BUSINESS OF FFD FINANCIAL CORPORATION
================================================================================
FFD Financial Corporation ("FFD" or the "Corporation") is the holding company
for First Federal Community Bank ("First Federal" or the "Bank"), a federal
savings bank.
FFD was formed in 1996 in connection with the conversion of First Federal from a
mutual savings bank to a stock savings bank (the "Conversion"). Since its
formation, FFD's activities have been limited primarily to holding the common
shares of First Federal.
First Federal's business involves attracting deposits from individual and
business customers and using such deposits to originate loans to individuals and
businesses in its market area consisting of Tuscarawas and contiguous counties
in Ohio. The Bank provides a full array of deposit products including checking,
savings, money market, and individual retirement accounts as well as
certificates of deposit. First Federal originates residential and home equity
loans, construction loans, commercial real estate loans, business loans and
consumer loans. The Bank also invests in securities consisting primarily of
United States government and government agency obligations and mortgage-backed
securities.
Funds for lending and investing activities are obtained primarily from deposits,
which are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC"), from Federal Home Loan Bank ("FHLB") advances, and from
loan sales and loan and mortgage-backed securities repayments. First Federal
conducts business from three locations, two in Dover, Ohio and one in New
Philadelphia, Ohio. Additionally, the Bank provides access to its products and
services via the Internet at xxx.xxxxxxxxxxxxxx.xxx.
FFD is subject to regulation, supervision and examination by the Office of
Thrift Supervision of the United States Department of the Treasury (the "OTS").
First Federal is subject to regulation, supervision and examination by the OTS
and the FDIC. First Federal is also a member of the FHLB of Cincinnati.
1
MARKET PRICE OF FFD'S
COMMON SHARES AND RELATED SHAREHOLDER MATTERS
================================================================================
There were 1,191,140 common shares of FFD outstanding on July 30, 2004, held of
record by approximately 585 shareholders. Price information for FFD's common
shares is quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbol
"FFDF."
The following table sets forth the high and low trading prices for the common
shares of FFD, as quoted by Nasdaq, together with the dividends declared per
share, for each quarter of fiscal years 2004 and 2003.
High Trade Low Trade Cash Dividends Declared
Fiscal 2003
Quarter Ended
September 30, 2002 $14.00 $11.50 $.095
December 31, 2002 13.25 10.00 .100
March 31, 2003 14.50 11.20 .100
June 30, 2003 14.50 11.44 .100
High Trade Low Trade Cash Dividends Declared
Fiscal 2004
Quarter Ended
September 30, 2003 $15.32 $13.25 $.100
December 31, 2003 15.30 14.59 .105
March 31, 2004 15.50 13.64 .105
June 30, 2004 15.65 13.00 .105
The income of FFD consists primarily of dividends which may periodically be
declared and paid by the Board of Directors of First Federal on the common
shares of First Federal held by FFD. In addition to certain federal income tax
considerations, OTS regulations impose limitations on the payment of dividends
and other capital distributions by savings associations. Under OTS regulations
applicable to converted savings associations, First Federal is not permitted to
pay a cash dividend on its common shares if the regulatory capital of First
Federal would, as a result of the payment of such dividend, be reduced below the
amount required for the liquidation account established in connection with the
Conversion or applicable regulatory capital requirements prescribed by the OTS.
2
SELECTED CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA
================================================================================
The following table sets forth certain information concerning the consolidated
financial condition, earnings and other data regarding FFD at the dates and for
the periods indicated.
Selected consolidated financial At June 30,
condition data: 2004 2003 2002 2001 2000
(In thousands)
Total amount of:
Assets $135,892 $136,408 $130,303 $133,097 $125,147
Interest-bearing deposits 8,821 10,398 11,726 8,024 1,485
Investment securities available for sale -
at market 4,402 1,502 2,047 1,000 2,875
Mortgage-backed securities available
for sale - at market 630 832 1,551 7,799 9,135
Mortgage-backed securities held to
maturity - at cost 395 651 1,606 3,721 4,189
Loans receivable - net (1) 114,505 115,966 107,055 107,467 102,939
Deposits 105,446 104,351 95,542 91,018 77,987
Advances from the FHLB and other
borrowings 12,669 13,891 17,553 24,732 30,412
Shareholders' equity, restricted 16,738 16,918 16,541 16,604 16,265
For the year ended June 30,
Summary of earnings: 2004 2003 2002 2001 2000
(In thousands, except per share data)
Interest income $ 6,360 $ 6,758 $ 8,005 $ 9,549 $ 8,323
Interest expense 2,487 2,966 3,893 5,498 4,754
-------- -------- -------- -------- --------
Net interest income 3,873 3,792 4,112 4,051 3,569
Provision for losses on loans 25 131 150 201 106
-------- -------- -------- -------- --------
Net interest income after provision
for losses on loans 3,848 3,661 3,962 3,850 3,463
Other income 616 1,038 536 262 179
General, administrative and other
expense 3,423 3,133 2,812 2,451 2,262
-------- -------- -------- -------- --------
Earnings before income taxes 1,041 1,566 1,686 1,661 1,380
Federal income taxes 354 534 573 560 458
-------- -------- -------- -------- --------
Net earnings $ 687 $ 1,032 $ 1,113 $ 1,101 $ 922
======== ======== ======== ======== ========
Earnings per share
Basic $ .59 $ .88 $ .94 $ .86 $ .69
======== ======== ======== ======== ========
Diluted $ .58 $ .86 $ .92 $ .86 $ .68
======== ======== ======== ======== ========
----------
(1) Includes loans held for sale.
3
Selected financial ratios At or for the year ended June 30,
and other data: 2004 2003 2002 2001 2000
Return on average assets 0.50% 0.77% 0.84% 0.86% 0.77%
Return on average equity 4.05 6.17 6.75 6.69 6.07
Interest rate spread 2.79 2.62 2.85 2.75 2.51
Net interest margin 2.97 2.95 3.22 3.26 3.06
General, administrative and other
expense to average assets 2.50 2.34 2.13 1.91 1.90
Average equity to average
assets 12.40 12.50 12.50 12.81 12.75
Nonperforming and impaired assets
to total assets 0.84 1.76 0.48 0.08 0.18
Nonperforming and impaired loans to
total loans 0.98 1.88 0.58 0.10 0.22
Delinquent loans to total loans (1) 1.18 1.28 2.57 0.96 0.61
Allowance for loan losses to
total loans 0.67 0.68 0.66 0.52 0.36
Allowance for loan losses to
nonperforming and impaired loans 68.09 36.45 114.63 537.14 166.67
Average interest-earning assets
to average interest-bearing liabilities 109.27 114.63 112.05 111.49 113.53
Dividend payout ratio 70.34 44.89 39.89 41.86 49.28
Number of full service offices (2) 3 3 3 2 2
----------
(1) Delinquent loans are loans as to which a scheduled payment has not been
made within 30 days after the due date.
(2) The Bank's third full service office opened on July 3, 2002.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
GENERAL
--------------------------------------------------------------------------------
FFD was incorporated in 1996 for the purpose of owning all of First Federal's
outstanding stock after the conversion. As a result, the discussion that follows
focuses on First Federal's financial condition and results of operations. The
following discussion and analysis of the financial condition and results of
operations of FFD and First Federal should be read in conjunction with and with
reference to the consolidated financial statements, and the notes thereto,
included in this Annual Report.
CHANGES IN FINANCIAL CONDITION FROM JUNE 30, 2003 TO JUNE 30, 2004
--------------------------------------------------------------------------------
The Corporation's assets at June 30, 2004, totaled $135.9 million, a $516,000,
or 0.3%, decrease from the total at June 30, 2003. This decrease was comprised
primarily of a $1.6 million decrease in loans held for sale, partially offset by
a $1.0 million net increase in cash, interest-bearing deposits, mortgage backed
securities and investment securities.
Cash and interest-bearing deposits totaled $10.8 million at June 30, 2004, a
decrease of $1.4 million, or 11.6%, from June 30, 2003. Investment securities
totaled $4.4 million at June 30, 2004, an increase of $2.9 million. Maturities
and calls of investment securities totaling $2.5 million were offset by
purchases of $5.5 million of U. S. Government agency securities.
Mortgage-backed securities totaled $1.0 million at June 30, 2004, a $458,000, or
30.9%, decrease from the total at June 30, 2003, due primarily to principal
repayments. Repayments of mortgage-backed securities totaled $442,000.
Loans receivable, including loans held for sale, totaled $114.5 million at June
30, 2004, a decrease of $1.5 million, or 1.3%, from the June 30, 2003 total.
Loan disbursements during fiscal 2004 totaled $69.8 million, which were
substantially offset by principal repayments of $41.6 million and loans sold in
the secondary market totaling $29.8 million. Loan origination volume during the
year ended June 30, 2004, decreased by $24.8 million, or 26.2%, compared to
fiscal 2003. During fiscal 2004, management continued to meet consumer
preference for fixed-rate loans in the prevailing low interest rate environment,
by selling lower-yielding fixed-rate mortgage loans in the secondary market. The
volume of loans sold during fiscal 2004 decreased by $14.4 million, or 32.6%,
from fiscal 2003. As a result, the portfolio of loans secured by one- to
four-family residential real estate declined by $5.7 million to $57.0 million at
June 30, 2004. Loans secured by nonresidential real estate and land totaled
$35.0 million at June 30, 2004, compared to $28.5 million at June 30, 2003.
Commercial loans totaled $15.4 million at June 30, 2004, compared to $19.5
million at June 30, 2003. Nonresidential real estate and commercial lending is
generally considered to involve a higher degree of risk than residential real
estate lending due to the relatively larger loan amounts and the effects of
general economic conditions on the successful operation of the related business
or income-producing properties. The Bank has endeavored to reduce such risk by
evaluating the credit history and past performance of the borrower, the quality
of the borrowers' management, the debt service ratio, the quality and
characteristics of the income stream generated by the business and the property
and appraisals supporting the property's valuation, as applicable.
The allowance for loan losses totaled $779,000 and $818,000 at June 30, 2004 and
2003, respectively, which represented .67% and .68% of total loans and 68.1% and
36.5% of nonperforming and impaired loans at those respective dates.
