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 March 31, 2001
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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__________.
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 April 23, 2001: 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 March 31, 2001
(unaudited) and September 30, 2000 (audited).........................................3
Consolidated Statements of Income and Comprehensive Income for the three
and six months ended March 31, 2001, and 2000 (unaudited)............................4
Consolidated Statements of Cash Flows for the six months ended
March 31, 2001 and 2000 (unaudited)..................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................11
Item 2. Changes in Securities and Use of Proceeds...........................................11
Item 3. Defaults upon Senior Securities.....................................................11
Item 4. Submission of Matters to a Vote of Security Holders.................................11
Item 5. Other Information...................................................................11
Item 6. Exhibits and Reports on Form 8-K....................................................11
Signatures...................................................................................12
FARNSWORTH BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31 SEPTEMBER 30,
2001 2000
------------ ------------
ASSETS (UNAUDITED) (AUDITED)
Cash and due from banks $ 5,547,100 $ 3,163,345
Securities available for sale 6,366,605 8,760,132
Securities held to maturity:
Mortgage-backed 4,904,636 1,468,438
Other 2,273,068
Loans receivable, net 41,856,113 39,850,070
Real estate owned, net 130,292
Accrued interest receivable 378,165 419,459
Federal Home Loan Bank of New York stock
at cost substantially restricted 457,800 457,800
Accrued income taxes 11,183
Deferred Income Taxes 66,611
Premises and equipment 1,540,179 1,575,974
Other assets 196,348 60,594
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Total assets $ 61,388,421 $ 58,095,491
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 51,684,937 $ 44,734,635
Borrowings from FHLB 3,786,850 7,597,286
Advances by borrowers for taxes and
insurance 223,942 212,302
Accrued income taxes 469
Deferred taxes 6,214
Accrued interest payable 68,490 72,492
Accounts payable and other accrued
expenses 82,413 97,298
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Total liabilities 55,852,846 52,714,482
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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 37,985 37,985
Additional paid in capital 3,396,262 3,396,262
Retained earnings substantially restricted 2,559,078 2,575,605
Treasury stock at cost: 18,992 shares (185,172) (185,172)
Unvested common stock and related
additional paid in capital acquired by
employee stock ownership plan (ESOP) (220,644) (235,154)
Unreleased Restricted Stock Plan Shares (115,934) (127,764)
Net unrealized appreciation (depreciation) on available
for sale securities net of income taxes 64,000 (80,753)
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Total stockholders' equity 5,535,575 5,381,009
------------ ------------
Total liabilities and
stockholders' equity $ 61,388,421 $ 58,095,491
============ ============
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FARNSWORTH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
2001 2000 2001 2000
----------- ----------- ----------- -----------
Interest income:
Loans receivable $ 786,882 $ 652,376 $ 1,564,919 $ 1,502,365
Securities 145,836 120,923 331,365 388,594
Federal funds sold 41,754 6,526 55,567 26,149
----------- ----------- ----------- -----------
Total interest income 974,472 779,825 1,951,851 1,917,108
----------- ----------- ----------- -----------
Interest expense:
Deposits 483,894 352,404 925,208 762,873
Federal Home Loan Bank advances 81,453 39,449 194,252 243,440
----------- ----------- ----------- -----------
Total interest expense 565,347 391,853 1,119,460 1,006,313
----------- ----------- ----------- -----------
Net interest income 409,125 387,972 832,391 910,795
Provision for loan losses 9,245 9,000 12,245 13,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 399,880 378,972 820,146 897,795
----------- ----------- ----------- -----------
Noninterest income:
Fees and other service charges 55,442 64,494 118,013 103,459
Net Realized Gain on Available for
Sale Securities 26,919 1,484 33,919 4,454
----------- ----------- ----------- -----------
Total noninterest income 82,361 65,978 151,932 107,913
----------- ----------- ----------- -----------
Noninterest expense:
Compensation and benefits 237,513 184,928 462,427 409,559
Occupancy and equipment 93,086 78,265 167,349 133,622
Federal insurance premiums and
assessments 2,165 5,376 4,351 17,003
Other 182,453 133,003 361,092 294,735
----------- ----------- ----------- -----------
Total noninterest expense 515,217 401,572 995,219 854,919
----------- ----------- ----------- -----------
(Loss) income before provision for income
tax expense (benefit) (32,976) 43,378 (23,141) 150,789
Provision for income tax expense (benefit) (10,572) 18,240 (6,612) 51,685
----------- ----------- ----------- -----------
Net (loss) income (22,404) 25,138 (16,529) 99,104
Other Comprehensive Income, net of taxes
Unrealized Gain (Loss) on Securities
Available for Sale 64,000 (22,848) 81,064 (40,123)
Reclassification adjustments for gains
included in net income (26,919) (33,919) -
----------- ----------- ----------- -----------
Comprehensive Income $ 14,677 $ 2,290 $ 30,616 $ 58,981
=========== =========== =========== ===========
Net (loss) income per common share:
Basic $ (0.07) $ 0.07 $ (0.05) $ 0.29
Shares used in computing basic
income per share 322,420 337,314 322,420 337,314
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FARNSWORTH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31
2001 2000
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Cash flows from operating activities:
Net (loss) income $ (16,529) $ 99,104
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Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 49,777 36,729
Provision for loan losses 12,245 13,000
Net (gain) on sale of AFS securities (33,919)
Net loss on sale of real estate owned 8,013
Decrease in accrued interest receivable 41,294 1,369
