CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 2007 2007
(Unaudited)
Cash and due from banks $ 1,912 $ 1,871
Interest-bearing deposits in other financial institutions 5,628 7,162
-------- --------
Cash and cash equivalents 7,540 9,033
Investment securities available for sale 3,488 3,448
Mortgage-backed securities available for sale 258 267
Mortgage-backed securities held to maturity,
fair value of $94 and $98 as of September 30,
2007 and June 30, 2007, respectively 93 97
Loans receivable - net of allowance of $1,001 and $930 155,214 153,282
Loans held for sale 170 624
Premises and equipment, net 2,627 2,280
Federal Home Loan Bank, at cost 2,327 2,327
Loan Servicing Rights 659 661
Accrued interest receivable 761 683
Prepaid expenses and other assets 193 292
-------- --------
Total assets $173,330 $172,994
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non interest bearing $ 10,286 $ 9,984
Interest bearing 126,828 129,938
-------- --------
Total deposits 137,114 139,922
Federal Home Loan Bank Advances 15,920 13,055
Accrued interest payable 202 225
Accrued and deferred federal income tax 631 409
Other liabilities 1,181 1,248
-------- --------
Total liabilities 155,048 154,859
Commitments - -
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued - -
Common stock - authorized 5,000,000 shares without par or
stated value; 1,454,750 shares issued - -
Additional paid-in capital 8,265 8,256
Retained earnings 15,108 14,856
Accumulated comprehensive loss; net (8) (33)
Treasury stock, at cost (367,813 and 359,148 treasury shares
at September 30, 2007 and June 30, 2007, respectively) (5,083) (4,944)
-------- --------
Total shareholders' equity 18,282 18,135
-------- --------
Total liabilities and shareholders' equity $173,330 $172,994
======== ========
|
The accompanying notes are an integral part of these statements.
3
FFD Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30, 2007 and 2006
(In thousands, except per share data)
(Unaudited)
2007 2006
Interest and dividend income
Loans, including fees $2,945 $2,609
Mortgage-backed securities 6 7
Investment securities 42 39
Interest-bearing deposits and other 77 89
------ ------
3,070 2,744
Interest expense
Deposits 1,191 895
Borrowings 189 224
------ ------
1,380 1,119
------ ------
Net interest income 1,690 1,625
Provision for loan losses 88 63
------ ------
Net interest income after provision for loan losses 1,602 1,562
Noninterest income
Net gain on sale of loans 38 52
Service charges on deposit accounts 64 64
Other 53 53
------ ------
155 169
Noninterest expense
Employee and director compensation and benefits 515 502
Occupancy and equipment 134 95
Franchise taxes 58 53
Data processing 84 83
Professional and consulting fees 58 47
Postage and stationary supplies 26 40
Advertising 46 61
Checking account maintenance expense 53 48
Other 164 131
------ ------
1,138 1,060
------ -----
Income before income taxes 619 671
Income tax expense 211 229
------ ------
Net Income $ 408 $ 442
====== ======
Earnings per share
Basic $ .37 $ .37
====== ======
Diluted $ .37 $ .37
====== ======
Dividends declared per share $ .14 $ .12
====== ======
|
The accompanying notes are an integral part of these statements.
4
FFD Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30, 2007 and 2006
(In thousands)
(Unaudited)
2007 2006
Net income $408 $442
Other comprehensive income, net of related tax effects:
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits) of $13 and $25 in
2007 and 2006, respectively 25 48
---- ----
Comprehensive income $433 $490
==== ====
|
The accompanying notes are an integral part of these statements.
5
FFD Financial Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30, 2007 and 2006
(In thousands)
(Unaudited)
2007 2006
Cash flows from operating activities:
Net cash from operating activities $ 1,163 $ 1,371
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 11 149
Loan originations and payments, net (3,095) 1,219
Proceeds from participation loan sales
to other financial institutions 1,063 184
Additions to premises and equipment (397) (7)
------- -------
Net cash from investing activities (2,418) 1,545
Cash flows financing activities:
Net change in deposits (2,808) 4,356
Net change in short-term Federal Home Loan
Bank advances 3,000 (6,000)
Proceeds from Federal Home Loan Bank advances 1,000 600
Repayments of Federal Home Loan Bank advances (1,135) (97)
Tax benefits of options exercised - 25
Proceeds from exercise of stock options 9 190
Purchase of treasury stock (148) -
Cash dividends paid (156) (145)
------- -------
Net cash from financing activities (238) (1,071)
------- -------
Net change in cash and cash equivalents (1,493) 1,845
Beginning cash and cash equivalents 9,033 7,692
------- -------
Ending cash and cash equivalents $ 7,540 $ 9,537
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 220 $ 175
======= =======
Interest paid $ 1,403 $ 1,105
======= =======
|
The accompanying notes are an integral part of these statements.