Nonperforming and impaired loans amounted to $1.1 million and $2.2 million at
June
5
30, 2004 and 2003, respectively. The decrease in the nonperforming and impaired
loans is due to the results of individual loan impairment testing on certain
commercial loans and improvement in the economy as of June 30, 2004, as well as
payments received to pay off loans. Management believes that the Bank's
nonperforming and impaired loans at June 30, 2004 are adequately collateralized
and no unreserved loss is anticipated on such loans. Although management
believes that the allowance for loan losses at June 30, 2004, was 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 net earnings.
Deposits totaled $105.4 million at June 30, 2004, a $1.1 million, or 1.0%,
increase over total deposits at June 30, 2003. This increase resulted primarily
from management's efforts to generate growth through advertising and pricing
strategies. Proceeds from deposit growth were used primarily to fund new loan
originations and to repay FHLB advances during the period.
FHLB advances totaled $12.7 million at June 30, 2004, a $1.2 million, or 8.8%,
decrease from June 30, 2003. The repayment of FHLB advances was funded primarily
by the increase in deposits.
Shareholders' equity totaled $16.7 million at June 30, 2004, a decrease of
$180,000, or 1.1%, from June 30, 2003 levels, as net earnings of $687,000, a
$115,000 reduction in the shares acquired by benefit plans, and $314,000 in
proceeds from the exercise of stock options, were offset by dividends paid
totaling $504,000 and purchases of treasury shares totaling $769,000.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
--------------------------------------------------------------------------------
The consolidated net earnings of FFD depend primarily on its level of net
interest income, which is the difference between interest earned on FFD's
interest-earning assets and the interest paid on interest-bearing liabilities.
Net interest income is substantially affected by FFD's interest rate spread,
which is the difference between the average yield earned on interest-earning
assets and the average rate paid on interest-bearing liabilities, as well as by
the average balance of interest-earning assets compared to interest-bearing
liabilities.
General. FFD's net earnings totaled $687,000 for the fiscal year ended June 30,
2004, a decrease of $345,000, or 33.4%, compared to fiscal 2003. The decrease in
net earnings resulted primarily from a $554,000 decrease in gain on sale of
loans and a $290,000 increase in general administrative and other expense, which
were partially offset by an $81,000 increase in net interest income, a $132,000
increase in other operating income, and a $180,000 decrease in the provision for
federal income taxes.
Net Interest Income. Total interest income decreased by $398,000, or 5.9%, to a
total of $6.4 million for the year ended June 30, 2004, compared to $6.8 million
for the fiscal year ended June 30, 2003. Interest income on loans decreased by
$330,000, or 5.2%, due primarily to a 50 basis point decrease in the average
yield, to 5.27% in fiscal 2004, which was offset slightly by a $4.2 million, or
3.8%, increase in the average loan portfolio balance outstanding year to year.
Interest income on mortgage-backed securities decreased by $41,000, or 41.4%,
due primarily to a $1.0 million, or 44.8%, decrease in the average balance
outstanding, partially offset by a 27 basis point increase in the average yield
earned on such securities, to 4.63% in fiscal 2004. Interest income on
investment securities increased by $23,000 due primarily to a 77 basis point
increase in the average yield earned on such securities, to 3.94%, which was
partially offset by a $88,000 decrease in the average balance outstanding.
Interest income on interest-bearing deposits decreased by $50,000, or 28.2%, due
primarily to a 33 basis point decrease in the average yield and a $862,000, or
7.1%, decrease in the average balance outstanding year to year. Decreases in the
average yields on interest-earning assets were due primarily to the overall
reduction in interest rates in the economy.
6
Interest expense on deposits decreased by $483,000 or 20.3%, for the year ended
June 30, 2004, compared to fiscal 2003, due primarily to a decrease in the
average cost of deposits of 65 basis points, to 1.81% for fiscal 2004, which was
partially offset by a $8.0 million, or 8.2%, increase in the average deposit
portfolio balance outstanding year to year. Decreases in the average cost of
deposits were due primarily to the overall decline in interest rates in the
economy.
Interest expense on borrowings increased by $4,000, or 0.1%, due primarily to a
16 basis point increase in the average cost of such borrowings, to 4.03% in
fiscal 2004 which was partially offset by a $478,000, or 3.2%, decrease in the
average balance of advances outstanding, The Bank elected to prepay certain
advances that could be prepaid without penalty, which were offset by additional
borrowings for match funding purposes. Additional prepayments of the remaining
higher cost advances are unlikely because of the significant penalties.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $81,000, or 2.1%, for the fiscal year ended
June 30, 2004, compared to fiscal 2003. The interest rate spread amounted to
2.79% for the fiscal year ended June 30, 2004, compared to 2.62% for fiscal
2003, while the net interest margin was 2.97% in fiscal 2004, compared to 2.95%
in fiscal 2003.
Provision for Losses on Loans. A provision for losses on loans is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical loss experience, the volume and
type of lending conducted by First Federal, the status of past due principal and
interest payments, general economic conditions, particularly as such conditions
relate to First Federal's market area, and other factors related to the
collectibility of First Federal's loan portfolio. The provision for losses on
loans totaled $25,000 for the year ended June 30, 2004, a decrease of $106,000,
or 80.9%, compared to fiscal 2003. First Federal's fiscal 2004 provision was
predicated primarily on industry loss ratio analysis applied to the loan
portfolio in accordance with Statement of Financial Accounting Standards
("SFAS") No. 5 and SFAS No. 114. There can be no assurance that the loan loss
allowance of First Federal will be adequate to cover losses on nonperforming
assets in the future.
Other Income. Other income totaled $616,000 for the fiscal year ended June 30,
2004, a decrease of $422,000, or 40.7%, from fiscal 2003. The decrease resulted
primarily from a $554,000, or 61.0%, decrease in gain on sale of loans and a
$7,000 loss on sale of real estate owned, partially offset by an increase of
$139,000 in other operating income. The decrease in gain on sale of loans was
due primarily to a $14.4 million, or 32.6%, decrease in sales volume year to
year. The increase in other operating income was due primarily to an increase in
service fee income from loans sold of $55,000 and a $21,000 increase in fees on
deposit accounts and transactions. As interest rates rise, the volume of loan
sales and the amount of gain on sale of loans is likely to decline.
General, Administrative and Other Expense. General, administrative and other
expense totaled $3.4 million for the fiscal year ended June 30, 2004, an
increase of $290,000, or 9.3%, compared to fiscal 2003. The increase resulted
primarily from a $285,000, or 22.8%, increase in employee compensation and
benefits.
The increase in employee compensation and benefits included increases of
$131,000 in wages and related benefit expenses, $31,000 in employee stock
ownership and stock option plans, and a $137,000 decrease in deferred loan
origination costs, which were partially offset by a decrease of $26,000 in the
cost of the reward and recognition and stock option restructure plans. The
increase in wages and related expenses was due to increases in staff, salaries,
and benefit plans. The increase in employee stock ownership and stock option
plans was the result of improved average stock trading prices and increased
administrative expense. The reduction in deferred loan origination costs was
related to the reduction in the number of loans originated. The decrease in the
cost of reward, recognition, and stock option restructure plans occurred because
benefits have fully vested or have been forfeited. The remaining $5,000 increase
in other operating expenses was comprised primarily of pro-rata increases
related to the Corporation's overall growth year to year
7
Federal Income Taxes. The provision for federal income taxes totaled $354,000
for the fiscal year ended June 30, 2004, a decrease of $180,000, or 33.7%,
compared to fiscal 2003. The decrease resulted primarily from a $525,000, or
33.5%, decrease in earnings before taxes. The effective tax rates were 34.0% and
34.1% for the fiscal years ended June 30, 2004 and 2003, respectively.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
--------------------------------------------------------------------------------
General. FFD's net earnings totaled $1.0 million for the fiscal year ended June
30, 2003, a decrease of $81,000, or 7.3%, compared to fiscal 2002. The decrease
in net earnings resulted primarily from a $320,000 decrease in net interest
income and a $321,000 increase in general administrative and other expense,
which were partially offset by a $502,000 increase in other income and a $39,000
decrease in the provision for federal income taxes.
Net Interest Income. Total interest income decreased by $1.2 million, or 15.6%,
to a total of $6.8 million for the year ended June 30, 2003, compared to $8.0
million for the fiscal year ended June 30, 2002. Interest income on loans
decreased by $1.0 million, or 13.9%, due primarily to a 101 basis point decrease
in the average yield, to 5.77% in fiscal 2003, which was offset slightly by a
$1.2 million, or 1.1%, increase in the average loan portfolio balance
outstanding year to year. Interest income on mortgage-backed securities
decreased by $289,000, or 74.5%, due primarily to a $5.1 million, or 69.4%,
decrease in the average balance outstanding, and an 87 basis point decrease in
the average yield earned on such securities, to 4.36% in fiscal 2003. Interest
income on investment securities increased by $95,000 due primarily to a $3.0
million increase in the average balance outstanding, which was partially offset
by a 40 basis point decrease in the average yield year to year. Interest income
on interest-bearing deposits decreased by $20,000, or 10.2%, due primarily to a
42 basis point decrease in the average yield, which was partially offset by a
$1.7 million, or 15.7%, increase in the average balance outstanding year to
year. Decreases in the average yields on interest-earning assets were due
primarily to the overall reduction in interest rates in the economy.
Interest expense on deposits decreased by $736,000 or 23.6%, for the year ended
June 30, 2003, compared to fiscal 2002, due primarily to a decrease in the
average cost of deposits of 88 basis points, to 2.46% for fiscal 2003, which was
partially offset by a $3.6 million, or 3.8%, increase in the average deposit
portfolio balance outstanding year to year. Decreases in the average cost of
deposits were due primarily to the overall decline in interest rates in the
economy.
Interest expense on borrowings decreased by $191,000, or 24.6%, due primarily to
a $5.5 million, or 26.7%, decrease in the average balance of advances
outstanding, which was partially offset by a 10 basis point increase in the
average cost of such borrowings, to 3.87% in fiscal 2003. The Bank elected to
prepay certain advances that could be prepaid without penalty. Additional
prepayments of the remaining higher cost advances are unlikely because of the
significant penalties.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $320,000, or 7.8%, for the fiscal year ended
June 30, 2003, compared to fiscal 2002. The interest rate spread amounted to
2.62% for the fiscal year ended June 30, 2003, compared to 2.85% for fiscal
2002, while the net interest margin was 2.95% in fiscal 2003, compared to 3.22%
in fiscal 2002.