(Increase) decrease in other assets (135,754) 10,335
Increase (decrease) in advances from borrowers 11,640 (30,697)
Increase (decrease) in accrued income taxes
and deferred income taxes 61,173 (87,259)
(Decrease) in accrued interest payable (4,002) (2,221)
(Decrease) in other accrued liabilities (14,885) (1,960)
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Total adjustments (12,431) (52,691)
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Net cash provided by (used in) operating
activities (28,960) 46,413
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Cash flows from investing activities:
Net increase in loans receivable (2,181,113) (1,312,067)
Proceeds from sale of REO 80,000
Redemption of securities, held to maturity 2,188,765 113,005
Purchase of Federal Home Loan Bank Stock (39,100)
Proceeds from sale of securities available for sale 7,762,458
Purchase of securities held to maturity (3,625,574)
Purchase of securities, available for sale net (4,857,705)
Purchase of premises and equipment (13,982) (101,745)
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Net cash used in investing
activities (727,151) (1,259,907)
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Cash flows from financing activities:
Net increase in deposits 6,950,302 304,645
Repayment of Federal Home Loan Bank Borrowings (3,810,436) 1,442,861
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Net cash provided by financing
activities 3,139,866 1,747,506
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Net increase in cash and due from banks 2,383,755 534,012
Cash at beginning of period 3,163,345 1,883,104
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Cash at end of period $ 5,547,100 $ 2,417,116
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Supplemental disclosure:
Cash paid during the period for:
Interest $ 1,123,462 $ 508,276
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Income taxes $ 120,277
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Unrealized gain (loss) on securities available
for sale, net of deferred income taxes $ 144,753 $ (40,123)
=========== ===========
Investment securities transferred from held to maturity
to available for sale $ 2,273,966
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Acquisition of real estate in settlement of loans $ 130,291
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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
subsidiaries Peoples Savings Bank (the "Bank") and Peoples Financial Services,
Inc. 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 March 31,
2001, the Consolidated Statements of Income and Comprehensive Income for the
three and six months ended March 31, 2001 and 2000, and the Consolidated
Statements of Cash Flows for the six months ended March 31, 2001 and 2000. The
results of operations for the three and six months ended March 31, 2001 are not
necessarily indicative of results that may be expected for the entire year
ending September 30, 2001, or for any other period. The accompanying unaudited
consolidated interim financial statements should be read in conjunction with the
Company's September 30, 2000 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, 2000.
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.
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.
In December 2000, the Company began offering brokerage and investment advisory
services and insurance services to the general public through Peoples Financial
Services, Inc., a subsidiary organized for the sale of mutual funds and
insurance through a third party networking agreement.
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
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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.
For the three months ended March 31
-----------------------------------
2001 . 2000 .
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Weighted Per- Weighted Per-
Average Share Average Share
Loss Shares Amount Income Shares Amount
---- ------ ------ ------ ------ ------
Net (loss) income available
To Common Shareholders $(16,529) 360,866 $99,104 379,858
ESOP Shares (24,312) (27,350)
RSP Shares (14,134) (15,194)
-------- ------- ------ ------- ------- ------
$(16,529) 322,420 $(0.05) $99,104 337,314 $ 0.29
======== ======= ====== ======= ======= ======
NOTE 3. Investments
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In fiscal year 2001, the Bank adopted Statement of Financial Accounting
Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities."
In accordance FASB 133, the Bank transferred a portion of its held-to-maturity
portfolio to available-for-sale. The unrealized gain or loss on the
held-to-maturity investments that were transferred to available-for-sale is
reported in accumulated other comprehensive income consistent with the
requirements of Statement of Financial Accounting Standard No. 115 "Accounting
for Certain Investments in Debt and Equity Securities."
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company may from time to time make written or oral "forward-looking
statements, " including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly Report of Form
10-QSB), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the board of governors of the federal
reserve system, inflation, interest rate, market and monetary fluctuations; the
impact of changes in financial services' laws and regulations (including laws
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concerning taxes, banking securities and insurance); technological changes; and
the success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors in not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Financial Condition
Total assets increased $3.3 million or 5.65% to $61.4 million at March
31, 2001 from $58.1 million at September 30, 2000. The increase was primarily
attributable to a $1.1 million increase in the Bank's cash and investment
securities, an increase in loans receivable of $2.0 million, net and an increase
in other assets of $100,000. The Bank's total liabilities increased $3.1 million
or 5.9%, to $55.8 million at March 31, 2001 from $52.7 million at September 30,
2000. The increase was primarily attributable to a $6.9 million increase in
deposits attributable to the Bank's Mt. Laurel branch, offset by a $3.8 million
decrease in borrowings.
