SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
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X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-24621
FARNSWORTH BANCORP, INC.
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(Exact name of Small Business Issuer as Specified in Its Charter)
New Jersey 22-3591051
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Identification No.)
or Organization)
789 Farnsworth Avenue, Bordentown, New Jersey 08505
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(Address of Principal Executive Offices)
(609) 298-0723
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Issuer's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Number of shares of Common Stock outstanding as of August 1, 2000: 360,866
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Transitional Small Business Disclosure Format (check one)
YES NO X
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Contents
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PART 1 - FINANCIAL INFORMATION Page(s)
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Item 1. Financial Statements.......................................................................3
Consolidated Statements of Financial Condition at June 30, 2000
(unaudited) and September 30, 1999 (audited)..............................................3
Consolidated Statements of Income and Comprehensive Income for the
three and nine months ended June 30, 2000 (unaudited).....................................4
Consolidated Statements of Cash Flows for the nine months ended June
30, 2000 and 1999 (unaudited).............................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................12
Item 2. Changes in Securities and Use of Proceeds.................................................12
Item 3. Defaults upon Senior Securities...........................................................12
Item 4. Submission of Matters to a Vote of Security Holders.......................................12
Item 5. Other Information.........................................................................13
Item 6. Exhibits and Reports on Form 8-K..........................................................13
Signatures.........................................................................................13
2
FARNSWORTH BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, SEPTEMBER 30,
2000 1999
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ASSETS (unaudited) (audited)
Cash and due from banks $ 2,217,760 $ 1,883,104
Securities available for sale 8,601,662 8,672,614
Securities held to maturity:
Mortgage-backed 1,536,303 1,755,110
Other 2,271,302 2,267,216
Loans receivable, net 40,066,938 38,832,141
Real Estate Owned, net 48,207 88,013
Accrued interest receivable 434,132 423,706
Federal Home Loan Bank of New York Stock
at cost substantially restricted 457,800 418,700
Deferred Income Taxes 130,388 99,359
Prepaid taxes 9,849 -
Premises and equipment 1,603,810 1,516,252
Other Assets 344,487 72,236
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TOTAL ASSETS $ 57,722,638 $ 56,028,451
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 43,748,688 $ 42,490,162
Borrowings from FHLB 8,126,842 7,712,940
Advances by borrowers for taxes and insurance 207,171 213,653
Accrued income taxes - 78,160
Accrued interest payable 116,502 97,119
Accounts payable and other accrued expenses 81,450 149,254
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TOTAL LIABILITIES 52,280,653 50,741,288
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Preferred stock $.10 par value, 1,000,000
Shares authorized; none issued and
outstanding
Common stock $.10 par value, 5,000,000 shares
Authorized; 379,858 shares issued and
outstanding 37,985 37,985
Additional paid in capital 3,396,262 3,396,262
Retained earnings substantially restricted 2,552,942 2,451,554
Unreleased common stock and related
Additional paid in capital acquired by
Employee stock ownership plan (ESOP) (242,735) (303,880)
Unissued Restricted Stock Plan Shares (118,864) (159,364)
Net unrealized depreciation on available
For sale securities net of income taxes (183,605) (135,394)
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TOTAL STOCKHOLDER'S EQUITY 5,441,985 5,287,163
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLER'S EQUITY $ 57,722,638 $ 56,028,451
============ ============
3
FARNSWORTH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
Interest income:
Loans receivable $ 762,577 $ 691,600 $ 2,264,942 $ 1,961,239
Securities 200,156 171,434 588,750 388,765
Federal funds sold 10,335 13,684 36,484 46,905
----------- ----------- ----------- -----------
Total interest income 973,068 876,718 2,890,176 2,396,909
----------- ----------- ----------- -----------
Interest expense:
Deposits 397,464 365,302 1,160,337 1,068,326
Federal Home Loan Bank advances 141,234 52,963 384,674 97,653
----------- ----------- ----------- -----------
Total interest expense 538,698 418,265 1,545,011 1,165,979
----------- ----------- ----------- -----------
Net interest income 434,370 458,453 1,345,165 1,230,930
Provision for loan losses - 17,000 13,000 31,000
----------- ----------- ----------- -----------
Net interest income after