Provision for Losses on Loans. A provision for losses on loans is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical loss experience, the volume and
type of lending conducted by First Federal, the status of past due principal and
interest payments, general economic conditions, particularly as such conditions
relate to First Federal's market area, and other factors related to the
collectibility of First Federal's loan portfolio. The provision for losses on
loans totaled $131,000 for the year ended June 30, 2003, a decrease of $19,000,
or 12.7%, compared
8
to fiscal 2002. First Federal's fiscal 2003 provision was predicated primarily
on the growth in the commercial and nonresidential loan portfolios and the
increase in nonperforming loans. There can be no assurance that the loan loss
allowance of First Federal will be adequate to cover losses on nonperforming
assets in the future.
Other Income. Other income totaled $1.0 million for the fiscal year ended June
30, 2003, an increase of $502,000, or 93.7%, over fiscal 2002. The increase
resulted primarily from a $688,000, or 312.7%, increase in gain on sale of
loans, partially offset by decreases of $119,000, or 47.8%, in other operating
income and the absence of $67,000 in gain on sale of mortgage-backed securities.
The increase in gain on sale of loans was due primarily to a $25.0 million, or
129.9%, increase in sales volume year to year. The decrease in other operating
income was due primarily to an increase in amortization of mortgage servicing
rights of $135,000 and a $61,000 impairment charge recorded on the mortgage
servicing rights asset based upon a fair value analysis of this asset. These
charges were partially offset by an increase of $85,000 in fees on deposit
accounts and transactions. As interest rates rise, the volume of loan sales and
the amount of gain on sale of loans is likely to decline.
General, Administrative and Other Expense. General, administrative and other
expense totaled $3.1 million for the fiscal year ended June 30, 2003, an
increase of $321,000, or 11.4%, compared to fiscal 2002. The increase resulted
primarily from a $226,000, or 28.0%, increase in other operating expense, a
$102,000, or 35.8%, increase in occupancy and equipment, and $41,000, or 27.3%,
increase in franchise taxes, which were partially offset by a $51,000, or 15.9%,
decrease in data processing.
The increase in other operating expenses included increases of $45,000 in check
printing charges, and $35,000 in NOW account expense, primarily related to the
Bank's growth in deposits and home equity loans, costs incurred in connection
with the opening of the new Boulevard office, including increases of $39,000 in
advertising expense, $27,000 in stationery and office supplies and $14,000 in
legal fees. The remaining $66,000 increase in other operating expense was
comprised primarily of pro-rata increases related to the Corporation's overall
growth year to year. The increase in occupancy and equipment expense was due
primarily to an increase in depreciation expense related to the new office that
opened in July of 2002. The increase in franchise taxes was due to the effect of
refunds received in fiscal 2002. The decrease in data processing fees resulted
from nonrecurring costs associated with the data conversion in fiscal 2002.
Federal Income Taxes. The provision for federal income taxes totaled $534,000
for the fiscal year ended June 30, 2003, a decrease of $39,000, or 6.8%,
compared to fiscal 2002. The decrease resulted primarily from a $120,000, or
7.1%, decrease in earnings before taxes. The effective tax rates were 34.1% and
34.0% for the fiscal years ended June 30, 2003 and 2002, respectively.
9
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
--------------------------------------------------------------------------------
The following table sets forth certain information relating to FFD's average
balance sheet and reflects the average yield on interest-earning assets and the
average cost of interest-bearing liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average
monthly balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances, which include nonaccruing loans in the loan portfolio, net
of the allowance for loan losses.
Year ended June 30,
2004 2003 2002
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
(Dollars in thousands)
Interest-earning assets:
Loans receivable $114,573 $6,043 5.27% $110,406 $6,373 5.77% $109,208 $7,406 6.78%
Mortgage-backed securities 1,252 58 4.63 2,270 99 4.36 7,413 388 5.23
Investment securities 3,347 132 3.94 3,435 109 3.17 392 14 3.57
Interest-bearing deposits
and other 11,360 127 1.12 12,222 177 1.45 10,563 197 1.87
-------- ------ ------ -------- ------ ------ -------- ------ ------
Total interest-earning assets 130,532 6,360 4.87 128,333 6,758 5.27 127,576 8,005 6.27
Non-interest-earning assets 6,220 5,382 4,400
-------- -------- --------
Total assets $136,752 $133,715 $131,976
======== ======== ========
Interest-bearing liabilities:
Deposits $104,872 1,899 1.81 $ 96,886 2,382 2.46 $ 93,311 3,118 3.34
Borrowings 14,588 588 4.03 15,066 584 3.87 20,548 775 3.77
-------- ------ ------ -------- ------ ------ -------- ------ ------
Total interest-bearing
liabilities 119,460 2,487 2.08 111,952 2,966 2.65 113,859 3,893 3.42
------ ------ ------ ------ ------
Non-interest-bearing liabilities 334 5,050 1,620
-------- -------- --------
Total liabilities 119,794 117,002 115,479
Shareholders' equity 16,958 16,713 16,497
-------- -------- --------
Total liabilities and
shareholders' equity $136,752 $133,715 $131,976
======== ======== ========
Net interest income $3,873 $3,792 $4,112
====== ====== ======
Interest rate spread 2.79% 2.62% 2.85%
====== ====== ======
Net interest margin (net interest
income as a percent of average
interest-earning assets) 2.97% 2.95% 3.22%
====== ====== ======
Average interest-earning assets to
average interest-bearing liabilities 109.27% 114.63% 112.05%
====== ====== ======
10
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected FFD's interest income and expense during the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by prior year rate), (ii) changes in rate (changes
in rate multiplied by prior year volume) and (iii) total changes in rate and
volume. The combined effects of changes in both volume and rate, which cannot be
separately identified, have been allocated proportionately to the change due to
volume and the change due to rate.
Year ended June 30,
2004 vs. 2003 2003 vs. 2002
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest income attributable to:
Loans receivable $ 235 $(565) $(330) $ 81 $(1,114) $(1,033)
Mortgage-backed securities (46) 5 (41) (232) (57) (289)
Investment securities (3) 26 23 97 (2) 95
Interest-bearing deposits and other (12) (38) (50) 29 (49) (20)
----- ----- ----- ----- ------- -------
Total interest income 174 (572) (398) (25) (1,222) (1,247)
----- ----- ----- ----- ------- -------
Interest expense attributable to:
Deposits 185 (668) (483) 114 (850) (736)
Borrowings (19) 23 4 (211) 20 (191)
----- ----- ----- ----- ------- -------
Total interest expense 166 (645) (479) (97) (830) (927)
----- ----- ----- ----- ------- -------
Increase (decrease) in net interest income $ 8 $ 73 $ 81 $ 72 $ (392) $ (320)
===== ===== ===== ===== ======= =======
11
ASSET AND LIABILITY MANAGEMENT
--------------------------------------------------------------------------------
First Federal, like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As part of its effort to monitor and manage
interest rate risk, First Federal uses the "net interest income" ("NII") and
"net portfolio value" ("NPV") methodologies. Generally, NPV is the discounted
present value of the difference between incoming cash flows on interest-earning
and other assets and outgoing cash flows on interest-bearing and other
liabilities. Interest rate risk is estimated as the percent and dollar changes
in NII and NPV projected to occur should the yield curve instantaneously shift
up or down in a parallel fashion from its beginning or base position. The base
case rate scenario is defined by the rate environment and is held constant
throughout the simulation. Rate shock scenarios are derived by adding to or
subtracting from base case rates.
Presented below, as of June 30, 2004 and 2003, is an analysis of First Federal's
interest rate risk as measured by changes in NII and NPV for instantaneous and
sustained parallel shifts of +100, +200, +300 and -100 basis points in market
interest rates. In consideration of the interest rate environment and the
improbability of negative rate adjustments greater than 100 basis points, shocks
greater than negative 100 basis points are not presented.
June 30, 2004
Net Interest Income Net Portfolio Value
Projected Change Percent Change Percent
interest rate Estimated from change Estimated from change
scenario NII base from base value base from base
+300 $4,909 $ 903 22.54% $19,318 $2,417 14.30%
+200 4,670 664 16.57 18,742 1,842 10.90
+100 4,360 354 8.83 17,940 1,039 6.15
Base 4,006 -- -- 16,901 -- --
-100 3,609 (397) (9.91) 15,342 (1,559) (9.22)
June 30, 2003
Net Interest Income Net Portfolio Value
Projected Change Percent Change Percent
interest rate Estimated from change Estimated from change
scenario NII base from base value base from base
+300 $4,755 $ 980 25.95% $16,152 $ 3,501 27.68%
+200 4,483 708 18.74 15,337 2,687 21.24
+100 4,153 378 10.01 14,193 1,542 12.19
Base 3,775 -- -- 12,651 -- --
-100 3,400 (375) (9.94) 11,137 (1,513) (11.96)
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NII and NPV approaches. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
12
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
First Federal's principal sources of funds are deposits, proceeds from loan
sales, loan and mortgage-backed securities repayments, maturities of securities
and other funds provided by operations. First Federal also has the ability to
borrow from the FHLB of Cincinnati. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows, loan sales and loan and
mortgage-backed securities prepayments are more influenced by interest rates,
general economic conditions and competition. First Federal maintains investments
in liquid assets based upon management's assessment of (i) the need for funds,
(ii) expected deposit flows, (iii) the yields available on short-term liquid
assets and (iv) the objectives of the asset/liability management program. At
June 30, 2004, First Federal had commitments to originate loans, including
unused lines of credit, totaling $26.5 million. Management anticipates that such
loan commitments will be funded from normal cash flows from operations and
existing excess liquidity.