Stockholder' equity increased $155,000 to $5.5 million or 9.0% of total
assets at March 31, 2001, as compared to $5.4 million or 9.3% of total assets at
September 30, 2000. The increase in stockholders' equity is primarily
attributable to a change in the unrealized appreciation on available for sale
securities net of taxes of $145,000.
Results of Operations
Net Income. The Bank's net income decreased $47,000 for the quarter
ended March 31, 2001 to a net loss of $22,000 from net income of $25,000 for the
quarter ended March 31, 2000. The decrease in net income was attributable to an
increase in the Bank's non-interest expenses of $114,000, partially offset by an
increase in interest income after provisions for loan losses of $21,000, an
increase in non-interest income of $16,000, and by a decrease in provision for
income taxes of $29,000. For the six months ended March 31, 2001 net income
decreased $116,000 to a net loss of $17,000 from net income of $99,000 for the
same period in 2000.
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.
Net interest income after provision for loan losses increased $21,000,
or 5.5%, to $400,000 for the quarter ended March 31, 2001 as compared to the
quarter ended March 31, 2000. The increase was primarily due to the increased
interest income of $194,000 offset by an increase in interest expense of
$173,000. Net interest income after provision for loan losses decreased $78,000
for the six months ended March 31, 2001 compared to the same period in 2000. The
decrease was attributed primarily to the increase in cost of funds.
Provision for Loan Losses. Provision for loan losses was $9,000 for the
three months ended March 31, 2001, this was the same as for the three months
ended March 31, 2000. For the six months ended March 31, 2001 the provision for
loan losses was $12,000 compared to $13,000 for the same period in 2000.
-8-
Management believes the allowance for loan losses is 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 $16,000 or 24.8%
from $66,000 for the quarter ended March 31, 2000 to $82,000 for the same
quarter in 2001. Non-interest income for 2001 included a gain on sale of
securities available for sale of $27,000. For the six months ended March 31,
2001, non-interest income increased $44,000, compared to the same period in
2000, this included a gain in the 2001 period on securities available for sale
of $34,000.
Non-Interest Expense. Non-interest expense increased $114,000 or 28.3%
from approximately $402,000 for the quarter ended March 31, 2000 to $515,000 for
the same quarter in 2001. The increase in the Bank's non-interest expense was
primarily due to a $49,000 increase in other non-interest expense an increase of
$53,000 in the Bank's compensation and benefits and an increase of $15,000 in
occupancy, and equipment. 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 Banks
branch office located in Mt. Laurel, New Jersey which opened in March of 2000.
For the six months ended March 31, 2001 non-interest expenses increased by
$140,000 as compared to the same period in 2000.
Income Tax Expense (benefit). Income tax expense changed from $18,000
for the quarter ended March 31, 2000 to an $11,000 income tax benefit for the
same period in 2001. This change of $29,000 is due to the operating losses
incurred in fiscal year 2001. For the six months ended March 31, 2001, the
Company recognized an income tax benefit of $7,000 versus an income tax expense
of $52,000 in the same period in 2000.
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 15.45% at March
31, 2001.
In December 2000, the Bank transferred a portion of its investment
securities from held-to-maturity into available-for-sale, in accordance with
FASB 133.
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.
-9-
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 six months ended March 31, 2001 was $29,000, a decrease of $75,000, as
compared to the same period in 2000. The decrease in 2001 was primarily due to
the net loss recognized in the six months ended March 31, 2001 versus net income
for the same period in 2001 and the change in other assets.
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
six months ended March 31, 2001, totaled $727,000 compared to a use of funds of
$1.3 million for the same period in 2000. The difference is attributable to an
increase in net loans receivable of $2.1 million in 2001 compared to $1.3
million in 2000 and purchase of securities of $8.5 million partially offset by
the sale and redemption of securities of $10.0 million in 2001.
Net cash provided the Bank's financing activities (i.e., cash receipts
primarily from net increases in deposits and net increases in FHLB advances) for
the six months ended March 31, 2001, totaled $3.1 million, compared to net cash
provided by financing activities of $1.7 million for the same period in 2000.
The increase is attributable to a net increase in deposits of $6.9 million in
2001 offset by a repayment of borrowings of $3.8 million in 2001.
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 March 31, 2001, with tangible, core and
risk based capital ratios of 7.94%, 7.94% and 16.80%, respectively.
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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
---------------------------------------------------
The annual meeting of stockholders of the Registrant was held on
February 20, 2001, and the following matters were voted on by
stockholders:
Election of Directors
---------------------
FOR WITHHELD
--- --------
Charles E. Adams 272,454 25,355
William H. Wainwright, Jr. 272,429 25,380
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None.
(b) Current Reports on Form 8-K filed during the quarter ended March
31, 2001:
On January 26, 2001, the Registrant filed a Current Report on
Form 8-K dated January 25, 2001 to report information under Items
5 and 7.
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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: May 1, 2001 By: /s/Gary N. Pelehaty
---------------------------------------------------------
Gary N. Pelehaty
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 1, 2001 By: /s/Charles Alessi
---------------------------------------------------------
Charles Alessi
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
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