SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ 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 0-21170
FFW CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 35-1875502
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification or Number)
1205 North Cass Street, Wabash, IN 46992
(Address of principal executive offices)
(219) 563-3185
(Issuer's telephone number)
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 [ ]
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
State the number of Shares outstanding of each of the issuer's classes of common
equity, as of the latest date:
As of May 12, 1998, there were 1,449,532 shares of the Registrant's common stock
issued and outstanding.
FFW CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets March 31, 1998
and June 30, 1997
Consolidated Condensed Statements of Income for the
three months ended March 31, 1998 and 1997 and the
nine months ended March 31, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1998 and 1997 and the
nine months ended March 31, 1998 and 1997.
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 and the nine
months ended March 31, 1998 and 1997.
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Signature Page
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS : March 31 June 30
------------ ------------
1998 1997
------------ ------------
Cash and due from financial institutions .............................. $ 1,433,023 $ 1,620,716
Interest-earning deposits in financial institutions - short term ...... 7,867,907 15,499,898
------------ ------------
Cash and cash equivalents .................................... $ 9,300,930 $ 17,120,614
Interest-earning deposits in financial institutions
(cost approximates market value) ............................. -- --
Securities available for sale ......................................... 48,091,974 40,449,698
Loans held for sale, net of unrealized gains and losses ............... -- --
Loans receivable, net of allowance for loan losses of $754,889 in March
and $571,751 in June ......................................... 132,192,918 114,158,745
Stock in Federal Home Loan Bank, at cost .............................. 2,707,200 2,397,600
Accrued interest receivable ........................................... 1,297,910 1,123,623
Premises and Equipment-net ............................................ 2,101,831 1,926,910
Investment in limited partnership ................................ 749,952 749,952
Other assets .......................................................... 2,269,200 2,128,339
------------ ------------
Total Assets ........................................ $198,711,915 $180,055,481
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits .................................. $ 6,687,285 $ 5,751,478
Savings, Now and MMDA deposits ........................................ 50,779,634 50,529,826
Other time deposits ................................................... 66,558,031 59,837,170
------------ ------------
Total Deposits ............................................... $124,024,950 $116,118,474
Federal Home Loan Bank advances ....................................... 52,000,000 44,800,000
Obligation relative to limited partnership ....................... 525,000 712,500
Accrued Interest Payable .............................................. 749,957 157,521
Accrued expenses and other liabilities ............................... 2,367,731 1,125,700
------------- -------------
Total Liabilities ........................................... $ 179,667,638 $ 162,914,195
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued0
(Unaudited)
March 31 June 30
------------ ------------
1998 1997
------------ ------------
Shareholders' Equity:
Preferred stock, $.01 par value, 500,000 shares authorized none issued -- --
Common stock, $.01 par value, 2,000,000 shares authorized; ,766,596
shares issued and outstanding at March 31, 1998; 1,449,532
1,739,532 shares issued and 1,422,468 shares outstanding
at June 30, 1997 ............................................ 8,865 8,698
Additional paid-in capital ........................................... 8,659,718 8,439,565
Retained earnings - substantially restricted ......................... 12,176,589 11,119,378
Net unrealized depreciation on securities available for sale, net
of tax liability of $744,648 on March 31, 1998 and a tax
benefit of $69,436 on June 30, 1997 ......................... 1,082,039 502,183
Unearned Employee stock Ownership Plan shares ........................ (198,949) (244,553)
Treasury Stock at Cost, 317,064 common shares at cost,
at March 31, 1998 and June 30, 1997, respectively ........... (2,683,985) (2,683,985)
------------- -------------
Total Shareholders' equity .................................. 19,044,277 17,141,286