Cash and cash equivalents, which is a component of liquidity, is a result of the
funds used in or provided by First Federal's operating, investing and financing
activities. These activities are summarized below for the years ended June 30,
2004, 2003 and 2002:
Year ended June 30,
2004 2003 2002
(In thousands)
Net earnings $ 687 $ 1,032 $ 1,113
Adjustments to reconcile net earnings to
net cash from operating activities 1,621 (395) 42
-------- -------- --------
Net cash from operating activities 2,308 637 1,155
Net cash from investing activities (2,645) (5,956) 6,707
Net cash from financing activities (1,086) 4,346 (3,986)
-------- -------- --------
Net change in cash and cash equivalents (1,423) (973) 3,876
Cash and cash equivalents at beginning of year 12,243 13,216 9,340
-------- -------- --------
Cash and cash equivalents at end of year $ 10,820 $ 12,243 $ 13,216
======== ======== ========
13
The following table sets forth information regarding the Bank's obligations and
commitments to make future payments under contract as of June 30, 2004:
Payments due by period
Less More
than 1-3 years 3-5 years than
1 year years years 5 years Total
(In thousands)
Contractual obligations:
Advances from the Federal Home Loan Bank $ 277 $ 850 $ 7,991 $3,551 $12,669
Certificates of deposit 7 20,899 1,501 -- 48,227
Amount of commitments expiration per period
Commitments to originate loans:
Overdraft lines of credit 157 -- -- -- 157
Home equity lines of credit 10,457 -- -- -- 10,457
Commercial lines of credit 12,456 12,456
One- to four-family and multi-family loans 1,733 -- -- -- 1,733
Non-residential real estate and land loans 1,413 -- -- -- 1,413
Non mortgage loans 275 -- -- -- 275
------- ------- ------- ------ -------
Total contractual obligations $52,594 $20,013 $10,762 $4,018 $87,387
======= ======= ======= ====== =======
First Federal, a savings association, is required by applicable law and
regulation to meet certain minimum capital standards, which include a tangible
capital requirement, a core capital requirement or leverage ratio, and a
risk-based capital requirement.
The tangible capital requirement requires a savings institution to maintain
"tangible capital" of not less than 1.5% of the institution's adjusted total
assets. Tangible capital is defined in OTS regulations as core capital minus any
intangible assets.
"Core capital" is comprised of common shareholders' equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits of mutual associations. OTS regulations generally require savings
institutions to maintain core capital of at least 4% of the institution's total
assets, except for those institutions with the highest examination rating and
acceptable levels of risk.
OTS regulations require that savings institutions maintain "risk-based capital"
in an amount not less than 8% of risk-weighted assets. Risk-based capital is
defined as core capital plus certain additional items of capital, which for
First Federal includes a general and specific loan loss allowance of 779,000 at
June 30, 2004.
First Federal exceeded all of its capital requirements and met the definition of
"well-capitalized" under OTS regulations at June 30, 2004. The following table
summarizes First Federal's regulatory capital requirements and regulatory
capital at June 30, 2004:
Excess over current
Regulatory capital Current requirement requirement
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Tangible capital $15,883 11.70% $2,034 1.50% $13,849 10.20%
Core capital 15,883 11.70% 5,425 4.00% 10,458 7.70%
Risk-based capital 16,314 17.40% 7,515 8.00% 8,799 9.40%
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
FFD Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of FFD Financial Corporation as of June 30, 2004 and 2003, and the related
consolidated statements of earnings, comprehensive income, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 2004.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FFD Financial
Corporation as of June 30, 2004 and 2003, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 2004, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Xxxxx Xxxxxxxx LLP
Cincinnati, Ohio
September 3, 2004
15
FFD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2004 and 2003
(In thousands, except share data)
ASSETS 2004 2003
Cash and due from banks $ 1,999 $ 1,845
Interest-bearing deposits in other financial institutions 8,821 10,398
--------- ---------
Cash and cash equivalents 10,820 12,243
Investment securities designated as available for sale - at market 4,402 1,502
Mortgage-backed securities designated as available for sale - at market 630 832
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $411 and $687 as of June 30,
2004 and 2003, respectively 395 651
Loans receivable - net 114,288 114,199
Loans held for sale - at lower of cost or market 217 1,767
Real estate acquired through foreclosure -- 161
Office premises and equipment - at depreciated cost 2,028 2,134
Stock in Federal Home Loan Bank - at cost 2,047 1,967
Accrued interest receivable 381 386
Prepaid expenses and other assets 275 244
Prepaid federal income taxes 409 322
--------- ---------
Total assets $ 135,892 $ 136,408
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 105,446 $ 104,351
Advances from the Federal Home Loan Bank 12,669 13,891
Accrued interest payable 97 96
Other liabilities 719 935
Deferred federal income taxes 223 217
--------- ---------
Total liabilities 119,154 119,490
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 7,910 7,889
Retained earnings - restricted 12,385 12,202
Accumulated comprehensive income (loss); unrealized gains (losses) on
securities designated as available for sale, net of related tax effects (66) 8
Shares acquired by stock benefit plans (444) (559)
Less 266,757 and 241,753 treasury shares at June 30, 2004 and 2003,
respectively - at cost (3,047) (2,622)
--------- ---------
Total shareholders' equity 16,738 16,918
--------- ---------
Total liabilities and shareholders' equity $ 135,892 $ 136,408
========= =========
The accompanying notes are an integral part of these statements.
16
FFD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30, 2004, 2003 and 2002
(In thousands, except per share data)
2004 2003 2002
Interest income
Loans $ 6,043 $6,373 $ 7,406
Mortgage-backed securities 58 99 388
Investment securities 132 109 14
Interest-bearing deposits and other 127 177 197
------- ------ -------
Total interest income 6,360 6,758 8,005
Interest expense
Deposits 1,899 2,382 3,118
Borrowings 588 584 775
------- ------ -------
Total interest expense 2,487 2,966 3,893
------- ------ -------
Net interest income 3,873 3,792 4,112
Provision for losses on loans 25 131 150
------- ------ -------
Net interest income after provision for losses on loans 3,848 3,661 3,962
Other income
Gain on sale of loans 354 908 220
Loss on sale of real estate acquired through foreclosure (7) -- --
Gain on sale of mortgage-backed securities designated
as available for sale -- -- 67
Other operating 269 130 249
------- ------ -------
Total other income 616 1,038 536
General, administrative and other expense
Employee compensation and benefits 1,537 1,252 1,249
Occupancy and equipment 391 387 285
Franchise taxes 210 191 150
Data processing 285 269 320
Other operating 1,000 1,034 808
------- ------ -------
Total general, administrative and other expense 3,423 3,133 2,812
------- ------ -------
Earnings before income taxes 1,041 1,566 1,686
Federal income taxes
Current 311 520 598
Deferred 43 14 (25)
------- ------ -------
Total federal income taxes 354 534 573
------- ------ -------
NET EARNINGS $ 687 $1,032 $ 1,113
======= ====== =======
EARNINGS PER SHARE
Basic $ .59 $ .88 $ .94
======= ====== =======
Diluted $ .58 $ .86 $ .92
======= ====== =======
The accompanying notes are an integral part of these statements.
17
FFD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended June 30, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
Net earnings $ 687 $ 1,032 $ 1,113
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits) of $(38), $(5)
and $4 in 2004, 2003 and 2002, respectively (74) (11) 8
Reclassification adjustment for realized gains included in
earnings, net of taxes of $23 in 2002 -- -- (44)
----- ------- -------
Comprehensive income $ 613 $ 1,021 $ 1,077
===== ======= =======
Accumulated comprehensive income (loss) $ (66) $ 8 $ 19
===== ======= =======
The accompanying notes are an integral part of these statements.
18
FFD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 2004, 2003 and 2002
(In thousands, except per share data)
Unrealized
gains (losses) Shares
on securities acquired by
Additional designated stock Treasury
Common paid-in Retained as available benefit shares-
stock capital earnings for sale plans at cost Total
Balance at July 1, 2001 $ -- $ 7,861 $ 10,962 $ 55 $ (852) $ (1,422) $ 16,604
Net earnings for the year ended June 30, 2002 -- -- 1,113 -- -- -- 1,113
Purchase of treasury shares -- -- -- -- -- (936) (936)
Amortization expense of stock benefit plans -- 16 -- -- 175 -- 191
Unrealized losses on securities designated as
available for sale, net of related tax effects -- -- -- (36) -- -- (36)
Exercise of stock options -- (16) -- -- -- 67 51
Dividends of $.375 per share -- -- (446) -- -- -- (446)
-------- -------- -------- ------ -------- -------- --------
Balance at June 30, 2002 -- 7,861 11,629 19 (677) (2,291) 16,541
Net earnings for the year ended June 30, 2003 -- -- 1,032 -- -- -- 1,032
Purchase of treasury shares -- -- -- -- -- (380) (380)
Amortization expense of stock benefit plans -- 39 -- -- 118 -- 157
Unrealized losses on securities designated as
available for sale, net of related tax effects -- -- -- (11) -- -- (11)
Exercise of stock options -- (11) -- -- -- 49 38
Dividends of $.395 per share -- -- (459) -- -- -- (459)
-------- -------- -------- ------ -------- -------- --------
Balance at June 30, 2003 -- 7,889 12,202 8 (559) (2,622) 16,918
Net earnings for the year ended June 30, 2004 -- -- 687 -- -- -- 687
Purchase of treasury shares -- -- -- -- (769) (769)
Amortization expense of stock benefit plans -- 51 -- -- 115 -- 166
Unrealized losses on securities designated as
available for sale, net of related tax effects -- -- -- (74) -- -- (74)
Exercise of stock options -- (30) -- -- -- 344 314
Dividends of $.415 per share -- -- (504) -- -- -- (504)
-------- -------- -------- ------ -------- -------- --------
Balance at June 30, 2004 $ -- $ 7,910 $ 12,385 $ (66) $ (444) $ (3,047) $ 16,738
======== ======== ======== ====== ======== ======== ========
19
FFD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
Cash flows from operating activities:
Net earnings for the year $ 687 $ 1,032 $ 1,113
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Amortization of premiums and discounts on investments and
mortgage-backed securities - net 5 67 47
Amortization of deferred loan origination (fees) costs 39 (24) (16)
Depreciation and amortization 187 201 127
Provision for losses on loans 25 131 150
Gain on sale of loans (62) (443) (18)
Loans originated for sale in the secondary market (28,202) (45,602) (19,307)
Proceeds from sale of mortgage loans in the secondary market 29,814 44,615 19,228
Loss on sale of real estate acquired through foreclosure 7 -- --
Gain on sale of mortgage-backed securities designated as
available for sale -- -- (67)
Amortization expense of stock benefit plans 166 157 191
Federal Home Loan Bank stock dividends (80) (82) (99)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 5 68 (3)
Prepaid expenses and other assets (24) 44 (83)
Other liabilities (216) 522 16
Accrued interest payable 1 (4) (47)
Federal income taxes
Current (87) (59) (52)
Deferred 43 14 (25)
-------- -------- --------
Net cash provided by operating activities 2,308 637 1,155
Cash flows provided by (used in) investing activities:
Purchase of investment securities designated as available for sale (5,500) (7,510) (2,050)
Proceeds from maturity of investment securities 2,500 8,000 1,000
Purchase of mortgage-backed securities designated as available for sale -- (956) --
Proceeds from sale of mortgage-backed securities designated
as available for sale -- -- 5,107
Principal repayments on mortgage-backed securities 442 2,602 3,223
Loan principal repayments 41,633 41,319 32,238
Loan disbursements (41,639) (49,068) (31,863)
Purchase of office premises and equipment (81) (343) (948)
-------- -------- --------
Net cash provided by (used in) investing activities (2,645) (5,956) 6,707
-------- -------- --------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (337) (5,319) 7,862
-------- -------- --------
20
FFD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended June 30, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
Net cash provided by (used in) operating and investing
activities (subtotal brought forward) $ (337) $ (5,319) $ 7,862
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,095 8,809 4,524
Proceeds from Federal Home Loan Bank advances 1,525 -- 11,000
Repayments of Federal Home Loan Bank advances (2,747) (3,662) (18,179)
Proceeds from exercise of stock options 314 38 51
Purchase of treasury shares (769) (380) (936)
Cash dividends paid on common stock (504) (459) (446)
-------- -------- --------
Net cash provided by (used in) financing activities (1,086) 4,346 (3,986)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,423) (973) 3,876
Cash and cash equivalents at beginning of year 12,243 13,216 9,340
-------- -------- --------
Cash and cash equivalents at end of year $ 10,820 $ 12,243 $ 13,216
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 390 $ 600 $ 250
======== ======== ========
Interest on deposits and borrowings $ 2,486 $ 2,970 $ 3,940
======== ======== ========
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as
available for sale, net of applicable tax effects $ (74) $ (11) $ (36)
======== ======== ========
Recognition of mortgage servicing rights in accordance
with SFAS No. 140 $ 292 $ 465 $ 202
======== ======== ========
Transfers from loans to real estate acquired through foreclosure $ -- $ 161 $ --
======== ======== ========
Loans originated upon sale of real estate acquired through
foreclosure $ 147 $ -- $ --
======== ======== ========
The accompanying notes are an integral part of these statements.