Provision for loan losses 434,370 441,453 1,332,165 1,199,930
----------- ----------- ----------- -----------
Non-interest income:
Fees and other service charges 52,587 53,473 156,046 179,797
Net Realized Gain on Available for
Sale Securities - 1,875 - 3,359
Other income (Loss) 33,307 - 37,761 -
----------- ----------- ----------- -----------
Total non-interest income 85,894 55,348 193,807 183,156
----------- ----------- ----------- -----------
Non-interest expense:
Compensation and benefits 234,072 200,985 643,631 548,235
Occupancy and equipment 89,220 74,018 222,842 215,414
Federal insurance premiums and assessments 7,008 10,561 24,011 21,255
Other 186,080 119,901 480,815 374,845
----------- ----------- ----------- -----------
Total non-interest expense 516,380 405,465 1,371,299 1,159,749
----------- ----------- ----------- -----------
Income before provision for income
taxes 3,884 91,336 154,673 233,337
Provision for income taxes 1,600 28,500 53,285 82,300
----------- ----------- ----------- -----------
Net income 2,284 62,836 101,388 141,037
Other Comprehensive Income, net of taxes
Unrealized Gain (Loss) on Securities
Available for Sale (8,088) (154,178) (48,211) (170,722)
Reclassification adjustments for gains
Included in net income - (1,875) - (3,359)
----------- ----------- ----------- -----------
Comprehensive Income $ (5,804) $ (93,217) $ 53,177 $ (33,044)
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.007 $ 0.18 $ 0.30 $ 0.41
Shares used in computing
Income per share 337,314 349,470 337,314 349,470
4
FARNSWORTH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED JUNE 30
2000 1999
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Cash flows from operating activities:
Net income $ 101,388 $ 141,037
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Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 63,624 53,238
Provision for loan losses 13,000 31,000
Net (gain) on sale of assets - (3,359)
Net gain on sale of real estate owned 25,295 -
(Increase) decrease in accrued interest receivable (10,426) 118,225
(Increase) decrease in other assets (22,251) 20,311
(Decrease) in advances from borrowers (6,482) (3,740)
(Decrease) in accrued income taxes
and deferred income taxes (119,038) (108,697)
Increase in accrued interest payable 19,383 50,529
(Decrease) in other accrued liabilities (67,804) (43,401)
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Total adjustments (104,699) (122,344)
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Net cash provided by (used in) operating activities (3,311) 18,693
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Cash flows from investing activities:
Net increase in loans receivable (1,442,986) (6,310,668)
Purchase of securities held to maturity - (503,574)
Proceeds from sale of REO 330,000 -
Redemption of securities, held to maturity 218,807 1,042,165
Purchase of Federal Home Loan Bank Stock (39,100) (35,500)
Proceeds from sale of securities available for sale - 1,464,532
Purchase of securities, available for sale net - (8,341,107)
Purchase of premises and equipment (151,182) (127,298)
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Net cash used in investing activities (1,084,461) (12,811,450)
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Cash flows from financing activities:
Net increase in deposits 1,258,526 5,786,257
Increase in Federal Home Loan Bank Borrowings 413,902 4,490,803
Purchase of treasury stock - (83,591)
Net cash provided by financing activities 1,672,428 10,193,469
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Net increase (decrease) in cash and due from banks 334,656 (2,599,288)
Cash at beginning of period 1,883,104 3,928,077
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Cash at end of period $ 2,217,760 $ 1,328,789
============ ============
Supplemental disclosure:
Cash paid during the period for:
Interest $ 1,525,628 $ 1,082,096
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Income taxes $ 120,277 $ 64,000
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Unrealized loss on securities available
For sale, net of deferred income taxes $ (48,211) $ (170,722)
============ ============
Non-Cash Items
Acquisition of real estate in settlement of loans $ 254,491 $ 88,804
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Mortgage to finance sale of Real Estate Owned $ 314,000 $ -
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5
FARNSWORTH BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. Presentation of Financial Information
-------------------------------------
The accompanying unaudited consolidated interim financial statements include the
accounts of Farnsworth Bancorp, Inc. (the "Company") and its subsidiary Peoples
Savings Bank (the "Bank"). The accompanying unaudited consolidated interim
financial statements have been prepared in accordance with the instructions to
Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accounting and reporting policies of the Company
conform in all material respects to generally accepted accounting principles and
to general practice within the thrift industry. It is the opinion of management
that the accompanying unaudited consolidated interim financial statements