Total Liabilities and Shareholders' Equity ......... $ 198,711,915 $ 180,055,481
============ =============
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Interest Income:
Loans Receivable
Mortgage loans .......................... $ 1,616,624 $ 1,500,690 $ 4,798,453 $ 4,424,597
Consumer and other loans ................ 1,211,994 824,477 3,303,334 2,355,419
Securities
Taxable ................................. 718,427 622,025 2,247,948 1,840,360
Nontaxable ............................... 101,516 110,822 310,022 347,740
Other Interest-earning assets .................... 57,020 17,277 130,170 58,729
----------- ----------- ----------- -----------
Total Interest Income ................... $ 3,705,581 $ 3,075,291 $10,789,927 $ 9,026,845
Interest Expense :
Deposits ......................................... 1,406,650 1,193,419 4,158,793 3,564,101
Other ............................................ 772,466 605,590 2,191,455 1,795,687
----------- ----------- ----------- -----------
Total Interest Expense .................. $ 2,179,116 $ 1,799,009 $ 6,350,248 $ 5,359,788
Net Interest Income ....................................... 1,526,465 1,276,282 4,439,679 3,667,057
Provision for Loan Losses ........................ 100,000 35,000 365,000 70,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ....... 1,426,465 1,241,282 4,074,679 3,597,057
Non-interest income :
Net gain on sale of interest-earning assets ...... 28,545 7,225 71,094 37,451
Net unrealized gain or loss on loans held for sale -- -- -- --
Other ............................................ 236,960 149,705 680,406 438,015
----------- ----------- ----------- -----------
Total Non-Interest Income ............... $ 265,505 $ 156,930 $ 751,500 $ 475,466
Non-Interest Expense :
Compensation and Benefits ........................ 467,161 356,472 1,369,579 1,040,752
Occupancy and equipment .......................... 77,463 63,519 239,148 200,502
SAIF deposit insurance premiums .................. 26,961 15,925 84,117 699,464
Other ............................................ 364,828 293,985 1,083,196 788,125
----------- ----------- ----------- -----------
Total Non-Interest Expense .............. $ 936,413 $ 729,901 $ 2,776,040 $ 2,728,843
----------- ----------- ----------- -----------
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31 March 31
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Income before income taxes ................................ 755,557 668,311 2,050,139 1,343,680
Income Tax Expense ............................... 257,942 221,331 603,920 390,678
----------- ----------- ----------- -----------
Net Income ................................................ $ 497,615 $ 446,980 $ 1,446,219 $ 953,002
=========== =========== =========== ===========
Earnings per common and common equivalent shares :
Basic ............................................ $ 0.35 $ 0.34 $ 1.04 $ 0.71
Diluted .......................................... $ 0.35 $ 0.33 $ 1.03 $ 0.68
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Beginning Balance ....................................... $ 18,184,624 $ 16,116,609 $ 17,141,286 $ 15,458,143
Common Stock at .01 Par Value 2,000,000 shares
authorized issued and
outstanding March 31, 1998 - 1,766,596;
March 31, 1997 - 1,711,084 ..................... 65 20 168 20
Additional Paid-in Capital .............................. 68,185 45,480 220,152 93,480
Treasury Stock at Cost - -0- and 7,000 shares for
the three-month periods and
-0- and 16,000 shares for the nine-month periods
ended 1998 and 1997 ............................ -- (153,125) -- (329,750)
Cash Dividends of:
$.09 and $.075 per share for the three-month
periods and $ .27 and $ .225 per share for the
nine-month periods ended 1998 and 1997 ......... (130,458) (104,552) (389,007) (315,170)
Amortization of ESOP Contribution ....................... 45,603 -- 45,603 42,574
Amortization of MRP Contribution ........................ -- -- -- 13,079
Net change in unrealized depreciation on equity
securities available for sale .................. 378,643 (497,137) 579,856 (61,103)
Net Income for Period(s) ................................ 497,615 446,980 1,446,219 953,002
------------ ------------ ------------ ------------
Ending Balance .......................................... $ 19,044,277 $ 15,854,275 $ 19,044,277 $ 15,854,275
============ ============ ============ ============
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Cash flows from operating activities :
Net Income ................................................. $ 497,615 $ 446,980 $ 1,446,219 $ 953,002
Adjustments to reconcile net income to net cash
from operating activities :
Depreciation and amortization, net of accretion ........ (21,042) 14,169 (59,761) 72,978