21
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FFD Financial Corporation (the "Corporation") is a savings and loan
holding company whose activities are primarily limited to holding the
stock of its wholly-owned subsidiary, First Federal Community Bank (the
"Bank"). The Bank conducts a general banking business in north central
Ohio which consists of attracting deposits from the general public and
applying those funds to the origination of loans for residential, consumer
and nonresidential purposes. The Bank's profitability is significantly
dependent on net interest income, which is the difference between interest
income generated from interest-earning assets (i.e. loans and investments)
and the interest expense paid on interest-bearing liabilities (i.e.
customer deposits and borrowed funds). Net interest income is affected by
the relative amount of interest-earning assets and interest-bearing
liabilities and the interest received or paid on these balances. The level
of interest rates paid or received by the Bank can be significantly
influenced by a number of environmental factors, such as governmental
monetary policy, that are outside of management's control.
The consolidated financial information presented herein has been prepared
in accordance with accounting principles generally accepted in the United
States of America ("U. S. GAAP") and general accounting practices within
the financial services industry. In preparing consolidated financial
statements in accordance with U. S. GAAP, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from such estimates.
A summary of significant accounting policies which have been consistently
applied in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Corporation, the Bank, and the Bank's wholly-owned subsidiary, Dover
Service Corporation ("Dover"). At June 30, 2004 and 2003, Dover's
principal assets consisted of an investment in the stock of the Bank's
data processor and a deposit account in the Bank. All intercompany
balances and transactions have been eliminated in the accompanying
consolidated financial statements.
2. Investment Securities and Mortgage-backed Securities
----------------------------------------------------
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
115 "Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 requires that investments be categorized as held-to-maturity,
trading, or available for sale. Securities classified as held-to-maturity
are carried at cost only if the Corporation has the positive intent and
ability to hold these securities to maturity. Trading securities and
securities designated as available for sale are carried at fair value with
resulting unrealized gains or losses recorded to operations or
shareholders' equity, respectively.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
22
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable
----------------
Loans are stated at the principal balance outstanding, reduced by deferred
loan origination fees and the allowance for loan losses. Interest is
accrued as earned unless the collectibility of the loan is in doubt.
Interest on loans that are contractually past due is charged off, or an
allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's
judgment, the borrower's ability to make periodic interest and principal
payments has returned to normal, in which case the loan is returned to
accrual status. If the ultimate collectibility of the loan is in doubt, in
whole or in part, all payments received on nonaccrual loans are applied to
reduce principal until such doubt is eliminated.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balance of the related loan. At June 30, 2004
and 2003, loans held for sale were carried at cost.
The Bank retains the servicing on loans sold and agrees to remit to the
investor loan principal and interest at agreed-upon rates. The Bank
recognizes rights to service mortgage loans for others pursuant to SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." In accordance with SFAS No. 140, an
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained must allocate some of the cost of the loans to
the mortgage servicing rights.
Capitalized mortgage servicing rights and capitalized excess servicing
receivables are required to be assessed for impairment. Impairment is
measured based on fair value. The mortgage servicing rights recorded by
the Bank were segregated into pools for valuation purposes, using as
pooling criteria the loan term and coupon rate. Once pooled, each grouping
of loans was evaluated on a discounted earnings basis to determine the
present value of future earnings that a purchaser could expect to realize
from each portfolio. Earnings were projected from a variety of sources
including loan servicing fees, interest earned on float, net interest
earned on escrows, miscellaneous income, and costs to service the loans.
The present value of future earnings is the "economic" value for the pool,
i.e., the net realizable present value to an acquirer of the acquired
servicing.
The Bank recorded amortization related to mortgage servicing rights
totaling approximately $175,000, $174,000 and $39,000 for the fiscal years
ended June 30, 2004, 2003 and 2002, respectively. Additionally, the Bank
recovered previously recorded impairment charges on mortgage servicing
rights totaling $13,000 in the fiscal year ended June 30, 2004. At June
30, 2004, the carrying value of the Corporation's mortgage servicing
rights, which approximated fair value was $633,000. At June 30, 2003, the
carrying value of the Corporation's mortgage servicing rights, which
approximated fair value was $517,000.
23
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loan Origination Fees
---------------------
The Bank accounts for loan origination fees in accordance with SFAS No. 91
"Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the
provisions of SFAS No. 91, origination fees received from loans, net of
certain direct origination costs, are deferred and amortized to interest
income using the level-yield method, giving effect to actual loan
prepayments. Additionally, SFAS No. 91 generally limits the definition of
loan origination costs to the direct costs attributable to originating a
loan, i.e., principally actual personnel costs. Fees received for loan
commitments that are expected to be drawn upon, based on the Bank's
experience with similar commitments, are deferred and amortized over the
life of the loan using the level-yield method. Fees for other loan
commitments are deferred and amortized over the loan commitment period on
a straight-line basis.
5. Allowance for Loan Losses
-------------------------
It is the Bank's policy to provide valuation allowances for estimated
losses on loans based on past loan loss experience, changes in the
composition of the loan portfolio, trends in the level of delinquent and
problem loans, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral and current and
anticipated economic conditions in the primary lending area. When the
collection of a loan becomes doubtful, or otherwise troubled, the Bank
records a charge-off equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans and
major lending areas are reviewed periodically to determine potential
problems at an early date. The allowance for loan losses is increased by
charges to earnings and decreased by charge-offs (net of recoveries).
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which requires that
impaired loans be measured based upon the present value of expected future
cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral if the loan is collateral dependent.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Bank considers
its investment in one- to four-family residential loans and consumer
installment loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. With respect to the Bank's
investment in nonresidential, commercial and multi-family residential real
estate loans, and its evaluation of impairment thereof, such loans are
generally collateral-dependent and, as a result, are carried as a
practical expedient at the lower of cost or fair value.
Collateral-dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
24
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
-------------------------
The Bank's impaired loan information is as follows at June 30:
2004 2003
(In thousands)
Impaired loans with related allowance $774 $2,244
Impaired loans with no related allowance -- --
---- ------
Total impaired loans $774 $2,244
==== ======
The Bank's average balance of impaired loans was $929,000 in fiscal 2004.
Interest income recognized on impaired loans totaled $49,000 and $100,000
for the fiscal years ended June 30, 2004 and 2003, respectively. The Bank
allocated $348,000 of its general valuation allowance to the impaired
loans at June 30, 2004.
6. Real Estate Acquired through Foreclosure
----------------------------------------
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated
selling expenses at the date of acquisition. Real estate loss provisions
are recorded if the properties' fair value subsequently declines below the
value determined at the recording date. In determining the lower of cost
or fair value at acquisition, costs relating to development and
improvement of property are capitalized. Costs relating to holding real
estate acquired through foreclosure, net of rental income, are charged
against earnings as incurred.
7. Office Premises and Equipment
-----------------------------
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line method
over the useful lives of the assets, estimated to be between twenty and
thirty years for buildings, ten to thirty years for building improvements
and five to ten years for furniture and equipment. An accelerated method
is used for tax reporting purposes.
8. Federal Income Taxes
--------------------
The Corporation accounts for federal income taxes pursuant to SFAS No.
109, "Accounting for Income Taxes." In accordance with SFAS No. 109, a
deferred tax liability or deferred tax asset is computed by applying the
current statutory tax rates to net taxable or deductible temporary
differences between the tax basis of an asset or liability and its
reported amount in the consolidated financial statements that will result
in net taxable or deductible amounts in future periods. Deferred tax
assets are recorded only to the extent that the amount of net deductible
temporary differences or carryforward attributes may be utilized against
current period earnings, carried back against prior years' earnings,
offset against taxable temporary differences reversing in future periods,
or utilized to the extent of management's estimate of future taxable
income. A valuation allowance is provided for deferred tax assets to the
extent that the value of net
25
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Federal Income Taxes (continued)
--------------------
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank
stock dividends, mortgage servicing rights, general loan loss allowances,
percentage of earnings bad debt deductions and certain components of
retirement expense. A temporary difference is also recognized for
depreciation expense computed using accelerated methods for federal income
tax purposes.