6
FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods ended September 30, 2007 and 2006
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with United States
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto of FFD Financial Corporation (the "Corporation")
included in the Corporation's Annual Report on Form 10-KSB for the year ended
June 30, 2007. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a fair
presentation of the financial statements have been included. The results of
operations for the three-month period ended September 30, 2007, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Corporation, First Federal Community Bank (the "Bank") and Dover Service
Corporation, a wholly owned subsidiary of the Bank. All significant
intercompany items have been eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average common
shares outstanding during the period less shares in the FFD Financial
Corporation Employee Stock Ownership Plan (the "ESOP") that are unallocated and
not committed to be released. There were no unallocated shares during the
quarter ending September 31, 2007. Weighted-average common shares deemed
outstanding give effect to 13,183 unallocated ESOP shares for the three-month
period ended September 30, 2006. All ESOP shares have been allocated as of
September 30, 2007. Diluted earnings per common share include the dilutive
effect of additional potential common shares issuable under the Corporation's
stock option plan. The computations are as follows:
2007 2006
Weighted-average common shares
outstanding (basic) 1,093,295 1,195,837
Dilutive effect of assumed exercise
of stock options 6,738 10,982
--------- ---------
Weighted-average common shares
outstanding (diluted) 1,100,033 1,206,819
========= =========
|
4. Stock Option Plan
The FFD Financial Corporation 1996 Stock Option and Incentive Plan (the "Plan")
provided for grants of options to purchase 169,838 authorized but unissued
common shares. Although the Plan expired in October of 2006, options granted
prior to the expiration date remain exercisable for ten years from the grant
date, unless terminated in accordance with the Plan or the applicable award
agreement.
During the fourth quarter of fiscal 2006, the Corporation early adopted
Statement of Financial Accounting Standards ("SFAS") No. 123(R), Shared-based
Payment, using the modified prospective method. At the time of adoption, the
Corporation accelerated the vesting period of all unvested options.
Accordingly, the Corporation has recorded stock-based employee compensation
cost using the fair value method beginning in the fourth quarter of fiscal
2006. Prior to the fourth quarter of fiscal 2006, employee compensation expense
under stock options was reported using the intrinsic value method.
7
FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended September 30, 2007 and 2006
4. Stock Option Plan (continued)
A summary of the activity in the stock option plan for the quarter ended
September 30, 2007 follows:
Weighted
Weighted average
average remaining Aggregate
exercise contractual intrinsic
Shares price term value
------ -------- ----------- ---------
Outstanding at beginning of period 29,780 $10.75
Granted - -
Exercised (1,000) 9.25
Forfeited or expired - -
------ ------
Outstanding at end of period 28,780 $10.80 3.75 yrs $115,177
====== ====== ========
Exercisable at end of period 28,780 $10.80 3.75 yrs $115,177
====== ====== ========
Options available for grant -
======
|
Information related to the stock option plan during the quarter ended
September 30, 2007 follows:
Intrinsic value of options exercised $6,000
Cash received from options exercised 9,000
Tax benefit from options exercised 2,000
|
A summary of the activity in the stock option plan for the year ended June 30,
2007 follows:
Weighted
Weighted average
average remaining Aggregate
exercise contractual intrinsic
Shares price term value
------ -------- ----------- ---------
Outstanding at beginning of year 54,621 $10.11
Granted - -
Exercised (24,841) 9.35
Forfeited or expired - -
------- ------
Outstanding at end of year 29,780 $10.75 4 yrs $154,379
======= ====== ========
Exercisable at end of year 29,780 $10.75 4 yrs $154,379
======= ====== ========
Options available for grant -
=======
|
Information related to the stock option plan for the year ended June 30,
2007 follows:
Intrinsic value of options exercised $154,000
Cash received from options exercised 233,000
Tax benefit from options exercised 25,000
|
8
FFD Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended September 30, 2007 and 2006
5. Recent Accounting Developments
In January 2007, the FASB issued Statement of Financial Accounting Standard No.
159 ("SFAS 159"), The Fair Value Option for Financial Assets and Financial
Liabilities, which gives entities the option to measure eligible financial
assets and financial liabilities at fair value on an instrument by instrument
basis, that are otherwise not permitted to be accounted for at fair value under
other accounting standards. The election to use the fair value option is
available when an entity recognizes a financial asset or financial liability.
Subsequent changes in fair value must be recorded in earnings. This statement
is effective for the company as of July 1, 2008. The Corporation is in the
process of analyzing the potential impact of SFAS 159.
In July 2006, the FASB issued Financial Accounting Standards Interpretation No.