Provision for loan losses .............................. 100,000 35,000 365,000 70,000
Net (gains) losses on sale of :
Securities available for sale ..................... -- 850 -- 1,364
Loans held for sale ........................... (33,407) (10,840) (90,779) (44,980)
Foreclosed estate owned and repossessed assets ....... (412) (2,146) 3,775 242
Origination of loans held for sale ..................... (2,714,407) (556,725) (6,425,245) (2,697,414)
Proceeds from sale of loans held for sale .............. 2,747,814 721,265 6,516,024 3,167,033
ESOP expenses .......................................... 81,603 26,000 130,603 116,573
Amortization of MRP contribution ....................... -- -- -- 13,079
Net change in accrued interest receivable .............. 212,320 (6,260) (174,287) (35,681)
Amortization of goodwill and core deposit intangibles .. 41,119 -- 123,356 --
Net change in other assets ............................. (189,439) 360,691 (582,138) (316,292)
Net change in accrued interest payable, accrued
expenses and other liabilities .................... (923,846) 252,570 1,495,206 431,183
------------ ------------ ------------ ------------
Total adjustments ........................ $ (699,697) $ 834,574 $ 1,301,754 $ 778,085
------------ ------------ ------------ ------------
Net cash from operating activities ................ $ (202,082) $ 1,281,554 $ 2,747,973 $ 1,731,087
Cash flows from investing activities :
Net change in interest-bearing deposits in other
financial institutions ............................ -- -- -- 362,664
Proceeds from :
sales/calls of securities available for sale ...... 7,000,000 300,000 15,000,000 375,000
sales/calls of securities held-to-maturity ......... -- -- -- --
maturities of securities available for sale ....... 40,000 195,000 340,000 575,000
maturities of securities held-to-maturity ......... -- -- -- --
Purchase of :
securities available for sale ..................... (7,273,075) (45,908) (22,379,544) (642,497)
Federal Home Loan Bank Stock ...................... -- -- (309,600) --
Principal collected on mortgage- backed securities ..... 163,380 128,844 491,007 455,980
Net change in loans receivable ........................ (4,070,495) (2,626,276) (18,399,173) (9,392,350)
Net purchases premises and equipment ................... (148,197) (62,183) (307,780) (123,348)
Investment in limited partnership ...................... -- -- (187,500) --
Proceeds from sales of other real estate and
repossessed assets ................................ 177,004 56,671 332,144 253,011
------------ ------------ ------------ ------------
Net cash from investing activities ....... $ (4,111,383) $ (2,053,852) $(25,420,446) $ (8,136,540)
PART I: FINANCIAL INFORMATION
FFW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended Nine Months Ended
March 31 March 31
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Cash flows from financing activities :
Net increase in deposits ..................... 7,919,262 325,468 7,906,476 5,721,284
Proceeds from short-term borrowings .......... 2,500,000 6,925,468 45,975,956 16,425,468
Payment on short-term borrowings ............. (3,175,956) (7,000,000) (38,775,956) (15,000,000)
Purchase of Treasury Stock ................... -- (153,125) -- (329,750)
Proceeds from exercising of stock options .... 32,250 19,500 135,320 19,500
Cash dividends paid .......................... (130,458) (104,552) (389,007) (315,170)
------------ ------------ ------------ ------------
Net cash from financing activities ..... $ 7,145,098 $ 12,759 $ 14,852,789 $ 6,521,332
Net increase (decrease) in cash and cash equivalents ..... $ 2,831,633 $ (759,539) $ (7,819,684) $ 115,879
Cash and cash equivalents at beginning of period ......... $ 6,469,297 $ 3,663,625 $ 17,120,614 $ 2,788,207
Cash and cash equivalents at end of period ............... $ 9,300,930 $ 2,904,086 $ 9,300,930 $ 2,904,086
============ ============ ============ ============
Supplemental disclosure of cash flow information :
Cash paid during quarter for:
Interest ............................... $ 1,602,669 $ 1,416,813 $ 5,767,740 $ 4,958,976
Income Taxes ........................... $ 255,000 $ 50,000 $ 645,000 $ 426,000
Non-cash investing activities transfers from :
FFW CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the Consolidated Condensed Financial
Statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to represent fairly the financial condition of FFW
Corporation as of March 31, 1998 and June 30, 1997, and the results of its
operations, changes in shareholders' equity for the three and nine months ended
March 31, 1998 and 1997. Financial Statement reclassifications have been made
for the prior period to conform to classifications used as of and for the period
ended March 31, 1998.