9. Benefit Plans
-------------
The Corporation has an Employee Stock Ownership Plan ("ESOP"), which
provides retirement benefits for substantially all employees who have
completed one year of service and have attained the age of 21. The
Corporation accounts for the ESOP in accordance with Statement of Position
("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans."
SOP 93-6 requires the measure of compensation expense recorded by
employers to equal the fair value of ESOP shares allocated to participants
during a fiscal year. Expense recognized related to the ESOP totaled
approximately $191,000, $167,000 and $155,000 for the fiscal years ended
June 30, 2004, 2003 and 2002, respectively.
Additionally, during fiscal 1997, the Bank adopted a Recognition and
Retention Plan ("RRP"). The Bank funded the RRP through the purchase of
40,600 shares of the Corporation's common stock in the open market. The
Bank has awarded 30,871 shares under the RRP which vest over a five year
period. A provision of $7,000, $10,000 and $32,000 related to the RRP was
charged to expense for the fiscal years ended June 30, 2004, 2003 and
2002, respectively.
10. Earnings Per Share
------------------
Basic earnings per share is computed based upon weighted-average common
shares outstanding less shares in the ESOP which are unallocated and not
committed to be released. Weighted-average shares outstanding gives effect
to a reduction for 39,513, 52,687 and 65,861 unallocated shares held by
the ESOP for the fiscal years ended June 30, 2004, 2003 and 2002,
respectively. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common
shares to be issued under the Corporation's stock option plan. The
computations are as follows:
2004 2003 2002
Weighted-average common shares
outstanding (basic) 1,162,085 1,167,450 1,183,697
Dilutive effect of assumed exercise
of stock options 29,016 27,290 22,862
--------- --------- ---------
Weighted-average common shares
outstanding (diluted) 1,191,101 1,194,740 1,206,559
========= ========= =========
26
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Stock Option Plan
-----------------
The FFD Financial Corporation 1996 Stock Option and Incentive Plan (the
"Plan") provides for the issuance of 169,838 adjusted shares of authorized
but unissued shares of common stock.
The Corporation accounts for the Plan in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may
use, which measures compensation cost at the grant date based on the fair
value of the award. Compensation is then recognized over the service
period, which is usually the vesting period. Alternatively, SFAS No. 123
permits entities to continue to account for stock options and similar
equity instruments under Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion No. 25 are required to make
pro forma disclosures of net earnings and earnings per share, as if the
fair value-based method of accounting defined in SFAS No. 123 had been
applied.
During fiscal 2001, the Corporation canceled and reissued grants of stock
options to certain option grant holders. The Corporation recorded expense
related to these grants totaling $3,000, $26,000 and $24,000 in fiscal
2004, 2003 and 2002, respectively.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its Plan. Accordingly, no compensation cost has been
recognized with respect to original grants of shares under the Plan. Had
compensation cost for the Plan been determined based on the fair value at
the grant date in a manner consistent with the accounting method utilized
in SFAS No. 123, then the Corporation's consolidated net earnings and
earnings per share for the fiscal years ended June 30, 2004, 2003 and
2002, would have been reduced to the pro forma amounts indicated below:
2004 2003 2002
Net earnings (In thousands) As reported $687 $1,032 $1,113
==== ====== ======
Pro-forma $654 $1,021 $1,095
==== ====== ======
Earnings per share
Basic As reported $.59 $ .88 $ .94
==== ====== ======
Pro-forma $.56 $ .87 $ .92
==== ====== ======
Diluted As reported $.58 $ .86 $ .92
==== ====== ======
Pro-forma $.55 $ .85 $ .90
==== ====== ======
27
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Stock Option Plan (continued)
-----------------------------
The fair value of each option grant is estimated on the date of grant
using the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in fiscal 2004, 2003 and
2002: dividend yield of 3.0%, 2.8% and 3.5%; expected volatility of 38.2%,
31.6% and 36.7%; a risk-free interest rate of 4.3%, 4.1% and 3.0%,
respectively, and an expected life of ten years for all grants.
A summary of the status of the Corporation's stock option plan as of June
30, 2004, 2003 and 2002, and changes during the years then ended are
presented below:
2004 2003 2002
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of year 115,183 $ 9.47 104,385 $ 9.25 108,563 $ 9.22
Granted 4,500 14.87 14,920 10.94 2,000 12.00
Exercised (28,365) 9.15 (4,122) 9.17 (5,578) 9.14
Forfeited (1,320) 9.54 -- -- (600) 14.59
-------- -------- -------- -------- -------- --------
Outstanding at end of year 89,998 $ 9.84 115,183 $ 9.47 104,385 $ 9.25
======== ======== ======== ======== ======== ========
Options exercisable at year-end 68,755 $ 9.33 91,809 $ 9.22 90,604 $ 9.21
======== ======== ======== ======== ======== ========
Weighted-average fair value of
options granted during the year $ 4.36 $ 3.92 $ 3.59
======== ======== ========
The following information applies to options outstanding at June 30, 2004:
Number outstanding 74,721
Range of exercise prices $8.38 - $10.10
Number outstanding 15,277
Range of exercise prices $11.17 - $14.88
Weighted-average exercise price $9.84
Weighted-average remaining contractual life in years 4.4 years
12. Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks and interest-bearing deposits in other financial
institutions with original terms to maturity of less than ninety days.
28
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value of financial instruments, both assets
and liabilities, whether or not recognized in the consolidated statement
of financial condition, for which it is practicable to estimate that
value. For financial instruments where quoted market prices are not
available, fair values are based on estimates using present value and
other valuation methods.
The methods used are greatly affected by the assumptions applied,
including the discount rate and estimates of future cash flows. Therefore,
the fair values presented may not represent amounts that could be realized
in an exchange for certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at June
30, 2004 and 2003:
Cash and cash equivalents: The carrying amounts presented in the
consolidated statements of financial condition for cash and cash
equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted
market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to four-family
residential, multi-family residential and nonresidential real
estate. These loan categories were further delineated into
fixed-rate and adjustable-rate loans. The fair values for the
resultant loan categories were computed via discounted cash flow
analysis, using current interest rates offered for loans with
similar terms to borrowers of similar credit quality. For loans on
deposit accounts and consumer and other loans, fair values were
deemed to equal the historic carrying values. The historical
carrying amount of accrued interest on loans is deemed to
approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in the
consolidated statements of financial condition is deemed to
approximate fair value.
Deposits: The fair value of NOW accounts, passbook accounts, and
money market deposits is deemed to approximate the amount payable on
demand. Fair values for fixed-rate certificates of deposit have been
estimated using a discounted cash flow calculation using the
interest rates currently offered for deposits of similar remaining
maturities.
Advances from the Federal Home Loan Bank: The fair value of these
advances is estimated using the rates currently offered for similar
advances of similar remaining maturities or, when available, quoted
market prices.
Commitments to extend credit: For fixed-rate and adjustable-rate
loan commitments, the fair value estimate considers the difference
between current levels of interest rates and committed rates. The
difference between the fair value and notional amount of outstanding
loan commitments at June 30, 2004 and 2003 was not material.
29
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
-----------------------------------
Based on the foregoing methods and assumptions, the carrying value and
fair value of the Corporation's financial instruments at June 30, 2004 and
2003 are as follows:
2004 2003
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
Cash and cash equivalents $ 10,820 $ 10,820 $ 12,243 $ 12,243
Investment securities 4,402 4,402 1,502 1,502
Mortgage-backed securities 1,025 1,041 1,483 1,519
Loans receivable 114,505 110,976 115,966 111,147
Federal Home Loan Bank stock 2,047 2,047 1,967 1,967
-------- -------- -------- --------
$132,799 $129,286 $133,161 $128,378
======== ======== ======== ========
Financial liabilities
Deposits $105,446 $101,271 $104,351 $102,609
Advances from the Federal Home Loan Bank 12,669 13,242 13,891 14,298
-------- -------- -------- --------
$118,115 $114,513 $118,242 $116,907
======== ======== ======== ========
14. Advertising
-----------
Advertising costs are expensed when incurred. The Corporation's
advertising expense for the fiscal years ended June 30, 2004, 2003 and
2002 totaled $99,000, $140,000 and $101,000, respectively.
15. Effects of Recent Accounting Pronouncements
-------------------------------------------
In March 2004, the Emerging Issues Task Force ("EITF") issued EITF 03-01
"The Meaning of Other-than-Temporary Impairment and its Application to
Certain Investments." EITF 03-01 requires that unrealized losses on
investment securities that are deemed other-than-temporary be recorded as
an adjustment to operations. The Statement applies both to securities
designated as held to maturity and those designated as available for sale.
EITF 03-01 provides that unrealized losses may be viewed as
other-than-temporary as a result not only due to deterioration of the
credit quality of the issuer, but due to changes in the interest rate
environment as well. An investor must be able to demonstrate the positive
ability and intent to hold such securities until a forecasted recovery
takes place or until maturity of the security. EITF 03-01 requires
separate disclosure related to unrealized losses for securities that have
been in an unrealized loss position for a period of less than twelve
months and for those that have been in an unrealized loss position for a
period greater than twelve months, for financial statements issued for
years ending after December 15, 2003. The loss recognition provisions of
other-than-temporary losses under EITF 03-01 are effective September 30,
2004. It is management's belief that, given the Corporation's liquidity
position, and assuming no credit quality concerns, EITF 03-01 will have no
material effect on the Corporation's financial statements.
30
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
15. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In March 2004, the Financial Accounting Standards Board (the "FASB")
issued a proposed Statement, "Share-Based Payment," that addresses the
accounting for share-based payment transactions in which an enterprise
receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of
such equity instruments. The proposed Statement would eliminate the
ability to account for share-based compensation transactions, including
stock option grants, using APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and generally would require instead that such
transactions be accounted for using a fair-value-based method. Issuance of
the final standards and adoption by the Corporation would be expected to
result in recognition of compensation expense for the effect of stock
option grants in future periods.
16. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 2004
consolidated financial statement presentation.
