,998 6.65% 99,409 4,821 6.44%
FHLB Stock 4,221 231 7.30% 3,891 205 7.02%
Other 5,892 237 5.36% 16,088 608 5.04%
--------------------- ---------------------
Total interest-earning assets(2) $593,559 $36,222 8.14% $569,196 $34,324 8.04%
===================== =====================
Interest-Bearing Liabilities:
Demand and NOW deposits $ 53,283 $ 1,013 2.53% $ 54,849 $ 1,023 2.49%
Savings deposits 101,552 2,082 2.73% 110,936 2,496 3.00%
Certificate accounts 292,970 13,013 5.92% 287,940 12,882 5.97%
Securities sold under agreements to repurchase:
Short-term 15,452 649 5.60% 7,408 321 5.78%
Long-term 28,555 1,302 6.08% 3,770 174 6.15%
Short-term borrowings 25,294 1,084 5.71% 17,308 709 5.46%
--------------------- ---------------------
Total interest-bearing liabilities $517,106 19,143 4.94% $482,211 17,605 4.87%
============--------- ============---------
Net interest income 17,079 16,719
Less fully taxable equivalent adjustment (185) (108)
------- -------
Net interest income per statement of income $16,894 $16,611
======= =======
Net interest rate spread 3.20% 3.17%
==== ====
Net earning assets $ 76,453 $ 86,985
======== ========
Net yield on average
interest-earning assets(2) 3.84% 3.91%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 1.15x 1.18x
======= =======
- --------------------
<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.
Results of Operations
Comparison of the Three and Nine Months Ended March 31, 1998 and 1997
The Company recorded net income of $2.0 million, or $0.51 per diluted share,
for the three months ended March 31, 1998. This compares to net income of
$1.9 million, or $0.47 per diluted share for the three months ended March
31, 1997. For the nine months ended March 31, 1998, the Company reported
net income of $5.8 million, or $1.49 per diluted share. This compares to
net income of $3.3 million, or $0.72 per diluted share for the same prior
year period. The $2.5 million increase for the nine months ended March 31,
1998 over the same period in 1997 is primarily due to the one-time SAIF
special assessment of $3.0 million recorded in September 1996. The three
and nine months ended March 31, 1998 includes operations of FFY Holdings,
Inc., a wholly owned subsidiary of FFY Financial Corp. The operations of
FFY Holdings, Inc. primarily includes operations of its real estate
brokerage affiliation which recorded a net loss of $23,000 and $59,000 for
the three and nine months ended March 31, 1998, respectively.
Interest income totaled $12.1 million for the three months ended March 31,
1998 compared to $11.4 million for the three months ended March 31, 1997, an
increase of $656,000 or 5.8%. For the nine months ended March 31, 1998,
interest income totaled $36.0 million compared to $34.2 million for the same
prior year period, representing an increase of $1.8 million or 5.3%. The
increase in interest income for the three and nine months ended March 31,
1998 over the same prior periods was due mainly to volume and yield
increases in loans and volume increases in securities. These increases were
partially offset by volume declines in other interest-earning assets, mainly
short-term open-end repurchase agreements, which proceeds were subsequently
reinvested in higher-yield securities.
Interest expense totaled $6.3 million for the three months ended March 31,
1998 compared to $6.1 million for the three months ended March 31, 1997, an
increase of $266,000 or 4.4%. For the nine months ended March 31, 1998,
interest expense totaled $19.1 million compared to $17.6 million for the
same prior year period, representing an increase of $1.5 million or 8.7%.
The increase in interest expense for the three months ended March 31, 1998
over the same prior year period was mainly due to volume increases in short-
and long-term repurchase agreements which were partially offset by volume
and rate declines in deposits. The increase in interest expense for the
nine months ended March 31, 1998 over the same prior year period was mainly
due to volume increases in short- and long-term repurchase agreements and
borrowed funds which were partially offset by volume and rate declines in
deposits.
Net interest income increased $390,000, or 7.3%, and totaled $5.8 million
for the three months ended March 31, 1998 compared to $5.4 million for the
same prior year three month period. The net interest margin was 3.89% for
the three months ended March 31, 1998, up 10 basis points from 3.79% for the
three months ended March 31, 1997. Net interest income increased $283,000,
or 1.7%, and totaled $16.9 million for the nine months ended March 31, 1998
compared to $16.6 million for the same prior year nine month period. The
net interest margin was 3.84% for the nine months ended March 31, 1998, down
7 basis points from 3.91% for the nine months ended March 31, 1997.