Operating results for the three and nine months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 1998.
(2) Earnings Per Share of Common Stock
Basic and diluted earnings per share are computed under a new
accounting standard effective in the quarter ended December 31, 1997. All prior
amounts have been restated to be comparable. Basic earnings per share is based
on net income (less preferred dividends) divided by the weighted average number
of shares outstanding during the period. Diluted earnings per share shows the
dilutive effect of additional common shares issuable under stock options (and
convertible securities).
On October 26, 1993, the shareholders of the Company ratified the
adoption of the Company's 1992 Stock Option and Incentive Plan and the
Management Recognition Plan and Trusts ("MRP"). Pursuant to the Stock Option
Plan, 169,000 shares of the Company's Common Stock are reserved for issuance, of
which the Company has granted options on 152,884 shares. As of March 31, 1998,
options on 60,288 shares of the Company's Common Stock remain unexercised.
All share and per share data have been adjusted to reflect a 100%
common stock dividend declared December 15, 1998 and paid December 31, 1998.
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Earnings Per Share
Net Income ............................................ $ 497,615 $ 446,980 $1,446,219 $ 953,002
Weighted average common shares outstanding ............ 1,405,931 1,332,333 1,394,111 1,341,927
Basic Earnings Per Share ......................... $ 0.35 $ 0.34 $ 1.04 $ 0.71
Earnings Per Share Assuming Dilution
Net Income ............................................ $ 497,615 $ 446,980 $1,446,219 $ 953,002
Weighted average common shares outstanding ............ 1,405,931 1,332,333 1,394,111 1,341,927
Add: dilutive effects of assumed exercises
Incentive stock options .......................... 16,743 22,714 47,216 62,174
---------- ---------- ---------- ----------
Weighted average and dilutive common shares outstanding 1,422,674 1,355,147 1,441,327 1,404,101
Diluted Earnings Per Share ...................... $ 0 .35 $ 0.33 $ 1.03 $ 0.68
(3) Regulatory Capital Requirements
Pursuant to the Financial Institution Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA"), savings institutions must meet three separate minimum
capital-to-asset requirements. The following table summarizes, as of March 31,
1998, the capital requirements for the Bank under FIRREA and its actual capital
ratios. As of March 31, 1998, the Bank substantially exceeded all current
regulatory capital standards.
Regulatory Actual
Capital Requirement Capital (Bank Only)
------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Risk-Based ................ $ 9,260 8.00% $13,898 12.01%
Core Capital .............. $ 5,801 3.00% $13,177 6.81%
Tangible Capital .......... $ 2,901 1.50% $13,177 6.81%
(4) Common Stock Cash Dividends
On February 24, 1998, the Board of Directors of FFW Corporation, declared a
quarterly cash dividend of $0.09 per share. The dividend was paid March 31, 1998
to shareholders of record on March 15, 1998. The payment of the cash dividend
reduced shareholders' equity by $130,458.
PART II
FFW CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The accompanying Consolidated Financial Statement includes the account
of FFW Corporation (the "Company") and its wholly owned subsidiaries, First
Federal Savings Bank of Wabash(the "Bank") and FirstFed Financial of Wabash,
Inc. All significant inter-company transactions and balances are eliminated in
consolidation. The Company's results of operations are primarily dependent on
the Bank's net interest margin, which is the difference between interest income
on interest-earning assets and interest expense on interest-bearing liabilities.
The Bank's net income is also affected by the level of its non-interest
expenses, such as employee compensation and benefits, occupancy expenses, and
other expenses.
Forward - Looking Statements
When used in this Form 10 - Q and in future filings by the Company with
Securities and Exchange Commission, in the Company's press release or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrase "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 1998. Such statements are subject to certain risks and uncertainties, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The 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 Company wishes to advise readers that the
factors listed below could affect the Company's financial performance and could
cause the 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 Company does not undertake - and specifically declines 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.
Financial Condition
The Company's total assets increased $7.4 million, or 3.9%, from $191.3
million at December 31, 1997 to $198.7 million at March 31, 1998. This increase
was due primarily to funds generated by an increase in deposits of $7.9 million.