reflect all adjustments, which are considered necessary to report fairly the
financial position as of June 30, 2000, the Consolidated Statements of Income
and Comprehensive Income for the three and nine months ended June 30, 2000 and
1999. The Consolidated Statements of Cash Flows for the nine months ended, June
30, 2000 and 1999. The results of operations for the nine months ended June 30,
2000, are not necessarily indicative of results that may be expected for the
entire year ending September 30, 2000, or for any other period. The accompanying
unaudited consolidated interim financial statements should be read in
conjunction with the Company's September 30, 1999 consolidated financial
statements, including the notes thereto, which are included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1999.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent assets and liabilities and the reported revenues and
expenses. Actual results could differ significantly from those estimates. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and foreclosed
real estate. Such agencies may require the Bank to recognize additions to the
allowance for loan losses or additional write-downs on foreclosed real estate
based on their judgments about information available to them at the time of
their examination.
Cash Equivalents
- ----------------
For the purpose of presentation in the Consolidated Statements of Cash Flows,
cash and cash equivalents are defined as those amounts included in the
balance-sheet caption "cash and due from banks." The Company considers all
highly liquid investments with original maturities of three months or less when
purchased as cash equivalents.
Nature of Operations
- --------------------
The Company is a unitary savings and loan holding company. The Bank operates
three branches in Burlington County, New Jersey. The Bank offers customary
banking services, including accepting checking, savings and time deposits and
the making of commercial, real-estate and consumer loans, to customers who are
predominantly small and middle-market businesses and middle-income individuals.
6
New Branch
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In March of 2000 the bank opened its third branch in the city of Mt. Laurel New
Jersey. The opening of this branch has added expenses in the current quarter and
management anticipates additional expenses in future quarters as well.
NOTE 2. Net Income Per Common Share
---------------------------
Basic net income per common share is calculated by dividing net income by the
number of shares of common stock outstanding, adjusted for the unallocated
portion of shares held by the Company's Employee Stock Ownership Plan ("ESOP").
Diluted net income per share is calculated by adjusting the number of shares of
common stock outstanding to include the effect of stock options, stock-based
compensation grants and other securities, if dilutive, generally, using the
treasury stock method.
7
For the three months ended June 30
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2000 1999
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Weighted Per- Weighted Per-
Average Share Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Net income available to
Common Shareholders $ 2,284 379,858 $ 62,836 379,858
ESOP Shares (27,350) (30,388)
RSP Shares (13,074)
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$ 2,284 339,434 $0.007 $ 62,836 349,470 $ 0.18
======= ======= ====== ======== ======= ======
For the nine months ended June 30
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2000 1999
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Weighted Per- Weighted Per-
Average Share Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Net income available to
Common Shareholders $ 101,388 379,858 $ 141,037 379,858
ESOP Shares (27,350) (30,388)
RSP Shares (13,074)
--------- ------- ------ --------- ------- -----
$ 101,388 339,434 $ 0.30 $ 141,037 349,470 $0.41
========= ======= ====== ========= ======= =====
8
NOTE 3. Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial accounting Standards No. 130, Reporting Comprehensive
Income and its components in financial statements. Statement 130 states that
comprehensive income includes reported net income of a company, adjusted for
items that are currently accounted for as direct entries to equity, such as the
net unrealized gain or loss on securities available for sale, foreign currency
items, and minimum pension liability adjustments. This statement is effective
for both interim and annual periods beginning after December 15, 1997. As
required, the Company adopted Statement 130 in the first quarter of fiscal 1999,
and reported comprehensive income in accordance with the new statement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets increased $1.7 million or 3.0% to $57.7 million at June
30, 2000 from $56.0 million at September 30, 1999. The increase was primarily
attributable to a $1.2 million increase in the Bank's loans receivable, net. The
Bank's total liabilities increased $1.5 million or 3.0%, to $52.2 million at
June 30, 2000 from $50.7 million at September 30, 1999. The increase was
primarily attributable to a $1.3 million increase in deposits.