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities at June 30, 2004 and 2003,
are as follows:
June 30, 2004
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Available for sale:
U.S. Government agency obligations $4,499 $ -- $ (97) $4,402
====== ===== ===== ======
June 30, 2003
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Available for sale:
U.S. Government agency obligations $1,501 $ 1 $ -- $1,502
====== ===== ===== ======
The U. S. Government agency obligations designated as available for sale
at June 30, 2004, are scheduled to mature in fiscal 2013 and thereafter.
The U. S. Government agency obligations designated as available for sale
at June 30, 2003, are scheduled to mature in fiscal 2009 and thereafter.
31
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of mortgage-backed securities at June 30, 2004 and
2003, are shown below:
2004
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
Federal Home Loan Mortgage
Corporation participation certificates $ 313 $ 9 $-- $ 322
Government National Mortgage
Association participation certificates 82 7 -- 89
------ --- --- ------
Total mortgage-backed securities
held to maturity 395 16 -- 411
Available for sale:
Federal National Mortgage
Association participation certificates 424 2 (5) 421
Federal Home Loan Mortgage
Corporation participation certificates 41 -- -- 41
Government National Mortgage
Association participation certificates 167 1 -- 168
------ --- --- ------
Total mortgage-backed securities
available for sale 632 3 (5) 630
------ --- --- ------
Total mortgage-backed securities $1,027 $19 $(5) $1,041
====== === === ======
2003
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
Federal Home Loan Mortgage
Corporation participation certificates $ 491 $20 $-- $ 511
Government National Mortgage
Association participation certificates 160 16 -- 176
------ --- --- ------
Total mortgage-backed securities
held to maturity 651 36 -- 687
Available for sale:
Federal National Mortgage
Association participation certificates 490 5 (2) 493
Federal Home Loan Mortgage
Corporation participation certificates 42 1 -- 43
Government National Mortgage
Association participation certificates 288 8 -- 296
------ --- --- ------
Total mortgage-backed securities
available for sale 820 14 (2) 832
------ --- --- ------
Total mortgage-backed securities $1,471 $50 $(2) $1,519
====== === === ======
32
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The table below indicates the length of time individual securities have
been in a continuous unrealized loss position at June 30, 2004. The
Corporation had no securities in an unrealized loss position for a period
greater than 12 months at June 30, 2004.
Less than 12 months
Fair Unrealized
Description of securities value losses
(In thousands)
Investments:
Available for sale $4,402 $ 97
Mortgage-backed securities:
Available for sale 630 5
------ ----
Total temporarily impaired securities $5,302 $102
====== ====
The amortized cost of mortgage-backed securities, including those
designated as available for sale at June 30, 2004, by contractual term to
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without
prepayment penalties.
Amortized
cost
(In thousands)
Due within five years $ 54
Due within five to ten years 106
Due after ten years 867
------
Total $1,027
======
As of June 30, 2004, mortgage-backed securities and investment securities
totaling $2.8 million were pledged to secure public deposits.
33
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30, 2004 and 2003 is as
follows:
2004 2003
(In thousands)
Residential real estate
One- to four-family $ 56,972 $ 62,396
Multi-family 6,056 4,905
Nonresidential real estate and land 34,968 28,488
Commercial loans - secured 15,111 19,002
Commercial loans - unsecured 269 452
Consumer and other loans 2,769 2,352
Deferred loan origination costs 138 121
-------- --------
116,283 117,716
Less:
Undisbursed portion of loans in process 1,216 2,699
Allowance for loan losses 779 818
-------- --------
$114,288 $114,199
======== ========
The Bank's lending efforts have historically focused on one- to
four-family and multi-family residential real estate loans, which comprise
approximately $61.8 million, or 54%, of the total loan portfolio at June
30, 2004, and approximately $64.6 million, or 57%, of the total loan
portfolio at June 30, 2003. Generally, such loans have been underwritten
on the basis of no more than an 80% loan-to-value ratio, which has
historically provided the Bank with adequate collateral coverage in the
event of default. Nevertheless, the Bank, as with any lending institution,
is subject to the risk that real estate values could deteriorate in its
primary lending area of north central Ohio, thereby impairing collateral
values. However, management is of the belief that real estate values in
the Bank's primary lending area are presently stable.
As discussed previously, the Bank has sold whole loans and participating
interests in loans in the secondary market, generally retaining servicing
on the loans sold. Loans sold and serviced for others totaled
approximately $73.0 million and $58.9 million at June 30, 2004 and 2003,
respectively.
In the ordinary course of business, the Bank has made loans to some of its
directors and officers and their related business interests. In the
opinion of management, such loans are consistent with sound lending
practices and are within applicable regulatory lending limitations. The
balance of such loans totaled approximately $2.2 million at both June 30,
2004 and 2003.
34
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended June 30, 2004, 2003 and 2002:
2004 2003 2002
(In thousands)
Beginning balance $ 818 $ 713 $ 564
Provision for losses on loans 25 131 150
Loan charge-offs (64) (26) (1)
----- ----- -----
Ending balance $ 779 $ 818 $ 713
===== ===== =====
As of June 30, 2004, the Bank's allowance for loan losses was comprised
solely of a general loan loss allowance, which is includible as a
component of regulatory risk-based capital.
Nonperforming and impaired loans totaled $1.1 million, $2.2 million and
$622,000, respectively at June 30, 2004, 2003 and 2002. Interest income
that would have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $49,000, $45,000 and $13,000 for
the fiscal years ended June 30, 2004, 2003 and 2002, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at June 30, 2004 and 2003 is comprised of
the following:
2004 2003
(In thousands)
Land $ 488 $ 488
Buildings and improvements 1,446 1,424
Furniture and equipment 1,042 1,160
------ ------
2,976 3,072
Less accumulated depreciation and
amortization 948 938
------ ------
$2,028 $2,134
====== ======
35
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30, 2004
and 2003:
Deposit type and weighted- 2004 2003
average interest rate Amount % Amount %
(Dollars in thousands)
Demand deposit accounts $ 10,805 10.3% $ 7,867 7.5%
NOW accounts
2004 - 0.17% 12,888 12.2
2003 - 0.20% 12,981 12.5
Passbook
2004 - 0.84% 33,526 31.8
2003 - 0.83% 32,229 30.9
-------- ------ -------- ------
Total demand, transaction and
passbook deposits 57,219 54.3 53,077 50.9
Certificates of deposit
Original maturities of:
Less than 12 months
2004 - 0.92% 1,843 1.7
2003 - 1.29% 2,174 2.1
12 months to 29 months
2004 - 1.77% 13,002 12.3
2003 - 2.50% 14,524 13.9
30 months to 47 months
2004 - 4.09% 16,189 15.4
2003 - 4.42% 19,082 18.3
48 months to 60 months
2004 - 3.63% 2,250 2.1
2003 - 3.60% 984 0.9
Balances in excess of $100,000
2004 - 3.01% 8,525 8.1
2003 - 3.39% 7,832 7.5
Individual retirement accounts
2004 - 3.03% 6,418 6.1
2003 - 3.44% 6,678 6.4
-------- ------ -------- ------
Total certificates of deposit 48,227 45.7 51,274 49.1
-------- ------ -------- ------
Total deposit accoun105,446 $105,446 100.0% $104,351 100.0%
======== ====== ======== ======
Interest expense on deposits for the years ended June 30, 2004, 2003 and
2002 is summarized as follows:
2004 2003 2002
(In thousands)
Passbook $ 300 $ 365 $ 586
NOW accounts 20 38 36
Certificates of deposit 1,579 1,979 2,496
------ ------ ------
$1,899 $2,382 $3,118
====== ====== ======
36
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE F - DEPOSITS (continued)
Maturities of outstanding certificates of deposit at June 30, 2004 and
2003 are summarized as follows:
2004 2003
(In thousands)
Less than one year $25,827 $24,023
One year to three years 20,899 25,315
Three years to five years 1,501 1,936
------- -------
$48,227 $51,274
======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 2004
by a pledge of certain residential mortgage loans totaling $15.9 million
and the Bank's investment in Federal Home Loan Bank stock, are summarized
as follows:
Interest Maturing in year
rate ending June 30, 2004 2003
(Dollars in thousands)
1.11% - 1.77% 2004 $ -- $ 2,500
8.15% 2005 1 5
5.06% - 5.65% 2009 5,528 5,626
1.94% - 6.10% After 2009 7,140 5,760
------- -------
$12,669 $13,891
======= =======
Weighted-average interest rate 4.50% 3.95%
======= =======
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the years ended June 30, 2004, 2003 and 2002 as
follows:
2004 2003 2002
(Dollars in thousands)
Federal income taxes at statutory rate $ 354 $ 532 $ 573
Increase (decrease) in taxes resulting primarily from:
Nontaxable interest income (3) (2) (4)
Other 3 4 4
----- ----- -----
Federal income taxes per consolidated
financial statements $ 354 $ 534 $ 573
===== ===== =====
Effective tax rate 34.0% 34.1% 34.0%
===== ===== =====
37
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE H - FEDERAL INCOME TAXES (continued)
The composition of the Corporation's net deferred tax liability at June
30, 2004 and 2003 is as follows:
Taxes (payable) refundable on temporary 2004 2003
differences at statutory rate: (In thousands)
Deferred tax assets:
Retirement expense $ 88 $ 81
General loan loss allowance 265 278
Unrealized loss on securities designated as available for sale 33 --
Other 9 12
----- -----
Deferred tax assets 395 371
Deferred tax liabilities:
Deferred loan origination costs (67) (85)
Federal Home Loan Bank stock dividends (310) (283)
Difference between book and tax depreciation (26) (32)
Unrealized gains on securities designated as available
for sale -- (5)
Percentage of earnings bad debt deduction -- (8)
Mortgage servicing rights (215) (175)
----- -----
Deferred tax liabilities (618) (588)
----- -----
Net deferred tax liability $(223) $(217)
===== =====
Prior to fiscal 1997, the Bank was allowed a special bad debt deduction
generally limited to 8% of otherwise taxable income and subject to certain
limitations based on aggregate loans and deposit account balances at the
end of the year. If the amounts that qualified as deductions for federal
income taxes are later used for purposes other than bad debt losses,
including distributions in liquidation, such distributions will be subject
to federal income taxes at the then current corporate income tax rate.
Retained earnings at June 30, 2004, include approximately $1.7 million for
which federal income taxes have not been provided. The amount of
unrecognized deferred tax liability relating to the cumulative bad debt
deduction was approximately $550,000 at June 30, 2004.