Net loans receivables increased $4.0 million and securities available-for-sale
increased $745,000. All of which contributed to an increase in cash and cash
equivalents of $2.8 million. Loan demand and liquidity needs may result in
additional borrowings if deposits and loan growth remain at current levels.
Total securities available-for-sale increased $745,000 from $47.3
million at December 31, 1997 to $48.1 million at March 31, 1998. This was due
primarily to the increased market value of the securities portfolio as of March
31, 1998. The available-for-sale portfolio consists primarily of municipal
securities, government agencies, mortgage-backed securities and to a lesser
extent mutual funds and FNMA preferred stock.
Net loans receivable increased $4.0 million, or 3.1% from $128.2
million at December 31, 1997 to $132.2 million at March 31, 1998. The increase
in the loan portfolio for the quarter resulted, primarily, from an increase in
non-mortgage loans of $4.1 million due to an increase in origination's.
Management, consistent with its asset/liability objectives, will continue to
sell newly originated fixed-rate mortgage loans with terms to maturity greater
than 15 years.
Total deposits increased $7.9 million or 6.8% from $116.1 million at
December 31, 1997 to $124.0 million at March 31, 1998. For the quarter ended
March 31, 1998, Savings, Now, DDA and MMDA accounts increased $1.7 million or
3.0% while certificates of deposit increased $6.2 million or 10.3%. Certificates
of deposit increase was due primarily to several deposits by local government
agencies of public funds.
Total borrowed funds decreased $676,000 from $52.7 million at December
31, 1997 to $52.0 million at March 31, 1998. The decrease consisted of payment
on short term advances from the Federal Home Loan Bank of Indianapolis.
Total shareholders' equity increased $860,000 from $18.2 million at
December 31, 1997 to $19.09 million at March 31, 1998. The increase resulted
from quarterly net income of $498,000, the unrealized appreciation of securities
held for sale, net of tax, of $379,000, proceeds from the exercise of options of
$32,000 and the reduction of unearned ESOP shares of $45,000, which was offset
by the quarterly dividend payment of $130,000.
Results of Operations - Comparison of the Three and Nine Months Ended
March 31, 1998 and March 31, 1997
General. Net income increased by $51,000 and $493,000 for the three and
nine months ended March 31, 1998 respectively, as compared to the three and nine
months ended March 31, 1997. The increase for the three months ended March 31,
1998 was primarily the result of increases in net interest income. The increase
for the nine months ended was primarily the result of decreased SAIF premiums of
$615,300. All of these items are discussed in greater detail below.
Net Interest Income. Net interest income increased $250,000 or 19.6%
and $773,000 or 21.1% for the three and nine months ended March 31, 1998 and
1997 respectively. This was primarily the result of an increase in average
interest-earning assets which exceeded the increase in average interest-bearing
liabilities, and a corresponding increase in the spreads earned.
Interest Income. Interest income increased $630,000 and $1.8 million to
$3.7 million and $10.9 million for the three and nine months ended March 31,
1998 respectively, as compared to the three and nine months ended March 31,
1997. The increases in interest income for the three and nine months ended March
31, 1998 were due to continued growth in interest-earning assets including
mortgage loans, commercial and consumer loans and investment, as compared to the
same periods ended March 31, 1997. These increased interest-earning assets are
the result of competitive pricing, marketing, and the re-pricing of
adjustable-rate loans and mortgage-backed securities.
Interest Expense. Interest expense increased $380,000 and $990,000 to
$2.2 million and $6.4 million for the three and nine months ended March 31, 1998
respectively, as compared to the three and nine months ended March 31, 1997. For
the three months ended March 31, 1998, the increase in interest expense was due
to an increase in deposits outstanding as compared to the same periods in 1997.
Interest rates, continue to hold relatively steady, however, it is very probable
that the Federal Reserve will increase rates in the future. Like any rate
increase this would impact our cost of funds , but we should see some increase
in the yield of our interest earning assets.