Stockholder' equity increased $155,000 to $5.44 million or 9.4% of
total assets at June 30, 2000, as compared to $5.2 million or 9.3% of total
assets at September 30, 1999. The increase in stockholders' equity is primarily
attributable to net income of $104,000, and amortization of ESOP and Restricted
Stock Plan shares of $102,000 offset by an increase in the unrealized
depreciation on available for sale securities net of taxes of $48,000.
Results of Operations
Net Income. The Bank's net income decreased $61,000 for the quarter
ended June 30, 2000 to $2,000 from $63,000 for the quarter ended June 30, 1999.
The decrease in net income was attributable to an increase in the Bank's
non-interest expenses of $113,000 offset by an increase in non-interest income
of $31,000. The increase in other non-interest expenses was mostly due to
expenses associated with the opening of the new branch office located in Mt.
Laurel, New Jersey. Net income for the nine months ended June 30, 2000 was
$104,000 compared to $141,000 for the same period in 1999.
Net Interest Income. Net interest income is the most significant
component of the Bank's income from operations. Net interest income is the
difference between interest the Bank received on its interest earning assets,
primarily loans, investment and mortgage-backed securities, and interest the
Bank pays on its interest-bearing liabilities, primarily deposits and
borrowings. Net interest income depends on the volume of and rates earned on
interest-earning assets and the volume of and rates paid on interest-bearing
liabilities.
9
Net interest income after provision for loan losses decreased $7,000,
or .7%, to $434,000 for the quarter ended June 30, 2000 as compared to the
quarter ended June 30, 1999. The decrease was primarily due to the increase in
the cost of funds. Net interest income after provisions for loan losses was $1.3
million for the nine months ended June 30, 2000 compared to $1.2 million for the
same period in 1999.
Provision for Loan Losses. Provision for loan losses was $13,000 for
the nine months ended June 30, 2000, as compared to $31,000 for the nine months
ended June 30, 1999. For the quarter ended June 30, 2000 no additional
provisions were deemed necessary.
Management believes the allowance for loan losses are at a level that
is adequate to provide for estimated losses. However, there can be no assurance
that further additions will not be made to the allowance and that such losses
will not exceed the estimated amount.
Non-Interest Income. Non-interest income increased $31,000 or 56.0%
from $55,000 for the quarter ended June 30, 1999 to $86,000 for the same period
in 2000. This increase in the Bank's non-interest income was due to a gain on
sale of Real Estate Owned of $33,000. Non-interest for the nine months ended
June 30, 2000 was $194,000 as compared to $183,000 for the same period in 1999.
Non-Interest Expense. Non-interest expense increased $111,000 or 27.0%
from approximately $405,000 for the quarter ended June 30, 1999 to $516,000 for
the same period in 2000. The increase in the Bank's non-interest expense was
primarily due to a $66,000 increase in other non-interest expense and an
increase of $33,000 in the Bank's compensation and benefits. The category of
non-interest expense classified as "Other" is comprised of expenses related to
advertising, fees charged by banks, loan processing fees, NOW expenses, costs
related to supplies and various professional fees. The increase in these
expenses was mostly due to the opening of the new branch office located in Mt.