The Bank was required to recapture as taxable income approximately
$281,000 of its tax bad debt reserve, which represents the post-1987
additions to the reserve, and will be unable to utilize the percentage of
earnings method to compute its bad debt deduction in the future. The Bank
has provided deferred taxes for this amount and began to amortize the
recapture of the bad debt reserve into taxable income over a six year
period finalized in fiscal 2004.
38
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE I - LOAN COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers, including commitments to extend credit. Such commitments
involve, to varying degrees, elements of credit and interest-rate risk in
excess of the amount recognized in the consolidated statement of financial
condition. The contract or notional amounts of the commitments reflect the
extent of the Bank's involvement in such financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as those utilized for on-balance-sheet
instruments.
At June 30, 2004, the Bank had outstanding commitments of approximately
$3.5 million to originate loans. Additionally, the Bank was obligated
under unused lines of credit under home equity loans totaling $10.5
million and unused lines of credit under commercial loans of $12.5
million. In the opinion of management, all loan commitments equaled or
exceeded prevailing market interest rates as of June 30, 2004, and will be
funded from normal cash flow from operations.
NOTE J - REGULATORY CAPITAL
The Bank is subject to minimum regulatory capital standards promulgated by
the Office of Thrift Supervision (the "OTS"). Failure to meet minimum
capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital
requirement and the risk-based capital requirement. The tangible capital
requirement provides for minimum tangible capital (defined as
shareholders' equity less all intangible assets) equal to 1.5% of adjusted
total assets. The core capital requirement provides for minimum core
capital (tangible capital plus certain forms of supervisory goodwill and
other qualifying intangible assets) generally equal to 4.0% of adjusted
total assets, except for those associations with the highest examination
rating and acceptable levels of risk. The risk-based capital requirement
provides for the maintenance of core capital plus general loss allowances
equal to 8.0% of risk-weighted assets. In computing risk-weighted assets,
the Bank multiplies the value of each asset on its statement of financial
condition by a defined risk-weighting factor, e.g., one- to four-family
residential loans carry a risk-weighted factor of 50%.
39
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE J - REGULATORY CAPITAL (continued)
During fiscal 2003, the Bank was notified by the OTS that it was
categorized as "well-capitalized" under the regulatory framework for
prompt corrective action. Management does not believe there have been any
changes in facts and circumstances that would change the Bank's capital
category. To be categorized as "well-capitalized" the Bank must maintain
minimum capital ratios as set forth in the following tables.
As of June 30, 2004 and 2003, management believes that the Bank met all
capital adequacy requirements to which it was subject.
As of June 30, 2004
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
greater than greater than greater than greater than
Tangible capital $15,883 11.7% or equal to $2,034 or equal to 1.5% or equal to $6,781 or equal to 5.0%
greater than greater than greater than greater than
Core capital $15,883 11.7% or equal to $5,425 or equal to 4.0% or equal to $8,137 or equal to 6.0%
greater than greater than greater than greater than
Risk-based capital $16,314 17.4% or equal to $7,515 or equal to 8.0% or equal to $9,393 or equal to 10.0%
As of June 30, 2003
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
greater than greater than greater than greater than
Tangible capital $15,666 11.5% or equal to $2,035 or equal to 1.5% or equal to $6,785 or equal to 5.0%
greater than greater than greater than greater than
Core capital $15,666 11.5% or equal to $5,428 or equal to 4.0% or equal to $8,142 or equal to 6.0%
greater than greater than greater than greater than
Risk-based capital $16,484 18.4% or equal to $7,177 or equal to 8.0% or equal to $8,971 or equal to 10.0%
The Bank's management believes that, under the current regulatory capital
regulations, the Bank will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the control
of the Bank, such as increased interest rates or a downturn in the economy
in the Bank's market area, could adversely affect future earnings and,
consequently, the ability to meet future minimum regulatory capital
requirements.
40
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE K - CONDENSED FINANCIAL STATEMENTS OF FFD FINANCIAL CORPORATION
The following condensed financial statements summarize the financial
position of FFD Financial Corporation as of June 30, 2004 and 2003, and
the results of its operations and its cash flows for the years ended June
30, 2004, 2003 and 2002.
FFD FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
June 30, 2004 and 2003
(In thousands)
ASSETS 2004 2003
Cash and due from banks $ 103 $ 407
Loan receivable from ESOP 404 523
Investment in First Federal Community Bank 15,880 15,726
Accrued interest receivable 6 12
Prepaid federal income taxes 336 239
Prepaid expenses and other assets 9 11
-------- --------
Total assets $ 16,738 $ 16,918
======== ========
SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock and additional paid-in capital $ 7,910 $ 7,889
Retained earnings 12,385 12,202
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects (66) 8
Shares acquired by stock benefit plans (444) (559)
Treasury shares - at cost (3,047) (2,622)
-------- --------
Total shareholders' equity $ 16,738 $ 16,918
======== ========
FFD FINANCIAL CORPORATION
STATEMENTS OF EARNINGS
Year ended June 30, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
Revenue
Interest income $ 6 $ 17 $ 30
Equity in earnings of subsidiary 813 1,153 1,221
----- ------- -------
Total revenue 819 1,170 1,251
General and administrative expenses 197 196 194
----- ------- -------
Earnings before income tax credits 622 974 1,057
Federal income tax credits (65) (58) (56)
----- ------- -------
NET EARNINGS $ 687 $ 1,032 $ 1,113
===== ======= =======
41
FFD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2004, 2003 and 2002
NOTE K - CONDENSED FINANCIAL STATEMENTS OF FFD FINANCIAL CORPORATION (continued)
FFD FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
Year ended June 30, 2004, 2003 and 2002
(In thousands)
2004 2003 2002
Cash provided by (used in) operating activities:
Net earnings for the year $ 687 $ 1,032 $ 1,113
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Undistributed earnings of subsidiary (86) (403) (221)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets 32 (7) (2)
Prepaid federal income taxes (97) (58) (56)
----- ------- -------
Net cash provided by operating activities 536 564 834
Cash flows provided by investing activities:
Proceeds from repayment of loan to ESOP 119 112 105
Cash flows provided by (used in) financing activities:
Proceeds from other borrowed money -- 405 --
Repayments of other borrowed money -- (405) --
Proceeds from exercise of stock options 314 38 51
Purchase of treasury shares (769) (380) (936)
Cash dividends paid on common stock (504) (459) (446)
----- ------- -------
Net cash used in financing activities (959) (801) (1,331)
----- ------- -------
Net increase (decrease) in cash and cash equivalents (304) (125) (392)
Cash and cash equivalents at beginning of year 407 532 924
----- ------- -------
Cash and cash equivalents at end of year $ 103 $ 407 $ 532
===== ======= =======
Regulations of the OTS impose limitations on the payment of dividends and
other capital distributions by savings associations. Generally, the Bank's
payment of dividends is limited, without prior OTS approval, to net
earnings for the current calendar year plus the two preceding calendar
years, less capital distributions paid over the comparable time period.
The Bank is required to submit a notice of dividends payable with the OTS
prior to payment. Insured institutions are required to file an application
with the OTS for capital distributions in excess of this limitation.
NOTE L - RELATED PARTY TRANSACTIONS
In connection with construction work performed, the Bank paid a contractor
approximately $187,000, during fiscal 2003. A principal of the contracting
company also serves as an outside director to FFD Financial Corporation.
42
FFD FINANCIAL CORPORATION
AND
FIRST FEDERAL COMMUNITY BANK
DIRECTORS AND EXECUTIVE OFFICERS
================================================================================
Board of Directors of Executive Officers of
FFD Financial Corporation and FFD Financial Corporation
First Federal Community Bank
Xxxxxxx X. Xxxxxxxx, Xx. Xxxxx X. Xxxxxx
CEO President and Chief Executive Officer
AAA of Tuscarawas County
Xxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx Executive Vice President
President
Capital Market Securities Xxxxxx X. Xxxxxx
Vice President, Treasurer and Chief
Xxxxxxx X. Xxxxx Financial Officer
President
Benchmark Construction, Inc. Xxxxxxx X. Xxxxxxx
Corporate Secretary
Xxxx X. Loader
Chairman of the Board
and Executive Officers of
Retired Senior Bank Officer First Federal Community Bank
Xxxxxx X. Xxxxxx Xxxxx X. Xxxxxx
President and Chief Executive Officer President and Chief Executive Officer
Dover Hydraulics, Inc.
Xxxxx X. Xxxxxxx
. Executive Vice President
Director Emeritus
FFD Financial Corporation and Xxxxxx X. Xxxxxx
First Federal Community Bank Vice President, Treasurer and Chief Financial
Officer
J. Xxxxxxx Xxxx
Chairman Xxxxx X'Xxxxxxx
Hanhart Agency, Inc. Senior Vice President
Xxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxxxx
Chairman - Retired Corporate Secretary
Xxxxxx-Xxxxxx Funeral Homes, Inc.
Xxx X. Xxxxxxxx, Xx. Other Officers of
Managing Officer - Retired First Federal Community Bank
First Federal Community Bank
Xxxxxxx X. Xxxxxx
Vice President
Xxxx X. Xxxxxxxx
Banking Officer
Xxxxxxxx Law-Xxxxxxxxxx
Assistant Secretary
43
SHAREHOLDER SERVICES
================================================================================
Registrar and Transfer Company serves as transfer agent and dividend
distributing agent for FFD's shares. Communications regarding change of address,
transfer of shares, lost certificates and dividends should be sent to:
Registrar and Transfer Company
00 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxxxx 00000-0000
(000) 000-0000
ANNUAL MEETING
================================================================================
The Annual Meeting of Shareholders of FFD Financial Corporation will be held on
October 19, 2004, at 1:00 p.m., Eastern Time, at the Xxxxxxx Xxxxxx, 000
Xxxxxxxxx, Xxxxx, Xxxx 00000. Shareholders are cordially invited to attend.
ANNUAL REPORT ON FORM 10-KSB
================================================================================
A copy of FFD's Annual Report on Form 10-KSB, excluding exhibits, as filed with
the Securities and Exchange Commission, will be available at no charge to
shareholders upon request to:
FFD Financial Corporation
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxx, Xxxx 00000
Attention: Secretary
44