Provision for Loan Losses. The provision for loan losses increased
$65,000 and $295,000 for the three and nine months ended March 31, 1998,
respectively as compared to the three and nine months ended March 31, 1997. The
loan loss provisions are based on management's quarterly analysis of the
allowance for loan losses. The provisions for the three and nine month periods
reflect the growth in the non-mortgage loans and the inherent riskiness and the
number of these loans as compared to 1-4 family mortgage loans. With the
expansion into commercial lending the company will continue to increase its
allowance for loan losses and make future additions to the allowance through the
provision for loan losses as loan growth, economic and regulatory conditions
dictate. Although the Company maintains its allowance for loan losses at a level
which is deemed consistent with the level of risk in the portfolio, economic
conditions, etc. there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods.
Non-interest Income. Non-interest income increased by $109,000 and
$276,000 to $266,000 and $752,000 for the three and nine months ended March 31,
1998 respectively, as compared to the three and nine months ended March 31,
1997. The increase was primarily the result of increased fee income of $87,000
and $242,000 for the three and nine months ended March 31, 1998 respectively, as
compared to the three and nine months ended March 31, 1997. Gain on sales of
loans to the Federal Home Loan Mortgage Corporation increased $21,000 and
$34,000 for the three and nine months ended March 31, 1998 respectively.
Management believes that with the current level of interest rates we will see a
continued increase in the gain on sales of loans to Freddie Mac for the
remainder of the year as compared to earlier in the year.
Non-Interest Expense. Non-interest expense increased $207,000 to
$936,000 for the three months ended March 31, 1998, as compared to the three
months ended March 31, 1997. The increase for the three months ended March 31,
1998, was due to increased staffing, and the amortization of goodwill for our
branch in South Whitley.
Non-interest expense increased $47,000 to $2.8 million for the nine
months ended March 31, 1998 respectively, as compared to the nine months ended
March 31, 1997. The increase was primarily due to increased staffing, and the
amortization of goodwill for our branch in South Whitley. This increase was
mostly offset by the reduction in the SAIF premiums of $615,000 in 1998 compared
to 1997.
Income Tax Expense. Income tax expense increased $36,000 and $213,000
to $258,000 and $604,000 for the three and nine months ended March 31, 1998
respectively, as compared to the three and nine months ended March 31, 1997. The
increase was due to an increase in taxable income for the three and nine months
ended March 31, 1998.
Non-Performing Assets and Allowance for Loan Losses. The allowance for
loan losses is calculated based upon an evaluation of pertinent factors
underlying the types and qualities of the Company's loans. Management considers
such factors as the repayment status of a loan, the estimated net realizable
value of the underlying collateral, the borrower's ability to repay the loan,
current and anticipated economic conditions which might affect the borrower's
ability to repay the loan and the Company's past statistical history concerning
charge-offs. The Company's allowance for loan losses as of March 31, 1998, was
$755,000 or 0.6% of total loans. The December 31, 1997 allowance for loan losses
was $723,000, or 0.6% of total loans. Total assets classified as substandard,
doubtful or loss as of March 31, 1998 were $1.2 million or 0.6% of total assets.
Management has considered non-performing assets and total classified assets in
establishing the allowance for loan losses.
The ratio of non-performing assets to total assets is one indicator of
the exposure to credit risk. Nonperforming assets of the Company consist of
non-accruing loans, accruing loans delinquent 90 days or more, and foreclosed
assets which have been acquired as a result of foreclosure or deed-in-lieu of
foreclosure.
03/31/98 12/31/97
-------- --------
(Dollars in Thousands)
Non-Accruing Loans ................................. $430 $428
Accruing Loans Delinquent 90 days or more .......... -- --
Troubled Debt Restructurings ....................... -- --
Foreclosed Assets .................................. 234 173
---- ----
Total Non-Performing Assets ........................ $664 $601
==== ====
Total Non-Performing Assets as a
Percentage of Total Assets ......................... 0.33% 0.31%
Total non-performing assets increased $63,000 to $664,000, or 0.33% of
total assets at March 31, 1998, from $601,000 or 0.31% of total assets at
December 31, 1997. The increase in non-performing and foreclosed assets was
primarily due to the foreclosure of a commercial property for $100,000.