Laurel. Non-interest expenses for the nine months ended June 30, 2000 were $1.4
million compared to $1.2 million for the same period in 1999.
Income Tax Expense. Income tax expense decreased $27,000 from $29,000
for the quarter ended June 30, 1999 to $1,600 for the same period in 2000. This
decrease in income tax expense is due to the decrease in income.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of the Bank's deposits and short-term borrowings. The required ratio currently
is 4.0% and the Bank's regulatory liquidity ratio average was 15.3% at June 30,
2000.
The Bank's primary sources of funds are deposits, repayment of loans
and mortgage-backed securities, maturities of investment securities and
interest-bearing deposits with other banks, advances from the FHLB of New York,
and funds provided from operations. While scheduled repayments of loans and
mortgage-backed securities and maturities of investment securities are
predictable sources of funds, deposit flows, and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. The Bank uses its liquidity resources principally to fund existing
and future loan commitments, maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, to maintain liquidity,
and meet operating expenses.
10
Net cash used by the Bank's operating activities (the cash effects of
transactions that enter into the Bank's determination of net income e.g.,
non-cash items, amortization and depreciation, provision for loan losses) for
the nine months ended June 30, 2000 was $107,000, a decrease of $15,000, as
compared to the same period in 1999. The decrease in 2000 was primarily due to
an increase in other accrued liabilities of $27,000 offset by net income of
$101,000, depreciation of $63,000 and a decrease in accrued interest receivable
of $128,000.
Net cash used by the Bank's investing activities (i.e., cash
disbursements, primarily for the purchase of the Bank's investment securities
and mortgage-backed securities portfolios and the Bank's loan portfolio) for the
nine months ended June 30, 2000, totaled $1.1 million compared to $12.8 million
for the same period in 1999. The difference is attributable to an increase in
net loans receivable of $6.3 million in 1999 compared to $1.4 million in 2000
and purchases of securities of $8.3 million in 1999 compared to no purchases in
2000.
Net cash provided in the Bank's financing activities (i.e., cash
receipts primarily from net increases in deposits and net increases in FHLB
advances) for the nine months ended June 30, 2000, totaled $1.7 million, a
decrease of $8.5 million as compared to the nine months ended June 30, 1999.
The decrease in attributable to a net increase in deposits of $5.7
million in 1999 versus $1.3 million in 2000 and borrowings of $4.4 million in
1999 versus $414,000 in 2000.
Office of Thrift Supervision ("OTS") capital regulations applicable to
the Bank require savings institutions to meet three capital standards: (1)
tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio
(core capital) equal to at least 3% of total adjusted assets, and (3) a
risk-based capital requirement equal to 8.0% of total risk-weighted assets. In
addition, the OTS prompt corrective action regulation provides that a savings
institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. The Bank was in
compliance with these requirements at December 30, 1999, with tangible, core and
risk based capital ratios of 8.35%, 8.35% and 17.27% respectively.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Registrant is not engaged in any legal proceedings at the present
time. From time to time, the Bank is a party to legal proceedings
within the normal course of business wherein it enforces its security
interests in loans made by it, and other similar matters.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule (electronic filing only)
(b) Current Reports on Form 8-K filed during the quarter ended
June 30, 2000:
The registrant filed a Current Report on Form 8-K dated May
16, 2000 (Items 5 and 7) to announce its intention to repurchase 5%, or
18,992, shares of its outstanding common stock in the open market.
Subsequent to the quarter ended June 30, 2000, the registrant filed a
Current Report on Form 8-K dated July 20, 2000 to report the completion
of the repurchase of 18,992 shares of common stock.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FARNSWORTH BANCORP, INC.
Date: August 3, 2000 By:/s/Gary N. Pelehaty
------------------------------------------
Gary N. Pelehaty
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 2000 By:/s/Charles Alessi
------------------------------------------
Charles Alessi
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
13