48 ("FIN 48"), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB No. 109, Accounting for Income
taxes. FIN 48 prescribes a recognition threshold and measurement attributable
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. A tax position is recognized as a
benefit only if it is "more likely than not" that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the
"more likely than not" test, no tax benefit is recorded. FIN 48 was effective
for after the Corporation July 1, 2007. The adoption of this standard had no
effect on the Corporation's financial statements.
The Corporation and its subsidiaries are subject to U.S. federal income tax as
well as various other state income taxes. The Corporation is no longer subject
to examination by taxing authorities for years prior to 2002. The Corporation
does not expect the total amount of unrecognized tax benefit to significantly
increase in the next twelve months.
The Corporation recognizes interest related to income tax matters as interest
expense and penalties related to income tax matters as other expense. The
Corporation did not have any amounts accrued for interest and penalties at
either July 1, 2007 or September 30, 2007.
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value, establishes a framework for measuring fair value
under generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. Management does not
expect that the adoption of this standard will have a material impact on the
Corporation's financial statements. Management has not completed its evaluation
of the impact of adoption of this standard.
9
FFD Financial Corporation
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements contained in this report that are not historical facts are
forward-looking statements that are subject to certain risks and uncertainties.
When used herein, the terms "anticipates," "plans," "expects," "believes," and
similar expressions as they relate to FFD or its management are intended to
identify such forward looking statements. FFD's actual results, performance or
achievements may materially differ from those expressed or implied in the
forward-looking statements. Risks and uncertainties that could cause or
contribute to such material differences include, but are not limited to,
general and local economic conditions, changes in the interest rate
environment, competitive conditions in the financial services industry, changes
in law, governmental policies and regulations, and rapidly changing technology
affecting financial services.
Critical Accounting Policies
There have been no material changes to the critical accounting policies as
disclosed in the Corporation's Form 10-KSB for the year ended June 30, 2007.
Discussion of Financial Condition Changes from June 30, 2007 to
September 30, 2007
The Corporation's total assets at September 30, 2007, were $173.3 million, a
$336,000, or .2%, increase from the total at June 30, 2007.
Cash and cash equivalents totaled $7.5 million at September 30, 2007, a
decrease of $1.5 million, or 16.5%, from the total at June 30, 2007. Investment
securities totaled $3.5 million at September 30, 2007, a $40,000, or 1.2%,
increase from the total at June 30, 2007, which resulted primarily from
mark-to-market adjustments under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Mortgage-backed securities totaled
$351,000 at September 30, 2007, a $13,000, or 3.6% decrease compared to the
total at June 30, 2007, which resulted from principal repayments and a $1,000
mark-to-market adjustment under SFAS No. 115.
Loans receivable totaled $155.2 million at September 30, 2007, an increase of
$1.9 million, or 1.3%, from the June 30, 2007 total. Loan originations during
the period totaling $18.4 million were substantially offset by principal
repayments of $13.1 million, loans sold in the secondary market of $2.6 million
and loans sold to other financial institutions of $1.1 million. During the
three-month period ended September 30, 2007, loan originations were comprised
of $6.8 million of one- to four-family residential real estate loans, $7.7
million of nonresidential real estate loans, $2.5 million of commercial loans,
and $1.3 million of consumer loans. Nonresidential real estate and commercial
lending generally involve a higher degree of risk than one- to four-family
residential real estate lending due to the relatively larger loan amounts and
the effects of general economic conditions on the successful operation of
income-producing properties and businesses. The Corporation endeavors to reduce
this risk by evaluating the credit history and past performance of the
borrower, the location of the real estate, the quality of the management
operating the property or business, the debt service ratio, the quality and
characteristics of the income stream generated by the property or business and
appraisals supporting the real estate or collateral valuation.
The allowance for loan losses totaled $1.0 million at September 30, 2007, an
increase of $71,000, or 7.6%, from the June 30, 2007 balance of $930,000, and
represented .64% and .60% of total loans at each of those respective dates. The
increase resulted from a provision of $88,000, which was partially offset by
charge-offs of $17,000. Although management believes that the allowance for
loan losses at September 30, 2007, is adequate based upon the available facts
and circumstances, there can be no assurance that additions to the allowance
will not be necessary in future periods, which could adversely affect the
Corporation's results of operations.
10
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2007 to
September 30, 2007 (continued)
Deposits totaled $137.1 million at September 30, 2007, a $2.8 million, or 2.0%,
decrease from total deposits at June 30, 2007. FHLB advances totaled $15.9
million at September 30, 2007, a $2.9 million, or 21.9%, increase from the June
30, 2007 total. The FHLB advances were primarily used to fund loan growth.