Liquidity and Capital Resources. The Company's primary sources of funds
are deposits, principal and interest payments on loans and mortgage-backed
securities, FHLB Indianapolis advances and funds provided by operations. While
scheduled loan and mortgage-backed security repayments and maturity of
short-term investments are a relatively predictable source of funds, deposit
flows are greatly influenced by general interest rates, economic conditions,
competition and, most recently, the restructuring occurring in the thrift
industry. Current Office of Thrift Supervision regulations require the Bank to
maintain cash and eligible investments in an amount equal to at least 5.0% of
customer accounts and short-term borrowings to assure its ability to meet
demands for withdrawals and repayment of short-term borrowings. As of March 31,
1998, the Bank's liquidity ratio of 16.10%, exceeds the minimum regulatory
requirements.
The Company uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposits and loan commitments,
maintain it's liquidity and meet operating expenses. At March 31, 1998, the
Company has commitments to originate loans totaling $3.4 million. The Company
considers its liquidity and capital resources to be adequate to meet its
foreseeable short- and long-term needs. The Company expects to be able to fund
or refinance, on a timely basis, its material commitments and long-term
liabilities.
Regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percent of risk-adjusted assets, a
leverage ratio of core capital to total adjusted assets, and a tangible capital
ratio expressed as a percent of total adjusted assets. As of March 31, 1998, the
Bank exceeded all fully phased-in regulatory capital standards.
At March 31, 1998, the Bank's tangible capital was $13.2 million, or
6.8% of adjusted total assets, which is in excess of the 1.5% requirement by
$10.3 million. In addition, at March 31, 1998, the Bank had core capital of
$13.2 million, or 6.8% of adjusted total assets, which exceeds the 3.0%
requirement by $7.4 million. The Bank had risk-based capital of $13.9 million at
March 31, 1998 or 12.0% of risk-adjusted assets which exceeds the 8.0% risk-
based capital requirements by $4.6 million.
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the MACRO rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3.0%. All other savings associations will be required to
maintain a minimum leverage ratio of 3.0% at least an additional 100 to 200
basis points.
The OTS will assess each individual savings association through the
supervisory process on a case-by-case basis to determine the applicable
requirement. No assurance can be given as to the final form of any such
regulation, the date of its effectiveness or the requirement applicable to the
Bank. As a result of the prompt corrective action provisions of federal law
discussed below, however, a savings association must maintain a core capital
ratio of at least 4.0% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3.0% ratio.
Under the requirements of federal law all the federal banking agencies,
including the OTS, must revise their risk-based capital requirements to ensure
that such requirements account for interest rate risk, concentration of credit
risk and the risks of non-traditional activities, and that they reflect the
actual performance of and expected loss on multi-family loans.
The OTS had adopted a final rule that requires every savings
association with more than normal interest rate risk to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the market value
of its assets. This exposure is a measure of the potential decline in the market
value of portfolio equity of a savings association, greater than 2%, based upon
a hypothetical 200 basis point increase or decrease in interest rates (whichever
results in a greater decline) affecting on-and off-balance sheet assets and
liabilities. The effective date of the new requirement is July 1, 1994. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. It is anticipated that since the Bank has less than $300 million in
assets, and a risk-based capital ratio in excess of 12%, it will be exempt from
this rule.
Part II - Other Information
As of March 31, 1998, management is not aware of any current recommendations by
regulatory authorities which, if they were to be implemented, would have or are
reasonably likely to have a material adverse effect on the Company's liquidity,
capital resources or operations.
Item 1 - Legal Proceedings
Not Applicable.
Item 2 - Changes in Securities
Not Applicable.
Item 3 - Defaults upon Senior Securities
Not Applicable.
Item 4 - Other Information
Not Applicable
Item 5 - Exhibits and Reports on Form 8-K
(a) Exhibits
Not Applicable
(b) The following is a description of the Form 8-K's filed during the
quarter ended March 31, 1998.
None filed
SIGNATURES
Pursuant to the requirement 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.
FFW CORPORATION
Registrant
Date: May 11, 1998 /S/ Nicholas M. George
------------------
Nicholas M. George
President and Chief
Executive Officer
Date: May 11, 1998 /S/ Charles E. Redman
-----------------
Charles E. Redman
Treasurer and Chief Financial
Accounting Officer