The provision for loan losses totaled $115,000 and $442,000 for the three
and nine months ended March 31, 1998, respectively, compared to $208,000 and
$561,000 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 decline in the provision for loan losses
for the three and nine months ended March 31, 1998 was due to the
unsatisfactory performance of the Bank's indirect auto loan portfolio during
the prior year periods. The Bank ceased indirect auto lending in March 1997
after an analysis of the returns generated by the existing portfolio and
potential returns from this line of business. At March 31, 1998 and June
30, 1997, the Bank's allowance for loan losses totaled 81.2% and 74.2% of
non-performing assets, respectively, and 0.6% of loans receivable for each
period ended. 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 March 31, 1998.
Non-interest income totaled $510,000 for the three months ended March 31,
1998 compared to $256,000 for the same period last year, an increase of
$254,000. For the nine months ended March 31, 1998, non-interest income
totaled $1.2 million compared to $325,000 for the same prior year period, an
increase of $892,000. The three month increase of $254,000 was primarily
the result of activities from FFY Holdings, Inc., a wholly owned subsidiary
of the Holding Company. Also contributing to the three month increase was
commissions on credit life insurance sales. The nine month increase of
$892,000 included activities of FFY Holdings, Inc., increased service fee
income, increased credit life insurance sales commissions and 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. Activities from FFY Holdings,
Inc. for the three and nine months ended March 31, 1998 primarily include
real estate operations and professional fees. In September 1997, the
Holding Company announced its affiliation with a local real estate brokerage
company to offer expanded services to the household market. The Holding
Company also announced its intention to offer property and casualty
insurance services which began on April 1, 1998.
Non-interest expense totaled $3.1 million for the three months ended March
31, 1998 compared to $2.6 million for the same period last year, an increase
of $439,000. For the nine months ended March 31, 1998, non-interest expense
totaled $8.7 million compared to $11.5 million for the same prior year
period, a decline of $2.8 million. The three month increase of $439,000 was
primarily attributable to the activities of FFY Holdings, Inc. through its
real estate brokerage affiliation, increased ESOP expense pursuant to SOP
93-6 (an increase in market value of FFYF shares) and increased medical
benefits claims expense. The nine month decline of $2.8 million was
primarily attributable to the SAIF assessment of $3.0 million recorded in
the prior fiscal year partially offset by increases due to real estate
activities and professional services.
Federal income tax expense totaled $1.1 million for the three months ended
March 31, 1998 compared to $887,000 for the same period last year, an
increase of $241,000. For the nine months ended March 31, 1998, federal
income tax expense totaled $3.1 million compared to $1.5 million for the
same prior year period, an increase of $1.6 million. The nine 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 March 31, 1998. 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 March 31, 1998, 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
($ in thousands) Capital Capital Capital Capital Capital
- -------------------------------------------------------------------------------------------------------------
GAAP Capital $ 56,466 $ 56,466 $ 56,466 $ 56,466 $ 56,466
Unrealized appreciation or gain on
securities available for sale, net (133) (133) (133) (133)
General loan valuation allowances - - - 2,073
Other (15) (15) (15) (242)
-----------------------------------------------
Regulatory capital 56,318 56,318 56,318 58,164
Total assets 626,027
Adjusted total assets 626,101 626,101
Risk-weighted assets 358,483 358,483
-----------------------------------------------------------
Capital ratio 9.0% 9.0% 9.0% 15.7% 16.2%
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
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.
MARCH 31, 1998
Item 1. Legal Proceedings
FFY or FFY Holdings, Inc. is not a party to any material legal proceeding
before any court or regulatory authority, administrative agency or other
tribunal. Further, FFY or FFY Holdings, Inc. 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
None to be reported.
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 January 20, 1998, the Registrant
announced earnings of $1.9 million, or $0.50 per share for
the quarter ended December 31, 1997 and approval of the
regular quarterly dividend of $0.20 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: May 15, 1998 By: /s/ Jeffrey L. Francis
-------------------------------
Jeffrey L. Francis
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ Therese Ann Liutkus
-------------------------------
Therese Ann Liutkus
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)