Shareholders' equity totaled $18.3 million at September 30, 2007, an increase
of $147,000, or .8%, over June 30, 2007. The increase was due primarily to
period net earnings of $408,000, proceeds from exercise of stock options
totaling $9,000, and a decrease in the unrealized losses on securities
designated as available for sale of $25,000, which were partially offset by
dividends paid of $156,000 and the purchase of treasury shares totaling
$148,000. The Bank is required to meet minimum capital standards promulgated by
the Office of Thrift Supervision and at September 30, 2007, the Bank's
regulatory capital exceeded the minimum capital requirements.
Comparison of Operating Results for the Three-Month Periods Ended
September 30, 2007 and 2006
General
The Corporation's net earnings totaled $408,000 for the three months ended
September 30, 2007, a decrease of $34,000, or 7.7%, from the net earnings of
$442,000 recorded in the comparable period in 2006. The decrease in net
earnings resulted from increases of $78,000, or 7.4%, in general,
administrative and other expenses and $25,000 in the provision for losses on
loans, and a decrease of $14,000, or 8.3%, in other operating income, which
were partially offset by an increase of $65,000, or 4.0%, in net interest
income and a decrease in federal income tax expense of $18,000.
Net Interest Income
Total interest income increased by $326,000, or 11.9%, to $3.1 million for the
three months ended September 30, 2007, compared to the same period in 2006.
Interest income on loans increased by $336,000, or 12.9%, due to an increase of
$13.2 million, or 9.2%, in the average loan portfolio balance outstanding and a
24 basis point increase in yield. Interest income on investment securities,
interest-bearing deposits and other decreased by $9,000, or 7.0%, to a total of
$119,000 for the three months ended September 30, 2007, due to a $1.0 million,
or 9.6%, decrease in the average balance outstanding, which was partially
offset by a 14 basis point increase in yield. Interest income on
mortgage-backed securities decreased by $1,000, or 14.3%, due to a decrease of
$158,000, or 30.6%, in the average balance outstanding, which was partially
offset by a 152 basis point increase in yield.
Total interest expense increased by $261,000, or 23.3%, to $1.4 million for the
three months ended September 30, 2007, compared to the three months ended
September 30, 2006. Interest expense on deposits increased by $296,000, or
33.1%, due to a 55 basis point increase in the average cost of deposits, to
3.43% for the 2007 quarter, and a $14.6 million, or 11.8%, increase in the
average balance of deposits outstanding period to period. Interest expense on
borrowings decreased by $35,000, or 15.6%, due to a decrease of $1.5 million,
or 9.3%, in the average balance of advances outstanding, which was partially
offset by a 36 basis point increase in the average cost of borrowings.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $65,000, or 4.0%, for the three months ended
September 30, 2007, compared to the same period in 2006. The interest rate
spread was 3.79% and 3.93%, and the net interest margin was 4.06% and 4.21%,
for the three-month periods ended September 30, 2007 and 2006, respectively.
11
FFD Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended
September 30, 2007 and 2006 (continued)
Provision for Losses on Loans
The Corporation recorded a $88,000 provision for losses on loans during the
three months ended September 30, 2007, and a $63,000 provision for the
comparable quarter in 2006. The increase in the allowance for losses on loans
was primarily due to identified problem loans, changes in the portfolio mix
from residential real estate to nonresidential real estate, loan charge-offs
and management's assessment of economic conditions. There can be no assurance
that the loan loss allowance will be adequate to cover losses on nonperforming
assets in the future, which can adversely affect the Corporation's results of
operations.
Other Income
Other income totaled $155,000 for the three months ended September 30, 2007, a
decrease of $14,000, or 8.3%, from the 2006 total. The decrease was due to a
decrease of $14,000, or 26.9%, in gain on sale of loans.
General, Administrative and Other Expense
General, administrative and other expense totaled $1.1 million for the three
months ended September 30, 2007, an increase of $78,000, or 7.4%, compared to
the same period in 2006. The increase in general, administrative and other
expense includes increases of $13,000, or 2.6%, in employee compensation and
benefits, $39,000 or 41.1% in occupancy and equipment depreciation expense,
$5,000, or 9.4%, in franchise tax expense, $1,000, or 1.2%, in data processing
and $20,000, or 6.1%, in other operating expense. The increase in employee
compensation was due to normal merit increases and additional staffing from the
conversion of the Sugarcreek office to a full service office. The increase in
occupancy and equipment was due to equipment purchases to convert the
Sugarcreek office. The increase in other operating expense was the result of
increases in internet banking expense and fees related to changing accounting
firms, which were partially offset by decreases in advertising expense and
office supplies.
Federal Income Taxes
The Corporation recorded a provision for federal income taxes totaling $211,000
for the three months ended September 30, 2007, a decrease of $18,000, or 7.9%,
over the same period in 2006. The decrease resulted from a $52,000, or 7.7%,
decrease in earnings before taxes. The Corporation's effective tax rate was
34.1%, for both the three month periods ended September 30, 2007 and 2006.